<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1996
REGISTRATION NO. 333-04279
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 3949 87-0531208
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
--------------
1500 SOUTH 1000 WEST
LOGAN, UTAH 84321
(801) 750-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
SCOTT R. WATTERSON
ICON HEALTH & FITNESS, INC.
1500 SOUTH 1000 WEST
LOGAN, UTAH 84321
(801) 750-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
--------------
WITH COPIES TO:
ALFRED O. ROSE ROHAN S. WEERASINGHE
ROPES & GRAY SHEARMAN & STERLING
ONE INTERNATIONAL PLACE 599 LEXINGTON AVENUE NEW
BOSTON, MASSACHUSETTS 02110 NEW YORK, NEW YORK 10022
(617) 951-7000 (212) 848-4000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities are being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, 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, please 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. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE 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, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
Please note that the name of the registrant will be changed to ICON Fitness
Corporation in connection with the consummation of the Offering.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1996
12,500,000 SHARES
[LOGO]
FITNESS CORPORATION
ICON FITNESS CORPORATION
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
-----------
Of the 12,500,000 shares of Common Stock of the Company offered, 9,600,000
shares are being offered hereby in the United States and 2,900,000 shares are
being offered in a concurrent international offering outside the United States.
The initial public offering price and the aggregate underwriting discount per
share are identical for both the U.S. Offering and the International Offering.
See "Underwriting."
Prior to this offering, there has been no public market for the Common Stock.
It currently is estimated that the initial public offering price will be
between $15.00 and $17.00 per share. For factors considered in determining the
initial public offering price, See "Underwriting."
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Company has applied for the Common Stock to be approved for listing on
the New York Stock Exchange.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share........................... $ $ $
Total(3)............................ $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) Certain Selling Stockholders have granted the Underwriters options for 30
days to purchase up to an additional 1,875,000 shares of Common Stock at
the initial public offering price per share, less the underwriting
discount, solely to cover over-allotments. If such options are exercised in
full, the total initial public offering price, underwriting discount and
proceeds to the Selling Stockholders will be $ , $ and $ ,
respectively. The Company will not receive any proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling
Stockholders" and "Underwriting."
-----------
The shares of Common Stock are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
delivery of the certificates representing such shares will be made in New York,
New York on or about , 1996, against payment therefor in immediately
available funds.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
-----------
The date of this Prospectus is , 1996.
<PAGE>
[Motion photo of a woman opening and closing the Space Saver
treadmill's fold - for - storage feature.]
----------------
Reference in this Prospectus is made to the following trademarks and brand
names: Accusmart(TM), Concor(TM), CRANK-IT-UP(TM), Cross Trainer(TM),
CrossWalk(R), Image(TM), INSYNC(TM), INTELEX(TM), JumpKing(R), Legend(TM),
ProForm(R), Pro-Tech(TM), Smart Card(TM), Space Saver(TM), Speed Link(TM),
Stowaway(TM), Triple Play(TM), WeiderCare(TM), and Cardioglide(R), which are
owned by the Company; Lifestyler(TM), which is owned by Sears Roebuck;
Weider(R), which is owned by Weider Health and Fitness and Weider Sporting
Goods, Inc. in the United States and by Weider Sports Equipment Co. Ltd. and
Weider Europe B.V. in other countries; and HealthRider(R), aeROBICRider(TM),
SportRider(TM), and LifeRider(TM), which are owned by HealthRider, Inc.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
[Motion photo of a man exercising on an upright power rower.]
[Photo of the male host of the Company's television advertising
spot for the Space Saver treadmill holding a cellular telephone
and standing next to the Space Saver treadmill.]
<PAGE>
[Photo of a woman exercising on a [Photo of a woman exercising
stair-stepping machine.] on a treadmill.]
[Photo of a man performing a bench [Photo of a woman standing next
press on a weight-lifting machine.] to a treadmill.]
[Photo of a man exercising on a [Photo of a woman exercising
treadmill.] on an upright rowing machine.]
<PAGE>
PROSPECTUS SUMMARY
In this Prospectus, all references to "IHF Capital," "IHF Holdings" and
"Health & Fitness" refer to IHF Capital, Inc., IHF Holdings, Inc. and ICON
Health & Fitness, Inc., respectively. The issuer of Common Stock is IHF
Capital. IHF Capital is a holding company whose principal asset is all of the
common stock of IHF Holdings. IHF Holdings is a holding company whose principal
asset is all of the capital stock of Health & Fitness. Concurrently with the
Offering, IHF Holdings will be merged with and into IHF Capital (the "Merger"),
with IHF Capital as the surviving corporation, which will change its name to
ICON Fitness Corporation ("ICON"). Health & Fitness and IHF Holdings have been
reporting companies under the Securities Exchange Act of 1934 (the "1934 Act").
Financial information provided herein is of IHF Capital unless otherwise noted.
Unless the context requires otherwise, all references in this Prospectus to the
"Company" with respect to periods prior to November 14, 1994 refer to the
combined operations of Weslo, Inc. ("Weslo"), ProForm Fitness Products, Inc.
("ProForm") and American Physical Therapy, Inc. ("WeiderCare") (collectively,
the "Recapitalized Companies") which were recapitalized in a transaction (the
"Recapitalization") described under "Background" and with respect to periods
after November 14, 1994 refer to the consolidated operations of IHF Capital,
IHF Holdings and Health & Fitness. Prior to the Recapitalization, the
Recapitalized Companies were wholly owned subsidiaries of Weider Health and
Fitness ("WHF"). Except as otherwise specified, references herein to years are
to the Company's fiscal year, which ends on May 31 of each calendar year. For
example, "1996" refers to the fiscal year ended May 31, 1996. Industry data is
based on the calendar year, however. The principal executive offices of the
Company are located at 1500 South 1000 West, Logan, Utah 84321. IHF Capital is
a Delaware corporation incorporated in 1994.
THE COMPANY
The Company is one of the largest manufacturers and marketers of fitness
equipment in the United States. The Company's 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. The Company's line of home
fitness aerobic products includes treadmills, upright rowers, exercise bikes,
stair steppers and cross country skiers, and its line of anaerobic fitness
products includes home gyms, weight benches and recently introduced abdominal
machines. The Company also offers trampolines, recreational sports products,
sports medicine products and fitness accessories. The Company markets the
majority of its products under the brand names ProForm, Image, Weslo, Weider,
WeiderCare, Legend, JumpKing, and Lifestyler (a private label brand
manufactured for Sears).
Founded in 1977, the Company has been a pioneer in the fitness equipment
industry since 1980 and has focused on developing innovative, high-quality
fitness products. The Company estimates that its U.S. net sales (prior to its
acquisitions of HealthRider, Inc. ("HealthRider") and certain related
manufacturing assets which were acquired in August 1996 and which are described
below under the headings "--Pursuing Growth Opportunities" and "HealthRider
Acquisition") represented approximately 30% of total wholesale domestic home
fitness equipment sales in calendar 1995. In the first quarter of fiscal 1996,
the Company began to directly market its products in Europe. In 1996, the
Company had net sales of $747.6 million versus $202.4 million in 1991,
reflecting compound annual growth in net sales of 29.9% and an increase in 1996
net sales of 40.8% from 1995 net sales of $530.8 million. The Company had a net
loss of $12.9 million and net income of $1.6 million in 1995 and 1996,
respectively. The Company believes that from 1991 to 1996 its sales growth rate
exceeded the industry growth rate due to the Company's emphasis on product
innovation through research and development, its multiple distribution channels
and its flexible manufacturing capacity.
Based on industry trade association data, the Company believes that retail
sales of fitness equipment in the U.S. grew from approximately $.4 billion in
calendar 1980 to approximately $2.6
3
<PAGE>
billion in calendar 1993, $2.8 billion in calendar 1994 and $2.9 billion in
calendar 1995. The growth of the fitness equipment industry can be attributed
primarily to increased consumer emphasis on health, fitness and weight
management. In particular, the medical community's promotion of exercise as a
means of preventing cardiovascular disease and maintaining health and the diet
industry's recognition of the need to incorporate exercise as a component of
weight management programs have prompted consumers to place greater emphasis on
health and fitness. The Company believes that several other factors have
contributed to the growth of the fitness equipment industry, including product
innovation at attractive price/value relationships, growth in infomercials and
cable television shows which promote exercise and fitness and favorable
demographic trends. The Company believes that sales of home fitness equipment
have also benefitted from consumers' desire to spend more time at home.
The Company's strategy is to expand its market leadership position by, among
other things:
DEVELOPING INNOVATIVE, HIGH-QUALITY PRODUCTS
A key element of the Company's strategy is product innovation and
development. The Company evaluates new product concepts on an ongoing basis and
seeks to respond to the desires and needs of consumers by frequently
introducing new products and repositioning old ones (i.e., selling a modified
product in a different price range). This focus on new products and innovation
enables the Company to begin selling early in a product's life cycle and, as
sales moderate, to extend product life cycles by introducing new features and
repositioning products within the Company's line of brands. In 1994, 1995 and
1996, approximately 40%, 42% and 52%, respectively, of the Company's net sales
were from products that were new, enhanced or repositioned. Recent examples of
the Company's product development include the introduction of the Space Saver
treadmill, which folds vertically for easy storage, the development of the
Cardio family of upright rowers, which significantly improved on upright rower
designs first marketed by others, and the introduction of the Company's
abdominal machines, which improved upon existing products manufactured by
others by adding a fold for storage feature. The Company believes that its
ability to identify industry trends and to quickly take a product from concept
to delivery gives it significant advantages over competitors.
TARGETING MULTIPLE DISTRIBUTION CHANNELS
The Company markets its products under multiple brands through multiple
distribution channels including specialty dealers, sporting goods chains,
department stores, discount merchants, warehouse clubs, catalogue showrooms
and, to a limited extent, infomercials and direct response marketing. The
Company believes the marketing of its products through multiple distribution
channels provides it with several competitive advantages including: (i) greater
growth and increased market access; (ii) 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; (iii) feedback on
market trends and changing consumer tastes; and (iv) reduced dependence on any
single channel of distribution.
POSITIONING ITS BRANDS
To enhance its distribution strategy, the Company targets its brands to
specific distribution channels. By marketing specific brands tailored to appeal
to different demographic groups, the Company is 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. The
Company believes its brand positioning strategy enables it to: (i) achieve
greater appeal to each market segment; (ii) promote price stability across its
product lines as brand segmentation minimizes conflicts between different
distribution channels; and (iii) provide high-quality products with the price
ranges and features desired by different demographic groups. The Company's
various brands are supported by distinct marketing and product strategies and,
in some cases, separate sales forces.
PROVIDING BROAD PRODUCT OFFERINGS
The Company manufactures and distributes a broad line of aerobic and
anaerobic fitness equipment. The Company also markets recreational sports
products, sports medicine products and
4
<PAGE>
fitness accessories. The Company offers a range of technological features, from
manual equipment to sophisticated programmable electronic products, in a
variety of price ranges. The Company's strategy of offering a broad range of
products enables it to: (i) offer categories of fitness products that appeal to
different demographic groups; (ii) respond quickly to changes in consumer
preferences and fitness trends; (iii) reduce its dependence on any single
product category; and (iv) participate in growth opportunities across a wide
variety of product categories.
UTILIZING FLEXIBLE, LOW-COST MANUFACTURING
The Company's manufacturing facilities are designed to be flexible in order
to permit the Company to shift its product mix quickly and efficiently. The
combination of internal manufacturing and assembly capacity and the Company's
access to third-party vendors has helped the Company meet customer demand on a
competitive basis. The design of these facilities provides the Company with the
flexibility to change production runs on short notice and to respond to
changing customer needs.
PURSUING GROWTH OPPORTUNITIES
The Company is seeking strategic acquisition opportunities which would
complement its existing business and provide an opportunity for growth. The
Company believes growth opportunities exist in its current domestic markets as
well as in selected international markets. The North American fitness equipment
market is significantly more developed than other markets around the world.
However, the Company began to directly market its products in the first quarter
of 1996 in the key European markets of the U.K., France, Italy and the Benelux
countries and is attempting to increase its market penetration in these and
other foreign countries. Prior to 1996, the Company had minimal foreign sales.
Net sales from international markets in the four quarters of 1996 were $6.0
million, $9.3 million, $7.8 million and $10.2 million, respectively. In
connection with the Recapitalization, the Company granted certain exclusive and
non-exclusive rights to distribute its products in certain other international
markets to Weider Sports Equipment Co., Ltd. ("Weider Sports"). In September
1996, the Company acquired certain assets and assumed certain liabilities of
the sports equipment business lines of Weider Sports (the "Weider Sports
Acquisition"). Pursuant thereto, the Company reacquired distribution rights
originally granted to Weider Sports in connection with the Recapitalization,
subject to certain rights granted by Weider Sports to third parties. The
Company also purchased certain assets of a Canadian manufacturing business
affiliated with WHF ("CanCo") (the "CanCo Acquisition"). See "Certain
Relationships and Related Transactions" "Business--Legal Proceedings--
Settlement of WHF Litigation" and "Risk Factors--Expansion Strategy."
HEALTHRIDER ACQUISITION
In keeping with its strategy of pursuing growth opportunities, in August
1996, the Company: (i) purchased substantially all the assets of HealthRider
for approximately $16.8 million and assumed (or refinanced) substantially all
the liabilities of HealthRider; (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 $10.1 million; and (iii) purchased the minority interest of
HealthRider's European subsidiary for approximately $1.4 million (of which $.7
million was paid by HealthRider, $.6 million was paid by the Company in cash
and $.1 million was paid by the Company in inventory) (together, the
"HealthRider Acquisition"). The liabilities assumed or refinanced included
capital lease obligations of approximately $19.3 million and revolving credit
borrowings and other long term debt of approximately $9.5 million. For a
description of certain accounts payable and other accrued payables the Company
assumed in connection with the HealthRider Acquisition, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
HealthRider, a designer, marketer and distributor of fitness equipment,
distributes its products through direct response advertising, through a
national network of over 200 HealthRider kiosks and
5
<PAGE>
stores in shopping malls, and through third party retailers. HealthRider had
net sales of $241.4 million and $113.2 million and net income of $13.6 million
and a net loss of $3.6 million in calendar 1995 and the first six months of
calendar 1996, respectively. HealthRider's flagship product is the HealthRider,
a brand of upright rower. In aggregate, and excluding freight related revenues,
sales of upright rowers (including the HealthRider) accounted for 94.4% and
93.4% of HealthRider's net sales in calendar 1995 and the first six months of
calendar 1996, respectively. In calendar 1995 and the first six months of
calendar 1996, purchases from Parkway accounted for approximately 73.5% and
54.3%, respectively, of total upright rower purchases by HealthRider.
HealthRider has experienced a substantial, continuing and accelerating
deterioration of its business since the beginning of calender 1996. See "Risk
Factors--Expansion Strategy; Acquisitions," and "Management's Discussion and
Analysis of Financial Condition--HealthRider," and Note 1 to the HealthRider
consolidated financial statements included herein.
As a result of the HealthRider Acquisition, the Company believes it is the
leading maker and distributor of upright rowers in the United States with its
net sales of upright rowers, calculated on a pro forma basis as if the
HealthRider Acquisition had occurred on December 31, 1994, representing over
76% of all U.S. upright rower sales in calendar 1995. The Company estimates
that its U.S. net sales, calculated on the same pro forma basis represented
approximately 39% of total wholesale domestic home fitness equipment sales in
calendar 1995. The Company believes that the HealthRider Acquisition will
strengthen its position as a leading manufacturer and marketer of fitness
equipment in the United States. The Company's plan for integrating HealthRider
into its business includes: (i) marketing a broad line of products such as
treadmills, stair steppers and cross-country skiing machines under the
HealthRider brand name through HealthRider's established distribution channels;
(ii) altering direct response advertising with respect to HealthRider products
with the goal of enhancing the Company's return on its advertising investment;
and (iii) realizing synergies from the HealthRider Acquisition by integrating
the Company's and HealthRider's operations. The Company expects to increase its
net sales as a result of the HealthRider Acquisition, but by substantially less
than 100% of HealthRider's net sales. The Company will recognize a significant,
non-recurring, non-cash increase in cost of goods sold in the second and third
quarters of 1997 not to exceed approximately $26.2 million (based on
HealthRider's inventory at June 30, 1996) related to the fact that the
Company's purchase accounting for the HealthRider Acquisition will include
writing-up the book value of the acquired HealthRider inventory to fair market
value less estimated sales costs, which will result in higher cost of goods
sold and lower gross profit until the acquired inventory has been sold. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--HealthRider."
The HealthRider Acquisition was funded through additional borrowings under
the Credit Agreement with General Electric Capital Corporation ("GE Capital"),
various other lenders and GE Capital, as Agent, as amended (the "Credit
Agreement"). See "Description of Certain Indebtedness."
BACKGROUND
On November 14, 1994 (the "Recapitalization Closing"), the Company effected
the Recapitalization in which affiliates of Bain Capital, Inc. ("Bain Capital")
and certain other investors invested $40.4 million and became the controlling
and largest shareholders of the Company. At the same time, IHF Capital's
subsidiaries issued $60.0 million in proceeds of 15% Senior Secured Discount
Notes due 2004 (the "Discount Notes") and $100.0 million in proceeds of 13%
Senior Subordinated Notes due 2002 (the "Senior Subordinated Notes") and made
term borrowings of $35.0 million and revolving borrowings of $111.5 million
under the Credit Agreement. As a result of the Recapitalization, the Company
had a deficiency in stockholder's equity of $104.8 million as of May 31, 1996.
6
<PAGE>
The above summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, all financial
information and share and per share data contained in this Prospectus (i) give
effect to the conversion ("Conversion") that will occur concurrently with the
closing of the sale of the common stock, $0.001 par value (the "Common Stock"),
offered hereby, whereby all shares of the existing Class A Common Stock, par
value $.001, and Class L Common Stock, par value $.001, of IHF Capital will be
exchanged on the basis of a formula that will be derived from the actual
initial public offering price for the Common Stock at a ratio estimated (based
on an assumed offering price of $16.00 per share and a valuation date of
September 24, 1996) to be 1.20773 and 9.27978 shares of Common Stock per share
of Class A Common Stock and Class L Common Stock, respectively; (ii) assume no
exercise of the Underwriters' over-allotment option; and (iii) assume the
exercise of warrants issued to purchasers of the Senior Subordinated Notes and
the Discount Notes to purchase 2,135,708 shares of Common Stock. See
"Background," "Description of Capital Stock," "Underwriting" and the Notes to
Consolidated Financial Statements.
Certain of the information contained in this summary and elsewhere in this
Prospectus, including under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and information with respect to the
Company's plans and strategy for its business are forward-looking statements.
For a discussion of important factors that could cause actual results to differ
materially from the forward-looking statements, see "Risk Factors."
THE OFFERING
The offering of 9,600,000 shares of Common Stock in the United States (the
"U.S. Offering") and the offering of 2,900,000 shares of Common Stock outside
the United States (the "International Offering") are collectively referred to
herein as the "Offering."
<TABLE>
<S> <C>
Common Stock offered(a):
U.S. Offering................ 9,600,000 shares
International Offering....... 2,900,000 shares
-----------------
Total....................... 12,500,000 shares
Common Stock to be outstanding
after this Offering(b)....... 25,467,327 shares
Sources and uses of funds..... The net proceeds to the Company from this Of-
fering together with borrowings under the
Credit Agreement will be used for the redemp-
tion of certain indebtedness of the Company,
to purchase Common Stock held by WHF and cer-
tain other stockholders (collectively the
"WHF Stockholders"), to retire all of the
preferred stock of IHF Holdings ("IHF Hold-
ings Preferred Stock") and options to pur-
chase IHF Holdings Preferred Stock. See
"Sources and Use of Funds."
New York Stock Exchange, Inc.
("NYSE") symbol.............. IHF
</TABLE>
- --------
(a) Assumes that the Underwriters' over-allotment options are not exercised.
See "Underwriting."
(b) Excludes 1,719,727 shares that may be issued upon exercise of options
granted pursuant to the Company's 1994 Stock Option Plan at an average
exercise price of approximately $4.36 per share and an additional 802,102
shares that may be issued upon exercise of options at an exercise price of
$.42402 per share.
7
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA(1)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales........................... $254.1 $314.9 $403.0 $530.8 $ 747.6
------ ------ ------ ------ ----------
Gross profit........................ 59.2 86.3 114.8 152.4 206.1
------ ------ ------ ------ ----------
Operating expenses:
Selling, general and administrative
and other operating expenses...... 46.9 64.6 83.5 105.0 148.7
Compensation expense attributable
to options........................ -- -- -- 39.0 (2) 2.8
------ ------ ------ ------ ----------
Total operating expenses............ 46.9 64.6 83.5 144.0 151.5
------ ------ ------ ------ ----------
Income from operations.............. 12.3 21.7 31.3 8.4 54.6
Interest expense.................... 4.9 5.5 6.2 21.5 36.5
Amortization of deferred financing
fees............................... -- -- -- 1.7 3.5
Dividends on preferred stock of
subsidiary......................... -- -- -- 2.8 5.1
------ ------ ------ ------ ----------
Income (loss) before income taxes... 7.4 16.2 25.1 (17.6) 9.5
Provision for (benefit from) income
taxes.............................. 2.8 6.2 9.8 (4.7) 7.9
------ ------ ------ ------ ----------
Net income (loss)................... $ 4.6 $ 10.0 $ 15.3 $(12.9) $ 1.6
====== ====== ====== ====== ==========
SUPPLEMENTARY INCOME STATEMENT DATA(3):
Supplemental pro forma net income............................... $ 12.8
==========
Supplemental pro forma net income per common share.............. $ .46
==========
Supplemental pro forma weighted average common shares
outstanding.................................................... 27,500,000
==========
OTHER DATA:
Depreciation and amortization....... $ 3.0 $ 3.4 $ 4.0 $ 11.6 $ 19.7
Capital expenditures ............... 4.0 4.0 6.9 8.0 15.4
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1996
MAY 31, ------------------------
1995 ACTUAL AS ADJUSTED (3)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................ $ 4.1 $ 19.3 $ 20.2
Working capital............................. 137.7 159.0 213.0
Total assets................................ 290.2 316.7 417.4
Total indebtedness.......................... 268.1 282.8 280.6
Preferred stock of subsidiary (including
accrued dividends)......................... 42.8 47.9 --
Stockholders' equity (deficit).............. (109.6) (104.8) 3.6
</TABLE>
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(1) Financial data through May 31, 1994 reflect the combined results of the
Recapitalized Companies and their subsidiaries. Financial data for periods
ending thereafter reflect the consolidated results of IHF Capital and its
subsidiaries.
(2) Consists of accounting charges incurred in connection with the
Recapitalization as a result of the exchange by certain senior executives
of the Company of their options to purchase capital stock of the
Recapitalized Companies for $34.7 million of replacement options to
purchase Common Stock of IHF Capital and $4.0 million of replacement
options to purchase IHF Holdings Preferred Stock and related warrants to
purchase Common Stock of IHF Capital ( the "Preferred Warrants") and $.3
million of related payroll tax payments made by the Company. After the
Recapitalization, the Company redeemed $26.4 million of the $34.7 million
of replacement options (the "Redeemable Options").
(3) Reflects: (i) the sale by IHF Capital of 12,500,000 shares of Common Stock
offered hereby and an increase of $41.8 million in revolving credit
borrowings and the application of the estimated net proceeds therefrom to:
(a) redeem $35.0 million principal amount of Senior Subordinated Notes, all
of the Discount Notes, all of the IHF Holdings Preferred Stock and all of
the options to purchase IHF Holdings Preferred Stock, (b) pay approximately
$39.1 million in connection with the purchase of the Common Stock and
warrants to purchase Common Stock held by the WHF Stockholders and (c)
repay indebtedness incurred in connection with the Weider Sports
Acquisition and the CanCo Acquisition and the payment of settlement
expenses related to the WHF Settlement (as defined) which together total
approximately $25.5 million; (ii) the HealthRider Acquisition (including
the refinancing of approximately $11.6 million of revolving credit
borrowings outstanding at June 30, 1996, the assumption of $.2 million of
other long term debt and $19.3 million of capital lease obligations
outstanding at June 30, 1996 and the incurrence of approximately $27.5
million of additional indebtedness to finance the HealthRider Acquisition);
(iii) the effect of the Conversion; and (iv) the impact of $28.6 million
non-recurring expenses, net of the related tax benefit, expected to be
incurred in the first through third quarters of 1997, including (a)
expenses related to the termination of the annual management fee payable to
Bain Capital, (b) expenses related to the WHF Settlement, and (c)
integration expenses and higher cost of goods sold (resulting from the
Company's purchase accounting which will include writing-up the book value
of the acquired HealthRider inventory to fair market value less estimated
sales costs) related to the HealthRider Acquisiton; as if such transactions
occurred on May 31, 1996, and, for purposes of the per share information
(which includes all common stock equivalents), as if such transactions had
occurred on June 1, 1995. See "Unaudited Pro Forma Financial Data,"
"Selected Consolidated Financial Data" and "Sources and Uses of Funds" and
Note 2 of the Notes to the Consolidated Financial Statements.
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RISK FACTORS
Prospective investors should carefully consider the following factors,
together with the other information contained in this Prospectus, in
evaluating an investment in the Common Stock.
RELIANCE ON MAJOR CUSTOMERS; EXPOSURE TO THE RETAIL INDUSTRY
The Company's two largest customers together accounted for approximately
47%, 43% and 42% of the Company's revenues in 1994, 1995 and 1996,
respectively. The Company's largest customer, Sears Roebuck ("Sears"),
accounted for approximately 34%, 31% and 34% of the Company's revenues in
1994, 1995 and 1996, respectively. The Company's second largest customer,
Sam's Warehouse Stores ("Sam's") accounted for approximately 13%, 12% and 8%
of the Company's revenues in 1994, 1995 and 1996, respectively. Accounts
receivable for the Company's two largest customers accounted for approximately
27% and 37% of total gross accounts receivable at May 31, 1995 and May 31,
1996, respectively. At May 31, 1996, Sears and Sam's accounted for
approximately 32% and 5%, respectively of the Company's gross accounts
receivable. A third customer, Service Merchandise Company, Inc., accounted for
approximately 11% of total gross accounts receivable at May 31, 1996 and 7% of
the Company's net sales for the year then ended. The level of the Company's
sales to these customers depends in large part on its relationship with these
customers and on consumers' continuing commitment to home fitness equipment
products and on the success of customers' efforts to market and promote the
Company's products, as well as the Company's competitiveness in terms of
price, quality, product innovation, customer service and other factors.
Consistent with industry practice, the Company does not have long term sales
agreements or other commitments as to levels of future sales. In addition, the
Company is not the exclusive supplier of fitness equipment to any of its major
customers. In connection with the HealthRider Acquisition, the Company intends
to offer its products directly to consumers through the acquired HealthRider
kiosk, store and direct response networks. The Company's direct sales to
consumers, particularly through kiosks and stores in malls where the Company's
existing customers have retail sales outlets, could adversely affect the
Company's sales and its relationship with existing customers.
In 1995 and 1996 approximately 91% and 97%, respectively, of the Company's
sales were to retailers. Several significant retailers maintain substantial
account balances payable to the Company. Retail businesses may be adversely
affected by unfavorable local, regional or national economic developments
which result in reduced consumer spending. There can be no assurance that an
economic downturn would not have a material adverse effect on the Company's
customers which could reduce the Company's sales volumes and gross margins or
result in defaults in accounts receivable from such customers. 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 the Company's major customers or a
number of the Company's other customers would have a material adverse effect
on the Company's business. See "Business--Customers."
PRODUCT LIFE CYCLES; DEPENDENCE ON PRODUCT INNOVATION; DEPENDENCE ON
PARTICULAR PRODUCTS AND CONSUMER INTEREST IN FITNESS
Product life cycles can be short in the fitness industry and innovation is
an important component of competition. The Company's sales and gross margins
are dependent upon its success in innovating, developing and marketing new
products. Products tend to generate higher gross margins earlier in the
product life cycle (after an initial start-up period), when there are fewer
companies offering similar products, and tend to generate lower gross margins
over time as competition increases and consumer interest diminishes.
Accordingly, the Company strives to be among the first producers of attractive
new product categories (such as upright rowers) and to add new features to
existing products (such as the Space Saver feature recently added to its
treadmill line), which may increase gross margins by reinvigorating demand and
differentiating the Company's products from similar products offered by its
competitors. Life cycles may vary significantly in duration from product to
product.
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While the Company emphasizes new product innovation and product
repositioning, there can be no assurance that the Company will continue to
develop competitive products in a timely manner or that the Company will be
able to respond adequately to market trends. In addition, there can be no
assurance that new or repositioned products will gain market acceptance, that
interest in the Company's products will be sustained, that significant start-
up costs with respect to new products will be recouped or that the fitness
market will not become saturated. Moreover, although management believes that
fitness and health activities have become important for consumers, there can
be no assurance that interest in any particular fitness activity or fitness
activities in general will be sustained. See "Business--Product Innovation and
Development."
In any given year, the Company's sales may be largely attributable to one or
two product categories. For example, the Company was one of the first
manufacturers to introduce motorized treadmills for home use and believes that
it is currently the market leader in sales of such treadmills, with net sales
in 1994, 1995 and 1996 of $252.6 million, $235.4 million and $289.9 million,
respectively, representing approximately 63%, 44% and 39%, respectively, of
the Company's net sales in such periods. The Cardio family of upright rowers
was introduced in the second quarter of fiscal 1994 and produced net sales in
1995 and 1996 of $138.1 million and $259.1 million, respectively, representing
26% and 35% of the Company's net sales in such years. Had the HealthRider
Acquisition occurred on June 1, 1994, the Company would have had net sales of
upright rowers in 1995 and 1996 on a pro forma basis of $300.5 million and
$491.8 million, respectively, representing 44% and 49% of the Company's pro
forma net sales in such periods.
The Company's upright rower sales declined to $30.3 million during the
fourth quarter of 1996, compared to $67.7 million during the fourth quarter of
1995 and, based on preliminary internal reports, the Company believes upright
rower sales in the first quarter of 1997, other than HealthRider's upright
rower sales, are below the levels attained in the first quarter of 1996. In
addition, HealthRider's upright rower sales have declined substantially in
calendar 1996. The decline in sales of upright rowers by the Company and
HealthRider may indicate a weakening of market demand for upright rowers. The
Company would be adversely affected if it experienced a significant decline in
the popularity of certain significant products such as its motorized
treadmills or a continued decline in sales of its upright rowers and one or
more similarly popular products were not developed and introduced by the
Company in a timely manner. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview" and "Business--
Products."
RISKS ASSOCIATED WITH SUBSTANTIAL AMOUNTS OF INDEBTEDNESS
The Company incurred substantial indebtedness in connection with the
Recapitalization and may incur additional indebtedness in the future. Part of
the net proceeds to be received by the Company from this Offering will be used
to pay down a total of $110.6 million of principal on the Senior Subordinated
Notes and Discount Notes outstanding as of October 24, 1996. As of May 31,
1996, on a pro forma basis after giving effect to: (i) the Offering, (ii) the
application of the net proceeds therefrom, (iii) the WHF Settlement (as
defined) with WHF and its affiliates, (iv) the HealthRider Acquisition and (v)
the payment of $2.8 million to terminate the annual management fee payable to
Bain Capital, the Company would have had outstanding total indebtedness
(including capital lease obligations) of approximately $280.6 million and
stockholders' equity of approximately $3.6 million. If the Company consummates
additional acquisitions, it is likely to incur additional indebtedness. The
Company's existing indebtedness contains financial and restrictive covenants,
and the Company would be in default thereunder if it failed to comply with
such covenants. If not cured or waived, such a default could have a material
adverse effect on the Company. The degree to which the Company is leveraged
could have important consequences, including the following: (i) the Company's
ability to obtain additional financing for working capital or other purposes
in the future may be limited; (ii) a substantial portion of the Company's cash
flow from operations will be dedicated to the payment of the principal of and
interest on its indebtedness, thereby reducing funds available for operations;
and (iii) the Company may be more vulnerable to economic downturns and
10
<PAGE>
be limited in its ability to withstand competitive pressures. In addition,
because certain of the Company's borrowings are and will continue to be at
variable rates of interest, the Company will be vulnerable to increases in
interest rates. The Company's ability to make scheduled payments of the
principal of or interest on, or to refinance, its indebtedness will depend on
its future operating performance and cash flow, which are subject to
prevailing economic conditions, prevailing interest rate levels and financial,
competitive, business and other factors, many of which are beyond its control.
The Credit Agreement, and other debt instruments, including the Indenture
(the "Senior Subordinated Notes Indenture") with respect to the Senior
Subordinated Notes, which will continue in effect after the Offering, contain
significant financial and operating covenants, including, among other things,
restrictions on the ability of Health & Fitness to incur additional
indebtedness, to create or permit liens, to make certain payments and
investments, to sell or otherwise dispose of assets, to merge or consolidate
with another entity or to take certain other corporate actions. The Credit
Agreement also requires Health & Fitness to meet certain financial ratios and
tests, prohibits it from amending certain provisions of the Senior
Subordinated Notes Indenture and provides that the occurrence of a Change of
Control (as defined in the Senior Subordinated Notes Indenture), among other
things, constitutes an event of default under the Credit Agreement requiring
immediate payment of all indebtedness outstanding under the Credit Agreement
and the discontinuance of the extension of credit thereunder. See "Description
of Certain Indebtedness." Although Health & Fitness is in compliance with or
has obtained waivers of compliance with respect to the terms of these debt
instruments and does not believe that its current operating plans will be
restricted by them, changes in economic or business conditions, results of
operations or other factors may in the future result in circumstances in which
such covenants restrict its plans or business operation.
COMPETITION
The fitness equipment market is highly competitive. It is characterized by
frequent introduction of new products, often accompanied by major advertising
and promotional campaigns. The Company believes that the principal competitive
factors affecting its business include price, quality, brand name recognition,
product innovation, marketing resources and customer service.
The Company competes in the U.S. with recreational and exercise activities
offered by health clubs as well as with a number of domestic manufacturers,
domestic direct importers and foreign companies exporting fitness products to
the U.S. and, in its direct sales efforts, with major retailers or
distributors. Competitors in these areas include Precor Inc., CML Group Inc.
(under the NordicTrack(R) brand), LifeFitness, Inc. and Diversified Products
Corporation ("DP") and Roadmaster Industries Inc. ("Roadmaster"), which are
commonly owned. The Company also believes that Reebok International Ltd. will
begin marketing home fitness equipment in the U.S. In Europe, the Company
competes principally with Tunturi, Inc. and Kettler Int'l Inc., a number of
Asian importers and some of its domestic competitors. The Company's 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.) and Rollerblade,
Inc. Certain competitors are better capitalized than the Company and may have
greater financial and other resources than those available to the Company. In
addition, there are no significant technological, manufacturing or marketing
barriers to entry into the fitness equipment or exercise accessory markets,
although many companies in the industry, including the Company, have sought
and received numerous patents in an effort to protect their competitive
position. See "Business--Competition."
EXPANSION STRATEGY; ACQUISITIONS
An important part of the Company's strategy is to increase its sales by,
among other things: (i) developing innovative, high-quality products; (ii)
utilizing multiple distribution channels; (iii) positioning its brands to
address specific distribution channels; (iv) providing broad product
offerings; (v) maintaining low-cost flexible manufacturing; and (vi) pursuing
growth opportunities in domestic and
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international markets, including through acquisitions. Each of these efforts
requires significant investment and entails a risk of poor consumer response.
Product innovation, though necessary because of product life cycles, requires
a significant dedication of resources. There can be no assurance that new
products will be positively received by consumers.
In August 1996, the Company acquired substantially all the assets and
assumed (or refinanced) substantially all the liabilities of HealthRider.
HealthRider has experienced a substantial, continuing and accelerating
deterioration of its business since the beginning of calendar 1996.
HealthRider increased its selling expense for infomercials to $14.5 million
(net of a write-off of video production costs of $1.6 million) in the first
quarter of 1996 compared to $8.5 million in the first quarter of 1995 and
committed to purchase substantially increased volumes of inventory in
anticipation of sales increases. Despite these expenditures, HealthRider's
total sales increased only modestly to $75.0 million in the first quarter of
1996 from $57.9 million in the first quarter of 1995, while its total
infomercial sales decreased by $8.6 million in the same period. These events
compounded working capital difficulties that HealthRider was already
experiencing, causing HealthRider to reduce selling expense for infomercials
to $5.7 million in the second quarter of 1996 from $10.8 million in the second
quarter of 1995, which contributed to substantial declines in HealthRider's
sales. HealthRider reported net sales in the second quarter of 1996 of $38.2
million compared to $59.1 in the second quarter of 1995. HealthRider also
reported an operating loss for the first half of 1996 of $4.6 million compared
to operating income for the first half of 1995 of $16.5 million. HealthRider's
inventory at June 30, 1996 was $23.1 million compared to $5.5 million at June
30, 1995. Inventory in the health and fitness industry is usually at its
lowest point in the spring and early summer. The Company believes that the
decline in HealthRider's sales is due in part to (i) a general weakening of
market demand for upright rowers and (ii) the partial saturation of the
audience that can be reached through infomercials.
The Company believes that the HealthRider Acquisition constitutes an
attractive opportunity, given the purchase price. However, there can be no
assurance in this regard. See "Management Discussion and Analysis of Financial
Condition and Results of Operations--HealthRider" and Note 1 to the
HealthRider Financial Statements included herein.
In the past, affiliates of WHF and Weider Europe, B.V. ("Weider Europe"),
who are affiliates of the Company, have marketed certain of the Company's
products outside the U.S. The Company began directly marketing its products in
Europe in the first quarter of 1996 in the key European markets of the U.K.,
France, Italy and the Benelux countries and is attempting to increase its
market penetration there and in other foreign markets. Prior to the Weider
Sports Acquisition, Weider Sports distributed the Company's products in
certain other countries. Pursuant to the Weider Sports Acquisition, the
Company reacquired distribution rights originally granted to Weider Sports in
connection with the Recapitalization, subject to certain rights granted by
Weider Sports to third parties. The Company also consummated the CanCo
Acquisition pursuant to the WHF Settlement. See "Certain Relationships and
Related Transactions" and "Business--Legal Proceedings--WHF Litigation" and
"--Settlement of WHF Litigation." The Company does not have significant
experience in conducting business in European and other foreign markets, and
fitness products have not yet been widely accepted in these markets. The
Company's European operations are not currently profitable. There can be no
assurance that the Company will be successful in selling its products outside
of the U.S. Furthermore, increased targeting of international markets exposes
the Company to the general risks of doing business abroad, including barriers
to trade such as quotas, taxes, duties and other trade restrictions, currency
fluctuations and changes in U.S. and foreign regulations applicable to the
export of the Company's products. The Company does not currently hedge against
foreign currencies other than the Canadian dollar.
The Company believes there may be other acquisition opportunities which
could complement its existing business, although the Company has no other
acquisition agreements and is not engaged in any discussions regarding other
acquisitions. Any such acquisitions, like the Weider Sports and CanCo
acquisitions and the HealthRider Acquisition, will require integration of such
businesses with the Company's current operations. The Weider Sports
Acquisition, CanCo Acquisition and HealthRider
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Acquisition were financed by additional borrowings under the Credit Agreement,
and any future acquisitions may involve additional borrowings. There can be no
assurance that HealthRider, Weider Sports or CanCo, or any other business that
the Company may acquire in the future will be effectively and profitably
integrated with the Company. Expansion or acquisition costs could adversely
affect the Company's liquidity and financial stability. See "Business--
Business Strategy", "--HealthRider Acquisition" and "--Legal Proceedings" and
"Certain Relationships and Related Transactions."
PRICE SENSITIVITY
The Company's customers, especially mass merchandisers, are highly price
sensitive. The Company sets many product prices on an annual basis but
purchases raw materials and components under purchase orders for periods of
less than one year. Accordingly, the Company sets prices for many products
before it has 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 it has established prices, the Company may be
unable to pass cost increases along to its customers, or to compete
effectively if it seeks to pass such costs along, which could have a material
adverse effect on the Company.
RELIANCE ON CERTAIN SUPPLIERS
Since the Company purchases certain components and finished products from
foreign suppliers located in Canada, China, Taiwan and various other
countries, the Company is subject to the general risks of doing business
abroad, particularly with respect to its purchases from China, 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 the Company seeks to maintain dual sources for the materials and
components required for its products, the Company relies on single sources for
certain of its component parts and finished products, including treadmills and
upright rowers. To further control manufacturing and delivery problems
associated with sourcing delays, the Company asks its electronics vendors to
maintain specified inventory levels for some long lead-time components.
Sourcing delays have been occasionally experienced in the past with new
product introductions. In addition, the Company has identified alternative
sources for many key raw materials and components. Despite these precautions,
however, the Company's ability to deliver its products on time is susceptible
to disruptions in its supply of raw materials and components, in part because
of the time needed to retool alternative component manufacturers to produce
required components. In particular, the imposition of trade sanctions on China
could have a material adverse effect on the Company. The occurrence of any of
the risks relating to its foreign suppliers or the loss of certain of these
suppliers could adversely affect the Company's business until alternative
supply arrangements could be secured, particularly if such loss occurred
during the Company's key production periods. There can be no assurance that
the Company would be able to obtain products and supplies on satisfactory
terms should any of these risks materialize. See "Business--Manufacturing and
Purchasing."
SEASONALITY; FLUCTUATION IN QUARTERLY RESULTS
Historically, the Company has sold the majority of its products to its
customers in its second and third fiscal quarters (i.e., from September
through February). Increased sales typically have occurred 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. The Company has in the past, from time
to time, incurred net losses in the first and fourth 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 the Company's 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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DEPENDENCE ON KEY MANAGEMENT
The Company's success depends to a considerable extent on the performance of
its senior management team. The loss of services of either Scott Watterson,
the Company's Chief Executive Officer, or Gary Stevenson, the Company's Chief
Operating Officer, as well as the loss of other members of the Company's
management team, could have a material adverse effect on the Company. Although
the Company entered into employment agreements with Messrs. Watterson and
Stevenson which extend through November 1999, they are able to terminate their
employment for cause at any time or without cause upon six months' notice.
However, the employment agreements contain a non-competition clause which runs
for at least two years (which the Company can extend to four years at its
option for an additional severence payment equal to the employee's base salary
plus bonus pro rated for the period of extension) from the date of the
executive's termination. In addition to the provisions of their employment
agreements, Messrs. Watterson and Stevenson have entered into separate non-
competition agreements with the Company that run through November 1998. See
"Management--Employment Agreements" and "Certain Relationships and Related
Transactions."
CONTROL BY EXISTING STOCKHOLDERS
Following the completion of the Offering, the Company's executive officers
and directors (including affiliates of Bain Capital), and entities with which
they are affiliated, together will beneficially own approximately 57.0% (42.5%
on a fully diluted basis) of the outstanding shares of Common Stock (with
affiliates of Bain Capital owning approximately 33.6% of the outstanding
shares of Common Stock), assuming that the Underwriters' over-allotment option
is not exercised. Affiliates of Bain Capital may sell up to 1,187,881 shares
if the Underwriters' over-allotment option is exercised. All current
stockholders and warrantholders have entered into a stockholders agreement
(the "Stockholders Agreement") which includes an agreement with respect to how
they will vote on certain matters, including the election of directors, which
effectively results in Bain Capital and its affiliates having the ability to
control or significantly influence the election of the Company's directors and
the outcome of corporate actions requiring stockholder approval even though
they will hold less than a majority of the Company's Common Stock. The voting
provisions of the Stockholders Agreement will expire on November 14, 2004.
This concentration of ownership and voting power may have the effect of
delaying or preventing a change in control of the Company. See "Stockholders
Agreement--Voting Rights" and "Principal and Selling Stockholders."
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. As of May 31, 1996, the Company had $1.5 million in
reserves for product liability related losses. The Company currently carries
an occurrence-based product liability insurance policy. The current policy
provides coverage for the period from September 1, 1995 to September 30, 1996
of up to $25 million per occurrence, and $25 million in the aggregate
annually. 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.
Previously, the Company maintained similar occurrence-based policies with
somewhat lower coverage limits and higher deductibles. HealthRider has an
insurance policy which provides coverage through October 26, 1996 of $10
million per occurrence and $10 million in the aggregate annually. The Company
believes that its insurance has been and continues to be 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, there is also no assurance that
the product liability insurance of the Company is or will be adequate to cover
such claims. In addition, there can be no assurance that the Company's
insurers will be solvent when required to make payments on claims.
Furthermore, there can be no assurance that insurance will
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remain available or, if available, that it will not be prohibitively
expensive. The loss of insurance coverage or claims exceeding that coverage
could have a material adverse effect on the Company's results of operations
and financial condition. In addition, the Consumer Products Safety Commission
has conducted an inquiry and made claims relating to defects in certain of
HealthRider's products. Although no consumer litigation has resulted from such
defects to date, there can be no assurance that consumer litigation will not
result. See "Business--Legal Proceedings."
FTC INVESTIGATIONS
The Federal Trade Commission ("FTC") is conducting an investigation to
determine whether the Company may have made excessive advertising claims with
respect to its "CrossWalk" treadmill products (which constitute a substantial
portion of the Company's sales), in violation of the Federal Trade Commission
Act. The FTC has asked the Company to voluntarily provide information and
documents on several occasions, and the Company has responded to these
requests.
The Company believes that its advertising for the CrossWalk products was
appropriately substantiated, and therefore that the Company did not make
excessive advertising claims. The FTC has entered into discussions with the
Company to resolve this matter through a negotiated consent decree. If these
discussions do not resolve the matter, and if the FTC concludes that the
Company made excessive advertising claims and issues a complaint, it may seek
relief in the form of a cease and desist order, civil monetary penalties
and/or consumer redress in the form of, among other things, refunds to
consumers and public notification respecting the advertisements, if any, which
the FTC concludes were excessive. Management does not believe that this matter
will have a material adverse effect on its results of operations or financial
position, however there can be no assurance in this regard.
The FTC is conducting a preliminary investigation of HealthRider to
determine whether HealthRider may have made excessive advertising claims with
respect to its HealthRider family of products (which constitute virtually all
of HealthRider's sales), in violation of the Federal Trade Commission Act. The
FTC has asked HealthRider to voluntarily provide documents and information on
several occasions, and HealthRider has responded to these requests. If the FTC
were to conclude that HealthRider did violate the Federal Trade Commission
Act, it may seek relief in the form of a consent decree, a cease and desist
order, civil money penalties and/or consumer redress in the form of, among
other things, refunds to consumers and public notification respecting the
advertisements, if any, which the FTC concludes were excessive. The Company
has assumed all of HealthRider's liabilities in connection with this matter.
Management does not believe that this matter will have a material adverse
effect on its results of operations or financial position, however there can
be no assurance in this regard. See "Business--FTC Investigations."
FRAUDULENT CONVEYANCE RISK REGARDING HEALTHRIDER ACQUISITION
In the event of a bankruptcy or similar proceeding relating to, or a lawsuit
by or on behalf of unpaid creditors of, HealthRider, a court may review the
HealthRider Acquisition under relevant federal and state fraudulent conveyance
statutes (the "fraudulent conveyance statutes"). Generally, if a court were to
find either (i) that HealthRider entered into the HealthRider Acquisition with
the intent ("fraudulent intent"), which in certain circumstances may be
presumed, of hindering, delaying or defrauding its current or future creditors
or (ii) that, after giving effect to the HealthRider Acquisition, HealthRider
both (a) received (or was deemed to have received under applicable law) less
than reasonably equivalent value or fair consideration for or in connection
with the transfer of assets and liabilities as part of the HealthRider
Acquisition and (b) (1) was insolvent on the date such transfer was made or
was rendered insolvent as a result such transfer, (2) was engaged or about to
engage in a business or transaction for which its assets constituted
unreasonably small capital or (3) intended to incur, or believed that it would
incur, debts beyond its ability to pay as such debts matured (as all of the
foregoing terms are defined in or interpreted under the fraudulent conveyance
statutes) (the circumstances that meet the requirements of this clause (ii)
are referred to herein as "constructive fraud"), such court could, under
certain fraudulent conveyance statutes, unwind the HealthRider Acquisition or
require the Company to make additional payments with respect thereto. In
addition, while the Company believes that it is paying fair value for the
assets acquired, HealthRider will not be prohibited from paying dividends and
making other payments to its stockholders. Such dividends or payments would
reduce the assets available to satisfy the claims of creditors of HealthRider
and therefore enhance the risk of a bankruptcy, reorganization or similar
proceeding involving, or lawsuit on behalf of creditors of, HealthRider.
15
<PAGE>
ENVIRONMENTAL CONSIDERATIONS
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 nature of the Company's manufacturing and assembly operations
expose it 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 the
Company's 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 the Company, may give rise to
additional compliance costs or operational interruptions which could have a
material adverse effect on the Company's financial condition. See "Business--
Environmental Matters."
NO PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Common Stock.
Although the Company has applied to list the Common Stock on the NYSE, there
can be no assurance that an active public market will develop upon completion
of the Offering or, if developed, that such a market will be sustained after
the Offering. Factors such as fluctuations in the Company's operating results
and general changes in the market conditions in the health and fitness product
industry could have a significant impact on the market price of the Common
Stock. The initial public offering price of the Common Stock will be
determined through negotiations between the Company and the Underwriters and
may not be indicative of the market price for the Common Stock after
completion of the Offering. See "Underwriting."
ANTI-TAKEOVER EFFECTS
IHF Capital's Amended and Restated Certificate of Incorporation and Bylaws
will, after the completion of the Offering, contain certain provisions that
could make more difficult the acquisition of the Company by means of a tender
offer, a proxy contest or otherwise. These provisions establish staggered
terms for members of IHF Capital's Board of Directors and include advance
notice procedures for stockholders to nominate candidates for election as
directors of the Company and for stockholders to submit proposals for
consideration at stockholders' meetings. In addition IHF Capital will be
subject to Section 203 of the Delaware General Corporation Law ("DGCL") which
limits transactions between a publicly held company and "interested
stockholders" (generally, those stockholders who, together with their
affiliates and associates, own 15% or more of a company's outstanding capital
stock). The restrictions of Section 203 would not apply to those who were
"interested stockholders" prior to the consummation of the Offering. This
provision of the DGCL may have the effect of deterring certain potential
acquisitions of the Company. IHF Capital's Amended and Restated Certificate of
Incorporation will provide for 10,000,000 authorized but unissued shares of
Preferred Stock, the rights, preferences, qualifications, limitations and
restrictions of which may be fixed by the Board of Directors without any
further action by stockholders, and, as the sole stockholder of Health &
Fitness, IHF Capital will be entitled to authorize preferred stock of Health &
Fitness. The Company is also subject to the Senior Subordinated Notes
Indenture, which provides that, upon the occurrence of a Change of Control (as
defined therein), the Company will be obligated to make an offer to purchase
each holder's Senior Subordinated Notes at a purchase price in cash equal to
101% of the principal amount thereof, together with any accrued and unpaid
interest thereon. An occurrence of a Change of Control would also constitute
an event of default under the Credit Agreement requiring immediate payment of
all indebtedness outstanding under the Credit Agreement and discontinuance of
the extension of credit thereunder. See "Description of Capital Stock" and
"Description of Certain Indebtedness."
16
<PAGE>
NO DIVIDENDS ON COMMON STOCK
Other than in connection with the Recapitalization, the Company has not
paid a dividend on its Common Stock and does not anticipate paying any
dividends on its Common Stock in the foreseeable future. Debt instruments of
IHF Capital's operating subsidiary, Health & Fitness, severely restrict its
ability to pay dividends to IHF Capital. See "Dividend Policy," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Certain Indebtedness."
DILUTION
Based on an initial public offering price of $16.00 per share (the midpoint
of the range set forth on the cover of this Prospectus), purchasers of the
Common Stock offered hereby will experience immediate and substantial dilution
of $14.37 in the net tangible book value per share of Common Stock. See
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the sale of the Common Stock offered hereby, Bain Capital and its
affiliates, management and Weider Health and Fitness and its affiliates owned
substantially all of the Company's outstanding Common Stock. All of the shares
of Common Stock outstanding prior to the Offering are "restricted securities"
as that term is defined in Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), but, under certain circumstances, may be sold
without registration pursuant to Rule 144 at varying times. In addition to the
shares of Common Stock offered hereby, substantially all shares of Common
Stock will be eligible for sale in the public market beginning 180 days after
the date of this Prospectus. The Securities and Exchange Commission (the
"Commission") has proposed changes to Rule 144 that would shorten the holding
periods thereunder. In addition, existing stockholders and warrant and option
holders have registration rights with respect to substantially all of the
Common Stock held by them or issuable upon exercise of their warrants and
options. The Company believes that, in connection with the Offering, all
existing stockholders have agreed not to dispose of any shares (except to
Affiliates, as defined in the Stockholders Agreement), and the Company has
agreed not to dispose of any shares (other than shares sold in the Offering or
issuances by the Company of certain employee stock options and shares covered
thereby), for a period of 180 days from the date of this Prospectus, without
the prior written consent of the representatives of the U.S. Underwriters (as
defined). Furthermore, the Company believes that all existing stockholders
have agreed not to make demand for registration of their shares for 180 days
from the date the Company furnished such stockholders with a notice regarding
the registration of shares of Common Stock in connection with the Offering,
without the prior written consent of the Company. After 180 days after this
Offering, the Company intends to file a registration statement on Form S-8
under the Act to register shares of Common Stock reserved for issuance under
its 1994 Stock Option Plan and 1996 Stock Option Plan, thus permitting the
resale of shares issued under the plans by non-affiliates in the public market
without restriction under the Securities Act. Such registration statement will
become effective immediately upon filing. As of the closing of the Offering,
options to purchase 1,719,727 shares of Common Stock will be outstanding under
the Company's 1994 Stock Option Plan (with an average exercise price of $4.36
per share) and options to purchase 802,102 shares of the Company's Common
Stock will be outstanding (with an exercise price of $.42402 per share). In
addition, as of the closing of the Offering, 996,377 shares of Common Stock
will be authorized for future grants under the Company's 1996 Stock Option
Plan. See "Management--Executive Compensation," "Shares Eligible for Future
Sale" and "Stockholders Agreement--Registration Rights."
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of shares of Common Stock for sale
will have on the market price of the Common Stock from time to time. The sale
of a substantial number of shares held by the existing stockholders, whether
pursuant to a subsequent public offering or otherwise, or the perception that
such sales could occur, could adversely affect the market price of the Common
Stock and could materially impair the Company's future ability to raise
capital through an offering of equity securities.
17
<PAGE>
SOURCES AND USES OF FUNDS
Based on assumed gross proceeds of $200.0 million, the net proceeds from the
Offering to the Company are estimated to be approximately $188.0 million,
after deducting the underwriting discount.
The net proceeds to the Company from the Offering together with borrowings
under the Credit Agreement will be used to (i) redeem $35.0 million principal
amount of the Senior Subordinated Notes, all of the Discount Notes, all of the
outstanding IHF Holdings Preferred Stock and options to purchase IHF Holdings
Preferred Stock (all of which are held by affiliates of the Company); (ii) pay
approximately $39.1 million in connection with the repurchase of the shares of
Common Stock and warrants held by the WHF Stockholders; (iii) repay
indebtedness incurred in connection with the HealthRider Acquisition; (iv)
repay indebtedness incurred in connection with the Weider Sports Acquisition,
CanCo Acquisition and the payment of settlement expenses in connection with
the WHF Settlement, which together total approximately $25.5 million; and (v)
pay expenses of the Offering. See "Background," "Certain Relationships and
Related Transactions," and "Description of Certain Indebtedness." The
estimated applications of funds by the Company from the Offering are as
follows:
<TABLE>
<CAPTION>
SOURCES OF FUNDS
---------------- (IN MILLIONS)
<S> <C>
Net Proceeds of the Offering.................................. $188.0
Borrowings under the Credit Agreement......................... 83.1
------
Total......................................................... $271.1
======
<CAPTION>
USES OF FUNDS
-------------
<S> <C>
Redemption of Senior Subordinated Notes(1).................... $ 40.5
Redemption of Discount Notes(2)............................... 90.6
Redemption of IHF Holdings Preferred Stock(3)................. 35.6
Repurchase of Common Stock and warrants from the WHF
Stockholders(4).............................................. 39.1
HealthRider Acquisition(5).................................... 36.8
Weider Sports Acquisition, CanCo Acquisition and Settlement
Expenses(6).................................................. 25.5
Offering Expenses............................................. 3.0
------
Total....................................................... $271.1
======
</TABLE>
- --------
(1) Includes a redemption premium of 12.25% over face value and $1.3 million
of accrued interest at October 24, 1996.
(2) Includes a redemption premium of 14.00% over accreted value at October 24,
1996.
(3) The IHF Holdings Preferred Stock will be redeemed at face value less a
$4.0 million discount and the options to purchase IHF Holdings Preferred
Stock will be redeemed at face value less the exercise price and less a
$.4 million discount. See "Business--Legal Proceedings--Settlement of WHF
Litigation."
(4) In conjunction with the Offering, the Company will repurchase the Common
Stock and warrants to purchase Common Stock held by the WHF Stockholders
for approximately $39.1 million. See "Business--Legal Proceedings--
Settlement of WHF Litigation" and "Description of Certain Indebtedness."
(5) Includes the acquisition price of HealthRider of $16.8 million, the buyout
of the Parkway manufacturing contract and the purchase of certain other
manufacturing assets for $10.1 million, the buyout of the minority
interest in HealthRider's European subsidiary for approximately $1.4
million (of which $.7 million was paid by HealthRider, $.6 million was
paid by the Company in cash and $.1 million was paid by the Company in
inventory) and the refinancing of HealthRider's revolving credit
indebtedness of $9.3 million as of August 16, 1996. Does not include the
assumption of approximately $.2 million of other long term debt and
approximately $19.3 million of capital lease obligations outstanding as of
August 16, 1996.
(6) In connection with the WHF Settlement, the Company consummated the Weider
Sports Acquisition and the CanCo Acquisition and paid certain litigation
settlement expenses. See "Business--Pursuing Growth Opportunities", "--
Manufacturing and Purchasing" and "--Settlement of WHF Litigation."
DIVIDEND POLICY
Other than in connection with the Recapitalization, IHF Capital has not
paid a dividend on its Common Stock and does not anticipate paying any
dividends on its Common Stock in the foreseeable future. Debt instruments of
IHF Capital's subsidiary, Health & Fitness, severely restrict its ability to
pay dividends.
18
<PAGE>
CAPITALIZATION
The following table sets forth as of May 31, 1996 (i) the actual
consolidated capitalization of the Company and (ii) the consolidated
capitalization as adjusted to reflect (a) the sale by the Company of
12,500,000 shares of Common Stock offered hereby (at an assumed price to
public of $16.00 per share); (b) the application of the estimated net proceeds
to the Company from the Offering (after deducting the underwriting discount
and estimated offering expenses), together with borrowings under the Credit
Agreement, to redeem $35.0 million principal amount of Senior Subordinated
Notes, all of the Discount Notes, all of the IHF Holdings Preferred Stock and
options to purchase IHF Holdings Preferred Stock and pay approximately $39.1
million in connection with the repurchase of the Common Stock and warrants to
purchase Common Stock held by the WHF Stockholders; (c) the effect of the
HealthRider Acquisition; and (d) the Weider Sports Acquisition, the CanCo
Acquisition and the payment of settlement expenses in connection with the WHF
Settlement, which together total approximately $25.5 million, as if such
transactions had occurred on May 31, 1996. This table should be read in
conjunction with the consolidated financial statements and related notes
thereto and the unaudited pro forma financial information included elsewhere
in this Prospectus. For a description of the actual amounts that are expected
to be paid in connection with these transactions, see "Sources and Uses of
Funds" and Note (c) to the Unaudited Pro Forma Consolidated Balance Sheet.
<TABLE>
<CAPTION>
AS OF MAY 31, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN MILLIONS)
<S> <C> <C>
Short-term debt, consisting of current portions of long-
term debt and capital lease obligations................ $ 3.1 $ 4.3 (1)
Long-term liabilities (excluding current portion):
Capital lease obligations............................. -- 18.3 (1)
Revolving credit borrowings........................... 80.0 161.0
Term loans............................................ 31.2 31.2
Senior Subordinated Notes............................. 99.3 65.0 (2)
Discount Notes........................................ 69.2 -- (3)
Other long-term debt.................................. -- .8
------- -------
Total long-term liabilities........................... 279.7 276.3
------- -------
Minority interest in preferred stock of Subsidiary...... 47.9 -- (4)
Stockholders' equity:
Common Stock and additional paid-in-capital........... 77.7 235.9
Receivable from officers for purchase of equity....... (.7) (.7)
Cumulative translation adjustment..................... .4 .4
Accumulated deficit................................... (182.2) (232.0)(5)
------- -------
Total stockholders' equity (deficit).................. (104.8) 3.6
------- -------
Total Capitalization................................ $ 225.9 $ 284.2
======= =======
</TABLE>
- --------
(1) Of HealthRider's $19.3 million capitalized lease obligations assumed in
connection with the HealthRider Acquisition, $1.2 million represents the
current portion.
(2) Reflects the redemption of $35.0 million principal amount of Senior
Subordinated Notes at a premium of 12.25% over face value plus accrued
interest of $1.7 million at May 31, 1996.
(3) Reflects the redemption of the Discount Notes at a premium of 14.00% over
accreted value at May 31, 1996.
(4) Reflects the redemption of (a) the IHF Holdings Preferred Stock at face
value less a $4.0 million discount and (b) the options to purchase IHF
Holdings Preferred Stock at face value less the exercise price and a $.4
million discount. See "Business--Legal Proceedings--Settlement of WHF
Litigation."
(5) The change in accumulated deficit of $49.8 million represents: (i) the
extraordinary loss, net of the related tax benefits, of the foregoing
redemptions; and (ii) the non-recurring expenses, including the related
tax benefits, expected to be incurred in the first through third quarters
of 1997. See "Unaudited Pro Forma Financial Data."
19
<PAGE>
DILUTION
As of May 31, 1996 the Company had a pro forma net tangible book deficiency
of $146.5 million or $13.52 per share of Common Stock, after giving effect to
the Conversion and the repurchase of the Common Stock and warrants to purchase
Common Stock held by the WHF Stockholders for approximately $39.1 million. Pro
forma net tangible book deficiency per share represents the amount of total
tangible assets less total liabilities (including the increase in borrowings
of approximately $39.1 million in conjunction with the above described
repurchase) divided by the total number of shares of Common Stock outstanding
after giving effect to the Conversion. Without taking into account any other
changes in the net tangible book deficiency after May 31, 1996, other than the
receipt and application by the Company of the net proceeds from the sale of
the 12,500,000 shares of Common Stock offered hereby at an assumed offering
price of $16.00 per share as described in "Sources and Uses of Funds," and the
issuance of 2,135,708 shares of Common Stock upon exercise of warrants issued
in connection with the Senior Subordinated Notes and the Discount Notes, the
pro forma net tangible book value of the Company would have been $41.5 million
or $1.63 per share. This represents an immediate increase in the pro forma net
tangible book value of $15.15 per share to existing shareholders and an
immediate dilution of $14.37 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $16.00
------
Pro forma net tangible book deficiency per share as of May
31, 1996 before the Offering............................. $(13.52)(1)
Increase per share attributable to the exercise of war-
rants.................................................... 2.22
Increase per share attributable to new investors.......... 12.93
-------
Pro forma net tangible book value per share as of May 31,
1996 after the Offering.................................... $ 1.63
------
Dilution per share purchased in the Offering................ $14.37
======
</TABLE>
The following table summarizes, on the same pro forma basis as of May 31,
1996, the differences between existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration and the average price per share, before deductions of
the underwriting discount and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
Shareholders(1)(2)...... 12,967,327 51% $ 41,905,000 17% $ 3.23
New Investors............ 12,500,000 49 200,000,000 83 16.00
---------- --- ------------ --- ------
Total.................. 25,467,327 100% $241,905,000 100% $ 9.50
========== === ============ === ======
</TABLE>
Other than as noted above, the foregoing computations assume the exercise of
no stock options or warrants after May 31, 1996. As of that date, there were
outstanding options to purchase 2,521,829 shares of Common Stock, at a
weighted average exercise price of $3.11 per share. To the extent these
options or warrants are exercised, there will be further dilution to new
stockholders. See Note 9 of the Notes to the Consolidated Financial
Statements.
- --------
(1) Reflects the conversion of all issued and outstanding shares of Class A
and Class L Common Stock into 6,958,703 shares and 3,872,916 shares,
respectively, of Common Stock upon the closing of the Offering and the
repurchase for approximately $39.1 million of the Common Stock and
warrants to purchase Common Stock held by the WHF Stockholders.
(2) Includes 2,135,708 shares issued or issuable pursuant to the exercise of
the warrants issued in connection with the Senior Subordinated Notes and
the Discount Notes.
20
<PAGE>
BACKGROUND
On November 14, 1994, the Company effected the Recapitalization in which,
(i) the shareholders of the Recapitalized Companies (the "Original
Shareholders") contributed their capital stock of the Recapitalized Companies
to the Company, in exchange for $21.9 million of Common Stock of IHF Capital,
$36.0 million of IHF Holdings Preferred Stock and Preferred Warrants, and
$159.3 million of demand promissory notes (the "Shareholder Notes"); (ii)
certain senior executives of the Company exchanged their options to purchase
capital stock of the Recapitalized Companies for $34.7 million of replacement
options to purchase Common Stock of IHF Capital, of which $26.4 million were
redeemable at the option of the Company (the "Redeemable Options") and $4.0
million of replacement options to purchase IHF Holdings Preferred Stock and
Preferred Warrants; (iii) affiliates of Bain Capital and certain other
investors purchased $40.4 million of Common Stock of IHF Capital; (iv) $60.0
million in proceeds of IHF Holdings Units, each consisting of $1,000 principal
amount at maturity of the Discount Notes, one warrant to purchase 7.81070
shares of Common Stock of IHF Capital at an exercise price of $.00828 per
share and one warrant to purchase 6.00147 shares of Common Stock of IHF
Capital at an exercise price of $.00108 per share, and $100.0 million in
proceeds of Health & Fitness Units, each consisting of $1,000 principal amount
at maturity of the Senior Subordinated Notes, one warrant to purchase 2.38564
shares of Common Stock of IHF Capital at an exercise price of $.00828 per
share and one warrant to purchase 1.83304 shares of Common Stock of IHF
Capital at an exercise price of $.00108 per share, were issued; (v) term
borrowings of $35.0 million and revolving borrowings of $111.5 million under
the Credit Agreement were made; and (vi) the Shareholder Notes and certain
indebtedness of the Recapitalized Companies were repaid.
Concurrent with the Recapitalization Closing, the Company obtained exclusive
licenses to market fitness equipment and certain non-ingestive sports medicine
products under the "Weider" and related brand names. Under one such license,
the Company made a $5.0 million payment at the Recapitalization Closing; the
other license provides for royalty payments to be paid over time. See
"Business--Legal Proceedings--WHF Litigation" and "--Settlement of WHF
Litigation." The Company also executed non-compete agreements with WHF and
certain key executives under which it made total payments of $6.5 million. In
addition, after the Recapitalization, the Company redeemed the Redeemable
Options for $26.4 million.
The name of the issuer of the Common Stock is currently IHF Capital, Inc.
Health & Fitness is a wholly-owned subsidiary of IHF Holdings which in turn is
a wholly-owned subsidiary of IHF Capital. Concurrent with the Offering, the
Merger and the Conversion will occur, and IHF Capital, Inc. (the issuer of the
Common Stock) will change its name to ICON Fitness Corporation.
21
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following pages present the unaudited pro forma consolidated results of
operations of the Company for the year ended May 31, 1996, as well as the
balance sheet as of May 31, 1996, adjusted to reflect the following events:
(i) the sale of 12,500,000 shares of Common Stock offered hereby,
resulting in net proceeds of approximately $188.0 million after deducting
the underwriting discount;
(ii) the Conversion (based on an assumed offering price of $16.00 per
share) and the conversion of options to purchase Class A and Class L Common
into options to purchase Common Stock;
(iii) the redemption of $35.0 million principal amount of the Senior
Subordinated Notes with a total redemption price of $41.0 million at May
31, 1996, which reflects $1.7 million of accrued interest thereon and a
12.25% premium over the principal amount being redeemed (the total
redemption price, including accrued interest, would be $40.5 million at
October 24, 1996);
(iv) the redemption of all of the Discount Notes with a total redemption
price of $85.6 million at May 31, 1996, which reflects a redemption premium
of $13.3 million equivalent to 114.0% of the accreted value of the Discount
Notes at May 31, 1996 (the total redemption price would be $90.6 million at
October 24, 1996);
(v) the redemption of all of the IHF Holdings Preferred Stock and options
to purchase IHF Holdings Preferred Stock at a price of $35.6 million
(representing a $4.4 million discount from face value, and the forgiveness
of $7.9 million of accrued dividends thereon) at May 31, 1996 (accrued
dividends to be forgiven would be $9.5 million at September 24, 1996);
(vi) the repurchase of the Common Stock and warrants to purchase Common
Stock owned by the WHF Stockholders at a price of approximately $39.1
million;
(vii) the WHF Settlement, including the Weider Sports Acquisition, the
CanCo Acquisition and the payment of settlement expenses, which together
total approximately $25.5 million, and the amortization of goodwill and
additional depreciation resulting from the Weider Sports Acquisition and
the CanCo Acquisition (the statement of operations data and balance sheet
data of the acquired companies are not reflected in the unaudited pro forma
financial data because they are not significant);
(viii) the payment of $3.0 million of fees and expenses relating to the
Offering;
(ix) the additional borrowings under the Credit Agreement of $41.8
million (and a corresponding increase in interest expense), together with
the net proceeds of the Offering required to effect items (iii) through
(viii) above (assuming items (iii) and (iv) occur on October 24, 1996 and
all other events occur on September 24, 1996, additional borrowings would
be $46.4 million; items (iii) and (iv) are assumed to occur one month
following the other items because of applicable notice requirements in
connection with the redemption of the Senior Subordinated Notes and the
Discount Notes); and
(x) the HealthRider Acquisition, including the refinancing of
approximately $11.6 million of revolving credit borrowings outstanding at
June 30, 1996 (actual refinanced revolving credit borrowings were $9.3
million at August 16, 1996), the assumption of $.2 million of other long
term debt and $19.3 million of capital lease obligations outstanding at
June 30, 1996 and the incurrence of approximately $27.5 million of
additional indebtedness to finance the HealthRider Acquisition. The
contractual cash purchase price of $27.5 million includes $16.8 million
payable to HealthRider, $10.1 million payable to Parkway and $.6 million
payable to the minority shareholder of HealthRider's European subsidiary.
The Unaudited Pro Forma Consolidated Statement of Operations gives effect to
the events described above as if they had occurred on June 1, 1995. The
Unaudited Pro Forma Consolidated Balance Sheet data give effect to the events
described above as if they had occurred on May 31, 1996.
The pro forma financial data are provided for informational purposes only
and are not necessarily indicative of the results of operations or financial
position of the Company had the transactions assumed therein occurred, nor are
they necessarily indicative of the results of operations which may be expected
to occur in the future. The Company expects that HealthRider revenues in the
periods subsequent to the HealthRider Acquisition will decline substantially.
22
<PAGE>
In connection with the events described above (and assuming they occurred on
May 31, 1996), the Company would have incurred extraordinary debt
extinguishment costs consisting of: (i) $10.1 million relating to the write-
off of the unamortized balance of deferred financing costs on the redeemed
Discount Notes and Senior Subordinated Notes; (ii) $3.4 million relating to
the write-off of the unamortized discount attributable to the warrants issued
in connection with the redeemed Discount Notes and Senior Subordinated Notes;
and (iii) $18.0 million representing the premium for early redemption of the
redeemed Discount Notes and Senior Subordinated Notes. Such charges, which
aggregate $20.8 million (net of related tax benefit of $10.7 million), are
reflected in the Unaudited Pro Forma Consolidated Balance Sheet Data but are
not reflected in the Unaudited Pro Forma Consolidated Statement of Operations
Data. The net extraordinary loss, assuming the above described events occur on
September 24, 1996 (except for the redemption of the Discount Notes and Senior
Subordinated Notes which is assumed to occur on October 24, 1996) will be
approximately $21.0 million (which is net of a related tax benefit of $10.9
million). The unaudited pro forma balance sheet data also include the
following charges related to the Offering and the HealthRider Acquisition
which the Company expects to incur in the first through third quarters of
fiscal 1997: (i) a non-recurring expense of $2.8 million representing a fee to
terminate the annual management fee payable to Bain Capital in accordance with
the Bain Management Agreement (as defined); (ii) approximately $5.0 million of
integration expenses in connection with the HealthRider Acquisition; (iii) a
significant, non-recurring, non-cash increase in cost of goods sold which is
not expected to exceed approximately $26.2 million, based on HealthRider's
inventory at June 30, 1996 (due to the fact that the Company's purchase
accounting for the HealthRider Acquisition will include writing-up the book
value of the acquired HealthRider inventory to fair market value less
estimated sales costs); and (iv) approximately $12.8 million in settlement
expenses related to the WHF Settlement. Such charges aggregate $29.0 million,
net of the related tax benefit of $17.8 million. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview."
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HEALTHRIDER
STATEMENT OF ADJUSTMENTS
COMPANY OPERATIONS ---------------------------- PRO FORMA
YEAR ENDED TWELVE MONTHS WHF SETTLEMENT YEAR ENDED
MAY 31, ENDED HEALTHRIDER AND MAY 31,
1996 JUNE 30, 1996(A) COMBINED ACQUISITION OFFERING 1996
---------- ---------------- -------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $747,577 $237,565 $985,142 $ -- $ -- $ 985,142(b)
Cost of sales........... 541,443 87,612 629,055 -- -- 629,055(c)
-------- -------- -------- ------- ------- ----------
Gross profit.......... 206,134 149,953 356,087 -- -- 356,087
-------- -------- -------- ------- ------- ----------
Operating expenses
Selling............... 93,924 131,801 225,725 -- -- 225,725
Research and develop-
ment................. 6,759 -- 6,759 -- -- 6,759
General and adminis-
trative.............. 48,055 17,562 65,617 -- 251(d) 65,868
Compensation expense
attributable to op-
tions................ 2,769 -- 2,769 -- -- 2,769
-------- -------- -------- ------- ------- ----------
Total operating ex-
pense.............. 151,507 149,363 300,870 -- 251 301,121
-------- -------- -------- ------- ------- ----------
Income from operations.. 54,627 590 55,217 -- (251) 54,966
Interest expense........ 36,527 1,405 37,932 2,333 (e) (9,856)(f) 30,409
Amortization of deferred
financing fees......... 3,483 -- 3,483 -- (1,349)(f) 2,134
Dividends on minority
interest in cumulative
redeemable preferred
stock of a subsidiary . 5,100 -- 5,100 -- (5,100)(g) --
Other income............ -- (2,264) (2,264) -- -- (2,264)
-------- -------- -------- ------- ------- ----------
Income before taxes..... 9,517 1,449 10,966 (2,333) 16,054 24,687
Provision (benefit) for
income taxes........... 7,896 1,405 9,301 (887)(h) 3,512 (h) 11,926
-------- -------- -------- ------- ------- ----------
Net income.............. $ 1,621 $ 44 $ 1,665 $(1,446) $12,542 $ 12,761
======== ======== ======== ======= ======= ==========
Pro forma net income per
common share........... $ (i)
========
Pro forma weighted
average common shares
outstanding............ (i)
========
Supplemental pro forma
net income per common
share.................. $ .46(j)
==========
Supplemental pro forma
weighted average common
shares outstanding..... 27,500,000(j)
==========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Operations.
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
(a) HealthRider's fiscal year ends December 31. For purposes of the pro forma
presentation, the twelve month period ended June 30, 1996 is included and
represents the period comparable to the Company's fiscal year ended May
31, 1996. In the opinion of management, these unaudited financial
statements include all adjustments necessary for a fair presentation of
the periods presented and have been prepared on a basis consistent with
HealthRider's audited consolidated financial statements.
(b) The Company expects to increase its net sales as a result of the
HealthRider Acquisition, but by substantially less than 100% of
HealthRider's net sales.
(c) In conjunction with the HealthRider Acquisition, the Company will
recognize a significant, non-recurring, non-cash increase in cost of goods
sold in the second and third quarters of 1997 which is not expected to
exceed approximately $26.2 million related to the fact that the Company's
purchase accounting for the HealthRider Acquisition will include writing-
up the book value of the acquired HealthRider inventory to fair market
value less estimated sales costs, which will result in higher cost of
goods sold and lower gross profit until the acquired inventory has been
sold. The effect of this charge is not reflected in the unaudited pro
forma consolidated statement of operations.
(d) Represents additional depreciation and amortization of goodwill in
connection with the Weider Sports Acquisition and the CanCo Acquisition.
(e) Represents additional interest expense (at a rate of 8.50%) on the $27.5
million additional borrowings under the Credit Agreement incurred in order
to effect the HealthRider Acquisition.
(f) Represents (i) elimination of the interest expense, including amortization
of the discount attributable to warrants issued to the original purchasers
of the Discount Notes and Senior Subordinated Notes, resulting from the
use of a portion of the net proceeds from the Offering to redeem all of
the Discount Notes and $35.0 million principal amount of the Senior
Subordinated Notes; (ii) elimination of amortization of deferred financing
fees related to such redeemed notes; and (iii) additional interest expense
(at a rate of 8.50%) on the required $41.8 million of additional
borrowings under the Credit Agreement. Including amortization of the
financing fees ascribed to the redeemed Senior Subordinated Notes and the
Discount Notes and the discount attributable to the warrants issued
therewith, the effective interest rate on the Discount Notes is 17.7% and
the effective interest rate on the Senior Subordinated Notes is 16.4%.
(g) Represents elimination of the cumulative dividends recorded during the
period on the IHF Holdings Preferred Stock and options to purchase IHF
Holdings Preferred Stock to be redeemed in connection with the Offering.
(h) Represents the additional income tax expense (benefit) resulting from the
pro forma adjustments to income at a 38% effective rate. Income tax
adjustments exclude the impact of the adjustments to the cumulative
dividends recorded during the period, the adjustments related to non-
deductible interest on the Discount Notes, and adjustments related to the
amortization of the debt discount attributable to the warrants issued in
connection with the Discount Notes and the Senior Subordinated Notes which
do not give rise to tax deductions.
(i) Reflects the Conversion only (includes all common stock equivalents as
defined in Note 2 to the Consolidated Financial Statements).
(j) Reflects the events described in items (i) through (x) under the heading
"Unaudited Pro Forma Financial Data" above, as if such transactions had
occurred on June 1, 1995 (includes all common stock equivalents as defined
in Note 2 of the Notes to the Consolidated Financial Statements).
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------
COMPANY HEALTHRIDER WHF
HISTORICAL BALANCE SETTLEMENT PRO FORMA
MAY 31, SHEET AT HEALTHRIDER AND MAY 31,
1996 JUNE 30, 1996 COMBINED ACQUISITION OFFERING 1996
---------- ------------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.................. $ 19,313 $ 867 $ 20,180 $ -- $ -- $ 20,180
Accounts receivable,
net.................. 126,869 22,877 149,746 -- 2,459 (a) 152,205
Inventories........... 95,922 23,082 119,004 1,450 (b)(c) 5,693 (a) 126,147
Deferred income taxes. 5,240 7,204 12,444 11,859 (c) 16,582 (d) 40,885
Income tax receivable. 882 2,128 3,010 -- -- 3,010
Other assets.......... 4,770 3,280 8,050 -- -- 8,050
-------- ------- --------- ------- -------- --------
Total current as-
sets............... 252,996 59,438 312,434 13,309 24,734 350,477
Property and equipment,
net.................... 32,312 27,329 59,641 (19,996)(b) 1,343 (a) 40,988
Deferred income taxes... 5,489 -- 5,489 -- -- 5,489
Other assets............ 25,930 1,648 27,578 (1,243)(b) (10,075)(d) 20,405
4,145 (a)
-------- ------- --------- ------- -------- --------
Total............... $316,727 $88,415 $ 405,142 $(7,930) $ 20,147 $417,359
======== ======= ========= ======= ======== ========
LIABILITIES & EQUITY
(DEFICIT)
Current Liabilities:
Current portion of
long-term debt....... $ 3,065 $ 43 $ 3,108 $ -- $ -- $ 3,108
Current portion of
capital leases....... -- 1,158 1,158 -- -- 1,158
Accounts payable...... 73,652 21,072 94,724 (1,800)(b) (41)(a) 92,883
Accrued expenses...... 11,424 17,022 28,446 5,000 (c) 2,800 (d) 36,246
Interest payable...... 5,815 -- 5,815 -- (1,706)(e) 4,109
-------- ------- --------- ------- -------- --------
Total current lia-
bilities........... 93,956 39,295 133,251 3,200 1,053 137,504
-------- ------- --------- ------- -------- --------
Long-term portion of
capital lease
obligations............ -- 18,149 18,149 -- 128 (a) 18,277
Long-term debt.......... 279,693 11,740 (1) 291,433 27,450 (b) (106,870)(e) 258,028
3,395 (d)
41,820 (a)
800 (a)
Minority interest in
preferred stock of
subsidiary............. 47,904 -- 47,904 -- (35,630)(e) --
(12,274)(f)
Stockholder's equity
(deficit)
Class L common stock,
1,200,000 shares au-
thorized, 617,350
shares outstanding,
none outstanding on a
pro forma basis...... 1 -- 1 -- (1)(g) --
Class A common stock,
15,000,000 shares
authorized, 7,761,804
shares outstanding,
none outstanding on a
pro forma basis...... 8 -- 8 -- (8)(g) --
Common stock,
60,000,000 shares
authorized,
25,467,327 shares
outstanding on a pro
forma basis.......... -- 101 101 (101)(h) 25 (g) 25
Additional paid-in
capital.............. 77,721 729 78,450 (729)(h) 145,884 (b)(g) 235,879
12,274 (f)
Receivable from
officers for purchase
of equity............ (758) (35) (793) 35 (h) -- (758)
Cumulative translation
adjustment........... 386 43 429 (43)(h) -- 386
Accumulated deficit... (182,184) 18,393 (163,791) (37,742)(c)(h) (30,449)(d) (231,982)
-------- ------- --------- ------- -------- --------
Total stockholder's
equity (deficit).. (104,826) 19,231 (85,595) (38,580) 127,725 3,550
-------- ------- --------- ------- -------- --------
Total............... $316,727 $88,415 $ 405,142 $(7,930) $ 20,147 $417,359
======== ======= ========= ======= ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
(1) Includes $11,567 of revolving credit borrowings, due April 1999, classified
as current liabilities in HealthRider's balance sheet at June 30, 1996 as a
result of HealthRider's failure to comply with certain loan covenants.
Actual amounts of $9.3 million were refinanced under the Company's Credit
Agreement upon the closing of the acquisition.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Represents: (i) the allocation of the purchase price related to each of
the Weider Sports Acquisition ($8.7 million) and the CanCo Acquisition
($1.8 million) to the assets and liabilities acquired; (ii) the assumption
of a $.8 million mortgage and payment of $.5 million in connection with
the acquisition of two CanCo plants from affiliates of WHF currently
leased by CanCo; and (iii) the repayment of $1.8 million of payables to
WHF, in connection with the WHF Settlement.
(b) Under purchase accounting, the total purchase price will be allocated to
the acquired assets and liabilities of HealthRider based on their relative
fair values as of the closing date of the HealthRider Acquisition, which
will be determined within one year after such date. Accordingly, the final
allocations will be different from the amounts reflected herein, and such
differences may be significant. The contractual cash purchase price of
$27.5 million was borrowed under the Credit Agreement and includes $16.8
million paid to HealthRider, $10.1 million paid to Parkway and $.6 million
paid to the minority shareholder of HealthRider's European subsidiary.The
amount and components of the estimated price along with the allocation of
the estimated purchase price to liabilities assumed as though the
HealthRider Acquisition occurred on June 30, 1996 are as follows (in
thousands):
<TABLE>
<S> <C>
Contractual purchase price--cash paid............................. $ 27,450
Contractual purchase price--inventory transferred................. 150
Estimated fees and expenses....................................... 1,000
--------
$ 28,600
========
Book value of HealthRider at June 30, 1996........................ $ 19,231
Elimination of certain liabilities not assumed.................... 2,800
Additional inventory purchased from Parkway....................... 1,600
Additional manufacturing assets purchased from Parkway............ 2,500
Estimated write-up of inventories................................. 26,208
Estimated write-down of fixed assets.............................. (22,496)
Estimated write-down of other long term assets.................... (1,243)
--------
$ 28,600
========
</TABLE>
The Company is currently exploring various uses for the building acquired
in the HealthRider Acquisition, including the sale of such building. Should
the building be sold in the near future, the above purchase accounting may
be revised to include a revaluation of the building to its sales price and
may result in the excess of the fair value of the assets acquired over the
purchase price of HealthRider being allocated to negative goodwill. Any
negative goodwill will be amortized as a credit to the results of
operations in subsequent periods.
(c) Represents the recognition of approximately $5.0 million of integration
expenses and $26.2 million in higher cost of goods sold (resulting from
the fact that the Company's purchase accounting will include writing-up
the book value of the acquired HealthRider inventory to fair market value
less estimated sales costs), net of the related tax benefit of $11.9
million, in the first through third quarters of 1997 resulting from the
HealthRider Acquisition.
(d) Represents the pro forma net extraordinary loss and related tax benefit
calculated at May 31, 1996. The table below shows these amounts at May 31,
1996 and at the expected actual dates of redemption (in thousands):
<TABLE>
<CAPTION>
MAY 31, OCTOBER 24,
1996 1996
-------- -----------
<S> <C> <C>
Write-off of unamortized deferred financing fees..... $ 10,075 $ 9,466
Redemption premium on the Discount Notes and Senior
Subordinated Notes.................................. 17,986 19,314
Write-off of unamortized discount on the redeemed
Senior Subordinated Notes and Discount Notes (1).... 3,395 3,157
-------- --------
31,456 31,937
Income tax (benefit)................................. (10,663) (10,936)
-------- --------
$ 20,793 $ 21,001
======== ========
</TABLE>
--------
(1) Does not give rise to tax benefit.
27
<PAGE>
In addition, the pro forma adjustments include the impact of: (i) the $2.8
million non-recurring fee to terminate the annual management fee payable to
Bain Capital, (ii) approximately $12.8 million in settlement expenses
related to the WHF Settlement, and (iii) the related tax benefit of $5.9
million.
(e) Represents amounts that, as of May 31, 1996, would have been used to (i)
redeem all of the Discount Notes ($72.2 million); (ii) redeem a portion of
the Senior Subordinated Notes ($34.6 million); (iii) pay accrued interest
on the redeemed portion of the Senior Subordinated Notes ($1.7 million);
(iv) redeem all of the IHF Holdings Preferred Stock and all of the options
to purchase IHF Holdings Preferred Stock (at an assumed price of $35.6
million); (v) pay the redemption premium on the Discount Notes and Senior
Subordinated Notes ($18.0 million); (vi) pay approximately $39.1 million
in connection with the purchase of the Common Stock and warrants to
purchase Common Stock held by the WHF Stockholders; and (vii) effect the
Weider Sports Acquisition, the CanCo Acquisition and the payment of
settlement expenses in connection with the WHF Settlement which together
total approximately $25.5 million (and of which approximately $12.8
million represents estimated settlement expenses). Actual amounts used for
the redemption of the Senior Subordinated Notes and Discount Notes will be
higher when the transactions actually occur. Amounts required to effect
these redemptions, in excess of the net proceeds of the Offering, are
assumed to be obtained through additional borrowings under the Credit
Agreement ($41.8 million).
(f) Represents the preferred stock dividends to be forgiven and the discount
upon redemption (total would be $13.9 million upon redemption at September
24, 1996).
(g) Represents (i) the net proceeds of the Offering of $185.0 million (after
the payment of $3.0 million of expenses of the Offering); (ii) the
Conversion; and (iii) the purchase of approximately $39.1 million of the
Common Stock and warrants to purchase Common Stock held by the WHF
Stockholders.
(h) Represents elimination of the existing HealthRider equity structure upon
the closing of the HealthRider Acquisition.
28
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
THE COMPANY--HISTORICAL
The selected consolidated financial data for the Company for the five years
ended May 31, 1996 have been derived from the historical audited consolidated
financial statements of the Company (formerly known as Weslo, ProForm, and
WeiderCare) and subsidiaries. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Financial Data" and the
introduction and notes thereto, and the historical consolidated financial
statements of the Company and the notes thereto contained elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, (1)
-------------------------------------------
1992 1993 1994 1995 1996
------- ------ ------ ------- ----------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales..................... $254.1 $314.9 $403.0 $ 530.8 $ 747.6
Cost of sales................. 194.9 228.6 288.2 378.4 541.5
------ ------ ------ ------- ----------
Gross profit.................. 59.2 86.3 114.8 152.4 206.1
Operating Expenses:
Selling....................... 25.1 38.5 52.1 68.7 93.9
Research and development...... 1.2 1.6 2.8 5.2 6.8
General and administrative.... 20.6 24.5 28.6 31.1 48.0
Compensation expense
attributable to options...... -- -- -- 39.0(2) 2.8 (3)
------ ------ ------ ------- ----------
Total operating expenses...... 46.9 64.6 83.5 144.0 151.5
------ ------ ------ ------- ----------
Income from operations........ 12.3 21.7 31.3 8.4 54.6
Interest expense.............. 4.9 5.5 6.2 21.5 36.5
Amortization of deferred
financing fees............... -- -- -- 1.7 3.5
Dividends on subsidiary
preferred stock.............. -- -- -- 2.8 5.1
------ ------ ------ ------- ----------
Income (loss) before income
taxes........................ 7.4 16.2 25.1 (17.6) 9.5
Provision for (benefit from)
income taxes................. 2.8 6.2 9.8 (4.7) 7.9
------ ------ ------ ------- ----------
Net income (loss)............. $ 4.6 $ 10.0 $ 15.3 $ (12.9) $ 1.6
====== ====== ====== ======= ==========
Pro forma net income per
common share (4)............. $
==========
Pro forma weighted average
common shares outstanding
(4)..........................
==========
SUPPLEMENTAL INCOME STATEMENT
DATA:(5)
Supplemental pro forma net
income....................... $ 12.8
==========
Supplemental pro forma net
income per
common share................. $ .46
==========
Supplemental pro forma
weighted average common
shares outstanding........... 27,500,000
==========
OTHER DATA:
Depreciation and amortization. $ 3.0 $ 3.4 $ 4.0 $ 11.6 $ 19.7
Capital expenditures.......... 4.0 4.0 6.9 8.0 15.4
<CAPTION>
MAY 31, (1)
-------------------------------------------
1992(1) 1993 1994 1995 1996
------- ------ ------ ------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash.......................... $ .2 $ .2 $ .1 $ 4.1 $ 19.3
Working capital............... 64.2 24.8 97.8 137.7 159.0
Total assets.................. 110.3 151.7 184.7 290.2 316.7
Total indebtedness............ 52.0 72.4 65.4 268.1 282.8
Preferred stock of subsidiary
(including accrued
dividends)................... -- -- -- 42.8 47.9
Stockholders' equity
(deficit).................... 30.2 39.8 54.5 (109.6) (104.8)
</TABLE>
29
<PAGE>
- --------
(1) Financial data through May 31, 1994 reflect the combined results of the
Recapitalized Companies and their subsidiaries. Financial data for periods
ending thereafter reflect the consolidated results of IHF Capital and its
subsidiaries. The balance sheet data of WeiderCare are not included in
balance sheet data for May 31, 1992. Such balance sheet data are
immaterial to the combined balance sheet at that date.
(2) Consists of accounting charges incurred in connection with the
Recapitalization as a result of the exchange by certain senior executives
of the Company of their options to purchase capital stock of the
Recapitalized Companies for $34.7 million of replacement options to
purchase Class A and Class L Common Stock of the Company and $4.0 million
of replacement options to purchase IHF Holdings Preferred Stock and the
Preferred Warrants and $.3 million of related payroll tax payments made by
IHF Capital. After the Recapitalization, the Company redeemed the
Redeemable Options.
(3) Consists of compensation expense attributable to the difference between
the fair value of the underlying stock and the exercise price of related
options granted to certain members of management.
(4) Reflects the Conversion only and includes all common stock equivalents as
defined in Note 2 to the Consolidated Financial Statements.
(5) Reflects (i) the sale by IHF Capital of 12,500,000 shares of Common Stock
offered hereby and an increase of $41.8 million in revolving credit
borrowings and the application of the estimated net proceeds therefrom to:
(a) redeem $35.0 million principal amount of Senior Subordinated Notes,
all of the Discount Notes, all of the IHF Holdings Preferred Stock and all
of the options to purchase IHF Holdings Preferred Stock, (b) pay
approximately $39.1 million in connection with the repurchase of the
Common Stock and warrants to purchase Common Stock held by the WHF
Stockholders, and (c) repay indebtedness incurred in connection with the
Weider Sports Acquisition, the CanCo Acquisition and the payment of
settlement expenses in connection with the WHF Settlement, which together
total approximately $25.5 million, (ii) the HealthRider Acquisition
(including the refinancing of approximately $11.6 million of revolving
credit borrowings outstanding at June 30, 1996, the assumption of $.2
million of other long term debt and $19.3 million of capital lease
obligations outstanding at June 30, 1996 and the incurrence of
approximately $27.5 million of additional indebtedness to finance the
HealthRider Acquisition) and (iii) the effect of the Conversion, as if
such transactions occurred on May 31, 1996, and, for purposes of the per
share information (which includes all common stock equivalents), as if
such transactions had occurred on June 1, 1995. See "Selected Consolidated
Financial Data" and "Sources and Uses of Funds" and Note 2 of the Notes to
the Consolidated Financial Statements.
30
<PAGE>
HEALTHRIDER--HISTORICAL
The selected consolidated financial data for HealthRider for each of the
three years in the period ended December 31, 1995 and as of December 31, 1994
and 1995 have been derived from the historical audited consolidated financial
statements of HealthRider and its subsidiaries. The selected consolidated
financial data for the six months ended June 30, 1995 and June 30, 1996 and as
of June 30, 1996 have been derived from the historical unaudited consolidated
financial statements of HealthRider which in the opinion of management,
contain all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the consolidated results of operations and
financial position of HealthRider for such periods and at such date.
HealthRider's sales have decreased substantially during the six months ended
June 30, 1996 and its operating loss and net loss have increased
substantially. Accordingly, HealthRider's results of operations for the six
months ended June 30, 1996 are not indicative of the results of operations to
be expected for the full year. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations--HealthRider," and the historical consolidated
financial statements of HealthRider and the notes thereto contained elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE
ENDED DECEMBER 31, SIX MONTHS ENDED
--------------------- -----------------
JUNE 30, JUNE 30,
1993 1994 1995 1995 1996
----- ------ ------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales .......................... $21.2 $106.6 $241.4 $117.0 $113.2
Cost of sales ...................... 7.1 37.5 84.5 40.3 43.5
----- ------ ------ ------ ------
Gross profit ....................... 14.1 69.1 156.9 76.7 69.7
Operating Expenses:
Selling and marketing ............ 12.0 48.4 119.3 53.3 65.8
General and administrative ....... 1.1 5.0 15.9 6.8 8.5
----- ------ ------ ------ ------
Total operating expenses ........... 13.1 53.4 135.2 60.1 74.3
----- ------ ------ ------ ------
Income (loss) from operations ...... 1.0 15.7 21.7 16.6 (4.6)
Interest expense ................... (.7) (1.1) (.1) (.1) (1.3)
Other Income, net................... .1 .7 2.1 .9 1.1
----- ------ ------ ------ ------
Income (loss) before income taxes .. .4 15.3 23.7 17.4 (4.8)
Provision (benefit) for income tax-
es ................................ .1 6.4 10.1 7.5 (1.2)
----- ------ ------ ------ ------
Net Income (loss)................... $ .3 $ 8.9 $ 13.6 $ 9.9 $ (3.6)
===== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER
31,
----------- JUNE 30,
1994 1995 1996
----- ----- --------
(IN MILLIONS)
<S> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash..................................................... $ 1.2 $ .5 $ .9
Working Capital.......................................... 3.9 15.4 8.6
Total Assets............................................. 21.7 64.7 88.4
Total Indebtedness....................................... 1.1 .8 31.1
Stockholders' Equity..................................... 8.7 22.7 19.2
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the historical audited and
unaudited consolidated financial statements and the related notes thereto
appearing elsewhere in this Prospectus. Certain of the information contained
in this summary and elsewhere in this Prospectus, including under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and information with respect to the Company's plans and strategy
for its business are forward-looking statements. For a discussion of important
factors that could cause actual results to differ materially from the forward-
looking statements, see "Risk Factors."
The Company's fiscal year ends on May 31 of the corresponding calendar year.
For example, 1996 ended on May 31, 1996.
OVERVIEW
The Company is one of the largest manufacturers and marketers of fitness
equipment in the United States and in the first quarter of 1996, commenced
direct marketing of its products in Europe. The Company's fitness products are
targeted to home use. The Company's sales grew from $202.4 million in 1991 to
$747.6 million in 1996. The Company believes that during that period its
growth rate exceeded the industry growth rate due to the Company's emphasis on
product innovation through research and development, its broad distribution
strategy and its flexible manufacturing capacity. While the Company's growth
rate to date has been high, its annual percentage increase in domestic sales
cannot be expected to continue at historical levels.
Recent Acquisitions. In August 1996, the Company completed the HealthRider
Acquisition, and in September 1996, the Company consummated the Weider Sports
Acquisition and the CanCo Acquisition. Unless otherwise noted, management's
discussion and analysis of the financial condition of the Company and results
of its operations does not include the HealthRider Acquisition, the Weider
Sports Acquisition or the CanCo Acquisition. For more information regarding
the HealthRider Acquisition, including information with respect to the effect
of purchase accounting (and its expected effect on margins during the second
and third quarters of 1997), the cost of integrating HealthRider into the
Company's business and HealthRider's cost of sales and selling expense (which
are materially different from the Company's), see "--HealthRider." For more
information regarding the Weider Sports Acquisition and the CanCo Acquisition,
see "Business--Litigation--Settlement of WHF Litigation."
Margins. The Company's sales and gross margins depend upon its success in
innovating, developing and marketing new products. Products tend to generate
higher gross margins earlier in the product life cycle (after production
efficiencies have been realized following an initial start-up period), when
there are fewer companies offering similar products, and tend to generate
lower gross margins over time as competition increases and consumer interest
diminishes. For example, during 1996, the Company's gross margins on its
Cardio family of upright rowers, first introduced by the Company in October
1994 in response to consumer interest in other companies' upright rowers,
substantially exceeded gross margins on its exercise bike product line, a more
mature product. However, the Company's sales of upright rowers declined from
$67.7 million during the fourth quarter of 1995 to $30.3 million during the
fourth quarter of 1996, and gross margins on the Company's upright rowers have
begun and are expected to continue to decline. Accordingly, the Company
strives to be among the first producers of attractive new product categories
(such as upright rowers) and to add new features to existing products (such as
the Space Saver feature recently added to its treadmill line which had not yet
achieved full production efficiencies by the end of 1996), which may increase
gross margins by reinvigorating demand and differentiating the Company's
products from similar products offered by its competitors. Life cycles may
vary significantly in duration from product to product.
32
<PAGE>
Direct Sales; European Operations. In 1992, the Company began selling
products directly to the public through television infomercials and print
media campaigns (i.e., direct marketing). Products sold through direct
marketing are sold at retail prices and therefore at higher gross margins than
products sold through the Company's other distribution channels. However,
direct marketing sales have higher associated selling, advertising,
distribution and other roll-out expenses. The Company is currently focusing
principally on 30 and 60 second television advertisements designed to enhance
both retail and direct response sales of its products as opposed to 30 minute
infomercials. Notwithstanding the foregoing, the Company will continue to
utilize direct response marketing with respect to HealthRider products. After
the Recapitalization, the Company began selling Weider branded products (for
which it pays royalties). See "Business--Marketing," "--Legal Proceedings" and
"Certain Relationships and Related Transactions."
During the first quarter of 1996, the Company established its own sales
operations in Europe. Prior to that, the Company's products were distributed
in Europe primarily by affiliates of WHF, an affiliate of the Company. The
Company's European operations have been consolidated in the statement of
operations for 1996 and the balance sheet at May 31, 1996. The Company's
European operations are not currently profitable, and there can be no
assurance that the Company will be successful in selling its products in non-
U.S. markets.
Non-Recurring Items and Other Expected Expenses. The Company incurred a
$39.0 million compensation expense with respect to the exchange of management
stock options in connection with the Recapitalization, including the
redemption of the Redeemable Options at a price of $26.4 million and related
tax payments of $.3 million. Such redemption resulted in a $26.7 million cash
compensation expense for the period in which the redemption occurred, which
was included in the computation of the loss in 1995. The Company also recorded
a $12.3 million non-cash compensation expense at the Recapitalization Closing
as a result of the exchange of options to purchase capital stock of the
Recapitalized Companies for $4.0 million of options to buy IHF Holdings
Preferred Stock and $8.3 million of options to buy Common Stock and the
Company also recorded an offsetting tax benefit to account for the future tax
benefit when, and if, such options are exercised. In connection with the
redemption of the options to buy IHF Holdings Preferred Stock, the Company
will realize a tax benefit related to the redemption price of such options of
$3.6 million and a non-taxable extraordinary gain of $.4 million.
In connection with the Offering and related transactions, the Company
expects to recognize an extraordinary loss in the second quarter of 1997 of
approximately $21.0 million (assuming the closing of this Offering occurs on
September 24, 1996) relating to: (i) the premium paid upon redemption of all
of the Discount Notes and $35.0 million principal amount of the Senior
Subordinated Notes (extraordinary loss of $19.3 million) and the write-off of
the deferred financing costs related to such redeemed notes (extraordinary
loss of $9.5 million); (ii) the write-off of unamortized discount on the
warrants sold in connection with the Senior Subordinated Notes and the
Discount Notes (extraordinary loss of $3.2 million); and (iii) an aggregate
related tax benefit of $10.9 million. In addition, in the second quarter of
1997, the Company will recognize a non-recurring expense of $2.8 million
representing a fee to terminate the annual management fee payable to Bain
Capital in accordance with the Bain Management Agreement (as defined) and, in
the first through third quarters of 1997, expects to incur (i) approximately
$5.0 million of integration expenses in connection with the HealthRider
Acquisition; (ii) a significant, non-recurring, non-cash increase in cost of
goods sold which is not expected to exceed approximately $26.2 million based
on HealthRider's inventory at June 30, 1996 (due to the fact that the
Company's purchase accounting for the HealthRider Acquisition will include
writing-up the book value of the acquired HealthRider inventory to fair market
value less estimated sales costs); (iii) approximately $12.8 million in
settlement expenses related to the WHF Settlement; and (iv) the related tax
benefit of $17.5 million.
33
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data of the Company
expressed as a percentage of net sales for 1994, 1995 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net sales............................................. 100.0% 100.0% 100.0%
Cost of sales......................................... 71.5 71.3 72.4
------ ------ ------
Gross profit.......................................... 28.5 28.7 27.6
------ ------ ------
Operating expenses:
Selling............................................... 12.9 12.9 12.6
Research and development.............................. .7 1.0 .9
General and administrative............................ 7.2 5.9 6.4
Stock option compensation expense..................... -- 7.3 .4
------ ------ ------
Total operating expenses.............................. 20.8 27.1 20.3
------ ------ ------
Income from operations................................ 7.7 1.6 7.3
Interest expense and amortization of debt financing
fees................................................. 1.5 4.4 5.3
Dividends on subsidiary preferred stock............... -- .5 .7
------ ------ ------
Income before income taxes............................ 6.2 (3.3) 1.3
Provision (benefit) for income taxes.................. 2.4 (.9) 1.1
------ ------ ------
Net income (loss)..................................... 3.8% (2.4%) .2%
====== ====== ======
</TABLE>
YEAR ENDED MAY 31, 1996 COMPARED TO THE YEAR ENDED MAY 31, 1995
Net sales increased by $216.8 million, or 40.8%, from $530.8 million in 1995
to $747.6 million in 1996. The increase was primarily attributable to sales
increases of $121.0 million of the Company's Cardio family of upright rowers
and increases of $72.0 million in treadmill sales. During 1996, upright rower
sales were $259.1 million or 34.7% of net sales, and treadmill sales were
$312.4 million, or 41.8% of net sales. Upright rower sales during the fourth
quarter of 1996 declined to $30.3 million, compared to $67.7 million during
the fourth quarter of 1995. Direct European sales, which began during the
first quarter of 1996, totaled $33.3 million.
Gross profit for 1996 was $206.1 million, or 27.6% of net sales, compared to
$152.5 million, or 28.7% of net sales, for 1995. Gross profit as a percentage
of net sales declined due to an increased proportion of sales to retailers
which generate a lower gross profit percentage than direct sales. Direct
response sales decreased from 9% of total sales in 1995 to 3% of total sales
in 1996.
Selling expenses were $93.9 million, or 12.6% of net sales, in 1996 compared
to $68.7 million, or 12.9% of net sales, in 1995. The dollar increase in
selling expenses resulted primarily from increased variable selling expenses
directly related to increased sales volume and from selling expenses of the
European subsidiaries (which were not operating in 1995). In total,
cooperative advertising and discount allowances increased from $14.1 million
to $34.6 million, with promotional activity (i.e., cooperative advertising)
with retailers increasing by $11.6 million and sales discounts to retailers,
which are charged against sales, increasing by $8.9 million as a result of
increased sales in the retail channel. In addition, warranty expenditures
increased by $5.6 million in 1996 compared to 1995 and sales commissions also
increased by $.7 million due to the increase in sales volume. Bad debt expense
increased by $1.1 million to provide for potential write-offs associated with
increased trade receivable balances.
Research and development expense was $6.8 million, or .9% of net sales, for
1996 compared to $5.2 million, or 1.0% of net sales, for 1995. This dollar
increase is related to on-going development of both current and future product
offerings.
34
<PAGE>
General and administrative expense totaled $48.1 million, or 6.4% of net
sales, for 1996 compared to $31.1 million, or 5.9% of net sales, for 1995.
Legal expenses increased during 1996 by $3.5 million over the same period
during the prior year. These legal expenses have resulted from certain patent
defense actions, product liability claims and legal fees associated with the
WHF Litigation. See "Business--Legal Proceedings." General and administrative
expenses in 1996 for the European subsidiaries totaled $5.4 million.
Expenditures under the Company's self-insured health plan increased by $.8
million. A $2.7 million management fee derived from monthly profits earned
under management agreements for services provided to Weider Sporting Goods,
Inc. ("WSG") through November 14, 1995 was recorded in 1995 with no
corresponding amount in 1996. This fee was recorded as an offset against
general and administrative expense incurred on behalf of WSG and was
nonrecurring. Following the Recapitalization, fees under the WSG agreement
stopped. Other increases totaling $4.6 million have occurred following the
Recapitalization to service the increase in sales. The major increases
include: personnel cost, management fees paid to Bain Capital (which will not
continue after the closing of the Offering), increased management information
systems expenditures, additional facility rental and other administrative
expenses.
Compensation related to management stock options resulted in an expense of
$2.8 million in 1996 compared to $39.0 million of compensation expense in
1995.
As a result of the foregoing factors, operating income increased to $54.6
million, or 7.3% of net sales, in 1996, from operating income of $8.4 million,
or 1.6% of net sales, in 1995.
Interest expense (which includes the accrual of dividends on IHF Holdings
Preferred Stock and options to purchase IHF Holdings Preferred Stock) and
amortization of deferred financing fees increased to $45.1 million in 1996
from $26.0 million for 1995. Interest expense has increased due to the
Company's high level of borrowing incurred in connection with the
Recapitalization. In 1996, the Company recorded interest expense of $5.1
million, compared to $2.8 million in 1995, related to dividends accruing on
IHF Holdings Preferred Stock which was issued in connection with the
Recapitalization and which is held by affiliates of the Company. Borrowings
incurred and IHF Holdings Preferred Stock and options therefor issued in
connection with the Recapitalization were outstanding for all of 1996, but
were outstanding for only 197 days in 1995. The Company plans to redeem all of
the outstanding Discount Notes, all of the IHF Holdings Preferred Stock
(including options to purchase IHF Holdings Preferred Stock) and $35.0 million
principal amount of Senior Subordinated Notes with proceeds of the Offering,
which would reduce interest expense going forward. This decrease will be
partially offset by an increase in interest expense resulting from an
additional $81.0 million in revolving credit borrowings (calculated on a pro
forma basis at May 31, 1996), which will result from the transactions referred
to under "Unaudited Pro Form Financial Data." The decrease in interest expense
may also be offset by increased working capital borrowings to service
increased sales.
The income tax provision was $7.9 million for 1996 compared with a tax
benefit of $4.7 million for 1995. The effective tax rate for 1996 differs from
that used for 1995 as a result of the non-deductibility of the dividends on
IHF Holdings Preferred Stock and the fact that no income tax benefit was
recognized in 1996 for the losses incurred in connection with the Company's
newly established European subsidiaries due to uncertainty regarding such
subsidiaries' ability to generate future taxable income against which such
losses can be applied.
As a result of the foregoing factors, net income increased to $1.6 million
for 1996 compared to a net loss of $12.9 million for 1995.
YEAR ENDED MAY 31, 1995 COMPARED TO THE YEAR ENDED MAY 31, 1994
Net sales increased by $127.8 million, or 31.7%, from $403.0 million in 1994
to $530.8 million in 1995. The increase was primarily attributable to sales of
$138.1 million of the Company's Cardio family of upright rowers which was
introduced in October 1994 and was marketed through direct response
infomercials and other distribution channels. Treadmill sales during 1995 were
$240.4 million compared to $256.8 million in 1994.
35
<PAGE>
Gross profit for 1995 was $152.5 million, or 28.7% of net sales, compared to
$114.8 million, or 28.5% of net sales, for 1994. Gross profit was positively
impacted by higher margins on new products sold through direct response
marketing, primarily the Cardio family of upright rowers, which were offset by
declining margins on certain mature product lines.
Selling expenses were $68.7 million, or 12.9% of net sales, in 1995 compared
to $52.1 million, or 12.9% of net sales, for 1994. The dollar increases in
selling expenses resulted from increased variable selling expenses directly
related to increased sales volume and increased expenditures on direct
marketing efforts (e.g. video production costs).
Research and development expense was $5.2 million, or 1.0% of net sales, for
1995 compared to $2.9 million, or .7% of net sales, for 1994. The increase was
primarily related to the development of new products and product concepts.
General and administrative expense totaled $31.1 million, or 5.9% of net
sales, for 1995 compared to $28.6 million, or 7.2% of net sales, for 1994. The
reduction in general and administrative expense as a percent of net sales was
largely due to the receipt in 1995 of a $2.7 million management fee derived
from monthly fees earned under management agreements for services provided to
WSG through November 14, 1994. This fee was recorded in 1995 as an offset
against general and administrative expense incurred on behalf of WSG and will
be nonrecurring.
A $39.0 million compensation expense was incurred in 1995 with respect to
management stock options. This expense consists of accounting charges incurred
in connection with the Recapitalization as a result of the exchange by certain
senior executives of the Company of their options to purchase capital stock of
the Recapitalized Companies for $34.7 million of replacement options to
purchase Common Stock and $4.0 million of replacement options to purchase IHF
Holdings Preferred Stock and $.3 million of related payroll tax payments made
by the Company. After the Recapitalization, the Company redeemed the
Redeemable Options for $26.4 million in cash.
As a result of the foregoing factors, operating income decreased by $22.8
million from $31.2 million in 1994 to $8.4 million in 1995.
Interest expense and amortization of deferred financing fees increased to
$23.2 million in 1995 from $6.2 million for 1994. The increased expense was
due to increased borrowings related to the Recapitalization and, to a lesser
extent, increases in interest rates and higher working capital borrowings. The
borrowings incurred in connection with the Recapitalization were outstanding
for 198 days of 1995. In addition, in 1995, the Company recorded an expense of
$2.8 million related to dividends accruing on the IHF Holdings Preferred Stock
issued in connection with the Recapitalization that is held by affiliates of
the Company.
The income tax benefit was $4.7 million for 1995 compared with a provision
of $9.8 million for 1994. The benefit for 1995 resulted from the recognition
of a deferred tax asset for the net operating loss generated in that year. The
combined federal and state income tax rate is assumed to be 38% which is
consistent with historical rates.
As a result of the foregoing factors, net income decreased to a net loss of
$12.9 million for 1995 compared to net income of $15.3 million during the same
period of 1994.
36
<PAGE>
SEASONALITY
The following are the net sales and operating income of the Company by
quarter for years 1996, 1995 and 1994:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net Sales
1996...................................... $124.8 $228.5 $240.9 $153.4
1995...................................... 70.6 163.0 182.8 114.4
1994...................................... 54.1 115.4 124.0 109.5
Operating Income
1996...................................... $ 6.4 $ 20.0 $ 25.4 $ 2.8
1995...................................... 2.6 (22.9)(1) 22.9 5.8
1994...................................... .4 9.9 11.3 9.7
Net Income (Loss)
1996...................................... $ (3.4) $ 4.2 $ 7.1 $ (6.3)
1995...................................... .9 (16.3)(1) 5.3 (2.8)
1994...................................... (.6) 5.0 5.9 5.0
</TABLE>
- --------
(1) Includes $39.0 million in one-time compensation expense attributable to
the exchange and partial redemption of management options.
Historically, the Company has sold a majority of its products to customers
in its second and third fiscal quarters (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 promotions by customers, increased consumer purchases and seasonal
changes that prompt people to exercise inside. The Company has in the past,
from time to time, incurred net losses in the first and fourth 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 the Company's 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
In 1996, the Company generated $24.5 million of cash from operating
activities and had net borrowings of $6.4 million under the Credit Agreement's
revolving credit facility primarily to finance increases in accounts
receivable. The Company used $15.4 million in cash for capital expenditures
related to upgrades in plant and tooling, purchases of additional
manufacturing equipment and building expansion and $.7 million for repayments
of long term debt. In addition, the effect of exchange rates increased the
Company's cash balances at May 31, 1996 by $.4 million. As a result of the
foregoing factors, the Company had a net increase in cash of $15.2 million
from May 31, 1995 to May 31, 1996.
In 1995, the Company used $31.3 million of cash in operating activities
primarily as a result of increases in working capital, particularly
inventories, and other operating assets of $35.6 million. The Company made
distributions of $166.7 million to its shareholders as part of the
Recapitalization and used $58.2 million to make payments on long-term
indebtedness. These uses of cash were financed primarily with the proceeds of
long-term borrowing that totaled $195.0 million, net borrowings under the
Credit Agreement of $66.4 million and net proceeds from the issuance of stock
of $38.6 million. The Company also used $8.0 million in cash in 1995 for
capital expenditures related to tooling and manufacturing equipment. During
1995, the Company had a net increase in cash of $4.0 million.
The Company's primary short-term liquidity needs consist of financing
seasonal merchandise inventory buildups and paying cash interest expense under
its Credit Agreement and on the Senior
37
<PAGE>
Subordinated Notes. The Company's principal source of financing for seasonal
merchandise inventory buildup and increased receivables during the past
several years has been revolving lines of credit with various financial
institutions. Since the Recapitalization Closing, its principal source of
financing for such needs has been revolving credit borrowings under the Credit
Agreement. The Company's 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, the Company's working capital borrowings remain at their highest
level and then are paid down to their lowest annual levels by April.
At May 31, 1996, Health & Fitness had $80.0 million of revolving credit
borrowings outstanding under the Credit Agreement. Advances under the Credit
Agreement's revolving credit facility are subject to the amount of Eligible
Accounts and Eligible Inventory (each as defined in the Credit Agreement) of
Health & Fitness. Health & Fitness' ability to make revolving credit
borrowings under the Credit Agreement expires on November 14, 1999. At May 31,
1996, Health & Fitness had $48.8 million of additional indebtedness available
to be drawn on a revolving credit basis under the Credit Agreement. Revolving
credit borrowings have primarily been used to increase inventory levels, to
finance normal trade credit for customers, to make interest payments on debt
issued in connection with the Recapitalization and to make capital
expenditures. The Credit Agreement contains a number of covenants, with which
Health & Fitness believes it was in compliance or as to which it has obtained
waivers of compliance as of the date hereof. The Company amended the Credit
Agreement as of August 23, 1996 to permit total revolving credit borrowings of
up to $310 million, subject to the Borrowing Base (as defined), in order to
meet the Company's longer term needs. The Company intends to use a portion of
its revolving credit borrowings to fund long-term non-working capital
requirements. The Company believes that cash flow from operations and
availability of revolving credit borrowings under the Credit Agreement will
provide adequate funds for its working capital needs, planned capital
expenditures and debt service obligations. The Company is highly leveraged,
and its ability to fund its operations and make planned capital expenditures,
to make scheduled payments and to refinance its indebtedness depends on its
future operating performance and cash flow, which in turn, are subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond its control. See "Risk Factors--Risks Associated with
Substantial Amounts of Indebtedness."
The Company's longer term liquidity needs include (a) required quarterly
amortization payments on the term loans under the Credit Agreement, consisting
of $.7 million from March 31, 1996, $1.0 million from March 31, 1997 and
greater amounts on or after March 31, 1998 and (b) payments of interest and
principal on the Senior Subordinated Notes. See Note 8 of the Notes to the
Consolidated Financial Statements.
The Company made capital expenditures of approximately $15.4 million during
fiscal 1996 and expects to make capital expenditures of approximately $12.3
million (including $2.9 million for HealthRider) in 1997. Such expenditures
are primarily for expansion of physical plant, purchases of additional or
replacement manufacturing equipment and revisions and upgrades in plant
tooling. The Company also made research and development expenditures in 1996
of approximately $6.8 million, and expects to make research and development
expenditures of approximately $7.8 million in 1997.
The Company funded the HealthRider Acquisition, the Weider Sports
Acquisition and the CanCo Acquisition with borrowings under the Credit
Agreement.
HealthRider had operating lease payments (generally short term) for kiosks
and stores of approximately $5.6 million in the six months ended June 30,
1996. HealthRider also had non-cancellable long term operating lease
obligations of $5.3 million as of December 31, 1995. In addition, as of June
30, 1996, HealthRider had capitalized lease payment obligations (including
interest) of approximately $38.0 million. The Company assumed these
liabilities in connection with the
38
<PAGE>
HealthRider Acquisition. The Company assumed accounts payable and other
accrued payables of approximately $30.0 million in connection with the
HealthRider Acquisition which will become due and payable within 60 to 90 days
after the closing of the HealthRider Acquisition. The Company will fund such
payments with borrowings under the Credit Agreement.
INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
Although the Company cannot accurately predict the precise effect of
inflation on its operations, it does not believe that inflation has had a
material effect on sales or results of operations in recent years. The Company
does import some finished products and components from Canada and Asia. All
purchases from Asia are fixed in U.S. dollars and, therefore, the Company is
not subject to foreign currency fluctuations on such purchases, although the
Company's vendors may respond to foreign currency fluctuations by seeking to
raise their prices. Purchases of inventory from Canada are settled in Canadian
dollars and therefore the Company is subject to fluctuations in the value of
the Canadian dollar which could have an impact on the Company's operating
results. In connection with the importation of products and components from
Canada, the 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. The Company's 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.
In addition, the Company, in the first quarter of 1996, began to directly
market its products in the key European markets of the United Kingdom, France,
Germany, the Benelux countries, Italy, Austria and Switzerland and Mexico. In
connection with the Recapitalization, the Company granted Weider Sports
certain exclusive and non-exclusive rights to distribute certain of the
Company's products. Under this distribution agreement, Weider Sports purchased
the Company's products in U.S. dollars and, therefore, the Company was not
subject to foreign currency fluctuations on such sales although the volume of
such sales may be affected by exchange rates. Sales made in Europe by the
Company itself, outside of the Weider Sports distribution agreement, have been
made in European currencies and are currently not hedged by the Company, while
the related expenses are principally in U.S. and Canadian dollars. In
September 1996, in connection with the Weider Sports Acquisition, the Company
reacquired distribution rights originally granted to Weider Sports in
connection with the Recapitalization, subject to certain rights granted by
Weider Sports to third parties. Accordingly, the Company will make sales in
other foreign countries in local currencies and expects to be increasingly
subject to the fluctuations in the foreign currency market, which could have
an impact on the Company's operating results. As sales volume in Europe grows,
the Company may begin to try to manage related foreign currency exchange risk
through hedging transactions.
HEALTHRIDER
OVERVIEW
In August 1996, the Company acquired substantially all the assets and
assumed (or refinanced) substantially all the liabilities of HealthRider.
HealthRider has experienced a substantial, continuing and accelerating
deterioration of its business since the beginning of calendar 1996.
HealthRider increased its selling expense for infomercials to $14.5 million
(net of a write-off of video production costs of $1.6 million) in the first
quarter of 1996 compared to $8.5 million in the first quarter of 1995 and
committed to purchase substantially increased volumes of inventory in
anticipation of sales increases. Despite the substantial increase in
advertising expenditures, HealthRider's total sales increased only modestly to
$75.0 million in the first quarter of 1996 from $57.9 million in the first
quarter of 1995, while its total infomercial sales decreased by $8.6 million
in the same period. These events compounded working capital difficulties that
HealthRider was already experiencing, causing HealthRider to reduce selling
expense for infomercials to $5.7 million in the second quarter of 1996 from
$10.8 million in the second
39
<PAGE>
quarter of 1995, which contributed to substantial declines in HealthRider's
sales. HealthRider reported net sales in the second quarter of 1996 of $38.2
million compared to $59.1 in the second quarter of 1995. HealthRider also
reported an operating loss for the first half of 1996 of $4.6 million compared
to operating income for the first half of 1995 of $16.5 million. HealthRider's
inventory at June 30, 1996 was $23.1 million compared to $5.5 million at June
30, 1995. Inventory in the health and fitness industry is usually at its
lowest point in the spring and early summer. The Company believes that the
decline in HealthRider's sales is due in part to a general weakening of market
demand for upright rowers and the partial saturation of the audience that can
be reached through infomercials. The Company also believes that HealthRider's
working capital crisis was exacerbated by lower than expected revenues, by
higher per minute costs of infomercials and by more lenient payment terms and
deferred payment plans. The Company terminated these plans upon consummation
of the HealthRider Acquisition.
The HealthRider Acquisition was structured as an asset purchase and will be
accounted for under the purchase method of accounting. The Company expects to
write-up the book value of inventory and to write-down the historical book
value of property, plant and equipment and other long-term assets acquired.
The Company will recognize a significant, non-recurring, non-cash increase in
cost of goods sold in the second and third quarters of 1997 which is not
expected to exceed approximately $26.2 million (due to the fact that the
Company's purchase accounting for the HealthRider Acquisition will include
writing-up the book value of the acquired HealthRider inventory to fair market
value less estimated sales costs). Following the sale of the acquired
inventory, the Company may be able to improve profitability through greater
manufacturing efficiency.
In addition, the HealthRider Acquisition is expected to result in expenses
of approximately $5.0 million in the second and third quarters of 1997 related
to the integration of HealthRider into the Company's business. These expenses
are expected to include the cost of severance, plant relocation expenses,
expenses associated with closing unprofitable kiosks and other fees and
expenses. The majority of integration related expenses is expected to be
expensed in the second and third quarters of 1997.
The Company's plan for integrating HealthRider into its business includes:
(i) marketing a broad line of products such as treadmills, stair steppers and
cross-country skiing machines under the HealthRider brand name through
HealthRider's established distribution channels; (ii) altering direct response
advertising with respect to HealthRider products with the goal of enhancing
the Company's return on its advertising investment; and (iii) realizing
synergies from the HealthRider Acquisition by integrating the Company's and
HealthRider's operations.
Following the HealthRider Acquisition, the Company expects to increase its
net sales, but by substantially less than 100% of HealthRider's net sales. The
Company also expects that its overall selling expenses will rise as a result
of HealthRider's direct response advertising. This may be offset somewhat
through cost savings on combined overhead.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
Net sales of HealthRider consist of product sales plus freight, less
discounts and return allowances. Net sales of HealthRider increased from $57.9
million in the first quarter of 1995 to $75.0 million during the first quarter
of 1996 but decreased from $59.1 million in the second quarter of 1995 to
$38.2 million during the second quarter of 1996, resulting in an aggregate
decrease in net sales for the six months ended June 30, 1996 as compared to
the six months ended June 30, 1995 of $3.8 million. This decrease reflects a
$29.7 million decrease in net sales through direct response marketing due to a
reduction of demand through this distribution channel, despite an increase of
$2.6 million in selling expense for direct response marketing (including the
write-off of infomercial production costs of $1.6 million). The decrease in
sales through the direct response marketing channel in the first six months of
calendar 1996 was partially offset by a $15.1 million increase in net sales
through HealthRider kiosks and stores which increased from $36.0 million to
$51.1 million, a $4.7 million
40
<PAGE>
increase in net sales through third-party retailers which increased from $25.0
million to $29.7 million, and a $6.1 million increase attributable to sales of
a newly created subsidiary in Europe. The increase in the number of
HealthRider kiosks and retail stores from approximately 170 to approximately
225 and the introduction of several accessory items account for the majority
of the increase in net sales through the HealthRider kiosks and retail stores.
The number of kiosks and stores at June 30, 1996 decreased from December 31,
1995 due to seasonal changes in demand. The total number of fitness machines
sold by HealthRider increased from approximately 306,000 in the first two
quarters of 1995 to approximately 336,000 in the first two quarters of 1996.
Gross profits of HealthRider decreased from $76.7 million to $69.7 million
and, as a percentage of net sales, decreased from 65.5% during the first six
months of 1995 to 61.6% during the first six months of 1996. The percentage
decrease was primarily due to modifications to the "1996 HealthRider" upright
rower that increased HealthRider's costs and a decrease in sales of the
HealthRider upright rower (a higher margin product) as a percentage of total
sales from 77.4% to 69.0% for the respective six month periods, in part as a
result of the introduction of lower margin machines (i.e., the SportRider and
LifeRider) subsequent to June 30, 1995.
Selling and marketing expenses of HealthRider increased from $53.3 million
during the first six months of 1995 to $65.8 million during the first six
months of 1996. As a percentage of net sales, selling and marketing expenses
increased from 45.6% to 58.2% from the first six months of calendar 1995 to
the first six months of calendar 1996. The increase is primarily due to lower
than expected revenues from an increased level of infomercial advertising from
$19.3 million in the first six months of 1995 to $20.2 million in the first
six months of 1996 (not including the write-off of $1.6 million in first
quarter 1996 in direct response infomercial production costs). The increase
was also affected by an increase in HealthRider's bad debt expense from $3.1
million in the first six months of 1995 to $3.7 million in the first six
months of 1996 to reflect higher anticipated losses related to a 10 month
payment plan introduced in November 1995. The Company terminated this plan
upon consummation of the HealthRider Acquisition.
General and administrative expenses of HealthRider increased from $6.8
million during the first six months of 1995 to $8.5 million during the first
six months of 1996. As a percentage of net sales, general and administrative
expenses increased from 5.8% to 7.5%. The dollar increase in general and
administrative expenses reflects increases in payroll for administrative,
financial and customer service personnel, professional services, and other
costs related to anticipated sales increases which did not occur and the
establishment of HealthRider's new headquarters building in Salt Lake City.
The increase as a percentage of sales is also due to those factors.
As a result of the foregoing factors, HealthRider reported an operating loss
of $4.6 million in the six months ended June 30, 1996 compared to operating
income of $16.5 million in the six months ended June 30, 1995.
Interest expense of HealthRider increased from less than $.1 million during
the first six months of 1995 to $1.3 million during the first six months of
1996. This increase was due to borrowings on a revolving line of credit and
increased capital lease obligations during the first six months of 1996.
Other income, which consists primarily of finance charges paid by customers,
of HealthRider increased from $.9 million during the first six months of 1995
to $1.1 million during the first six months of 1996. The increase in other
income was primarily due to an increase in sales of HealthRiders to customers
purchasing the HealthRider on the installment plan, pursuant to which interest
is charged. The Company terminated this plan upon consummation of the
HealthRider Acquisition.
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<PAGE>
As a result of the foregoing factors, HealthRider reported a net loss of
$3.6 million in the first six months of 1996 compared to net income of $9.9
million in the same period of 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Net sales of the HealthRider consist of product sales plus freight, less
discounts and return allowances. Net sales increased from $106.6 million
during 1994 to $241.4 million during 1995. The increase in net sales was due
to a $72.6 million increase in net sales through HealthRider kiosks which
increased from $19.3 million to $91.9 million, a $34.0 million increase in net
sales through third party retailers which increased from $24.8 million to
$58.8 million, a $27.1 million increase in net sales through direct-response
advertising which sales increased from $62.5 million to $89.6 million and a
$1.1 million increase attributed to the start up of a subsidiary in Europe in
the fourth quarter of 1995. The continued increase in the number of
HealthRider kiosks and stores from approximately 140 to approximately 250
during 1995 and the introduction of a number of accessory items account for
the increase in net sales through the HealthRider kiosks and stores. The
increase in net sales through third-party retailers was due to increased sales
of the aeROBICRider and the introduction of the SportRider and other private
labeled machines during 1995. The increase in net sales through direct-
response advertising was primarily due to the successful introduction of
HealthRider's third television infomercial and increased media spending at a
higher level of efficiency. The total number of all fitness machines sold by
HealthRider increased from approximately 275,000 during 1994 to approximately
695,000 during 1995.
Gross profit of HealthRider as a percentage of net sales increased slightly
from 64.8% to 65.0% during 1995. The increase was due to the addition of
higher margin accessory items to the product line and lower product costs due
to overseas production of certain products.
Selling and marketing expenses increased from $48.4 million to $119.3
million during 1995. As a percentage of net sales, selling and marketing
expenses increased from 45.4% to 49.4% during 1995. This increase reflects the
overall increase in advertising in conjunction with HealthRider's sales growth
along with general increases in bad debt expense, warranty expense and other
expenses. In 1995 marketing related expenses were $113.1 million, bad debt
expenses were $4.9 million and warranty expenses were $1.3 million.
General and administrative expenses of HealthRider increased from $5.0
million to $15.9 million during 1995. As a percentage of net sales, general
and administrative expenses increased from 4.7% during 1994 to 6.6% during
1995. The dollar and percentage increase in general and administrative
expenses reflect increases in payroll for administrative, financial and
customer service personnel, professional services, and other costs related to
HealthRider's growth.
As a result of the foregoing factors, income from operations increased $6.1
million, or 38.9%, to $21.8 million in 1995 from $15.7 million in 1994. Income
from operations decreased as a percentage of net sales to 9.0% in 1995 from
14.8% in 1994.
Interest expense decreased from $1.1 million to $.1 million during 1995.
This decrease was primarily due to the decrease in average outstanding debt
balances and interest expense incurred on a note payable to a stockholder of
$.7 million during 1994. Principal and interest on this note payable to the
stockholder were paid in full during 1994.
Other income of HealthRider increased from $.7 million to $2.1 million
during 1995. The increase in other income was primarily due to the increase in
customers purchasing HealthRider upright rowers on the installment plan,
pursuant to which interest is charged.
As a result of the foregoing factors, net income increased by $4.7 million,
or 52.8%, to $13.6 million in 1995 from $8.9 million in 1994.
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<PAGE>
BUSINESS
OVERVIEW
The Company is one of the largest manufacturers and marketers of fitness
equipment in the United States. The Company's 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. The Company's line of home
fitness aerobic products includes treadmills, upright rowers, exercise bikes,
stair steppers and cross country skiers, and its line of anaerobic fitness
products includes home gyms, weight benches and recently introduced abdominal
machines. The Company also offers trampolines, recreational sports products,
sports medicine products and fitness accessories. The Company currently
markets the majority of its products under the brand names ProForm, Image,
Weslo, Weider, WeiderCare, Legend, JumpKing, and Lifestyler (a private label
brand manufactured for Sears).
Founded in 1977, the Company has been a pioneer in the fitness equipment
industry since 1980 and has focused on developing innovative, high-quality
fitness products. The Company estimates that its U.S. net sales (prior to the
HealthRider Acquisition) represented approximately 30% of total wholesale
domestic home fitness equipment sales in calendar 1995. In the first quarter
of 1996, the Company began to directly market its products in Europe. In 1996,
the Company had net sales of $747.6 million versus $202.4 million in 1991,
reflecting compound annual growth in net sales of 29.9% and an increase in
1996 net sales of 40.8% from 1995 net sales of $530.8 million. The Company had
a net loss of $12.9 million and net income of $1.6 million in 1995 and 1996,
respectively. The Company believes that from 1991 to 1996 its growth rate
exceeded the industry growth rate due to the Company's emphasis on product
innovation through research and development, its multiple distribution
channels and its flexible manufacturing capacity. While the Company's growth
rate to date has been high, its annual percentage increase in domestic sales
cannot be expected to continue at historical levels.
BUSINESS STRATEGY
The Company's strategy is to expand its market leadership position by, among
other things:
DEVELOPING INNOVATIVE, HIGH-QUALITY PRODUCTS
A key element of the Company's strategy is product innovation and
development. The Company evaluates new product concepts on an ongoing basis
and seeks to respond to the desires and needs of consumers by frequently
introducing new products and repositioning old ones (i.e., selling a modified
product in a different price range). This focus on new products and innovation
enables the Company to begin selling early in a product's life cycle and, as
sales moderate, to extend product life cycles by introducing new features and
repositioning products within the Company's line of brands. In 1994, 1995 and
1996, approximately 40%, 42% and 52%, respectively, of the Company's net sales
were from products that were new, enhanced or repositioned. Recent examples of
the Company's product development include the introduction of the Space Saver
treadmill, which folds vertically for easy storage, the development of the
Cardio family of upright rowers, which significantly improved on upright rower
designs first marketed by others, and the introduction of the Company's
abdominal machines, which improved upon existing products manufactured by
others by adding a fold for storage feature. The Company believes that its
ability to identify industry trends and to quickly take a product from concept
to delivery gives it significant advantages over competitors.
TARGETING MULTIPLE DISTRIBUTION CHANNELS
The Company markets its products under multiple brands through multiple
distribution channels including specialty dealers, sporting goods chains,
department stores, discount merchants, warehouse
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<PAGE>
clubs, catalogue showrooms and, to a limited extent, infomercials and direct
response marketing. The Company believes the marketing of its products through
multiple distribution channels provides it with several competitive advantages
including: (i) greater growth and increased market access; (ii) 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;
(iii) feedback on market trends and changing consumer tastes; and (iv) reduced
dependence on any single channel of distribution.
POSITIONING ITS BRANDS
To enhance its distribution strategy, the Company targets its brands to
specific distribution channels. By marketing specific brands tailored to
appeal to different demographic groups, the Company is 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.
The Company believes its brand positioning strategy enables it to: (i) achieve
greater appeal to each market segment; (ii) promote price stability across its
product lines as brand segmentation minimizes conflicts between different
distribution channels; and (iii) provide high-quality products with the price
ranges and features desired by different demographic groups. The Company's
various brands are supported by distinct marketing and product strategies and,
in some cases, separate sales forces.
PROVIDING BROAD PRODUCT OFFERINGS
The Company manufactures and distributes a broad line of aerobic and
anaerobic fitness equipment. The Company also markets recreational sports
products, sports medicine products and fitness accessories. The Company offers
a range of technological features, from manual equipment to sophisticated
programmable electronic products, in a variety of price ranges. The Company's
strategy of offering a broad range of products enables it to: (i) offer
categories of fitness products that appeal to different demographic groups;
(ii) respond quickly to changes in consumer preferences and fitness trends;
(iii) reduce its dependence on any single product category; and (iv)
participate in growth opportunities across a wide variety of product
categories.
UTILIZING FLEXIBLE, LOW-COST MANUFACTURING
The Company's manufacturing facilities are designed to be flexible in order
to permit the Company to shift its product mix quickly and efficiently. The
combination of internal manufacturing and assembly capacity and the Company's
access to third-party vendors has helped the Company meet customer demand on a
competitive basis. The Company uses over 1,500,000 square feet of total
domestic manufacturing capacity, and, in 1995, the Company manufactured or
assembled over 80% of its products at its production facilities in Utah, Texas
and Colorado. The design of these facilities provides the Company with the
flexibility to change production runs on short notice and to respond to
changing customer needs.
PURSUING GROWTH OPPORTUNITIES
The Company is seeking strategic acquisition opportunities which would
complement its existing business and provide an opportunity for growth. The
Company believes growth opportunities exist in its current domestic markets as
well as in selected international markets. The North American fitness
equipment market is significantly more developed than other markets around the
world. However, the Company began to directly market its products in the first
quarter of 1996 in the key European markets of the U.K., France, Italy and the
Benelux countries and is attempting to increase its market penetration in
these and other foreign countries. Prior to 1996, the Company had minimal
foreign sales. Net sales from international markets in the four quarters of
fiscal 1996 were $6.0 million, $9.3 million, $7.8 million and $10.2 million,
respectively. In connection with the Recapitalization, the Company granted
certain exclusive and non-exclusive rights to distribute its products in
certain other international markets to
44
<PAGE>
Weider Sports. In September 1996, in connection with the Weider Sports
Acquisition, the Company reacquired such distribution rights from Weider
Sports, subject to certain rights granted by Weider Sports to third parties.
The Company also consummated the CanCo Acquisition. In addition, the Company
is considering offering services that complement its product offerings, such
as on-line personal training services. See "--Legal Proceedings--Settlement of
WHF Litigation," "Certain Relationships and Related Transactions" and "Risk
Factors--Expansion Strategy."
In keeping with its strategy of pursuing growth opportunities, in August
1996, the Company: (i) purchased substantially all the assets of HealthRider
for approximately $16.8 million and assumed (or refinanced) substantially all
the liabilities of HealthRider; (ii) purchased certain related manufacturing
assets of Parkway, including Parkway's contract to manufacture and supply
upright rowers to HealthRider, for approximately $10.1 million; and
(iii) purchased the minority interest of HealthRider's European subsidiary for
approximately $1.4 million (of which $.7 million was paid by HealthRider, $.6
million was paid by the Company in cash and $.1 million was paid by the
Company in inventory). The liabilities assumed included capital lease
obligations of approximately $19.3 million and revolving credit borrowings and
other long term debt of approximately $9.5 million. In addition, for a
description of certain accounts payable and other accrued payables the Company
assumed in connection with the HealthRider Acquisition, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
INDUSTRY OVERVIEW
Based on industry trade association data, the Company believes that retail
sales of home fitness equipment in the U.S. grew from approximately $.4
billion in calendar 1980 to approximately $2.1 billion, $2.1 billion, $2.6
billion, $2.8 billion and $2.9 billion in calendar 1991, 1992, 1993, 1994 and
1995, respectively.
The growth of the fitness equipment industry can be attributed primarily to
increased consumer emphasis on health, fitness and weight management. In
particular, the medical community's promotion of exercise as a means of
preventing cardiovascular disease and maintaining health and the diet
industry's recognition of the need to incorporate exercise as a component of
weight management programs have prompted consumers to place greater emphasis
on health and fitness. The Company believes that several other factors have
also contributed to the growth of the fitness equipment industry, including
product innovation at attractive price/value relationships, growth in
infomercials and cable television shows which promote exercise and fitness and
favorable demographic trends. The Company believes that sales of home fitness
equipment have also benefited from consumers' desire to spend more time at
home. The Company competes with recreational and exercise activities offered
by fitness clubs, as well as with a number of domestic manufacturers, domestic
direct importers, foreign companies exporting fitness products to the U.S.
and, in its limited direct sales efforts, with major retailers or
distributors. The Company's products also compete indirectly, but effectively,
with outdoor fitness, sporting goods and other recreational products.
While the total fitness equipment market has experienced strong overall
growth, individual product categories within the market have exhibited varying
life cycles and rates of growth. Traditional rowers experienced a relatively
short product life cycle. Since 1984, unit sales of traditional rowers have
equaled or exceeded 1.7 million units in only two years, with peak sales of
1.8 million in 1985 and 1986 and marginal sales in 1994 and 1995, and totaled
less than 10 million units over this period. In contrast, unit sales of
exercise bikes since 1984 have equaled or exceeded 1.7 million units in each
of the years up to 1993, with peak unit sales of 3.3 million in 1986 and sales
of .9 million in 1995, and have totaled over 38 million units. Unit sales of
treadmills have increased from .8 million in 1989 to 2.5 million units in
1995. The Company's sales of treadmills have been relatively flat for 1995 and
1996. However, sales of the Company's Cardio family of upright rowers which
was introduced in the second quarter of 1994 were approximately 1.0 million
units in 1995 and approximately 2.2 million units in
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1996. Calculated on a pro forma basis as if the HealthRider Acquisition
occurred on May 31, 1994, the Company's unit sales of upright rowers would
have been approximately 1.5 million and approximately 2.9 million in 1995 and
1996, respectively.
Different categories of fitness equipment products appeal to different
demographic groups. In general, home fitness equipment products tend to appeal
to higher income groups, with over 65% of purchasers having household income
exceeding $35,000. The Company believes that the aging of the baby-boom
generation and the resulting increase in the 35-64 year old segment in the
U.S. population has led to growth in sales of home fitness equipment.
1995 INDUSTRY CONSUMER DEMOGRAPHICS
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Age
________________________________________________________________________________
Product (0-34) (35-64) (65+)
- -------
<S> <C> <C> <C>
Treadmills 13.3 71.5 15.2
Exercise Bikes 28.6 50.5 20.9
Stairstepper 27.5 63.7 8.9
Cross Country Skiers 27.1 62.0 10.9
Home Gyms 45.6 42.1 12.3
Upright Rower 19.1 65.0 5.6
<CAPTION>
Income
------
Product $0-25,000 $25,000-35,000 $35,000+
- ------- --------- -------------- --------
<S> <C> <C> <C>
Treadmills 23.4 10.6 66.0
Exercise Bikes 26.1 18.2 55.7
Stairstepper 16.6 14.1 69.3
Cross Country Skiers 24.0 11.1 64.9
Home Gyms 29.5 15.9 54.6
Upright Rower 19.9 14.6 65.6
</TABLE>
Source: National Sporting Goods Association
DISTRIBUTION AND MARKETING
DISTRIBUTION
The Company markets its products under multiple brands through multiple
distribution channels, including specialty dealers, sporting goods chains,
department stores, warehouse clubs, discount merchants, catalogue showrooms
and direct response marketing. In 1995 and 1996, the Company's sales through
retailers were approximately 91% and 97%, respectively, of total sales.
The Company believes the marketing of products through multiple distribution
channels provides it with several competitive advantages, including: (i)
greater growth opportunities by participating in all distribution channels;
(ii) the ability to maximize revenue throughout a product's life cycle by
repositioning the product from higher to lower brand niches as the product
matures; and (iii) the ability to appeal to each market segment through the
marketing of specific brands designed to meet differing needs. The latter
capability is an important factor since different categories of fitness
equipment products appeal to different demographic groups.
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<PAGE>
The following chart lists examples of the Company's brand names, price
positioning, distribution channels and customers within each channel:
<TABLE>
<CAPTION>
BRAND NAMES PRICE POSITIONING DISTRIBUTION CHANNELS CUSTOMER EXAMPLES
----------- ----------------- --------------------- -----------------
<S> <C> <C> <C>
Image................... High Specialty Dealers Busy Body
ProForm................. Middle Department Stores J.C. Penney
Sporting Goods Chains Sports Authority
Direct Response Individuals
Lifestyler(1)........... Middle Department Store Sears
Weslo/Weider............ Entry Level Discounters Wal-Mart and Target
Warehouse Clubs Sam's
Catalogue Showrooms Service Merchandise
</TABLE>
- --------
(1) The Lifestyler brand name is owned by Sears.
The Company targets its brands to specific distribution channels. For
example, the Company's products are sold under the Image name through specialty
dealers, under the ProForm name through sporting goods chains, under the
Lifestyler name through Sears, under the Weslo name through catalogue
showrooms, warehouse clubs and discount merchants, and under the ProForm and
Legend names through the Company's direct marketing campaigns. The Company's
various brands are supported by distinct marketing and product strategies and,
in some cases, separate sales forces.
The following charts summarize the Company's sales by distribution channel in
1995 and 1996:
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <S> <C>
DEPARTMENT STORES 45% DEPARTMENT STORES 47%
WAREHOUSE CLUBS 17% WAREHOUSE CLUBS 11%
SPORTING GOODS STORES 11% SPORTING GOODS STORES 10%
CATALOGUE SHOWROOMS 10% CATALOGUE SHOWROOMS 12%
DIRECT RESPONSE 9% DIRECT RESPONSE 9%
DISCOUNT RETAILERS 4% DISCOUNT RETAILERS 4%
MAIL ORDER 3% MAIL ORDER 3%
OTHER 1% OTHER 1%
</TABLE>
In addition to providing superior market access, the Company's presence
across multiple distribution channels provides a valuable source of feedback on
changing consumer tastes and market trends, enabling the Company to anticipate
industry trends and develop innovative products.
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<PAGE>
MARKETING
The Company's primary sales and marketing group is based in Logan, Utah. For
certain of its products, the Company augments the efforts of this group with
smaller sales forces based in Colorado and Texas. The Company employs
approximately 130 sales and marketing personnel. Such personnel are
compensated on the basis of salary and a bonus based on the Company's
profitability. In addition, the Company utilizes 22 outside sales agents, who
are compensated on the basis of their sales.
Starting in 1992, the Company sold products directly to consumers through
direct response television infomercials and print media campaigns. The Company
believes that direct response marketing can help educate consumers about new
products, increase brand name awareness and stimulate sales through
traditional distribution channels. The expansion of the Company's direct
response marketing required a greater investment than traditional 30 to 60
second television advertisements, and therefore greater risk, as a result of
the cost of creating infomercials and purchasing media time and space. In
1996, the Company wrote off $2.2 million of direct response video productions
because they failed to generate adequate sales. The Company is currently
focusing principally on traditional 30 to 60 second television advertisements
designed to enhance both retail and direct response sales of its products as
opposed to 30 minute infomercials.
INTERNATIONAL MARKETS
The North American fitness equipment market is significantly more developed
than other markets around the world, and the Company believes growth
opportunities exist in selected international markets. The Company began, in
the first quarter of 1996, to directly market its products in the key European
markets of the U.K., France, Italy and the Benelux countries and is attempting
to increase its market penetration in these and other foreign markets. Net
sales from international markets in the four quarters of 1996 were $6.0
million, $9.3 million, $7.8 million and $10.2 million, respectively. The
Company's penetration of these markets is lower and its operating costs are
higher than in the U.S., and the Company's European operations are not
currently profitable. There can be no assurance that the Company will be
successful in selling its products in non-U.S. markets. In connection with the
Recapitalization, the Company granted certain exclusive and non-exclusive
rights to distribute its products in certain other international markets to
Weider Sports. In September 1996, in connection with the Weider Sports
Acquisition, the Company reacquired such distribution rights from Weider
Sports, subject to certain rights granted by Weider Sports to third parties.
See "--Legal Proceedings--WHF Litigation", "--Settlement of WHF Litigation,"
"Risk Factors--Expansion Strategy" and "Certain Relationships and Related
Transactions."
CUSTOMERS
The Company's two largest customers for the past several years have been
Sears and Sam's. In 1995, these customers collectively generated an aggregate
of $229.5 million in net sales for the Company and accounted for approximately
31% and 12%, respectively, of the Company's total net sales. In 1996, these
customers accounted for approximately 34% and 8%, respectively, of the
Company's total net sales. In 1995 and 1996, Sam's accounted for approximately
94% and 70%, respectively, of net sales at the Company's JumpKing subsidiary.
Although sales to Sears still account for a substantial portion of the
Company's net sales, the percentage of net sales has decreased substantially
in the past several years from approximately 68% in 1989. Nevertheless, the
dollar amount of the Company's net sales to Sears has increased during this
time period.
The Company has more than 2,500 customers, excluding sales to individual
consumers through direct response channels of distribution. Consistent with
industry practice, the Company generally does not have long-term purchase
agreements or other commitments from its customers as to levels of
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future sales. The level of the Company's sales to its large customers depends
in large part on their continuing commitment to home fitness products and the
success of their efforts to market and promote the Company's products as well
as the Company's competitiveness in terms of price, quality, product
innovation, customer service and other factors. The Company is not the
exclusive supplier of fitness equipment to any of its major customers. In
connection with the HealthRider Acquisition, the Company intends to offer
products directly to consumers through the acquired kiosks, stores and direct
response networks. The Company's direct sales to consumers, particularly
through kiosks and stores in malls where the Company's existing customers have
retail sales outlets, could adversely affect the Company's sales and its
relationship with existing customers. 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 the Company's major customers or a number of the Company's
other customers would have a material adverse effect on the Company's
business. See "Risk Factors--Reliance on Major Customers; Exposure to the
Retail Industry."
PRODUCTS
The Company manufactures and distributes a broad line of aerobic and
anaerobic fitness equipment. The Company also markets recreational sports
products, sports medicine products and fitness accessories. The Company offers
a range of technological features from manual equipment to sophisticated
programmable electronic products at a variety of price ranges. The appeal of
various products in the fitness industry has changed over time, and the
Company has shifted its product mix to meet consumer demand. The Company
intends to continue to adjust its product lines to respond to changes in
market demand.
AEROBIC PRODUCTS.
The Company offers aerobic products, which are designed to promote
cardiovascular fitness, under the Image, ProForm, Weslo and Lifestyler brand
names.
Cardio Family of Upright Rowers. The Company introduced its 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. Models retail at
price points ranging from $169-$299.
Motorized Treadmills. The Company is the leading domestic producer of
motorized treadmills. Motorized treadmills allow users to run at speeds of up
to 10 mph. The features offered by the Company's motorized treadmills include
programmable speed and incline, electronic feedback on speed, elapsed time,
distance traveled and calories burned, and cross-training upper body exercise
functions. The Company recently introduced its line of Space Saver treadmills
which fold vertically for easy storage. The retail price points of the
motorized treadmills range from $199 to $2,000.
Manual Treadmills. The Company's manual treadmills allow the user to walk or
run slowly in place, and certain of the Company's manual treadmill models
include electronic feedback on speed, elapsed time and distance traveled. The
retail price points of the Company's manual treadmills range from $149 to
$299.
Exercise Bikes. The Company offers exercise bikes featuring adjustable air
resistance or flywheel resistance, 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 less
noise, offers smoother action and requires less maintenance than traditional
motorized drives. Retail price points of the Company's exercise bikes range
from $79 to $799.
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Stair Steppers. Various stair stepper machines sold by the 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 the Company's stair steppers include the
Speed Link adjustable resistance system, multi-window electronic monitors and
programmable electronics. Retail price points for the Company's stair steppers
range from $99 to $499.
Cross-Country Skiing Machines. The Company's cross-country skiing machines
feature motivational fitness monitors, stowaway design, the Company's patented
INSYNC Dual Action System, adjustable incline and adjustable resistance.
Retail price points for the Company's cross-country skiing machines range from
$99 to $199.
ANAEROBIC PRODUCTS.
Under the Image, ProForm, Weslo and Weider brand names, the Company offers
anaerobic products, which are designed to develop muscle tone and strength.
Home Gyms. The Company's home gyms range from traditional cast iron or vinyl
plate weight stack units to programmable electronic units that use "smart
cards" to store a user's personalized fitness regimen in electronic memory.
New technology and innovation within this category include home gyms which
integrate aerobic crosstraining components such as stair steppers 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. The Company's home gyms range in retail
price from $99 to $1,499.
Weights and Benches. The Company offers a range of weight benches to
specialty fitness dealers through the Image brand and markets a complete line
of weights and benches under the Weider and ProForm brand names. Retail price
points of these products range from $79 to $299.
Abdominal Machines. The Company introduced its first abdominal machine in
April 1996. This product is designed for isolation of the abdominal muscle
groups. Retail prices of the Company's abdominal products range from $49 to
$99.
OTHER PRODUCTS.
Recreational Sports Products. JumpKing, Inc., a subsidiary of the Company,
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 $239 to $399.
Sports Medicine Products. The Company markets a line of sports medicine
products under the WeiderCare brand name, including support wraps, neoprene
supports, back support belts and hot and cold packs. These products are sold
through channels of distribution that are not able to carry large exercise
units due to floor space limitations, such as drugstore chains, supermarkets
and pro shops. These products are also sold to corporate and industrial users.
Exercise Accessories. The Company offers a limited line of back support
belts and workout gloves and has introduced a line of exercise accessories,
including ankle and hand weights, grip devices and aerobic exercise step
decks.
PRODUCT INNOVATION AND DEVELOPMENT
Product and design innovation has contributed significantly to the Company's
growth. On an on-going basis, the Company evaluates new product concepts and
seeks to respond to the desires and
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needs of consumers by frequently introducing new products and repositioning
existing products. The Company has 110 full-time employees in the research and
development area, holds 83 patents and has 50 patent applications pending. The
Company had research and development expenses of $2.9 million, $5.2 million
and $6.8 million in 1994, 1995 and 1996, respectively, and has budgeted $7.8
million for research and development for 1997.
The Company conducts most of its research and development in 40,000 square
feet of space in Logan, Utah. This facility includes plastic, mechanical and
electrical engineering capabilities that are used in creating proprietary
designs and features. The Company also augments its internal research and
development effort by selectively evaluating new products with certain of its
key customers, who then provide feedback on acceptance by potential end-users.
This effort has the added benefit of enhancing the Company's relationships
with key customers.
This focus on new products and innovation enables the Company to begin
selling early in a product's lifecycle and, as sales moderate, to extend
product life cycles by introducing new features and repositioning products
within the Company's line of brands (i.e., selling a product, with
modifications, at a different price point). In 1994, 1995 and 1996,
approximately 40%, 42% and 52%, respectively, of the Company's sales were from
products that were new, enhanced or repositioned. Recent examples of the
Company's product developments are the introduction of the Space Saver
treadmill, which folds vertically for easy storage, the development of the
Cardio family of upright rowers, which significantly improved on upright rower
designs first marketed by others, and the introduction of the Company's
abdominal machines, which improved upon existing products manufactured by
others by adding a fold for storage feature. The Company believes that its
ability to take a product from concept to delivery quickly gives it
significant advantages over its competitors.
The Company's research and development teams have helped develop many of the
innovative features that have encouraged consumers to purchase and use fitness
equipment. Results of the Company's product development program include: (i)
various electronics systems, which provide motivational feedback and
personalized fitness routines; (ii) upright rowers with hydraulic shocks;
(iii) treadmills which fold for easy storage; and (iv) treadmills with upper
body resistance. In addition, the Company was the first to market successfully
cross-training home gyms equipped with aerobic stepping functions.
MANUFACTURING AND PURCHASING
In 1996, the Company manufactured or assembled over 80% of its products at
its facilities in Utah, Texas and Colorado. The balance of the Company's
products were manufactured and assembled by third parties, principally in the
Far East and by CanCo, a Canadian affiliate of certain shareholders which
provides the Company with mostly anaerobic products. See "Certain
Relationships and Related Transactions--Purchase Options," "Business--Legal
Proceedings--WHF Litigation" and "--Settlement of WHF Litigation". The Company
has longstanding supply relationships with a number of its offshore vendors,
many of which have exclusive relationships in the fitness industry with the
Company. The combination of internal manufacturing and assembly capacity and
the Company's access to third-party vendors has helped the Company meet
customer demand on a competitive basis. In addition, the use of third party
vendors provides greater flexibility in manufacturing capacity to satisfy
seasonal demands. See "Business--Legal Proceedings" and "Certain Relationships
and Related Transactions" and Note 13 of the Notes to the Consolidated
Financial Statements.
As of May 31, 1996 the Company had open orders of approximately $40.6
million compared to approximately $57.0 million as of May 31, 1995. The
Company expects to ship substantially all of such orders during the first
quarter of 1997.
The Company follows a dual sourcing strategy on many of its components to
minimize the impact of sourcing disruptions. For example, the Company obtains
steel tubing from two to three vendors. When practical, the Company chooses
vendors that will supply the Company exclusively in the fitness
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equipment category. The Company's two primary sources of electronic
components, for example, do not supply any other fitness equipment companies.
To further control manufacturing and delivery problems associated with
sourcing delays, the Company asks its electronics vendors to maintain
specified inventory levels for some long lead-time components, although
sourcing delays have been occasionally experienced in the past with new
product introductions. In addition, the Company has identified alternative
sources for many key raw materials and components. Despite these precautions,
however, the Company's ability to deliver its products on time is susceptible
to disruptions in its supply of raw materials and components, in part because
it may take as long as approximately three months to retool alternative
component manufacturers to produce required components. Since the Company
purchases certain components and finished products from foreign suppliers
located in Canada, China, Taiwan and various other countries, the Company is
subject to the general risks of doing business abroad, particularly with
respect to its purchases from China, 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 particular, the imposition
of trade sanctions on China could have a material adverse effect on the
Company. See "Risk Factors--Reliance on Certain Suppliers."
Sales to the Company's customers are highly price sensitive. The Company
sets many product prices on an annual basis but purchases raw materials and
components under purchase orders providing components for periods less than
one year. Accordingly, the Company sets prices for many products before it has
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 it has established prices, the Company may be unable to
pass cost increases along to its customers or to compete as effectively if it
seeks to pass such costs along.
The Company utilizes more than 1,500,000 square feet for manufacturing,
including a 300,000 square foot facility in Logan where the majority of the
Company's treadmills are manufactured or assembled. In the past, the Logan
facility has also manufactured stair steppers, exercise bikes and home gyms.
The Company constructed its 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. The facility, like the Company's other manufacturing facilities,
was designed to permit flexible and efficient changes in the products being
manufactured to match customer demand. The Company is currently expanding its
manufacturing facility in Logan, Utah by approximately 40,000 square feet. In
1991, the Company began operating its Smithfield, Utah plant, which is smaller
than but very similar to the Logan facility. In 1994, the Company began
operating its Clearfield, Utah manufacturing facility. In addition to its
facilities in Utah, the Company has manufacturing facilities in Texas and
Colorado.
The Company applies a management system to control and monitor freight,
labor, overhead and material cost components of its finished goods. The
Company emphasizes product quality by monitoring operations according to
uniform quality control standards. In 1994, the Company received ISO 9001
certification for its Logan facilities. 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.
HEALTHRIDER ACQUISITION
In keeping with its strategy of pursuing growth opportunities, in August
1996, the Company: (i) purchased substantially all the assets of HealthRider
for approximately $16.8 million and assumed
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(or refinanced) substantially all the liabilities of HealthRider; (ii)
purchased certain related manufacturing assets of Parkway, including Parkway's
contract to manufacture and supply upright rowers to HealthRider for
approximately $10.1 million; and (iii) purchased the minority interest of
HealthRider's European subsidiary for approximately $1.4 million (of which $.7
million was paid by HealthRider, $.6 million was paid by the Company in cash
and $.1 million was paid by the Company in inventory). The liabilities assumed
or refinanced included capital lease obligations of approximately $19.3
million and revolving credit borrowings and other long term debt of
approximately $9.5 million. For a description of certain accounts payable and
other accrued payables the Company assumed in connection with the HealthRider
Acquisition, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources." HealthRider, a
designer, marketer and distributor of fitness equipment based in Salt Lake
City, Utah, distributes its products through direct response advertising,
through a national network of over 200 HealthRider kiosks and stores in
shopping malls and through third party retailers. HealthRider had net sales of
$241.4 million and $113.2 million and net income of $13.6 million and net loss
of $3.6 million in calendar 1995 and the first six months of calendar 1996,
respectively. HealthRider was among the first companies to market upright
rowers. Its flagship product is the HealthRider, a brand of upright rower.
HealthRider also markets upright rowers under the aeROBICRider, SportRider and
LifeRider brand names. In aggregate, and excluding related freight revenues,
upright rowers (including the HealthRider) accounted for 94.4% and 93.4% of
HealthRider's net sales in calendar 1995 and the first six months of calendar
1996, respectively. In calendar 1995 and the first six months of 1996,
purchases from Parkway accounted for approximately 73.5% and 54.3%,
respectively, of total upright rower purchases by HealthRider.
As a result of the HealthRider Acquisition, the Company believes it is the
leading maker and distributor of upright rowers in the United States with its
net sales of upright rowers, calculated on a pro forma basis as if the
HealthRider Acquisition had occurred on December 31, 1994, representing over
76% of all U.S. upright rower sales in calendar 1995. The Company estimates
that its U.S. net sales, calculated on the same pro forma basis represented
approximately 39% of total wholesale domestic home fitness equipment sales in
calendar 1995. The Company believes that the HealthRider Acquisition will
strengthen its position as a leading manufacturer and marketer of fitness
equipment in the United States. The Company's plan for integrating HealthRider
into its business includes: (i) marketing a broad line of products such as
treadmills, stair steppers and cross-country skiing machines under the
HealthRider brand name through HealthRider's established distribution
channels; (ii) altering direct response advertising with respect to
HealthRider products with the goal of enhancing the Company's return on its
advertising investment; and (iii) realizing synergies from the HealthRider
Acquisition by integrating the Company's and HealthRider's operations. The
Company is exploring the possibility of disposing of its interests in the
HealthRider headquarters building which may include a possible sale of such
interests to directors, officers or other affiliates of the Company and may
include a continuing lease of such building by the Company. The Company's
direct sales to consumers, particularly through the acquired kiosks in malls
where the Company's existing customers have retail sales outlets, could
adversely affect the Company's sales and its relationship with its existing
customers.
The Company expects to increase its net sales as a result of the HealthRider
Acquisition, but by substantially less than 100% of HealthRider's net sales.
The Company will recognize a significant, non-recurring, non-cash increase in
cost of goods sold in the second and third quarters of 1997 which is not
expected to exceed approximately $26.2 million (due to the fact that the
Company's purchase accounting for the HealthRider Acquisition will include
writing-up the book value of the acquired HealthRider inventory to fair market
value less estimated sales costs). See "Management's Discussion and Analysis
of Operations and Financial Condition and Results of Operations--HealthRider."
In addition, the HealthRider Acquisition is expected to result in expenses of
approximately $5.0 million in the second and third quarters of 1997 related to
the integration of HealthRider into the Company's business. See "Risk
Factors--Expansion Strategy; Acquisitions" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--HealthRider."
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The Company funded the HealthRider Acquisition through additional borrowings
under the amended Credit Agreement. See "Description of Certain Indebtedness."
COMPETITION
The fitness equipment market is highly competitive. It is characterized by
frequent introduction of new products, often accompanied by major advertising
and promotional campaigns. The Company believes that the principal competitive
factors affecting its business include price, quality, brand name recognition,
product innovation, marketing resources and customer service.
The Company competes 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 fitness products to the
U.S. and, in its direct sales efforts, with major retailers and distributors.
Competitors in these areas include Precor Inc., CML Group Inc. (under the
NordicTrack(R) brand), LifeFitness, Inc. and DP and Roadmaster, which are
commonly owned. The Company also believes that Reebok International Ltd. will
begin marketing home fitness equipment in the U.S. In Europe, the Company
competes principally with Tunturi, Inc. and Kettler Int'l Inc., a number of
Asian importers and some of its domestic competitors. The Company's 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.), and Rollerblade,
Inc. Certain competitors are better capitalized than the Company and may have
greater financial and other resources than those available to the Company. In
addition, there are no significant technological, manufacturing or marketing
barriers to entry into the fitness equipment or the exercise accessory
markets, although many companies in the industry, including the Company, have
sought and received numerous patents in an effort to protect their competitive
position.
EMPLOYEES
The Company currently employs approximately 4,300 people, none of whom are
represented by labor unions. Factory employees are compensated through hourly
wages and a targeted incentive system. Managerial employees receive salaries
and bonuses tied to the achievement of performance targets. Approximately 110
employees are engaged in research and development, 130 in sales and marketing,
3,100 in manufacturing, 30 in purchasing and 930 in other areas.
TRADEMARKS AND PATENTS
The Company holds 83 patents and has 50 patent applications pending. The
Company believes that certain of its patents and registered and common law
trademarks and trade names have significant value and that some of its
trademarks enhance its ability to create demand for and market its products.
ENVIRONMENTAL MATTERS
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 nature of the Company's manufacturing and assembly operations
exposes it 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 and is not expected to have a
material adverse effect on the Company's financial condition or results of
operation, there can be no assurance that material costs or liabilities will
not be incurred in connection with 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 the Company, may give
rise to additional compliance costs or operational interruptions which could
have a material adverse effect on the Company's financial condition. See "Risk
Factors--Environmental Considerations."
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LEGAL PROCEEDINGS
WHF LITIGATION
The Company and its affiliates are parties to a number of agreements with
WHF and its affiliates. On August 28, 1995, WHF and its affiliates, including
Weider Sports, commenced a number of legal proceedings against the Company,
its affiliates and its customers. WHF instituted legal proceedings against the
Company and Messrs. Watterson, Stevenson, Gay, Mika and Rehnert, members of
the board of directors, in the Court of Chancery of the State of Delaware and
two arbitration proceedings against the Company before the American
Arbitration Association in New York, New York. Weider Sports instituted legal
proceedings against the Company in the U.S. District Court, Southern District
of New York; filed a request for mediation with the International Chamber of
Commerce (the "ICC") in Paris, France; filed three separate legal proceedings
against three of the Company's customers in the U.S. District Court, District
of Utah; and filed a request for reconciliation in advance of arbitration
against the Company before a representative of a "big six accounting firm".
The Company on August 30, 1995, initiated a lawsuit in the U.S. District
Court, Southern District of New York, against Weider Sports seeking a
preliminary injunction forbidding Weider Sports from continuing to market
unlawful copies of the Cardioglide upright rower. The Company has also
commenced five separate arbitration proceedings against WHF and certain of its
affiliates and filed a counterclaim in one of the arbitration proceedings
initiated by WHF.
The lawsuits that Weider Sports and the Company filed against one another in
the Southern District of New York, along with respective motions for
preliminary injunction, were resolved and ultimately dismissed pursuant to a
court-approved Stipulation and a related agreement. The Stipulation and
agreement provide, in part, that the Company will not do business through
certain distributors and will require certificates of its other distributors
to the effect that said distributors agree not to sell into certain countries
exclusive to Weider Sports. By this Stipulation, Weider Sports also agreed not
to acquire, develop, make, promote, sell, advertise, shop or distribute the
"Weider Fitness Rider" or any other product substantially similar to the
Cardioglide. The mediation request that Weider Sports filed was ultimately
withdrawn, and WHF and the Company thereafter filed a joint request for
mediation with the ICC.
The Company and WHF settled all of the litigation described above on
September 6, 1996.
SETTLEMENT OF WHF LITIGATION
On September 6, 1996, the Company and WHF and its affiliates settled the
litigation between the parties through a number of agreements (the "WHF
Settlement"). The WHF Settlement includes releases of certain claims
(including all claims asserted in the litigation described above), amendments
to certain of the agreements currently existing between the Company and WHF
and its affiliates and certain new agreements among the Company and WHF and
its affiliates. See "Certain Relationships and Related Transactions." Other
than the releases, the significant terms of the WHF Settlement are outlined
below.
Repurchase of Common Stock. Assuming the consummation of the Offering and
assuming the Offering closes on September 24, 1996, the Company has the
obligation to purchase all of the Common Stock and certain warrants to
purchase Common Stock held by the WHF Stockholders (the "WHF Position") at an
aggregate price of approximately $39.1 million, or approximately $8.21 per
share or per warrant (less the exercise price in the case of the warrants).
The purchase price will be higher if the WHF Position is repurchased at a
later date.
Repurchase of Preferred Stock. Assuming the consummation of the Offering,
the Company has the obligation to purchase the IHF Holdings Preferred Stock
held by WHF and certain other stockholders for $32.0 million, which reflects a
discount of $4.0 million and the forgiveness of accrued dividends. The
purchase price for the IHF Holdings Preferred Stock held by WHF
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will be higher if the purchase is consummated on or after February 1, 1997. In
connection with the repurchase of IHF Holdings Preferred Stock, if any, the
Company will purchase the options to purchase IHF Holdings Preferred Stock
held by Messrs. Watterson and Stevenson for $3.6 million, which reflects a
discount of $.4 million and the forgiveness of accrued dividends. The Company
will repurchase this stock and these options upon the closing of the Offering
with proceeds of the Offering. Upon the purchase of the WHF Preferred Stock,
WHF's representation on the Company's board of directors will cease.
Weider Sports Acquisition and CanCo Acquisition. The Company acquired
certain assets, excluding cash and fixed assets, for $8.7 million and assumed
certain liabilities of the sports equipment business lines of Weider Sports.
In addition, the Company acquired certain assets, excluding cash, cash
equivalents and accounts receivable, for $1.8 million and assumed certain
liabilities of CanCo. As a result of the Weider Sports Acquisition, the
Company reacquired distribution rights originally granted to Weider Sports in
connection with the Recapitalization, subject to certain rights granted by
Weider Sports to third parties. The Company also acquired two CanCo plants
which were leased by other WHF affiliates to CanCo in exchange for the
assumption of the existing $1.5 million Cdn. mortgage on the properties and
the payment of $.5 million.
Settlement Expenses and Intercompany Payables. The Company: (i) paid $12.1
million to terminate the lawsuits; (ii) paid $3.9 million to WHF and its
affiliates as prepayment in full under its brand license agreements with them;
and (iii) received $1.2 million in full payment and settlement of the
Company's intercompany payable to WHF and its affiliates ($1.8 million) and
amounts due the Company under the amended WSG Management Agreement ($3.0
million). The Company also received $.5 million in full payment and settlement
of CanCo's Management fee obligations to the Company under the CanCo
Management and Advisory Agreement.
Ben Weider Payments. The WHF Settlement also provides that Ben Weider will
serve as a consultant to, and ambassador for, the Company for five years, with
an annual compensation of approximately $475,000, and that the Company will
provide office space and three assistants for Mr. Weider.
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 $4.2 million in exchange for the surrender
of their options to purchase stock of WHF and its affiliates and (ii) paid
Messrs. Watterson and Stevenson an aggregate amount of $.5 million. Messrs.
Watterson and Stevenson also each received $.3 million in full payment and
settlement of CanCo's Management fee obligations to Messrs. Watterson and
Stevenson under the CanCo Management and Advisory Agreements.
The WHF Settlement also contains various miscellaneous provisions that the
Company does not believe are material.
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
September 1, 1995 to September 30, 1996 of up to $25 million per occurrence
and $25 million in the aggregate annually. 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. HealthRider has an insurance policy
which provides coverage through October 26, 1996 of $10 million per
occurrence, and $10 million in the aggregate annually. Nevertheless, currently
pending claims and any future claims are subject to the uncertainties related
to litigation and the
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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, there is also no assurance that
the product liability insurance of the Company is or will be adequate to cover
such claims. In addition, there can be no assurance that the Company's
insurers will be solvent when required to make payments on claims.
Furthermore, there can be no assurance that insurance will remain available,
or if available, that it will not be prohibitively expensive. The loss of
insurance coverage or claims exceeding that coverage could have a material
adverse effect on the Company's results of operations and financial condition.
See "Risk Factors--Product Liability."
FTC INVESTIGATIONS
The FTC is conducting an investigation to determine whether the Company may
have made excessive advertising claims with respect to its "CrossWalk"
treadmill products (which constitute a substantial portion of the Company's
sales), in violation of the Federal Trade Commission Act. The FTC has asked
the Company to voluntarily provide information and documents on several
occasions, and the Company has responded to these requests.
The Company believes that its advertising for the CrossWalk products was
appropriately substantiated, and therefore that the Company did not make
excessive advertising claims. The FTC has entered into discussions with the
Company to resolve this matter through a negotiated consent decree. If these
discussions do not resolve the matter, and if the FTC concludes that the
Company made excessive advertising claims and issues a complaint, it may seek
relief in the form of a cease and desist order, civil monetary penalties
and/or consumer redress in the form of, among other things, refunds to
consumers and public notification respecting the advertisements, if any, which
the FTC concludes were excessive. Management does not believe that this matter
will have a material adverse effect on its results of operations or financial
position, however there can be no assurance in this regard.
The FTC is conducting a preliminary investigation of HealthRider to
determine whether HealthRider may have made excessive advertising claims with
respect to its HealthRider family of products (which constitute virtually all
of HealthRider's sales), in violation of the Federal Trade Commission Act. The
FTC has asked HealthRider to voluntarily provide documents and information on
several occasions, and HealthRider has responded to these requests. If the FTC
were to conclude that HealthRider did violate the Federal Trade Commission
Act, it may seek relief in the form of a consent decree, a cease and desist
order, civil money penalties and/or consumer redress in the form of, among
other things, refunds to consumers and public notification respecting the
advertisements, if any, which the FTC concludes were excessive. The Company
has assumed all of HealthRider's liabilities in connection with this matter.
Management does not believe that this matter will have a material adverse
effect on its results of operations or financial position, however there can
be no assurance in this regard. See "Risk Factors--FTC Investigations."
CONSUMER PRODUCTS SAFETY COMMISSION INQUIRIES
The Consumer Products Safety Commission (the "CPSC") has conducted an
inquiry and made claims relating to defects in certain of HealthRider's
products. Remediation has been undertaken by HealthRider. Although no consumer
litigation has resulted from such defects to date, there can be no assurance
that consumer litigation will not result. The Company assumed all of
HealthRider's liabilities in connection with this matter. On two separate
occasions, the CPSC has requested that the Company provide information and
documents with respect to two types of exercise products manufactured by the
Company in order to assist the CPSC in reaching a preliminary determination
whether defects are present in these products. The Company has responded to
the first of these requests and is in the process of responding to the second.
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OTHER
The Company is party to a variety of nonproduct 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.
PROPERTIES
The location, square footage, status and primary use of the Company's
principal properties are set forth below:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE STATUS PRIMARY USES
-------- ------- ------ ------------
<S> <C> <C> <C>
Logan, UT............... 300,000 Owned Manufacturing, Offices, R&D
Offices, Manufacturing,
Logan, UT............... 150,793 Leased (Month to Month) Warehousing
Smithfield, UT.......... 82,300 Leased (Expires 9/98) Manufacturing
Clearfield, UT.......... 629,000 Leased (Month to Month) Manufacturing, Warehousing
Clearfield, UT.......... 329,075 Leased (Expires 6/99) Manufacturing, Warehousing
Clearfield, UT.......... 282,600 Leased (Expires 12/03) Warehouse
Millville, UT........... 13,000 Owned Manufacturing, Warehousing
Offices, Manufacturing,
Garland, TX............. 95,405 Leased (Expires 9/97) Warehousing
Dallas, TX.............. 40,000 Leased (Expires 9/97) Warehousing
Weatherford, TX......... 22,000 Leased (Expires 1/98) Offices, Manufacturing
Denver, CO.............. 61,000 Leased (Expires 4/99) Manufacturing, Warehousing
South Brunswick, NJ..... 181,000 Leased (Month to Month) Warehouse
South Brunswick, NJ..... 25,000 Leased (Month to Month) Warehouse
Englewood, CO........... 10,000 Leased (Expires 6/99) Sales Office
St. Jerome, QC.......... 134,000 Leased (Month to Month) Warehouse
Ste.-Therese, QC........ 10,000 Leased (Month to Month) Warehouse
Logan, UT............... 68,750 Leased (Expires 5/00) Warehouse
Smithfield, UT.......... 108,187 Leased (Expires 1/01) Warehouse
Warehouse, Offices,
Anzin, France........... 8,097 Leased (Expires 12/96) Apartment
Carrieres Sur Seine,
France................. 2,966 Leased (Expires 12/98) Warehouse, Office
Neailly Sur Seine,
France................. 262 Leased (Expires 9/98) Apartment
Leeds, UK............... 6,000 Leased (Expires 1/99) Offices
Perugia, Italy.......... 3,360 Leased (Expires 6/01) Offices
Perugia, Italy.......... 6,600 Leased (Expires 11/96) Warehouse
</TABLE>
In addition, in connection with the HealthRider Acquisition, the Company
acquired short term leases for over 200 HealthRider kiosks and stores.
The Company believes that its existing facilities are well maintained, in
good operating condition and adequate for its expected level of operations.
Although a number of the Company's facilities are rented on a month to month
basis, the Company does not anticipate difficulty in maintaining access to
facilities required for the conduct of its business.
58
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, and their ages as of
September 18, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Scott R. Watterson............ 41 Chairman of the Board and Chief Executive
Officer
Gary E. Stevenson............. 41 President, Chief Operating Officer and
Director
Eric Weider................... 32 Vice Chairman of the Board
Robert C. Gay................. 45 Vice Chairman of the Board
Richard Renaud................ 49 Director
Ronald P. Mika................ 35 Director
Geoffrey S. Rehnert........... 38 Director
S. Fred Beck.................. 38 Chief Financial and Accounting Officer,
Vice President and Treasurer
Lynn C. Brenchley............. 50 Vice President, Business Development
David J. Watterson............ 37 Vice President, Marketing and Research and
Development
Jon M. White.................. 48 Vice President, Manufacturing
William T. Dalebout........... 48 Vice President, Design
Brad H. Bearnson.............. 42 General Counsel and Secretary
</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. Effective as of
the Recapitalization Closing, Mr. Watterson became Chairman of the Board and
Chief Executive Officer of the Company. David Watterson is Mr. Watterson's
brother.
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. Effective as of the Recapitalization Closing,
Mr. Stevenson became President, Chief Operating Officer and a Director of the
Company.
ERIC WEIDER. Mr. Weider became Vice Chairman of the Board of Directors of
the Company effective as of the Recapitalization Closing. Mr. Weider has been
a member of the Board of Directors of WHF since 1988. Mr. Weider has worked in
an executive capacity for WSG since 1988 and became its chief executive
officer in 1990. Mr. Weider earned his M.B.A. at the University of Toronto.
ROBERT C. GAY. Mr. Gay became Vice Chairman of the Board of Directors of the
Company effective as of the Recapitalization Closing. 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. From 1988 through 1989,
Mr. Gay was a principal of Bain Venture Capital. In addition, Mr. Gay is a
director of Alliance Entertainment Corp., American Pad & Paper Company, GT
Bicycles, Inc., GS Industries, Inc. and its subsidiary GS Technologies
Operating Co., Inc., and Physio-Control International Corporation.
RONALD P. MIKA. Mr. Mika became a Director of the Company effective as of
the Recapitalization Closing. Mr. Mika has been a Principal of Bain Capital
since December 1992 and was an associate of Bain Capital from August 1989
through November 1992.
GEOFFREY S. REHNERT. Mr. Rehnert became a Director of the Company effective
as of the Recapitalization Closing. Mr. Rehnert has been a Managing Director
of Bain Capital since April 1993
59
<PAGE>
and has been a General Partner of Bain Capital since 1986. Mr. Rehnert is also
a director of GT Bicycles, Inc., Worldcorp, Inc., FTD, Inc., KollMorgen
Corporation and U.S. Order, Inc.
RICHARD RENAUD. Mr. Renaud became a Director of the Company effective as of
the Recapitalization Closing. Mr. Renaud has been a member of the Board of
Directors of WHF since 1986 and became Chairman in July 1994 and President and
Chief Executive Officer in January 1994. Mr. Renaud is also currently a
director of a number of companies, including CS Resources Limited (of which he
is Chairman), an oil and gas company; Marleau Lemire, Inc., an investment
bank; MPACT Immedia Inc., an electronic data interchange company; and Micro-
Tempus Inc., a conductivity company. From January 1987 to May 1992, he served
as Vice Chairman of Dundee Bancorp Inc., a merchant bank and asset management
company, and continues to serve as a director of that company. Mr. Renaud is a
chartered accountant.
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 the Company as of the Recapitalization Closing.
LYNN C. BRENCHLEY. Mr. Brenchley has served as Vice President of Business
Development of Weslo since 1990 and has continued in that position with the
Company since the Recapitalization Closing. Prior to 1990, he was Vice
President and General Manager of Thorn Apple Valley, a meat processor.
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 the Company since the Recapitalization Closing. Prior to 1992,
Mr. Watterson served as Vice President of Sales of Weslo. Scott Watterson is
David Watterson's brother.
JON M. WHITE. Mr. White has served as Vice President of Manufacturing of
Weslo since 1988 and has continued in that position with the Company since the
Recapitalization Closing.
WILLIAM T. DALEBOUT. Mr. Dalebout has served as Vice President of Design of
Weslo since 1987 and has continued in that position with the Company since the
Recapitalization Closing.
BRAD H. BEARNSON. Mr. Bearnson presently serves as General Counsel and
Secretary. Mr. Bearnson first joined the Company in March of 1995 prior to
which he represented the Company and its predecessors, ProForm and Weslo, as
outside counsel since 1983. Prior to March, 1995, Mr. Bearnson was a
shareholder with the law firm of Olson & Hoggan, P.C. Mr. Bearnson is also a
certified public accountant.
60
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
1996, 1995 and 1994 for Mr. Scott Watterson and the Company's other four most
highly compensated executive officers (collectively, the "named executive
officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------ COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(1) COMPENSATION($)(2)
- --------------------------- ---- --------- --------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Scott R. Watterson(3)... 1996 450,000 690,660 567,619(4)(5) 22,791(6)
Chairman of the Board
and Chief 1995 325,000 423,704 540,192 2,402,060(7)
Executive Officer 1994 450,000 1,968,144 900
Gary E. Stevenson(3).... 1996 400,000 690,660 453,202(4)(8) 22,952(6)
President and Chief
Operating Officer 1995 300,000 423,704 444,462 1,901,400(7)
1994 400,000 1,405,817 1,000
S. Fred Beck............ 1996 168,000 149,000 75,223(9)(10) 1,578
Chief Financial and
Accounting Officer 1995 160,000 105,926 63,820 2,981
Vice President and
Treasurer 1994 125,000 71,121 788
David J. Watterson...... 1996 205,000 149,000 75,223(9)(10) 1,547
Vice President,
Marketing and Research 1995 195,000 105,926 63,820 2,450
and Development 1994 167,000 71,121 650
Jon M. White............ 1996 105,000 149,000 45,737(11)(12) 2,237
Vice President,
Manufacturing 1995 100,500 105,926 42,547 2,351
1994 90,500 71,121 409
</TABLE>
- --------
(1) Options to purchase shares of the Company's Common Stock. Share numbers
in this table are on a post-Conversion basis.
(2) Includes amounts contributed by the Company for the benefit of the named
executive officers under the Company's 401(k) Plan.
(3) The table does not reflect the consulting fees that Scott Watterson and
Gary Stevenson received from CanCo equal to an aggregate of 14% of its
pre-tax earnings up to the time that the CanCo Acquisition was
consummated. Prior to the Recapitalization, Scott Watterson and Gary
Stevenson owned a 14% aggregate equity interest in CanCo.
(4) Includes options for 109,406 shares of Common Stock granted in connection
with the Recapitalization at an exercise price of $25.56035 per share,
which was substantially above market value. In March 1996 the exercise
price of these options was reset to $7.38576 per share, which was the
then current fair market value of the Common Stock.
(5) Includes options to purchase 411,900 shares of Common Stock at $4.80240
per share which were granted in May 1996 when the then current fair
market value of such stock was $7.38576 per share.
(6) Includes $19,722 and $19,802 paid on behalf of Scott Watterson and Gary
Stevenson, respectively, for legal fees and expenses.
(7) Includes $2.3 million and $1.8 million received by Scott Watterson and
Gary Stevenson, respectively, in connection with a four-year agreement to
not compete with the Company in certain specified businesses and also
includes $99,500 paid to each of Scott Watterson and Gary Stevenson by
the Company as reimbursement for legal fees and expenses incurred by them
in connection with the Recapitalization.
(8) Includes options to purchase 297,483 shares of Common Stock at $4.80240
per share which were granted in May 1996 when the then current fair
market value of such stock was $7.38576 per share.
(9) Includes options for 9,117 shares of Common Stock granted in connection
with the Recapitalization at an exercise price of $25.56035 per share,
which was substantially above market value. In September 1995 the
exercise price of these options was reset to $4.80240 per share, which
was the then current fair market value of the Common Stock.
(10) Includes options to purchase 66,106 shares of Common Stock at $4.80240
per share which were granted in May 1996 when the then current fair
market value of such stock was $7.38576 per share.
(11) Includes options for 6,079 shares of Common Stock granted in connection
with the Recapitalization at an exercise price of $25.56035 per share,
which was substantially above market value. In September 1995 the
exercise price of these options was reset to $4.80240 per share, which
was the then current fair market value of the Common Stock.
(12) Includes options to purchase 39,658 shares of Common Stock at $4.80240
per share which were granted in May 1996 when the then current fair
market value of such stock was $7.38576 per share.
61
<PAGE>
The following table sets forth information concerning options granted to
each of the named executive officers in the last fiscal year:
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
MARKET POTENTIAL REALIZABLE VALUE AT
PRICE OF ASSUMED ANNUAL RATES
% OF TOTAL COMMON OF STOCK PRICE APPRECIATION
OPTIONS GRANTED STOCK ON FOR OPTION TERM($)(4)
OPTIONS TO EMPLOYEES IN EXERCISE DATE OF EXPIRATION -----------------------------
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) GRANT($/SH) DATE 0% 5% 10%
---- ---------- --------------- ----------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Scott R. Watterson 109,406 7.6 7.39(2) 7.39 11/14/04 -- 445,498 1,097,283
411,900 28.7 4.80 7.39 5/22/06 1,064,085 2,977,304 5,912,557
46,313 3.2 4.80 4.80 6/13/05 -- 139,874 354,468
Gary E. Stevenson 109,406 7.6 7.39(2) 7.39 11/14/04 -- 445,498 1,097,283
297,483 20.7 4.80 7.39 5/22/06 768,506 2,150,275 4,270,179
46,313 3.2 4.80 4.80 6/13/05 -- 139,874 354,468
S. Fred Beck(1) 9,117 .6 4.80(3) 4.80 11/14/04 -- 24,139 59,458
66,106 4.6 4.80 7.39 5/22/06 170,776 477,831 948,913
David J. Watterson(1) 9,117 .6 4.80(3) 4.80 11/14/04 -- 24,139 59,458
66,106 4.6 4.80 7.39 5/22/06 170,776 477,831 948,913
Jon M. White(1) 6,079 .4 4.80(3) 4.80 11/14/04 -- 16,094 39,641
39,658 2.8 4.80 7.39 5/22/06 102,451 286,658 569,268
</TABLE>
- --------
(1) One third of the options granted to these employees vest each year on
November 14 and all such options will vest upon the earlier of a change of
control or the consummation of this Offering. As of the end of 1996, one
third of these options had vested.
(2) The exercise price with respect to these options was reset in March 1996
from $25.56035 to $7.38576 per share, which was the then current fair
market value of the Common Stock.
(3) The exercise price with respect to these options was reset in September
1995 from $25.56035 to $4.80240 per share, which was the then current fair
market value of the Common Stock.
(4) These potential realizable values are based on assumed rates of
appreciation required by applicable regulations of the Commission. The
potential realizable values stated are not discounted to their present
value. As of May 31, 1996 there was no market for the Company's Common
Stock. Except for this Offering, there have been no arm's-length sales of
the Company's Common Stock since the closing of the Recapitalization.
62
<PAGE>
The following table sets forth information as of May 31, 1996, concerning
options of the Company exercised by each of the named executive officers in
1996 and year end option values:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES(1)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS AT
OPTIONS AT FY-END (#) FY-END ($)(2)(3)
------------------------- --------------------
SHARES ACQUIRED VALUE
ON EXERCISE (#) REALIZED ($)(2) EXERCISABLE EXERCISABLE
--------------- --------------- ------------------------- --------------------
IHF
HOLDINGS
COMMON COMMON SERIES COMMON COMMON
NAME STOCK STOCK PREFERRED(2)(3) STOCK STOCK
- ---- --------------- --------------- --------------- --------- --------------------
<S> <C> <C> <C> <C> <C>
Scott Watterson......... -- -- 585.8 1,018,801(4) 4,324,745
Gary Stevenson.......... -- -- 455.6 804,121(4) 3,331,158
S. Fred Beck............ 18,234 86,059 -- 111,692 460,658
David J. Watterson...... -- -- -- 129,926 593,822
Jon M. White............ 12,156 57,371 -- 70,049 295,707
</TABLE>
- --------
(1) This table includes options issued in connection with the Recapitalization
in exchange for previously outstanding options to purchase stock of the
Recapitalized Companies. Share numbers in this table are on a post-
Conversion basis and assume the vesting of all options scheduled to vest
upon the consumation of the Offering. There will be no unvested options on
the closing of the Offering.
(2) As of May 31, 1996 there was no market for the Company's Common Stock or
IHF Holdings Preferred Stock. For purposes of the calculations in this
table, the fair value of one share of the Company's Common Stock was
assumed to be $7.38576 at the close of 1996. Except for this Offering,
there have been no other arm's-length sales of the Company's Common Stock
or IHF Holding's Preferred Stock since the Closing of the
Recapitalization.
(3) All of Messrs. Watterson's and Stevenson's options on their IHF Holdings
Preferred Stock will be redeemed in connection with the Offering.
(4) The options held by Messrs. Watterson and Stevenson include options for
451,183 and 350,920 shares of Common Stock, respectively, granted pursuant
to the Recapitalization.
1994 STOCK OPTION PLAN
In November 1994 the Company adopted the IHF Capital, Inc. 1994 Stock Option
Plan, as amended (the "1994 Stock Option Plan") which provides for the grant
to certain eligible employees of either incentive stock options, nonstatutory
options or both. No employee shall be entitled to grants of options in excess
of 845,411 shares. A total of 2,548,560 shares of Common Stock has been
authorized for issuance under the 1994 Stock Option Plan, which is
administered by the Board of Directors or a committee thereof, of which
828,833 shares have been issued or cancelled and 1,719,727 represent
outstanding stock options as of the closing of the Offering.
1996 STOCK OPTION PLAN
The Company adopted the IHF Capital, Inc. 1996 Stock Option Plan (the "1996
Stock Option Plan") which will provide for the grant to directors and certain
eligible employees of either incentive stock options, non-qualified options or
both. The 1996 Stock Option Plan satisfies the requirements of Rule 16b-3
under the 1934 Act. Subject to adjustment for stock splits and similar events,
a total of 2,500,000 shares of Common Stock has been authorized for issuance
under the 1996 Stock Option Plan, which is administered by the Board of
Directors. The Board of Directors has resolved that, all options issued
pursuant to the 1996 Stock Option Plan are expected to have an exercise price
equal to the then current market value of the Company's Common Stock (or 110%
of current market value
63
<PAGE>
in case of incentive stock options granted to an individual with stockholders
in excess of certain limits). The Board of Directors has further resolved that
options may be granted during fiscal 1997 for an equivalent of approximately 1
million shares of Common Stock and that options may thereafter by granted in
each year for five years for up to 1% of the capital stock of the Company that
will be outstanding immediately after the Offering. The 1996 Stock Option Plan
will terminate on May 31, 2002 and will be administered by the Board of
Directors or a committee thereof.
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not maintain a compensation committee during 1996. Messrs.
Scott Watterson's and Stevenson's 1996 compensation was determined prior to
the Recapitalization pursuant to employment contracts that had been in place
since 1989 and after the Recapitalization pursuant to the newly entered into
employment agreements described below. 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 "Certain Relationships and Related Transactions."
COMPENSATION OF DIRECTORS
The Company's directors did not receive any compensation for serving on its
Board of Directors in 1996, 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 the Company's
directors. See "Certain Relationships and Related Transactions--Management
Fees."
EMPLOYMENT AGREEMENTS
Concurrent with the Recapitalization Closing, Scott Watterson and Gary
Stevenson entered into five-year employment agreements with the Company. The
Company and Messrs. Watterson and Stevenson executed amendments to the
employment agreements dated September 6, 1996 (as amended, the "Employment
Agreements"). The Employment Agreements provide for the employment of Mr.
Watterson as Chairman and Chief Executive Officer with a base salary as of
June 1, 1995 of $450,000 and Mr. Stevenson as President and Chief Operating
Officer with a base salary of $400,000 and provide for their respective levels
of participation in the management stock option and deferred compensation
plans. In every other material respect, the contracts are substantially
identical.
Under the Employment Agreements, the executive's salary may be adjusted
upwards at the discretion of the Board of Directors, and the executive is
entitled to the use and cost of operation of a car of his choice and to
participate in the life, welfare and health insurance plans and other fringe
benefit programs made available by the Company to its senior executive
officers (including such deferred compensation plans as may be established by
the Board of Directors for such executives). Each executive is also entitled
to participate in a bonus program providing for a bonus equal to a percentage
of pre-interest (excluding revolving credit interest), pre-tax, pre-bonus
consolidated profits of the Company not taking into account certain changes in
depreciation, amortization, or certain other changes due to the
Recapitalization, which percentage shall equal 1.3% for 1996, 1.4% for 1997
and thereafter a percentage established by the Board of Directors which cannot
be less than 1.4%; provided, however, no bonus will be paid unless the
Company's pre-interest (excluding revolving credit interest), pre-tax, pre-
bonus consolidated profits exceed a level to be set by the Board of Directors
based on budgets prepared by management for periods after 1995 and which level
for 1995 and 1996 is 3% of net sales. The Employment Agreements also provide
for a one time bonus in fiscal 1997 of $700,000 to be divided between Messrs.
Waterson and Stevenson.
Each executive's employment under his Employment Agreement terminates
automatically upon death or bankruptcy of the executive, and is terminable by
the Company for cause as provided in each agreement, upon six months'
disability, or without cause. For these purposes, "cause" includes willful
misconduct, gross negligence, commission of a crime involving material harm,
commission of a crime
64
<PAGE>
of moral terpitude, willful insubordination and failure to comply with certain
covenants under the Employment Agreements. The provisions providing for
termination upon bankruptcy of the executive may not be enforceable under the
U.S. Bankruptcy Code, however. Each executive may similarly terminate his
employment immediately for cause as provided in his Employment Agreement or
for any reason upon six months' notice. In the event of termination by the
Company for cause or upon death or bankruptcy (if such termination is legally
enforceable), the executive is not entitled to further salary, benefits or
bonus. Upon termination by the executive, the Company may at its option
continue the executive's employment for the notice period or terminate the
executive's employment. Upon termination by the Company without cause or upon
termination by the executive with or without cause, the Company is obligated
to pay the executive his salary and bonus for a period of two years from the
date of termination. Upon termination by the Company upon the executive's
disability, the Company is 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, except that the executive may sit on
outside business and charitable boards approved by the Board of Directors,
make passive investments in noncompeting businesses, as defined in the
Employment Agreement and spend up to five hours per week subject to a maximum
of 100 hours per year counseling noncompeting businesses in which he invests.
The Employment Agreements provide for customary confidentiality obligations
and, in addition, a noncompetition obligation for a period of four years
following termination (two years if the executive quits or is terminated
without cause except that the Company may at its option extend such period for
up to two additional years by paying the executive his salary and bonus during
the extended period). The Employment Agreements also limit each executive's
liability to the Company to the extent of such executive's salary, bonus and
other compensation received by the executive during the fiscal year in which
termination occurs plus any compensation which subsequently accrues to such
executive. This limitation does not apply in the case of an executive's theft,
fraud, embezzlement, violation of the confidentiality, notice, or non-
competition provisions of his Employment Agreement, breach of the executive's
non-competition agreement or certain other matters and is subject in any event
to a maximum liability of $1.24 million in the case of each of Messrs.
Watterson and Stevenson (including any liabilities under the indemnification
provisions of the Master Transaction Agreement, as defined below) for
violation of the confidentiality, notice upon resignation, and non-competition
provisions.
CERTAIN BENEFITS OF RECAPITALIZATION TO SENIOR MANAGEMENT
As a part of the Recapitalization, Mr. Scott Watterson and Mr. Gary
Stevenson received in exchange for their options to purchase Capital Stock of
Weslo and ProForm: (i) the Redeemable Options, which the Company redeemed
after the Closing for $14.83 million in the case of Mr. Watterson and $11.53
million in the case of Mr. Stevenson; (ii) options to purchase an additional
587,197 shares of Common Stock (which have since been exercised) and 451,183
shares of Common Stock in the case of Mr. Watterson and 456,709 shares of
Common Stock (which have since been exercised) and 350,915 shares of Common
Stock in the case of Mr. Stevenson at an exercise price of $.00329 and
$.42402, respectively; (iii) options to purchase 585.8 shares of Series A-2
IHF Holdings Preferred Stock in the case of Mr. Watterson and 455.6 shares of
Series A-2 IHF Holdings Preferred Stock in the case of Mr. Stevenson, with
each such share of Series A-2 IHF Holdings Preferred Stock having a
liquidation preference as of the Closing of the Recapitalization of $4,000 per
share and each such option having an exercise price of $158.98 per share; and
(iv) warrants to purchase 30,771 shares of Common Stock in the case of Mr.
Watterson and warrants to purchase 23,932 shares of Common Stock in the case
of Mr. Stevenson, with each warrant having been exercised at a strike price of
$.08280 per share. The average per share price of Common Stock paid in the
Recapitalization was $4.68. See "Principal and Selling Shareholders." Messrs.
Watterson and Stevenson also received
65
<PAGE>
employee stock options under the Company's 1994 Stock Option Plan. The Company
reimbursed $199,000 of Messrs. Watterson's and Stevenson's legal fees and
expenses in connection with the Recapitalization and has maintained and will
continue to maintain certain directors' and officers' liability insurance
policies for the benefit of Messrs. Watterson and Stevenson and the Company's
other directors and officers. Messrs. Watterson and Stevenson also entered
into four-year agreements not to compete with the Company in certain specified
businesses for which they received $2.3 million and $1.8 million,
respectively. Messrs. Watterson and Stevenson also received a consulting fee
from CanCo equal to an aggregate of 14% of its pretax earnings until September
6, 1996 when the Company exercised its option to acquire CanCo's assets (and
the purchase was closed). Prior to the Recapitalization, Messrs. Watterson and
Stevenson owned a 14% aggregate equity interest in CanCo. Messrs. Watterson
and Stevenson also entered into the employment agreements described above
under "Employment Agreements."
In the Recapitalization, each of Messrs. Beck, David Watterson, White and
Dalebout received, in exchange for his common stock in certain of the
Recapitalized Companies, 135,404 shares of Common Stock. Each of Messrs. Beck
and David Watterson also purchased 24,988 shares of Common Stock, with the
proceeds of loans from the Company in the amount of $116,987.13 and the par
value in cash. Each of Messrs. White and Dalebout purchased 16,552 shares of
Common Stock, with the proceeds of a loan from the Company in the amount of
$77,491.48 and the par value in cash. Messrs. Beck, David Watterson, White and
Dalebout donated certain of their shares to the Church of Jesus Christ of
Latter Day Saints from which the Company received repurchase options. The
Company exercised these options in January of 1995. Upon exercise, the Company
received 98,136 shares of its Common Stock in exchange for $459,500 in
connection with shares originally issued to Mr. Beck; 96,320 shares of its
Common Stock in exchange for $451,000 in connection with shares originally
issued to Mr. David Watterson; and 95,893 shares of its Common Stock in
exchange for $449,000 in connection with shares originally issued to each of
Messrs. White and Dalebout. Other members of management purchased an aggregate
of 176,837 shares of Common Stock, for an aggregate purchase price of
$828,000, $560,500 of which was payable by these members of senior management
in cash, and the balance with the proceeds of loans from the Company. All
members of the Company's senior management also participate in the Company's
1994 Stock Option Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following summary, although subject to, and qualified in its entirety by
reference to, the agreements summarized below, including the definitions
therein of certain terms, is complete in all material respects. A number of
these agreements were amended in connection with the WHF Settlement. See
"Business--Legal Proceedings--WHF Litigation."
MASTER TRANSACTION AGREEMENT. The Original Shareholders, the optionholders
of the Recapitalized Companies and the Company were parties to a First Amended
and Restated Master Transaction Agreement, dated as of October 12, 1994 (the
"Master Transaction Agreement"), providing for certain of the transactions
constituting the Recapitalization. Pursuant to the Master Transaction
Agreement, among other things, the Original Shareholders and the optionholders
of the Recapitalized Companies made certain representations and warranties
regarding themselves and the Recapitalized Companies and provided certain
indemnities in favor of the Company, and the Company made certain
representations and warranties regarding itself and provided certain
indemnities in favor of the Original Shareholders and the optionholders of the
Recapitalized Companies, subject in the case of such indemnities to certain
limitations as to time and amount. The Master Transaction Agreement identifies
certain consents of third parties that were required to consummate the
Recapitalization. The Company believes that one required consent was not
obtained, but that the lack of such consent has not had and will not have a
material adverse effect on its financial condition and results of operation.
66
<PAGE>
WEIDER BRAND NAME. Concurrent with the closing of the Recapitalization, the
Company obtained from Weider Sports, WHF, WSG and Weider Europe certain rights
to use the Weider name pursuant to two separate exclusive license agreements.
Pursuant to the first such license agreement between the Company and Weider
Sports (the "Weider Sports License"), Weider Sports granted the Company the
exclusive worldwide right and license to use the "Weider" trademark and
certain other trademark rights owned by or licensed to Weider Sports in Canada
(the "Canadian Trademark Rights") to identify certain fitness and exercise
equipment and non-ingestive sports medicine products other than "soft goods"
(the "Licensed Products") and certain services related thereto (the "Licensed
Services"). Pursuant to the second such license agreement (the "WHF License")
by and among the Company as licensee, and WSG, WHF, and Weider Europe as
licensors (collectively, the "Licensor"), the Licensor granted the Company the
exclusive worldwide right and license to use the "Weider" trademark and
certain other trademark rights owned by or licensed to the Licensor in all
areas of the world other than Canada (the "U.S. and Other Trademark Rights")
to identify Licensed Products and Licensed Services. Under the WHF License,
the Licensor has represented and warranted, among other things, that it is the
owner or licensee of such trademark rights in the United States, Mexico, the
United Kingdom, France, Germany, the Benelux countries, Italy, Austria and
Switzerland. Weider Sports pursuant to the Weider Sports License, and WHF, WSG
and Weider Europe pursuant to the WHF License, retain the ownership of and
right to exploit the Canadian Trademark Rights and the U.S. and Other
Trademark Rights, respectively, throughout the world to identify all present
or future products other than the Licensed Products and services other than
Licensed Services. Under the Weider Sports License, the Company paid a $5
million license fee at the Recapitalization Closing and has a perpetual, fully
paid-up license with respect to the Canadian Trademark Rights. Under the WHF
License, the Company was required to pay a royalty with respect to the U.S.
and Other Trademark Rights equal to 2% of sales of Licensed Products sold
thereunder until such time as the Company has paid an aggregate royalty with
respect to such U.S. and Other Trademark Rights equal to $12 million plus an
interest factor accruing on the unpaid portion of the royalty at a per annum
rate of 10%. In connection with the WHF Settlement, the Company prepaid this
royalty in full on September 6, 1996. See "Business--Legal Proceedings--WHF
Litigation" and "--Settlement of WHF Litigation."
PURCHASE OPTION. Under the CanCo Option, the Company had the right at any
time within 30 months after the closing of the Recapitalization to purchase
the net fixed assets, inventory and certain other assets of CanCo at a
purchase price equal to aggregate net book value, which was believed by the
parties to be the fair market value of such fixed assets, inventory and other
assets, and the assumption of certain related leases and contracts. These
assets consist primarily of manufacturing facilities (which are leased) which
have supplied products to the Recapitalized Companies and other affiliates of
WHF and Weider Europe and are continuing to supply products to the Company and
affiliates of WHF. In August 1995, the Company gave notice of its intention to
exercise the CanCo Option, subject to various conditions, and consummated the
acquisition on September 6, 1996. For a description of the amendment to the
CanCo option agreement, see "Business--Legal Proceedings--WHF Litigation" and
"--Settlement of WHF Litigation".
In 1994, 1995, and 1996, the Company purchased $7.4 million, $26.4 million
and $50.7 million, respectively, of products from CanCo. Prior the exercise of
the CanCo Option (and the closing thereunder), all such purchases by the
Company were made on an arm's length basis.
In addition, the Company provided management services to CanCo while it had
the right to exercise the CanCo Option and received a management fee equal to
$.5 million in connection with the WHF Settlement. No management fees were
received from CanCo in 1995 or in 1996. Scott Watterson and Gary Stevenson
received from CanCo an aggregate of 14% of its adjusted pre-tax earnings from
November 14, 1994 to September 6, 1996.
EUROPEAN OPERATIONS. The Company purchased certain fixed assets for
approximately $.2 million and assumed certain liabilities (primarily real
estate leases) of Weider Europe. It has also hired
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<PAGE>
selected former employees of Weider Europe and its affiliates. These assets
and employees, supplemented by the Company's domestic resources, have been
used in establishing the Company's presence in targeted European markets. The
Company's recently established European operations continue to obtain products
and/or components from affiliates of WHF and made purchases from such
affiliates of $.4 million in 1996.
INTERNATIONAL DISTRIBUTION ARRANGEMENTS. Prior to the beginning of 1996, the
Company sold products to affiliates of WHF for international distribution,
primarily in Europe. In 1994, 1995 and 1996 sales by the Company to such
affiliates of WHF aggregated $4.9 million, $8.8 million and $9.6 million,
respectively. Since the beginning of 1996, the Company has been selling its
products directly in Europe.
In connection with the Recapitalization, the Company entered into an
agreement with Weider Sports, under which Weider Sports had exclusive,
perpetual, worldwide distribution rights, except as noted below, for certain
of the Company's products on the same terms and conditions as those given to
the Company's most favored customers in countries other than the United
States, the United Kingdom, France, Germany, the Benelux countries, Italy,
Austria, Switzerland and Mexico. Weider Sports did not have distribution
rights with respect to certain of the Company's products, including products
sold under third party brand names.
In connection with the Weider Sports Acquisition in September 1996, the
Company reacquired the distribution rights granted to Weider Sports in
connection with the Recapitalization, subject to certain rights granted by
Weider Sports to third parties. See "Business--Legal Proceedings--Settlement
of WHF Litigation."
WSG AND WEIDER EUROPE MANAGEMENT AGREEMENTS. The Company entered into an
agreement as of June 1, 1994 under which the Company provided certain
management services to WSG and acts as WSG's agent to maintain and liquidate
its inventory and service and collect the accounts receivable of WSG in return
for specified fees. For 1995, the Company was paid a management fee of $2.7
million. Following the Recapitalization, WSG stopped paying fees under to
management agreement and later terminated that agreement. See "Business--Legal
Proceedings."
In connection with the Recapitalization, the Company and Weider Europe
entered into a substantially similar agreement which became effective as of
January 15, 1995 pursuant to which the Company provided management services to
Weider Europe. Since the Recapitalization Closing, the Company acted as Weider
Europe's agent to maintain and liquidate inventory and to service and collect
accounts receivable of Weider Europe. Weider Europe did not pay any fees under
the management agreement.
The WSG and Weider Europe Management Agreements terminated in connection
with the WHF Settlement.
NONCOMPETE AGREEMENT. In connection with the Recapitalization, the Company
entered into a noncompete agreement with WHF and Messrs. Watterson and
Stevenson, which has been subsequently amended in connection with the WHF
Settlement, under which the Company paid (i) WHF $2.4 million for its
agreement not to compete with the Company in certain specified businesses for
a five-year term and (ii) Messrs. Watterson and Stevenson $2.3 million and
$1.8 million, respectively, for their agreement not to compete with the
Company in certain specified businesses for a four year term.
TAX SHARING AGREEMENT. For federal income tax purposes, the taxable income
of IHF Holdings and Health & Fitness is included in a single consolidated
federal income tax return, and ICON currently files a separate federal income
tax return. Such taxable income may also be included in certain state and
local consolidated, combined or unitary income tax returns. A tax sharing
agreement was entered into in connection with the Recapitalization among
Health & Fitness, IHF Holdings, ICON and their affiliates to provide that each
such company will pay its separate company tax liability calculated as if it
were not included in consolidated, combined or unitary returns with its
parent. In connection with the Merger, the Tax Sharing Agreement will be
amended.
68
<PAGE>
ADVERTISING AND MARKETING RELATIONSHIPS. Historically, the Company purchased
advertising space for certain of their products in magazines and other
publications produced by WHF and its affiliates on terms better than or at
least as favorable as those offered to independent parties. In 1994, 1995, and
1996 the Recapitalized Companies purchased $.1 million, $.3 million and less
than $.1 million, respectively, of such advertising.
MANAGEMENT FEES. WHF received aggregate management fees from the Company of
$.4 million in 1994. Since the closing of the Recapitalization, pursuant to a
management agreement (the "Bain Management Agreement"), Bain Capital Partners
IV, L.P. ("Bain IV"), an affiliate of Bain Capital, provides management
consulting services to the Company including providing advice on strategic
planning, development and acquisitions for an annual fee of $.8 million plus
reimbursement of reasonable out-of-pocket expenses. In 1995 and 1996, the
Company paid Bain IV $.4 and $.8 million, respectively, in consulting fees.
Prior to the Offering, the Company will recognize a non-recurring expense of
$2.8 million representing a fee to terminate the annual management fee payable
to Bain IV in accordance with the Bain Management Agreement. The Bain
Management Agreement includes customary indemnification provisions in favor of
Bain IV. In addition, if the Company enters into any acquisition transactions
involving at least $10.0 million, Bain IV will receive a fee in an amount
which will approximate 1% of the gross purchase price of the transaction
(including assumed debt).
STRUCTURING FEE. Pursuant to the Bain Management Agreement, on November 14,
1994 the Company paid to Bain IV a structuring fee of $3.5 million plus
reimbursement of out-of-pocket expenses in consideration of Bain IV's
assistance in facilitating certain debt financing for the Recapitalization.
Bain IV is also entitled to receive a fee equal to 1% of the gross purchase
price of the HealthRider Acquisition (including all assumed liabilities). As
of June 30, 1996 such fee would have been approximately $.6 million.
REIMBURSEMENT OF ORIGINAL SHAREHOLDER EXPENSES. In 1995, the Company
reimbursed $2.0 million of expenses incurred by WHF and the other Original
Shareholders in connection with the Recapitalization.
PRIOR RELATIONSHIPS. The Company had a number of relationships with
affiliates which were terminated at or prior to the closing of the
Recapitalization. The Recapitalized Companies paid corporate allocations to
WHF in an aggregate amount of $.4 million in 1994. The Company also made
payments to WHF in lieu of tax payments in amounts equal to the reported
earnings of the Company multiplied by the applicable tax rates for periods
through the Closing. In addition, WHF served as the Company's source of
revolving credit from October 1993 until October 1994, charging interest at
its cost of funds.
LOANS TO EMPLOYEES. In connection with the exercise of options prior to the
Recapitalization, ProForm accepted as partial payment notes in the amount of
$60,000 from each of Mr. Beck and Mr. David Watterson and $57,000 from each of
Mr. White and Mr. Dalebout. Such notes bear interest at prime plus .5% and
remain outstanding. In connection with the purchase of stock in the
Recapitalization, the Company accepted as partial payments, notes bearing
interest at a per annum rate equal to 7.5% in the amount of approximately
$117,000 from each of Mr. Beck and Mr. David Watterson and $77,500 from Mr.
White, $177,000, $177,000 and $134,500 remain outstanding from Messrs. Beck,
David Watterson and White, respectively.
WESTWIND II. In June 1996, the Company entered into an agreement with FG
Aviation, Inc. ("FG"), a company which is jointly owned by Messrs. Watterson
and Stevenson, whereby the Company will lease an airplane, a Westwind II, from
FG for a minimum of 400 hours per year at a fair market rate (between $1,500
and $1,700 per hour, as adjusted by the Company's costs associated with flight
crews). Scheduled maintenance and insurance will be paid for by FG and non-
scheduled maintenance will be paid for by the Company. Flight crews will be
provided by the Company. In connection with this lease, the Company advanced
$.3 million to officers of the Company to be used as a security deposit on the
aircraft lease. Furthermore, in connection with the acquisition of such
airplane by FG, the Company advanced $2.1 million to officers of the Company
for approximately two months at a fair market rate of interest which advance
has been repaid.
69
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
Certain Selling Stockholders have granted the Underwriters options for 30
days to purchase up to an additional 1,875,000 shares of Common Stock at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. The following table and notes thereto set
forth certain information with respect to the beneficial ownership of the
Company's outstanding shares of Common Stock giving effect to the Conversion
immediately prior to and immediately following the Offering by (i) each person
known to the Company to beneficially own more than 5% of the outstanding
shares of Common Stock of the Company; (ii) each director and named executive
officer of the Company individually; (iii) all directors and named executive
officers of the Company as a group; and (iv) each of the Selling Stockholders.
For a description of the Common Stock, see "Description of Capital Stock."
Certain members of Senior Management together with the Bain Funds (as defined)
and certain former and current employees of Donaldson, Lufkin & Jenrette
Securities Corporation, one of the representatives of the Underwriters, have
elected to include certain of their shares of Common Stock in the
Underwriters' over-allotment option. Certain other of the Company's
stockholders and holders of the warrants issued in connection with the
issuance of the Senior Subordinated Notes and the Discount Notes may also
elect to include their shares of Common Stock in the Underwriters' over-
allotment option. Each such holder will be entitled to include its shares in
the proportion that the number of its shares which it has elected to include
in the Offering bears to the total number of shares offered by all Selling
Stockholders.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OFFERED
PERCENTAGE IN THE
NUMBER PRIOR PRIOR TO NUMBER PERCENTAGE OVER-
TO THE THE AFTER THE AFTER THE ALLOTMENT
NAMES OFFERING(1)(2) OFFERING OFFERING(1)(2) OFFERING(2) OPTION(3)
----- -------------- ---------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Scott R. 2,067,555 12.8 2,067,555 8.7 320,055
Watterson+(4)......
c/o ICON Health &
Fitness, Inc.
1500 South 1000
West
Logan, Utah 84321
Gary E. Stevenson+(5). 1,619,819 10.2 1,619,819 6.9 250,746
c/o ICON Health &
Fitness, Inc.
1500 South 1000
West
Logan, Utah 84321
S. Fred Beck.......... 192,182 1.3 192,182 * 29,750
c/o ICON Health &
Fitness, Inc.
1500 South 1000
West
Logan, Utah 84321
David S. Watterson.... 193,998 1.3 193,998 * 30,031
c/o ICON Health &
Fitness, Inc.
1500 South 1000
West
Logan, Utah 84321
Jon M. White.......... 138,268 * 138,268 * 21,404
c/o ICON Health &
Fitness, Inc.
1500 South 1000
West
Logan, Utah 84321
Brad Bearnson......... 42,823 * 42,823 * 6,629
c/o ICON Health &
Fitness, Inc.
1500 South 1000
West
Logan, Utah 84321
Eric Weider+(6)....... 2,347,854 15.1 -- -- --
c/o Weider Health
and Fitness
21100 Erwin Street
Woodland Hills,
California 91367
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OFFERED
PERCENTAGE IN THE
NUMBER PRIOR PRIOR TO NUMBER PERCENTAGE OVER-
TO THE THE AFTER THE AFTER THE ALLOTMENT
NAMES OFFERING(1)(2) OFFERING OFFERING(1)(2) OFFERING(2) OPTION(3)
----- -------------- ---------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Richard Renaud+(7).... 2,313,336 14.8 -- -- --
c/o TNG Corporation
1 Place Ville Marie
Suite 3200
Montreal, Quebec
H3B 3Y2 Canada
Robert C. Gay+(8)..... 7,673,705 50.8 7,673,705 33.6 1,187,881
c/o Bain Capital,
Inc.
Two Copley Place,
7th Floor
Boston,
Massachusetts 02116
Ronald P. Mika+(8).... 7,673,705 50.8 7,673,705 33.6 1,187,881
c/o Bain Capital,
Inc.
Two Copley Place,
7th Floor
Boston,
Massachusetts 02116
Geoffrey S. 7,673,705 50.8 7,673,705 33.6 1,187,881
Rehnert+(8)........
c/o Bain Capital,
Inc.
Two Copley Place,
7th Floor
Boston,
Massachusetts 02116
All directors and
executive officers
as a group (10
persons)........... 14,233,381 80.3 14,233,381 57.0 1,846,495
OTHER 5% STOCKHOLDERS
The Bain Funds (8).... 7,673,705 50.8 7,673,705 33.6 1,187,881
c/o Bain Capital,
Inc.
Two Copley Place,
7th Floor
Boston,
Massachusetts 02116
Weider Health and 2,313,336 14.8 -- -- --
Fitness (7)........
21100 Erwin Street
Woodland Hills,
California 91367
Greyfriars Ltd. ...... 1,945,206 12.9 -- -- --
167 Regent Street
London W1, England
OTHER SELLING
STOCKHOLDERS
Charles W. Robins and
Carolyn G. Robins.. 6,407 * 6,407 * 992
Patrick J. Fallon (9). 10,679 * 10,679 * 1,653
Daniel K. Flatley (9). 6,407 * 6,407 * 992
Douglas M. Hayes (9).. 5,339 * 5,339 * 827
Allen Matteson Davis
(9)................ 2,136 * 2,136 * 331
Robert E. Diemar, Jr.
(9)................ 2,136 * 2,136 * 331
Douglas I. Ostrover
(9)................ 5,339 * 5,339 * 827
Daniel and Gladys
Elkaim (9)......... 5,339 * 5,339 * 827
Benoit Jamar(9)....... 5,339 * 5,339 * 827
Citibank N.A. ........ 36,737 * 36,737 * 5,687
Oppenheimer Strategic
Income Fund........ 46,952 * 46,952 * 7,268
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OFFERED
PERCENTAGE IN THE
NUMBER PRIOR PRIOR TO NUMBER PERCENTAGE OVER-
TO THE THE AFTER THE AFTER THE ALLOTMENT
NAMES OFFERING(1)(2) OFFERING OFFERING(1)(2) OFFERING(2) OPTION(3)
----- -------------- ---------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Oppenheimer Strategic
Bond Fund.......... 844 * 844 * 131
Oppenheimer High
Income Fund........ 5,141 * 5,141 * 796
Oppenheimer Multiple
Strategies Fund.... 4,219 * 4,219 * 653
Federated Bond Fund... 1,687 * 1,687 * 261
Federated High Yield
Portfolio.......... 1,055 * 1,055 * 163
Federated High Yield
Trust.............. 21,093 * 21,093 * 3,265
Variable Investor
Series Trust--High
Income Bond Fund... 422 * 422 * 65
The Highlander Fund... 633 * 633 * 98
Federated High Income
Bond Fund, Inc. ... 15,820 * 15,820 * 2,449
Federated Strategic
Income Fund........ 422 * 422 * 65
</TABLE>
- --------
* Less than one percent.
+ Director of the Company.
(1) Except as otherwise indicated, (i) the named owner has sole voting and
investment power with respect to the shares set forth and (ii) the figures
in this table are calculated in accordance with Rule 13d-3, as amended,
under the Securities Exchange Act of 1934. For purposes of determining
exercisability of options and warrants, the table assumes the occurrence
of the Offering. All current shareholders and warrantholders of the
Company are parties to a Stockholders Agreement pursuant to which they
have agreed to vote for two directors selected by certain shareholders
affiliated with management, two directors selected by WHF and its
affiliates and all remaining directors as selected by 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"). They have also agreed
to vote to fix the number of directors as set by the Bain Funds and to
cast their votes with respect to certain matters, including the
disposition of the Company's assets, as directed by the Bain Funds. See
"Description of Capital Stock--Stockholders Agreement." The shares
reported in this table as owned by a shareholder do not include the shares
over which such shareholder has the right to direct the vote pursuant to
such Stockholders Agreement.
(2) Assumes no exercise of the Underwriters' over-allotment option and does
not give effect to purchases, if any, by such persons in the Offering.
(3) Assumes that the Underwriters' over-allotment option is exercised in full
and does not reflect the fact that additional shareholders may elect to
participate in the Underwriters' over-allotment option.
(4) Includes 1,055,701 shares of Common Stock held by Watermark Investments
L.C.
(5) Includes 821,101 shares of Common Stock held by Finmar Investments L.C.
(6) Includes 1,803,106 shares of Common Stock held directly by WHF and 495,589
shares of Common Stock subject to purchase upon exercise of warrants held
directly by WHF. Mr. Weider is a director and executive officer of WHF.
(7) Includes 1,803,106 shares of Common Stock held directly by WHF and 495,589
shares of Common Stock subject to purchase upon exercise of warrants held
directly by WHF. Mr. Renaud is Chairman and Chief Executive Officer of
WHF.
(8) Includes the shares owned by each of the Bain Funds, of which the named
shareholder is 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.
(9) Current or former employees of Donaldson, Lufkin & Jenrette Securities
Corporation, a representative of the Underwriters and an initial purchaser
of the Senior Subordinated Notes, Discount Notes and warrants to purchase
Common Stock issued in connection therewith.
72
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of 60,000,000 shares of Common Stock, $0.001 par value
per share and 10,000,000 shares of Preferred Stock, $0.01 par value per share.
The discussion herein describes the Company's capital stock, its Amended and
Restated Certificate of Incorporation and its Bylaws, each as anticipated to
be in effect upon consummation of the Conversion and the Offering. The
following summary of certain provisions of the Company's capital stock
describes all material provisions of, but does not purport to be complete and
is subject to, and qualified in its entirety by, the form of Amended and
Restated Certificate of Incorporation and the Bylaws of the Company that are
included as exhibits to the Registration Statement of which this Prospectus
forms a part and by the provisions of applicable law.
Certain provisions described herein may have the effect of impeding
stockholder actions with respect to certain business combinations and the
election of new members to the Board. As such, the provisions could have the
effect of discouraging open market purchases of the Company's Common Stock
because they may be considered disadvantageous by a stockholder who desires to
participate in a business combination or elect a new director.
COMMON STOCK
Immediately prior to the Offering, after giving effect to the Conversion,
the WHF Settlement and the exercise of all the outstanding warrants to
purchase Common Stock, there were 12,967,327 shares of Common Stock
outstanding held of record by 116 stockholders. There will be 25,467,327
shares of Common Stock outstanding after giving effect to the sale of the
shares of Common Stock offered hereby assuming no exercise of the
Underwriters' over-allotment option.
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of Common Stock do not have
cumulative voting rights, and therefore holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the remaining shares will not be able to elect any directors. The
Bylaws of the Company provide for a classified Board of Directors where one
class of directors is elected each year for a term extending to the third
succeeding annual meeting of stockholders after such election. The Amended and
Restated Certificate of Incorporation will require that any action required or
permitted to be taken by the Company's stockholders must be effected at a duly
called annual or special meeting of stockholders and may not be effected by
consent in writing. Additionally, the Amended and Restated Certificate of
Incorporation will require that special meetings of the stockholders of the
Company be called only by a majority of the Board or by certain officers. The
Amended and Restated Bylaws will provide that stockholders seeking to bring
business before or to nominate directors at any annual meeting of stockholders
must provide timely notice thereof in writing. To be timely, a stockholder's
notice must be delivered to, or mailed and received at, the principal
executive offices of the Company not less than 60 days nor more than 90 days
prior to such meeting or, if less than 70 days' notice was given for the
meeting, within ten days following the date on which such notice was given.
The Bylaws also will specify certain requirements for a stockholder's notice
to be in proper written form. These provisions will restrict the ability of
stockholders to bring matters before the stockholders or to make nominations
for directors at meetings of stockholders. The effect of these provisions may
make it more difficult to effect a change of control of the Board of Directors
or take action by the stockholders.
The holders of Common Stock are entitled to receive such lawful dividends as
may be declared by the Board of Directors subject to the prior rights of the
holders of any Preferred Stock and the restrictions contained in the Credit
Agreement and the Senior Subordinated Notes Indenture. See "Dividend Policy."
The shares of Common Stock will not be redeemable or convertible, and the
holders thereof will have no preemptive or subscription rights to purchase any
securities of the Company. In the event of liquidation, dissolution or winding
up of the Company, the holders of shares of Common
73
<PAGE>
Stock will be entitled to receive pro rata all of the remaining assets of the
Company available for distribution to its stockholders. There are no sinking
fund provisions applicable to the Common Stock. All outstanding shares of
Common Stock are fully paid and nonassessable, and shares of Common Stock to
be issued pursuant to the Offering shall be fully paid and nonassessable.
The Company has applied for the Common Stock to be approved for listing on
the NYSE.
PREFERRED STOCK
No shares of Preferred Stock are outstanding. The Board of Directors has the
authority, without further action by the stockholders, to issue the shares of
Preferred Stock in one or more series and to fix the rights, preferences and
privileges thereof, including voting rights, dividend rights, terms of
redemption, redemption prices, liquidation preferences, number of shares
constituting any series or the designation of such series, without further
vote or action by the stockholders. Although it presently has no intention to
do so, the Board of Directors, without stockholder approval, could issue
Preferred Stock with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock and reduce the amount of funds
available for the potential payment of dividends on shares of Common Stock.
This provision may be deemed to have a potential anti-takeover effect, and the
issuance of Preferred Stock in accordance with such provision may delay or
prevent a change of control of the Company.
DELAWARE LAW
Section 203. Following the consummation of the Offering, the Company will be
subject to the "business combination" provisions of the DGCL. In general, such
provisions prohibit a publicly-held Delaware corporation from engaging in
various "business combination" transactions with any "interested stockholder"
for a period of three years after the date of the transaction in which the
person became an "interested stockholder," unless (i) either the transaction
or the transaction pursuant to which the stockholder became an "interested
stockholder" is approved by the Board of Directors prior to the date the
"interested stockholder" obtained such status; (ii) upon consummation of the
transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by (a) persons who are directors and also officers and (b)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or subsequent to such date
the "business combination" is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the "interested stockholder." A "business combination" is defined to include
mergers, asset sales and other transactions resulting in financial benefit to
a stockholder. In general, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of a corporation's voting stock. Such restrictions would not apply
to those who were "interested stockholders" prior to the consummation of the
Offering. The statute could prohibit or delay mergers or other takeover or
change in control attempts with respect to the Company and, accordingly, may
discourage attempts to acquire the Company. In addition, the Amended and
Restated Certificate of Incorporation will provide that the affirmative vote
of at least 80% of the outstanding voting stock is required for a business
combination between the Company or any subsidiary and the beneficial owner of
more than five percent of the outstanding voting stock unless such transaction
(i) has been approved by a majority of the disinterested directors or (ii)
involves a person who, as of the effectiveness of the Offering, was the
beneficial owner of more than five percent of the outstanding voting stock of
the Company or any affiliate thereof.
74
<PAGE>
Limitations on Liability and Indemnification of Officers and Directors. The
DGCL provides that a corporation may limit the liability of each director to
the corporation or its stockholders for monetary damages except for liability
(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 that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and
(iv) for any transaction from which the director derives an improper personal
benefit. The Company's Amended and Restated Certificate of Incorporation will
provide that, to the fullest extent permitted by Delaware law, no director of
the Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duties as a director. The effect of
these provisions is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as
a director (including breaches resulting from grossly negligent conduct). This
provision does not exonerate the directors from liability under federal
securities laws nor does it limit the availability of non-monetary relief in
any action or proceeding against a director. In addition, the Amended and
Restated Certificate of Incorporation will provide that the Company shall, to
the fullest extent not prohibited by Delaware Law, indemnify its officers and
directors against liabilities, cost and expenses as provided by Delaware Law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or others pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
STOCK TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for the Company's Common Stock is
First Chicago Trust Company of New York.
STOCKHOLDERS AGREEMENT
The summary herein of certain provisions of the Stockholders Agreement, is
complete in all material respects although it is subject to, and qualified in
its entirety by reference to, all of the provisions of the Stockholders
Agreement, a copy of which is available upon request to the Company.
GENERAL
The Company and all current holders of Common Stock and all holders of
warrants to purchase the Company's Common Stock (the "Participants") have
entered into the Stockholders Agreement.
REGISTRATION RIGHTS
Pursuant to the Stockholders Agreement, the Bain Funds have the right to
demand registration under the Securities Act of the Company's Common Stock
held by them at any time. Each of two groups of the Original Shareholders that
are Participants have the right to demand two registrations of the Company's
Common Stock, the first at any time after four years of the Recapitalization
Closing and the second at any time five and one half years or more after the
Recapitalization Closing. Persons holding an aggregate of at least 25% of the
shares issued upon exercise of the Company's warrants issued with the Discount
Notes and Senior Subordinated Notes ("Warrant Shares") (excluding any such
shares which have been sold in a public market) have the right to demand, in
aggregate, up to two registrations under the Securities Act of the Common
Stock held by them, at any time 180 days or more after the closing of this
Offering. This right will terminate on such date, if any, when all Warrant
Shares (excluding shares which have been sold in a public market) are freely
resaleable under Rule 144(k) and no holder thereof holds more than 1% of all
outstanding Common Stock. In addition, after November 14, 2001, Scott
Watterson and Gary Stevenson will each have the right to demand registration
under the Securities Act of the Common Stock held by each of them on an
unlimited number of occasions; provided that (i) the holder exercising demand
registration rights beneficially owns, directly or indirectly, more than 5% of
the outstanding Common Stock; (ii) certain of such
75
<PAGE>
holder's demand registration rights have been previously exercised; and (iii)
such holder has been cut back in connection with the exercise of at least one
of such other previously exercised registration rights. All of the
Participants' demand registration rights will be suspended for 180 days
following the Offering or any other public offering of the Company's Common
Stock (other than pursuant to a shelf registration statement).
For purposes of the registration rights provisions of the Stockholders
Agreement, Warrant Shares held by certain officers of the Company, the
Original Shareholders and affiliates of Bain Capital will be treated as though
they were not Warrant Shares.
The Stockholders Agreement also provides that each Participant has the
right, subject to reduction as set forth in next sentence, to require the
Company to cause such Participant's Shares to be included in any public
offering of the Company's Common Stock (other than pursuant to a shelf
registration statement). However, if the aggregate number of shares of Common
Stock which the Participants elect to include exceeds the number which, in the
opinion of the managing underwriter, can be sold in such offering without
materially adversely affecting the public offering, the number of such shares
sold in such an offering shall be allocated, first to the Company, second pro
rata to the holders of the Company's Common Stock held by Participants,
including holders of Warrant Shares (other than shares previously sold under
Rule 144 or under a registration statement) and third pro rata to the holders
of other shares.
In addition, the Stockholders Agreement requires the Company to file within
395 days after the Closing of this Offering, and as soon as practicable
thereafter, cause to become effective, and maintain the effectiveness of, a
shelf registration statement covering resale of the Warrant Shares; this
requirement will lapse on such date, if any, as all Warrant Shares (excluding
any such shares which have been sold in a public market) are freely resaleable
under Rule 144(k) and no holder thereof holds more than 1% of all the
Company's Common Stock.
VOTING RIGHTS
After completion of the Offering, the Stockholders Agreement will require
Participants to vote their shares to fix the number of directors of the Board
of Directors of the Company at a number equal to or greater than five as
determined by the Bain Funds and to elect as its directors two individuals
nominated by certain members of management and the individuals nominated by
the Bain Funds to fill the remaining number of director positions. Prior to
completion of this Offering, the Stockholders Agreement requires Participants
to vote their shares to fix the number of directors of the Company at a number
equal to or greater than seven as determined by the Bain Funds and, in
addition to the directors described above, to elect as directors two
individuals nominated by WHF and its affiliates. The Stockholders Agreement
further provides that the Bain Funds may direct the voting of all Participant
Shares with respect to certain liquidity events, including a sale of a
substantial portion of the assets of the Company and its subsidiaries, an
offering of its securities, a merger or consolidation and a change of
control.The Stockholders Agreement provides that all Participants will be
deemed to have granted proxies to vote their shares to implement all of the
foregoing voting provisions.
The limitations on voting rights, and grant of proxies, expire upon the
occurrence of the earliest of certain events or, if no such events have
occurred, on November 14, 2004.
OTHER
The Stockholders Agreement contains customary provisions regarding
indemnification and contribution in the event of losses caused by the
misstatement of any information or the omission of any information required to
be provided in a registration statement filed under the Securities Act. The
Stockholders Agreement also requires the Company to pay certain of the
expenses associated with any registration and offering of the Company's Common
Stock. In connection with this Offering, the
76
<PAGE>
WHF Settlement and the proposed amendments to the Employment Agreements,
certain changes may be made to the Stockholders Agreement.
DESCRIPTION OF CERTAIN INDEBTEDNESS
At May 31, 1996, Health & Fitness had $80.0 million of revolving credit
borrowings under the Credit Agreement. Advances under the revolving credit
facility provided under the Credit Agreement are subject to the amount of
Eligible Accounts and Eligible Inventory (each as defined in the Credit
Agreement) of Health & Fitness and may not at any time exceed the lesser of
(i) $160 million or (ii) 85% of Eligible Accounts plus 60% of Eligible
Inventory (with a seasonal increase to 70% of Eligible Inventory in effect
during the months of June through November of each year) plus the Over Advance
Amount (as defined in the Credit Agreement) (the "Borrowing Base"). The Over
Advance Amount equals the lesser of (i) $15 million in the first year after
the closing of the Recapitalization (the "Recapitalization Closing"), $10
million in the second year after the Recapitalization Closing, $5 million in
the third year after the Recapitalization Closing and zero thereafter; (ii)
Health & Fitness' EBITDA for the trailing 12-month period ending as of the
last day of the preceding month; and (iii) 85% of Health & Fitness' book value
of accounts (which are not Eligible Accounts) plus 60% of the book value of
inventory (which is not Eligible Inventory) (with a seasonal increase to 70%
of such inventory in effect during the months of June through November of each
year). Health & Fitness' ability to make revolving credit borrowings under the
Credit Agreement expires on November 14, 1999. At May 31, 1996, Health &
Fitness had $48.8 million of additional indebtedness available to be drawn on
a revolving credit basis under the Credit Agreement. Health & Fitness also has
two term loan facilities under the Credit Agreement. The Term Loan A Facility
provides for borrowings of $17,500,000 advanced at closing of the
Recapitalization, with a final maturity date of November 14, 1999. The
amortization schedule for the Term Loan A Facility calls for quarterly
payments of $625,000 commencing March 31, 1996, $937,500 commencing March 31,
1997, $1,250,000 commencing March 31, 1998 and $1,562,500 commencing March 31,
1999. The Term Loan B Facility provides for borrowings of $17,500,000 advanced
at closing of the Recapitalization, with a final maturity date of November 14,
2001. The amortization schedule for the Term Loan B Facility calls for
quarterly installments of $62,500 commencing March 31, 1996 and $1,562,500
commencing March 31, 2000 with the balance of $5,562,500 due at maturity. The
Credit Agreement contains a number of covenants. At May 31, 1996, the Company
was in compliance with all its financial covenants except for the capital
expenditure limitation for the year ended May 31, 1996 with respect to which
its lender waived compliance. Management believes that the Company will be in
compliance with its financial covenants through 1997 and, therefore,
borrowings under the Credit Agreement have been classified as long-term,
exclusive of amounts due within one year under the Term Loan A Facility and
Term Loan B Facility. The Company amended the Credit Agreement as of August
23, 1996 to permit the application of a portion of the proceeds of the
Offering as described herein prior to the repayment of debt under the Credit
Agreement and to permit total borrowings of up to $310 million in order to
meet the Company's long term needs.
After this Offering and the redemption of $35 million (face value) of Senior
Subordinated Notes and the Discount Notes, Health & Fitness will have
outstanding $66.25 million (face value) of Senior Subordinated Notes which are
unsecured senior subordinated obligations of Health & Fitness. They mature on
July 15, 2002 and bear interest at the rate of 13.00% per annum. The Senior
Subordinated Notes Indenture contains certain customary covenants, including,
but not limited to, covenants with respect to the following matters:
limitation on indebtedness; limitation on other senior subordinated
indebtedness; limitation on restricted payments; limitation on issuance and
sale of capital stock of subsidiaries; limitation on dividends and other
payment restrictions affecting subsidiaries; additional guarantees; limitation
on guarantees by subsidiaries; limitation on transactions with affiliates;
limitation on sale of assets; limitation on sale and leaseback transactions;
limitation on liens, change of control offer; and consolidation, merger and
sale of assets.
77
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
In addition to the 12,500,000 shares of Common Stock offered hereby, there
will be 12,967,327 shares of Common Stock outstanding as of the effective date
of the Prospectus, all of which existing shares are "restricted shares" (the
"Restricted Shares") under the Securities Act. Beginning 180 days after the
date of this Prospectus, substantially all the Restricted Shares will become
eligible for sale in the public market pursuant to the expiration of certain
lock-up agreements with the Company, subject to the volume, holding period and
other restrictions of Rule 144 promulgated under the Securities Act. In
connection with the Recapitalization, the Company entered into the
Stockholders Agreement with its officers, directors and principal
stockholders, which, subject to the lock-up agreements, requires the Company
to register an offering of Common Stock held by such persons or their
transferees at their request, subject to certain conditions and restrictions.
The Stockholders Agreement allows the parties thereto and their transferees to
include their Common Stock in a registered offering of Common Stock initiated
by the Company or by another stockholder of the Company. The Stockholders
Agreement also requires the Company to file within 13 months after the Closing
of this Offering, and as soon as practicable thereafter, to cause to become
effective, and maintain the effectiveness of a shelf registration statement
covering resale of the Warrant Shares. See "Stockholders Agreement."
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated including affiliates) who has beneficially owned
Restricted Shares for at least two years (which is currently proposed to be
amended to one year) is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of 1% of the then
outstanding shares of the Company's Common Stock (approximately 254,673 shares
immediately after the Offering) or the average weekly trading volume during
the four calendar weeks preceding such a sale.
Under Rule 144(k), if a period of at least three years (which the Commission
has proposed to amend to two years) has elapsed since the later of the date
Restricted Shares were acquired from the Company or the date they were
acquired from an affiliate of the Company, as applicable, then a holder of
such Restricted Shares who is not an affiliate of the Company at the time of
the sale and who has not been an affiliate of the Company for at least three
months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
After 180 days after this Offering, the Company intends to file a
registration statement on Form S-8 under the Act to register shares of Common
Stock reserved for issuance under the 1994 Stock Option Plan and the 1996
Stock Option Plan, thus permitting the resale of shares issued under the plans
by non-affiliates in the public market without restriction under the Act. Such
registration statement will become effective immediately upon filing. As of
the closing of the Offering, options to purchase 1,719,727 shares of Common
Stock will be outstanding under the Company's 1994 Stock Option Plan (with an
average per share exercise price of $4.36) and options to purchase 802,102
shares of the Company's Common Stock will also be outstanding (with a per
share exercise price of $.42402). In addition, as of the closing of the
Offering, 996,377 shares of Common Stock will be authorized for future grants
under the 1996 Stock Option Plan.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market or the perception that such sales may occur could adversely
affect prevailing market prices and adversely affect the Company's ability to
raise additional capital in the capital markets at a time and price favorable
to the Company. See "Stockholders Agreement," "Risk Factor--Shares Eligible
for Future Sale" and "--No Prior Public Market."
78
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and certain other
legal matters will be passed upon for the Company by Ropes & Gray, Boston,
Massachusetts. Certain legal matters with respect to the validity of the
shares of the Common Stock will be passed upon for the Underwriters by
Shearman & Sterling, New York, New York.
EXPERTS
The consolidated statements of operations, stockholders' equity (deficit)
and cash flows of the Company and subsidiaries for the year ended May 31, 1994
included in this Prospectus and the related financial statement schedule
included elsewhere in the Registration Statement have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing
herein and elsewhere in the Registration Statement, and are included in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
In May 1995 the Board replaced Deloitte & Touche LLP as the independent
auditors for the Company. Deloitte & Touche LLP's reports on the Company's
financial statements for the past two years prior to the change in auditors
did not contain any adverse opinion or disclaimer of opinion and have not been
qualified in any way. During the Company's two most recent fiscal years and
the subsequent interim periods prior to the change in auditors, there have
been no disagreements with Deloitte & Touche LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure and no event has occurred that is required to be disclosed by Item
304(a)(1)(iv) of Regulation S-K. During the Company's two most recent fiscal
years and the subsequent interim periods prior to the change in auditors, the
Company consulted with Price Waterhouse LLP regarding the accounting treatment
of the Recapitalization. Deloitte & Touche LLP agreed with the Company's
accounting treatment of the Recapitalization.
The consolidated statements of operations, stockholders' equity (deficit)
and cash flows of the Company and its subsidiaries for each of the two years
in the period ended May 31, 1996 and the consolidated balance sheet of the
Company and its subsidiaries as of May 31, 1995 and 1996 included in this
Prospectus and the financial statement schedule included in the Registration
Statement have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, appearing elsewhere herein, given on the
authority of said firm as experts in accounting and auditing.
The consolidated balance sheets of HealthRider and subsidiaries as of
December 31, 1994 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995 have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included in this Prospectus in reliance upon the authority of said firm as
experts in accounting and auditing.
79
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Securities and Exchange Commission (the "Commission"), Washington, D.C. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement and the exhibits and schedules thereto may be inspected by anyone
without charge and copies may be obtained at prescribed rates at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of all or any
part of these materials may be obtained from the Commission upon the payment
of certain fees prescribed by the Commission by writing to the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a World Wide Web site (http://www.sec.gov.)
that contains reports, proxy and information statements and other information
regarding registrants that submit electronic filings to the Commission.
The Company intends to furnish to its stockholders annual reports containing
audited consolidated financial statements and a report thereon by the
Company's independent accountants and quarterly reports containing unaudited
consolidated financial data for the first three quarters of each fiscal year.
Health & Fitness and IHF Holdings have been reporting companies under the
Securities Exchange Act of 1934.
80
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
IHF CAPITAL, INC.
Report of Price Waterhouse LLP ............................................ F-2
Report of Deloitte & Touche LLP ........................................... F-3
Consolidated Financial Statements:
Consolidated Balance Sheet .............................................. F-4
Consolidated Statements of Operations ................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) ............... F-6
Consolidated Statements of Cash Flows ................................... F-7
Notes to Consolidated Financial Statements .............................. F-8
HEALTHRIDER, INC. AND SUBSIDIARIES
Report of Arthur Andersen LLP.............................................. F-25
Consolidated Financial Statements:
Consolidated Balance Sheets.............................................. F-26
Consolidated Statements of Income........................................ F-27
Consolidated Statements of Stockholders' Equity.......................... F-28
Consolidated Statements of Cash Flows.................................... F-29
Notes to Consolidated Financial Statements............................... F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of IHF Capital, Inc.
In our opinion, the accompanying consolidated balance sheet, and related
consolidated statements of operations, of stockholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of IHF Capital, Inc. (to be renamed ICON Fitness Corporation and formerly
known as Weslo, Inc., ProForm Fitness Products, Inc., and American Physical
Therapy, Inc. and subsidiaries (the "Recapitalized Companies")) and its
subsidiaries, at May 31, 1996 and 1995, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles. 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 generally accepted auditing
standards 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.
Price Waterhouse LLP
Boston, Massachusetts
August 13, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
IHF Capital, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit), and of cash flows of IHF Capital, Inc. (to be
renamed ICON Fitness Corporation) (formerly known as Weslo, Inc., ProForm
Fitness Products, Inc. and American Physical Therapy, Inc.) and its
subsidiaries for the year ended May 31, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated results of operations and cash flows
of IHF Capital, Inc. and its subsidiaries for the year ended May 31, 1994 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
July 15, 1994
(December 23, 1994 as to Note 1)
F-3
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMPANY
-------------------
MAY 31,
1995 1996
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 4,099 $ 19,313
Accounts receivable, net................................. 114,325 126,869
Inventories.............................................. 95,635 95,922
Deferred income taxes.................................... 7,588 5,240
Other assets............................................. 5,600 4,770
Prepaid income taxes..................................... -- 882
--------- --------
Total current assets................................... 227,247 252,996
Property and equipment, net............................... 23,144 32,312
Deferred income taxes..................................... 3,121 5,489
Other assets.............................................. 36,673 25,930
--------- --------
$ 290,185 $316,727
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt........................ $ 688 $ 3,065
Accounts payable......................................... 73,968 73,652
Interest payable......................................... 5,035 5,815
Accrued expenses......................................... 9,739 11,424
Income taxes payable..................................... 130 --
--------- --------
Total current liabilities.............................. 89,560 93,956
--------- --------
Long-term debt............................................ 267,427 279,693
Minority interest in cumulative redeemable preferred stock
of subsidiary............................................ 42,804 47,904
Stockholders' equity (deficit):
Class L common stock, par value, $.001, 1,200,000 shares
authorized, 617,350 shares issued and outstanding
(liquidation preference $64.5 million and $71.2 million
at May 31, 1995 and May 31, 1996, respectively)......... 1 1
Class A common stock, par value $.001, 15,000,000 shares
authorized, 7,717,265 shares issued and outstanding at
May 31, 1995 and 7,761,804 issued and outstanding at
May 31, 1996............................................ 8 8
Additional paid-in capital............................... 74,948 77,721
Receivable from officers for purchase of equity.......... (758) (758)
Cumulative translation adjustment........................ -- 386
Accumulated deficit...................................... (183,805) (182,184)
--------- --------
Total stockholders' equity (deficit)................... (109,606) (104,826)
--------- --------
Commitments and contingencies (Notes 12, 13 and 14)....... -- --
--------- --------
$ 290,185 $316,727
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
RECAPITALIZED
COMPANIES
(NOTE 1) COMPANY
------------- -------------------
YEAR ENDED
MAY 31, YEAR ENDED MAY 31,
------------- -------------------
1994 1995 1996
------------- --------- --------
<S> <C> <C> <C>
Net sales.................................... $403,016 $ 530,774 $747,577
Cost of sales................................ 288,208 378,322 541,443
-------- --------- --------
Gross profit................................. 114,808 152,452 206,134
-------- --------- --------
Operating expenses:
Selling..................................... 52,116 68,706 93,924
Research and development.................... 2,863 5,163 6,759
General and administrative.................. 28,578 31,097 48,055
Compensation expense attributable to
options.................................... -- 39,046 2,769
-------- --------- --------
Total operating expenses................. 83,557 144,012 151,507
-------- --------- --------
Income from operations....................... 31,251 8,440 54,627
Interest expense............................. 6,224 21,495 36,527
Dividends on cumulative redeemable preferred
stock of a subsidiary held by minority
interest.................................... -- 2,804 5,100
Amortization of deferred financing fees...... -- 1,741 3,483
-------- --------- --------
Income (loss) before income taxes............ 25,027 (17,600) 9,517
Provision for (benefit from) income taxes.... 9,766 (4,719) 7,896
-------- --------- --------
Net income (loss)............................ $ 15,261 $ (12,881) $ 1,621
======== ========= ========
Pro forma income per common and common
equivalent share (unaudited)................ $
========
Weighted average shares used in computation
of pro forma income per common and common
equivalent share (unaudited)................
========
</TABLE>
The accompany notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CUMULATIVE RECEIVABLE
PREFERRED CLASS L CLASS A FROM
STOCK COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL OFFICERS FOR CUMULATIVE
---------------- -------------- ---------------- --------------- PAID-IN PURCHASE TRANSLATION
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE CAPITAL OF EQUITY ADJUSTMENT
------- ------- ------- ----- --------- ----- -------- ----- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RECAPITALIZED
COMPANIES
Balance, May 31,
1993............ 65,492 $ 6,549 -- $-- -- $-- 741,753 $ 2 $ 1,076 $ -- $--
Preferred stock
dividends....... -- -- -- -- -- -- -- -- -- -- --
Exercise of
stock options... -- -- -- -- -- -- 7,408 -- 101 (101) --
Net income...... -- -- -- -- -- -- -- -- -- -- --
------- ------- ------- ---- --------- ---- -------- ---- -------- ----- ----
COMPANY
Balance, May 31,
1994............ 65,492 6,549 -- -- -- -- 749,161 2 1,177 (101) --
Preferred stock
dividends....... -- -- -- -- -- -- -- -- -- -- --
Equity exchanges
and distribu-
tions to stock-
holders......... (65,492) (6,549) 225,360 -- 2,253,600 2 (749,161) (2) 21,357 -- --
Issuance of
Class L and
Class A common
stock to new in-
vestors and man-
agement......... -- -- 410,075 1 4,100,750 4 -- -- 41,003 (657) --
Issuance of re-
placement war-
rants and op-
tions to pur-
chase shares of
Class L and
Class A common
stock........... -- -- -- -- -- -- -- -- 34,700 -- --
Options exer-
cised, shares
called and can-
celled.......... -- -- -- -- -- -- -- -- (26,356) -- --
Issuance of war-
rants to pur-
chase shares of
Class L and
Class A common
stock in con-
junction with
debt offering... -- -- -- -- -- -- -- -- 4,806 -- --
Exercise of op-
tions and war-
rants to pur-
chase Class A
common stock.... -- -- -- -- 1,543,765 2 -- -- 69 -- --
Class A and
Class L common
stock called and
cancelled....... -- -- (18,085) -- (180,850) -- -- -- (1,808) -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
------- ------- ------- ---- --------- ---- -------- ---- -------- ----- ----
Balance, May 31,
1995............ -- -- 617,350 1 7,717,265 8 -- -- $ 74,948 (758) --
Issuance of
Class A common
stock on option
exercises....... -- -- -- -- 44,539 -- -- -- 4 -- --
Compensation re-
lated to issu-
ance of options
to management... -- -- -- -- -- -- -- -- 2,769 -- --
Foreign currency
translation .... -- -- -- -- -- -- -- -- -- -- 386
Net income ..... -- -- -- -- -- -- -- -- -- -- --
------- ------- ------- ---- --------- ---- -------- ---- -------- ----- ----
Balance, May 31,
1996............ -- $ -- 617,350 $ 1 7,761,804 $ 8 -- $-- $ 77,721 $(758) $386
======= ======= ======= ==== ========= ==== ======== ==== ======== ===== ====
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS'
(ACCUMULATED EQUITY
DEFICIT) (DEFICIT)
------------ -------------
<S> <C> <C>
RECAPITALIZED
COMPANIES
Balance, May 31,
1993............ $ 32,175 $ 39,802
Preferred stock
dividends....... (531) (531)
Exercise of
stock options... -- --
Net income...... 15,261 15,261
------------ -------------
COMPANY
Balance, May 31,
1994............ 46,905 54,532
Preferred stock
dividends....... (243) (243)
Equity exchanges
and distribu-
tions to stock-
holders......... (217,586) (202,778)
Issuance of
Class L and
Class A common
stock to new in-
vestors and man-
agement......... -- 40,351
Issuance of re-
placement war-
rants and op-
tions to pur-
chase shares of
Class L and
Class A common
stock........... -- 34,700
Options exer-
cised, shares
called and can-
celled.......... -- (26,356)
Issuance of war-
rants to pur-
chase shares of
Class L and
Class A common
stock in con-
junction with
debt offering... -- 4,806
Exercise of op-
tions and war-
rants to pur-
chase Class A
common stock.... -- 71
Class A and
Class L common
stock called and
cancelled....... -- (1,808)
Net loss........ (12,881) (12,881)
------------ -------------
Balance, May 31,
1995............ (183,805) (109,606)
Issuance of
Class A common
stock on option
exercises....... -- 4
Compensation re-
lated to issu-
ance of options
to management... -- 2,769
Foreign currency
translation .... -- 386
Net income ..... 1,621 1,621
------------ -------------
Balance, May 31,
1996............ $(182,184) $(104,826)
============ =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECAPITALIZED
COMPANIES
(NOTE 1) COMPANY
------------- ------------------
YEAR ENDED YEAR ENDED
MAY 31, MAY 31,
------------- ------------------
1994 1995 1996
------------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................ $15,261 $(12,881) $ 1,621
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Benefit from deferred taxes............. (1,153) (9,493) (20)
Depreciation and amortization........... 4,010 5,561 7,205
Amortization of deferred financing fees
and debt discount...................... -- 6,018 12,458
Compensation expense attributable to op-
tions.................................. -- 12,303 2,769
Interest expense attributable to
dividends on preferred stock held by
minority interest...................... -- 2,804 5,100
Changes in operating assets and liabili-
ties:
Accounts receivable..................... (32,559) (14,106) (12,544)
Inventories............................. 726 (41,429) (287)
Other assets............................ 1,217 (5,837) 7,073
Accounts payable and accrued expenses... 25,844 30,350 2,149
Income taxes............................ -- 130 (1,012)
Payable to Weider....................... 919 (4,697) --
------- -------- --------
Net cash provided by (used in) operating
activities............................. 14,265 (31,277) 24,512
------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment...... (6,924) (7,977) (15,356)
Payment for non-compete agreements....... -- (4,070) --
------- -------- --------
Net cash used in investing activities... (6,924) (12,047) (15,356)
------- -------- --------
FINANCING ACTIVITIES:
Borrowings (payments) on revolving loans
and lines of credit, net................ (68,925) 66,400 6,355
Proceeds from long-term debt............. 105,197 194,999 --
Payments on long-term debt............... (43,222) (58,197) (687)
Proceeds from issuance of common stock... -- 40,422 4
Repurchase of common stock............... -- (1,808) --
Payments of dividends.................... (531) (243) --
Distributions to stockholders............ -- (166,737) --
Payment of debt financing fees........... -- (27,508) --
------- -------- --------
Net cash provided by (used in) financing
activities............................. (7,481) 47,328 5,672
------- -------- --------
Effect of exchange rate changes on cash.. -- -- 386
------- -------- --------
Net (decrease) increase in cash.......... (140) 4,004 15,214
Cash, beginning of period................ 235 95 4,099
------- -------- --------
Cash, end of period...................... $ 95 $ 4,099 $ 19,313
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS
BASIS OF PRESENTATION--The consolidated May 31, 1996 and 1995 financial
statements include the accounts of IHF Capital, Inc. (to be renamed ICON
Fitness Corporation), its subsidiary IHF Holdings, Inc. ("IHF Holdings"), IHF
Holdings' wholly-owned subsidiary, ICON Health & Fitness, Inc. ("Health &
Fitness"), and Health & Fitness' wholly-owned subsidiaries (collectively, the
"Company"). The minority interest in IHF Holdings represents cumulative
redeemable preferred stock held by certain shareholders of the Company (Note
8). Other than the Senior Discount Notes (Note 7) and related deferred
financing fees and deferred income tax benefit and the redeemable preferred
stock (Note 8) issued by IHF Holdings, all assets and liabilities of the
Company are those of Health & Fitness.
The consolidated May 31, 1994 financial statements of Weslo, Inc. and its
wholly-owned subsidiaries, ProForm Fitness Products, Inc. and its wholly-owned
subsidiaries, and American Physical Therapy, Inc., (collectively, the
"Recapitalized Companies") all of which were majority-owned subsidiaries of
Weider Health and Fitness, Inc. ("WHF"), reflect the results of operations as
if they had been combined since inception on a basis similar to a pooling of
interests.
DESCRIPTION OF BUSINESS--The Company is principally involved in the
development, manufacturing and distribution of home fitness equipment
throughout the United States. For the years ended May 31, 1995 and 1996, the
majority of the Company's revenues were derived from the sale of aerobic
fitness equipment. The Company primarily sells its products to retailers and,
to a limited extent, to end-users through direct response advertising efforts.
THE RECAPITALIZATION--On November 14, 1994 the recapitalization (the
"Recapitalization") took place as follows: (1) the existing shareholders of
the Recapitalized Companies contributed their capital stock of the
Recapitalized Companies to IHF Capital and IHF Holdings in exchange for $21.9
million of Class A and Class L Common Stock of IHF Capital, $36.0 million of
IHF Holdings Preferred Stock, warrants to purchase Class A Common Stock of IHF
Capital, and $159.3 million of demand promissory notes of Health & Fitness
(the "Shareholder Notes"); (2) certain senior executives of the Company
exchanged their options to purchase capital stock of the Recapitalized
Companies for $34.7 million of replacement options and warrants to purchase
Class A and Class L Common Stock of IHF Capital and $4.0 million of options to
purchase preferred stock of IHF Holdings; (3) affiliates of Bain Capital, Inc.
("Bain Capital") and certain other parties purchased $40.4 million of Class A
and Class L Common Stock of IHF Capital, (4) the 13% Senior Subordinated Notes
and 15% Senior Secured Discount Notes were issued (Note 7), the proceeds of
which were used to repay the Shareholder Notes; and (5) Health & Fitness
caused the Recapitalized Companies to be merged with and into itself. As a
result of the Recapitalization, IHF Holdings owns all of the outstanding
capital stock of Health & Fitness, and IHF Capital owns all of the outstanding
common stock of IHF Holdings.
Concurrent with the closing of the Recapitalization, the Company obtained
exclusive licenses to market certain fitness equipment and certain non-
ingestive sports medicine products under the "Weider" and related brand names
(Note 13).
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--All significant intercompany accounts and
transactions have been eliminated in the consolidation of the Company.
CASH--Substantially all of the Company's cash is held by two banks at May
31, 1996. The Company does not believe that as a result of this concentration
it is subject to any unusual credit risk beyond the normal risk associated
with commercial banking relationships.
F-8
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INVENTORIES--Inventories include freight-in, materials, labor, and
manufacturing overhead costs and are stated at the lower of cost or market.
Cost is determined using the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT--Property and equipment are 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 operations.
NON-COMPETE AGREEMENTS--Included in long-term other assets are capitalized
costs associated with non-compete agreements the Company entered into with
certain key executives of the Company for a four year term. These assets are
being amortized using the straight-line method over the life of the agreements
(Note 6).
DEFERRED FINANCING COSTS--As part of the Recapitalization, the Company
deferred certain debt issuance costs relating to the establishment of the
Credit Agreement (Note 7) and the issuance of the 13% Senior Subordinated
Notes and the 15% Senior Secured Discount Notes (collectively referred to as
the "Notes"). These costs are capitalized in long-term other 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 (Note 6).
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, 1995 and 1996, $1,651,000
and $1,422,000, respectively, were included in other current assets. For the
years ended May 31, 1994, 1995 and 1996, total advertising expense was
approximately $14,646,000, $23,846,000 and $22,537,000, respectively. In
addition, cooperative advertising and discount allowances given to the
Company's customers were approximately $12,907,000, $14,114,000 and
$34,585,000 for the years ended May 31, 1994, 1995 and 1996, 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.
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 in the retail
sector are made to two customers, Sears Roebuck ("Sears") and Sam's Wholesale
Clubs ("Sam's"). Sears accounted for approximately 34%, 31% and 34% of total
sales for the years ended May 31, 1994, 1995, and 1996, respectively. Sam's
accounted for approximately 13% and 12% of total sales for the years ended May
31, 1994 and 1995, respectively. Accounts receivable from these two customers
accounted for approximately 27% of total gross accounts receivable at May 31,
1995. Accounts receivable from Sears accounted for 32% of total gross accounts
receivable at May 31, 1996, and accounts receivable from a third customer,
Service Merchandise Company, Inc., accounted for 11% of gross accounts
receivable at May 31, 1996.
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.
F-9
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAXES--The Company accounts for income taxes utilizing the asset and
liability method as prescribed by Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the
Company to record in its 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.
Prior to the Recapitalization, the Recapitalized Companies were included as
part of the consolidated tax return filed by WHF. Taxes otherwise due to or
refundable from the taxing authorities calculated on a separate company basis
have been reflected as due to or from WHF. Subsequent to the Recapitalization,
IHF Capital files a separate return and Health & Fitness is included as part
of the consolidated tax return filed by IHF Holdings.
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 gains and losses on
these contracts partially 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 Statement of Cash Flows in the same
category as the hedged transactions. As of May 31, 1995 and 1996 the Company
had approximately $19 million Canadian and $25 million Canadian, respectively,
of open forward exchange contracts to sell Canadian dollars throughout fiscal
years May 31, 1996 and 1997, respectively. The fair value of these forward
exchange contracts are based on quoted market prices. At May 31, 1995 and 1996
the estimated unrealized gain on outstanding forward exchange contracts was
$210,000 and $163,000, respectively. For the years ended May 31, 1994, 1995
and 1996, the Company recognized gains of $0, $160,000 and $169,000,
respectively, upon the settlement of foreign currency transactions.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of financial instruments
including cash, accounts receivable, accounts payable, accrued liabilities and
long-term debt approximate book values at May 31, 1995 and 1996, except for
the long-term debt included in the following table. The carrying amount for
the Senior Subordinated Notes and the Senior Secured Discount Notes was
established based on market conditions at the time the debt was issued. The
estimated fair value for the long-term notes is based on quoted market prices
(in thousands).
<TABLE>
<CAPTION>
MAY 31, 1995 MAY 31, 1996
------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
13% Senior Subordinated Notes........ $99,123 $112,388 $99,298 $112,894
15% Senior Secured Discount Notes.... 60,347 70,014 69,147 85,353
</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 periods presented. Actual results could differ
from those estimates.
UNAUDITED PRO FORMA INCOME PER SHARE--The calculation of pro forma income
per share was determined by dividing pro forma income by the pro forma
weighted average common and common equivalent shares outstanding after giving
retroactive effect to the exchange of equity instruments in
F-10
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
conjunction with the Recapitalization (Note 1) and the conversion of all Class
L Common Stock and Class A Common Stock into approximately shares and
shares, respectively of common stock upon the effectiveness of the
Registration Statement. In addition, in accordance with Securities and
Exchange Commission Staff Accounting Bulletin ("SAB") No. 83, shares issued
and share options or warrants granted within one year of or in contemplation
of the anticipated IPO have been included in the calculation of common share
equivalents, using the treasury stock method to determine the dilutive effect
of the issuances, as if they were outstanding for all periods presented. There
are no dilutive common equivalent shares other than those considered
outstanding for all periods presented in accordance with SAB No. 83.
ACCOUNTING FOR STOCK-BASED COMPENSATION--In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The Company
has not yet decided how it will adopt SFAS 123 during 1997.
RECLASSIFICATIONS--Reclassifications have been made to the 1994 and 1995
financial statements to conform to the 1996 presentation. These
reclassifications had no effect on net income for 1994 or 1995.
3. ACCOUNTS RECEIVABLE
Accounts receivable, net, consist of the following (in thousands):
<TABLE>
<CAPTION>
MAY 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Accounts receivable.................................. $119,633 $134,464
Less allowances...................................... (5,308) (7,595)
-------- --------
$114,325 $126,869
======== ========
4. INVENTORIES
Inventories consist of the following (table in thousands):
<CAPTION>
MAY 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Raw materials, principally parts and supplies........ $ 36,472 $ 26,264
Finished goods....................................... 59,163 69,658
-------- --------
$ 95,635 $ 95,922
======== ========
</TABLE>
Inventories are net of allowances of $787,000 and $2,122,000 at May 31, 1995
and 1996, respectively. These allowances are established based on management's
estimates of inventory, held at year end, that is potentially obsolete or for
which its market value is below cost.
5. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following (table in thousands):
F-11
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED MAY 31,
USEFUL LIFE ------------------
(YEARS) 1995 1996
----------- -------- --------
<S> <C> <C> <C>
Land......................................... -- $ 1,230 $ 1,230
Building and improvements.................... up to 31 9,683 11,235
Equipment.................................... 3-7 25,784 37,191
Construction in progress..................... -- -- 2,397
-------- --------
36,697 52,053
Less accumulated depreciation................ (13,553) (19,741)
-------- --------
$ 23,144 $ 32,312
======== ========
</TABLE>
For the years ended May 31, 1994, 1995 and 1996, the Company recorded
depreciation expense of $4,010,000, $5,052,000, and $6,188,000, respectively.
6. OTHER ASSETS
Other assets consist of the following (table in thousands):
<TABLE>
<CAPTION>
MAY 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Non-compete agreements...................................... $ 3,561 $ 2,544
Deferred financing costs.................................... 25,767 22,284
Other....................................................... 7,345 1,102
------- -------
$36,673 $25,930
======= =======
</TABLE>
At May 31, 1995 and 1996, capitalized non-compete payments made to the
Company's key executives are net of accumulated amortization of $509,000 and
$1,526,000, respectively.
At May 31, 1995 and 1996 capitalized deferred financing costs are net of
accumulated amortization of $1,741,000 and $5,224,000, respectively.
7. LONG-TERM DEBT
Long-term debt consists of the following (table in thousands):
<TABLE>
<CAPTION>
MAY 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
Revolving Credit Facility................................. $ 73,645 $ 80,000
Term Loan A Facility...................................... 17,500 16,875
Term Loan B Facility...................................... 17,500 17,438
13% Senior Subordinated Notes, face amount $101,250 net of
unamortized discount of $2,127 at May 31, 1995 and $1,952
at May 31, 1996.......................................... 99,123 99,298
15% Senior Secured Discount Notes, face amount $123,700
net of unamortized discount of $63,353 at May 31, 1995
and $54,553 at May 31, 1996 ............................. 60,347 69,147
-------- --------
268,115 282,758
Less current portion...................................... 688 3,065
-------- --------
Total long-term debt.................................. $267,427 $279,693
======== ========
</TABLE>
F-12
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CREDIT AGREEMENT
In connection with the Recapitalization (Note 1), the Company, through its
subsidiary Health & Fitness, entered into a Credit Agreement with a syndicate
of banks. Borrowings under the Credit Agreement, consist of the Revolving
Credit Facility, the Term Loan A Facility, and the Term Loan B Facility, and
are secured by a perfected first priority security interest in the assets of
the Company's subsidiaries. Under the terms of the Credit Agreement, Health &
Fitness must comply with certain restrictive covenants, which include the
requirement that Health & Fitness maintain minimum amounts of profitability,
solvency, and liquidity. In addition, the Credit Agreement restricts Health &
Fitness from making certain payments, including dividend payments, to its
shareholders. At May 31, 1996, the Company was in compliance with all its
financial covenants except for the capital expenditure limitation for the year
ended May 31, 1996 with respect to which its lender waived compliance.
Management believes that the Company will be in compliance with its financial
covenants through 1997 and, therefore, borrowings under the Credit Agreement
have been classified as long-term, exclusive of amounts due within one year
under the Term Loan A Facility and Term Loan B Facility.
Revolving Credit Facility
The agreement provides for borrowings of up to $160.0 million based upon a
percentage of eligible accounts receivable and inventories and expires on
November 14, 1999. Advances under the Revolving Credit Facility bear interest,
at Health & Fitness's option, at either (1) 2.75% plus the rate at which
certain Eurodollar deposits are offered in the interbank Eurodollar market
(the "LIBOR Rate") or (2) 1.75% plus 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") (8.25% as of
May 31, 1996 under the LIBOR rate option). The Company is required to pay a
fee of 0.5% per annum on the average unused commitment under the Credit
Agreement. For the years ended May 31, 1995 and 1996, the Company paid an
unused commitment fee of $42,000 and $196,000, respectively. As of May 31,
1996, $48.8 million was available to be borrowed under the Revolving Credit
Facility.
Term Loan A Facility
Under the Term Loan A Facility, $17,500,000 was advanced on November 14,
1994. Quarterly payments of $625,000 became due beginning March 31, 1996.
Quarterly payments increase to $937,500 beginning March 31, 1997, to
$1,250,000 beginning March 31, 1998, and to $1,562,500 beginning March 31,
1999, with the balance of $1,562,500 due at 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) 3.00% per annum plus the LIBOR Rate or
(2) 2.25% per annum plus the Index Rate (8.5% as of May 31, 1996 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 became due beginning March 31, 1996.
Quarterly payments increase to $1,562,500 beginning March 31, 2000 through
September 30, 2001, and the balance of $5,562,500 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) 3.50% per annum plus the
LIBOR Rate or (2) 2.75% per annum plus the Index Rate (9.0% as of May 31, 1996
under the LIBOR rate option).
A portion of the proceeds from the Credit Agreement were used to repay the
long-term debt outstanding prior to the Recapitalization.
F-13
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SENIOR SUBORDINATED NOTES
In conjunction with the Recapitalization (Note 1), the Company issued
warrants to purchase 200,000 shares of Class A and 20,000 shares of Class L
Common Stock and $101,250,000 face amount (net proceeds of $100.0 million) of
13% Senior Subordinated Notes (the "Senior Subordinated Notes") through its
subsidiary Health & Fitness. 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. 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. Prior
to November 15, 1997, up to $35 million of principal of the Senior
Subordinated Notes may be redeemed at the Company's option with the proceeds
of the sale in public offerings of common stock of IHF Holdings or the Company
at a redemption price equal to 112.25% of the principal, together with accrued
and unpaid interest at the redemption date. 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% of principal amount in the
year ended November 14, 1999, to 100% of principal amount subsequent to
November 14, 2001, plus accrued and unpaid interest.
SENIOR SECURED DISCOUNT NOTES
In conjunction with the Recapitalization (Note 1), the Company issued
warrants to purchase 800,000 shares of Class A and 80,000 shares of Class L
Common Stock and $123,700,000 face amount (net proceeds of $60.0 million) of
15% Senior Secured Discount Notes (the "Discount Notes") through its
subsidiary IHF Holdings. The Discount Notes are senior secured obligations of
IHF Holdings that begin bearing cash interest of 15% at November 15, 1999,
payable each May 15 and November 15 thereafter, through the maturity date of
November 15, 2004. The warrants have an exercise price of $0.01 per share and
expire on November 14, 1999. In conjunction with the sale, $3,838,000 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
Discount Notes with the net cash proceeds of those sales at a redemption price
of 100% of the accreted value plus accrued and unpaid interest. The accreted
value increases from the initial discount price through November 15, 1999 to
100% of the face amount of the discount notes at that date. Prior to November
15, 1996, the Discount Notes may be redeemed at the Company's option, in whole
or in part, with the proceeds of the sale in a public offering of common stock
of IHF Holdings or the Company, at a redemption price of 114% of the accreted
value, as defined in the note agreement. The Company is required to use at
least 50% of the net proceeds of any such public offering for such redemption.
On or after November 15, 1999, the Discount Notes may be redeemed at the
Company's option, in whole or in part, at redemption prices ranging from
107.5% of principal amount in the year ended November 14, 2000, to 100% of
principal amount subsequent to November 14, 2001, plus accrued and unpaid
interest.
CHANGE IN CONTROL
Upon a change in control, as defined in the indentures with respect to the
Notes, each holder of the Senior Subordinated Notes and Discount Notes may
require the Company to repurchase all or a portion of such holder's notes at a
cash purchase price equal to 101% of the principal amount, plus
F-14
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accrued and unpaid interest, if any, to the date of repurchase. The Credit
Agreement provides that the occurrence of a change of control, as defined
therein, constitutes an event of default under the Credit Agreement, which
could require immediate payment of the Revolving Credit Facility, Term Loan A
Facility and Term Loan B Facility.
FUTURE PAYMENTS
As of May 31, 1996, the scheduled future principal payments of long-term
debt (excluding the Revolving Credit Facility) are as follows (in thousands):
<TABLE>
<S> <C>
YEAR ENDED MAY 31
1997.............................................................. $ 3,065
1998.............................................................. 4,312
1999.............................................................. 5,562
2000.............................................................. 6,438
2001.............................................................. 6,250
Thereafter........................................................ 233,636
</TABLE>
8. CUMULATIVE REDEEMABLE PREFERRED STOCK--IHF HOLDINGS
Authorization and Issuance of Series A Cumulative Redeemable Preferred Stock
As part of the Recapitalization (Note 1), the Company's subsidiary IHF
Holdings authorized 8,000 shares of Series A-1 Cumulative Redeemable Preferred
Stock ("Series A-1 Preferred") and 2,042 shares of Series A-2 Cumulative
Redeemable Preferred Stock ("Series A-2 Preferred"). The Series A-1 Preferred
and Series A-2 Preferred (referred to collectively as the "Series A
Preferred") are equivalent in all respects, except with respect to voting
rights. In exchange for common stock and options in the Recapitalized
Companies, 8,000 shares of Series A-1 Preferred and 1,000 shares of Series A-2
Preferred were issued to WHF at a stated issue price of $4,000 per share, and
options to purchase 1,042 shares of Series A-2 Preferred were issued to
certain officers of the Company. The options have an exercise price of $158.98
per share, subject to adjustment as defined in the option agreement, and
expire on May 31, 2004. Compensation expense and a corresponding credit to the
Series A Preferred carrying value of $4.0 million was recorded at the date
such options were granted.
Voting Rights
Holders of Series A-1 Preferred are entitled to vote in the election of
directors of IHF Holdings. All holders of Series A Preferred are entitled to
vote in the approval of amendments to the terms of the Series A Preferred and
in the approval of new indebtedness of the Company. Except as otherwise
required by law or the Certificate of Incorporation of IHF Holdings, holders
of Series A Preferred shares are not entitled to other voting rights.
Liquidation Rights
The Series A Preferred retains a liquidation preference over the common
stock at a rate of $4,000 per share plus accrued but unpaid dividends.
Dividends
The Series A Preferred bears dividends at the rate of 12.75% per year
through the 12th anniversary of issuance, at the rate of 15% during the
following year and increasing by 1% for each succeeding year thereafter.
Dividends also accrue on the shares of Series A Preferred which are subject to
the options held by certain officers of the Company.
F-15
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Redemption
The Company has the option to redeem the Series A Preferred at any time
after the fifth anniversary of the issue date or earlier upon: (1) a public
offering of the common stock of the Company; (2) sale of substantially all the
assets of IHF Holdings; (3) payment of a dividend or distribution on the
Common Stock of IHF Holdings which would not otherwise be permitted under IHF
Holdings' certificate of incorporation; or (4) any other similar event. In
addition, the Company is required to redeem the Series A Preferred upon
certain changes in control.
The redemption price of the Series A Preferred is $4,000 per share plus
accrued and unpaid dividends, if any. Under certain conditions, the redemption
price may be fully or partially satisfied by shares of common stock of the
entity effecting the public offering.
Minority Interest in Preferred Stock of Subsidiary
Management anticipates that the option to redeem the Series A Preferred will
be exercised and for the years ended May 31, 1995 and 1996 has accrued
dividends of $2.8 million and $5.1 million, respectively on the issued and
outstanding preferred shares and outstanding options. Dividends accrued to the
minority shareholders of IHF Holdings are charged to the Company's current
operations.
9. STOCKHOLDERS' EQUITY
Preferred Stock
For the year ended May 31, 1994 and through November 14, 1994, the
Recapitalized Companies had issued and outstanding preferred stock held by WHF
on which dividends cumulated quarterly at $2.50 per share. Dividends of
$531,000 were accrued and payable to WHF at May 31, 1994. For the period from
June 1, 1994 to November 14, 1994, $243,000 of dividends had accrued and were
paid in conjunction with the Recapitalization (Note 1). In conjunction with
the Recapitalization, the preferred stock was exchanged for stock of IHF
Holdings and IHF Capital.
Common Stock and Additional Paid-In Capital
In conjunction with the Recapitalization (Note 1), the Company authorized
1,200,000 shares of Class L Common Stock ("Class L Common"), and 15,000,000
shares of Class A Common Stock ("Class A Common"), with par value of $0.001.
At the Recapitalization, 635,435 shares of Class L Common and 6,354,350 shares
of Class A Common were issued at values of $99.00 and $0.10, respectively, in
exchange for cash and equity in the Recapitalized Companies. All of the common
stock that was issued and outstanding prior to the Recapitalization was
retired as part of that transaction.
As of May 31, 1996, the Company has reserved 186,435 shares of Class L
Common and 2,831,581 shares of Class A Common for issuance upon exercise of
outstanding warrants and options.
Conversion
Shares of Class L Common convert automatically to Class A Common upon an
initial public offering. Each share of Class L Common is convertible into
shares of Class A Common at a rate equivalent to the total of the issuance
price of Class L Common, plus an internal rate of return of 2.5% per quarter,
plus any other distributions declared by the Board of Directors (in total, the
"Class L Minimum Payment Amount") divided by the net public offering price per
share of the Class A Common, plus one, subject to certain adjustments. The
conversion rate is also affected by any stock split, stock dividend or other
similar event.
F-16
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Voting Rights
Holders of Class A Common are entitled to one vote per share. Holders of
Class L Common are entitled to a number of votes per share equal to the number
of Class A Common shares which would be received upon conversion of each
share.
Liquidation Preference
The Class L Common retains a liquidation preference over the Class A Common
at a rate equal to the Class L Minimum Payment amount. Subsequent to
satisfying the liquidating preference of the Class L Common, the holders of
the Class A Common are entitled to a liquidating preference of $.10 per share.
All remaining distributions upon a liquidation are to be made ratably amongst
the Class A Common and Class L Common shareholders (based upon the number of
Class A Common shares into which each share of Class L Common stock is
convertible).
Stock Options and Warrants
Prior to the Recapitalization, certain officers held options to purchase
shares of the Recapitalized Companies. The exercise prices were based upon the
fair market value of the Recapitalized Companies on the date the options were
granted. The options became fully vested during the year ended May 31, 1994.
During the year ended May 31, 1994, a portion of these options were exercised
in exchange for receivables from officers. As part of the Recapitalization
(Note 1), all remaining options to purchase shares in the Recapitalized
Companies were exchanged for options to purchase shares of Series A Preferred
(Note 8), and options and warrants to purchase Class L Common and Class A
Common.
Options and warrants issued in connection with the Recapitalization to
purchase Class L Common and Class A Common consisted of the following:
(1) Options to purchase 360,904 shares of Class L Common at an exercise
price of $3.93482 per share with such price subject to certain anti-
dilutive protection adjustments as provided for in the option
agreement. 274,469 of these options were exercised and the shares
called and cancelled during the year ended May 31, 1995. Options to
purchase 86,435 shares of Class L Common are outstanding at May 31,
1996. The options expire May 31, 2004.
(2) Options to purchase 3,609,044 shares of Class A Common at an exercise
price of $0.00397 per share. These options were exercised and 2,744,690
of the shares called and cancelled during the year ended May 31, 1995.
None of the options are outstanding at May 31, 1996.
(3) Warrants to purchase 452,941 shares of Class A Common at an exercise
price of $0.10 per share with such price subject to certain anti-
dilutive protection adjustments as provided for in the warrant
agreement. 45,294 of these warrants were exercised during the year
ended May 31, 1995. Warrants to purchase 407,647 shares of Class A
Common are outstanding at May 31, 1996. The warrants expire November
14, 1999.
(4) Warrants to purchase 1,000,000 shares of Class A Common and 100,000
shares of Class L Common were issued in conjunction with the Senior
Subordinated Notes and Discount Notes (Note 8), all of which are
outstanding at May 31, 1996.
Compensation charges, including related payroll taxes, totaling $39.0
million were recorded in the year ended May 31, 1995, relating to the exchange
of options and warrants (including $4.0 million related to the issuance of the
Series A-2 Preferred options (Note 9)).
F-17
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1994 Stock Option Plan
In November 1994, the 1994 Stock Option Plan (the "1994 Plan") was adopted
by the Company and approved by the Board of Directors. The 1994 Plan
originally provided for the granting of options to purchase up to 1,200,000
shares of Class A Common. The Board of Directors determines which individuals
shall receive options, the time period during which the options may be
exercised, the exercise price (which cannot be less than the fair market value
of the Class A Common on the date of grant), and whether or not the options
are incentive stock options as defined in section 422 of the Internal Revenue
Code of 1986. Expired and cancelled options are not made available for future
grant. In 1996, the plan was amended, subject to certain waivers of notice and
shareholder approval, to provide for the granting of up to 2,110,207 shares of
Class A Common.
Activity under the 1994 Plan is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF RANGE OF
OPTIONED EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Granted............................................ 1,146,331 $0.10-8.92
Exercised.......................................... (634,117) $0.10
---------
Outstanding at May 31, 1995........................ 512,214 $0.10-8.92
Granted............................................ 963,876 $5.80-8.92
Cancelled.......................................... (7,617) $.10-$5.80
Exercised.......................................... (44,539) $0.10
---------
Outstanding at May 31, 1996........................ 1,423,934 $.10-$8.92
=========
</TABLE>
Of the total options outstanding under the 1994 Plan, 1,210,859 are
exercisable at May 31, 1996. All options under the 1994 Plan become
exercisable upon an initial public offering, subject to the approval of the
Board of Directors. At May 31, 1996, there were no options available for
future grant under the 1994 Plan.
In September 1995 and March 1996, the exercise price of all performance
options granted in 1995 under the 1994 Plan with an original exercise price
per share of $30.87 were reset to exercise prices per share ranging from $5.80
to $8.92 which represented the fair value on the date of the reset with no
change in the number of option share grants or vesting periods. The original
exercise price of $30.87 per share for these performance options was
established by the Board of Directors at the time of the Recapitalization to
provide incentives to key members of management.
During the year ended May 31, 1996, the Company recorded compensation
expense of $2,769,000 equivalent to the difference between the fair market
value of the underlying securities and the exercise price of related options
granted. Such option grants were fully vested upon grant.
Stock Restrictions
The Company's stockholders and optionholders entered into an agreement which
restricted the transfer or sale of shares by all investors until May 31, 1996
unless certain conditions were met. Subsequent to this date, these
restrictions continue to be applicable for shares held by certain stockholders
and optionholders. These same stockholders have been granted "tag along"
rights by which they may participate in the sale of shares to non-investors by
those stockholders not subject to the additional transfer and sale
restrictions. These restrictions lapse upon the closing of a public offering
of the Company's common stock.
F-18
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES
The provision for (benefit from) income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
RECAPITALIZED
COMPANIES COMPANY
------------- ---------------
YEAR ENDED MAY
31,
YEAR ENDED ---------------
MAY 31,1994 1995 1996
------------- ------- ------
<S> <C> <C> <C>
Current:
Federal income taxes........................ $ 9,193 $ 4,277 $6,946
State income taxes.......................... 1,726 497 595
Foreign income taxes........................ -- -- 375
------- ------- ------
Total current............................. 10,919 4,774 7,916
------- ------- ------
Deferred:
Federal income taxes........................ (1,005) (8,466) (18)
State income taxes.......................... (148) (1,027) (2)
------- ------- ------
Total deferred............................ (1,153) (9,493) (20)
------- ------- ------
$ 9,766 $(4,719) $7,896
======= ======= ======
</TABLE>
The provision for (benefit from) income taxes differs from the amount
computed by applying the statutory federal income tax rate to income (loss)
before taxes as follows:
<TABLE>
<CAPTION>
RECAPITALIZED
COMPANIES COMPANY
------------- ---------------------
YEAR ENDED MAY 31,
YEAR ENDED ---------------------
MAY 31,1994 1995 1996
------------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate....... 35% (35)% 35%
State tax provision (benefit)........... 5 (3) 6
Dividends on preferred stock............ -- 5 19
Other non-deductible items.............. -- 6 8
Foreign losses for which no benefit has
been recognized........................ -- -- 15
Other................................... (1) -- --
--- --------- --------
Provision for (benefit from) income tax-
es..................................... 39% (27)% 83%
=== ========= ========
</TABLE>
As of May 31, 1995 and 1996, the Company recorded gross deferred tax assets
and deferred tax liabilities as follows (in thousands):
<TABLE>
<CAPTION>
MAY 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Gross deferred tax assets.................................. $13,579 $15,506
Gross deferred tax liabilities............................. (2,870) (3,972)
------- -------
10,709 11,534
Valuation allowance........................................ ( -- ) (805)
------- -------
$10,709 $10,729
======= =======
</TABLE>
The Company has provided a full valuation allowance for deferred tax assets
related to foreign net operating loss carryforwards since realization of these
future benefits is not sufficiently assured.
F-19
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net deferred tax assets consist of the following (table in thousands):
<TABLE>
<CAPTION>
MAY 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Domestic net operating loss carryforward................... $ 3,767 $ --
Foreign net operating loss carryforward.................... -- 805
Stock compensation expense................................. 4,642 5,694
Future deductible interest................................. 1,211 3,766
Depreciation............................................... (1,786) (2,730)
Reserves and allowances.................................... 2,942 3,770
Contribution of land....................................... (500) (500)
Uniform capitalization of inventory........................ 879 937
Other, net................................................. (446) (208)
------- -------
10,709 11,534
Valuation allowance........................................ ( -- ) (805)
------- -------
$10,709 $10,729
======= =======
</TABLE>
In the year ended May 31, 1996, the Company realized income tax benefits of
$3,470,000 and $297,000 for the use of federal and state net operating loss
carryforwards, respectively. At May 31, 1996, the Company had approximately
$2.4 million of foreign net operating loss carryforwards available to reduce
future foreign taxable income.
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
COMPANY
---------------
RECAPITALIZED YEAR ENDED
COMPANIES MAY 31,
------------- ---------------
YEAR ENDED
MAY 31, 1994 1995 1996
------------- ------- -------
<S> <C> <C> <C>
Cash paid during the period for (in thou-
sands):
Interest.................................. $ 5,259 $12,188 $25,191
Income taxes.............................. 10,237 5,286 8,928
</TABLE>
For the year ended May 31, 1994 and the period from June 1, 1994 through
November 14, 1994, income tax payments were made to WHF.
Non-cash investing and financing activities
As part of the Recapitalization (Note 1): (1) the existing shareholders of
the Recapitalized Companies contributed their capital stock of these Companies
(recorded value of $7.7 million) to IHF Capital, IHF Holdings, and Health &
Fitness in exchange for common stock of IHF Capital, preferred stock of IHF
Holdings, warrants to purchase common stock of IHF Capital (aggregate fair
value of $58.8 million), and the Shareholder Notes ($159.3 million), and (2)
certain senior executives of the Company exchanged their options to purchase
capital stock of the Recapitalized Companies for $34.7 million of replacement
options to purchase common stock of IHF Capital and $4.0 million of warrants
to purchase preferred stock of IHF Holdings. Subsequent to the closing of the
Recapitalization, the Company redeemed certain of the options exchanged by the
executives as part of the Recapitalization for $26.4 million.
F-20
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In conjunction with the issuance of the Senior Subordinated Notes and the
Discount Notes (Note 8), the Company issued warrants to purchase common stock
of IHF Capital. These warrants were ascribed values of $968,000 and
$3,838,000, respectively, and were recorded as additional discounts on the
Notes with an offsetting credit to additional paid-in capital.
12. COMMITMENTS AND CONTINGENCIES
LEASES--The Company has noncancelable 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
maintenance and insurance. Future minimum payments under noncancelable
operating leases consist of the following at May 31, 1996 (table in
thousands):
<TABLE>
<S> <C>
FOR YEAR ENDED MAY 31:
1997............................................................... $ 6,009
1998............................................................... 4,945
1999............................................................... 2,936
2000............................................................... 1,189
2001............................................................... 426
Thereafter ........................................................ --
-------
Total............................................................ $15,505
=======
</TABLE>
Rental expense for operating leases was approximately $1,767,000, $2,890,000
and $2,513,000 for the years ended May 31, 1994, 1995 and 1996, respectively.
WEIDER LITIGATION--On August 28, 1995, WHF and its affiliates commenced a
number of legal proceedings against the Company, its affiliates and all of the
non-WHF directors and commenced arbitration proceedings against the Company.
WHF and its affiliates claim, among other things: (i) they are entitled to
various economic adjustments under agreements related to the Recapitalization,
(ii) the Company has intentionally violated territorial limitations and
various other terms of the distribution agreement under which WHF was granted
exclusive rights to distribute the Company's products in certain international
territories, (iii) the directors and executive officers of the Company have
breached their fiduciary duties to IHF Capital, IHF Holdings and Health &
Fitness and to IHF Capital's minority stockholders, and (iv) the Company has
violated its duties to WHF under the Management Agreement (Note 13). In
addition, WHF and its affiliates seek to recover compensatory damages of at
least $25 million, punitive damages of $35 million and injunctive relief
requiring the Company to honor its alleged obligations. On August 28, 1995,
WHF sought, and was denied, a temporary restraining order relating to alleged
violations of the Distribution Agreement (Note 13). The Company intends to
defend vigorously against the claims of WHF and its affiliates. The Company,
based in part on discussions with legal counsel, does not believe the outcome
of the WHF litigation will have material adverse effect upon the Company's
results of operations and financial position.
The Company, on August 28, 1995, initiated a lawsuit against WHF and its
affiliates seeking a preliminary injunction forbidding WHF to continue
production and marketing of illicit copies of one of the Company's most
significant product lines. The Company intends to assert all claims that it
may have against WHF and its affiliates, including claims that: (i) WHF and
its affiliates have improperly sourced products (including WHF branded
products), (ii) WHF and its affiliates have infringed the Company's rights to
the "WHF" trademark, (iii) the Company is entitled to economic adjustments
under the agreements related to the Recapitalization and (iv) WHF has violated
territorial limits and other terms of the Distribution Agreement (Note 13).
F-21
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OTHER LITIGATION--The Company is one of several named defendants in legal
matters involving product liability claims, several insured and one uninsured.
The plaintiff in each case seeks general and specific damages in various
specified and unspecified amounts. Since many of these matters are in the
initial discovery stage, it is not possible to predict, with any certainty,
the outcome or range of potential loss. However, management, based in part on
discussions with legal counsel, believes that the Company has meritorious
defenses and that resolution of these matters should not result in uninsured
liability, if any, that would be materially greater than the estimated
liability included in accrued expenses of $900,000 and $1,500,000 at May 31,
1995 and 1996, respectively.
The Company is involved in various other claims, potential unasserted
claims, and legal actions, including several patent infringement claims,
arising in the ordinary course of business. In the opinion of management, the
ultimate outcome of these matters will not have a material adverse effect on
the Company's financial position and results of operations and, accordingly,
no amounts have been accrued in the financial statements.
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,
1995 and 1996, the Company had an accrual for estimated warranty costs on
products sold of approximately $2,470,000 and $3,200,000, respectively, which
is included in accrued expenses in the accompanying balance sheet.
RETIREMENT PLANS--All employees who have met minimum age and service
requirements are eligible to participate in one of two 401(k) savings plans.
Participants may make tax deferred contributions up to 15% of total salary.
Company contributions to the two plans for the years ended May 31, 1994, 1995
and 1996 were $48,000, $220,000 and $233,000, respectively.
13. RELATED PARTY TRANSACTIONS
RECAPITALIZATION EXPENSES--The Company reimbursed $2.0 million of expenses
incurred by Weider, Bain Capital, and other shareholders in connection with
the financing related to the Recapitalization. In addition, the Company paid
Bain Capital a fee of $3.5 million for services provided in structuring the
Recapitalization (Note 1).
MANAGEMENT FEES--The Company received $2.7 million in the year ended May 31,
1995 as a fee for administrative services provided to WHF in the management of
one of its subsidiaries (the "Management Agreement") which was recorded as a
reduction of general and administrative expense for the period. Subsequent to
the Recapitalization, the Management Agreement requires 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 years ended May 31, 1994, 1995 and 1996, the
Company purchased approximately $7.4 million, $26.4 million and $50.7 million,
respectively, of products from WHF and had a trade payable of $1.3 million
and $.7 million at May 31, 1995 and 1996, respectively.
In conjunction with the Recapitalization, 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 years
ended May 31, 1995 and 1996, the Company recorded management fee expense of
$333,000 and $800,000, respectively. In addition, if the Company enters into
any acquisition transactions involving at least $10 million, the Company must
pay a fee to this majority shareholder of approximately 1% of the gross
purchase price, including liabilities assumed, of the transaction.
F-22
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NON-COMPETE AGREEMENTS--In November 1994, the Company entered into non-
compete agreements with certain key executives of the Company in connection
with the Recapitalization (Note 2).
LICENSE FEES--Concurrent with the closing of the Recapitalization, 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 million license fee for a perpetual license with respect to Weider
Canadian Trademark Rights. Under the Weider Health and Fitness license, the
Company is 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 has paid an aggregate royalty equal to $12
million plus an interest factor accruing on the unpaid portion of the royalty
at a per annum rate of 10%. If the royalty has not been paid in full by the
tenth anniversary of the Recapitalization, or if the sales of WHF product fall
below a certain level and the royalty is not paid in full at that time, the
Company's rights under the license agreement will terminate. The Company
recorded license fees of approximately $500,000 and $549,000 during the years
ended May 31, 1995 and 1996, respectively, under this agreement. The Company
had accrued license fees payable to WHF of $503,000 and $81,000 at May 31,
1995 and 1996.
DISTRIBUTION AGREEMENT--The Company has appointed a Canadian WHF affiliate
to be the exclusive distributor of Health & Fitness products worldwide,
excluding the United States, Mexico and certain countries in Europe. Under the
terms of this agreement, the Company sells its products directly to WHF
affiliates for resale in the agreed-upon territory. In conjunction with this
agreement, the Company recorded revenue of $9.6 million for the year ended May
31, 1996 and had a trade receivable from WHF affiliates of $2.0 million at May
31, 1996. In addition, for the fiscal years ended May 31, 1995 and 1994, the
Company recorded revenue from sales to WHF of $8.8 million and $4.9 million,
respectively, and, at May 31, 1995, the Company had a trade receivable from
WHF affiliates of $2.6 million.
AIRCRAFT LEASE. In June 1996, the Company entered into an oral agreement
with FG Aviation, Inc. ("FG"), a company which is jointly owned by officers of
the Company, whereby the Company will lease an airplane from FG for a minimum
of 400 hours per year at a fair market rate (between $1,500 and $1,700 per
hour, as adjusted by the Company's costs associated with flight crews).
Scheduled maintenance and insurance will be paid for by FG and non-scheduled
maintenance will be paid for by the Company. Flight crews will be provided by
the Company. In connection with this lease the Company advanced $280,000 to
officers of the Company to be used as a security deposit on the aircraft
lease.
CANADIAN AND EUROPEAN OPTIONS--At any time prior to May 15, 1997, the
Company has an option to acquire the net fixed assets, inventory, and certain
other assets and to assume certain related leases and contracts of a Canadian
manufacturing business affiliated with WHF ("CanCo") and certain other parties
at a purchase price equal to one half of the historical net book value of its
inventory, fixed assets and equipment. In addition, the Company had an option
to acquire certain property and to assume certain related leases of several
European operations owned by WHF at any time prior to May 15, 1997.
In August 1995, the Company gave notice of its intention to exercise its
option to purchase the assets of CanCo. The Company may terminate this notice
at any time prior to executing a final purchase and sale agreement. The
purchase of the CanCo assets has not yet been completed due to
F-23
<PAGE>
IHF CAPITAL, INC.
(TO BE RENAMED ICON FITNESS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
complications related to the WHF litigation (Note 12), However, based on its
due diligence and the estimated purchase price of $1.5 million, the Company
does not believe that CanCo's operations are significant.
In July 1995 and December 1995, the Company exercised its options to
purchase certain fixed assets of the WHF European affiliates in conjunction
with the establishment of its own sales operations in Europe. The total
purchase price for these assets was approximately $200,000 and approximated
the net book value of the assets at the date of purchase.
14. SUBSEQUENT EVENTS
HEALTHRIDER ACQUISITION--In July 1996, the Company executed a definitive
agreement to acquire the net assets, excluding certain liabilities (including
liabilities associated with the lawsuit filed by certain stockholders of
HealthRider), of HealthRider, Inc. ("HealthRider"). Total consideration for
the purchase will consist of the payment of $16.8 million, the assumption of
amounts outstanding under HealthRider's revolving credit facility on the date
of acquisition and estimated fees and expenses of $1.0 million. The
acquisition will be accounted for under the purchase method of accounting.
In conjunction with and contingent upon the successful closing of the
acquisition of HealthRider, the Company entered into definitive agreements to
buy out HealthRider's manufacturing contract with Parkway Manufacturing, Inc.
("Parkway") and to buy out the minority interest of HealthRider's European
subsidiary held by La Forza, Limited ("La Forza"). The buyout agreement with
Parkway will require the Company to make a payment of $10.1 million, including
the repayment of $1.0 million of trade payables owed to Parkway by HealthRider
and the payment of $4.1 million for inventory and certain manufacturing
equipment of Parkway purchased for the manufacturing of HealthRider brand
products. The buyout agreement with La Forza will require the Company to make
a payment of $.6 million and to provide La Forza with $.1 million of
inventory.
The acquisition is contingent upon, among other things, obtaining
appropriate approvals from HealthRider's shareholders and bankers.
F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HealthRider, Inc.:
We have audited the accompanying consolidated balance sheets of HealthRider,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994 and
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1995. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HealthRider, Inc. and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended
December 31, 1995 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
July 22, 1996 (except with respect to the consummation of the asset purchase
agreement discussed in Notes 1, 7 and 13, as to which the date is August 16,
1996)
F-25
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ 1,156,000 $ 532,000 $ 867,000
Accounts receivable, less allowance
for doubtful accounts of $348,000,
$3,783,000 and $2,756,000 (unau-
dited)................................ 10,608,000 29,944,000 22,877,000
Inventories............................ 2,091,000 14,937,000 23,082,000
Prepaid expenses and other............. 1,913,000 6,301,000 3,280,000
Income tax receivable.................. -- -- 2,128,000
Deferred income tax asset, net......... 416,000 5,310,000 7,204,000
----------- ----------- -----------
Total current assets................. 16,184,000 57,024,000 59,438,000
Property and equipment, net............. 5,373,000 6,058,000 27,329,000
Other assets, net....................... 136,000 1,649,000 1,648,000
----------- ----------- -----------
$21,693,000 $64,731,000 $88,415,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 4,165,000 $22,149,000 21,072,000
Accrued expenses....................... 5,240,000 17,485,000 17,022,000
Line of credit......................... -- -- 11,567,000
Income taxes payable................... 2,199,000 1,206,000 --
Current portion of capital lease obli-
gations............................... 315,000 298,000 1,158,000
Current portion of long-term debt...... 59,000 45,000 43,000
Other liabilities...................... 333,000 411,000 --
----------- ----------- -----------
Total current liabilities............ 12,311,000 41,594,000 50,862,000
Capital lease obligations, net of cur-
rent portion........................... 480,000 247,000 18,149,000
Long-term debt, net of current portion.. 213,000 193,000 173,000
----------- ----------- -----------
Total liabilities.................... 13,004,000 42,034,000 69,184,000
----------- ----------- -----------
Commitments and contingencies (Notes 1,
6, 7 and 10)
Stockholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized; none is-
sued.................................. -- -- --
Common stock, $.01 par value;
25,000,000 shares authorized;
9,272,335, 10,057,001 and 10,077,030
(unaudited) shares issued and out-
standing.............................. 93,000 101,000 101,000
Additional paid-in capital............. 291,000 699,000 729,000
Notes receivable from officers......... (110,000) (110,000) (35,000)
Retained earnings...................... 8,415,000 22,002,000 18,393,000
Cumulative translation adjustments..... -- 5,000 43,000
----------- ----------- -----------
Total stockholders' equity........... 8,689,000 22,697,000 19,231,000
----------- ----------- -----------
$21,693,000 $64,731,000 $88,415,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $21,181,000 $106,587,000 $241,415,000 $117,006,000 $113,156,000
Cost of goods sold...... 7,066,000 37,483,000 84,465,000 40,334,000 43,481,000
----------- ------------ ------------ ------------ ------------
Gross profit......... 14,115,000 69,104,000 156,950,000 76,672,000 69,675,000
----------- ------------ ------------ ------------ ------------
Operating expenses:
Selling and marketing.. 12,049,000 48,403,000 119,310,000 53,320,000 65,811,000
General and adminis-
trative............... 1,074,000 4,976,000 15,877,000 6,812,000 8,497,000
----------- ------------ ------------ ------------ ------------
Total operating ex-
penses.............. 13,123,000 53,379,000 135,187,000 60,132,000 74,308,000
----------- ------------ ------------ ------------ ------------
Income (loss) from oper-
ations................. 992,000 15,725,000 21,763,000 16,540,000 (4,633,000)
----------- ------------ ------------ ------------ ------------
Other income (expense),
net:
Interest expense....... (645,000) (1,127,000) (119,000) (55,000) (1,341,000)
Minority interest in
loss of subsidiary.... -- -- 95,000 -- --
Other income (loss),
net................... 50,000 745,000 1,991,000 943,000 1,121,000
----------- ------------ ------------ ------------ ------------
Total other income
(expense), net...... (595,000) (382,000) 1,967,000 888,000 (220,000)
----------- ------------ ------------ ------------ ------------
Income (loss) before
provision for income
taxes.................. 397,000 15,343,000 23,730,000 17,428,000 (4,853,000)
(Provision) benefit for
income taxes........... (99,000) (6,405,000) (10,143,000) (7,494,000) 1,244,000
----------- ------------ ------------ ------------ ------------
Net income (loss)....... $ 298,000 $ 8,938,000 $ 13,587,000 $ 9,934,000 $ (3,609,000)
=========== ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE CUMULATIVE TOTAL
-------------------- PAID-IN FROM RETAINED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL OFFICERS EARNINGS ADJUSTMENTS EQUITY
---------- -------- ---------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... 6,805,001 $ 68,000 $ -- $ -- $ (821,000) $ -- $ (753,000)
Purchase and
cancellation of common
shares................ (40,000) -- (20,000) -- -- -- (20,000)
Issuance of common
shares for services... 150,000 1,000 29,000 -- -- -- 30,000
Issuance of common
shares for cash....... 1,100,500 11,000 207,000 -- -- -- 218,000
Issuance of common
shares pursuant to
antidilutive right.... 1,004,334 10,000 (10,000) -- -- -- --
Net income............. -- -- -- -- 298,000 -- 298,000
---------- -------- -------- --------- ----------- ------- -----------
Balance at December 31,
1993................... 9,019,835 90,000 206,000 -- (523,000) -- (227,000)
Purchase and
cancellation of common
shares................ (100,000) (1,000) (74,000) -- -- -- (75,000)
Exercise of stock
options............... 352,500 4,000 159,000 (110,000) -- -- 53,000
Net income............. -- -- -- -- 8,938,000 -- 8,938,000
---------- -------- -------- --------- ----------- ------- -----------
Balance at December 31,
1994................... 9,272,335 93,000 291,000 (110,000) 8,415,000 -- 8,689,000
Exercise of stock
options............... 536,500 5,000 381,000 -- -- -- 386,000
Issuance of common
shares pursuant to
antidilutive right.... 245,666 3,000 (3,000) -- -- -- --
Issuance of common
shares for services... 2,500 -- 30,000 -- -- -- 30,000
Cumulative translation
adjustments........... -- -- -- -- -- 5,000 5,000
Net income............. -- -- -- -- 13,587,000 -- 13,587,000
---------- -------- -------- --------- ----------- ------- -----------
Balance at December 31,
1995................... 10,057,001 101,000 699,000 (110,000) 22,002,000 5,000 22,697,000
Issuance of common
shares for services
(unaudited)........... 25,000 -- 38,000 -- -- -- 38,000
Receipt of common
shares as payment of
note receivable from
officer (unaudited)... (4,971) -- (8,000) 75,000 -- -- 67,000
Cumulative translation
adjustments
(unaudited)........... -- -- -- -- -- 38,000 38,000
Net loss (unaudited)... -- -- -- -- (3,609,000) -- (3,609,000)
---------- -------- -------- --------- ----------- ------- -----------
Balance at June 30, 1996
(unaudited)............ 10,077,030 $101,000 $729,000 $ (35,000) $18,393,000 $43,000 $19,231,000
========== ======== ======== ========= =========== ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net income (loss)....... $ 298,000 $ 8,938,000 $ 13,587,000 $ 9,934,000 $(3,609,000)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and amor-
tization.............. 142,000 570,000 2,167,000 735,000 1,824,000
Provision for losses on
accounts receivable... 256,000 649,000 4,882,000 3,053,000 3,690,000
Deferred income tax
provision (benefit)... 21,000 (437,000) (4,894,000) (2,341,000) (1,894,000)
Loss on disposition of
assets................ -- -- 417,000 -- 156,000
Issuance of common
shares for services... 30,000 -- 30,000 30,000 105,000
Changes in operating
assets and liabili-
ties--
Accounts receivable... (2,018,000) (9,455,000) (24,218,000) (6,199,000) 3,377,000
Inventories........... (576,000) (1,465,000) (12,846,000) (3,430,000) (8,145,000)
Prepaid expenses and
other................ (134,000) (1,297,000) (4,388,000) (2,775,000) 3,021,000
Other assets.......... -- -- (129,000) (70,000) 1,000
Accounts payable...... 2,025,000 2,085,000 17,984,000 1,786,000 (1,077,000)
Accrued expenses...... 837,000 4,131,000 12,245,000 5,392,000 (463,000)
Income taxes payable.. 78,000 2,121,000 (993,000) 923,000 (3,334,000)
Other liabilities..... 326,000 (42,000) 78,000 (283,000) (411,000)
----------- ----------- ------------ ----------- -----------
Net cash provided by
(used in) operating
activities.......... 1,285,000 5,798,000 3,922,000 6,755,000 (6,759,000)
----------- ----------- ------------ ----------- -----------
CASH FLOWS USED IN IN-
VESTING ACTIVITIES:
Purchase of property and
equipment.............. (645,000) (4,410,000) (4,636,000) (2,442,000) (4,009,000)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANC-
ING ACTIVITIES:
Net borrowings on line
of credit.............. -- -- -- -- 11,567,000
Proceeds from issuance
of long-term debt...... 397,000 461,000 35,000 35,000 --
Principal payments on
long-term debt......... (238,000) (822,000) (69,000) (37,000) (22,000)
Principal payments on
capital lease obliga-
tions.................. -- (62,000) (267,000) (129,000) (480,000)
Proceeds from notes pay-
able to stockholders... 97,000 84,000 -- -- --
Principal payments on
notes payable to stock-
holders................ (178,000) (820,000) -- -- --
Purchase of common
shares................. (20,000) (75,000) -- -- --
Net proceeds from issu-
ance of common stock... 218,000 53,000 386,000 353,000 --
----------- ----------- ------------ ----------- -----------
Net cash provided by
(used in) financing
activities.......... 276,000 (1,181,000) 85,000 222,000 11,065,000
----------- ----------- ------------ ----------- -----------
Effect of changes in ex-
change rates on cash... -- -- 5,000 -- 38,000
----------- ----------- ------------ ----------- -----------
Net increase (decrease)
in cash................ 916,000 207,000 (624,000) 4,535,000 335,000
Cash at beginning of pe-
riod................... 33,000 949,000 1,156,000 1,156,000 532,000
----------- ----------- ------------ ----------- -----------
Cash at end of period... $ 949,000 $ 1,156,000 $ 532,000 $ 5,691,000 $ 867,000
=========== =========== ============ =========== ===========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid during the pe-
riod for:
Interest............... $ 554,000 $ 1,234,000 $ 107,000 $ 80,000 $ 1,232,000
Income taxes........... -- 4,721,000 16,230,000 8,912,000 4,234,000
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
During the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996, capital lease obligations totaling $857,000, $17,000 and
$19,242,000 (unaudited), respectively, were entered into for the acquisition
of a new corporate office building, office furniture, and computer, telephone
and other equipment.
During the year ended December 31, 1995 and the six months ended June 30,
1995, the Company contributed $1,600,000 of land to a limited liability
company (LLC) in return for a 50 percent ownership interest in the LLC (see
Note 7).
During the year ended December 31, 1994, certain officers of the Company
exercised stock options with promissory notes to the Company in the amount of
$110,000.
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
NATURE OF OPERATIONS
The Company designs, markets and distributes innovative fitness equipment
designed primarily for use at home. The Company markets and distributes its
products through a variety of distribution channels, including direct-response
advertising (television infomercials and other forms of electronic and print
media) and a nationwide network of company-owned retail locations in regional
shopping malls, as well as large and small independent retailers, including
specialty retail stores.
DEPENDENCE ON THE HEALTHRIDER AND OTHER SIMILAR PRODUCTS
The Company's growth in sales and profitability through December 31, 1995
was attributable primarily to the demand for the Company's principal product,
the HealthRider, as well as other similar products based on the HealthRider
which are sold at other price points and through other distribution channels.
The HealthRider and the other similar products, consisting principally of the
aeROBICRider and SportRider, have accounted for 100%, 99% and 98% of the
Company's net sales during the years ended December 31, 1993, 1994 and 1995,
respectively, and accounted for 95% (unaudited) of the Company's net sales
during the six months ended June 30, 1996. Any significant decline in demand
for the HealthRider and other related products, would have a material adverse
effect on the Company's business and results of operations (see Recent
Developments below).
RECENT DEVELOPMENTS
Subsequent to December 31, 1995, the Company began to experience a liquidity
crisis caused by a build-up of inventory which was exacerbated by the terms of
a manufacturing agreement (see Note 7), by lower than expected revenues,
higher selling expenses related to infomercials and lower margins as well as
more lenient payment terms with certain wholesale customers and longer
deferred payment plans with retail customers.
During the six months ended June 30, 1996, the Company's sales levels
declined in all distribution channels and the Company experienced a loss from
operations of $4,633,000 (unaudited). As discussed in Note 6, as a result of
the operating losses and other covenant violations, the Company was in default
under its line of credit agreement. The liquidity crisis resulted in legal
actions being taken by certain principal suppliers (see Note 7). As discussed
in Note 13, the Company entered into a definitive agreement to sell the
Company's assets in exchange for approximately $16.8 million of cash and the
assumption of the majority of the Company's liabilities by the buyer. The sale
was consummated on August 16, 1996 and the Company's operations have been
transferred to the Buyer.
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
The Company was originally organized and incorporated in the State of Utah
on March 13, 1991 as ExerHealth, Inc. HealthRider, Inc. was incorporated in
the state of Delaware on May 10, 1995 for
F-30
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the purpose of reincorporating ExerHealth, Inc. as a Delaware corporation.
Effective June 30, 1995, ExerHealth, Inc. was merged into HealthRider, Inc.
and each share of common stock of ExerHealth, Inc. was converted into one
share of common stock of HealthRider, Inc.
The accompanying consolidated financial statements include the accounts of
HealthRider, Inc. and its subsidiaries (collectively, the "Company")--
HealthRider International, Inc., HealthRider Canada, Inc., BodyHealth,
Incorporated, wholly owned U.S. Corporations, and HealthRider International
Limited (a UK corporation) which is 76 percent owned by HealthRider
International, Inc. HealthRider Inc. has entered into an agreement with
HealthRider International Limited whereby HealthRider International Limited
has the rights to market the Company's products outside of the U.S., except
for Canada and certain Pacific Rim countries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of HealthRider International Limited are translated
into U.S. dollars at the applicable rates of exchange at each period end.
Transactions with foreign entities that result in income and expense for the
Company are translated at the average rate of exchange during the periods.
Translation gains and losses are reflected as a separate component of
stockholders' equity. Transaction gains and losses are recorded in the
consolidated statements of income.
ACCOUNTS RECEIVABLE
The Company allows its retail customers to purchase its products under
various monthly installment payment plans ranging from four to ten months.
INVENTORIES
Inventories, which consist of finished goods, are stated at the lower of
cost or market, using the first-in, first-out (FIFO) method.
ADVERTISING COSTS
The Company generally expenses advertising costs at the time the
advertisement takes place. Most direct response advertising using the
Company's infomercials requires advance payments which are recorded as prepaid
advertising costs until the infomercials are aired. The Company capitalizes
the production costs of its direct response advertising and amortizes them
over the expected airing periods which typically range from six months to one
year. The Company periodically reviews the carrying amounts for impairment and
during the six months ended June 30, 1996 the Company recognized a $1,600,000
(unaudited) charge related to the Company's 1996 infomercial.
F-31
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization,
which includes amortization of assets recorded under capital leases, are
computed using the straight-line method over the estimated useful lives of the
assets or the terms of the leases. The Company's corporate building is
amortized over the lease term of 15 years and furniture and equipment are
depreciated based on lives ranging from three to five years. Leasehold
improvements are amortized over the terms of the respective leases, ranging
from one to fifteen years. Expenditures for maintenance and repairs are
charged to expense as incurred. Gains and losses on sale or abandonment of
property and equipment are reflected in current operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the accompanying balance sheets for cash,
accounts receivable, and accounts payable approximate fair values because of
the immediate or short-term maturities of these financial instruments. The
fair value of the Company's long-term debt also approximates fair value based
on current rates for similar debt.
REVENUE RECOGNITION
Sales are recognized at the time products are shipped to the customer.
Allowances are recognized for estimated returns and discounts associated with
these sales. Payments received for products that have not been shipped by the
end of the period are recorded as unearned revenue.
WARRANTY COSTS
The Company provides for estimated warranty costs as products are sold and
periodically adjusts the estimates to reflect actual experience. The accrued
liability for warranty costs is included in accrued expenses in the
accompanying consolidated balance sheets.
INCOME TAXES
The Company recognizes a liability or asset for the deferred tax
consequences of all temporary differences between the tax bases of assets and
liabilities and their reported amounts in the consolidated financial
statements that will result in taxable or deductible amounts in future years
when the reported amounts of the assets and liabilities are recovered or
settled. These deferred tax assets or liabilities are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which subject the Company to potential concentrations
of credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides unsecured credit terms to its customers.
Accordingly, the Company performs ongoing credit evaluations of its customers
and maintains allowances for possible losses which, when realized, have been
within the range of management's expectations.
RECENT ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121. "Accounting for the Impairment of
Long-Lived Assets and for Long-
F-32
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Lived Assets to be Disposed Of" (SFAS No. 121). The Company adopted SFAS No.
121 during the three months ended March 31, 1996. The adoption did not have a
material impact on the Company's financial position or results of operations.
INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet at June 30, 1996, the
consolidated statements of income and cash flows for the six months ended June
30, 1995 and 1996 and the consolidated statement of stockholders' equity for
the six months ended June 30, 1996 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the results of the interim periods. The data disclosed in the
notes to consolidated financial statements for these periods are also
unaudited. Results for the unaudited six-month period ended June 30, 1996 are
not necessarily indicative of the results to be expected for the Company's
full fiscal year.
RECLASSIFICATIONS
Certain minor reclassifications have been made to the 1993 and 1994
consolidated financial statements to be consistent with the 1995 and 1996
presentations.
(3) PREPAID EXPENSES AND OTHER
Prepaid expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid advertising costs............... $1,137,000 $3,907,000 $ 602,000
Other prepaid expenses.................. 776,000 2,394,000 2,678,000
---------- ---------- ----------
$1,913,000 $6,301,000 $3,280,000
========== ========== ==========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land..................................... $2,512,000 $ 912,000 $ 912,000
Building................................. -- -- 18,228,000
Computer and telephone equipment......... 1,641,000 3,264,000 4,473,000
Furniture and fixtures................... 907,000 1,439,000 4,241,000
Leasehold improvements................... 520,000 1,950,000 2,259,000
Machinery and equipment.................. 319,000 210,000 359,000
Vehicles................................. 110,000 147,000 147,000
---------- ----------- -----------
6,009,000 7,922,000 30,619,000
Less accumulated depreciation and amorti-
zation.................................. (636,000) (1,864,000) (3,290,000)
---------- ----------- -----------
$5,373,000 $ 6,058,000 $27,329,000
========== =========== ===========
</TABLE>
F-33
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation and amortization of property and equipment totaled $107,000,
$526,000 and $1,797,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $1,222,000 for the six months ended June 30, 1996
(unaudited).
(5) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- -----------
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Payroll and related taxes................... $2,020,000 $ 5,040,000 $ 2,475,000
Royalties................................... 1,281,000 2,891,000 2,589,000
Sales taxes................................. 754,000 1,489,000 1,234,000
Returns allowance........................... 510,000 2,260,000 1,810,000
Warranty.................................... 200,000 1,486,000 1,596,000
Other....................................... 475,000 4,319,000 7,318,000
---------- ----------- -----------
$5,240,000 $17,485,000 $17,022,000
========== =========== ===========
</TABLE>
(6) DEBT
LINE OF CREDIT AGREEMENTS
As of December 31, 1995, the Company had a line of credit agreement with a
bank (the Bank) whereby a maximum of $10,000,000 was available for working
capital and letters of credit. Borrowings on the line of credit were limited
to 80 percent of eligible wholesale accounts receivable, 50 percent of
eligible consumer accounts receivable and eligible inventories, as defined,
and bore interest at the bank's variable base rate. At December 31, 1995, the
variable base rate was 8.50 percent. The line of credit agreement required the
maintenance of certain financial ratios, and was secured by accounts
receivable and inventory. There were no outstanding amounts drawn under this
agreement at December 31, 1994 and 1995; however, there were $3,608,000 of
letters of credit outstanding as of December 31, 1995.
On March 7, 1996, the maximum amount available under the agreement was
increased to $15,000,000. In conjunction with the negotiation of the new
credit facility described below, this line of credit was terminated in April
1996.
On April 16, 1996, the Company entered into a new credit agreement (the
Agreement) with General Electric Capital Corporation (the Lender). The
Agreement provides for a maximum commitment of up to $25,000,000 to be used
for working capital and letters of credit. Borrowings under the Agreement are
limited to 80 percent of eligible wholesale accounts receivable, 60 percent of
eligible inventories and 50 percent of eligible consumer accounts receivable,
as defined. Borrowings under the Agreement bear interest at either (1) the
prime or base rates of certain banks less an applicable margin ranging from .5
percent to 1 percent, as defined (7.75 percent at June 30, 1996); or (2) the
LIBOR rate plus an applicable margin ranging from 2 to 2.5 percent, as defined
(8.31 percent at June 30, 1996). Borrowings are secured by substantially all
assets of the Company. The Agreement expires on April 16, 1999, at which date
all outstanding balances related to the Agreement are due. As of June 30,
1996, the total outstanding amount under this Agreement included $11,567,000
in loans and $2,976,000 in letters of credit. The Company had no additional
borrowings available under the Agreement at June 30, 1996.
F-34
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company pays a monthly commitment fee based on an annual rate of .5
percent of the average unused portion of the borrowing limit under the
Agreement. Letter of credit fees equal 1.5 percent per annum of the amount of
all outstanding letter of credit obligations. In addition, in the event that
the Company terminates the Agreement prior to the first anniversary of the
Agreement, whether voluntarily or by reason of default, a prepayment fee of
$250,000 will be charged.
The Agreement requires, among other covenants, that the Company maintain a
certain tangible net worth, fixed charge coverage ratio, inventory turnover
ratio and that the Company shall not suffer any quarterly operating losses for
any fiscal quarter through the commitment maturity date. Upon the occurrence
of any event of default and so long as any event of default continues, the
Lender may increase the interest rate applicable to the Agreement by 2 percent
per annum above the rate otherwise applicable. In addition, the Lender may
accelerate the due date of all amounts outstanding under the Agreement.
As of June 30, 1996, the Company was not in compliance with the tangible net
worth, the fixed charge coverage ratio nor the quarterly operating loss
covenants. The Company had not obtained any waivers of the above covenants;
however, the Lender agreed to forbear any action through August 16, 1996,
subject to certain conditions. Accordingly, the balance outstanding under the
agreement as of June 30, 1996 of $11,567,000 has been classified as a current
liability in the accompanying consolidated financial statements. In connection
with the consummation of the asset purchase agreement discussed in Note 13,
the balance outstanding under the agreement was assumed by the buyer.
LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to an individual, interest at 12
percent, due in monthly installments of
$3,000, unsecured, guaranteed by majority
stockholders (see Note 12).................... $190,000 $176,000 $168,000
Notes payable to banks and financing companies,
interest ranging from 7 to 11 percent, due in
monthly installments, secured by office
equipment and vehicles........................ 54,000 62,000 48,000
Other, paid in full during 1995................ 28,000 -- --
-------- -------- --------
272,000 238,000 216,000
Less current portion........................... (59,000) (45,000) (43,000)
-------- -------- --------
$213,000 $193,000 $173,000
======== ======== ========
</TABLE>
F-35
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future maturities of long-term debt as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1996......................................................... $ 45,000
1997......................................................... 40,000
1998......................................................... 30,000
1999......................................................... 23,000
2000......................................................... 28,000
Thereafter..................................................... 72,000
--------
$238,000
========
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
MARKETING AND PROMOTIONAL COMMITMENTS
As of December 31, 1995, the Company had a commitment of approximately $3.9
million for marketing and promotional efforts during 1996. Subsequent to
December 31, 1995, the Company reduced the commitment by approximately $2.8
million.
PURCHASE COMMITMENTS
As of December 31, 1995, the Company was obligated under a manufacturing
agreement with its principal supplier to purchase approximately $110,000,000
of HealthRider units (see discussion below) and was obligated under other
purchase commitments for inventory of approximately $3,920,000.
BUILDING LEASE
During March 1995, the Company entered into an agreement with a real estate
developer to form a limited liability company (the LLC). The Company
contributed $1,600,000 of land to the LLC in return for a 50 percent ownership
interest. The LLC was formed to construct a building for use by the Company.
Construction of the building was completed subsequent to December 31, 1995 and
the Company became a tenant in February 1996.
The Company leases the building from the LLC under an agreement which is
classified as a capital lease (see Note 10). The lease has a 15 year term with
a base annual rent commitment of approximately $2,405,000 payable in 12 equal
monthly installments. As discussed in Note 10, the Company has subleased a
portion of the building for a three year term. Annual rent will escalate at
the beginning of the sixth and eleventh years using a three percent annually
compounded rate or the change in the Consumer Price Index, whichever is less.
The lease also provides for the lessee to pay taxes, maintenance, insurance
and certain other operating costs of the leased property. In addition, the
Company has an option to purchase the building at cost, as defined, until
permanent financing has been secured. After permanent financing is in place
the Company may purchase the building at fair market value.
LEGAL MATTERS
In May 1995, certain stockholders of the Company filed a complaint in the
United States District Court for the District of Utah naming the Company and
two of the Company's principal officers as defendants. The complaint contains
five claims against both the Company and the two officers alleging breach of
various contracts for royalty payments (see Note 12) and for the issuance of
stock. Because
F-36
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of ongoing settlement discussions, the parties have stipulated a stay of the
litigation. An agreement has been reached which provides for the Company to
pay approximately $300,000, which has been accrued in the accompany
consolidated balance sheets, and the officers to transfer certain shares of
the Company's common stock held by the officers to the plaintiffs.
The Company was the subject of certain other legal matters related to its
operations for which settlements were negotiated pending consummation of the
asset purchase agreement discussed in Note 13 which occured on August 16,
1996. Under the asset purchase agreement, the Buyer of the Company's assets
agreed to assume all obligations with respect to the following matters.
In June 1996, the Company's advertising agency filed a complaint in the
United States District Court for the Southern District of New York naming
the Company as a defendant. The complaint alleges that the Company had not
paid plaintiff for services rendered. The complaint seeks damages in the
amount of approximately $5,500,000, as well as punitive damages and
prejudgment interest. An agreement has been reached which provides for
payments of approximately $2,600,000, which have been accrued in the
accompanying financial statements.
Parkway Manufacturing, Inc. (Parkway), one of the Company's principal
suppliers, has informed the Company that they believe the Company is in
breach of a manufacturing agreement between the Company and Parkway which
was most recently amended on November 1, 1995. Under the manufacturing
agreement, in exchange for certain purchase price reductions, the Company
agreed to purchase its domestic HealthRider unit requirements, as defined,
exclusively from Parkway subject to certain quantity limits. The Company
agreed to purchase a minimum of 10,000 units each week for a three year
period or until the Company had purchased 1,200,000 units. The weekly
purchase order quantities could vary a maximum of up 3 percent or down 2
percent from the preceding week.
Parkway asserted that the Company had not complied with the terms of the
contract by not paying for units produced in accordance with payment terms
and not complying with the weekly purchase order quantities. Parkway
alleged damages which could have exceeded $10,000,000 and threatened to
pursue remedies provided under the Uniform Commercial Code relating to
repossessing certain items of inventory and proceeding with the private
sale of HealthRider and aeROBICRider units; however, no formal lawsuit was
filed. The Company also asserted a breach of the agreement by Parkway for
not meeting production requirements.
In connection with the asset purchase agreement, the Buyer purchased
certain of Parkway's assets, including Parkway's interest in the
manufacturing agreement with the Company.
The Company is the subject of various other legal matters, which it
considers generally incidental to its business activities. It is the opinion
of management, after dicussions with legal counsel, that the ultimate
dispositions of these legal matters will not have a material impact on the
financial position, liquidity or results of operations of the Company.
However, no assurance can be given with respect to the ultimate resolution of
these matters.
SOURCES OF SUPPLY
The Company buys a large majority of its products from one domestic supplier
and one foreign supplier. A loss of any one of these suppliers could result in
a shortage of inventory and a loss of sales, which would affect operating
results adversely.
F-37
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) CAPITAL TRANSACTIONS
PREFERRED STOCK
The Company's articles of incorporation authorize the Board of Directors to
fix the rights, preferences, privileges and restrictions of one or more series
out of the authorized shares of preferred stock.
COMMON STOCK ISSUED PURSUANT TO ANTIDILUTIVE RIGHT
During 1993 and 1995, the Company issued 1,004,334 and 245,666 shares of
common stock to a stockholder whose previous share purchase and debt
agreements with the Company provided for a 25 percent antidilutive right to
the Company's issued and outstanding common shares.
STOCK OPTIONS
Prior to the adoption of the 1995 Stock Option/Issuance Plan discussed
below, the Company had granted nonqualified stock options for common stock in
connection with the procurement of debt and equity, professional services
received and inducement for employment. In each case, the exercise price of
the nonqualified options equaled or exceeded the estimated fair maket value of
common stock on the date of grant. Most options have been immediately
exercisable upon issuance and have expiration periods ranging from 2.5 to 10
years from the date of grant.
On February 15, 1995, the Company's Board of Directors adopted, and on March
15, 1995, the Company's stockholders approved the 1995 Incentive Stock Option
Plan. In May 1995 the Company's Board of Directors adopted, and the Company's
stockholders approved in June 1995, the 1995 Stock Option/Issuance Plan (the
Plan). The Plan supersedes the Company's 1995 Incentive Stock Option Plan (the
Prior Plan) effective in May 1995, and assumes the options granted under the
Prior Plan. The Plan is divided into three components: the discretionary
option grant program, the automatic option grant program and the stock
issuance program. The discretionary option grant program provides for the
grant of options to purchase shares of the Company's common stock to key
employees (including officers and employee directors) and consultants of the
Company. The automatic option grant program provides for the grant of options
to purchase shares of the Company's common stock to non-employee Board
members. The stock issuance program allows key employees (including officers
and directors) and consultants of the Company to effect immediate purchases of
the Company's common stock.
Under the Plan, 1,500,000 shares of common stock have been reserved for
issuance. The Plan provides for the grant of incentive stock options which
qualify for favorable tax treatment under the Federal tax laws and non-
statutory options which do not so qualify. Only employees may be granted
incentive stock options. The exercise price of incentive stock options and of
automatic option grants may not be less than 100 percent of the fair market
value of the common stock on the date of grant while the exercise price of
nonstatutory options may not be less than 85 percent of the fair market value
on the date of grant. Stock issuances under the stock issuance program may be
made at fair market value or at discounts of up to 15 percent. The Board of
Directors presently intends to grant any options under the Plan at current
market value. As of December 31, 1995 and June 30, 1996 (unaudited), the
unoptioned shares available for granting under the Plan is 810,000 shares.
F-38
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of nonqualified and incentive stock option
activity:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
OPTIONS PER SHARE
--------- ------------
<S> <C> <C>
Outstanding at December 31, 1992................. 1,475,000 $ .10- 1.00
Granted.......................................... 314,000 .25- 1.00
Exercised........................................ (950,000) .21
---------
Outstanding at December 31, 1993................. 839,000 .10- 1.00
Granted.......................................... 230,000 .75
Exercised........................................ (352,500) .10- 1.00
---------
Outstanding at December 31, 1994................. 716,500 .10- 1.00
Granted.......................................... 690,000 10.00-12.50
Exercised........................................ (536,500) .50- 1.00
---------
Outstanding at December 31, 1995................. 870,000 .10-12.50
Forfeited (unaudited)............................ (440,000) 10.00
---------
Outstanding at June 30, 1996 (unaudited)......... 430,000 .10-12.50
=========
</TABLE>
The stock options exercised during 1993 were granted in 1992 at an exercise
price of $0.45 per share; however, the Company negotiated with the stockholder
to exercise the options early and reduced the exercise price to $0.21 per
share. The reduced exercise price represented the estimated fair market value
at that date. At December 31, 1995 and June 30, 1996, 81,500 and 112,500
(unaudited); respectively, of the stock options outstanding were exercisable.
(9) INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
--------- ---------- -----------
<S> <C> <C> <C>
Current tax provision:
Federal............................. $ 68,000 $5,560,000 $12,178,000
State............................... 10,000 1,282,000 2,859,000
--------- ---------- -----------
78,000 6,842,000 15,037,000
--------- ---------- -----------
Deferred tax provision (benefit):
Federal............................. 125,000 (359,000) (4,037,000)
State............................... 17,000 (78,000) (857,000)
--------- ---------- -----------
142,000 (437,000) (4,894,000)
--------- ---------- -----------
220,000 6,405,000 10,143,000
Valuation allowance................. (121,000) -- --
--------- ---------- -----------
$ 99,000 $6,405,000 $10,143,000
========= ========== ===========
</TABLE>
In applying the provisions of SFAS 109, the Company recorded a valuation
allowance for the net deferred tax asset as of December 31, 1992. As of
December 31, 1993, no valuation allowance was necessary as a result of the
Company's profitable operations.
F-39
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the net deferred tax assets and liabilities as of December
31, 1994 and 1995, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-----------------------
1994 1995
---------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts............................... $ 389,000 $ 1,568,000
Warranty and sales returns allowances................. 281,000 1,383,000
Other accrued expenses and reserves................... 451,000 4,412,000
---------- -----------
Total deferred tax assets.............................. 1,121,000 7,363,000
---------- -----------
Deferred tax liabilities:
Prepaid advertising costs............................. (450,000) (1,684,000)
Other................................................. (255,000) (369,000)
---------- -----------
Total deferred tax liabilities......................... (705,000) (2,053,000)
---------- -----------
Net deferred tax asset................................. $ 416,000 $ 5,310,000
========== ===========
</TABLE>
The differences between the statutory federal income tax rate and the
effective rate, which is derived by dividing the provision for income taxes by
income before provision for income taxes, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1993 1994 1995
----- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate............................. 35.0% 35.0% 35.0%
State income taxes, net of federal benefit............. 4.6 4.9 4.9
Change in valuation allowance.......................... (30.5) -- --
Other.................................................. 15.9 1.8 2.8
----- ---- ----
25.0% 41.7% 42.7%
===== ==== ====
</TABLE>
(10) LEASE OBLIGATIONS
The Company leases certain office, warehouse, and retail store spaces under
noncancelable operating lease agreements. Total rent expense under all
operating leases for the years ended December 31, 1993, 1994 and 1995 and the
six months ended June 30, 1996 (unaudited) was $46,000, $2,339,000,
$8,994,000, and $5,584,000, respectively.
F-40
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under capital and operating leases with
noncancelable lease terms greater than one year are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES AS OF OPERATING
------------------------- LEASES AS OF
DECEMBER 31, JUNE 30, DECEMBER 31,
YEAR ENDING DECEMBER 31, 1995 1996 1995
- ------------------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
1996................................... $ 336,000 $ 1,659,000 $1,638,000
1997................................... 254,000 3,236,000 1,634,000
1998................................... 4,000 2,933,000 1,217,000
1999................................... -- 2,924,000 496,000
2000................................... -- 2,916,000 328,000
Thereafter............................. -- 24,296,000 --
--------- ------------ ----------
594,000 37,964,000 $5,313,000
==========
Less amounts representing interest..... (49,000) (18,657,000)
--------- ------------
Present value of future minimum lease
payments.............................. 545,000 19,307,000
Less current portion................... (298,000) (1,158,000)
--------- ------------
Capital lease obligations, net of cur-
rent portion.......................... $ 247,000 $ 18,149,000
========= ============
</TABLE>
With respect to the lease on the Company's corporate building (see Note 7),
the Company has subleased a portion of the building for $640,000 a year for a
period of three years ending in February 1999. The sublease payments will
effectively reduce the future minimum lease payments included in the above
table.
Assets recorded under capital leases consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment and furniture................. $857,000 $ 717,000 $ 2,856,000
Building................................ -- -- 17,103,000
-------- --------- -----------
857,000 717,000 19,959,000
Less accumulated depreciation........... (45,000) (236,000) (972,000)
-------- --------- -----------
$812,000 $ 481,000 $18,987,000
======== ========= ===========
</TABLE>
(11) EMPLOYEE BENEFIT PLANS
In January 1995, the Company established a defined contribution savings plan
which qualifies under Section 401(k) of the Internal Revenue Code covering all
employees meeting minimum age and service requirements. Participants may
contribute up to 12 percent of their gross wages, subject to certain
limitations. The Company matches 50 percent of the first 3 percent of employee
contributions. During the year ended December 31, 1995 and the six months
ended June 30, 1996 (unaudited), the Company made contributions of $54,000,
and $30,000, respectively, to the plan.
F-41
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) RELATED PARTY TRANSACTIONS
LOAN AGREEMENTS WITH RELATED COMPANY
In October 1992, the Company entered into a factoring loan agreement with a
son-in-law of the Chairman of the Company's Board of Directors and majority
stockholders, acting on behalf of U.S. Funding, whereby U.S. Funding loaned
$50,000 to the Company to finance the production of certain HealthRider units.
The loan was collateralized by the units produced. Under the agreement, the
Company paid a factoring charge of $1.11 for each of the units when sold. The
agreement also provided an option for U.S. Funding to extend the $50,000 loan
until a total of $203,000 of factoring charges were received. As of December
31, 1994, the Company had paid the $203,000 of factoring charges and
terminated the agreement by repaying the principal amount of the loan. In
connection with the agreement, the Company also granted U.S. Funding options
to purchase 50,000 shares of the Company's common stock at $1.00 per share.
The stock options were exercised in full during December 1994.
During 1994, the Company entered into another agreement with U.S. Funding
under which U.S. Funding agreed to provide debt financing for certain retail
locations to be opened by the Company at the rate of $7,000 per location. The
loans bear interest at 24 percent per annum with interest and principal due
monthly at $25 per HealthRider unit sold from the specific retail locations.
The agreement also provides for the Company to continue to pay $25 per
HealthRider unit sold from the specific retail locations after the principal
and interest has been repaid. During the years ended December 31, 1994 and
1995 and the six months ended June 30, 1996 (unaudited), loans of $77,000, $0,
and $0, respectively, were made to the Company and $100,000, $204,000, and
$57,225, respectively, were paid to U.S. Funding under the agreement.
NOTES PAYABLE TO MAJORITY STOCKHOLDERS
During 1991 and 1992, the Company entered into three promissory notes with
the Company's majority stockholders in an aggregate amount of $348,000 as
consideration for services provided to the Company and for the sale of shares
of common stock back to the Company. The promissory notes provided for monthly
payments and interest at an annual rate of 12 percent. In January 1992, the
majority stockholders assigned $222,000 of the proceeds due them under the
promissory notes to an unrelated third party and personally guaranteed the
payment. As of December 31, 1995 and June 30, 1996 (unaudited), the balance
owing the unrelated third party was $176,000 and $168,000, respectively, which
is included in long-term debt in the accompanying financial statements. The
remaining balance due to the majority stockholders was paid in full in
December 1993.
DISTRIBUTION AGREEMENT
During September 1994, the Company entered into an agreement with AxTan, of
which a former director of the Company and a son-in-law of the Company's
Chairman and majority stockholders own interests, pursuant to which the
Company granted exclusive rights to sell the HealthRider machine in retail
outlets within the states of Arizona, Oregon and Washington. The agreement
provides that AxTan must pay a fee of $5,000 to the Company for each retail
location opened in exchange for the Company providing one kiosk unit, carpet,
signs, fixtures, general start-up supplies and two HealthRider machines. Fees
paid to the Company pursuant to this agreement during the years ended
December 31, 1994 and 1995 and the six months ended June 30, 1996 (unaudited)
were $90,000, $0, and $0, respectively, and sales of the HealthRider to AxTan
were $2,077,000, $3,243,000, and $1,308,000, respectively. On June 18, 1996,
the Company negotiated a termination of this agreement.
F-42
<PAGE>
HEALTHRIDER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
STOCKHOLDER ROYALTY AGREEMENT
On May 14, 1992, the Company entered into an agreement with the then current
stockholders of the Company whereby an ongoing quarterly royalty of $5 per
HealthRider unit sold would be made to these stockholders on a pro rata basis.
The majority stockholders' royalty was apportioned to the other stockholders
on a pro rata basis until the latter received $2 for each share of common
stock held on May 14, 1992; thereafter, the majority stockholders began to
receive their proportionate share of the royalty. During the years ended
December 31, 1993, 1994, and 1995 and the six months ended June 30, 1996
(unaudited), the Company recorded royalty expense of $179,000, $699,000,
$1,780,000, and $790,000, respectively, related to this agreement.
NOTES RECEIVABLE FROM OFFICERS
During 1994, the Company loaned $110,000 in total to three of its executive
officers in connection with the exercise of certain stock options. The notes
bear interest at 8 percent, are payable upon demand, and are collateralized by
the stock purchased. The notes are presented as an offset to common stock in
the accompanying consolidated balance sheets. During the six months ended June
30, 1996, the Company received 4,971 shares of common stock from one of the
officers in payment of his $75,000 note receivable and related interest of
$12,000.
AGREEMENTS WITH T6-G LIMITED PARTNERSHIP
T6-G Limited Partnership (T6-G), a significant stockholder of the Company,
loaned the Company $590,000 in the aggregate pursuant to various agreements
and promissory notes. The balances due under the agreements were paid in full
in July 1994. The agreements also provided for grants of options to purchase
950,000 shares of common stock at a price of $.45 per share. The Company
subsequently agreed to reduce the exercise price of the stock options to $.21
per share as an inducement for T6-G to exercise the options (see Note 8). The
agreements with T6-G provide for antidilution protection such that T6-G has
the ability to maintain a 25 percent equity interest in the Company (see Note
8).
(13) ASSET PURCHASE AGREEMENT
On July 3, 1996, the Company entered into a definitive agreement with IHF
Capital, Inc. and HealthRider Acquisition Corp., an indirect subsidiary of IHF
Capital, Inc. (the "Buyer") whereby the Buyer agreed to purchase substantially
all the assets of the Company for approximately $16.8 million and assume
substantially all of the Company's liabilities, with certain exclusions. The
liabilities excluded from the sale principally include all liabilities and
obligations relating to ownership, or claims to ownership of any equity
interest in the Company including the lawsuit filed by certain stockholders
against the Company described in Note 7, the stockholder royalty agreements
described in Note 12, as well as any other ownership related claims. On August
16, 1996 the sale was consummated, and the Company's operations have been
transferred to the Buyer.
In conjunction with the asset acquisition, the Company and the Buyer entered
into a definitive agreement to buy out the minority interest of HealthRider
International Limited. The buyout agreement required the Company to make a
payment of $.7 million and the Buyer to make a payment of $.6 million and
provide inventory of $.1 million to the minority interest holder.
F-43
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters of the U.S. Offering
named below (the "U.S. Underwriters"), and each of such U.S. Underwriters, for
whom Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation
and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as
representatives, has severally agreed to purchase from the Company the number
of shares of Common Stock opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER COMMON SHARES
----------- -------------
<S> <C>
Goldman, Sachs & Co. .......................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
---------
Total..................................................... 9,600,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters" and, together with the U.S. Underwriters,
the "Underwriters") providing for the concurrent offer and sale of 2,900,000
shares of Common Stock in an international offering outside the United States.
The offering price and aggregate underwriting discounts and commissions per
share for the two offerings are identical. The closing of the U.S. Offering
made hereby is a condition to the closing of the International Offering, and
vice versa. The representatives of the International Underwriters are Goldman
Sachs International, Donaldson, Lufkin, & Jenrette Securities Corporation and
Merrill Lynch International.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of
the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions,
it will offer, sell or deliver the shares of Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (the "United States") and to U.S. persons, which
term shall mean, for purposes of this paragraph: (a) any individual who is a
resident of the United States or (b) any corporation, partnership or other
entity organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the purchase
is located in the United States. Each of the International Underwriters has
agreed pursuant to the Agreement Between that, as part of the distribution of
the shares offered as a part of the International Offering, and subject
U-1
<PAGE>
to certain exceptions, it will (i) not, directly or indirectly, offer, sell or
deliver shares of Common Stock (a) in the United States or to any U.S. persons
or (b) to any person who it believes intends to reoffer, resell or deliver the
shares in the United States or to any U.S. persons, and (ii) cause any dealer
to whom it may sell such shares at any concession to agree to observe a
similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall
be the initial public offering price, less an amount not greater than the
selling concession.
This prospectus may be used by Underwriters and dealers in connection with
offers and sales of the Company's Common Stock, including shares initially
sold in the International Offering, to persons located in the United States.
Certain Selling Stockholders have granted the U.S. Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 1,440,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 9,600,000 shares of Common Stock offered. Certain Selling
Stockholders have granted the International Underwriters a similar option
exercisable for 30 calendar days after the date of this Prospectus to purchase
up to an aggregate of 435,000 shares of additional Common Stock. The Selling
Stockholders include Bain Capital, senior management of the Company and
certain employees and affiliates of Donaldson, Lufkin & Jenrette Securities
Corporation, one of the representatives of the Underwriters.
The Company and the Selling Stockholders have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of the Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any securities of the Company (other
than pursuant to employee stock option plans existing, or on the conversion or
exchange of convertible or exchangeable securities outstanding, on the date of
this Prospectus) which are substantially similar to the Common Stock or which
are convertible or exchangeable into securities which are substantially
similar to the Common Stock or establish a "put equivalent position" with
respect to the Common Stock within the meaning of Rule 16a-1(h) under the
Securities Exchange Act of 1934, without the prior written consent of the
representatives of the U.S. Underwriters, except for the Common Stock offered
in connection with the U.S. Offering and International Offering. The Company's
officers, directors and certain stockholders, including the Selling
Stockholders, have agreed not to sell, pledge, assign, grant a participation
interest in, encumber or otherwise transfer or dispose of any shares of Common
Stock or securities convertible into or exchangeable for shares of Common
Stock (except to Affiliates, as defined in the Stockholders Agreement) for a
period of 180 days after the date of this Prospectus, without the prior
written consent of the representatives of the U.S. Underwriters.
At the request of the Company, the Underwriters have reserved up to
approximately 937,500 shares of Common Stock for sale at the initial public
offering price to certain selling equity owners of HealthRider and certain
employees of, and other persons associated with, the Company. The number of
shares of Common Stock available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares which are not so purchased will be offered by the Underwriters to the
general public on the same basis as the other shares offered hereby.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.
U-2
<PAGE>
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be negotiated among the Company and the
representatives of the U.S. Underwriters and the International Underwriters.
Among the factors to be considered in determining the initial public offering
price of the Common Stock, in addition to prevailing market conditions, will
be the Company's historical performance, estimates of the business potential
and earnings prospects of the Company, an assessment of the Company's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
The Company has applied for the Common Stock to be approved for listing on
the NYSE. In order to meet one of the requirements for listing on the NYSE,
the U.S. Underwriters have undertaken to sell lots of 100 or more Shares to a
minimum of 2000 beneficial owners.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
U-3
<PAGE>
[Photo of a woman [Photo of a man exercising
exercising on a on a weight machine.]
stationary bicycle
machine.]
[Photo of the Company's [Photo of a pair of the [Photo of an assembly line
executive offices Company's weight in one of the Company's
building located in lifting gloves.] manufacturing
Logan, Utah.] facilities.]
[Photo of a pair of the [Photo of a HealthRider
Company's ankle weights.] product display located
inside a mall.]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Sources and Uses of Funds................................................. 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Background................................................................ 21
Unaudited Pro Forma Financial Data........................................ 22
Selected Consolidated Financial Data...................................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
Business.................................................................. 43
Management................................................................ 59
Certain Relationships and Related Transactions............................ 66
Principal and Selling Stockholders........................................ 70
Description of Capital Stock.............................................. 73
Stockholders Agreement.................................................... 75
Description of Certain Indebtedness....................................... 77
Shares Eligible for Future Sale........................................... 78
Legal Matters............................................................. 79
Experts................................................................... 79
Additional Information.................................................... 80
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
</TABLE>
THROUGH AND INCLUDING , 1996 (THE 25TH DAY AFTER THE DATE OF THIS PROSPEC-
TUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
12,500,000 SHARES
ICON FITNESS CORPORATION
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
-----------
[LOGO (ART)]
FITNESS CORPORATION
-----------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrants in
connection with the sale of the securities being registered. All amounts are
estimates except for the fees payable to the Securities and Exchange
Commission ("SEC").
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee............................................. $ 84,267.24
Printing and engraving expenses.................................. $ 1,200,000
Legal fees and expenses of the Company........................... $ 375,000
Accounting fees and expenses..................................... $ 700,000
Blue Sky and NASD filing fees and expenses....................... $ 42,000
Miscellaneous.................................................... $ 185,950
-------------
TOTAL.......................................................... $2,587,217.24
=============
</TABLE>
- --------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than an action by
or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses actually and
reasonably incurred in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery
or such other court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (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) under Section 174
of the DGCL (relating to unlawful payment of dividends and unlawful stock
purchase and redemption) or (iv) for any transaction from which the director
derived an improper personal benefit.
II-1
<PAGE>
The Company's Amended and Restated Certificate of Incorporation provides
that its Directors shall not be liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director except to the
extent that exculpation from liabilities is not permitted under the DGCL as in
effect at the time such liability is determined. The Company's Amended and
Restated Certificate further provides that respective Registrant shall
indemnify its directors and officers to the fullest extent permitted by the
DGCL.
The directors and officers of each of the Company are covered under
directors' and officers' liability insurance policies maintained by the
Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On November 14, 1994, the Company issued and sold to the Initial Purchasers
123,700 IHF Holdings Units consisting of an aggregate of $123,700,000 15%
Senior Secured Discount Notes due 2004, Series A of IHF Holdings and warrants
to purchase 1,708,566 shares of Common Stock of the Company. These sales were
exempt from registration under Section 4(2) of the Securities Act. The Initial
Purchasers offered and sold those securities for resale in transactions not
requiring registration under the Securities Act to persons they reasonably
believed to be "Qualified Institutional Buyers" as defined in Rule 144A under
the Securities Act or institutional "Accredited Investors" as defined in
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act who
delivered letters containing certain representations and agreements to the
Initial Purchasers. The aggregate price to investors for those securities was
$59,993,263, and the Initial Purchasers received a discount of $2,399,731.
On November 14, 1994, the Company issued and sold to the Initial Purchasers
101,250 Health & Fitness Units consisting of an aggregate of $101,250,000 13%
Senior Subordinated Notes due 2002, Series A of Health & Fitness and warrants
to purchase 427,142 shares of Common Stock of the Company. These sales were
exempt from registration under Section 4(2) of the Securities Act. The Initial
Purchasers offered those securities for resale in transactions not requiring
registration under the Securities Act to persons they reasonably believed to
be "Qualified Institutional Buyers" as defined in Rule 144A under the
Securities Act or institutional "Accredited Investors" as defined in
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act who
delivered letters containing certain representations and agreements to the
Initial Purchasers. The aggregate price to investors for those securities was
$100,005,638, and the Initial Purchasers received a discount of $3,250,183.
On April 13, 1995, the Company commenced the exchange of its 13% Senior
Subordinated Notes due 2002, Series B, for all of its 13% Senior Subordinated
Notes due 2002, Series A, and the exchange of its 15% Senior Discount Notes
due 2004, Series B, for all of its 15% Senior Discount Notes due 2004, Series
A. The Company did not receive any proceeds from these exchanges.
On November 14, 1995, Mr. Beck and Mr. White exercised options to purchase
18,234 and 12,156 shares, respectively, of Common Stock at $.08280 per share.
Other employees exercised options to purchase in aggregate 23,401 shares of
Common Stock at $.08280 per share. These options were granted under the
Company's 1994 Stock Option Plan.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
Unless otherwise noted, the following exhibits were previously filed with
the Securities and Exchange Commission under the Securities Act and are
referred to and incorporated herein by reference to such filings. Except as
otherwise indicated, all exhibits are incorporated herein by reference to the
correspondingly numbered exhibit filed as part of the Registration Statement
on Form S-1 of Health & Fitness and IHF Holdings, as amended, (Registration
No. 33-87930-01).
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1 Form of Underwriting Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation.
3.2 Form of Amended and Restated By-laws.
4.1(1) Stockholders Agreement dated as of November 14, 1994 by and among
Health & Fitness, the Company, IHF Holdings each of the Bain Funds
named therein and certain other persons named therein.
4.2 Form of temporary certificate representing Common Stock.
5 Opinion of Ropes & Gray re legality.
10.1* Amended and Restated Credit Agreement dated as of November 14,
1994 among Health & Fitness, the lenders named therein, and
General Electric Capital Corporation.
10.1A* Agreement of IHF Holdings, Inc. and the Company, dated November
14, 1994 in favor of General Electric Capital Corporation, as
agent.
10.2* First Amended and Restated Master Transaction Agreement dated as
of October 12, 1994 among Health & Fitness and each of Weider
Health and Fitness and Weider Sporting Goods, Inc. and each of
Hornchurch Investments Limited, Bayonne Settlement, The Joe Weider
Foundation, Ronald Corey, Jon White, William Dalebout, David
Watterson, S. Fred Beck, Gary Stevenson and Scott Watterson.
10.3* Adjustment Agreement dated as of November 14, 1994 between Weider
Health and Fitness and Health & Fitness.
10.4(2) Registration Rights Agreement dated November 14, 1994 among Health
& Fitness and IHF Holdings and Donaldson, Lufkin & Jenrette
Securities Corporation and Bear, Stearns & Co.
10.5* Non-Competition Agreement dated as of November 14, 1994 among
Health & Fitness, Weider Health and Fitness, Gary E. Stevenson and
Scott R. Watterson.
10.6* Management and Advisory Agreement dated as of November 14, 1994
among Health & Fitness, IHF Holdings, the Company, and Bain
Capital Partners IV, L.P.
10.7* Distribution Agreement dated as of September 26, 1994, as amended
by letter of Ben Weider dated October 12, 1994 between Health &
Fitness and Weider Sports Equipment Co., Ltd.
10.8* Exclusive License Agreement dated as of November 14, 1994 among
Weider Health and Fitness, Weider Sporting Goods, Inc., Weider
Europe B.V., and Health & Fitness.
10.9* Canada Exclusive License Agreement dated as of November 14, 1994
between Weider Sports Equipment Co., Ltd. and Health & Fitness.
10.10* Employment Agreement dated as of November 14, 1994 among the
Company, Health & Fitness, IHF Holdings and Gary E. Stevenson.
10.11* Employment Agreement dated as of November 14, 1994 among the
Company, Health & Fitness, IHF Holdings and Scott R. Watterson.
10.12* Asset Option Agreement dated as of November 14, 1994 among Health
& Fitness, Weider Sporting Goods, Inc. and Weider Europe B.V.,
including Health & Fitness' assignment of its rights thereunder.
10.13* Asset Option Agreement dated as of November 14, 1994 between
Health & Fitness and each of Athletimonde Inc., Les Industries
Rickbend Inc. and Fitquip International Inc., including Health &
Fitness' assignment of its rights thereunder.
10.14* Canco Management and Advisory Agreement dated as of November 14,
1994 by and among Health & Fitness, Scott Watterson, Gary E.
Stevenson and Les Industries Rickbend Inc., Athletimonde Inc., and
Fitquip International Inc., including Health & Fitness' assignment
of its rights thereunder.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.15* Weider Europe Management Agreement dated as of November 14,
1994 among Health & Fitness and Weider Europe B.V., including
Health & Fitness' assignment of its rights thereunder.
10.16* Amended and Restated WSG Management Agreement dated as of June
1, 1994 among Health & Fitness, Weider Health and Fitness and
Weider Sporting Goods, Inc.
10.17* Advertising Space Contract dated as of November 14, 1994
between Health & Fitness and Weider Publications, Inc.
10.18* Trade Payables Agreement dated as of November 14, 1994 between
Health & Fitness and IHF Holdings.
10.19* Tax Agreement dated as of November 14, 1994 among the Company
and its subsidiaries.
10.20* The Company's Stock Subscription and Exchange Agreement dated
as of November 14, 1994 among the Company and each of the
Existing Stockholders named therein.
10.21* Warrant Agreement dated as of November 14, 1994 among the
Company, Weider Health and Fitness, Scott Watterson and Gary
Stevenson.
10.22* Bain Stock Subscription Agreement dated as of November 14, 1994
among the Company and each of the Bain Funds and other
subscribers named therein.
10.23* The Company's Stock Subscription and Purchase Agreement dated
as of November 14, 1994 among the Company and the Subscribers
named therein.
10.24* IHF Holdings Stock Subscription and Exchange Agreement dated as
of November 14, 1994 among IHF Holdings and each of the persons
named therein.
10.25* The Company's Option Exchange Agreement dated as of November
14, 1994, among the Company, Scott Watterson and Gary
Stevenson.
10.26* IHF Holdings Option Exchange Agreement dated as of November 14,
1994 among IHF Holdings, Scott Watterson and Gary Stevenson.
10.27* The Company's Employee Stock Option Plan dated as of November
14, 1994.
10.27.1* Form of Option Certificate for Management Options.
10.27.2* Form of Option Certificate for Performance Options.
10.28* Agreement and Plan of Merger dated as of November 14, 1994
among Health & Fitness, American Physical Therapy, Inc., Weslo,
Inc. and ProForm Fitness Products, Inc.
10.29* Promissory Note dated December 30, 1993 and allonge, made by
David Watterson in favor of ProForm Fitness Products, Inc. in
the amount of $60,000.
10.30* Promissory Note dated December 30, 1993 and allonge, made by
William Dalebout in favor of ProForm Fitness Products, Inc. in
the amount of $57,000.
10.31* Promissory Note dated December 30, 1993 and allonge, made by
Fred Beck in favor of ProForm Fitness Products, Inc. in the
amount of $60,000.
10.32* Promissory Note dated December 30, 1993 and allonge, made by
Jon White in favor of ProForm Fitness Products, Inc. in the
amount of $57,000.
10.33* Sublease dated as of June 1, 1994 between Weider Health and
Fitness and ProForm Fitness Products, Inc.
10.34(3) Indenture dated as of November 14, 1994 between Health &
Fitness, as Issuer, and Fleet Bank of Massachusetts, N.A., as
Trustee, with respect to the $101,250,000 in aggregate
principal amount of Senior Subordinated Notes due 2002,
including the form of Senior Subordinated Note.
10.34A(3) Supplemental Indenture dated as of March 20, 1995 between
Health & Fitness, as Issuer, and Fleet Bank of Massachusetts,
N.A., as Trustee, with respect to the $101,250,000 in aggregate
principal amount of Senior Subordinated Notes due 2002.
10.35(3) Indenture dated as of November 14, 1994 between IHF Holdings,
as Issuer, and Fleet Bank of Massachusetts, N.A., as Trustee,
with respect to the $123,700,000 in aggregate principal amount
at maturity of Discount Notes due 2004, including the form of
Discount Note.
10.35A(3) Supplemental Indenture dated as of March 20, 1995 between IHF
Holdings, as Issuer, and Fleet Bank of Massachusetts, N.A., as
Trustee, with respect to the $123,700,000 in aggregate
principal amount at maturity of Discount Notes due 2004.
10.36(3) Registration Rights Agreement dated November 14, 1994 between
Health & Fitness and Weider Health and Fitness with respect to
the Senior Subordinated Notes due 2002.
10.37(4) Asset Purchase Agreement dated as of July 3, 1996 by and among
IHF Capital, Inc. HealthRider Acquisition Corp. and
HealthRider, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
10.38(4) Asset Purchase Agreement for the purchase of certain assets
of Parkway Manufacturing, Inc. dated July 3, 1996.
10.39(4) Buy-Out Agreement between HealthRider Acquistion Corp. and
Parkway Manufacturing, Inc. dated August 26, 1996.
10.40 The Company's 1996 Stock Option Plan.
10.41 WSE Asset Purchase Agreement, dated September 6, 1996
between Weider Sports Equipment Co. Ltd. and ICON Health &
Fitness Inc.
10.42 Canco Asset Purchase Agreement, dated September 6, 1996
among ICON of Canada Inc., ICON Health & Fitness Inc.,
ALLFITNESS, Inc, Scott Watterson and Gary Stevenson.
10.43 Stock and Warrants Purchase Agreement, dated September 6,
1996 among IHF Capital, Inc., IHF Holdings, Inc., Weider
Health & Fitness, Greyfriars Limited, Bayonne Settlement,
Hornchurch Investments Limited, Ronald Corey, Bernard
Cartoon, Ronald Novak, Eric Weider, Richard Bizarro, Robert
Reynolds, Michael Carr, Thomas Deters, Barbara Harris and
Zbigniew Kindella.
10.44 Amemdment No. 1 to Stockholders Agreement, dated September
6, 1996 among IHF Holdings, Inc., Weider Health & Fitness,
Greyfriars Limited, Bayonne Settlement, Hornchurch
Investments Limited, the Fund Investors, DLJ Capital
Corporation, General Electric Capital Corporation, and
certain other signatories named therein.
10.45 Amendment and Restatement of Stockholders Agreement, dated
as of September 6, 1996 among IHF Holdings, Inc., Weider
Health & Fitness, Greyfriars Limited, Bayonne Settlement,
Hornchurch Investments Limited, the Fund Investors, DLJ
Capital Corporation, General Electric Capital Corporation,
and certain other signatories named therein.
10.46 Key Executive Preferred Stock Option Purchase Agreement,
dated September 6, 1996 among IHF Capital, Inc., Gary
Stevenson and Scott Watterson.
10.47 First Amendment to Stevenson Employment Agreement, dated
September 6, to the Employment Agreement dated November 14,
1994 among ICON Health & Fitness, IHF Capital, Inc., IHF
Holdings, Inc. and Gary Stevenson.
10.48 First Amendment to Watterson Employment Agreement, dated
September 6, to the Employment Agreement dated November 14,
1994 among ICON Health & Fitness, IHF Capital, Inc., IHF
Holdings, Inc. and Scott Watterson.
10.49 Weider Release, dated September 6, 1996 by Weider Health &
Fitness, Weider Sports Equipment Co., Ltd., Weider Sporting
Goods, Inc., Weider Europe, B.V., CANCO, Ben Weider, Eric
Weider, Richard Renaud and the Weider Releasors.
10.50 Icon Release, dated September 6, 1996 made by ICON Health &
Fitness, IHF Capital, Inc., IHF Holdings, Inc., Scott
Watterson, Gary Stevenson and the ICON Releasors.
10.51 Settlement Agreement, dated September 6, 1996 among ICON
Health & Fitness, IHF Capital, Inc., the Fund Investors,
IHF Holdings, Inc., Weider Health & Fitness, Weider Sports
Equipment, CANCO, Weider Sporting Goods, Inc., Weider
Europe, B.V., and each of Ben Weider, Eric Weider, Richard
Renaud, Gary Stevenson and Scott Watterson.
10.52 Escrow Agreement, dated September 6, 1996 among ICON Health
& Fitness, ICON of Canada, Inc., CANCO, Lapointe Rosenstein
and Goodman Phillips of Vineberg.
10.53 Representation Agreement, dated September 6, 1996 between
ICON Health & Fitness, Inc. and Ben Weider.
10.54 Letter Agreement regarding advertising space, dated
September 6, 1996 between Weider Publications, Inc. and
ICON Health & Fitness, Inc.
10.55 Letters of Credit issued by Royal Bank of Canada to ICON
Health & Fitness, Inc. dated September 5, 1996.
10.56 Letters of Credit issued by Royal Bank of Canada to ICON
Health & Fitness, Inc. and ICON of Canada, Inc., dated
September 5, 1996.
10.57 Letter from Royal Bank of Canada to ICON of Canada, Inc.,
dated September 5, 1996, outlining terms of financing by
Royal Bank of Canda in favor of ICON of Canda, Inc.
10.58 Letter Agreement dated September 6, 1996 among ICON Health
& Fitness, Inc., Ben Weider and Eric Weider regarding
charitable contributions.
10.59 Deed of Sale.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
11.1** Statement regarding computation of pro forma income per
share.
16(4) Letter of Deloitte & Touche LLP regarding change in
certifying accountant.
21(4) Subsidiaries of the Company.
23.1 Consent and report on schedule of Deloitte & Touche LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Ropes & Gray (included in Exhibit 5).
24(4) Powers of Attorney (included on signature page).
27(4) Financial Data Schedule.
</TABLE>
- --------
* Filed as the correspondingly numbered exhibit to the Registration Statement
on Form S-1 of Health & Fitness and IHF Holdings, as amended (Registration
No. 33-87930-01).
** To be filed by amendment.
(1) Filed as Exhibit 10.4 to the Registration Statement on Form S-1 of Health
& Fitness and IHF Holdings, as amended (Registration No. 33-87930-01).
(2) Filed as Exhibit 4.3 to the Registration Statement on Form S-1 of Health &
Fitness and IHF Holdings, as amended (Registration No. 33-87930-01).
(3) Filed as part of Exhibit 4 to the Registration Statement on Form S-1 of
Health & Fitness and IHF Holdings, as amended (Registration No. 33-87930-
01).
(4) Previously filed as part of this Registration Statement.
(B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES OF THE COMPANY FOR THE THREE
YEARS ENDED MAY 31, 1996 ARE INCLUDED IN THIS REGISTRATION STATEMENT:
Schedule VIII Valuation and qualifying accounts for the years ended May 31,
1994, 1995 and 1996.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions, 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 of 1933 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 any such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether or not such indemnification is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final adjudication of
such issue.
The undersigned hereby undertakes that:
(1) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
(3) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall 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.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, IHF Capital, Inc. has
duly caused this Amendment No. 3 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Logan, State of Utah, on the 18th day of September, 1996.
IHF CAPITAL, INC.
*
By: _________________________________
Name: Scott R. Watterson
Title: Chairman of the Board and
ChiefExecutive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 18th day of September, 1996.
SIGNATURE TITLE
* Chairman of the Board of Directors and
- ------------------------------------- Chief Executive Officer (principal
SCOTT R. WATTERSON executive officer)
* Vice President, Chief Financial and
- ------------------------------------- Accounting Officer and Treasurer
S. FRED BECK (principal financial and accounting
officer)
* Director
- -------------------------------------
GARY E. STEVENSON
- ------------------------------------- Vice Chairman of the Board of
ERIC WEIDER Directors
* Vice Chairman of the Board of
- ------------------------------------- Directors
ROBERT C. GAY
- ------------------------------------- Director
RICHARD RENAUD
* Director
- -------------------------------------
RONALD P. MIKA
* Director
- -------------------------------------
GEOFFREY S. REHNERT
/s/ Ronald P. Mika
*By: ________________________________
RONALD P. MIKA,
POWER OF ATTORNEY
II-7
<PAGE>
IHF CAPITAL, INC.
CONSOLIDATED SUPPLEMENTAL SCHEDULE VIII
<TABLE>
<CAPTION>
RECAPITALIZED
COMPANIES COMPANY
------------- --------------------------
YEARS ENDED
MAY 31, YEAR ENDED MAY 31,
------------- --------------------------
1994 1995 1996
------------- ------------ ------------
<S> <C> <C> <C>
ALLOWANCES FOR DOUBTFUL ACCOUNTS,
ADVERTISING AND CREDIT MEMOS:
Balance at Beginning of year......... $ 2,146,000 $ 3,279,000 $5,308,000
Additions
Charged to Costs and Expenses (Al-
lowance for Doubtful Accounts and
Credit Memos)..................... 1,864,000 3,792,000 3,662,000
Charged to Costs and Expenses (Dis-
counts and Advertising)........... 12,907,000 14,114,000 34,585,000
Recoveries on Accounts Charged Off. -- -- 74,000
Deductions
Accounts Charged Off (Allowance for
Doubtful Accounts and Credit
Memos)............................ (1,163,000) (2,666,000) (3,569,000)
Accounts Charged Off (Discounts and
Advertising)...................... (12,475,000) (13,211,000) (32,465,000)
------------ ------------ ------------
Balance at End of Year............... $ 3,279,000 $ 5,308,000 $ 7,595,000
============ ============ ============
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
1 Form of Underwriting Agreement.
3.1 Form of Amended and Restated Certificate of
Incorporation.
3.2 Form of Amended and Restated By-laws.
4.1(1) Stockholders Agreement dated as of November 14, 1994 by
and among Health & Fitness, the Company, IHF Holdings
each of the Bain Funds named therein and certain other
persons named therein.
4.2 Form of temporary certificate representing Common
Stock.
5 Opinion of Ropes & Gray re legality.
10.1* Amended and Restated Credit Agreement dated as of
November 14, 1994 among Health & Fitness, the lenders
named therein, and General Electric Capital
Corporation.
10.1A* Agreement of IHF Holdings, Inc. and the Company, dated
November 14, 1994 in favor of General Electric Capital
Corporation, as agent.
10.2* First Amended and Restated Master Transaction Agreement
dated as of October 12, 1994 among Health & Fitness and
each of Weider Health and Fitness and Weider Sporting
Goods, Inc. and each of Hornchurch Investments Limited,
Bayonne Settlement, The Joe Weider Foundation, Ronald
Corey, Jon White, William Dalebout, David Watterson, S.
Fred Beck, Gary Stevenson and Scott Watterson.
10.3* Adjustment Agreement dated as of November 14, 1994
between Weider Health and Fitness and Health & Fitness.
10.4(2) Registration Rights Agreement dated November 14, 1994
among Health & Fitness and IHF Holdings and Donaldson,
Lufkin & Jenrette Securities Corporation and Bear,
Stearns & Co.
10.5* Non-Competition Agreement dated as of November 14, 1994
among Health & Fitness, Weider Health and Fitness, Gary
E. Stevenson and Scott R. Watterson.
10.6* Management and Advisory Agreement dated as of November
14, 1994 among Health & Fitness, IHF Holdings, the
Company, and Bain Capital Partners IV, L.P.
10.7* Distribution Agreement dated as of September 26, 1994,
as amended by letter of Ben Weider dated October 12,
1994 between Health & Fitness and Weider Sports
Equipment Co., Ltd.
10.8* Exclusive License Agreement dated as of November 14,
1994 among Weider Health and Fitness, Weider Sporting
Goods, Inc., Weider Europe B.V., and Health & Fitness.
10.9* Canada Exclusive License Agreement dated as of November
14, 1994 between Weider Sports Equipment Co., Ltd. and
Health & Fitness.
10.10* Employment Agreement dated as of November 14, 1994
among the Company, Health & Fitness, IHF Holdings and
Gary E. Stevenson.
10.11* Employment Agreement dated as of November 14, 1994
among the Company, Health & Fitness, IHF Holdings and
Scott R. Watterson.
10.12* Asset Option Agreement dated as of November 14, 1994
among Health & Fitness, Weider Sporting Goods, Inc. and
Weider Europe B.V., including Health & Fitness'
assignment of its rights thereunder.
10.13* Asset Option Agreement dated as of November 14, 1994
between Health & Fitness and each of Athletimonde Inc.,
Les Industries Rickbend Inc. and Fitquip International
Inc., including Health & Fitness' assignment of its
rights thereunder.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
10.14* Canco Management and Advisory Agreement dated as of
November 14, 1994 by and among Health & Fitness,
Scott Watterson, Gary E. Stevenson and Les Industries
Rickbend Inc., Athletimonde Inc., and Fitquip
International Inc., including Health & Fitness'
assignment of its rights thereunder.
10.15* Weider Europe Management Agreement dated as of
November 14, 1994 among Health & Fitness and Weider
Europe B.V., including Health & Fitness' assignment
of its rights thereunder.
10.16* Amended and Restated WSG Management Agreement dated
as of June 1, 1994 among Health & Fitness, Weider
Health and Fitness and Weider Sporting Goods, Inc.
10.17* Advertising Space Contract dated as of November 14,
1994 between Health & Fitness and Weider
Publications, Inc.
10.18* Trade Payables Agreement dated as of November 14,
1994 between Health & Fitness and IHF Holdings.
10.19* Tax Agreement dated as of November 14, 1994 among the
Company and its subsidiaries.
10.20* The Company's Stock Subscription and Exchange
Agreement dated as of November 14, 1994 among the
Company and each of the Existing Stockholders named
therein.
10.21* Warrant Agreement dated as of November 14, 1994 among
the Company, Weider Health and Fitness, Scott
Watterson and Gary Stevenson.
10.22* Bain Stock Subscription Agreement dated as of
November 14, 1994 among the Company and each of the
Bain Funds and other subscribers named therein.
10.23* The Company's Stock Subscription and Purchase
Agreement dated as of November 14, 1994 among the
Company and the Subscribers named therein.
10.24* IHF Holdings Stock Subscription and Exchange
Agreement dated as of November 14, 1994 among IHF
Holdings and each of the persons named therein.
10.25* The Company's Option Exchange Agreement dated as of
November 14, 1994, among the Company, Scott Watterson
and Gary Stevenson.
10.26* IHF Holdings Option Exchange Agreement dated as of
November 14, 1994 among IHF Holdings, Scott Watterson
and Gary Stevenson.
10.27* The Company's Employee Stock Option Plan dated as of
November 14, 1994.
10.27.1* Form of Option Certificate for Management Options.
10.27.2* Form of Option Certificate for Performance Options.
10.28* Agreement and Plan of Merger dated as of November 14,
1994 among Health & Fitness, American Physical
Therapy, Inc., Weslo, Inc. and ProForm Fitness
Products, Inc.
10.29* Promissory Note dated December 30, 1993 and allonge,
made by David Watterson in favor of ProForm Fitness
Products, Inc. in the amount of $60,000.
10.30* Promissory Note dated December 30, 1993 and allonge,
made by William Dalebout in favor of ProForm Fitness
Products, Inc. in the amount of $57,000.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
10.31* Promissory Note dated December 30, 1993 and allonge,
made by Fred Beck in favor of ProForm Fitness
Products, Inc. in the amount of $60,000.
10.32* Promissory Note dated December 30, 1993 and allonge,
made by Jon White in favor of ProForm Fitness
Products, Inc. in the amount of $57,000.
10.33* Sublease dated as of June 1, 1994 between Weider
Health and Fitness and ProForm Fitness Products, Inc.
10.34(3) Indenture dated as of November 14, 1994 between
Health & Fitness, as Issuer, and Fleet Bank of
Massachusetts, N.A., as Trustee, with respect to the
$101,250,000 in aggregate principal amount of Senior
Subordinated Notes due 2002, including the form of
Senior Subordinated Note.
10.34A(3) Supplemental Indenture dated as of March 20, 1995
between Health & Fitness, as Issuer, and Fleet Bank
of Massachusetts, N.A., as Trustee, with respect to
the $101,250,000 in aggregate principal amount of
Senior Subordinated Notes due 2002.
10.35(3) Indenture dated as of November 14, 1994 between IHF
Holdings, as Issuer, and Fleet Bank of Massachusetts,
N.A., as Trustee, with respect to the $123,700,000 in
aggregate principal amount at maturity of Discount
Notes due 2004, including the form of Discount Note.
10.35A(3) Supplemental Indenture dated as of March 20, 1995
between IHF Holdings, as Issuer, and Fleet Bank of
Massachusetts, N.A., as Trustee, with respect to the
$123,700,000 in aggregate principal amount at
maturity of Discount Notes due 2004.
10.36(3) Registration Rights Agreement dated November 14, 1994
between Health & Fitness and Weider Health and
Fitness with respect to the Senior Subordinated Notes
due 2002.
10.37(4) Asset Purchase Agreement dated as of July 3, 1996 by
and among IHF Capital, Inc., HealthRider Acquisition
Corp. and HealthRider, Inc.
10.38(4) Asset Purchase Agreement for the purchase of certain
assets of Parkway Manufacturing, Inc. dated July 3,
1996.
10.39(4) Buy-Out Agreement between HealthRider Acquisition
Corp. and Parkway Manufacturing, Inc. dated August
26, 1996.
10.40 The Company's 1996 Stock Option Plan.
10.41 WSE Asset Purchase Agreement, dated September 6, 1996
between Weider Sports Equipment Co. Ltd. and ICON
Health & Fitness Inc.
10.42 Canco Asset Purchase Agreement, dated September 6,
1996 among ICON of Canada Inc., ICON Health & Fitness
Inc., ALLFITNESS, Inc, Scott Watterson and Gary
Stevenson.
10.43 Stock and Warrants Purchase Agreement, dated
September 6, 1996 among IHF Capital, Inc., IHF
Holdings, Inc., Weider Health & Fitness, Greyfriars
Limited, Bayonne Settlement, Hornchurch Investments
Limited, Ronald Corey, Bernard Cartoon, Ronald Novak,
Eric Weider, Richard Bizarro, Robert Reynolds,
Michael Carr, Thomas Deters, Barbara Harris and
Zbigniew Kindella.
10.44 Amemdment No. 1 to Stockholders Agreement, dated
September 6, 1996 among IHF Holdings, Inc., Weider
Health & Fitness, Greyfriars Limited, Bayonne
Settlement, Hornchurch Investments Limited, the Fund
Investors, DLJ Capital Corporation, General Electric
Capital Corporation, and certain other signatories
named therein.
10.45 Amendment and Restatement of Stockholders Agreement,
dated as of September 6, 1996 among IHF Holdings,
Inc., Weider Health & Fitness, Greyfriars Limited,
Bayonne Settlement, Hornchurch Investments Limited,
the Fund Investors, DLJ Capital Corporation, General
Electric Capital Corporation, and certain other
signatories named therein.
10.46 Key Executive Preferred Stock Option Purchase
Agreement, dated September 6, 1996 among IHF Capital,
Inc., Gary Stevenson and Scott Watterson.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
10.47 First Amendment to Stevenson Employment Agreement,
dated September 6, to the Employment Agreement dated
November 14, 1994 among ICON Health & Fitness, IHF
Capital, Inc., IHF Holdings, Inc. and Gary Stevenson.
10.48 First Amendment to Watterson Employment Agreement,
dated September 6, to the Employment Agreement dated
November 14, 1994 among ICON Health & Fitness, IHF
Capital, Inc., IHF Holdings, Inc. and Scott Watterson.
10.49 Weider Release, dated September 6, 1996 by Weider
Health & Fitness, Weider Sports Equipment Co., Ltd.,
Weider Sporting Goods, Inc., Weider Europe, B.V.,
CANCO, Ben Weider, Eric Weider, Richard Renaud and the
Weider Releasors.
10.50 Icon Release, dated September 6, 1996 made by ICON
Health & Fitness, IHF Capital, Inc., IHF Holdings,
Inc., Scott Watterson, Gary Stevenson and the ICON
Releasors.
10.51 Settlement Agreement, dated September 6, 1996 among
ICON Health & Fitness, IHF Capital, Inc., the Fund
Investors, IHF Holdings, Inc., Weider Health & Fitness,
Weider Sports Equipment, CANCO, Weider Sporting Goods,
Inc., Weider Europe, B.V., and each of Ben Weider, Eric
Weider, Richard Renaud, Gary Stevenson and Scott
Watterson.
10.52 Escrow Agreement, dated September 6, 1996 among ICON
Health & Fitness, ICON of Canada, Inc., CANCO, Lapointe
Rosenstein and Goodman Phillips of Vineberg.
10.53 Representation Agreement, dated September 6, 1996
between ICON Health & Fitness, Inc. and Ben Weider.
10.54 Letter Agreement regarding advertising space, dated
September 6, 1996 between Weider Publications, Inc. and
ICON Health & Fitness, Inc.
10.55 Letters of Credit issued by Royal Bank of Canada to
ICON Health & Fitness, Inc. dated September 5, 1996.
10.56 Letters of Credit issued by Royal Bank of Canada to
ICON Health & Fitness, Inc. and ICON of Canada, Inc.,
dated September 5, 1996.
10.57 Letter from Royal Bank of Canada to ICON of Canada,
Inc., dated September 5, 1996, outlining terms of
financing by Royal Bank of Canda in favor of ICON of
Canda, Inc.
10.58 Letter Agreement dated September 6, 1996 among ICON
Health & Fitness, Inc., Ben Weider and Eric Weider
regarding charitable contributions.
10.59 Deed of Sale.
11.1** Statement regarding computation of pro forma income per
share.
16(4) Letter of Deloitte & Touche LLP regarding change in
certifying accountant.
21(4) Subsidiaries of the Company.
23.1 Consent and report on schedule of Deloitte & Touche
LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Ropes & Gray (included in Exhibit 5).
24(4) Powers of Attorney (included on signature page).
27(4) Financial Data Schedule.
</TABLE>
- --------
* Filed as the correspondingly numbered exhibit to the Registration Statement
on Form S-1 of Health & Fitness and IHF Holdings, as amended (Registration
No. 33-87930-01).
** To be filed by amendment.
(1) Filed as Exhibit 10.4 to the Registration Statement on Form S-1 of Health
& Fitness and IHF Holdings, as amended (Registration No. 33-87930-01).
(2) Filed as Exhibit 4.3 to the Registration Statement on Form S-1 of Health &
Fitness and IHF Holdings, as amended (Registration No. 33-87930-01).
(3) Filed as part of Exhibit 4 to the Registration Statement on Form S-1 of
Health & Fitness and IHF Holdings, as amended (Registration No. 33-87930-
01).
(4) Previously filed as part of this Registration Statement.
SCHEDULES
Schedule VIII Valuation and qualifying accounts for the years ended May 31,
1994, 1995 and 1996.
<PAGE>
Exhibit 1
S&S Draft
9/11/96
IHF Capital, Inc.
(To be renamed
ICON Fitness Corporation)
Common Stock
(par value $.001 per share)
Underwriting Agreement
(U.S. Version)
---------------------------
......................, 1996
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette Securities Corporation
Merrill Lynch, Pierce, Fenner & Smith Incorporated
As Representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
IHF Capital, Inc. (to be renamed ICON Fitness Corporation), a Delaware
corporation (the "Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to the Underwriters named in Schedule I hereto
(the "Underwriters") an aggregate of 9,600,000 shares of Common Stock, par value
$.001 per share ("Stock"), of the Company, and the stockholders of the Company
named in Schedule II hereto (the "Selling Stockholders") propose, subject to the
terms and conditions stated herein and at the election of the Underwriters, to
sell to the Underwriters an aggregate of 1,440,000 shares of Stock. The
aggregate of 9,600,000 shares to be sold by the Company is herein called the
"Firm Shares", and the aggregate of 1,440,000 additional shares to be sold by
the Selling Stockholders is herein called the "Optional Shares". The Firm
Shares and the Optional Shares that the Underwriters elect to purchase pursuant
to Section 2 hereof are herein collectively called the "Shares".
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement (the
"International Underwriting Agreement") providing for the sale by the Company
and the Selling Stockholders of up to a
<PAGE>
total of 3,335,000 shares of Stock (the "International Shares"), including the
overallotment option thereunder, through arrangements with certain underwriters
outside the United States (the "International Underwriters"), for whom Goldman
Sachs International, Donaldson, Lufkin & Jenrette Securities Corporation and
Merrill Lynch International are acting as lead managers. Anything herein or
therein to the contrary notwithstanding, the respective closings under this
Agreement and the International Underwriting Agreement are hereby expressly made
conditional on one another. The Underwriters hereunder and the International
Underwriters are simultaneously entering into an Agreement between U.S. and
International Underwriting Syndicates (the "Agreement between Syndicates") which
provides, among other things, for the transfer of shares of Stock between the
two syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one relating
to the Shares hereunder and the other relating to the International Shares. The
latter form of prospectus will be identical to the former except for certain
substitute pages. Except as used in Sections 2, 4, 5, 11 and 13 herein, and
except as the context may otherwise require, references hereinafter to the
Shares shall include all the shares of Stock which may be sold pursuant to
either this Agreement or the International Underwriting Agreement, and
references herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
1. (a) The Company represents and warrants to, and agrees with, each
of the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-04279), as
amended by amendments No. 1 and 2 (the "Initial Registration Statement"),
in respect of the Shares has been filed with the Securities and Exchange
Commission (the "Commission"); the Initial Registration Statement and any
post-effective amendment thereto, each in the form heretofore delivered to
you, and, excluding exhibits thereto, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (the "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act"), which became effective upon filing, no other
document with respect to the Initial Registration Statement or document
incorporated by reference therein has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of the Initial
Registration Statement, any post-effective amendment thereto or the Rule
462(b) Registration Statement has been issued and no proceeding for that
purpose has been initiated or threatened by the Commission (any preliminary
prospectus included in the Initial Registration Statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act, is hereinafter called a "Preliminary
Prospectus"; the various parts of the Initial Registration Statement and
the Rule 462(b) Registration Statement, if any,
including all exhibits thereto and including (i) the information contained
in the form of final prospectus filed with the Commission pursuant to Rule
424(b) under the Act in
<PAGE>
accordance with Section 6(a) hereof and deemed by virtue of Rule 430A under
the Act to be part of the Initial Registration Statement at the time it was
declared effective and (ii) the documents incorporated by reference in the
Initial Registration Statement at the time such part of the Initial
Registration Statement became effective, each as amended at the time such
part of the Initial Registration Statement became effective or such part of
the Rule 462(b) Registration Statement, if any, became or hereafter becomes
effective, are hereinafter collectively called the "Registration
Statement"; and such final prospectus, in the form first filed pursuant to
Rule 424(b) under the Act, is hereinafter called the "Prospectus"). For
purposes of this Agreement, all references to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
to any of the foregoing shall be deemed to also include the copy thereof
filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR");
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did 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 the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(iii) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto, and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
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 not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by or on behalf of an Underwriter through Goldman, Sachs & Co. expressly
for use therein;
(iv) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or
<PAGE>
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
there has not been any change in the capital stock, including the issuance
of stock options, warrants or other rights to purchase capital stock
(except for the exercise of outstanding warrants and except for the
exercise of employee stock options or grants pursuant to employee stock
option or stock purchase plans) or long-term debt of the Company or any of
its subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity
(deficit) or results of operations of the Company and its subsidiaries
taken as one enterprise, otherwise than as set forth or contemplated in the
Prospectus;
(v) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them and reflected in the Company's financial
statements as described in the Registration Statement, in each case free
and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as are not material and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(vi) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business so as to require such
qualification, except where failure to be so qualified would not have a
material adverse effect on the Company and its subsidiaries taken as one
enterprise, and each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation; and each "significant subsidiary" of the
Company, as defined in Rule 1-01 of Regulation S-X of the Act, is listed on
Schedule III hereof;
(vii) Immediately after giving effect to offering of the Shares
contemplated hereby, the Company will have an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of capital stock
of the Company will have been duly authorized and validly issued, and will
be fully paid and non-assessable and will conform to the description of the
Stock contained in the Prospectus; and all of the
<PAGE>
issued shares of, and options, warrants and rights to acquire, capital
stock of each subsidiary of the Company will have been duly authorized and
validly issued, will be fully paid and non-assessable and will be owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims except for director's qualifying shares
and shares of Preferred Stock (the "Holdings Preferred Stock") of IHF
Holdings, Inc. ("Holdings") which would have an aggregate liquidation
preference of approximately $44.386 million as of September 24, 1996 and
options to purchase shares of Holdings Preferred Stock which would have an
aggregate liquidation preference of approximately $5.139 million as of
September 24, 1996 (the "Preferred Options");
(viii) As of the date hereof, the only authorized shares of capital
stock of the Company consist of Class A Common Stock, par value $0.001,
(the "Class A Common Stock") and Class L Common Stock, par value $0.001
("Class L Common Stock"). Immediately prior to the First Time of Delivery
(as defined below in Section 5) hereunder, each share of Class A Common
Stock will be exchanged for [___] shares of Stock and each share of Class L
Common Stock will be exchanged for [___] shares of Stock (such exchanges
being referred to herein as the "Conversion"), and there will be no other
class of common stock of the Company authorized. The unissued Shares to be
issued and sold by the Company to the Underwriters hereunder and under the
International Underwriting Agreement have been duly and validly authorized
(except for the filing of a Certificate of Amendment which the Company
covenants it will file on or prior to the First Time of Delivery (as
defined in Section 5 below)) and, when issued and delivered against payment
therefor as provided herein, will be duly and validly issued and fully paid
and non-assessable and will conform, in all material respects, to the
description of the Stock contained in the Prospectus;
(ix) The issue and sale of the Shares to be sold by the Company
hereunder and under the International Underwriting Agreement and the
compliance by the Company with all of the provisions of this Agreement and
the International Underwriting Agreement and the consummation of the
transactions contemplated in such agreements and the Registration Statement
including, without limitation, the Conversion, the merger of Holdings into
the Company (the "Merger"), the changing of the Company's name to "ICON
Fitness Corporation", the delivery of redemption notices with respect to,
and the redemption of, all of the 15% Senior Secured Discount Notes due
2004 (the "Discount Notes") of Holdings and $35 million aggregate principal
amount of 13% Senior Subordinated Notes due 2002 (the "Senior
Subordinated Notes") of the Company, the repurchase of the Holdings
Preferred Stock and the Preferred Options, the repurchase of the Common
Stock and warrants to purchase Common Stock held by Weider Health and
Fitness ("WHF") and certain other stockholders of the Company at a price of
$39.1 million (the "Repurchase of Common Stock"), the execution of an
amendment dated [__________], 1996, to the Credit Agreement dated November
14, 1994, among the Company, the lenders named therein and General
<PAGE>
Electric Capital Corporation as agent thereunder (as amended, the "Credit
Agreement"), that, among other things, increases the Company's revolving
credit limit to $310 million (the "Credit Agreement Amendment"), additional
borrowings of $[___] million under the Credit Agreement, the settlement of
the litigation between the Company and WHF and its affiliates as described
in the Prospectus, the purchase by the Company of certain assets relating
to the sports equipment business lines of Weider Sports Equipment Co., Ltd.
("Weider Sports") as described in the Prospectus, and the purchase by the
Company of assets of three Canadian manufacturing business affiliated with
WHF (the "CanCo Assets") as described in the Prospectus (collectively, the
"Transactions") will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries is subject
except for such conflicts, breaches, violations or defaults that would not
have a material adverse effect on the condition, earnings, business affairs
or business prospects of the Company and its subsidiaries taken as one
enterprise, nor will such action result in any violation of the provisions
of the Certificate of Incorporation or By-laws of the Company or Holdings
or ICON Health & Fitness, Inc. ("Health & Fitness") or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any of
their properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, the International Underwriting Agreement or the Registration
Statement including, without limitation, the Transactions, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state or foreign securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters and the
International Underwriters;
(x) Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation or By-laws or in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement lease or other agreement or instrument to which it is a party or
by which it or any of its properties may be bound except for such
violations or defaults that would not individually or in the aggregate have
a material adverse effect on the current or future consolidated financial
position, stockholders' equity (deficit) or results of operation of the
Company and its subsidiaries taken as one enterprise;
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the
<PAGE>
Stock and under the caption "Certain United States Federal Tax
Considerations for Non-United States Holders", insofar as they purport to
describe the provisions of the laws and documents referred to therein, are
accurate, complete and fair;
(xii) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, could reasonably be expected to be
determined adversely to the Company or any of its subsidiaries, and
individually or in the aggregate would, if so determined, have a material
adverse effect on the current or future consolidated financial position,
stockholders' equity (deficit) or results of operations of the Company and
its subsidiaries taken as one enterprise; and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(xiii) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(xiv) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(xv) Price Waterhouse LLP and Deloitte & Touche LLP, who have
certified certain financial statements of the Company and its subsidiaries,
and Arthur Andersen LLP, who has certified certain financial statements of
HealthRider and its subsidiaries, are each independent public accountants
as required by the Act and the rules and regulations of the Commission
thereunder;
(xvi) The Company and its subsidiaries own or possess adequate
licenses or other rights to use all patents, trademarks, service marks,
trade names, copyrights, technology and know-how necessary to conduct the
business now or proposed to be conducted by them as described in the
Prospectus, and the Company and its subsidiaries have not received any
notice of infringement of or conflict with (and know of no such
infringement of or conflict with) asserted rights of others with respect to
any patents, trademarks, service marks, trade names, copyrights, technology
of know-how which could reasonably be expected to result in any material
adverse effect upon the Company and its subsidiaries taken as one
enterprise; and the Company's and its subsidiaries' discoveries,
inventions, products or processes referred to in the Prospectus do not, to
the knowledge of the Company or its subsidiaries, infringe or conflict with
any right or patent, or any discovery, invention, product or process which
is the subject of a patent application known to the Company or its
subsidiaries, which infringement
<PAGE>
or conflict could result in any material adverse effect upon the Company
and its subsidiaries taken as one enterprise; and
(xvii) The Company and its subsidiaries have obtained all permits,
consents and authorizations required to be obtained by them under laws or
regulations relating to the protection of the environment or concerning the
handling, storage, disposal or discharge of toxic materials (collectively,
"Environmental Laws") except where the failure to do so would not
individually or in the aggregate reasonably be expected to have a material
adverse effect on the current or future consolidated financial position,
stockholders' equity (deficit) or results of operations of the Company and
its subsidiaries taken as one enterprise, and any such permits, consents
and authorizations remain in full force and effect. The Company and its
subsidiaries are in compliance with the Environmental Laws in all respects
except where the failure to be in such compliance would not individually or
in the aggregate reasonably be expected to have a material adverse effect
on the current or future consolidated financial position, stockholders'
equity (deficit) or results of operations of the Company and its
subsidiaries taken as one enterprise, and there is no pending or, to the
Company's or its subsidiaries' knowledge, threatened, action or proceeding
against the Company or its subsidiaries alleging violations of the
Environmental Laws.
(b) Each of the Selling Stockholders severally, and not jointly,
represents and warrants to, and agrees with, each of the Underwriters and the
Company that:
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement,
the International Underwriting Agreement, the Power of Attorney and the
Custody Agreement hereinafter referred to, and for the sale and delivery of
the Shares to be sold by such Selling Stockholder hereunder and under the
International Underwriting Agreement, have been obtained; and such Selling
Stockholder has full right, power and authority to enter into this
Agreement, the International Underwriting Agreement, the Power of Attorney
and the Custody Agreement and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder hereunder and
under the International Underwriting Agreement;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and under the International Underwriting Agreement and the
compliance by such Selling Stockholder with all of the provisions of this
Agreement, the International Underwriting Agreement, the Power of Attorney
and the Custody Agreement and the consummation of the transactions herein
and therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any statute, indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which such Selling Stockholder is a party
or by which such Selling Stockholder is bound, or to which any of the
property or assets of such Selling
<PAGE>
Stockholder is subject; nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of such Selling
Stockholder if such Selling Stockholder is a corporation, the Partnership
Agreement of such Selling Stockholder if such Selling Stockholder is a
partnership or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over such Selling
Stockholder or the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to each
Time of Delivery (as defined below in Section 5) such Selling Stockholder
will have full legal right, power and authority to sell, assign, transfer
and deliver the Shares to be sold by it in the manner provided hereunder
and under the International Underwriting Agreement, and upon registration
of the Shares in the names of the Underwriters in the stock records of the
Company, assuming the Underwriters purchased the Shares in good faith and
without notice of any adverse claim, the Underwriters will have acquired
all rights of such Selling Stockholder in the Shares free of any adverse
claim, any lien in favor of the Company, and any restrictions on transfer
imposed by the Company; and the owner of the Shares, if other than the
Selling Stockholder, will be precluded from asserting against the
Underwriters the ineffectiveness of any unauthorized endorsement;
(iv) Such Selling Stockholder agrees that, during the period
beginning from the date hereof and continuing to and including the date 180
days after the date of the Prospectus, not to offer, sell, contract to sell
or otherwise dispose of, except as provided hereunder or under the
International Underwriting Agreement, any securities of the Company that
are substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent
the right to receive, Stock or any such substantially similar securities
(other than pursuant to employee stock option plans existing on, or upon
the conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Agreement), or establish a "put
equivalent position" with respect to the Stock within the meaning of Rule
16a-1(h) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), without your prior written consent;
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions relating to
such Selling Stockholder made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto are made in reliance upon and in conformity with written
information furnished to the Company by such Selling Stockholder expressly
for use therein, such Preliminary Prospectus and the Registration
<PAGE>
Statement did, and the Prospectus and any further amendments or supplements
to the Registration Statement and the Prospectus, when they become
effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder and 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;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you upon your
request prior to or at the First Time of Delivery (as defined below in
Section 5) a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof);
(viii) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Stockholder hereunder and under the
International Underwriting Agreement have been placed in custody under a
Custody Agreement, in the form heretofore furnished to you (the "Custody
Agreement"), duly executed and delivered by such Selling Stockholder to
First Chicago Trust Company of New York, as custodian (the "Custodian"),
and such Selling Stockholder has duly executed and delivered a Power of
Attorney, in the form heretofore furnished to you (the "Power of
Attorney"), appointing the persons indicated in Schedule II hereto, and
each of them, as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this Agreement
and the International Underwriting Agreement on behalf of such Selling
Stockholder, to determine the purchase price to be paid by the Underwriters
and the International Underwriters to the Selling
Stockholders as provided in Section 2 hereof, to authorize the delivery of
the Shares to be sold by such Selling Stockholder hereunder and otherwise
to act on behalf of such Selling Stockholder in connection with the
transactions contemplated by this Agreement, the International Underwriting
Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in custody for
such Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder and the International Underwriters
under the International Underwriting Agreement; the arrangements made by
such Selling Stockholder for such custody, and the appointment by such
Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney, are
to that extent irrevocable; the obligations of the Selling Stockholders
hereunder shall not be terminated by operation of law, whether by the death
or incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such
<PAGE>
partnership or corporation, or by the occurrence of any other event; if any
individual Selling Stockholder or any such executor or trustee should die
or become incapacitated, or if any such estate or trust should be
terminated, or if any such partnership or corporation should be dissolved,
or if any other such event should occur, before the delivery of the Shares
hereunder, certificates representing the Shares shall be delivered by or on
behalf of such Selling Stockholder in accordance with the terms and
conditions of this Agreement, of the International Underwriting Agreement
and of the Custody Agreements; and actions taken by the Attorneys-in-Fact
pursuant to the Powers of Attorney shall be as valid as if such death,
incapacity, termination, dissolution or other event had not occurred,
regardless of whether or not the Custodian, the Attorneys-in-Fact, or any
of them, shall have received notice of such death, incapacity, termination,
dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company at a purchase
price per share of $..........., the number of Firm Shares (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying the
aggregate number of Firm Shares to be sold by the Company by a fraction, the
numerator of which is the aggregate number of Firm Shares to be purchased by
such Underwriter as set forth opposite the name of such Underwriter in Schedule
I hereto and the denominator of which is the aggregate number of Firm Shares to
be purchased by all of the Underwriters from the Company hereunder and (b) in
the event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, each of the Selling Stockholders
agrees, severally and not jointly, to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from such
Selling Stockholder, at the purchase price per share set forth in clause (a) of
this Section 2, that portion of the number of Optional Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of Optional Shares by a
fraction the numerator of which is the maximum number of Optional Shares to be
sold by such Selling Stockholder which such Underwriter is entitled to purchase
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the maximum number of Optional Shares that all of the
Underwriters are entitled to purchase hereunder.
The Selling Stockholders, as and to the extent indicated in Schedule
II hereto, severally and not jointly hereby grant to the Underwriters the right
to purchase at their election up to 1,440,000 Optional Shares, at the purchase
price per share set forth in the paragraph above, for the sole purpose of
covering overallotments in the sale of the Firm Shares. Any such election to
purchase Optional Shares shall be made in proportion to the maximum number of
Optional Shares to be sold by each Selling Stockholder as set forth in Schedule
II hereto. Any such election to purchase Optional Shares may be exercised only
by written notice from you to the Company and the Attorneys-in-Fact, given
within a period of 30 calendar days after the date of this Agreement and setting
forth the aggregate number of Optional Shares to be
<PAGE>
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined below in Section 5) or, unless you and the Attorneys-in-Fact otherwise
agree in writing, earlier than two or later than ten business days after the
date of such notice.
3. The Company hereby confirms its engagement of Goldman, Sachs &
Co. as, and Goldman, Sachs & Co. hereby confirms its agreement with the Company
to render services as, a "qualified independent underwriter" within the meaning
of Section 2(o) of Rule 2720 of the National Association of Securities Dealers,
Inc. (the "NASD") with respect to the offering and sale of the Shares. Goldman,
Sachs & Co., in its capacity as qualified independent underwriter and not
otherwise, is referred to herein as the "QIU". As compensation for the services
of the QIU hereunder, the Company agrees to pay the QIU $10,000 which the QIU
agrees to waive.
4. Upon the authorization by you of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
5. (a) The Shares to be purchased by each Underwriter hereunder,
in definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders, shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co., or,
at the option of Goldman, Sachs & Co., through the facilities of The Depository
Trust Company ("DTC") for the account of such Underwriter, against payment by or
on behalf of such Underwriter of the purchase price therefor by wire transfer in
same day funds, payable to the order of the Company and the Custodian, as their
interests may appear. The Company will cause the certificates representing the
Shares to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below) with respect thereto at
the office of DTC or its designated custodian or, at the option of Goldman,
Sachs & Co., at its offices located at 85 Broad Street, New York, New York 10004
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on
............., 1996 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional Shares,
9:30 a.m., New York City time, on the date specified by Goldman, Sachs & Co. in
the written notice given by Goldman, Sachs & Co. of the Underwriters' election
to purchase such Optional Shares in accordance with Section 2 hereof, or such
other time and date as Goldman, Sachs & Co. and the Attorneys-in-Fact may agree
upon in writing. Such time and date for delivery of the Firm Shares is herein
called the "First Time of Delivery", such time and date for delivery of the
Optional Shares, if not the First Time of Delivery, is herein called the "Second
Time of Delivery", and each such time and date for delivery is herein called a
"Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by
or on behalf
<PAGE>
of the parties hereto pursuant to Section 8 hereof, including the cross-receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 8(j) hereof, will be delivered at the offices of Shearman &
Sterling, 599 Lexington Avenue, New York, New York 10022 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
each Time of Delivery. A meeting will be held at the Closing Location at 2:00
p.m., New York City time, on the New York Business Day next preceding each Time
of Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 5, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
6. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further filings under Rule 462(b) or any further amendment or any
supplement to the Registration Statement or Prospectus after the date
hereof, which filing, amendment or supplement shall be reasonably
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment
to the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and
to furnish you copies thereof; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of
any order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or Prospectus or suspending any such qualification,
promptly to use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
<PAGE>
(c) Prior to 12:00 P.M., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any events shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or,
if for any other reason it shall be necessary during such period to amend
or supplement the Prospectus in order to comply with the Act, to notify you
and upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may from
time to time reasonably request of an amended Prospectus or a supplement to
the Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a prospectus
in connection with sales of any of the Shares at any time nine months or
more after the time of issue of the Prospectus, upon your request but at
the expense of such Underwriter, to prepare and deliver to such Underwriter
as many copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) To make generally available to its security holders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations of the Commission thereunder (including, at the
option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder and under the International Underwriting Agreement, any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock
option plans existing on, or upon the exercise, conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement), or establish a "put equivalent position" with respect to the
Stock within the meaning of Rule 16a-1(h) of the Exchange Act, without your
prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of operations,
<PAGE>
stockholders' equity (deficit) and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three quarters of
each fiscal year (beginning with the fiscal quarter ending after the
effective date of the Registration Statement), consolidated summary
financial information of the Company and its subsidiaries for such quarter
in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
documents (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is
listed; and (ii) such additional information concerning the business and
financial condition of the Company as you may from time to time reasonably
request (such financial statements to be on a consolidated basis to the
extent the accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally or to the Commission),
provided, however, any such information delivered to you pursuant to this
subsection (ii) shall be treated by you on a confidential basis, other than
as required to be disclosed by any law, rule, regulation or judicial
process or required to be disclosed by any state, federal or foreign
regulatory authority;
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement and the International Underwriting Agreement in
the manner specified in the Prospectus under the caption "Use of Proceeds";
(i) To use its best efforts to list, subject to notice of issuance,
the Shares on the New York Stock Exchange (the "Exchange");
(j) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the
date of this Agreement, and the Company shall at the time of filing either
pay to the Commission the filing fee for the Rule 462(b) Registration
Statement or give irrevocable instructions for the payment of such fee
pursuant to Rule 111(b) under the Act.
7. The Company and each of the Selling Stockholders, severally and
not jointly, covenant and agree with one another and with the several
Underwriters that (a) the Company will pay or cause to be paid the following:
(i) the fees, disbursements and expenses of the Company's counsel and
accountants in connection with the registration of the Shares under the Act and
all other expenses in connection with the preparation, printing and filing of
<PAGE>
the Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreements, the Blue
Sky Memorandum, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
6(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey and any supplement thereto; (iv) all fees and expenses in
connection with listing the Shares on the New York Stock Exchange and (v) the
filing fees incident to, and the fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
(vi) the cost of preparing stock certificates; (vii) the cost and charges of any
transfer agent or registrar; (viii) the fees and expenses of the Attorneys-in-
Fact and the Custodian; (ix) all expenses and taxes incident to the sale and
delivery of the Shares to be sold by each of the Selling Stockholders to
Underwriters hereunder; and (x) all other costs and expenses incident to the
performance of the Company's and each Selling Stockholder's obligations
hereunder which are not otherwise specifically provided for in this Section; and
(b) each Selling Stockholder will pay or cause to be paid all costs and expenses
incident to the performance of such Selling Stockholder's obligations hereunder
which are not otherwise specifically provided for in this Section, including any
fees and expenses of counsel for such Selling Stockholder if such counsel is
other than Ropes & Gray. It is understood, however, that except as provided in
this Section, and Sections 9 and 13 hereof, the Underwriters will pay all of
their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
8. The obligations of the Underwriters hereunder, as to the Shares
to be delivered at each Time of Delivery, shall be subject, in their discretion,
to the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
6(a) hereof; if the Company has elected to rely upon Rule 462(b), the
Rule 462(b) Registration Statement shall have become effective by 10:00
P.M., Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
<PAGE>
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Shearman & Sterling, counsel for the Underwriters, shall have
furnished to you such opinion or opinions (a draft of each such opinion is
attached as Annex II(a) hereto), dated such Time of Delivery, with respect
to such matters as you may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(c) Ropes & Gray, counsel for the Company, shall have furnished to you
their written opinion with respect to the Company and Bain Capital Fund IV,
L.P., Bain Capital Fund IV-B, L.P., BCIP Associates and BCIP Trust
Associates, L.P., dated such Time of Delivery, in form and substance
attached hereto as Annex II(b).
(d) Brad Bearnson, Esq., General Counsel for the Company, shall have
furnished to you his written opinion (a draft of such opinion is attached
as Annex II(c) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) To the best of such General Counsel's knowledge, the Company
and its subsidiaries own or possess adequate license or other rights
to use all trademarks, service marks and trade names necessary to
conduct the business now or proposed to be conducted by them as
described in the Prospectus and the Company and its subsidiaries have
not received any notice of infringement of or conflict with (and know
of no such infringement of or conflict with) asserted rights of others
with respect to any trademarks, service marks or trade names which
could reasonably be expected to result in any material adverse effect
upon the Company and its subsidiaries taken as one enterprise;
(ii) To the best of such General Counsel's knowledge, the Company
and its subsidiaries have obtained all permits, consents and
authorizations required to be obtained by them under the Environmental
Laws except where the failure to do so would not individually or in
the aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity (deficit) or
results of operations of the Company and its subsidiaries taken as one
enterprise, and any such permits, consents and authorizations remain
in full force and effect. To the best of such General Counsel's
knowledge, the Company and its subsidiaries are in compliance with the
Environmental Laws in all respects except where the failure to be in
compliance would not individually or in the aggregate have a material
adverse effect on the current or future consolidated financial
position, stockholders' equity (deficit) or results of operations of
the Company and its subsidiaries taken as one enterprise, and there is
no pending or, to the Company's or its
<PAGE>
subsidiaries' knowledge, threatened, action or proceeding against the
Company or its subsidiaries alleging violations of the Environmental
Laws; and
(iii) To the best of such General Counsel's knowledge, neither
the Company nor Health & Fitness is in default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which it is a party or by
which it or any of its properties may be bound except for such
violations or defaults that would not individually or in the aggregate
have a material adverse effect on the current or future consolidated
financial position, stockholders' equity (deficit) or results of
operation of the Company and its subsidiaries taken as one enterprise.
(e) Hutchins, Wheeler & Dittmar, counsel for Scott R. Watterson and
Gary E. Stevenson (the "Management Selling Stockholders"), shall have
furnished to you their written opinion (a draft of such opinion is attached
as Annex II(d) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by or on
behalf of each Management Selling Stockholder;
(ii) A Power of Attorney and a Custody Agreement have been
duly authorized, executed and delivered by or on behalf of each
Management Selling Stockholder and constitute valid and binding
agreements of such Management Selling Stockholder in accordance with
their terms and, pursuant to such Power of Attorney and such Custody
Agreement, each Management Selling Stockholder has authorized its
attorney-in-fact to carry out transactions contemplated in this
Agreement and the International Underwriting Agreement on its behalf,
and to deliver the Shares being sold by such Management Selling
Stockholder pursuant to this Agreement and the International
Underwriting Agreement; and
(iii) Immediately prior to the Date of Delivery, each
Management Selling Stockholder was the sole registered owner of the
Shares to be sold by such Management Selling Stockholder; each
Management Selling Stockholder has full legal right, power and
authority, and any approval required by law (other than any approval
required by the applicable state securities and blue sky laws) to
sell, assign, transfer and deliver the Shares to be sold by such
Management Selling Stockholder in the manner provided in this
Agreement and the International Underwriting Agreement and such
Management Selling Stockholder's Power of Attorney and Custody
Agreement; upon registration of such Shares in the names of the
Underwriters in the stock records of the
<PAGE>
Company, assuming the Underwriters purchased such Shares in good faith
and without notice of any adverse claim, the Underwriters will have
acquired all rights in such Shares free of any adverse claim, any lien
in favor of the Company, and any restrictions on transfer imposed by
the Company; and the owner of such Shares, if other than such
Management Selling Stockholder, is precluded from asserting against
the Underwriters the ineffectiveness of any unauthorized endorsement.
(f) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery, Price
Waterhouse LLP, Deloitte & Touche LLP and Arthur Andersen LLP shall have
furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you and them (Price
Waterhouse LLP, Deloitte & Touche LLP and Arthur Andersen LLP), to the
effect set forth in Annex I hereto (the executed copy of the letters
delivered prior to the execution of this Agreement are attached as Annex
I(a), (b) and (c) hereto and a draft of the form of letters to be delivered
on the effective date of any post-effective amendment to the Registration
Statement and as of such Time of Delivery are attached as Annex I(d), (e)
and (f) hereto);
(g) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Prospectus, and (ii) since the respective dates as of which information is
given in the Prospectus there shall not have been any change in the capital
stock, including the issuance of stock options, warrants or other rights to
purchase capital stock (except for the exercise of outstanding warrants and
except for the exercise of employee stock options or grants pursuant to
employee stock option or stock purchase plans), or long-term debt of the
Company or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity (deficit) or results
of operations of the Company and its subsidiaries taken as one enterprise,
otherwise than as set forth or contemplated in the Prospectus, the effect
of which, in any such case described in Clause (i) or (ii), is in the
judgment of Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities
Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
representatives of the Underwriters (the "Representatives"), so material
and adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares being delivered at such Time
of Delivery on the terms and in the manner contemplated in the Prospectus;
<PAGE>
(h) On or after the date hereof (i) no downgrading shall have occurred
in the rating accorded the Company's or Holdings' debt securities by any
"nationally recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) under the Act, and
(ii) no such organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of
any of the Company's or Holdings' debt securities;
(i) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the Exchange; (ii) a suspension or material
limitation in trading in the Company's securities on the Exchange; (iii) a
general moratorium on commercial banking activities declared by either
Federal or New York State authorities; or (iv) the outbreak or escalation
of hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event
specified in this Clause (iv) in the judgment of the Representatives makes
it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(j) The Shares to be sold by the Company and the Selling Stockholders
at such Time of Delivery shall have been duly listed, subject to notice of
issuance, on the Exchange;
(k) The Company shall have obtained and delivered to the Underwriters
executed copies of an agreement from each of the Selling Stockholders and
the directors and executive officers of the Company to the effect set forth
in Subsection 1(b)(iv) relating to lock-ups hereof in form and substance
satisfactory to you;
(l) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the Selling Stockholders, respectively,
satisfactory to you as to the accuracy of the representations and
warranties of the Company and the Selling Stockholders, respectively,
herein at and as of such Time of Delivery, as to the performance by the
Company and the Selling Stockholders of all of their respective obligations
hereunder to be performed at or prior to such Time of Delivery, and as to
such other matters as you may reasonably request, and the Company shall
have furnished or caused to be furnished certificates as to the matters set
forth in subsections (a) and (f) of this Section, and as to such other
matters as you may reasonably request;
(m) The Company shall have complied with the provisions of Section
6(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement;
(n) The Company and its subsidiaries shall not have received any
notice of
<PAGE>
infringement of or conflict with asserted rights of others with respect to
any patents, trademarks, service marks, trade names, copyrights, technology
or know-how which could reasonably be expected to result in any material
adverse effect upon the Company and its subsidiaries taken as on one
enterprise; and
(o) At or prior to the First Time of Delivery, [(i) the Merger shall
have taken place,] (ii) the Company shall have changed its name to ICON
Fitness Corporation, (iii) the Conversion shall have taken place, (iv) the
Company shall have delivered redemption notices with respect to all the
outstanding Discount Notes and $35 million of Senior Subordinated Notes to
the trustee thereof, (v) the Company shall have redeemed all of the
Holdings Preferred Stock and Preferred Options, (vi) the Repurchase of
Common Stock shall have occurred, (vii) the Credit Agreement Amendment
shall have been executed, (viii) additional borrowings of $____ million
shall have been borrowed under the Credit Agreement.
9. (a) The Company will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Goldman, Sachs & Co. expressly for use
therein; and provided, further, that the Company shall not be liable to any
Underwriter under the indemnity agreement in this subsection (a) with respect to
any Preliminary Prospectus to the extent that any such loss, claim, damage or
liability of such Underwriter results from the fact that such Underwriter sold
Shares to a person as to whom it shall be established that there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the
Prospectus or of the Prospectus as then amended or supplemented in any case
where such delivery is required by the Act if the Company has previously
furnished copies thereof in sufficient quantity to such Underwriter and the
loss, claim, damage or liability of such Underwriter results from an
<PAGE>
untrue statement or omission of a material fact contained in the Preliminary
Prospectus which was identified in writing at such time to such Underwriter and
corrected in the Prospectus or in the Prospectus as then amended or
supplemented.
(b) Each of the Selling Stockholders, severally and not jointly, will
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein; and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that such Selling
Stockholder shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs &
Co. expressly for use therein; provided, further, that such Selling Stockholder
shall not be liable to any Underwriter under the indemnity agreement in this
subsection (b) with respect to any Preliminary Prospectus to the extent that any
such loss, claim, damage or liability of such Underwriter results from the fact
that such Underwriter sold Shares to a person as to whom it shall be established
that there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Prospectus or of the Prospectus as then amended or
supplemented in any case where such delivery is required by the Act if the
Company has previously furnished copies thereof in sufficient quantity to such
Underwriter and the loss, claim, damage or liability of such Underwriter results
from an untrue statement or omission of a material fact contained in the
Preliminary Prospectus which was identified in writing at such time to such
Underwriter and corrected in the Prospectus or in the Prospectus as then amended
or supplemented; and provided further that the liability of a Selling
Stockholder pursuant to this subsection (b) shall not exceed the product of the
number of Optional Shares sold by such Selling Stockholder and the initial
public offering price of the Shares as set forth in the Prospectus.
(c) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or such Selling Stockholder may become subject, under the Act
or otherwise, insofar
<PAGE>
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Goldman, Sachs & Co. expressly for use therein; and will reimburse the
Company and each Selling Stockholder for any legal or other expenses reasonably
incurred by the Company or such Selling Stockholder in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (which shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of reasonable investigation. No indemnifying party shall,
without the written consent of the indemnified party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an
actual or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 9 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
<PAGE>
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company, and the Selling Stockholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares purchased
under this Agreement (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters with respect to the Shares purchased under this
Agreement, in each case as set forth in the table on the cover page of the
Prospectus. 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 the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, each of the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this subsection (e)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. Notwithstanding the provisions of this subsection
(e), any contribution for which any Selling Stockholder is liable pursuant to
this subsection (e) shall not exceed the product of the number of Optional
Shares sold by such Selling Stockholder and the initial public offering price of
the Shares as set forth in the Prospectus. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Underwriters and the Selling
Stockholders in this subsection (e) to contribute are several (as between the
Underwriters, in proportion to their respective underwriting obligations, and as
between the Selling
<PAGE>
Stockholders, in proportion to their respective net proceeds received from the
offering of the Shares) and not joint.
(f) The obligations of the Company and the Selling Stockholders under
this Section 9 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 9 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company or any Selling Stockholder within the meaning of
the Act.
10. (a) The Company will indemnify and hold harmless Goldman, Sachs &
Co., in its capacity as QIU, against any losses, claims, damages or liabilities,
joint or several, to which the QIU may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the QIU for any legal
or other expenses reasonably incurred by the QIU in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein; and provided, further,
that the Company shall not be liable to Goldman, Sachs & Co., in its capacity as
QIU, under the indemnity agreement in this subsection (a) with respect to any
Preliminary Prospectus to the extent that any such loss, claim, damage or
liability of the QIU results from the fact that the QIU sold Shares to a person
as to whom it shall be established that there was not sent or given, at or prior
to the written confirmation of such sale, a copy of the Prospectus or of the
Prospectus as then amended or supplemented in any case where such delivery is
required by the Act if the Company has previously furnished copies thereof in
sufficient quantity to the QIU and the loss, claim, damage or liability of the
QIU results from an untrue statement or omission of a material fact contained in
the Preliminary Prospectus which was identified in writing at such time to the
QIU and corrected in the Prospectus or in the Prospectus as then amended or
supplemented.
(b) Promptly after receipt by the QIU under subsection (a) above of
notice of the commencement of any action, the QIU shall, if a claim in respect
thereof is to be made against the Company under such subsection, notify the
Company in writing of the
<PAGE>
commencement thereof; but the omission so to notify the Company shall not
relieve it from any liability which it may have to the QIU otherwise than under
such subsection. In case any such action shall be brought against the QIU and it
shall notify the Company of the commencement thereof, the Company shall be
entitled to: participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to the QIU (who shall not, except with the
consent of the QIU be counsel to the Company), and, after notice from the
indemnifying party to the QIU of its election so to assume the defense thereof,
the indemnifying party shall not be liable to the QIU under such subsection for
any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by the QIU, in connection with the defense thereof other
than reasonable costs of investigation. The Company shall not, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the QIU is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the QIU from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of the QIU.
(c) If the indemnification provided for in this Section 10 is
unavailable to or insufficient to hold harmless Goldman, Sachs & Co., in its
capacity as QIU, under subsection (a) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
the Company shall contribute to the amount paid or payable by the QIU as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the QIU on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the QIU failed to
give the notice required under subsection (b) above, then the Company shall
contribute to such amount paid or payable by the QIU in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the QIU on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the QIU on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company, as set forth in the table on the cover page of the Prospectus,
bear to the fee payable to the QIU which the QIU has agreed to waive pursuant to
Section 3 hereof. 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 the Company on the one hand or the QIU on the other and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the QIU agree
that it would not be just and equitable if contributions pursuant to this
subsection (c) were determined by
<PAGE>
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this
subsection (c). The amount paid or payable by the QIU as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (c) shall be deemed to 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 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) The obligations of the Company under this Section 10 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the QIU
within the meaning of the Act.
11. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company and the Selling Stockholders shall
be entitled to a further period of thirty-six hours within which to procure
another party or other parties satisfactory to you to purchase such Shares on
such terms. In the event that, within the respective prescribed periods, you
notify the Company and the Selling Stockholders that you have so arranged for
the purchase of such Shares, or the Company and the Selling Stockholders notify
you that they have so arranged for the purchase of such Shares, you or the
Company and the Selling Stockholders shall have the right to postpone such Time
of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all of the Shares to be purchased at such Time of
Delivery, then the Company and the Selling Stockholders shall have the right to
require each non-defaulting Underwriter to purchase the number of Shares which
such Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements
<PAGE>
have not been made; but nothing herein shall relieve a defaulting Underwriter
from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Selling Stockholders to sell the Optional
Shares) shall thereupon terminate, without liability on the part of any non-
defaulting Underwriter or the Company or the Selling Stockholders, except for
the expenses to be borne by the Company and the Selling Stockholders and the
Underwriters as provided in Section 7 hereof and the indemnity and contribution
agreements in Section 9 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
12. The respective indemnities, agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company, or any of the Selling Stockholders, or any
officer or director or controlling person of the Company, or any controlling
person of any Selling Stockholder, and shall survive delivery of and payment for
the Shares.
13. If this Agreement shall be terminated pursuant to Section 11
hereof, neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 7 and 9 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company as provided herein, the Company will reimburse the Underwriters through
you for all out-of-pocket expenses approved in writing by you, including fees
and disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so delivered,
but the Company shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 7 and 9
hereof.
14. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given
<PAGE>
by any or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary;
provided, however, that any notice to an Underwriter pursuant to Section 9(d)
hereof shall be delivered or sent by mail, telex or facsimile transmission to
such Underwriter at its address set forth in its Underwriters' Questionnaire or
telex constituting such Questionnaire, which address will be supplied to the
Company or the Selling Stockholders by you upon request. Any such statements,
requests, notices or agreements shall take effect upon receipt thereof.
15. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 9 and 12 hereof, the officers and directors of
the Company and each person who controls the Company, any Selling Stockholder or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
16. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
17. This Agreement shall be governed by the laws of the State of New
York.
18. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and for each of the Representatives plus
one for each counsel and the Custodian, if any, counterparts hereof, and upon
the acceptance hereof by you, on behalf of each of the Underwriters, this letter
and such acceptance hereof shall constitute a binding agreement among each of
the Underwriters, the Company and each of the Selling Stockholders. It is
understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters (U.S. Version), the form of which shall be submitted to the Company
and the Selling
<PAGE>
Stockholders for examination upon request, but without warranty on your part as
to the authority of the signers thereof.
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
IHF Capital, Inc.
(To be renamed
ICON Fitness Corporation)
By:
Name:
Title:
Scott R. Watterson
Gary E. Stevenson
S. Fred Beck
David S. Watterson
Jon M. White
Brad Bearnson
Charles W. Robins and Carolyn G. Robins
Patrick J. Fallon
Daniel K. Flatley
Douglas M. Hayes
Allen Matteson Davis
Robert E. Diemar, Jr.
Douglas I. Ostrover
Daniel and Gladys Elkaim
Benoit Jamar
Citibank N.A.
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Bond Fund
Oppenheimer High Income Fund
Oppenheimer Multiple Strategies Fund
Federated Bond Fund
Federated High Yield Portfolio
Federated High Yield Trust
Variable Investor Series Trust -
High Income Bond Fund
The Highlander Fund
Federated High Income Bond Fund, Inc.
Federated Strategic Income Fund
Bain Capital Fund IV, L.P.
Bain Capital Fund IV - B, L.P.
BCIP Associates
BCIP Trust Associates, L.P.
By:
Name:
Title:
As Attorney-in-Fact acting on behalf of each of
the Selling Stockholders named in Schedule II to
this Agreement
Accepted as of the date hereof at New York, New York
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette Securities Corporation
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By:..............................................
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters.
Goldman, Sachs & Co., as Qualified Independent
<PAGE>
Underwriter
By:..............................................
(Goldman, Sachs & Co.)
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Underwriter Total Number of Number of Optional
----------- Firm Shares Shares to be
to be Purchased Purchased if
--------------- Maximum Option
Exercised
------------------
<S> <C> <C>
Goldman, Sachs & Co........................
Donaldson, Lufkin & Jenrette Securities
Corporation
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
[Names of other Underwriters]..............
--------------- -----------------
Total...............................
=============== =================
</TABLE>
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Total Number of Number of Optional
Firm Shares Shares to be
to be Sold Sold if
--------------- Maximum Option
Exercised
------------------
<S> <C> <C>
The Company............................ 9,600,000
The Selling Stockholder(s):
Scott R. Watterson.............. 245,802
Gary E. Stevenson............... 192,573
S. Fred Beck.................... 22,848
David S. Watterson.............. 23,064
Jon M. White.................... 16,438
Brad Bearnson................... 5,091
Charles W. Robins and
Carolyn G. Robins......... 762
Patrick J. Fallon............... 1,270
Daniel K. Flatley............... 762
Douglas M. Hayes................ 635
Allen Matteson Davis............ 254
Robert E. Diemar, Jr. .......... 254
Douglas I. Ostrover............. 635
Daniel and Gladys Elkaim........ 635
Benoi Jamar..................... 635
Citibank N.A. .................. 4,368
Oppenheimer Strategic Income Fund 5,582
Oppenheimer Strategic Bond Fund. 101
Oppenheimer High Income Fund.... 611
Oppenheimer Multiple Strategies
Fund...................... 502
Federated Bond Fund............. 200
Federated High Yield Portfolio.. 125
Federated High Yield Trust...... 2,508
Variable Investor Series Trust--
High Income Bond Fund..... 50
The Highlander Fund............. 71
Federated High Income Bond
Fund, Inc. ............... 1,881
Federated Strategic Income Fund. 50
Bain Capital Fund IV, L.P. .....
Bain Capital Fund IV-B, L.P. ...
BCIP Associates.................
BCIP Trust Associates, L.P. ....
-------------- -------------
Total............................. 9,600,000 1,440,000
============== =============
</TABLE>
<PAGE>
SCHEDULE III
List of Subsidiaries
<PAGE>
ANNEX I
Pursuant to Section 8(f) of the Underwriting Agreement, the
independent accountants shall furnish letters to the Underwriters to the effect
that:
(i) Price Waterhouse LLP and Deloitte & Touche LLP, with respect to
the Company and its subsidiaries, and Arthur Andersen, with respect to
HealthRider and its subsidiaries, are independent certified public
accountants within the meaning of the Act and the applicable published
rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules audited by them and included in the
Prospectus or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations thereunder with respect to
registration statements on Form S-1;
(iii) [With respect to Price Waterhouse LLP, they have performed the
procedures specified by the American Institute of Certified Public
Accountants for a review of interim financial information as described in
SAS No. 71, Interim Financial Information on the unaudited condensed
consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows of the Company and its subsidiaries
included in the Prospectus; and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (v)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations,
nothing came to their attention that caused them to believe that the
unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations;]
(iv) With respect to Price Waterhouse LLP and Deloitte & Touche LLP,
they have compared the information in the Registration Statement under the
captions "Selected Consolidated Financial Data", "Executive Compensation"
and "Financial Data Schedule" [(i) with information obtained from
accounting records of the Company and its subsidiaries, which are subject
to the internal controls of the Company's or its subsidiaries' accounting
system, or computations made therefrom, and (ii)] with the disclosure
requirements of Regulation S-K and on the basis of limited procedures
specified in such letter nothing came to their attention as a result of the
foregoing procedures that caused them to believe that this information does
not conform in all material respects with the disclosure requirements of
Items 301, 402 and 601(c), respectively, of Regulation S-K;
[(v) With respect to Price Waterhouse LLP, on the basis of limited
<PAGE>
procedures, not constituting an examination in accordance with generally
accepted auditing standards, consisting of a reading of the unaudited
financial statements and other information referred to below, a reading of
the latest available interim financial statements of the Company and its
subsidiaries, inspection of the minute books of the Company and its
subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
of the Company and its subsidiaries included in the Prospectus do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations, or (ii) any material modifications should be made to the
unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows of the
Company and its subsidiaries included in the Prospectus for them to be
in conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items of the Company and its subsidiaries included in the Prospectus
do not agree with the corresponding items in the unaudited
consolidated financial statements from which such data and items were
derived, and any such unaudited data and items were not determined on
a basis substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements of the
Company and its subsidiaries included in the Prospectus;
(C) the unaudited financial statements of the Company and its
subsidiaries which were not included in the Prospectus but from which
were derived any unaudited condensed financial statements referred to
in Clause (A) and any unaudited income statement data and balance
sheet items of the Company and its subsidiaries included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements of the Company and its subsidiaries
included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements of the Company and its subsidiaries included in the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the published rules
and regulations thereunder or the pro forma adjustments have not been
properly applied to the historical
<PAGE>
amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
of the Company and its subsidiaries included in the Prospectus) or any
increase in the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the Representatives,
or any increases in any items specified by the Representatives, in
each case as compared with amounts shown in the latest balance sheet
of the Company and its subsidiaries included in the Prospectus, except
in each case for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in such
letter; and
(F) for the period from the date of the latest financial
statements of the Company and its subsidiaries included in the
Prospectus to the specified date referred to in Clause (E) there were
any decreases in consolidated net sales or income from operations or
the total or per share amounts of consolidated net income or other
items specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in each
case for decreases or increases which the Prospectus discloses have
occurred or may occur or which are described in such letter;] and
(vi) With respect to Price Waterhouse LLP and Deloitte & Touche LLP,
in addition to the examination referred to in their report(s) included in
the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraphs (iii) and (v)
above, they have carried out certain specified procedures, not constituting
an examination in accordance with generally accepted auditing standards,
with respect to certain amounts, percentages and financial information
requested by the Representatives and which they (Price Waterhouse LLP and
Deloitte & Touche LLP) are willing to perform and report thereon, which are
derived from the general accounting records of the Company and its
subsidiaries (which are subject to the internal controls of the Company's
or its subsidiaries' accounting system), which appear in the Prospectus, or
in Part II of, or in exhibits and schedules to, the Registration Statement
specified by the Representatives, and have compared certain of such
amounts, percentages and financial information with the accounting records
of the Company and its subsidiaries and have found them to be in agreement.
<PAGE>
(vii) With respect to Arthur Andersen LLP, they have performed the
procedures specified by the American Institute of Certified Public
Accountants for a review of interim financial information as described in
SAS No. 71, Interim Financial Information on the unaudited condensed
consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows of HealthRider and its subsidiaries
included in the Prospectus; and on the basis of specified procedures
including inquiries of officials of HealthRider who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (viii)(A)(i)
below comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations, nothing came to their attention that caused them to believe
that the unaudited condensed consolidated financial statements do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations;
(viii) With respect to Arthur Andersen LLP, on the basis of limited
procedures, not constituting an examination in accordance with generally
accepted auditing standards, consisting of a reading of the unaudited
financial statements and other information referred to below, a reading of
the latest available interim financial statements of HealthRider and its
subsidiaries, inspection of the minute books of HealthRider and its
subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of HealthRider and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
of HealthRider and its subsidiaries included in the Prospectus do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations, or (ii) any material modifications should be made to the
unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows of
HealthRider and its subsidiaries included in the Prospectus for them
to be in conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items of HealthRider and its subsidiaries included in the Prospectus
do not agree with the corresponding items in the unaudited
consolidated financial statements from which such data and items were
derived, and any such unaudited data and items were not determined on
a basis substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements of
HealthRider and its subsidiaries included in the Prospectus;
<PAGE>
(C) the unaudited financial statements of HealthRider and its
subsidiaries which were not included in the Prospectus but from which
were derived any unaudited condensed financial statements referred to
in Clause (A) and any unaudited income statement data and balance
sheet items of HealthRider and its subsidiaries included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements of HealthRider and its subsidiaries
included in the Prospectus;
[(D) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
of HealthRider and its subsidiaries included in the Prospectus) or any
increase in the consolidated long-term debt of HealthRider and its
subsidiaries, or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the Representatives,
or any increases in any items specified by the Representatives, in
each case as compared with amounts shown in the latest balance sheet
of HealthRider and its subsidiaries included in the Prospectus, except
in each case for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in such
letter; and
(E) for the period from the date of the latest financial
statements of HealthRider and its subsidiaries included in the
Prospectus to the specified date referred to in Clause (D) there were
any decreases in consolidated net sales or income from operations or
the total or per share amounts of consolidated net income or other
items specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in each
case for decreases or increases which the Prospectus discloses have
occurred or may occur or which are described in such letter;] and
(ix) With respect to Arthur Andersen LLP, in addition to the
examination referred to in their report(s) included in the Prospectus and
the limited procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (vii) and (viii) above, they have
carried out certain specified procedures, not constituting an examination
in accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information requested by the
Representatives and which it (Arthur Andersen LLP) is willing to perform
and report
<PAGE>
thereon, which are derived from the general accounting records of
HealthRider and its subsidiaries (which are subject to the internal
controls of HealthRider's or its subsidiaries' accounting system), which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of HealthRider and its subsidiaries and have
found them to be in agreement.
<PAGE>
ANNEX II(b)
, 1996
---------------------- --
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette Securities Corporation
Merrill Lynch, Pierce, Fenner & Smith Incorporated
As Representatives of the Several U.S. Underwriters
c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Goldman Sachs International
Donaldson, Lufkin & Jenrette Securities Corporation
Merrill Lynch International
As Representatives of the International Underwriters
c/o Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
England
Re: Shares of Common Stock,
$.001 par value, of ICON Fitness Corporation
--------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for ICON Fitness Corporation, a Delaware
corporation (the "Company"), and to certain of the Selling Stockholders, in
connection with the issuance and sale by the Company and the sale by the Selling
Stockholders of the Shares (as defined below). This opinion is furnished to:
(i) the Representatives of the several U.S. Underwriters pursuant to Section
8(c) of the underwriting agreement dated , 1996 (the "U.S. Underwriting
Agreement"), among the Company, the Selling Stockholders and you as
Representatives of the several underwriters listed on Schedule A thereto
relating to the issue and the sale by the Company of shares of Common Stock,
$.001 par value per share ("Common Stock"), and the sale by the Selling
Stockholders of ____________ shares of Common Stock and (ii) the Representatives
of the International Underwriters pursuant to Section ___ of the underwriting
agreement dated ____________________, 1996 (the "International Underwriting
Agreement," and, together with the U.S. Underwriting Agreement, the
"Underwriting Agreements"), among the Company, the Selling Stockholders and you
as Representatives of the several underwriters listed on Schedule A thereto
relating to the issue and sale by the Company of __________ shares of Common
Stock and the sale by the Selling Stockholders of _______________ shares of
Common Stock. The shares of Common Stock being issued and sold by
<PAGE>
the Company and sold by the Selling Stockholders pursuant to the Underwriting
Agreements are collectively referred to herein as the "Shares". Terms defined in
the Underwriting Agreements and not otherwise defined herein are used herein
with the meanings so defined.
We have attended the closing of the sale of the Shares held today. We have
examined signed copies of the registration statement of the Company on Form S-1
(No. 333-04279), together with Amendments No. 1, [list all Amendments] and all
exhibits thereto (the "Registration Statement"), all as filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"); a copy of the prospectus dated _____, 1996,
relating to the Shares filed with the Commission pursuant to Rule 424(b) under
the Act (the "Prospectus"); a Power of Attorney and a Custody Agreement executed
and delivered by [Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., BCIP
Associates and BCIP Trust Associates, L.P. (collectively, the "Bain Selling
Stockholders")]; executed copies of the Underwriting Agreements; and such other
documents as we have deemed necessary as a basis for the opinions expressed
herein. Additionally, we have relied upon oral advice from the staff of the
Commission to the effect that the Registration Statement became effective on
__________, 1996.
We express no opinion as to the laws of any jurisdiction other than the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America.
Insofar as this opinion relates to factual matters, information with
respect to which is in the possession of the Company or the Bain Selling
Stockholders, we have made inquiries to the extent we believe reasonable with
respect to such matters and have relied upon representations made by the Company
and the Bain Selling Stockholders in the Underwriting Agreements and in
certificates respecting ownership of and security interests in and other
encumbrances or adverse claims on the Shares being sold on the date hereof by
the Bain Selling Stockholders and representations made to us by one or more
officers of the Company. Although we have not independently verified the
accuracy of such representations, we do not know of the existence or absence of
any fact contradicting such representations. Any reference herein to "our
knowledge," "known to us" or any variation thereof shall mean the actual
knowledge of lawyers in this firm who have participated in our representation of
the Company in connection with the preparation of the Registration Statement.
With respect to our opinion set forth in paragraph 7 below, we have not searched
the dockets of any court, administrative body, agency or other filing office in
any jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with corporate
power and authority to own its properties and conduct its business as
described in the Prospectus.
<PAGE>
2. The Company has been duly qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which it
owns or leases property.
3. ICON Health & Fitness, Inc. ("ICON") has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation; and all of the issued shares of
ICON have been duly authorized and validly issued, are fully paid and
non-assessable, and are owned directly or indirectly by the Company,
free and clear of all liens, encumbrances, equities or claims.
4. The authorized, issued and outstanding capital stock of the Company is
as set forth in the Capitalization table contained in the Prospectus,
except for issuances or forfeitures subsequent to the date of the
information provided in such table, if any, pursuant to the Company's
1994 Stock Option Plan and its 1996 Stock Option Plan. The Shares and
the other shares of Common Stock issued and outstanding on this date
have been duly authorized and validly issued and are fully paid and
nonassessable.
5. The Common Stock conform as to matters of law in all material respects
with the description thereof contained in the Prospectus under
"Description of Capital Stock". The statements made in the Prospectus
relating to United States federal income tax laws and regulations
under the caption "Certain United States Federal Tax Considerations
for Non-United States Holders" accurately and fairly summarize such
laws and regulations in all material respects.
6. The Underwriting Agreements have been duly authorized, executed and
delivered by the Company.
7. The issuance and sale by the Company of the Shares, the compliance by
the Company with all of the provisions of the Underwriting Agreements
and the consummation of the Conversion, the Merger, the changing of
the Company's name to ICON Fitness Corporation, the distribution of
redemption notice with respect to, and the redemption of, all of the
outstanding Discount Notes and $35 million of Senior Subordinated
Notes, the redemption of all of the IHF Holdings Preferred Stock and
Preferred Options, the Repurchase of Common Stock, the execution of
the Credit Agreement Amendment, the additional borrowings of $___
million under the Credit Agreement, the settlement of the litigation
between the Company and WHF and its affiliates and the purchase of
certain assets relating to the sports equipment business lines of
Weider Sports and Canco Assets as described in the Prospectus
(collectively, the "Contemplated Transactions") will not (i) violate
the Certificate of
<PAGE>
Incorporation or By-Laws of the Company or ICON, (ii) conflict with,
breach or result in a default under any of the terms or provisions of
any material indenture, mortgage, deed of trust, loan agreement or
other material agreement or instrument known to us to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any property or assets
of the Company or any of its subsidiaries is subject or (iii) violate
any applicable law or regulation, or, to our knowledge, any order,
writ, injunction or decree of any jurisdiction, court or governmental
instrumentality binding upon the Company or any of its subsidiaries or
any of its properties, except that we express no opinion as to state
securities or blue sky laws and except that we express no opinion in
this paragraph as to compliance with the antifraud provisions of
federal and state securities laws.
8. No authorizations or consents of any governmental entity are required
to permit the Company to issue and sell the Shares and to consummate
the Contemplated Transactions except such as may be required under
state securities or blue sky laws, as to which we express no opinion,
and except for such registration as have been obtained under the Act.
9. The Shares have been approved for listing upon official notice of
issuance on the New York Stock Exchange, Inc. (the "Exchange") and,
upon notice of issuance, will be registered on the Exchange under the
Exchange Act.
10. The Company is not an "investment company" or an entity "controlled"
by an "investment company" as those terms are defined in Section 3(a)
of the Investment Company Act of 1940, as amended.
11. The Underwriting Agreements have been duly authorized, executed and
delivered by or on behalf of each of the Bain Selling Stockholders.
12. A Power of Attorney and a Custody Agreement have been duly authorized,
executed and delivered by or on behalf of each Bain Selling
Stockholder and constitute valid and binding agreements of such Bain
Selling Stockholder in accordance with their terms and, pursuant to
such Power of Attorney and such Custody Agreement, each Bain Selling
Stockholder has authorized its attorney-in-fact to carry out
transactions contemplated in the Underwriting Agreements on its
behalf, and to deliver the Shares being sold by such Bain Selling
Stockholder pursuant to the Underwriting Agreements.
13. Immediately prior to the Date of Delivery, each Bain Selling
Stockholder was the sole registered owner of the Shares to be sold by
such Bain Selling Stockholder; each Bain Selling Stockholder has full
legal right, power and authority, and any approval required by law
(other than any approval required
<PAGE>
by the applicable state securities and blue sky laws) to sell, assign,
transfer and deliver the Shares to be sold by such Bain Selling
Stockholder in the manner provided in the Underwriting Agreements and
such Bain Selling Stockholder's Power of Attorney and Custody
Agreement; upon registration of such Shares in the names of the
Underwriters in the stock records of the Company, assuming the
Underwriters purchased such Shares in good faith and without notice of
any adverse claim, the Underwriters will have acquired all rights in
such Shares free of any adverse claim, any lien in favor of the
Company, and any restrictions on transfer imposed by the Company; and
the owner of such Shares, if other than such Bain Selling Stockholder,
is precluded from asserting against the Underwriters the
ineffectiveness of any unauthorized endorsement.
14. To the best of our knowledge, neither the Company nor ICON is in
violation of its Certificate of Incorporation or its By-laws.
The Registration Statement became effective on ______, 1996. We do not know
of the issuance of any stop order suspending the effectiveness of the
Registration Statement by the Commission or of any proceeding for that purpose
under the Act.
We have not independently verified the accuracy, completeness or fairness
of the statements made or the information contained in the Registration
Statement or the Prospectus, and, except with respect to the description
referred to in paragraph 5 above, we are not passing upon and do not assume any
responsibility therefor. In the course of the preparation by the Company of the
Registration Statement and the Prospectus, we have participated in discussions
with your representatives and those of the Company and its independent
accountants, in which the business and affairs of the Company and the contents
of the Registration Statement and the Prospectus were discussed. On the basis
of information that we have gained in the course of our representation of the
Company in connection with its preparation of the Registration Statement and the
Prospectus and our participation in the discussions referred to above, we
believe that the Registration Statement, as of its effective date, and the
Prospectus, as of its date, complied as to form in all material respects with
the requirements of the Act and the published rules and regulations of the
Commission thereunder, and we do not know of any legal or governmental
proceeding to which the Company or any of its subsidiaries is a party or to
which any of its property is subject required to be described in the Prospectus
which is not so described, nor of any contract or other document of a character
required to be described in the Prospectus or to be filed as an exhibit to the
Registration Statement which is not so described or filed. Further, based on
such information and participation, we have no reason to believe that, as of its
effective date, the Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or that, as
of the effective date of the Registration Statement or as of the date hereof,
the Prospectus contained or contains any untrue statement of a material fact or
omitted or omits to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
<PAGE>
misleading. We express no opinion, however, as to the financial statements,
including the notes and schedules thereto, or any other financial or accounting
information set forth or referred to in the Registration Statement or the
Prospectus.
This opinion is furnished by us to you as Representatives of the several
Underwriters and, except as otherwise expressly consented to by us in writing,
is solely for the benefit of the several Underwriters.
Very truly yours,
Ropes & Gray
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ICON FITNESS CORPORATION
(the "Corporation")
ARTICLE I
The name of this corporation is ICON Fitness Corporation.
ARTICLE II
The address of its registered office in the State of Delaware is 1013
Centre Road, in the City of Wilmington, County of New Castle, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is Corporation Service Company.
ARTICLE III
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
Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
shall have authority to issue is 70,000,000 shares, consisting of (i) 60,000,000
shares of Common Stock, $.001 par value per share ("Common Stock"), and (ii)
10,000,000 shares of Preferred Stock, $.01 par value per share ("Preferred
Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the corporation.
1. Common Stock.
-------------
A. General. The voting, dividend and liquidation rights of the holders
-------
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series. The holders of the
Common Stock shall have no preemptive rights to subscribe for any shares of any
class of stock of this corporation whether now or hereafter authorized.
B. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders. There shall be no cumulative
voting.
<PAGE>
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
C. Dividends. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
D. Liquidation. Upon the dissolution or liquidation of the corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
2. Preferred Stock.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the corporation
may be reissued except as otherwise provided by law or this Certificate of
Incorporation. Different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purposes of voting by classes
unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law and this Certificate of Incorporation. Except as otherwise
provided in this Certificate of Incorporation, no vote of the holders of the
Preferred Stock or Common Stock shall be a prerequisite to the designation or
issuance of any shares of any series of the Preferred Stock authorized by and
complying with the conditions of this Certificate of Incorporation, the right to
have such vote being expressly waived by all present and future holders of the
capital stock of the corporation.
ARTICLE V
-2-
<PAGE>
The corporation shall have a perpetual existence.
ARTICLE VI
Unless and except to the extent that the By-Laws of this corporation shall
so require, the election of directors need not be by written ballot.
ARTICLE VII
In furtherance of and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the By-
Laws of this corporation, subject to the right of the Stockholders entitled to
vote with respect thereto to alter and repeal the By-Laws adopted or amended by
the Board of Directors; provided, however, that the By-Laws shall not be
-------- -------
altered, amended or repealed by the Stockholders of the corporation except by
the holders of not less than seventy-five percent (75%) of the shares of capital
stock of the corporation issued and outstanding and entitled to vote generally
in the election of directors.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between this corporation
and its creditors or any class of them and/or between this corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for this corporation under the provisions of
section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
the provisions of section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class or creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
ARTICLE IX
Except to the extent that the General Corporation Law of the State of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the corporation shall be personally
liable to the corporation or its stockholders for monetary
-3-
<PAGE>
damages for any breach of fiduciary duty as a director, notwithstanding any
provision of law imposing such liability. No amendment to or repeal of this
provision 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.
ARTICLE X
1. Action, Suits and Proceedings other than by or in the Right of the
------------------------------------------------------------------
Corporation. The corporation shall indemnify each person who was or is a party
- -----------
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the corporation, or is or was serving, or has agreed to serve, at the
request of the corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgment, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 6
below, the corporation shall not indemnify an Indemnitee seeking indemnification
in connection with any action, suit, proceeding, claim or counterclaim (or part
thereof) initiated by the Indemnitee unless the initiation thereof was approved
by the Board of Directors of the corporation.
2. Actions of Suits by or in the Right of the Corporation. The corporation
------------------------------------------------------
shall indemnify any Indemnitee who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was, or has agreed to become, a director or officer of the
corporation, or is or was serving, or has agreed to serve, at the request of the
corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees) and amounts paid in settlement actually and reasonably incurred
by him or on his behalf in connection with such action, suit or proceeding and
any appeal therefrom, if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of
-4-
<PAGE>
the corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware or such other court shall deem proper.
3. Indemnification For Expenses of Successful Party. Notwithstanding the
------------------------------------------------
other provisions of the Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
---- ----------
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification And Defense of Claim. As a condition precedent to his right
---------------------------------
to be indemnified, the Indemnitee must notify the corporation in writing as soon
as practicable of any action, suit, proceeding or investigation involving him
for which indemnity will or could be sought. With respect to any action, suit,
proceeding or investigation of which the corporation is so notified, the
corporation will be entitled to participate therein at its own expense and/or to
assume the defense thereof at its own expense, with legal counsel reasonably
acceptable to the Indemnitee. After notice from the corporation to the
Indemnitee of its election so to assume such defense, the corporation shall not
be liable to the Indemnitee for any legal or other expenses subsequently
incurred by the Indemnitee in connection with such claim, other than as provided
below in this Section 4. The Indemnitee shall have the right to employ his own
counsel in connection with such claim, but the fees and expenses of such counsel
incurred after notice from the corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the employment of
counsel by the Indemnitee has been authorized by the corporation, (ii) counsel
to the Indemnitee shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the corporation, except as otherwise expressly provided by
this Article. The corporation shall not be entitled, without the consent of the
Indemnitee, to assume the defense of any claim brought by or in the right of the
corporation
-5-
<PAGE>
or as to which counsel for the Indemnitee shall have reasonably made the
conclusion provided for in clause (ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below, in the
-------------------
event that the corporation does not assume the defense pursuant to Section 4 of
this Article of any action, suit, proceeding or investigation of which the
corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the corporation in advance of the final disposition of such matter; provided,
--------
however, that the payment of such expense incurred by an Indemnitee in advance
- -------
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the corporation as authorized in this Article.
Such undertaking may be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
6. Procedure For Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made in
each instance by (a) a majority vote of the directors of the corporation who are
not at that time parties to the action, suit or proceeding in question
("disinterested directors") even though less than a quorum, (b) a majority vote
of a quorum of the outstanding shares of stock of all classes entitled to vote
for directors, voting as a single class, which quorum shall consist of
stockholders who are not at that time parties to the action, suit or proceeding
in question, (c) independent legal counsel (who may be regular legal counsel to
the corporation), or (d) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advance of expenses under this
Article shall be on the corporation. Neither the failure of the corporation to
have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees)
-6-
<PAGE>
incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this Article
--------------------
or of the relevant provisions of the General Corporation Law of Delaware or any
other applicable laws shall affect or diminish in any way the rights of any
Indemnitee to indemnification under the provisions hereof with respect to any
action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses provided by
------------
this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
corporation or other persons serving the corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
10. Partial Indemnification. If an Indemnitee is entitled under any provision
-----------------------
of this Article to indemnification by the corporation for some or a portion of
the expenses (including attorneys' fees), judgments, fines or amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom, but not, however, for the total amount thereof, the corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. Insurance. The corporation may purchase and maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation Law
of Delaware.
12. Merger or Consolidation. If the corporation is merged into or consolidated
-----------------------
with another corporation and the corporation is not the surviving corporation,
the surviving corporation shall assume the obligations of the corporation under
this Article with respect to any action, suit, proceeding or investigation
arising out of or relating to any actions, transactions or facts
-7-
<PAGE>
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be invalidated
--------------
on any ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each Indemnitee as to any expenses (including attorneys'
fees) judgments, fines and amounts paid in settlement in connection with any
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including an action by or in the right of the corporation, to
the fullest extent permitted by any applicable portion of this Article that
shall not have been invalidated and to the fullest extent permitted by
applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and Section
-----------
145(i) of the General Corporation Law of Delaware shall have the respective
meanings assigned to such terms in such Section 145(h) and Section 145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware is
----------------------
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
ARTICLE XI
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and this Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE XII
This Article is inserted for the management of the business and for the
conduct of the affairs of the corporation.
1. Number of Directors. The number of directors of the corporation shall not
-------------------
be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the corporation's By-Laws.
2. Classes of Directors. The Directors, other than those who may be elected
--------------------
by the holders of any class or series of preferred stock voting separately by
class or series, shall be and are divided into three classes: Class I, Class II
and Class III. No one class shall have more than one director more than any
other class. If a fraction is contained in the quotient arrived at by dividing
the designated number of directors by three, then, if such fraction is one-
third, the extra director shall be a member of Class I, and if such fraction is
two-thirds, one of the extra directors shall be a member of Class I and one of
the extra directors shall be a member of Class II, unless otherwise provided
from time to time by resolution adopted by the Board of Directors.
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<PAGE>
3. Election of Directors. Elections of directors need not be by written
---------------------
ballot except as and to the extent provided in the By-Laws of the corporation.
4. Terms of Office. Except as provided in Section 8 of this Article XII, each
---------------
director shall serve for a term ending on the date of the third annual meeting
following the annual meeting at which such director was elected; provided, that
--------
each initial director in Class I shall serve for a term ending on the date of
the annual meeting in 1997; each initial director in Class II shall serve for a
term ending on the date of the annual meeting in 1998; and each initial director
in Class III shall serve for a term ending on the date of the annual meeting in
1999; and provided further, that the term of each director shall be subject to
the election and qualification of his successor and to his earlier death,
resignation or removal.
5. Allocation of Directors Among Classes in The Event of Increases or
------------------------------------------------------------------
Decreases in The Number of Directors. In the event of any increase or
- ------------------------------------
decrease in the authorized number of directors, (i) each director then serving
as such shall nevertheless continue as a director of the class of which he is a
member and (ii) the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors among
the three classes of directors so as to ensure that no one class has more than
one director more than any other class. To the extent possible, consistent with
the foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. Quorum; Action at Meeting. A majority of the total number of directors
-------------------------
shall constitute a quorum for the transaction of business. In the event one or
more of the directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done or
made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the By-Laws of the corporation or by
this Certificate of Incorporation.
7. Removal. Directors of the corporation may be removed only for cause by the
-------
affirmative vote of the holders of at least two-thirds of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote
generally in the election of directors cast at a meeting of the stockholders
called for that purpose.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
---------
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of
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<PAGE>
the directors then in office, although less than a quorum, or by a sole
remaining director. A director elected to fill a vacancy shall be elected to
hold office until the next election of the class for which such director shall
have been chosen, subject to the election and qualification of his successor and
to his earlier death, resignation or removal.
9. Stockholder Nominations and Introduction of Business, Etc. Advance notice
---------------------------------------------------------
of stockholder nominations for election of directors and other business to be
brought by stockholders before either an annual or special meeting of
stockholders shall be given in the manner provided by the By-Laws of this
corporation.
10. Amendments to Article. Notwithstanding any other provisions of law, this
---------------------
Certificate of Incorporation or the By-Laws of this corporation, each as
amended, and notwithstanding the fact that a lesser percentage may be specified
by law, the affirmative vote of the holders of at least seventy-five percent
(75%) of the shares of capital stock of the corporation issued and outstanding
and entitled to vote generally in the election of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article XII.
ARTICLE XIII
The books of this corporation may (subject to any stationary requirements)
be kept outside the State of Delaware as may be designated by the Board of
Directors or by the By-Laws of this corporation.
ARTICLE XIV
Stockholders of the corporation may not take any action by written consent
in lieu of a meeting. Notwithstanding any other provisions of law, this
Certificate of Incorporation or the By-Laws of this corporation, each as
amended, and notwithstanding the fact that a lesser percentage may be specified
by law, the affirmative vote of the holders of at least seventy-five percent
(75%) of the shares of capital stock of the corporation issued and outstanding
and entitled to vote generally in the election of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article XIV.
ARTICLE XV
Special meetings of stockholders may be called at any time by only the
Chairman of the Board of Directors, the Chief Executive Officer (or if there is
no Chief Executive Officer, the President) or the Board of Directors. Business
transacted at any special meeting of stockholders shall be limited to matters
relating to the purpose or purposes stated in the notice of meeting.
Notwithstanding any other provision of law, this Certificate of Incorporation or
the By-Laws of this corporation, each as amended, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of at least seventy-five percent (75%) of the shares of capital stock of
the corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article XV.
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<PAGE>
ARTICLE XVI
Notwithstanding any other provisions of this Certificate of Incorporation
or the By-Laws (and notwithstanding the fact that a lesser percentage may be
specified by law, this Certificate of Incorporation or the By-laws of the
corporation), at any time a shareholder vote is required under Subchapters IX or
X of The Delaware General Corporation Law, such vote shall be by the affirmative
vote of two-thirds of the total number of votes of the then outstanding shares
of capital stock of the entitled to vote generally in the election of directors.
Moreover, notwithstanding any other provisions of this Certificate of
Incorporation or the By-laws (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the By-
Laws of the corporation), the affirmative vote of two-thirds of the total number
of votes of the then outstanding shares of capital stock of the corporation
entitled to vote generally in the election of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with the purpose or
intent of Article XVI of this Certificate of Incorporation.
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<PAGE>
IN WITNESS WHEREOF, the corporation has caused its corporate seal to be
affixed hereto and this Certificate of Incorporation to be signed by its Chief
Executive Officer this ___ day of September, 1996.
ICON FITNESS CORPORATION
By:________________________
Scott Watterson
Chief Executive Officer
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<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
ICON FITNESS CORPORATION
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 Meetings. A special meeting of the stockholders may be
----------------
called at any time by the chairman of the board of directors, the Chief
Executive Officer (or, if there is no Chief Executive Officer, the president) or
a majority of the directors. 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 then 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
<PAGE>
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 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. Any
action required or permitted to be taken by the stockholders must be effected at
a duly called annual or special meeting of stockholders and may not be effected
by consent in writing.
2.7. 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
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<PAGE>
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.
2.8. Stockholder Proposals. Subject to the rights of the holders of any
---------------------
preferred stock, a proposal for business to be acted upon at a meeting of
stockholders may be made by the board of directors, the chief executive officer
or by any stockholder entitled to vote with respect to the proposed action. Any
stockholder entitled to vote on the proposed action may make such proposal by
giving timely notice thereof in proper written form to the secretary of the
corporation. To be timely, notice shall be delivered to or mailed and received
at the principal executive offices not less than 60 days nor more than 90 days
prior to the meeting; provided, however, that in the event that less than 70
days' notice or prior public disclosure of the date of the meeting is given or
made to the stockholders, to be timely, notice by the stockholder must be
received at the principal executive offices not later than the close of business
on the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. To be in proper written
form, a stockholders notice shall set forth in writing (i) the proposed action
to be taken at the meeting, (ii) the reason for such action, (iii) the identity
of the stockholder or stockholders making the proposal, (iv) the number of
shares of capital stock which are beneficially owned by them, and (v) any
financial interest of the stockholder or stockholders in such proposal. In the
event a stockholder seeks to make such a proposal, the secretary shall appoint
one or more inspectors to determine whether such stockholder has complied with
this Section 2.8. If the inspectors shall determine that a stockholder has not
complied with this Section 2.8, the inspectors shall direct the chairman of the
meeting to declare to the meeting that a stockholder proposal was not made in
accordance with the procedures prescribed by the by-laws, and the chairman shall
so declare to the meeting and the defective proposal shall be disregarded.
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 shares 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 questions arising in connection
with the right to vote, count and tabulate all 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 request of the person presiding at
the meeting, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them.
-3-
<PAGE>
2.10. List of Stockholders. 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
3.1. Number. The number of directors which shall constitute the whole
------
board shall be determined by resolution of the board of directors, but in no
event shall be less than three. Within the foregoing limits, the number of
directors may be increased at any time or from time to time 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 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. Classification. The directors, other than those who may be elected
--------------
by the holders of any class or series of preferred stock voting separately by
class or series, shall be classified, with respect to the time for which they
severally hold office, into three classes, Class I, Class II and Class III,
which shall be as nearly equal in number as possible, and shall be adjusted from
time to time in the manner specified herein to maintain such proportionality.
Each initial director in Class I shall hold office for a term expiring at
the 1997 annual meeting of stockholders, each initial director in Class II shall
hold office initially for a term expiring at the 1998 annual meeting of
stockholders, and each initial director in Class III shall hold office for a
term expiring at the 1999 annual meeting of stockholders. At each annual
meeting of stockholders following the 1996 annual meeting, the stockholders
shall elect the successors to the class of directors whose term expires at that
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election and until their successors have been duly elected and qualified or
until their earlier death, resignation or removal.
The board of directors shall increase or decrease the number of directors
in one or more classes as may be appropriate whenever it increases or decreases
the number of directors pursuant to Section 3.1, in order to ensure that the
three classes shall be as nearly equal in number as possible.
3.3. Notification of Nominations. Subject to the rights of the holders of
---------------------------
any preferred stock, nominations for the election of directors may be made by
the board of directors or by any stockholder entitled to vote for the election
of directors. Any stockholder entitled to vote for the election of directors at
a meeting may nominate persons for election as directors by giving timely notice
thereof in proper written form to the secretary of the corporation. To be
timely, notice
-4-
<PAGE>
shall be delivered to or mailed and received at the principal executive offices
not less than 60 days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to the stockholders, to
be timely, notice by the stockholder must be received at the principal executive
offices not later than the close of business on the tenth day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. To be in proper written form, a stockholder's notice shall
set forth in writing (i) as to each person whom the stockholder proposes to
nominate for election or reelection as a director, all information relating to
such persons that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, including,
without limitation, such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected and (ii) as to
the stockholder giving the notice (x) the name and address, as they appear on
the corporation's books, of such stockholder and (y) the class and number of
shares of the corporation which are beneficially owned by such stockholder. At
the request of the board of directors, any person nominated by the board of
directors for election as a director shall furnish to the secretary the
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. In the event that a stockholder seeks to
nominate one or more directors, the secretary shall appoint one or more
inspectors to determine whether such stockholder has complied with this Section
3.3. If the inspectors shall determine that a stockholder has not complied with
this Section 3.3, the inspectors shall direct the chairman of the meeting to
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the by-laws, and the chairman shall so declare to the
meeting and the defective nomination shall be disregarded.
3.4. Tenure. Except as otherwise provided by law, by the certificate of
------
incorporation or by these by-laws, each director shall hold office until the
expiration of the term for which he was elected and until his successor is
elected and qualified, or until he sooner dies, resigns, is removed or becomes
disqualified.
3.5. 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 may
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.
3.6. Vacancies. Vacancies and any newly created directorships resulting
---------
from any increase in the number of directors may be filled only by vote 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
-5-
<PAGE>
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.
3.7. 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 shall keep regular minutes of its meetings and report the same to
the board of directors upon request.
3.8. 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.
3.9. 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 of the
board, the Chief Executive Officer (or, if there is no Chief Executive Officer,
the president), or by two-thirds or more 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.
3.10. Notice. It shall be reasonable and sufficient notice to a director
------
to send notice by mail at least forty-eight hours or by telegram or telefax 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
-6-
<PAGE>
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.
3.11. 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.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third of the total
number of directors constitute a quorum. 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.
3.12. 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.
3.13. 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.
3.14. 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.
3.15. 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.
3.16. 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
-7-
<PAGE>
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 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.
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
-8-
<PAGE>
other officer or any agents.
4.4. Tenure. Each officer 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
officer 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 power
- ---------
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.
-9-
<PAGE>
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 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 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. Directors of the corporation may be removed only
for cause by the affirmative vote of the holders of at least two-thirds of the
shares of the capital stock of the corporation issued and outstanding and
entitled to vote generally in the election of directors cast at a meeting of the
stockholders called for that purpose. 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 3.6 of these by-laws.
-10-
<PAGE>
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 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
assignment 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
-11-
<PAGE>
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 notice is given, or, if notice is waived, 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
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 date 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 three-fourths 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.
-12-
<PAGE>
TEMPORARY CERTIFICATE--EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN
READY FOR DELIVERY
EXHIBIT 4.2
COMMON STOCK
NUMBER SHARES
[_IFC______] [_________]
ICON FITNESS CORPORATION,
THIS CERTIFICATE IS CUSIP 451039 101
TRANSFERABLE IN LOGAN, UTAH
BOSTON, MA OR SEE REVERSE FOR
NEW YORK, NY CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
------------------------------------------------------------
THIS CERTIFIES THAT
is the owner of
------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF
ONE-CENT ($.01) EACH, OF THE COMMON STOCK OF
---------- ----------
----------ICON FITNESS CORPORATION----------
---------- ----------
transferable on the books of the Corporation as the office of
its Transfer Agent by the holder hereof in person or by duly
authorized attorney upon surrender of the Certificate properly
endorsed. This Certificate and the shares represented hereby are
CERTIFICATE OF STOCK
issued and shall be held subject to all of the laws of the State
of Delaware and the Certificate of Incorporation and the Bylaws
of the Corporation each as amended from time to time pursuant to
the provisions thereof.
This Certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated:
[ICON FITNESS CORPORATION INSIGNIA APPEARS HERE]
/s/ S. Fred Bech /s/ Gary E. Stevenson
TREASURER PRESIDENT
COUNTERSIGNED AND REGISTERED:
First Chicago Trust Company of New York
TRANSFER AGENT
BY AND REGISTRAR.
[SIGNATURE APPEARS HERE]
AUTHORIZED SIGNATURE
<PAGE>
ICON FITNESS CORPORATION
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR SERIES OF
STOCK. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS,DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties -------- --------
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as under Uniform Gifts to Minors
tenants in common Act
---------------------------
( )
Additional abbreviations may also be used though not in the above list.
</TABLE>
For value received, hereby sell, assign and
transfer unto ----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------
- -------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares
- -------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said shares of Common Stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated:
--------------------------
---------------------------------------------------
Notice: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
- ---------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17AG-15.
<PAGE>
EXHIBIT 5
September 18, 1996
IHF Capital, Inc.
1500 South 1000 West
Logan, Utah 84321
Re: Registration Statement on Form S-1 (File No. 333-04279)
Relating to 14,375,000 Shares of Common Stock
---------------------------------------------
Dear Sir or Madam:
This opinion relates to an aggregate of 14,375,000 shares of Common
Stock, par value $.001 per share (the "Common Stock"), of IHF Capital, Inc. (the
"Company"), which are the subject matter of a Registration Statement on Form S-1
initially filed with the Securities and Exchange Commission on May 22, 1996
(File No. 333-04279) (the "Registration Statement").
The 14,375,000 shares of Common Stock covered by the Registration
Statement consist of 12,500,000 shares being sold by the Company and an
additional 1,875,000 shares being sold by certain selling stockholders of the
Company (the "Selling Stockholders") subject to an over-allotment option granted
by the Company to the Underwriters to be named in the prospectus (the
"Prospectus") included in the Registration Statement.
Based upon such investigation as we have deemed necessary, we are of the
opinion that the shares of Common Stock being sold by the Selling Stockholders
have been legally issued and are fully paid and nonassessable and that when the
12,500,000 shares of Common Stock to be sold by the Company pursuant to the
Prospectus have been issued and paid for in accordance with the terms described
in the Prospectus, such shares of Common Stock will have been validly issued and
will be fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and the reference to our firm in the Prospectus under the
caption "Legal Matters."
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
Exhibit 10.40
IHF CAPITAL, INC.
1996 STOCK OPTION PLAN
1. PURPOSE
-------
The purpose of this 1996 Stock Option Plan (the "Plan") is to advance the
interests of IHF Capital, Inc., a Delaware Corporation (the "Company") by
enhancing the ability of the Company and its subsidiaries (if any) to attract
and retain directors, employees, consultants or advisers who are in a position
to make significant contributions to the success of the Company, to reward them
for their contributions and to encourage them to take into account the long-term
interests of the Company.
The Plan provides for the award of options to purchase shares of the
Company's common stock ("Stock"). Options granted pursuant to the Plan may be
incentive stock options as defined in section 422 of the Internal Revenue Code
of 1986 (as from time to time amended, the "Code") (any option that is intended
to qualify as an incentive stock option being referred to herein as an
"incentive option"), or options that are not incentive options, or both. Options
granted pursuant to the Plan shall be presumed to be non-incentive options
unless expressly designated as incentive options.
2. ELIGIBILITY FOR AWARDS
----------------------
Persons eligible to receive awards under the Plan shall be all directors
and executive officers of the Company and its subsidiaries and other employees,
consultants and advisers 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. Incentive options shall be granted only to "employees" as defined
in the provisions of the Code or regulations thereunder applicable to incentive
stock options. 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. Persons selected for
awards under the Plan are referred to herein as "participants."
3. ADMINISTRATION
--------------
The Plan shall be administered by the Board of Directors (the "Board") of
the Company. The Board shall have authority, not inconsistent with the express
provisions of the Plan, (a) to grant option awards to such participants 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 which options are, and which options are not, incentive options;
(d) to determine the terms and conditions of each award; (e) to prescribe the
form or forms of any instruments
<PAGE>
evidencing awards and any other instruments required under the Plan and to
change such forms from time to time; (f) to adopt, amend and rescind rules and
regulations for the administration of the Plan; and (g) 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 the
participant under an award, to waive any condition or provision of an award, and
to amend or cancel any award (and if an award is canceled, 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 5(c) and Section 6(g).
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 in this Plan (as appropriate) to the Board 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.
4. EFFECTIVE DATE AND TERM OF PLAN
-------------------------------
The Plan shall become effective on the date on which it is approved by the
shareholders of the Company. Grants of awards under the Plan may be made prior
to that date (but contemporaneous with or after Board adoption of the Plan),
subject to approval of the Plan by such shareholders.
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.
5. SHARES SUBJECT TO THE PLAN
--------------------------
(a) Number of Shares. Subject to adjustment as provided in Section 5(c),
----------------
the aggregate number of shares of Stock that may be delivered upon the exercise
of awards granted under the Plan shall be 2,500,000. 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 be available for future grants within
the limits set forth in this Section 5(a).
-2-
<PAGE>
The maximum number of shares for which options may be granted to any
individual over the life of the Plan shall be 1,000,000. The per-individual
limitation described in this paragraph shall be construed and applied consistent
with the rules and regulations under Section 162(m) of the Code.
(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 subject to awards then outstanding
or subsequently granted under the Plan, the exercise price of such awards, the
maximum number of shares of Stock 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.
The Board may also adjust the number of shares subject to outstanding
awards and the exercise price 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, provided that no such adjustment
shall be made in the case of an incentive option, without the consent of the
participant, if it would constitute a modification, extension or renewal of the
option within the meaning of section 424(h) of the Code.
6. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
(a) Exercise Price of Options. The exercise price of each option shall be
-------------------------
determined by the Board but in the case of an incentive option shall not be less
than 100% (110%, in the case of an incentive option granted to a ten-percent
shareholder) of the fair market value of the Stock at the time the option is
granted; nor shall the exercise price be less, in the case of an original issue
of authorized stock, than par value. For this purpose, "fair market value" in
the case of incentive options shall have the same meaning as it does in the
provisions of the Code and the regulations thereunder applicable to incentive
options; and "ten-percent shareholder" shall mean any participant who at the
time of grant owns directly, or by reason of the attribution rules set forth in
section 424(d) of the Code, is deemed to own stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of any
of its parent or subsidiary corporations.
-3-
<PAGE>
(b) Duration of Options. Options shall be exercisable during such period
-------------------
or periods as the Board may specify. The latest date on which an option may be
exercised (the "Final Exercise Date") shall be the date that is ten years (five
years, in the case of an incentive option granted to a "ten-percent shareholder"
as defined in (a) above) from the date the option was granted or such earlier
date as the Board may specify at the time the option is granted.
(c) Exercise of Options.
-------------------
(1) Options 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) Options may be exercised only in writing. Written notice of exercise
must be signed by the proper person and furnished to the Company,
together with (i) such documents as the Board may require and (ii) in
the case of options, payment in full as specified below in Section
6(d) for the number of shares for which the option is exercised.
(3) The delivery of Stock upon the exercise of an option shall be subject
to compliance with (i) applicable federal and state laws and
regulations, (ii) if the outstanding Stock is at the time listed on
any stock exchange, the listing requirements of such exchange, and
(iii) Company counsel's approval of all other legal matters in
connection with the issuance and delivery of such Stock. 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
option, 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.
(4) In the case of an option that is not an incentive option, 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 grant of
the option or the time of 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 (which
in the case of Stock acquired from the Company shall have been owned
by the participant for at least six months prior to the delivery date)
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
-4-
<PAGE>
upon the exercise a number of shares of Stock having a fair market
value equal to such withholding obligation.
In the case of an incentive option, 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 (i) to
inform the Company promptly of any disposition (within the meaning of
section 424(c) of the Code and the regulations thereunder) of Stock
received upon exercise, and (ii) 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.
(5) 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 (which, in the case of an incentive
option, shall specify the method of payment at the time of grant), (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 prior to delivery) 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 by a personal check or promissory
note of the person exercising the option.
-5-
<PAGE>
(e) Rights as Shareholder. A participant shall not have the rights of a
---------------------
shareholder with regard to awards under the Plan except as to Stock actually
received by the participant under the Plan.
(f) Nontransferability of Awards. Except as the Board may otherwise
----------------------------
determine, 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 the participant.
(g) Mergers, etc. In the event of a consolidation or merger in which the
------------
Company is not the surviving corporation or which results in the acquisition of
substantially all the Company's outstanding Stock by a single person or entity
or by a group of persons and/or entities acting in concert, or in the event of
the sale or transfer of substantially all the Company's assets, all outstanding
awards shall thereupon terminate, provided that at least 20 days prior to the
effective date of any such merger, consolidation or sale of assets, the Board
shall either (i) make all outstanding awards exercisable immediately prior to
consummation of such merger, consolidation or sale of assets or (ii) if there is
a surviving or acquiring corporation, arrange, subject to consummation of the
merger, consolidation or sale of assets, to have that corporation or an
affiliate of that corporation grant to participants replacement awards, which
awards in the case of incentive options shall satisfy, in the determination of
the Board, the requirements of section 424(a) of the Code.
The Board may grant awards under the Plan in substitution for awards held
by directors, employees, consultants or advisers of another corporation who
concurrently become directors, employees, consultants or advisers of the Company
or a subsidiary of the Company as the result of a merger or consolidation of
that corporation with the Company or a subsidiary of the Company, or as the
result of the acquisition by the Company or a subsidiary of the Company of
property or stock of that corporation. The Company may direct that substitute
awards be granted on such terms and conditions as the Board considers
appropriate 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
-6-
<PAGE>
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.
(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, consultant or advisor (or, in the case of a
former director, employee, consultant or advisor 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 or director of, or
consultant or adviser to, the Company or any parent or subsidiary or affect in
any way the right of the Company or parent or subsidiary to terminate them 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.
-7-
<PAGE>
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.
The Board may at any time discontinue granting awards under the Plan. With
the consent of the participant, the Board may at any time cancel an existing
award in whole or in part and grant another award for such number of shares as
the Board specifies. 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 further grants of awards, but no such amendment shall adversely
affect the rights of any participant (without the participant's consent) under
any award previously granted.
-8-
<PAGE>
EXHIBIT 10.41
WSE ASSET PURCHASE AGREEMENT
This WSE ASSET PURCHASE AGREEMENT (the "Agreement") is made as of the
6th day of September, 1996 between Weider Sports Equipment Co. Ltd./Compagnie
D'Equipement de Sports Weider Ltee, a Quebec company (the "Seller"), ICON of
Canada Inc., a Quebec company ("ICON Canada"), and ICON Health & Fitness, Inc.,
a Delaware corporation ("ICON"; each of ICON Canada and ICON being sometimes
referred to herein as a "Buyer" and collectively as the "Buyers").
Recitals
The Seller and ICON are party to the Distribution Agreement dated
September 26, 1994 (as in effect prior to the date hereof, the "Distribution
Agreement") pursuant to which ICON appointed the Seller as its distributor for
the Products (as such term is defined in the Distribution Agreement) in the
Territory (as such term is defined in the Distribution Agreement), subject to
the terms and conditions set forth therein.
As part of a global settlement of certain disputes among the parties
hereto and their respective affiliates, ICON and the Seller have agreed, among
other things, to amend the Distribution Agreement and the Buyers have agreed to
purchase and the Seller has agreed to sell certain assets relating to Seller's
home fitness equipment business lines (the "WSE Equipment Business") and ICON
has agreed to assume certain related liabilities.
Agreement
Therefore, in consideration of the foregoing and the mutual agreements
and covenants set forth below, the parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1. Definitions. Certain terms are used in this Agreement as
specifically defined herein. Certain definitions are set forth in Section 7
hereof.
<PAGE>
1.2. Master Transaction Agreement. Reference is hereby made to the
First Amended and Restated Master Transaction Agreement dated as of October 12,
1994 (as from time to time in effect, the "Master Transaction Agreement") among
ICON, Weider Health and Fitness, a Nevada corporation ("WHF"), Weider Sporting
Goods, Inc., a California corporation, and the other sellers named therein.
Terms defined in the Master Transaction Agreement and not otherwise defined
herein are used herein with the meanings so defined.
2. AMENDMENT AND PARTIAL TERMINATION OF DISTRIBUTION AGREEMENT.
2.1. Amendment and Partial Termination. This Agreement shall be
deemed an amendment of the Distribution Agreement for all purposes. Except for
the provisions of this Agreement and of Section 8.2, Section 12.3 (other than
Section 12.3.4) and, to the extent provided in the next sentence, Section 12.5
of the Distribution Agreement, which provisions shall survive the execution and
delivery hereof, the Distribution Agreement is hereby terminated and of no
further force or effect simultaneously with the execution and delivery hereof
and the making of the Settlement Payment (as defined below), and neither ICON
nor Seller or any other Person shall have any further or outstanding rights or
obligations thereunder. Section 12.5 of the Distribution Agreement is hereby
modified by Amendment No. 1 to the Non-Competition Agreement of even date
herewith, by and among, inter alia, WHF and ICON and, as so modified, said
Section 12.5 shall survive the execution and delivery hereof. Solely for
purposes of said Sections 12.3 (other than 12.3.4) and 12.5, this Agreement
shall be deemed a termination under Section 11 (without reason by both parties)
and a sale under Section 12.1 of the Distribution Agreement.
2.2. Royalty Payments, etc. Simultaneously with the execution and
delivery hereof, ICON is paying to the Seller $200,750 (the "Royalty Payment")
in satisfaction of certain royalty obligations under the Distribution Agreement.
2.3. Settlement Payments. Simultaneously with the execution and
delivery hereof, ICON is paying to the Seller $8,000,000 (the "Settlement
Payment") in consideration of the termination of the Distribution Agreement as
provided in Section 2.1 and settlement of any and all Section 2 Claims (as
defined in Section 2.4) pertaining to, by reason of or arising out of, any and
all disputes under the Distribution Agreement, including but not limited to the
disputes at issue (i) in mediation proceeding identified as Conciliation No.
8819/Ck which was initiated in 1995 in the International Chamber of Commerce in
London, England, (ii) in a conciliation demand filed with the International
Chamber of Commerce in Paris, France in August 1995 and (iii) in four actions
filed in federal courts in Utah on August 21, 1995 against Datam, Inc., The
Borges Lamont Company d/b/a C&D International and Fitness First, Inc. d/b/a
American Distributors.
Any and all Section 2 Claims (as defined in Section 2.4) of any kind
whatsoever any Person may now have or may previously have had based in whole or
in part on facts that
-2-
<PAGE>
occurred prior to the date hereof (i) pertaining to, by reason of, or arising
under, the Distribution Agreement, or (ii) pertaining to, by reason of, or
arising under, any other Person's obligations under the Distribution Agreement,
or (iii) pertaining to, by reason of, or arising under, any other Person's
failure to comply with or to perform its obligations thereunder, are hereby
released and extinguished; provided, however, that this sentence shall not be
-------- -------
interpreted as releasing ICON from or extinguishing any Section 2 Claim made
after the date hereof based upon ICON's warranties under Section 8.2 of the
Distribution Agreement, or as releasing or extinguishing any Section 2 Claim of
ICON under Section 12.5 of the Distribution Agreement (as modified by Section
2.1 of this Agreement and Section 2.1 of the Settlement Agreement (as defined in
Section 10.10 hereof)) arising after the date hereof based solely upon facts
that occur entirely after the date of execution and delivery of this Agreement.
2.4. Section 2 Claims. "Section 2 Claims" shall mean all debts,
demands, actions, causes of action, suits, accounts, covenants, contracts,
agreements, torts, damages, and any and all claims, demands, rights, and
liabilities whatsoever, of every name and nature, both at law and in equity,
whether direct or derivative, whether liquidated or unliquidated, whether known
or unknown, and including but not limited to any and all "claims" as that term
is defined in 11 U.S.C. (S) 101.
3. PURCHASE AND SALE OF WSE EQUIPMENT ASSETS; ASSUMPTION OF LIABILITIES; AND
MANNER OF PAYMENT.
3.1. Purchase and Sale of Assets.
3.1.1. Sale of Assets. The Seller hereby agrees to sell, assign
and transfer to Buyers simultaneously with the execution and delivery
hereof, and Buyers hereby agree to purchase from the Seller simultaneously
with the execution and delivery hereof, the WSE Equipment Assets. All of the
WSE Equipment Assets shall be allocated to ICON Canada.
3.1.2. Purchase Price. In addition to the assumption of the
Assumed Liabilities, the cash purchase price to be paid by Buyers to the
Seller for the WSE Equipment Assets (the "Cash Purchase Price" and, together
with the Assumed Liabilities, the "Purchase Price") will be US $8,430,000
and shall be paid simultaneously with the execution and delivery hereof.
3.1.3. Payment of Purchase Price. The Cash Purchase Price and the
amounts of the Royalty Payment and the Settlement Payment will be paid by
wire transfer of immediately available funds in U.S. dollars to such account
as the Seller shall specify.
3.1.4. Allocation of Purchase Price. The Purchase Price shall be
allocated among the WSE Equipment Assets in the manner set forth in Schedule
--------
3.1.1 hereto.
-----
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<PAGE>
Each Buyer and the Seller hereby agree to reflect the allocation of the
Purchase Price provided for herein in their respective financial statements
and Tax Returns.
3.1.5. Elections. Icon Canada and the Seller shall, at the
Closing, jointly execute an election under section 167 of the Excise Tax Act
(Canada) and Section 75 of the Quebec Sales Tax Act in the form prescribed
for such purpose in order that the sale of the WSE Equipment Assets will
occur without any Goods and Services Tax ("GST") or Quebec Provincial Sales
Tax ("PST") being payable in connection therewith. ICON Canada shall file
the election form executed by it with Revenue Canada and the Minister of
Revenue of Quebec with its GST and PST return, respectively, for its GST and
PST reporting period encompassing the date of Closing and ICON Canada shall
concurrently therewith confirm to the Seller in writing that said election
has been duly filed. ICON Canada and the Seller agree to file a joint
election in accordance with Subsection 22(1) of the Income Tax Act (Canada)
and s.184 of the Quebec Taxation Act in prescribed form and within the
prescribed time limits.
3.2. Assumption of Liabilities. Buyers hereby agree, jointly and
severally, effective upon the execution and delivery hereof, to assume and pay,
discharge, perform or otherwise satisfy in accordance with their respective
terms and be responsible for all liabilities and obligations of the Seller which
relate to the WSE Equipment Business, past, present and future, actual or
contingent, other than the Excluded Liabilities and the Seller Retained Unknown
Liabilities (collectively the "Assumed Liabilities"). The Assumed Liabilities
include only (i) the Specifically Assumed Liabilities and (ii) the Buyer Assumed
Unknown Liabilities. The Buyers shall be responsible for, and shall pay, all
Unknown Liabilities up to a maximum amount equal in the aggregate to the
Deductible Amount (such portion of such liabilities being referred to herein as
the "Buyer Assumed Unknown Liabilities"). The Seller shall be responsible for,
and shall pay, all Unknown Liabilities which remain outstanding after the
Deductible Amount is equal to zero dollars (such portion of such liabilities
being referred to herein as the "Seller Retained Unknown Liabilities"), and the
Seller shall have no obligation to pay any Unknown Liabilities unless and until
the Deductible Amount shall be equal to zero dollars. As used herein, the term
"Unknown Liabilities" means all liabilities and obligations of the Seller which
relate to the WSE Equipment Business which (i) were incurred, or, subject to the
provisions of the next sentence, arose or arise from acts or omissions of the
Seller, during the period ending upon the execution and delivery hereof, and
(ii) do not constitute either Specifically Assumed Liabilities or (except to the
extent specifically provided in Sections 3.3(f) and 3.3(g)) Excluded
Liabilities. In the case of liabilities arising from conduct commenced by the
Seller prior to and continued by the Buyers after the Closing, such liabilities
shall be deemed to be Unknown Liabilities solely to the extent attributable to
pre-Closing conduct of the Sellers, and, to the extent attributable to post-
Closing conduct of the Buyers, the Buyers, jointly and severally, shall be
responsible therefor and discharge the same. As used herein, the term
"Specifically Assumed Liabilities" means all liabilities and obligations
specifically assumed by the Buyers pursuant to the provisions of Section 3.2.1
through 3.2.4 below:
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<PAGE>
3.2.1. Transferred Contracts, Payables and Bank Debt. Seller hereby
assigns to the Buyers, effective upon the execution and delivery hereof, and the
Buyers hereby assume, effective upon the execution and delivery hereof, the
Transferred Contracts (as defined below) (provided that the Seller shall remain
liable for the Excluded Liabilities referred to in Section 3.3(f)) and the
accounts payable referred to in clause (b) below in the amounts referred to
therein. Buyers hereby agree, jointly and severally, effective upon the
execution and delivery hereof, to assume and pay, discharge, perform or
otherwise satisfy in accordance with their respective terms and be responsible
for (a) all liabilities and obligations of the Seller with respect to the
contracts and leases (the "Transferred Contracts") listed on Schedule 3.2.1
--------------
(provided that the Seller shall remain liable for the Excluded Liabilities
referred to in Section 3.3(f)); (b) the payment of the accounts payable listed
on Schedule 3.2B, in the amounts therein set forth, and (c) the payment of
-------------
$321,639 to Royal Bank of Canada (the "Bank") in respect of indebtedness of
Seller for money borrowed to the Bank (and ICON agrees to pay (or cause ICON
Canada to pay) on the Closing Date at Closing all money to be paid to the Bank
under this clause (c)).
3.2.2. Distribution Arrangements.
(a) Simultaneously with the execution and delivery hereof the
Buyers are executing and delivering to each of the four (4)
distributors referred to therein counterparts of the forms of
distribution agreements attached as Schedule 3.2.2A-1 through A-4. The
-----------------------------
Buyers jointly and severally agree to perform and discharge all
agreements and covenants to be performed by them thereunder, provided
that if any of such distributors elects not to enter into such a
distribution agreement and fails to execute the same within 30 days
after the Closing, then, in the case of the Israel distributor, such
distributor shall be treated as an Oral Distributor (as defined
below), and, in the case of the Brazil distributor, who has previously
entered into a distributorship agreement attached as part of Schedule
3.2.2B, such written distributorship agreement shall be treated as a
Distributorship Agreement under Section 3.2.2(b) below.
(b) Attached hereto as Exhibits 3.2.2 B-1 through B-9 are
letters executed by the Seller, ICON and the distributors listed on
Schedule 3.2.2B with respect to the distribution agreements identified
---------------
on said Schedule 3.2.2B, (the "Distributorship Agreements"). Effective
---------------
upon the execution and delivery hereof, the Seller hereby assigns to
the Buyers, and the Buyers, jointly and severally, hereby assume, the
Distributorship Agreements to the extent the same relate to home
fitness equipment; it being understood that the Seller is not
assigning, and the Buyers are not assuming, the Distributorship
Agreements to the extent the same relate to nutritional products or
publications or other products other than home fitness equipment. The
Buyers jointly and severally
-5-
<PAGE>
agree to perform and discharge all agreements and covenants of the
Seller under the Distributorship Agreements to the extent the same
relate to home fitness equipment (but not to the extent relating to
nutritional products or publications or other products other than home
fitness equipment). Notwithstanding the foregoing provisions of this
Section 3.2.2(b), the Seller shall remain liable for the Excluded
Liabilities referred to in Section 3.3(g).
(c) The Buyers hereby agree, jointly and severally, to supply
each of the distributors and other customers listed in Schedule 3.2.2C
---------------
(the "Oral Distributors") with the brands of home fitness equipment
listed respectively opposite the names of such distributors or
customers on Schedule 3.2.2C either on a non-exclusive basis or on an
---------------
exclusive basis, as set forth in said Schedule with respect to each
such distributor or customer, at prices no higher than those charged
other international distributors of ICON generally and otherwise on
terms similar to those applicable to other international distributors
of ICON generally (the existing distributors referred to in Schedules
---------
3.2.2A, B and C are referred to herein, collectively, as the Existing
---------------
Distributors"). Notwithstanding the foregoing provisions of this
Section 3.2.2(c), it is expressly understood and agreed that, subject
to the provisions of clause (iii) of Section 6.1.2, the Buyers may at
any time cease to supply any of the Oral Distributors.
3.2.3. Filling Pre-Closing Orders and Warranty Claims.
(a) The Buyers agree, jointly and severally, effective upon
the execution and delivery hereof, to assume the obligation to execute
each order listed on Schedule 3.2.3 and each other existing order, if
--------------
any, not listed in Schedule 3.2.3, which is a bona fide arms length
--------------
order for home fitness equipment which was placed with Seller by
unaffiliated third parties prior to the date hereof but which has not
been filled at the date hereof, in each case on the Seller's terms
applicable to such order.
(b) The Buyers agree, jointly and severally, effective upon
the execution and delivery hereof, that if any home fitness equipment
sold by Seller prior to the Closing is entitled to warranty service
after the Closing under the ordinary course warranties provided by the
Seller in connection with sales of home fitness equipment, Buyers
shall, at Buyers' own expense, promptly repair or replace such product
upon the applicable distributor's or customer's request if made within
the applicable warranty period of the Seller. Notwithstanding the
foregoing, Seller shall remain liable for the Excluded Liabilities
referred to in Section 3.3(h).
3.2.4. Products Liability. Buyers hereby agree, jointly and
severally, effective upon the execution and delivery hereof, to assume and pay,
discharge or otherwise be
-6-
<PAGE>
responsible for all product liability claims that were not asserted in
a writing actually received by the Seller prior to the execution and
delivery hereof in respect of (i) home fitness equipment sold by
Seller prior to the execution and delivery hereof and (ii) inventory
sold by either Buyer after the execution and delivery hereof, other
than, in the case of clause (i), product liability claims which
constitute Excluded Liabilities. Simultaneously with the execution and
delivery hereof, the Seller is paying the Buyers $40,000 (Canadian) in
respect of related product liability insurance costs of the Buyers.
3.2.5. Allocations. Assumed Liabilities as between the Buyers
are allocated to ICON Canada; provided, that ICON hereby agrees to pay
when due any Assumed Liability assumed by ICON Canada which ICON
Canada fails to pay when due. This guarantee by ICON is a guarantee of
payment and not of collection, and shall remain in effect
notwithstanding that ICON Canada's payment obligations may be stayed
or enjoined under bankruptcy or other applicable laws; and this
guarantee shall be reinstated in the event a payment previously made
by ICON Canada is returned under laws relating to bankruptcy
preferences or other applicable law. ICON waives presentment, protest,
notice of dishonor and similar demands and notices, and confirms that
this guarantee shall remain in effect notwithstanding the failure by
the Seller to exhaust its rights and remedies against ICON Canada or
to proceed with promptness and diligence in enforcing its rights under
this Agreement or otherwise.
3.2.6. Dollars. All references to $ or Dollars in this
Agreement are to U.S. dollars.
3.3. Excluded Liabilities. Buyers shall not assume, and the Seller
shall remain liable for and shall pay and discharge, (a) all liabilities and
obligations of the Seller not primarily related to the WSE Equipment Business,
(b) all liabilities and obligations of the Seller in respect of Taxes, (c) all
liabilities and obligations of the Seller in respect of any pending litigation
or any litigation threatened in a writing that is actually received by the
Seller or any of its Affiliates prior to the Closing, excluding, however, any
litigation or threatened litigation by any third party against the Seller or its
Affiliates relating to the distribution by ICON, directly or indirectly, of home
fitness equipment in the territory of any Existing Distributor other than
through the Seller ("ICON Related Litigation"), (d) all liabilities and
obligations in respect of products liability claims relating to products sold by
the Seller prior to the Closing if, but only if, such claim was asserted in a
writing that is actually received by the Seller on or prior to the Closing; (e)
all liabilities and obligations of the Seller arising under any Legal
Requirement relating to the employment of employees of the Seller prior to the
date of execution and delivery hereof, it being understood that if the Buyers
fail to comply with their obligations under Section 8.2 or 8.3 with respect to
any such employee, the Buyers shall be liable for any severance payment or other
compensation required to be paid by the Seller to such employee resulting from
such breach of Section 8.2 or 8.3 and for any other damages suffered by the
Seller resulting from such breach; (f) except to the extent constituting Buyer
Assumed Unknown Liabilities, all liabilities and obligations of the Seller under
the Transferred
-7-
<PAGE>
Contracts arising as a result of any breach prior to the Closing of any
Transferred Contracts by the Seller or any failure by the Seller to perform any
obligations to be performed by it thereunder prior to the Closing, provided that
the purported assignment hereunder of a Transferred Contract by the Seller to
the Buyers notwithstanding the non-assignability of such Transferred Contract
shall not be deemed to be a breach or non-performance thereof by Seller; (g)
except to the extent constituting Buyer Assumed Unknown Liabilities or
liabilities arising out of any ICON Related Litigation, all liabilities and
obligations of the Seller in respect of any of the Existing Distributors arising
as a result of any breach prior to the Closing by the Seller of any Contractual
Obligation to such Existing Distributors or any failure by the Seller to perform
any obligation to be performed by it thereunder prior to the Closing, provided
that the purported assignment hereunder of a Distributorship Agreement (or other
contractual relationship with an Existing Distributor) by Seller to Buyers,
notwithstanding the non-assignability of such agreement or relationship shall
not be deemed to be the breach or non-performance of a Contractual Obligation or
other obligation by Seller, and (h) except to the extent constituting Buyer
Assumed Unknown Liabilities, any actual direct cost suffered by ICON Canada or
ICON (not otherwise covered by any insurance policies maintained by either
Buyer) solely as a result of a general recall prior to the second anniversary of
the Closing of home fitness equipment sold by Seller prior to the Closing, which
products were not manufactured by ICON or Allfitness Inc. (all liabilities and
obligations to be retained by the Seller pursuant to this Section 3.3,
collectively, the "Excluded Liabilities").
3.4. Closing. The Closing under this Agreement (the "Closing") shall
occur simultaneously with the execution and delivery hereof and of the
certificates, consents, releases, and other documents and instruments specified
on Schedule 3.4 hereto (the "Closing Date").
------------
3.5. Bulk Sale. Each of the parties hereto expressly waives
compliance with Article 1767 (et seq.) of the Civil Code of the Province of
Quebec (the "Quebec Bulk Sales Laws").
3.6. No Implied Warranties. Each Buyer hereby acknowledges that it
has been permitted by the Seller to conduct a full and complete examination of
the WSE Equipment Assets and further acknowledges having been supplied with all
information requested by it pertaining to the WSE Equipment Assets. Each Buyer
hereby declares its satisfaction with the results of the examination it has
conducted in respect of the WSE Equipment Assets. Each Buyer acknowledges that
it is purchasing (i) the portion of the WSE Equipment Assets which consists of
inventory, equipment and other physical assets "as is," "with all faults", and
without any representation or warranty of any nature whatsoever, express or
implied, conventional or legal, including, without limitation, warranties of
merchantability or fitness for a particular purpose or use or warranties of
ownership or quality set forth in the Civil Code of Quebec or the Uniform
Commercial Code in force in any U.S. jurisdiction, to the extent applicable to
the transactions contemplated herein (the foregoing clause (i) shall not obviate
or modify the representations of Seller in Section 4, which are independent
representations), (ii) the portion of the WSE Equipment Assets which consists of
accounts
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<PAGE>
receivable without any guarantee of collectability and (iii) the portion of the
WSE Equipment Assets consisting of the Transferred Contracts and the
Distributorship Agreements without any representation or warranty regarding the
assignability of the same. The Seller shall not be liable to the Buyers for any
liability, loss or damage incurred or suffered as a result of the non-
assignability of any such Transferred Contract or Distributorship Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
In order to induce each Buyer to enter into and perform this Agreement
and to consummate the transactions contemplated hereby, the Seller represents
and warrants to each Buyer as follows:
4.1. Organization, Power and Standing. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of Quebec
and has all requisite corporate power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby.
4.2. Authority and Enforceability. This Agreement has been duly
authorized, executed and delivered by the Seller, and, subject to the payment to
the Bank of the amount set forth in Section 3.2.1(c), is Enforceable against the
Seller.
4.3. Non-Contravention, etc. Except that no representation is made
as to Quebec Bulk Sales Laws, neither the execution and delivery of this
Agreement nor the consummation of any of the transactions contemplated hereby
constitutes, results in or gives rise to (i) a breach of or a default or
violation or right or cause of action under any Charter or By-Laws provision of
the Seller or any Legal Requirement applicable to the Seller or (ii) the
imposition of any Lien upon or the forfeiture of any WSE Equipment Assets.
Except that no representation is made as to Quebec Bulk Sales Laws, and except
that Seller makes no representation or warranty with respect to the
assignability of any Transferred Contract or Distributorship Agreement, no
approval, consent, waiver, authorization or other order of, and no declaration,
filing, registration, qualification or recording with, any Governmental
Authority or other Person, including without limitation any party to any
Contractual Obligation of the Seller, is required to be obtained or made by or
on behalf of the Seller in connection with the execution, delivery or
performance of this Agreement and the transactions contemplated hereby by the
Seller, except as set forth on Schedule 4.3 hereto, all of which (except as
------------
specifically indicated in Schedule 4.3 hereto) have been obtained subject to the
------------
payment to the Bank of the amount set forth in Section 3.2.1 (c).
4.4. Title to Assets, etc. The Seller has good and marketable title
to all of the WSE Equipment Assets (i) constituting inventory or (ii) listed on
the Schedules hereto, in each case free and clear of any Liens, except as
described in Schedule 4.4A hereto (the "Permitted Liens"), and upon transfer of
-------------
the WSE Equipment Assets to ICON as contemplated hereunder, ICON shall acquire
good and marketable title to the WSE Equipment Assets free and clear of
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any Liens other than Permitted Liens (except for Permitted Liens identified on
Schedule 4.4 hereto as not continuing after the Closing and Liens created by
- ------------
Buyers), it being understood that the Seller is not making any representation or
warranty with respect to the assignability of any Transferred Contract or
Distributorship Agreement. The WSE Equipment Assets listed or referred to on
the Schedules hereto constitute all material assets, property and rights used
primarily to conduct the WSE Equipment Business during the period since January
1, 1996, other than (i) inventory sold in the ordinary course of business, (ii)
cash, cash equivalents, insurance policies and rights to payments thereunder,
fixed assets, owned real property, equipment leases (and related equipment) and
maintenance contracts not transferred in connection with the transaction
contemplated hereby, (iii) other assets immaterial in value or use sold or
otherwise disposed of in the ordinary course of business, (iv) other assets
identified on Schedule 4.4B and (v) the contracts and agreements referred to in
Section 10.11.
4.5. Litigation. Except as set forth on Schedule 4.5 hereto and
------------
except for the ICON Related Litigation, there is no litigation, at law or in
equity, or any proceeding before or investigation by any foreign, federal, state
or provincial court or other governmental or administrative agency or any
arbitrator pending (or, to the knowledge of the Seller, threatened in a writing
actually received by the Seller) against the Seller relating to the WSE
Equipment Business or which has had or could reasonably be expected to have a
material adverse effect on the WSE Equipment Business considered as a whole.
There is no litigation at law or in equity, or any proceeding before or
investigation by any foreign, federal, state, municipal or provincial court or
other governmental or administrative agency or any arbitrator, pending (or, to
the knowledge of the Seller, threatened in a writing actually received by the
Seller) against the Seller, which seeks rescission of, seeks to enjoin the
consummation of, or otherwise relates to, this Agreement or any of the
transactions contemplated hereby. No judgment, decree or order of any foreign,
federal, state or municipal or provincial court, or other governmental or
administrative agency or any arbitrator has been issued against the Seller or
any of its Affiliates which has been, or could reasonably be expected to be,
material with respect to the use of the WSE Equipment Assets.
4.6. Contracts. To the best of its knowledge the Seller is not a
party to any contract material to the WSE Equipment Business other than (a)
those listed in Schedules 3.2.1 and 3.2.2B hereto and (b) those referred to in
--------------- ------
the last sentences of Section 4.4 and Section 10.11 as not being transferred to
the Buyers. True and complete copies of such contracts listed on Schedules
---------
3.2.1 and 3.2.2B have been delivered to ICON or its counsel.
- ----------------
4.7. Defaults. Except for notices relating to the ICON Related
Litigation, the Seller has not received any written notice in the last three
months from any Existing Distributor or from any other party to any of the
Transferred Contracts claiming that a default, breach or violation has occurred
or is in existence thereunder which either entitles such other party to
terminate said contract or agreement or otherwise has a material adverse effect
on the WSE Equipment Business considered as a whole.
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<PAGE>
4.8. Certain Affiliated Party Relationships. Other than (a) the
agreements involving the parties and their Affiliates entered into (i) in
connection with the closing under and the transactions contemplated by the
Master Transaction Agreement and (ii) in connection with the closing under and
the transactions contemplated by the Settlement Agreement, (b) the Distribution
Agreement, and (c) the oral arrangements listed in Schedule 3.2.2.C, the Seller
----------------
is not party to any agreement to be assumed by the Buyers hereunder with any
Affiliate of the Seller pursuant to which such Affiliate provides goods or
services to the WSE Equipment Business or the WSE Equipment Business provides
goods or services to such Affiliate at prices which are materially above or
below the market price thereof. Neither the Seller nor any Affiliate of the
Seller (exclusive of any Existing Distributor), either individually or in the
aggregate with the Seller and all Affiliates of the Seller (exclusive of any
Existing Distributor), directly or indirectly, holds an equity interest in
excess of 50% in, or controls, directly or indirectly, any Existing Distributor.
The representation in the immediately preceding sentence shall not be deemed
breached if, upon any executive officer of the Seller, or either Buyer, becoming
aware after the date hereof of the ownership by the Seller of more than a 50%
equity interest in any Existing Distributor, the Seller shall sell the excess of
such equity interest over 50% as soon as reasonably practicable (but without
being forced into a fire sale situation) after such executive officer becoming
aware of such percentage ownership, or Seller receiving written notice from
either Buyer to such effect.
5. REPRESENTATIONS AND WARRANTIES OF BUYERS.
In order to induce the Seller to enter into and perform this Agreement and
to consummate the transactions contemplated hereby, each Buyer, jointly and
severally with the other Buyer, represents and warrants to the Seller as
follows:
5.1. Corporate Matters. Each Buyer is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby.
5.2. Authorization and Enforceability. This Agreement has been duly
authorized, executed and delivered by each Buyer, and is Enforceable against
each Buyer.
5.3. Non-Contravention, etc. Neither the execution, delivery nor
performance of this Agreement nor the consummation of the transactions
contemplated hereby does or will constitute, result in or give rise to any
breach or violation of, or any default or right or cause of action under, any
Charter or By-Laws provision of either Buyer or any Legal Requirement applicable
to either Buyer. No approval, consent, waiver, authorization or other order of,
and no declaration, filing, registration, qualification or recording with, any
Governmental Authority or any other Person, including without limitation any
party to any Contractual Obligation of either Buyer, is required to be obtained
or made by or on behalf of either Buyer in connection with the execution,
delivery or performance of this Agreement and the
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<PAGE>
transactions contemplated hereby by either Buyer, except as set forth on
Schedule 5.3 hereto, all of which have been obtained.
- ------------
5.4. Litigation. There is no litigation at law or in equity, or any
proceeding before or investigation by any foreign, federal, state or provincial
court or other governmental or administrative agency or any arbitrator, pending
(or, to the knowledge of either of the Buyers, threatened in writing) against
either of the Buyers which seeks rescission of or seeks to enjoin the
consummation of or otherwise relates to this Agreement or any of the
transactions contemplated hereby.
5.5. Tax Registration. ICON Canada has registered under the Excise
Tax Act (Canada) and the Quebec Sales Tax Act.
6. INDEMNITY.
6.1. Indemnity. The Seller (in its capacity as indemnifying party,
an "Indemnifying Party") hereby agrees to indemnify each Buyer and its
respective Affiliates (each in its capacity as indemnified party, an
"Indemnitee") and hold each Buyer and such Affiliates harmless, and each Buyer
(in its capacity as indemnifying party, an "Indemnifying Party"), jointly and
severally with the other Buyer, hereby agrees to indemnify the Seller and its
Affiliates (each in its capacity as indemnified party, an "Indemnitee") and hold
each of the Seller and such Affiliates harmless, from, against and in respect of
any and all Losses arising from or related to any of the following:
6.1.1. The Seller. In the case of the Seller as Indemnifying
Party, (i) any breach of or inaccuracy in any representation or
warranty made by the Seller in this Agreement (including, without
limitation, the Schedules hereto), (ii) any Excluded Liability (to the
extent it does not constitute a Buyer Assumed Unknown Liability
referred to in subsection (f), (g) or (h) of Section 3.3) or Seller
Retained Unknown Liabilities, (iii) any obligation of the Seller for
which either Buyer is liable by operation of the provisions of the
Quebec Bulk Sales Laws with respect to the transactions contemplated
hereby and which obligation is asserted against either Buyer within
the applicable prescription period provided for in Section 1776 of the
Civil Code of Quebec applicable thereto (after giving effect to any
written agreement of Seller extending or tolling such prescription
period); provided, that the maximum liability of the Seller under this
--------
clause (iii) shall not exceed the Cash Purchase Price; and provided
--------
further that the Seller shall have no indemnification obligation under
-------
this clause (iii) with respect to claims constituting Assumed
Liabilities and claims resulting from either Buyer's breach of its
obligations under Section 8, or (iv) any breach or violation of any
covenant or agreement made in this Agreement by the Seller to be
performed after the Closing not otherwise specifically covered by any
of clauses (i) through (iii) of this Section 6.1.1.
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<PAGE>
6.1.2. Buyers. In the case of each Buyer as Indemnifying
Party, (i) any Assumed Liability, (ii) any breach of or inaccuracy in
any representation or warranty made by either Buyer in this Agreement
(including, without limitation, the Schedules hereto), (iii) any claim
by any Oral Distributor against the Seller based upon any cessation of
supply by the Buyers to such Oral Distributor as provided in the last
sentence of Section 3.2.2(C) or otherwise arising from either Buyer's
conduct with or relationship with such Oral Distributor after the
Closing, or (iv) any breach or violation of any covenant or agreement
made by either Buyer in this Agreement (including without limitation
the covenants and agreements made by the Buyers pursuant to Section 8
hereof) to be performed by either Buyer after the Closing (or, in the
case of covenants and agreements under Section 8, at the Closing) not
otherwise specifically covered by any of clauses (i) through (iii) of
this Section 6.1.2.
6.2. Time Limitation on Indemnification.
6.2.1. The Seller's Indemnities. Notwithstanding the
foregoing, no claim may be made or suit instituted under the Indemnity
(a "Claim") by either Buyer or its Affiliates after the date which is
three hundred and sixty four (364) days after the date hereof, except
for (i) all Claims as to which either Buyer or its Affiliates has
given the Seller reasonably specific written notice (in light of the
facts then known) on or prior to such date, (ii) all Claims relating
to Excluded Liabilities (to the extent not constituting Buyer Assumed
Unknown Liabilities referred to in subsection (f), (g) or (h) of
Section 3.3) or Seller Retained Unknown Liabilities, (iii) all Claims
with respect to any of the representations or warranties contained in
Section 4.1 or 4.2 or 4.4 hereof, (iv) all Claims based on the breach
of any covenant or agreement made in this Agreement to be performed by
the Seller after the Closing, (v) all Claims based upon intentional
fraud (and not merely gross negligence or recklessness) and (vi) all
Claims under Section 6.1.1(iii). With respect to all Claims to which
reference is made in clauses (i), (ii), (iii), (iv) or (v) of the
immediately preceding sentence, there shall not be any limitation as
to time. As to Claims referred to in clause (vi) of the second
preceding sentence, no Claim may be made after seven (7) days after
the expiration of the prescription period provided for in Section 1776
of the Civil Code of Quebec applicable to the underlying claim (in
each case after giving effect to any written agreement of Seller
extending or tolling such prescription period) .
6.2.2. Buyers' Indemnities. Notwithstanding the foregoing,
no Claim may be made by the Seller or its Affiliates after the date
which is three hundred and sixty four (364) days after the date hereof
except for (i) all Claims as to which the Seller has given either
Buyer reasonably specific written notice (in light of the facts then
known) on or prior to such date, (ii) all Claims relating to Assumed
Liabilities (including Claims relating to obligations and liabilities
of Buyers under Section 8), (iii) all Claims with respect to any of
the representations or warranties contained in Section 5.1 or 5.2
hereof, (iv) all Claims based on the breach of any covenant or
agreement made in this
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<PAGE>
Agreement to be performed by the Buyers after the Closing (or, in the case of
covenants and agreements under Section 8, at and after the Closing), (v) all
Claims based upon intentional fraud (and not merely gross negligence or
recklessness) and (vi) all Claims under Section 6.1.2(iii) related to claims by
Oral Distributors. With respect to Claims to which reference is made in clauses
(i), (ii), (iii), (iv), (v) and (vi) of the immediately preceding sentence,
there shall not be any limitation as to time.
6.3. Monetary Limitations on Indemnification.
6.3.1. The Seller.
6.3.1.1. Minimum.
(a) Except as set forth in clause (b) below, the Seller as
Indemnifying Party shall have no obligation under this Agreement to
indemnify either Buyer or any of its Affiliates as Indemnitee in respect
of any Loss suffered or incurred by either Buyer or any of its Affiliates
as Indemnitee until the aggregate cumulative total, without duplication,
of (x) the aggregate dollar amount of the Losses, if any, actually
incurred or suffered by either Buyer or its Affiliates prior to the date
of determination as to which Losses a timely Claim shall have been made
under Section 6.2.1 and which Losses shall otherwise be entitled to
indemnification under Section 6 hereof (determined without regard to
Section 6.3.1), plus (b) the aggregate dollar amount of the Unknown
Liabilities, if any, actually paid by either Buyer prior to such date of
determination (subject to the last sentence of Section 6.4), exceeds
$1,000,000, whereupon each Buyer and its Affiliates as Indemnitee (but
without duplication) will be entitled to indemnification for the entire
aggregate cumulative amount of such Losses to the extent that the
aggregate cumulative total, without duplication, of (x) the aggregate
dollar amount of the Losses, if any, actually incurred or suffered by
either Buyer or its respective Affiliates prior to the date of
determination as to which Losses a timely Claim shall have been made
pursuant to Section 6.2.1 and which Losses shall otherwise be entitled to
indemnification under Section 6 hereof (determined without regard to
Section 6.3.1), plus (b) the aggregate dollar amount of the Unknown
Liabilities, if any, actually paid by either Buyer prior to such date of
determination (subject to the last sentence of Section 6.4), exceeds
$1,000,000. In no event shall Seller be liable for the first such
$1,000,000.
(b) No minimum dollar limitation shall apply to Losses (i) as
to which a Claim referred to in clauses (iv) or (v) of Section 6.2.1
hereof is made or (ii) in respect of the Excluded Liabilities referred to
in Sections 3.3(a), (b), (c), (d) and (e).
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<PAGE>
6.3.1.2. Maximum. Except with respect to the Claims referred to
in (ii), (iii), (iv) or (v) of Section 6.2.1 hereof, the Seller as
Indemnifying Party shall have no obligation to indemnify the Buyers and
their Affiliates as Indemnitee in excess of an aggregate amount equal to
the Cash Purchase Price.
6.3.2. Amount of Losses Reimbursable.
6.3.2.1. Taxes and Insurance. The amount of any liability for
Loss as to which indemnification exists under this Agreement shall be
measured taking into account (i) any income tax savings (and income tax
cost attributable to the indemnity payment) actually realized (or
incurred) that affect the overall economic impact of the Loss to the
Indemnitee, and (ii) any insurance proceeds actually realized and adverse
insurance consequences incurred (such as premium adjustments and other
detriments) that affect the overall economic impact of the Loss to the
Indemnitee.
6.3.2.2. Certain Litigation Costs. In the event of any Claim by
any third party based on facts which, if true as alleged, would give rise
to any liability for Loss as to which indemnification exists under this
Agreement, the amount of the Loss shall be deemed to include without
limitation the costs of the defense thereof, whether or not successful,
subject to the rights of the Indemnifying Party to assume such defense
pursuant to Section 6.4.
6.3.2.3. Currency. Obligations under this Section 6 shall be
satisfied in U.S. dollars.
6.3.2.4. Treatment of Indemnity Payments. All payments under
this Section 6 shall be deemed adjustments to the Purchase Price, unless a
final determination with respect to the Indemnitee causes any such payment
not to constitute an adjustment to the Purchase Price for federal, state,
provincial or municipal income Tax purposes.
6.4. Third Party Claims. Promptly after the receipt by any Indemnitee of
notice of the commencement of any action against such Indemnitee by a third
party (a "Third Party Claim"), such Indemnitee shall, if a Claim with respect
thereto is or may be made against any Indemnifying Party pursuant to this
Section 6, give such Indemnifying Party written notice thereof. The failure to
give such notice shall not relieve any Indemnifying Party from any obligation
hereunder except where, and then solely to the extent that, such failure
actually and materially prejudices the rights of such Indemnifying Party. Such
Indemnifying Party shall have the right to defend such Third Party Claim, at
such Indemnifying Party's expense and with counsel of its choice reasonably
satisfactory to the Indemnitee, provided that the Indemnifying Party conducts
the defense of such Third Party Claim actively and diligently. So long as the
Indemnifying Party is conducting the defense of such Third Party Claim as
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provided in the previous sentence, the Indemnitee may retain separate co-counsel
at its sole cost and expense and may participate in defense of such Third Party
Claim, and neither the Indemnifying Party nor the Indemnitee will consent to the
entry of any judgment or enter into any settlement with respect to such Third
Party Claim without the prior written consent of the other, which consent will
not be unreasonably withheld. In the event the Indemnifying Party does not or
ceases to conduct the defense of such Third Party Claim as so provided, (x) the
Indemnitee may defend against, and consent to the entry of any judgment or enter
into any settlement with respect to, such Third Party Claim in any manner it may
reasonably deem to be appropriate, (y) the Indemnifying Party will reimburse the
Indemnitee promptly and periodically for the costs of defending against such
Third Party Claim, including attorneys' fees and expenses, and (z) the
Indemnifying Party will remain responsible for any Losses the Indemnitee may
suffer as a result of such Claim to the full extent provided in this Section 6.
If the Indemnifying Party assumes the defense of such Third Party Claim, the
Indemnitee agrees to reasonably cooperate in such defense so long as the
Indemnitee is not materially prejudiced thereby. Notwithstanding the foregoing,
the Seller shall have the right to direct the Buyers not to contest or to cease
contesting a Third Party Claim or Unknown Liability and to direct the Buyers to
pay the same, if either the then remaining Deductible Amount shall be sufficient
to cover such Third Party Claim or Unknown Liability or the Seller pays the
amount by which the Third Party Claim or Unknown Liability exceeds the then
remaining Deductible Amount. If either Buyer pays any Unknown Liability in
violation of the foregoing provisions of this Section 6.4, the Deductible Amount
shall be reduced solely to the extent of the amount of the liability that the
Seller agrees is due the third party claimant, subject only to a subsequent
judicial determination of a different amount. The Seller and the Buyers agree
that Buyers shall pay all Buyer Assumed Unknown Liabilities, notwithstanding any
dispute between Buyers and Seller with respect to (i) the existence or amount of
any indemnifiable Losses under Section 6 or (ii) the additional amount by which
the Deductible Amount may eventually be reduced by judicial determination if the
next preceding sentence applies, which disputed amounts under clauses (i) and
(ii) shall not reduce the Deductible Amount until the actual amount thereof
shall have been agreed upon or judicially determined.
6.5. No Circulatory of Limitations. In the event that an Indemnitee claims
that an Indemnifying Party has breached its obligation to make any payment under
this Section 6, the time and monetary limitations contained herein shall be
inapplicable to resolution of such claim for payment (but such limitations shall
be operative as provided herein to determination of the underlying claim).
6.6. Insurance Subrogation. The Seller and each of the Buyers hereby waive
any insurer's right of subrogation under this Agreement except solely to the
extent that such waiver would result in a limitation or termination of coverage
under any policy.
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7. DEFINITIONS.
For purposes of this Agreement, accounting terms used herein and not
otherwise defined herein are used herein as defined by Generally Accepted
Accounting Principles. In addition, the following terms shall have the
following meanings:
7.1. Deductible Amount. The term "Deductible Amount" shall mean $1,000,000
less the sum, without duplication, of (a) the aggregate dollar amount of the
Losses, if any, actually incurred or suffered by either Buyer or their
respective Affiliates prior to the date of determination as to which Losses a
Claim shall have been timely made under Section 6.2.1 and which Losses shall be
otherwise entitled to indemnification under Section 6 hereof (determined without
regard to Section 6.3.1), plus (b) the aggregate dollar amount of the Unknown
----
Liabilities, if any, actually paid by either Buyer prior to such date of
determination.
7.2. Generally Accepted Accounting Principles. The term "Generally
Accepted Accounting Principles" shall mean Canadian generally accepted
accounting principles, as of the date hereof.
7.3. WSE Equipment Assets. The term "WSE Equipment Assets" shall mean all
of the assets owned by the Seller which primarily relate to the conduct of the
WSE Equipment Business, including without limitation the Transferred Contracts,
the Distributorship Agreements and those assets listed on Schedule 7.3 hereto
------------
but excluding (i) cash, cash equivalents, insurance policies and rights to
payments thereunder, fixed assets, owned real property, equipment leases (and
related equipment) and maintenance contracts not transferred in connection with
the transactions contemplated hereby, (ii) other assets identified on Schedule
4.4.B, and (iii) the contracts and agreements referred to in Section 10.11.
8. EMPLOYEES.
8.1. Reimbursement of Certain Expenses.
(a) Buyers, jointly and severally agree to pay to the Seller (or its
designee and such designee may be changed by either the Seller or such designee
at any time and from time to time), for so long as Ben Weider shall live (but
not in any event after the fifth anniversary of the Closing Date), an amount
equal to (i) the aggregate salary and year-end bonus paid to, and the aggregate
cost of benefits for, the three secretary/receptionists assisting Ben Weider
currently employed by the Seller (each, together with any replacements
designated by Seller or its designee, a "Continuing WSE Employee") and in the
case of each such secretary/receptionist, his or her replacement; provided,
however, that in no event shall Buyers pay any amount under this clause (i) (A)
with respect to the 12 month period commencing on the date hereof, in excess of
the aggregate of (x) 1996 salary, (y) 1995 year-end bonus (increased by an
amount reflecting any increase in the Canadian Consumer Price Index ("Canadian
CPI") for 1996) and (z) cost of benefits set forth in Schedule 8.1 hereto and
------------
(B)
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with respect to each successive 12-month period thereafter (each an "Applicable
Period"), in excess of the aggregate amount payable for the immediately
preceding 12-month period increased by the amount of the Canadian CPI increase
for the calendar year immediately preceding the Applicable Period, plus (ii) the
aggregate amount of the employer's contribution to the Weider Sports & Equipment
Group Health Plan, furnished to Buyers (or such other insurance health plans as
may from time to time be adopted by WSE which is applicable to Seller employees
generally), Quebec Pensions Plan, Unemployment Insurance, CSST, the Labour
Standards Commission levy and Quebec Health Insurance levy and similar
compulsory contributions required to be made by applicable Legal Requirements
based on the employment of the Continuing WSE Employees after the Closing Date
(the "Contributions").
(b) On the fifth business day of each month, Buyers shall pay to the Seller
(or its designee and such designee may be changed by either the Seller or such
designee at any time and from time to time) an amount equal to all expenses
reimbursable pursuant to clause (a) which were actually paid by the Seller or
its designee during the preceding month.
(c) The Continuing WSE Employees are and will continue to be employees of
the Seller (or its designee and such designee may be changed by either the
Seller or such designee at any time and from time to time). Only the Seller or
its designee shall have the right to terminate, replace or direct the Continuing
WSE Employees. Buyers and their Affiliates shall have no liability of any kind
or nature whatsoever in respect of the Continuing WSE Employees or their acts or
omissions other than to make the payments provided for in Section 8.1(b).
(d) The obligations of each Buyer hereunder are joint and several with the
other Buyer. The payments required to be made by Buyers pursuant to this
Section 8.1 (a) and (b) shall be made without any setoff, deduction or
withholding for any reason whatsoever (including any Claim under Section 6) and
shall bear interest at the rate of 12% per annum from and after the tenth (10th)
calendar day following notice of failure to pay when due to and including the
date of payment. If, after written notice is provided to Buyers in accordance
with Section 11 hereof, Buyers fail to make any payments under this Section 8
for any reason and the Seller elects to rely on the following provisions of this
Section (d), the Specified Amount (as hereinafter defined) shall immediately and
automatically become due and payable in full within two days of such election
being made by the Seller in writing and will bear interest at a rate of 12% per
annum from the date that of such election until the date payment of the
Specified Amount is made; provided, however that the foregoing provisions of
this sentence shall not apply if Buyers fail to pay when due not more than three
(3) Monthly Payments in any twelve month period, so long as Buyers shall have
paid each such Monthly Payment within 10 calendar days of notice of same. As
used herein the term "Specified Amount" shall mean, at any time, the amount
equal to the product of (i) the sum of (x) the total of all payments (but
excluding interest) required to be made pursuant to clauses (i) and (ii) of
Section 8.1 (a) for the then preceding twelve (12) months plus (y) five percent
(5%) of the total amount referred to in clause (x) (which shall be deemed to
represent the Canadian
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CPI for the number of months under clause (ii) below) divided by twelve (12),
multiplied by (ii) the number of months then remaining until the fifth
anniversary of the date of execution and delivery hereof. In the event of any
suit to collect payments under this Section 8.1, each party agrees it shall be
responsible for and shall pay any and all legal expenses of the other party in
respect of such suit to the extent such other party prevails on the merits of
such suit. Payment of the Specified Amount with such interest shall constitute
payment in full of all obligations under this Section 8.1 (including without
limitation any obligation to pay interest pursuant to the second sentence of
this Section 8.1(d) so as to avoid double counting), if Seller elects to demand
payment of the Specified Amount.
8.2. Hiring Other WSE Employees. One of the Buyers shall offer employment
effective as of the Closing and on the same terms and conditions as currently
exist (including salaries, benefits and severance terms (as provided in Section
8.3) reflecting, in each case, such employees' years of employment with Seller
or its predecessor entities) to each of the Seller's employees listed on
Schedule 8.2 hereto and Seller hereby agrees to cooperate in good faith with
- ------------
Buyers to effectuate the hiring of such employees. Such terms and conditions as
currently exist are set forth on Schedule 8.2.
------------
8.3. Severance. With respect to employees listed on Schedule 8.2 hereto
------------
who accept employment with a Buyer no later than within 10 days of the date
hereof, the Buyers agree to adopt the following severance policy and make all
payments pursuant thereto to all employees entitled to such payments pursuant
hereto, in a single lump sum payable at the time of termination in the case of
each employee so entitled: until the first anniversary of the date of this
Agreement, any employee, who is terminated by either Buyer for any reason, or is
subject to Constructive Termination (as defined below), shall be entitled to a
lump sum severance payment payable at the time of termination from Buyers,
jointly and severally, equal to one year's salary, if such employee has more
than ten years' service, or one-half year's salary, if such employee has more
than one year's but fewer than ten years' service (in each case including as
applicable service for the purpose of such determination service for the Seller
or its predecessor entities). For purposes of this Agreement a "Constructive
Termination" shall occur if an employee elects not to remain in Buyer's employ
as a result of Buyer's making it a condition of employment that such employee's
place of employment be moved from Montreal to St. Jerome or any other place and
such move (a) increases such employee's commuting distance more than 35
kilometers and travel time more than 50% or (b) results in either a commuting
distance of more than 70 kilometers or travel time of more than 60 minutes.
Severance payments shall be reduced by any withholding required under applicable
provincial or federal Canadian law.
8.4. Third Party Beneficiaries. Each Buyer hereby expressly acknowledges
that the employees listed in Schedule 8.2 are intended as third party
------------
beneficiaries of the provisions of Section 8.2 and 8.3 of this Agreement.
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8.5. Transition Services. The Seller agrees to make available Eugene
Theriault, who will remain an employee of the Seller, to provide reasonable
transition services to Buyers (provided that such services shall be without
liability to Seller, which shall not be responsible for any action or omission
of Eugene Theriault) without cost to Buyers after the Closing for a period of
thirty (30) days.
9. GOVERNING LAW
9.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of New York, 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.
9.2. 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 New York. Each of the parties hereto by execution
hereof (i) hereby irrevocably submits to the jurisdiction of the federal and
state courts in the State of New York 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 he or it is not subject
personally to the jurisdiction of the above-named courts, that he or it is
immune from extraterritorial injunctive relief or other injunctive relief, that
his or 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 State of New York, agrees that service of
process by registered or certified mail, return receipt requested, at the
address specified in or pursuant to Section 11 hereof 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 11 hereof does not constitute
good and sufficient service of process. The provisions of this Section 9.2
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 New York.
9.3. 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 he or it will not assert (whether as plaintiff, defendant, or otherwise),
any right to trial by jury in any forum in
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<PAGE>
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 9.3 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.
9.4. Reliance. Each of the parties hereto acknowledges that he or it has
been informed by each other party that the provisions of this Section 9
constitute a material inducement upon which such party is relying and will rely
in entering into this Agreement and the transactions contemplated hereby.
10. MISCELLANEOUS.
10.1. Entire Agreement; Waivers. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous oral agreements, understandings,
negotiations and discussions, and all prior written agreements and other
writings of the parties with respect to such subject matter. No waiver of any
provision of this Agreement shall be deemed to or shall constitute a waiver of
any other provision hereof (whether or not similar), shall constitute a
continuing waiver unless otherwise expressly provided nor shall be effective
unless in writing and executed (i) in the case of a waiver by either Buyer, by
both Buyers, and (ii) in the case of a waiver by the Seller, by the Seller.
10.2. Amendment or Modification, etc. The parties hereto may not amend or
modify this Agreement except in such manner as may be agreed upon by a written
instrument executed by each Buyer and the Seller. Any written amendment,
modification or waiver executed by each Buyer and the Seller shall be binding
upon each Buyer and the Seller.
10.3. Survival, etc. All representations, warranties, covenants and
agreements made by or on behalf of any party hereto in this Agreement (including
without limitation the Schedules hereto), or pursuant to any document,
certificate, financial statement or other instrument referred to herein or
delivered in connection with the transactions contemplated hereby, shall be
deemed to have been material, of independent significance and relied upon by the
parties hereto, notwithstanding any investigation made by or on behalf of any of
the parties hereto or any opportunity therefor or any actual or constructive
knowledge thereby obtained, and shall survive the execution and delivery of this
Agreement and the Closing, as provided herein.
10.4. Further Assurances. The Seller and each Buyer agree that from time
to time, that they will do, execute, acknowledge or deliver, and cause to be
done, executed, acknowledged or delivered, all such further acts deeds,
assignments, transfers, conveyances, powers of attorney, notarial transfer deeds
or assurances as may reasonably requested by the
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other to consummate the transactions contemplated hereby. In addition, ICON
agrees to use commercially reasonable efforts to include the Seller as a named
insured under its product liability insurance with coverage throughout the
Territory (as defined in the Distribution Agreement) in respect of products
purchased from ICON for an amount not lower than levels in effect after November
14, 1994. Any cash received by the Seller in payment of accounts receivable
included in the WSE Equipment Assets shall be held by Seller in trust for and
remitted by Seller to ICON Canada, immediately upon receipt, and in the form
received.
10.5. No Third Parties. Except as set forth in Sections 6 and 8.4 hereof,
neither this Agreement nor any provision set forth herein is intended to, or
will, create any rights in or confer any benefits upon any person other than the
parties hereto and their respective successors and permitted assigns.
10.6. No Longer Distributor. The Seller acknowledges and agrees that
after the date hereof it shall not hold itself out as a distributor of ICON or
any of its Affiliates for periods after the date hereof.
10.7. Headings, etc. Section and subsection headings are not to be
considered part of this Agreement, are included solely for convenience, are not
intended to be full or accurate descriptions of the content thereof and shall
not affect the construction hereof. This Agreement shall be deemed to express
the mutual intent of the parties, and no rule of strict construction shall be
applied against any party.
10.8. Severability. In the event that any provision hereof would, under
applicable law, be invalid or unenforceable in any respect, such provision shall
(to the extent permitted by applicable law) be construed by modifying or
limiting it so as to be valid and enforceable to the maximum extent compatible
with, and possible under, applicable law. The provisions hereof are severable,
and in the event any provision hereof should be held invalid or unenforceable in
any respect, it shall not invalidate, render unenforceable or otherwise affect
any other provision hereof.
10.9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
10.10. Successors and Assigns. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective transferees, successors and assigns (each of which
such transferees, successors and assigns shall be deemed to be a party hereto
for all purposes hereof); provided, however that (i) no party may transfer any
-------- -------
of its rights or obligations hereunder without the consent of each Buyer and the
Seller; except that (a) each Buyer and the Seller and any permitted transferee
thereof may assign its rights and obligations hereunder, in whole or in part, to
any entity which is controlled by or under common control with such Buyer or
Seller, provided ICON (in the case
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<PAGE>
of such Buyer) or the Seller (in the case of the Seller) guarantees all
obligations hereunder of any such transferee, (b) each Buyer and any permitted
transferee thereof may transfer any of its rights hereunder to General Electric
Capital Corporation or any other institutional lender and their respective
successors for security purposes (and the Sellers acknowledges the assignment of
the indemnities of the Seller hereunder to General Electric Capital Corporation,
as Agent for security purposes) and (c) the Seller and any permitted transferee
thereof may transfer any of its rights hereunder to General Electric Capital
Corporation or any other institutional lender and their respective successors
for security purposes, and (ii) no transfer or assignment by any party shall
relieve such party of any of its obligations hereunder. Except as expressly
provided herein in Sections 6 and 8.4 hereof, this Agreement shall not confer
any right or remedy upon any Person other than the parties and their respective
transferees, successors and assigns. A merger shall not constitute a transfer
or assignment for purposes of this Section 10.10.
10.11. Settlement, etc. This Agreement is one of the documents
contemplated by the Settlement Agreement entered into between and among the
Buyers, the Seller and certain other parties of even date herewith. For the
avoidance of doubt, the parties acknowledge and agree that the Seller is not
assigning to Buyers, and Buyers are not assuming from the Seller, the following
agreements which shall not be a part of the WSE Purchased Assets: (i) this
Agreement, (ii) the Settlement Agreement, (iii) agreements involving the parties
and their Affiliates entered into (a) in connection with the closing under and
the transactions contemplated by the Master Transaction Agreement, and (b) in
connection with the closing under and the transactions contemplated by the
Settlement Agreement, (iv) the Canada License Agreement (as defined in the
Settlement Agreement), (v) the Distribution Agreement, (vi) agreements or
understandings relating to the grant of the perpetual exclusive right to the
Weider name for a variety of products, including exercise equipment, to third
parties for Japan and Australia, respectively (which rights to such third
parties with respect to fitness equipment the Seller represents and warrants
were all granted prior to November 14, 1994), and (vii) any agreements between
the Seller and any Affiliate of the Seller.
10.12. French Language. The parties acknowledge that they have requested
this agreement and all ancillary documents to be drawn up in English language
only. Les parties reconnaissent avoir exige que cette convention ainsi que tous
les documents y afferents soient rediges en anglais seulement.
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<PAGE>
11. NOTICES.
Any notices or other communications required or permitted hereunder shall
be effective if in writing and delivered personally or sent by telecopier,
Federal Express, or registered or certified mail, postage prepaid, addressed as
follows:
If to Seller,
to it at :
Weider Sports Equipment Co., Ltd.
2875 Bates Road
Montreal, Quebec H35 1B7
Telecopy No.: (514) 731-9026
Attention: Chief Executive Officer
With a copy to:
Weider Health & Fitness
21100 Erwin Street
Woodland Hills, California 91637-3772
Telecopy No.: (818) 999-6598
Attention: General Counsel
and
Latham & Watkins
885 Third Avenue
New York, NY 10022
Telecopy No.: (212) 751-4864
Attention: Roger Kimmel
If to ICON or ICON
Canada to it at:
ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Telecopy No.: (801) 750-5238
Attention: Chief Executive Officer
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<PAGE>
With a copy to:
ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Telecopy No.: (801) 750-5238
Attention: General Counsel
and
Ropes & Gray
One International Place
Boston, MA 02110
Telecopy No.: (617) 951-7050
Attention: R. Newcomb Stillwell
Unless otherwise specified herein, such notices or other communications shall be
deemed effective (a) on the date delivered, if delivered personally, (b) two
business days after being sent by Federal Express, if sent by Federal Express,
(c) one business day after being delivered, if delivered by telecopier with
confirmation of good transmission, and (d) three business days after being sent,
if sent by registered or certified mail. Each of the parties hereto shall be
entitled to specify a different address by giving notice as aforesaid to each of
the other parties hereto.
12. CERTAIN ADDITIONAL COVENANTS.
12.1. Certain Investments. Seller agrees not to acquire after the
Closing, and to cause Seller's affiliates controlling, controlled by or under
common control with the Seller not to acquire after the Closing, directly or
indirectly, any additional equity interest in any Existing Distributor.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have hereunto set their hands under seal, as of the date first above
written.
ICON: ICON HEALTH & FITNESS, INC.
By: /s/ ?
------------------------------------
Title: Secretary
ICON: CANADA: ICON OF CANADA INC.
By:/s/ ?
------------------------------------
Title: Secretary
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have hereunto set their hands under seal, as of the date first above
written.
WEIDER SPORTS EQUIPMENT CO., LTD
By /s/ Eugene Theriault.
------------------------------
Title: President & CEO.
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<PAGE>
Limited Guaranty
----------------
To induce Buyers to waive compliance by the Seller with the provisions of
Article 1767 (et seq.) the Civil Code of the Province of Quebec (the "Quebec
Bulk Sales Laws") in connection with the transactions contemplated by the above
WSE Asset Purchase Agreement, the undersigned Weider Health and Fitness, a
Nevada corporation ("WHF"), hereby unconditionally guarantees the payment by the
Seller of all obligations of Seller for which either Buyer is liable by
operation of such provisions and which obligation is asserted against either
Buyer within the applicable prescription period provided for in Section 1776 of
the Civil Code of Quebec applicable to the underlying claim; provided, however,
-------- -------
that WHF does not guarantee the payment of the Assumed Liabilities (for which
the Buyers, jointly and severally, are liable under the WSE Purchase Agreement)
and provided, further, that the aggregate liability of WHF under this guarantee
-------- -------
shall not exceed an amount equal to the Cash Purchase Price. This guarantee
shall constitute a guarantee of payment and not of collectibility and shall
remain in effect notwithstanding that the Seller's payment obligations may be
stayed or enjoined under bankruptcy or other applicable laws; and this guarantee
shall be reinstated in the event a payment previously made by the Seller is
returned under laws relating to bankruptcy preferences or other applicable law.
WHF waives presentment, protest, notice of dishonor and similar demands and
notices, and confirms that this guarantee shall remain in effect notwithstanding
the failure by Buyers to exhaust their rights and remedies against Seller or to
proceed with promptness and diligence in enforcing their rights under the WSE
Asset Purchase Agreement or otherwise. Terms defined in the above WSE Asset
Purchase Agreement and not otherwise defined herein are used herein as so
defined. No claim may be made by either Buyer or suit instituted by either
Buyer under this Guarantee after seven (7) days after the expiration of the
prescription period provided for in Section 1776 of the Civil Code of Quebec
applicable to the underlying claim (in each case after giving effect to any
written agreement of Seller extending or tolling such statute of limitations).
WEIDER HEALTH AND FITNESS
By: /s/ ?
------------------------------------------
Title:
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<PAGE>
EXHIBIT 10.42
CANCO ASSET PURCHASE AGREEMENT
This CANCO ASSET PURCHASE AGREEMENT (the "Agreement") is made as of the 6th
day of September, 1996, between ICON of Canada Inc., a Quebec corporation wholly
owned by ICON ("ICON Canada"), ICON Health & Fitness, Inc., a Delaware
corporation ("ICON"; each of ICON Canada and ICON being sometimes referred to
herein individually as a "Buyer" and collectively as the "Buyers"), ALLFITNESS
INC., a Canadian corporation ("CANCO" or "Seller"), formerly known as 3002993
Canada, Inc. ("3002993"), incorporated by Articles of Amalgamation dated
December 1, 1994 and the sole legal successor to each of Les Industries Rickbend
Inc., a Canadian corporation ("Rickbend"), Athletimonde Inc., a Canadian
corporation ("Athletimonde"), and Fitquip International Inc., a Canadian
corporation ("Fitquip"), (Rickbend, Athletimonde and Fitquip are sometimes
referred to herein collectively as "OLDCO"), and, solely with respect to
Sections 2 and 9 hereof, each of Scott R. Watterson and Gary E. Stevenson
Recitals
ICON and OLDCO entered into an Asset Option Agreement dated as of November
14, 1994 (as in effect prior to the date hereof, the "Asset Option Agreement")
pursuant to which ICON was granted an option to acquire certain assets of OLDCO,
and ICON, OLDCO, Scott R. Watterson and Gary E. Stevenson entered into the Canco
Management and Advisory Agreement dated as of November 14, 1994 (as in effect
prior to the date hereof, the "Canco Management and Advisory Agreement").
ICON assigned certain of its rights and obligations under the Asset Option
Agreement to ICON Canada in accordance with the terms and provisions of the
Asset Option Agreement.
CANCO has succeeded to all of the assets and business of OLDCO as of
December 1, 1994.
As part of a global settlement of certain disputes among the parties hereto
and their respective affiliates, ICON, ICON Canada and the Seller have agreed,
among other things, to amend and terminate the Asset Option Agreement and the
Canco Management and Advisory Agreement, and the Buyers have agreed to purchase
and the Seller has agreed to sell certain assets and ICON has agreed to assume
certain related liabilities.
<PAGE>
Agreement
Therefore, in consideration of the foregoing and the mutual agreements
and covenants set forth below, the parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1. Definitions. Certain terms are used in this Agreement as
specifically defined herein. Certain definitions are set forth in Section 7
hereof.
1.2. Master Transaction Agreement. Reference is hereby made to the
First Amended and Restated Master Transaction Agreement dated as of October 12,
1994 (as from time to time in effect, the "Master Transaction Agreement") among
ICON, Weider Health and Fitness, a Nevada corporation ("WHF"), Weider Sporting
Goods, Inc., a California corporation, and the other sellers named therein.
Terms defined in the Master Transaction Agreement and not otherwise defined
herein are used herein with the meanings so defined.
2. AMENDMENT AND TERMINATION OF ASSET OPTION AGREEMENT AND CANCO
MANAGEMENT AND ADVISORY AGREEMENT.
2.1. Amendment and Termination. This Agreement shall be deemed an
amendment of the Asset Option Agreement and Canco Management and Advisory
Agreement for all purposes. Except for the provisions of this Agreement as and
to the extent applicable to the respective parties hereto, which provisions
shall survive the execution and delivery hereof, the provisions of the Asset
Option Agreement and the Canco Management and Advisory Agreement are hereby
terminated and of no further force or effect simultaneously with the execution
and delivery hereof, and neither ICON nor the Seller or any other Person shall
have any further rights or obligations thereunder. Any and all Section 2 Claims
(as defined in Section 2.3) any Person may now have or may previously have had
based in whole or in part on facts that occurred prior to the date hereof (i)
pertaining to, by reason of, or arising under, the Asset Option Agreement or the
Canco Management and Advisory Agreement or (ii) pertaining to, by reason of, or
arising under, any other Person's obligations under the Asset Option Agreement
or the Canco Management and Advisory Agreement, or (iii) pertaining to, by
reason of, or arising under, any other Person's failure to comply with or to
perform its obligations thereunder, are hereby released and extinguished.
2.2. Management Fees, etc. Simultaneously with the Closing under
Section 3.1, (i) Canco will pay $654,763.40 (Canadian) to ICON, $458,334.30
(Canadian) to Scott R. Watterson and $458,334.30 (Canadian) to Gary E. Stevenson
in full payment, satisfaction and settlement of any and all accrued and unpaid
and future management fee obligations of Seller under the Canco Management and
Advisory Agreement and (ii) each of Messrs. Watterson and Stevenson will deliver
the ICON Release dated of even date hereof made by the ICON Releasors (as
defined therein) to the Released Weider Parties (as defined therein) to Seller,
its
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<PAGE>
directors, officers and affiliates. Messrs. Watterson and Stevenson and ICON
hereby expressly acknowledge that upon receipt of payment as set forth in clause
(i) of the preceding sentence, neither Mr. Watterson nor Mr. Stevenson nor ICON
nor any other Person will have any further Section 2 Claim of any kind
whatsoever, including rights to any payment or other compensation or
consideration of any sort, under the Asset Option Agreement or the Canco
Management and Advisory Agreement.
2.3. "Section 2 Claims" shall mean all debts, demands, actions,
causes of action, suits, accounts, covenants, contracts, agreements, torts,
damages, and any and all claims, demands, rights, and liabilities whatsoever, of
every name and nature, both at law and in equity, whether direct or derivative,
whether liquidated or unliquidated, whether known or unknown, and including but
not limited to any and all "claims" as that term is defined in 11 U.S.C. (S)
101.
3. PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES; AND MANNER OF
PAYMENT.
3.1. Purchase and Sale of Assets.
3.1.1. Sale of Assets. CANCO hereby agrees to sell, assign and
transfer to Buyers simultaneously with the execution and delivery
hereof, and Buyers hereby agree to purchase from CANCO simultaneously
with the execution and delivery hereof, the Option Assets. All of the
Option Assets shall be allocated to ICON Canada. For the avoidance of
doubt, the parties agree that all accounts receivable of Seller in
respect of sales occurring after the Assumed Closing Date are being
transferred to ICON Canada.
3.1.2. Purchase Price. In addition to the assumption of the
Assumed Liabilities, the cash purchase price to be paid by Buyers to
the Seller for the Option Assets (the "Cash Purchase Price") shall be
Canadian $2,209,222 and shall be paid simultaneously with the
execution and delivery hereof.
3.1.3. Payment of Purchase Price. The Cash Purchase Price will
be paid by wire transfer of immediately available funds in Canadian
dollars to such accounts as the Seller shall specify.
3.1.4. Reimbursement of Payroll. The Buyers will pay to Seller
Canadian $197,960 as reimbursement for payroll expense accrued after
the Assumed Closing Date for the week ending August 30, 1996 and paid
by Seller on September 4, 1996.
3.1.5. Allocation of Purchase Price. The Purchase Price shall
be allocated among the Option Assets in the manner set forth in
Schedule 3.1.1 hereto. Each Buyer and the Seller hereby agree to
--------------
reflect the allocation of the Purchase Price provided for herein in
their respective financial statements and Tax Returns.
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<PAGE>
3.1.6. Elections. ICON Canada and Seller shall, at the Closing,
jointly execute an election under section 167 of the Excise Tax Act
(Canada) and Section 75 of the Quebec Sales Tax Act in the form
prescribed for such purpose in order that the sale of the Option
Assets will occur without any Goods and Services Tax ("GST") or Quebec
Provincial Sales Tax ("PST") being payable in connection therewith.
ICON Canada shall file the election form executed by it with Revenue
Canada and the Minister of Revenue of Quebec with its GST and PST
return, respectively, for its GST and PST reporting period
encompassing the date of Closing and ICON Canada shall concurrently
therewith confirm to the Seller in writing that said election has been
duly filed. ICON Canada and the Seller agree to file a joint election
in accordance with Subsection 22(1) of the Income Tax Act (Canada) and
s.184 of the Quebec Taxation Act in prescribed form and within the
prescribed time limits.
3.2. Assumption of Liabilities. Buyers hereby agree, jointly and
severally, effective upon the Assumed Closing Date, to assume and pay,
discharge, perform or otherwise satisfy in accordance with their respective
terms and be responsible for all liabilities and obligations of the Seller which
relate to the business conducted with the Option Assets, past, present and
future, actual or contingent, other than the Excluded Liabilities and the Seller
Retained Unknown Liabilities (collectively the "Assumed Liabilities"). The
Assumed Liabilities include only (i) the Specifically Assumed Liabilities and
(ii) the Buyer Assumed Unknown Liabilities. The Buyers shall be responsible for,
and shall pay, all Unknown Liabilities up to a maximum amount equal in the
aggregate to the Deductible Amount (such portion of such liabilities being
referred to herein as the "Buyer Assumed Unknown Liabilities"). The Seller
shall be responsible for, and shall pay, all Unknown Liabilities which remain
outstanding after the Deductible Amount is equal to zero dollars (such portion
of such liabilities being referred to herein as the "Seller Retained Unknown
Liabilities"), but the Seller shall have no obligation to pay any Unknown
Liabilities unless and until the Deductible Amount shall be equal to zero
dollars. As used herein, the term "Unknown Liabilities" means all liabilities
and obligations of the Seller which relate to the business conducted with the
Option Assets which (i) were incurred, or, subject to the provisions of the next
sentence, arose or arise from acts or omissions of the Seller during the period
ending upon the Assumed Closing Date, and (ii) do not constitute either
Specifically Assumed Liabilities or (except to the extent specifically provided
in Section 3.3(f)) Excluded Liabilities. In the case of liabilities arising
from conduct by the Seller prior to and continued by the Buyers after the
Assumed Closing Date, such liabilities shall be deemed to be Unknown Liabilities
solely to the extent attributable to conduct by the Sellers prior to the Assumed
Closing Date, and, to the extent attributable to conduct of the Buyers and
periods after the Assumed Closing Date, the Buyers, jointly and severally, shall
be responsible therefor and discharge the same. As used herein, the term
"Specifically Assumed Liabilities" means all liabilities and obligations
specifically assumed by the Buyers pursuant to the provisions of Section 3.1.1
through 3.2.4 below:
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3.2.1. Transferred Contracts. Seller hereby assigns to the Buyers,
effective upon the Assumed Closing Date, and the Buyers hereby assume, effective
upon the Assumed Closing Date, the Transferred Contracts (as defined below)
(provided that the Seller shall remain liable for the Excluded Liabilities
referred to in Section 3.3(f)). Buyers hereby agree, jointly and severally,
effective upon the execution and delivery hereof, to assume and pay, discharge,
perform or otherwise satisfy in accordance with their respective terms and be
responsible for all liabilities and obligations of the Seller for periods on and
after the Assumed Closing Date with respect to the contracts and leases (the
"Transferred Contracts") listed on Schedule 3.2.1, (provided that the Seller
--------------
shall remain liable for the Excluded Liabilities referred to in Section 3.3(f))
and the payment of the payables of Seller in respect of inventory of the Seller
received on or after the Assumed Closing Date or accrued after the Assumed
Closing Date.
3.2.2. Filling Pre-Closing Orders; Warranties.
(a) The Buyers agree, jointly and severally, effective upon
the Assumed Closing Date, to assume the obligation to execute each
order listed on Schedule 3.2.2 and each other order, if any, not
listed on Schedule 3.2.2 which is a bona fide arms length order for
home fitness equipment which was placed with Seller by unaffiliated
third parties or Weider Sports Equipment Co. Ltd. prior to the date
hereof but which has not been filled at the date hereof, in each case
on the Seller's terms applicable to such order.
(b) The Buyers agree, jointly and severally, effective upon
the Assumed Closing Date, that if any home fitness equipment sold by
Seller prior to the Assumed Closing Date is entitled to warranty
service after the Assumed Closing Date under the ordinary course
warranties provided by the Seller in connection with sales of home
fitness equipment, Buyers shall, at Buyers' own expense, promptly
repair or replace such product upon the applicable distributor's or
customer's request if made within the applicable warranty period of
the Seller.
3.2.3. Products Liability. Buyers hereby agree, jointly and
severally, effective upon the execution and delivery hereof, to assume and pay,
discharge or otherwise be responsible for all product liability claims that were
not asserted in a writing actually received by the Seller prior to the Assumed
Closing Date in respect of (i) home fitness equipment sold by Seller prior to
the Assumed Closing Date, and (ii) inventory sold by either Buyer after the
Assumed Closing Date, other than, in the case of clause (i), product liability
claims which constitute Excluded Liabilities.
3.2.4. Allocations. Assumed Liabilities as between the Buyers are
allocated to ICON Canada, provided that ICON hereby agrees to pay when due any
Assumed Liability assumed by ICON Canada which ICON Canada fails to pay when
due. This guarantee by ICON is a guarantee of payment and not of collection,
and shall remain in
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effect notwithstanding that ICON Canada's payment obligations may be stayed
or enjoined under bankruptcy or other applicable laws; and this guarantee
shall be reinstated in the event a payment previously made by ICON Canada
is returned under laws relating to bankruptcy preferences or other
applicable law. ICON waives presentment, protest, notice of dishonor and
similar demands and notices, and confirms that this guarantee shall remain
in effect notwithstanding the failure by the Seller to exhaust its rights
and remedies against ICON Canada or to proceed with promptness and
diligence in enforcing its rights under this Agreement or otherwise.
3.2.5. Dollars. All references to $ or Dollars in this Agreement are
to U.S. dollars, unless otherwise specified.
3.3. Excluded Liabilities. Buyers shall not assume, and the Seller
shall remain liable for and shall pay and discharge, (a) all payables of the
Seller in respect of inventory of the Seller received prior to the Assumed
Closing Date or with respect to other payables accrued to the Assumed Closing
Date, (b) all liabilities and obligations of the Seller in respect of Taxes, (c)
all liabilities and obligations of the Seller in respect of any pending
litigation or any litigation threatened in a writing that is actually received
by the Seller or any of its Affiliates prior to the Assumed Closing Date, (d)
all liabilities and obligations in respect of products liability claims relating
to products sold by the Seller prior to the Assumed Closing Date, if, but only
if, such claim was asserted in a writing actually received by the Seller on or
prior to the Assumed Closing Date; (e) all liabilities and obligations of the
Seller arising under any Legal Requirement relating to the employment of
employees of the Seller prior to the Assumed Closing Date, it being understood
that if the Buyers fail to comply with their obligations under Section 8.1 with
respect to any such employee, the Buyers shall be liable for any severance
payment or other compensation required to be paid by the Seller to such employee
resulting from such breach of Section 8.1 and for any other damages suffered by
the Seller resulting from such breach; and (f) except to the extent constituting
Buyer Assumed Unknown Liabilities, all liabilities and obligations of the Seller
under the Transferred Contracts arising as a result of any breach prior to the
Assumed Closing Date of any Transferred Contracts by the Seller or any failure
by the Seller to perform any obligations to be performed by it thereunder prior
to the Assumed Closing Date, provided that the purported assignment hereunder of
a Transferred Contract by the Seller to the Buyers notwithstanding the non-
assignability of such Transferred Contract shall not be deemed to be a breach or
non-performance thereof by Seller (all liabilities and obligations to be
retained by the Seller pursuant to this Section 3.3, collectively, the "Excluded
Liabilities").
3.4. Closing. The Closing under this Agreement (the "Closing") shall
occur simultaneously with the execution and delivery hereof and of the
certificates, consents, releases, and other documents and instruments specified
on Schedule 3.4 hereto, including without limitation the deeds referred to
therein to certain real estate operated by Canco and the documents and
instruments to be delivered hereunder. The Closing shall be deemed for all
purposes of this Agreement to have occurred as of 9:00 a.m. Eastern Standard
Time on
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August 26, 1996, without regard to when the Closing may actually have
occurred. Such time and date are referred to herein as the "Assumed Closing
Date."
3.5. Bulk Sale. Each of the parties hereto expressly waives compliance
with Article 1767 (et seq.) of the Civil Code of the Province of Quebec (the
"Quebec Bulk Sales Laws").
3.6. No Implied Warranties. Each Buyer hereby acknowledges that it has
been permitted by the Seller to conduct a full and complete examination of the
Option Assets and further acknowledges having been supplied with all information
requested by it pertaining to the Option Assets. Each Buyer hereby declares its
satisfaction with the results of the examination it has conducted in respect of
the Option Assets. Each Buyer acknowledges that, it is purchasing (i) the
portion of the Option Assets which consists of inventory, equipment and other
physical assets "as is," "with all faults", and without any representation or
warranty of any nature whatsoever, express or implied, conventional or legal,
including, without limitation, warranties of merchantability or fitness for a
particular purpose or use or warranties of ownership or quality set forth in the
Civil Code of Quebec or the Uniform Commercial Code in force in any U.S.
jurisdiction, to the extent applicable to the transactions contemplated herein
(the foregoing clause (i) shall not obviate or modify the representations of
Seller in Section 4, which are independent representations), and (ii) the
portion of the Option Assets consisting of the Transferred Contracts without any
representation or warranty regarding the assignability of the same. The Seller
shall not be liable to the Buyers for any liability, loss or damage incurred or
suffered as a result of the non-assignability of any such Transferred Contract.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLER. In order to induce each
Buyer to enter into and perform this Agreement and to consummate the
transactions contemplated hereby, the Seller represents and warrants to each
Buyer as follows:
4.1. Organization, Power and Standing. CANCO is a corporation duly
organized, validly existing and in good standing under the laws of Canada. CANCO
has all requisite corporate power and authority, to execute, deliver and perform
this Agreement, and to consummate the transactions contemplated hereby.
4.2. Authority and Enforceability. This Agreement has been duly
authorized, executed and delivered by the Seller, and is Enforceable against the
Seller.
4.3. Non-Contravention, etc. Except that no representation is made as to
Quebec Bulk Sales Laws, neither the execution and delivery of this Agreement nor
the consummation of any of the transactions contemplated hereby constitutes,
results in or gives rise to (i) a breach of or a default or violation or right
or cause of action under any Charter or By-Laws provision of the Seller or any
Legal Requirement applicable to the Seller or (ii) the imposition of any Lien
upon or the forfeiture of any Option Assets. Except that no representation is
made as to Quebec Bulk Sales Laws, and except that Seller makes no
representation or warranty
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<PAGE>
with respect to the assignability of any Transferred Contract, no approval,
consent, waiver, authorization or other order of, and no declaration, filing,
registration, qualification or recording with, any Governmental Authority or
other Person, including without limitation any party to any Contractual
Obligation of the Seller, is required to be obtained or made by or on behalf of
the Seller in connection with the execution, delivery or performance of this
Agreement and the transactions contemplated hereby by the Seller except as set
forth on Schedule 4.3 hereto, all of which (except as specifically indicated in
------------
Schedule 4.3 hereto) have been obtained.
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4.4. Title to Assets. CANCO has good and marketable title to all of
the Option Assets (i) constituting inventory or (ii) listed on the Schedule
hereto, in each case free and clear of any Liens, except as described in
Schedule 4.4 hereto (the "Permitted Liens"), and upon transfer of the Option
- ------------
Assets to Buyers as contemplated hereunder, Buyers shall acquire good and
marketable title to all Option Assets free and clear of any Liens other than
Permitted Liens (except for Permitted Lien's identified on Schedule 4.4 hereto
------------
as not continuing after the Closing and Liens created by Buyers), it being
understood that the Seller is not making any representation a warranty with
respect to the assignability of any Transferred Contract. The Option Assets
listed or referred to on the Schedules hereto constitute all inventory,
equipment and fixed assets and contractual rights used to conduct the business
of CANCO during the period from January 1, 1996 through the Assumed Closing Date
other than (i) inventory sold in the ordinary course of business; (ii) insurance
policies and rights to payments thereunder; (iii) other assets immaterial in
value or use sold or otherwise disposed of in the ordinary course of business,
and (iv) the contracts referred to in Section 10.10.
4.5. Litigation. Except as set forth on Schedule 4.5 hereto, there
------------
is no litigation, at law or in equity, or any proceeding before or investigation
by any foreign, federal, state or provincial court or other governmental or
administrative agency or any arbitrator pending (or, to the knowledge of the
Seller, threatened in a writing actually received by the Seller) against the
Seller which had or could reasonably be expected to have a material adverse
effect with respect on the Option Assets considered as a whole. There is no
litigation at law or in equity, or any proceeding before or investigation by any
foreign, federal, state, municipal or provincial court or other governmental or
administrative agency or any arbitrator, pending (or, to the knowledge of the
Seller, threatened in a writing actually received by the Seller) against the
Seller, which seeks rescission of, seeks to enjoin the consummation of, or
otherwise relates to, this Agreement or any of the transactions contemplated
hereby. No judgment, decree or order of any foreign, federal, state, municipal
or provincial court, or other governmental or administrative agency or any
arbitrator has been issued against the Seller or any of its Affiliates which has
been, or could reasonably be expected to be, material with respect to the use of
the Option Assets.
4.6. Contracts. To the best of its knowledge the Seller is not a party to
any contract material to the Seller or the Option Assets other than (a) those
listed on Schedule 3.2.1 hereto and (b) those referred to in the last sentence
--------------
of Section 4.4 and Section 10.10 as not being
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transferred to the Buyers. True and complete copies of such contracts so listed
on Schedule 3.2.1 hereto have been delivered to ICON or its counsel.
4.7. Defaults. Except as set forth in Schedule 4.7, the Seller has not
received any written notice in the last three months from any party to any of
the Transferred Contracts claiming that a default, breach or violation has
occurred or is in existence thereunder which either entitles such other party to
terminate said contract or agreement or otherwise has a material adverse effect
on the Option Assets considered as whole.
4.8. Certain Affiliated Party Relationships. Other than the agreements
involving the parties and their Affiliates entered into (i) in connection with
the closing under and the transactions contemplated by the Master Transaction
Agreement, and (ii) in connection with the closing under and the transactions
contemplated by the Settlement Agreement, the Seller is not party to any
agreement to be assumed by the Buyers hereunder with any Affiliate of the Seller
pursuant to which such Affiliate provides goods or services to Seller or Seller
provides goods or services to such Affiliate at prices which are materially
above or below the market price thereof.
5. REPRESENTATIONS AND WARRANTIES OF BUYERS.
In order to induce the Seller to enter into and perform this Agreement and
to consummate the transactions contemplated hereby, each Buyer, jointly and
severally with the other Buyer, represents and warrants to the Seller as
follows:
5.1. Corporate Matters. Each Buyer is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby and thereby.
5.2. Authorization and Enforceability. This Agreement has been duly
authorized, executed and delivered by each Buyer, and is Enforceable against
each Buyer.
5.3. Non-Contravention, etc. Neither the execution, delivery nor
performance of this Agreement nor the consummation of the transactions
contemplated hereby does or will constitute, result in or give rise to any
breach or violation of, or any default or right or cause of action under, any
Charter or By-Laws provision of either Buyer or any Legal Requirement applicable
to either Buyer. No approval, consent, waiver, authorization or other order of,
and no declaration, filing, registration, qualification or recording with, any
Governmental Authority or any other Person, including without limitation any
party to any Contractual Obligation of either Buyer, is required to be obtained
or made by or on behalf of either Buyer in connection with the execution,
delivery or performance of this Agreement and the transactions contemplated
hereby by either Buyer, except as set forth on Schedule 5.3 hereto, all of which
------------
have been obtained.
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<PAGE>
5.4. Litigation. There is no litigation at law or in equity, or any
proceeding before or investigation by any foreign, federal, state or provincial
court or other governmental or administrative agency or any arbitrator, pending
(or, to the knowledge of either of the Buyers, threatened in writing) against
either of the Buyers which seeks rescission of or seeks to enjoin the
consummation of or otherwise relates to this Agreement or any of the
transactions contemplated hereby.
5.5. Tax Registration. ICON Canada has registered under the Excise Tax
Act (Canada) and the Quebec Sales Tax Act.
6. INDEMNITY.
6.1. Indemnity. The Seller (in its capacity as indemnifying party, an
"Indemnifying Party"), hereby agrees to indemnify each Buyer and its
respective Affiliates (each in its capacity as indemnified party, an
"Indemnitee") and hold each Buyer and such Affiliates harmless, and each
Buyer (in its capacity as indemnifying party, an "Indemnifying Party"),
jointly and severally with the other Buyer, hereby agrees to indemnify each
Seller and its Affiliates (each in its capacity as indemnified party, an
"Indemnitee") and hold each Seller and such Affiliates harmless, from,
against and in respect of any and all Losses arising from or related to any
of the following:
6.1.1. The Seller. In the case of the Seller as Indemnifying Party,
(i) any breach of or inaccuracy in any representation or warranty made by
the Seller in this Agreement (including, without limitation, the Schedules
hereto), (ii) any Excluded Liability (to the extent it does not constitute
a Buyer Assumed Unknown Liability referred to in Section 3.3(f)) or Seller
Retained Unknown Liabilities, (iii) any obligation of the Seller for which
either Buyer is liable by operation of the provisions of the Quebec Bulk
Sales Laws with respect to the transactions contemplated hereby and which
obligation is asserted against any Buyer within the applicable prescription
period provided for in Section 1776 of the Civil Code of Quebec applicable
(after giving effect to anywritten agreement of Seller extending the
following such prescription period);provided, that the maximum liability
--------
of the Seller under this clause (iii) shall not exceed the Cash Purchase
Price; and provided further that the Seller shall have no indemnification
-------- -------
obligation under this clause (iii) with respect to claims constituting
Assumed Liabilities and claims resulting from either Buyer's breach of its
obligations under Section 8 or (iv) any breach or violation of any covenant
or agreement made in this Agreement by the Seller to be performed after the
Closing not otherwise specifically covered by any of clauses (i) through
(iii) of this Section 6.1.1.
6.1.2. Buyers. In the case of each Buyer as Indemnifying Party, (i)
any Assumed Liability, (ii) any breach of or inaccuracy in any
representation or warranty made by either Buyer in this Agreement
(including, without limitation, the Schedules
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hereto), and (iii) any breach or violation of any covenant or agreement made by
either Buyer made in this Agreement (including without limitation the covenants
and agreements made by the Buyers pursuant to Section 8 hereof) to be performed
by either Buyer after the Assumed Closing Date (or, in the case of covenants and
agreements under Section 8, at and after the Assumed Closing Date) not otherwise
specifically covered by any of clauses (i) through (ii) of this Section 6.1.2.
6.2. Time Limitation on Indemnification.
6.2.1. The Seller's Indemnities. Notwithstanding the foregoing, no
claim may be made or suit instituted under the Indemnity (a "Claim") by either
Buyer or its Affiliates after the date which is three hundred and sixty four
(364) days after the date hereof, except for (i) all Claims as to which either
Buyer or its Affiliates has given the Seller reasonably specific written notice
(in light of the facts then known) on or prior to such date, (ii) all Claims
relating to Excluded Liabilities (to the extent not constituting Buyer Assumed
Unknown Liabilities referred to in Section 3.3(f)) or Seller Retained Unknown
Liabilities, (iii) all Claims with respect to any of the representations or
warranties contained in Section 4.1 or 4.2 or 4.4 hereof, (iv) all Claims based
on the breach of any covenant or agreement made in this Agreement to be
performed by the Seller after the Closing, (v) all Claims based upon intentional
fraud (and not merely gross negligence or recklessness) and (vi) all Claims
under Section 6.1.1 (iii). With respect to all Claims to which reference is
made in clauses (i), (ii), (iii), (iv) or (v) of the immediately preceding
sentence, there shall not be any limitation as to time. As to Claims referred
to in clause (vi) of the second preceding sentence, no Claim may be made after
seven (7) days after the expiration of the prescription period provided for in
Section 1776 of the Civil Code of Quebec applicable to the underlying claim
under the Quebec Bulk Sales Laws (in each case after giving effect to any
written agreement of Seller extending or tolling such prescription period).
6.2.2. Buyers' Indemnities. Notwithstanding the foregoing, no Claim
may be made by the Seller or its Affiliates after the date which is three
hundred and sixty four (364) days after the date hereof except for (i) all
Claims as to which the Seller has given either Buyer reasonably specific written
notice (in light of the facts then known) on or prior to such date, (ii) all
Claims relating to Assumed Liabilities (including Claims relating to obligations
and liabilities of Buyers under Section 8), (iii) all Claims with respect to any
of the representations or warranties contained in Section 5.1 or 5.2 hereof,
(iv) all Claims based on the breach of any covenant or agreement made in this
Agreement to be performed by the Buyers after (or, in the case of obligations
and responsibilities under Section 8, at or after the Assumed Closing Date),
and (v) all Claims based upon intentional fraud (and not merely gross negligence
or recklessness). With respect to Claims to which reference is made in clauses
(i), (ii), (iii), (iv) and (v) of the immediately preceding sentence, there
shall not be any limitation as to time.
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<PAGE>
6.3. Monetary Limitations on Indemnification.
6.3.1. The Seller.
6.3.1.1. Minimum.
(a) Except as set forth in clause (b) below, the Seller as
Indemnifying Party shall have no obligation under this Agreement to
indemnify either Buyer or any of its Affiliates as Indemnitee in respect
of any Loss suffered or incurred by either Buyer or any of its Affiliates
as Indemnitee until the aggregate cumulative total, without duplication,
of (x) the aggregate dollar amount of the Losses, if any, actually
incurred or suffered by either Buyer or its Affiliates prior to the date
of determination as to which Losses a timely Claim shall have been made
under Section 6.1.2 and which Losses shall otherwise be entitled to
indemnification under Section 6 hereof (determined without regard to
Section 6.3.1), plus (b) the aggregate dollar amount of the Unknown
Liabilities, if any, actually paid by either Buyer prior to the date of
determination (subject to the last sentence of Section 6.4), exceeds U.S.
$500,000, whereupon each Buyer and its Affiliates as Indemnitee (but
without duplication) will be entitled to indemnification for the entire
aggregate cumulative amount of such Losses to the extent that the
aggregate cumulative total, without duplication, of (x) the aggregate
dollar amount of the Losses, if any, actually incurred or suffered by
either Buyer or its respective Affiliates prior to the date of
determination as to which Losses a timely claim shall have been made
pursuant to Section 6.2.1 and which Losses shall otherwise be entitled to
indemnification under Section 6 hereof (determined without regard to
Section 6.3.1), plus (b) the aggregate dollar amount of the Unknown
Liabilities, if any, actually paid by either Buyer prior to such date of
determination(subject to the last sentence of Section 6.4), exceeds U.S.
$500,000. In no event shall Seller be liable for the first such U.S.
$500,000.
(b) No minimum dollar limitation shall apply to Losses (i) as to
which a Claim referred to in clauses (iv) or (v) of Section 6.2.1 hereof
is made or (ii) in respect of Excluded Liabilities referred to in Sections
3.3(a), (b), (c), (d) and (e).
6.3.1.2. Maximum. Except with respect to the Claims referred to
in (ii), (iii), (iv) or (v) of Section 6.2.1 hereof, the Seller as Indemnifying
Party shall have no obligation to indemnify the Buyers and their Affiliates as
Indemnitee in excess of an aggregate amount equal to the Cash Purchase Price.
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6.3.2. Amount of Losses Reimbursable.
6.3.2.1. Taxes and Insurance. The amount of any liability
for Loss as to which indemnification exists under this Agreement shall
be measured taking into account (i) any income tax savings (and income
tax cost attributable to the indemnity payment) actually realized (or
incurred) that affect the overall economic impact of the Loss to the
Indemnitee, and (ii) any insurance proceeds actually realized and
adverse insurance consequences incurred (such as premium adjustments
and other detriments) that affect the overall economic impact of the
Loss to the Indemnitee.
6.3.2.2. Certain Litigation Costs. In the event of any Claim
by any third party based on facts which, if true as alleged, would
give rise to any liability for Loss as to which indemnification exists
under this Agreement, the amount of the Loss shall be deemed to
include without limitation the costs of the defense thereof, whether
or not successful, subject to the rights of the Indemnifying Party to
assume such defense pursuant to Section 6.4.
6.3.2.3. Currency. Obligations under this Section 6 shall be
satisfied in U.S. dollars.
6.3.2.4. Treatment of Indemnity Payments. All payments under
this Section 6 shall be deemed adjustments to the Purchase Price,
unless a final determination with respect to the Indemnitee causes any
such payment not to constitute an adjustment to the Purchase Price for
federal, provincial or municipal or state income Tax purposes.
6.4. Third Party Claims. Promptly after the receipt by any Indemnitee of
notice of the commencement of any action against such Indemnitee by a third
party (a "Third Party Claim") such Indemnitee shall, if a Claim with respect
thereto is or may be made against any Indemnifying Party pursuant to this
Section 6, give such Indemnifying Party written notice thereof. The failure to
give such notice shall not relieve any Indemnifying Party from any obligation
hereunder except where, and then solely to the extent that, such failure
actually and materially prejudices the rights of such Indemnifying Party. Such
Indemnifying Party shall have the right to defend such Third Party Claim, at
such Indemnifying Party's expense and with counsel of its choice reasonably
satisfactory to the Indemnitee, provided that the Indemnifying Party conducts
the defense of such Third Party Claim actively and diligently. So long as the
Indemnifying Party is conducting the defense of such Third Party Claim as
provided in the previous sentence, the Indemnitee may retain separate co-counsel
at its sole cost and expense and may participate in defense of such Third Party
Claim, and neither the Indemnifying Party nor the Indemnitee will consent to the
entry of any judgment or enter into any settlement with respect to such Third
Party Claim without the prior written consent of the other, which consent will
not be unreasonably withheld. In the event the Indemnifying Party
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<PAGE>
does not or ceases to conduct the defense of such Third Party Claim as so
provided, (x) the Indemnitee may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, such Third Party Claim in
any manner it may reasonably deem to be appropriate, (y) the Indemnifying Party
will reimburse the Indemnitee promptly and periodically for the costs of
defending against such Third Party Claim, including attorneys' fees and
expenses, and (z) the Indemnifying Party will remain responsible for any Losses
the Indemnitee may suffer as a result of such Third Party Claim to the full
extent provided in this Section 6. If the Indemnifying Party assumes the
defense of such Third Party Claim, the Indemnitee agrees to reasonably cooperate
in such defense so long as the Indemnitee is not materially prejudiced thereby.
Notwithstanding the foregoing, the Seller shall have the right to direct the
Buyers not to contest or to cease contesting a Third Party Claim or Unknown
Liability and to direct the Buyers to pay the same, if either the then remaining
Deductible Amount shall be sufficient to cover such Third Party Claim or Unknown
Liability or the Seller pays the amount by which the Third Party Claim or
Unknown Liability exceeds the then remaining Deductible Amount. If either Buyer
pays any Unknown Liability in violation of the foregoing provisions of Section
6.4, the Deductible Amount shall be reduced solely to the extent of the amount
of the liability that the Seller agrees is due the third party claimant, subject
only to a subsequent judicial determination of a different amount. The Seller
and the Buyers agree that Buyers shall pay all Buyer Assumed Unknown
Liabilities, notwithstanding any dispute between Buyers and Seller with respect
to (i) the existence or amount of any indemnifiable Losses under Section 6 or
(ii) the additional amount by which the Deductible Amount may eventually be
reduced by judicial determination if the next preceding sentence applies, which
disputed amounts under clauses (i) and (ii) shall not reduce the Deductible
Amount until the actual amount thereof shall have been agreed upon or judicially
determined.
6.5. No Circularity of Limitations. In the event that an Indemnitee claims
that an Indemnifying Party has breached its obligations to make any payment
under this Section 6, the time and monetary limitations contained herein shall
be inapplicable to resolution of such claim for payment (but such limitations
shall be operative as provided herein to determination of the underlying claim).
6.6. The Seller and each of the Buyers hereby waive any insurer's right of
subrogation under this Agreement except solely to the extent that such waiver
would result in a limitation or termination of coverage under any policy.
6.7. Letter of Credit Support for Seller's Indemnification.
6.7.1. Initial Letter of Credit. To provide credit support for the
Seller's indemnification obligations under this Section 6, the Seller will
deliver to Buyers at the Closing a 364-day letter of credit in the form of
Exhibit 6.8 hereto (the "Letter of Credit") issued by Royal Bank of Canada
(the "Bank") in the amount of $2,100,000 in Canadian dollars. In the event
that either Buyer has made one or more L/C Claims (as defined below) under
this Section 6 against the Seller which L/C Claim remains
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outstanding on the third business day next preceding the stated expiration
date of the Letter of Credit and a Qualifying Replacement Letter of Credit
(as defined below) has not been issued to Buyers on or prior to the third
business day next preceding the stated expiration date of the Letter of
Credit, Buyers will be entitled to instruct the Bank in accordance with the
provisions of Exhibit C of the Letter of Credit to pay the aggregate amount
of the Estimated Net L/C Claim (as defined below) or, if the same shall not
have been timely determined pursuant to Section 6.7.2, subject to Section
6.7.3.(d), the aggregate amount of the L/C Claims (as defined below) less
the Deductible Amount, if applicable, up to the amount then available for
drawing under the Letter of Credit, to the Escrow Agent specified in said
Exhibit C, for deposit in the Escrow Fund contemplated by the Escrow
Agreement dated of even date herewith among Seller, Buyers and Lapointe
Rosenstein and Goodman Phillips & Vineberg, acting jointly as Escrow Agent
(the "Escrow Agreement"). Seller shall have the right, at any time, to
substitute the Letter of Credit with another letter of credit substantially
in the form of, and on the same terms as, the Letter of Credit, such
substitute letter of credit to be issued by General Electric Credit
Corporation (or an affiliate thereof) or Wells Fargo or any other United
States financial institution of comparable credit standing. Buyers agree
that if such substitution is requested by Seller, Buyers shall surrender
the Letter of Credit to Seller upon delivery to either of them of such
substitute letter of credit (which substitute letter of credit shall be
deemed to be the "Letter of Credit" for all purposes hereof).
6.7.1.1. "Qualifying Replacement Letter of Credit" means a 364-day letter
of credit substantially in the form of the Letter of Credit (except as provided
in the last sentence of this definition), issued by the Bank or another Canadian
financial institution reasonably satisfactory to ICON, and with a face amount,
upon initial issuance thereof and subject to the provisions of Section 6.7.3(c),
equal to the lesser of (i) the amount available for drawing on the Letter of
Credit immediately prior to the expiration thereof, and (ii) (A) the aggregate
amount of the Estimated Net L/C Claim or (B) if the amount of the Estimated Net
L/C Claim shall not have been determined pursuant to Section 6.7.2 at the time
of issuance, the aggregate amount of the L/C Claims less the Deductible Amount,
if applicable. The Qualifying Replacement Letter of Credit shall provide that
it may not be drawn upon for any reason or in any amount except for payment of
such of the L/C Claims that may become due and payable.
6.7.1.2. "L/C Claim" means any Claim made by either Buyer against the
Seller under this Section 6 if, but only if, such Claim is made prior to the
tenth business day next preceding the stated expiration date of the Letter of
Credit (without giving effect to any extension or renewal thereof), by written
notice (given to the Seller by registered mail, return receipt requested)
specifying the nature and amount of, and the reasons for, the Claim in
reasonable detail, and further specifying that such notice is given pursuant to
this Section 6.7.1.
6.7.1.3. "L/C Set-Off Claim" means any claim made by the Seller against
either or both Buyers under this Section 6 if, but only if, such Claim is made
prior to the tenth business
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<PAGE>
day next preceding the stated expiration date of the Letter of Credit (without
giving effect to any extension or renewal thereof), by written notice (given to
either Buyer by registered mail, return receipt requested) specifying the nature
and amount of, and the reasons for, such Claim in reasonable detail, and further
specifying that such notice is given pursuant to this Section 6.7.1.
6.7.2. Determination of Estimated Net L/C Claim. In the event the Seller
disputes the amount or nature of any L/C Claim presented by either Buyer to the
Seller or either Buyer disputes the amount or nature of any L/C Set-Off Claim
presented to either Buyer by the Seller, the Estimated Net L/C Claim will be
determined as follows: at least 60 business days prior to the stated expiration
date of the Letter of Credit, the Seller and the Buyers will agree upon a
neutral arbitrator who shall be a retired judge of the New York State Supreme
Court or the United States District Court for the Southern District of New York,
who then resides in the New York metropolitan area (the "Arbitrator"), provided
that if the Seller and the Buyers shall not have agreed upon the Arbitrator at
least 45 business days prior to the stated expiration date of the Letter of
Credit, then either Seller or Buyers shall have the right to refer the selection
of the Arbitrator to JAMS, and such selection by JAMS shall be binding on Seller
and Buyers. The Seller and the Buyers will make available to the Arbitrator on a
confidential basis, not later than the tenth business day next preceding the
stated expiration date of the Letter of Credit, any facts or data with respect
to all L/C Claims and L/C Set-Off Claims as may be requested by the Arbitrator
to reach an informed decision, and shall give each other and the Arbitrator
their written respective estimate of the Estimated Net L/C Claim. On the fourth
business day next preceding the stated expiration date of the Letter of Credit,
the Arbitrator shall announce to all parties such Arbitrator's determination
(which shall not be binding on the parties and shall not be admissible as
evidence in any suit or proceeding) of the aggregate amount by which either (a)
the L/C Claims, less the Deductible Amount, if applicable, exceed the aggregate
amount of the L/C Set-Off Claims (the amount of such excess, the "Estimated Net
L/C Claim"), or (b) the L/C Set-off Claims exceed the aggregate amount of the
L/C Claims, less the Deductible Amount (the amount of such excess, the "Seller
Credit Amount").
6.7.3. Letter of Credit Covenants.
(a) Each Buyer hereby covenants not to attempt to draw, or to draw, on
the Qualifying Replacement Letter of Credit on account of any
Claims it may have against the Seller or its Affiliates, other than
the L/C Claims.
(b) Each Buyer hereby covenants and agrees that no funds held in or
constituting part of the Escrow Fund (as defined in the Escrow
Agreement) shall be used to pay any Claim it may have against the
Seller or its Affiliates, other than L/C Claims.
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<PAGE>
(c) If the procedures set forth in Section 6.7.2 are not completed
prior to the third business day next preceding the stated
expiration date of the Letter of Credit and a Qualified Replacement
Letter of Credit is issued and delivered in accordance with Section
6.7.1, then if the Estimated Net L/C Claim subsequently determined
in accordance with such procedures is less than the amount then
available for drawing on the Qualifying Replacement Letter of
Credit, then Buyers covenant and agree that they shall immediately
join the Seller in instructing the issuer of the Qualifying
Replacement Letter of Credit to reduce the face amount of said
letter of credit to an amount equal to the Estimated Net L/C Claim,
and the Buyers covenant to surrender the Qualifying Replacement
Letter of Credit to permit such reduction to be effected.
(d) If the procedures set forth in Section 6.7.2 are completed after
the funds available for drawing on the Letter of Credit have been
deposited in the Escrow Fund under the Escrow Agreement, and the
Estimated Net L/C Claim is less than the amount of the Escrow Fund,
then Buyers covenant and agree that they shall immediately join the
Seller in instructing the Escrow Agent under the Escrow Agreement
to release to the Seller the amount of the excess of the Escrow
Fund over the Estimated Net L/C Claim.
6.7.4. Payment of Arbitrator Fees and Interest. If the Arbitrator
determines that the Estimated Net L/C Claim is an amount more than 10% below the
amount of the Estimated Net L/C Claim proposed by Buyers provided pursuant to
Section 6.7.2, then Buyers, jointly and severally, shall be liable for the
Arbitrator's fees and expenses and shall pay to the Seller an amount equal to
interest at the rate of 12% per annum on the amount by which the Escrow Fund or
the face amount of the Qualifying Replacement Letter of Credit, as applicable,
exceeds the Estimated Net L/C Claim as determined by the Arbitrator for the
period commencing on the stated expiration date of the Letter of Credit and
ending on the date on which the actions set forth in Section 6.7.3(c) or (d), as
applicable, are taken. If the Estimated Net L/C Claim as determined by the
Arbitrator is more than 10% above the Seller's estimate of the same provided
pursuant to Section 6.7.2, then the Seller shall pay the fees and expenses of
the Arbitrator. If neither of the foregoing sentences applies, the Buyers
(jointly and severally) and the Seller shall each pay one-half of the
Arbitrator's fees and expenses.
7. DEFINITIONS. For purposes of this Agreement, accounting terms used herein
and not otherwise defined herein are used herein as defined by Generally
Accepted Accounting Principles. In addition, the following terms shall have the
following meanings:
7.1. Deductible Amount. The term "Deductible Amount" shall mean U.S.
$500,000 less the sum, without duplication, of (a) the aggregate dollar amount
of the Losses, if any, actually incurred or suffered by either Buyer or their
respective Affiliates prior to the date of determination as to which Losses a
claim shall have been timely made under Section 6.2.1 and which Losses shall be
otherwise entitled to indemnification under Section 6 hereof (determined
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<PAGE>
without regard to Section 6.3.1), plus (b) the aggregate dollar amount of the
----
Unknown Liabilities, if any, actually paid by either Buyer prior to such date of
determination.
7.2. Generally Accepted Accounting Principles. The term "Generally
Accepted Accounting Principles" shall mean Canadian generally accepted
accounting principles, as of the date hereof.
7.3. Option Assets. The term Option Assets shall mean (i) all
inventory, equipment and fixed assets owned by CANCO, (ii) all rights relating
to or arising as a result of prepaid expenses as of the Closing, but excluding
such rights relating to or arising as a result of payment of any prepaid
expenses with respect to insurance policies of the type and nature covering
claims made against Seller prior to the Closing or as a result of events or
shipments of products which occurred prior to the Assumed Closing Date, and
(iii) the Transferred Contracts and the Leases. The term "Option Assets"
excludes cash, cash equivalents and accounts receivables.
8. EMPLOYEES.
8.1. Hiring Employees. One of the Buyers shall offer employment
effective as of the Assumed Closing Date and on the same terms and conditions as
currently exist (including salaries, benefits and severance terms reflecting, in
each case, such employees' years of employment with Seller or its predecessor
entities) to all of CANCO's employees and CANCO hereby agrees to cooperate in
good faith with Buyers to effectuate the hiring of such employees. Such terms
and conditions as currently exist are set forth on Schedule 8.1.
------------
8.2. Third Party Beneficiaries. Each Buyer hereby expressly
acknowledges that the employees listed in Schedule 8.2 are intended as third
------------
party beneficiaries of the provisions of Section 8.2 of this Agreement.
9. GOVERNING LAW; JURISDICTION; JURY TRIAL WAIVER.
9.1. Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic substantive laws of the State of New York,
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.
9.2. 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 New York. Each of the parties hereto by
execution hereof (i) hereby irrevocably submits to the jurisdiction of the
federal and state courts in the State of New York 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
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<PAGE>
of motion, as a defense or otherwise, in any such action, suit or proceeding,
any claim that he or it is not subject personally to the jurisdiction of the
above-named courts, that he or it is immune from extraterritorial injunctive
relief or other injunctive relief, that his or 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 State of New York, agrees
that service of process by registered or certified mail, return receipt
requested, at the address specified in or pursuant to Section 11 hereof 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 11
hereof does not constitute good and sufficient service of process. The
provisions of this Section 9.2 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 New York.
9.3. 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 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 9.3
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.
9.4. Reliance. Each of the parties hereto acknowledges that he or it has
been informed by each other party that the provisions of this Section 9
constitute a material inducement upon which such party is relying and will rely
in entering into this Agreement and the transactions contemplated hereby.
10. MISCELLANEOUS.
10.1. Entire Agreement; Waivers. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous oral agreements, understandings,
negotiations and discussions, and all prior written agreements and other
writings, of the parties with respect to such subject matter. No waiver of any
provision of this Agreement shall be deemed to or shall constitute a waiver of
any other provision hereof (whether or not similar), shall constitute a
continuing waiver unless
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<PAGE>
otherwise expressly provided nor shall be effective unless in writing and
executed (i) in the case of a waiver by either Buyer, by both Buyers, and (ii)
in the case of a waiver by the Seller, by the Seller.
10.2. Amendment or Modification, etc. The parties hereto may not amend or
modify this Agreement except in such manner as may be agreed upon by a written
instrument executed by each Buyer and Seller. Any written amendment,
modification or waiver executed by each Buyer and the Seller shall be binding
upon each Buyer and the Seller.
10.3. Survival, etc. All representations, warranties, covenants and
agreements made by or on behalf of any party hereto in this Agreement (including
without limitation the Schedules hereto), or pursuant to any document,
certificate, financial statement or other instrument referred to herein or
delivered in connection with the transactions contemplated hereby, shall be
deemed to have been material, of independent significance and relied upon by the
parties hereto, notwithstanding any investigation made by or on behalf of any of
the parties hereto or any opportunity therefor or any actual or constructive
knowledge thereby obtained, and shall survive the execution and delivery of this
Agreement and the Closing, as provided herein.
10.4. Further Assurances. The Seller and each Buyer agree that from time
to time, that they will do, execute, acknowledge or deliver, and cause to be
done, executed, acknowledged or delivered, all such further acts deeds,
assignments, transfers, conveyances, powers of attorney, notarial transfer deeds
or assurances as may reasonably requested by the other to consummate the
transactions contemplated hereby.
10.5. No Third Parties. Except as set forth in Section 6 and 8.2 hereof,
neither this Agreement nor any provision set forth herein is intended to, or
will, create any rights in or confer any benefits upon any person other than the
parties hereto and their respective successors and permitted assigns.
10.6. Headings, etc. Section and subsection headings are not to be
considered part of this Agreement, are included solely for convenience, are not
intended to be full or accurate descriptions of the content thereof and shall
not affect the construction hereof. This Agreement shall be deemed to express
the mutual intent of the parties, and no rule of strict construction shall be
applied against any party.
10.7. Severability. In the event that any provision hereof would, under
applicable law, be invalid or unenforceable in any respect, such provision shall
(to the extent permitted by applicable law) be construed by modifying or
limiting it so as to be valid and enforceable to the maximum extent compatible
with, and possible under, applicable law. The provisions hereof are severable,
and in the event any provision hereof should be held invalid or unenforceable in
any respect, it shall not invalidate, render unenforceable or otherwise affect
any other provision hereof.
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<PAGE>
10.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
10.9. Successors and Assigns. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective transferees, successors and assigns (each of which
such transferees, successors and assigns shall be deemed to be a party hereto
for all purposes hereof); provided, however, that (i) no party may transfer any
-------- -------
of its rights or obligations hereunder without the consent of each Buyer and the
Seller; except that (a) each Buyer and the Seller and any permitted transferee
thereof may assign its rights and obligations hereunder, in whole or in part, to
any entity which is controlled by or under common control with such Buyer or
Seller, provided ICON (in the case of such Buyer) or the Seller (in the case of
the Seller) guarantees all obligations hereunder of any such transferee, (b)
each Buyer and any permitted transferee thereof may transfer any of its rights
hereunder, to General Electric Capital Corporation or any other institutional
lender and their respective successors for security purposes (and the Seller
acknowledges the assignment of the indemnities of the Seller hereunder to
General Electric Capital Corporation, as Agent, for security purposes), and (c)
the Seller and any permitted transferee thereof may transfer any of its rights
hereunder to General Electric Capital Corporation or any other institutional
lender and their respective successors for security purposes, and (ii) no
transfer or assignment by any party shall relieve such party of any of its
obligations hereunder. Except as expressly provided herein in Sections 2, 6 and
8 hereof, this Agreement shall not confer any right or remedy upon any Person
other than the parties and their respective transferees, successors and assigns.
A merger shall not constitute a transfer or assignment for purposes of this
Section 10.9.
10.10. Settlement, etc. This Agreement is one of the documents
contemplated by the Settlement Agreement entered into between and among the
Buyers, the Seller and certain other parties of even date herewith. For the
avoidance of doubt, the parties acknowledge and agree that the Seller is not
assigning to Buyers, and the Buyers are not assuming from the Seller the
following agreements which shall not be a part of the Option Assets: (i) this
Agreement, (ii) the Settlement Agreement, (iii) any agreement between the Seller
and any Affiliates of the Seller, and (iv) agreements involving the parties and
their Affiliates entered into (a) in connection with the closing under and the
transactions contemplated by the Master Transaction Agreement, and (b) in
connection with the closing under and the transactions contemplated by
Settlement Agreement.
10.11. French Language. The parties acknowledge that they have requested
this agreement and all ancillary documents to be drawn up in English language
only. Les parties reconnaissent avoir exige que cette convention ainsi que tous
les documents y afferents soient rediges en anglais seulement.
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<PAGE>
11. NOTICES.
Any notices or other communications required or permitted hereunder shall
be effective if in writing and delivered personally or sent by telecopier,
Federal Express, or registered or certified mail, postage prepaid, addressed as
follows:
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If to Seller,
to it at:
c/o Weider Sports Equipment Co., Ltd.
2875 Bates Road
Montreal, Quebec H35 1B7
Telecopy No.:
Attention: Chief Executive Officer
With a copy to:
Weider Health & Fitness
21100 Erwin Street
Woodland Hills, California 91637-3772
Telecopy No.: (818) 999-6598
Attention: General Counsel
and
Latham & Watkins
885 Third Avenue
New York, New York 10022
Telecopy No.: (212) 751-4864
Attention: Roger Kimmel
If to ICON or ICON Canada,
to it at:
ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Telecopy No.: (801) 750-5238
Attention: Chief Executive Officer
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<PAGE>
With a copy to:
ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Telecopy No.: (801) 750-5238
Attention: General Counsel
and
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopy No.: (617) 951-7050
Attention: R. Newcomb Stillwell
If to Mr. Watterson or
Mr. Stevenson, to him at:
ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Telecopy No.: (801) 750-5238
Attention: General Counsel
With a copy to:
Charles W. Robins
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02210
Telecopy No.: (617) 951-1295
Unless otherwise specified herein, such notices or other communications shall be
deemed effective (a) on the date delivered, if delivered personally, (b) two
business days after being sent by Federal Express, if sent by Federal Express,
(c) one business day after being delivered, if delivered by telecopier with
confirmation of good transmission, and (d) three business days after being sent,
if sent by registered or certified mail. Each of the parties hereto shall be
entitled to specify a different address by giving notice as aforesaid to each of
the other parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have hereunto set their hands under seal, as of the date first above
written.
ICON: ICON HEALTH & FITNESS, INC.
By: [SIGNATURE APPEARS HERE]
--------------------------------
Title: Secretary
ICON CANADA: ICON OF CANADA, INC.
By: [SIGNATURE APPEARS HERE]
--------------------------------
Title: Secretary
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have hereunto set their hands under seal, as of the date first above
written.
SELLER ALLFITNESS INC.
By:_________________________________________
Title:
ICON: ICON HEALTH & FITNESS, INC.
By:_________________________________________
Title:
ICON CANADA: ICON OF CANADA, INC.
By:_________________________________________
Title:
MANAGEMENT: /s/ Scott R. Watterson
-----------------------------------------
Scott R. Watterson, solely with respect
to Sections 2 and 9 of this Agreement.
/s/ Gary E. Stevenson
-----------------------------------------
Gary E. Stevenson, solely with respect
to Sections 2 and 9 of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto set their hands under seal, as of the date first written above.
SELLER: ALLFITNESS, INC.
By [SIGNATURE APPEARS HERE]
---------------------------------
Title:
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<PAGE>
EXHIBIT 10.43
SEPTEMBER 6, 1996
STOCK AND WARRANTS PURCHASE AGREEMENT
AMONG
IHF CAPITAL, INC.,
IHF HOLDINGS, INC.,
WEIDER HEALTH AND FITNESS
AND
THE OTHER PARTIES HERETO
Dated as of September 6, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Definitions .......................................................... 2
2. Rights and Obligations Relating to the Purchase and Sale of the Weider
Common Securities .................................................... 2
3. Rights and Obligations Relating to the Purchase and Sale of the Weider
Preferred ............................................................ 7
4. Rights and Restrictions with Respect to Weider Securities ............ 9
5. Bain Participation Rights ............................................ 12
6. Board of Director Representation ..................................... 13
7. Appointment of Custodian; Deposit of Weider Securities; Instructions;
Successor ............................................................ 13
8. Weider Investors Representations and Warranties ...................... 16
9. IHF Representations and Warranties ................................... 17
10. Termination of Agreement ............................................. 17
11. [Intentionally Deleted.] ............................................. 18
12. Governing Law; Jurisdiction; Jury Trial Waiver. ...................... 18
13. Notices .............................................................. 19
14. Miscellaneous ........................................................ 21
</TABLE>
-i-
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STOCK AND WARRANTS PURCHASE AGREEMENT
This Agreement is entered into as of September 6, 1996, by and among: (i)
IHF Capital, Inc., a Delaware corporation ("IHF Capital"), (ii) IHF Holdings,
-----------
Inc., a Delaware corporation ("IHF Holdings"), (iii) Weider Health and Fitness,
------------
a Nevada corporation, ("WHF" or a "Weider Investor"), and (iv) Greyfriars
--- ---------------
Limited, Bayonne Settlement, Hornchurch Investments Limited, Ronald Corey,
Bernard J. Cartoon, Ronald Novak, Eric Weider, Richard Bizzaro, Robert Reynolds,
Michael Carr, Thomas Deters, Barbara Harris and Zbigniew Kindella (collectively
with WHF and certain transferees referred to in Section 4.3(b) below, if any,
the "Weider Investors"). Bain Capital Fund IV, L.P., Bain Capital Fund IV-B,
----------------
L.P., BCIP Associates and BCIP Trust Associates, L.P. (collectively, the "Fund
----
Investors"), each of whom are not otherwise a party to this Agreement, join in
- ---------
Section 5 of this Agreement. Richard Renaud, who is not otherwise a party to
this Agreement, joins in Section 6.1 of this Agreement.
Recitals
--------
As part of a global settlement of certain disputes among the parties hereto
and their respective affiliates, IHF Capital has agreed, among other things, to
purchase the stock and warrants described below owned by the Weider Investors
and the Weider Investors have agreed to sell such stock and warrants on the
terms provided in this Agreement.
The Weider Investors own in aggregate 2,000,000 shares (the "Weider Class
------------
A") of Class A Common Stock, $0.001 par value per share ("Class A Common"), and
- - --------------
200,000 shares (the "Weider Class L" and, together with the Weider Class A, the
--------------
"Weider Common") of Class L Common Stock, $0.001 par value per share (the "Class
------------- -----
L Common" and, together with the Class A Common, the "Common Stock"), of IHF
- -------- ------------
Capital and warrants to purchase 407,647.06 shares of Class A Common (the
"Weider Warrants"). The Weider Common and the Weider Warrants are referred to
- ----------------
collectively as the "Weider Common Securities". The Weider Investors also own
------------------------
in aggregate warrants to purchase 19,000 shares of Class A Common and 1,900
shares of Class L Common that are not subject to sale hereunder (the "Unit
----
Warrants").
- --------
The number of shares of Weider Common and the number of Weider Warrants
owned by each Weider Investor is specified in Exhibit A hereto.
WHF owns an aggregate of 8,000 shares (the "Weider A-1 Preferred") of the
--------------------
Series A-1 Cumulative Redeemable Preferred Stock, $0.01 par value per share (the
"A-1 Preferred Stock"), and 1,000 shares (the "Weider A-2 Preferred and,
------------------- --------------------
together with the Weider A-1 Preferred, the "Weider Preferred") of the Series A-
----------------
2 Cumulative Redeemable Preferred Stock,
<PAGE>
$0.01 par value per share (the "A-2 Preferred Stock" and, together with the A-1
-------------------
Preferred Stock, the "Preferred Stock"), of IHF Holdings.
---------------
The Weider Common, the Weider Warrants and the Weider Preferred are
referred to collectively as the "Weider Securities".
-----------------
Pursuant to this Agreement, the Weider Investors desire to grant to IHF
Capital the right to purchase the Weider Securities and IHF Capital desires to
obligate itself to purchase the Weider Securities upon the terms and subject to
the conditions set forth in this Agreement.
IHF Capital desires the Weider Investors to enter into a custody
arrangement to ensure delivery of certificates for the Weider Securities in
connection with the exercise of the rights and obligations of IHF Capital under
this Agreement.
Agreement
---------
Therefore, in consideration of the foregoing and the mutual agreements and
covenants set forth below, the parties hereto agree as follows:
1. Definitions. Capitalized terms are defined as set forth herein.
-----------
Unless otherwise specified herein, all references to "$" or "dollar" are to U.S.
dollars.
2. Rights and Obligations Relating to the Purchase and Sale of the Weider
----------------------------------------------------------------------
Common Securities.
- -----------------
2.1. IHF Capital's Right to Purchase. On and subject to the terms
-------------------------------
and conditions of this Agreement, each Weider Investor hereby grants to IHF
Capital the right and option, exercisable by written notice to WHF, as
representative of all the Weider Investors (the "Weider Representative"),
-----------------------
given in accordance with Section 13 hereof, to purchase all but not less
than all of the Weider Common Securities at a purchase price equal to the
Common Purchase Price (as defined in Section 2.3 below), at any time during
the period beginning on the date hereof and ending on January 31, 1997 (the
"Fixed Price Period"); provided that IHF Capital shall not have any right
------------------ --------
to purchase any of the Weider Common Securities under the foregoing
provisions of this Section 2.1 from and after the close of business on the
date on which it is required to purchase all of the Weider Common
Securities under Section 2.2.1 and the Weider Preferred under Section 3.2
or the Weider Common Securities and the Weider Preferred under Section 3.4
but fails to do so, in whole or in part (other than Weider Common
Securities or Weider Preferred which are not so purchased by reason of the
breach by a Weider Investor of its obligation to sell and deliver such
securities strictly in accordance with the provisions of this Agreement or
by reason of the breach by the Custodian of its obligation to deliver such
securities strictly in accordance with the
-2-
<PAGE>
provisions of this Agreement, and not resulting, in either case, from a breach
by IHF Capital) (the "Common Cut-Off Date"). The Fixed Price Period and the
-------------------
period beginning on February 1, 1997 and ending on the earlier of (a) August 31,
1997 and (b) the consummation of the Specified IPO (as defined in Section 2.2.2
below) (the "Term Sheet Period") are referred to collectively as the "Common
----------------- ------
Option Period".
- -------------
2.2. IHF Capital's Obligation to Purchase.
------------------------------------
2.2.1. Fixed Price Period. On and subject to the terms and
------------------
conditions of this Agreement, concurrently with, at any time during the
Fixed Price Period, (i) the consummation of the initial closing of the IPO
(as defined below), (ii) the sale of all or at least 60% of the outstanding
capital stock of IHF Capital for cash (in a single transaction or a series
of related transactions), (iii) the closing of the sale of in excess of 60%
(by fair market value) of IHF Capital's consolidated assets for cash (in a
single transaction or a series of related transactions), or (iv) the taking
of any action referred to in Section 3.4 which requires the Weider
Preferred to be purchased by IHF Capital pursuant to Section 3.4, IHF
Capital shall be obligated to and shall purchase from the Weider Investors,
and the Weider Investors shall sell to IHF Capital, all but not less than
all of the Weider Common Securities at the Common Purchase Price.
2.2.2. Term Sheet Period. On and subject to the terms and
-----------------
conditions of this Agreement, concurrently with, at any time during the
Term Sheet Period, but not thereafter, the consummation of the initial
closing of the Specified IPO (as defined below) (the "Specified IPO Date"),
------------------
IHF Capital shall purchase from the Weider Investors, and the Weider
Investors shall sell to IHF Capital, the Specified Percentage (as defined
below) of the Weider Common Securities at the Common Purchase Price;
provided, however, that the Weider Investors shall have no obligation to
-------- -------
sell Weider Common Securities to IHF Capital under this Section 2.2.2 (a)
unless concurrently therewith or prior thereto IHF Capital shall have
purchased all of the Weider Preferred from WHF pursuant to Section 3 (other
than Weider Preferred which is not so purchased by reason of the breach by
a Weider Investor of its obligation to sell and deliver such securities
strictly in accordance with the provisions of this Agreement or by reason
of the breach by the Custodian of its obligation to deliver such securities
strictly in accordance with the provisions of this Agreement, and not
resulting, in either case, from a breach by IHF Capital) or (b) if the IPO
shall have occurred during the Fixed Price Period or if any other event
requiring a repurchase of the Weider Common Securities during the Fixed
Price Period in accordance with the provisions of Section 2.2.1 shall have
occurred and all the Weider Common Securities shall not have been purchased
in accordance with the provisions of Section 2.2.1 (other than Weider
Common Securities and Weider Preferred which are not so purchased by reason
of the breach by a Weider
-3-
<PAGE>
Investor of its obligation to sell and deliver such securities strictly in
accordance with the provisions of this Agreement, or by reason of the breach
by the Custodian of its obligation to deliver such securities strictly in
accordance with the provisions of this Agreement, and not resulting, in
either case, from a breach by IHF Capital). Shares of Weider Common
Securities to be purchased by IHF Capital under this Section 2.2.2 shall be
allocated pro rata among the Weider Investors in accordance with their
relative ownership of Weider Common Securities, unless the Weider Investors
agree differently among themselves and the Weider Representative provides
notice to IHF Capital no more than one business day after receipt of the
final notice from IHF Capital of the Specified Percentage as set forth below
in this Section 2.2.2.
"IPO" means the first underwritten public offering of common stock of
---
an IHF Issuer registered under the Securities Act of 1933, as amended.
"IHF Issuer" means IHF Capital, any subsidiary of IHF Capital 80% or
----------
more owned by IHF Capital or any other corporation holding 80% or more of
the common stock of IHF Capital.
"Specified IPO" means the IPO, if the following two conditions are met:
-------------
(i) the IPO occurs during the Term Sheet Period, and (ii) an amount equal to
90% of the price per share of Common Stock to the underwriters in such IPO
(after reduction for actual underwriter discounts and commissions, such
discounts and commissions not to exceed a customary amount) multiplied by
the number of Weider Common Securities (subject to adjustment as provided in
Section 2.3.5 hereof) equals or exceeds the Common Purchase Price on January
31, 1997.
"Specified Percentage" means the percentage of the Weider Common
--------------------
Securities (which percentage must be at least 50% and may be as high as
100%) to be sold by the Weider Investors to IHF Capital concurrently with
the Specified IPO, provided that such percentage must be finally specified
by IHF Capital to the Weider Representative at least two business days prior
to the filing of the final prospectus for the Specified IPO. IHF Capital
shall advise the Weider Representative of the estimated Specified Percentage
at the time notice of the proposed Specified IPO is sent to the Weider
Investors as required by Section 8.1.1, 8.2.1 or 8.2.2.5 of the Stockholders
Agreement dated as of November 14, 1994, as amended by Amendment No. 1 to
Stockholders Agreement of even date herewith, as from time to time in
effect, among IHF Capital and certain holders of its securities (the
"Stockholders Agreement") in connection with the registration rights
provided therein. IHF Capital shall advise the Weider Representative from
time to time of the estimated filing date for the final prospectus for the
Specified IPO. IHF Capital shall have no
-4-
<PAGE>
liability hereunder if, notwithstanding the fact that a Specified Percentage
has been set, the Specified IPO does not close (and consequently the Weider
Common Securities are not purchased hereunder). In no event shall the
Specified Percentage be less than 50% of the Weider Common Securities.
2.2.3. Concurrent Payment. The purchase of the Weider Common
------------------
Securities under this Section 2.2 shall be deemed to have been made
concurrently with the applicable event requiring such purchase described
above in this Section 2.2, notwithstanding the receipt by the Custodian (as
defined in Section 7.1 below) in the manner specified in Section 7.3.1(a)
below of the Common Purchase Price by certified check or by wire transfer of
next day funds, rather than immediately available funds; provided, that (i)
such payment is received in the manner provided in Section 7.3.1
concurrently with the closing or consummation of the applicable event, (ii)
such payment must be made by wire transfer of immediately available funds if
Section 2.1 hereof applies and Section 2.2. hereof does not apply; and (iii)
such payment must be made by the most advantageous means as are made
available to any of IHF Capital and its stockholders (in the following
order: (a) wire transfer of immediately available funds, (b) wire transfer
of next day funds and (c) certified check).
2.3. Common Purchase Price. The "Common Purchase Price" for the Weider
--------------------- ---------------------
Common Securities shall be allocated among the Weider Common Securities as
agreed among the Weider Representative and the Weider Investors and shall be
calculated as follows:
2.3.1. Base Price Through 9/8/96. From the date hereof through
-------------------------
September 8, 1996, the Common Purchase Price will be an aggregate amount
for all Weider Common Securities of $38,913,928 (the "Initial Base Price").
------------------
2.3.2. After 9/8/96 and Prior to 11/1/96. Beginning September 9,
---------------------------------
1996 and prior to November 1, 1996, the Common Purchase Price will be an
aggregate amount for all Weider Common Securities equal to the Initial Base
Price plus an amount equal to interest at the rate of 12% per annum,
compounded every 90 days, accrued on the Initial Base Price from and
including September 9, 1996 through the date of purchase.
2.3.3. After 10/31/96 and Prior to 2/1/97. Beginning November 1,
----------------------------------
1996 and prior to February 1, 1997, the Common Purchase Price will be an
aggregate amount for all Weider Common Securities equal to the sum of:
(a) the Initial Base Price plus an amount equal to interest
at the rate of 12% per annum, compounded every 90 days, accrued on the
-5-
<PAGE>
Initial Base Price from and including September 9, 1996 through the
date of purchase.
plus (b) $2,000,000,
----
plus (c) (i) $455,052 if the date of payment is on or after
----
November 1, 1996 but prior to December 1, 1996, plus (ii) an
----
additional $455,052 if the date of payment is on or after December 1,
1996 but prior to January 1, 1997, and plus (iii) an additional
----
$455,052 if the date of payment is on or after January 1, 1997 but
prior to February 1, 1997;
plus (d) an amount equal to interest at the rate of 12% per annum,
----
compounded every 90 days, accrued on the respective amounts described
in clauses (b) and (c) above from and including November 1, 1996 (with
respect to the amounts in clauses (b) and (c)(i) above), December 1,
1996) (with respect to the amount in clause (c)(ii) above) and January
1, 1997 (with respect to the amount in clause (c)(iii) above), in each
case through the date of purchase.
2.3.4. After 1/31/97. Beginning February 1, 1997 through the end of
-------------
the Common Option Period, the aggregate Common Purchase Price for the Weider
Securities to be sold will equal the sum of:
(a) 90% of the price per share of Common Stock to the
underwriters in the Specified IPO (after reduction for actual
underwriter discounts and commissions, such discounts and commissions
not to exceed a customary amount) multiplied by the number of Weider
Common Securities being sold, adjusted as provided in Section 2.3.5.
plus (b) an aggregate amount equal to interest at the rate of 12%
----
per annum, compounded every 90 days, from February 1, 1997 through the
date of payment, on the aggregate Common Purchase Price computed under
Section 2.3.3 for a purchase taking place on January 31, 1997 (such
Common Purchase Price to be appropriately prorated if the Specified
Percentage is less than 100%),
plus (c) an amount equal to the amount necessary to reverse the
----
dilutive effect on the Weider Common Securities being sold of (i) any
stock options or other equity grants or (ii) sales of Common Stock
below fair market value, in each case to Scott Watterson or Gary
Stevenson from and after December 31, 1995.
-6-
<PAGE>
less (d) the aggregate exercise price of the Weider Warrants
----
being purchased.
2.3.5. Certain Adjustments.
-------------------
(a) For purposes of computing the Common Purchase Price
during the Term Sheet Period, the number of Weider Common Securities
shall be appropriately adjusted to reflect any stock dividends, stock
splits, reverse stock splits, conversion of Weider Class L into shares
of Weider Class A, the conversion or exchange of Weider Class A and
Weider Class L into other shares of common stock, recapitalizations
and other similar events occurring after the date hereof and on or
prior to the purchase date hereunder.
(b) The Common Purchase Price shall be appropriately reduced
during the Fixed Price Period if any Weider Common Securities are
actually sold (other than Weider Common Securities sold in accordance
with Sections 4.1.2, 4.1.3 and 4.1.4 of the Stockholders Agreement)
pursuant to Section 4.3 hereof prior to the purchase date.
3. Rights and Obligations Relating to the Purchase and Sale of the Weider
----------------------------------------------------------------------
Preferred.
- ---------
3.1. IHF Capital's Right to Purchase. On and subject to the terms and
-------------------------------
conditions of this Agreement, WHF hereby grants to IHF Capital the right and
option, exercisable by written notice to WHF given in accordance with Section
13 hereof, to purchase all but not less than all of the Weider Preferred at a
purchase price equal to the Preferred Purchase Price (as defined in Section
3.3 below), at any time during the period beginning on the date hereof and
ending on the close of business on August 31, 1997 (the "Preferred Option
----------------
Period"); provided that IHF Capital shall not have any right to purchase the
------ --------
Weider Preferred under the foregoing provisions of this Section 3.1 from and
after the close of business on the day on which it is required to purchase
all of the Weider Preferred under Section 3.2 or any Weider Common Securities
under Section 2.2 but fails to do so, in whole or in part (other than Weider
Common Securities which are not so purchased by reason of the breach by a
Weider Investor of its obligation to sell and deliver such securities
strictly in accordance with the provisions of this Agreement or by reason of
the breach by the Custodian of its obligation to deliver such securities
strictly in accordance with the provisions of this Agreement, and not
resulting, in either case, from a breach by IHF Capital) (the "Preferred Cut-
--------------
Off Date").
--------
3.2. IHF Capital's Obligation to Purchase. On the terms of this
------------------------------------
Agreement, concurrently with (a) the consummation of the initial closing of the
IPO, (b) the sale of
-7-
<PAGE>
all or at least 60% of the outstanding capital stock of IHF Capital for cash (in
a single transaction or series of related transactions) or (c) the closing of
the sale of in excess of 60% (by fair market value) of IHF Capital's
consolidated assets for cash (in a single transaction or series of related
transactions), in each case if and only if any such event occurs within the
Preferred Option Period, IHF Capital shall purchase from WHF, and WHF shall sell
to IHF Capital, all but not less than all of the Weider Preferred at the
Preferred Purchase Price. The purchase of the Weider Preferred under this
Section 3.2 shall be deemed to have been made concurrently with the event
requiring such purchase under clause (a), (b) or (c) above, as applicable,
notwithstanding the receipt by the Custodian of the Preferred Purchase Price by
certified check or by wire transfer of next day funds, rather than immediately
available funds; provided that (i) such payment is received in the manner
provided in Section 7.3.2(a) below concurrently with the closing or consummation
of the applicable event; (ii) such payment must be made by wire transfer of
immediately available funds if Section 3.1 hereof applies and Section 3.2 hereof
does not apply; and (iii) such payment must be made by the most advantageous
means as are made available to any of IHF Capital and its stockholders (in the
following order: (a) wire transfer of immediately available funds, (b) wire
transfer of next day funds or (c) certified check).
3.3. Preferred Purchase Price. The "Preferred Purchase Price" for the
------------------------ ------------------------
Weider Preferred shall be equal to the sum of the following:
(a) $32,066,755 plus
----
(b) (i) unless clause (b)(ii) shall apply:
(A) if the purchase of the Weider Preferred is consummated on or
after February 1, 1997 but prior to April 1, 1997, an amount
equal to 20% of all accrued and unpaid dividends on the
Weider Preferred through the date of purchase, or
(B) if the purchase of the Weider Preferred is consummated on or
after April 1, 1997 but prior to June 1, 1997, an amount
equal to 40% of all accrued and unpaid dividends on the
Weider Preferred through the date of purchase, or
(C) if the purchase of the Weider Preferred is consummated on or
after June 1, 1997 but prior to August 31, 1997, an amount
equal to 50% of all accrued and unpaid dividends on the
Weider Preferred through the date of purchase, or
-8-
<PAGE>
(D) if the purchase of the Weider Preferred is consummated on
August 31, 1997, an amount equal to 100% of all accrued and
unpaid dividends on the Weider Preferred through the date of
purchase; or
(ii) if IHF Capital shall have failed timely to purchase and pay in
full the applicable purchase price for the Weider Common
Securities or the Weider Preferred under this Agreement (other
than Weider Common Securities or Weider Preferred which are not
so purchased by reason of the breach by a Weider Investor of its
obligation to sell and deliver such securities strictly in
accordance with the provisions of this Agreement or by reason of
the breach by the Custodian of its obligation to deliver such
securities strictly in accordance with the provisions of this
Agreement, and not resulting, in either case, from a breach by
IHF Capital), then in lieu of the amount payable under clause
(b)(i), an amount equal to all accrued and unpaid dividends on
the Weider Preferred through the date of purchase.
3.4. Confirmation of Amendment. The provisions of Sections 3.1, 3.2
-------------------------
and 3.3 hereof are in addition to, and are not intended to, and will not,
supersede or render inoperative any contrary provisions of the Amendment, which
shall continue in full force and effect except as provided in the next sentence.
In the event of the occurrence of an event described in Section 4.6.3 or Section
4.7 of the Amendment (as defined below), as the case may be, Sections 3.1, 3.2
and 3.3 hereof shall supersede and render inoperative any contrary provisions of
the Amendment only if IHF Capital (A) timely exercises its purchase right or
obligation under Section 3.1 or 3.2, as applicable, and pays the Preferred
Purchase Price in full (a) not later than concurrently with any sale or other
disposition of any equity interest by a Bain Entity (as defined in the
Amendment) requiring a redemption of Preferred Stock pursuant to Section 4.6.3.1
of the Amendment, (b) prior to the making of Distributions (as defined in the
Amendment) requiring a redemption of Preferred Stock pursuant to Section 4.6.3.2
of the Amendment and (c) concurrently with any liquidation, dissolution or
winding up of IHF Holdings requiring a redemption of the Preferred Stock
pursuant to Section 4.7 of the Amendment and (B) if the Weider Preferred is
required to be repurchased under clause (A) during the Fixed Price Period,
timely purchases the Weider Common Securities for the Common Purchase Price
under Section 2.2.1 concurrently with its payment of the Preferred Purchase
Price. "Amendment" means the Certificate of Amendment of the Certificate of
---------
Incorporation of IHF Holdings as filed with the Secretary of State of Delaware
on November 10, 1994.
4. Rights and Restrictions with Respect to Weider Securities.
---------------------------------------------------------
4.1. Voting and Dividend Rights. Each of IHF Holdings and IHF Capital
--------------------------
hereby acknowledges that, prior to the tender of the purchase price for the
Weider
-9-
<PAGE>
Securities as provided hereunder, any voting rights to which the Weider
Securities are entitled pursuant to the Amendment shall, subject to the
provisions of the Stockholders Agreement, be exercisable solely by the Weider
Investors to the exclusion of all other Persons (including the Custodian, IHF
Holdings and IHF Capital). Notwithstanding any provision of this Agreement to
the contrary, the Custodian, IHF Holdings and IHF Capital agree to take all
necessary actions to permit the timely exercise of such voting rights by the
Weider Investors. All dividends on any of the Weider Common Securities (or any
securities issued in exchange, substitution or on account thereof), in cash or
property (other than stock dividends declared and paid on all outstanding Common
Stock of the same class (or any securities issued in exchange, substitution or
on account thereof) declared at any time prior to the consummation of the sale
of the Weider Common Securities pursuant to this Agreement) shall be paid
directly to the applicable Weider Investor, and neither IHF Capital nor IHF
Holdings nor any other Person shall be entitled thereto or to any right therein.
Stock dividends on the Weider Common Securities paid during the Fixed Price
Period shall be held by the Custodian and sold for no extra consideration
pursuant to this Agreement as if included in and constituting a part of the
Weider Common Securities. Stock dividends on the Weider Common Securities paid
during the Term Sheet Period shall be held by the Custodian and sold at the
Common Purchase Price per share described in Section 2.3.4 as if included in and
constituting a part of the Weider Common Securities. Notwithstanding the
foregoing, dividends declared on the Weider Preferred at any time prior to the
consummation of the sale of the Weider Preferred pursuant to this Agreement
shall be paid directly to WHF, whether paid in cash, stock or other property.
4.2. No Optional Redemption of Preferred Stock. IHF Capital agrees that
-----------------------------------------
it shall not purchase, and IHF Holdings agrees that it shall not optionally
redeem or repurchase, any shares of the Preferred Stock from any Person (other
than WHF) during the Preferred Option Period unless IHF Capital shall have
previously or concurrently purchased all of the Weider Preferred from WHF
pursuant to this Agreement.
4.3. No Transfer of Weider Securities. Each Weider Investor agrees that
--------------------------------
it shall not sell, assign, donate, pledge, hypothecate or otherwise transfer or
dispose of the Weider Common Securities on or prior to the Common Cutoff Date
except (a) to IHF Capital as contemplated by this Agreement, (b) to the extent
necessary to exercise its co-sale rights under Section 7 of the Stockholders
Agreement or its registration rights under Section 8 of the Stockholders
Agreement or its transfer rights under Sections 4.1.2, 4.1.3 and 4.1.4 of the
Stockholders Agreement (after which transfers the Weider Common Securities as
transferred shall remain subject to the provisions of this Agreement) and (c) to
the extent required by the exercise of take along rights under Section 6 of the
Stockholders Agreement (the rights in the foregoing clauses (b) and (c) being
referred to as the "Stockholders Agreement Rights"); provided, however, that the
----------------------------- -------- -------
Stockholders Agreement Rights shall not supersede IHF Capital's rights to
purchase the
-10-
<PAGE>
Weider Common Securities from the Weider Investors at the price and in the
manner provided in Section 2.1 or IHF Capital's obligation to purchase the
Weider Common Securities from the Weider Investors at the price and in the
manner provided in Section 2.2 at any time prior to the actual disposition of
the Weider Common Securities in accordance with the Stockholders Agreement
Rights. Prior to the transfer of Weider Securities under Sections 4.1.2, 4.1.3
and 4.1.4 of the Stockholders Agreement, the transferring Weider Investor shall
cause the transferee to join this Agreement as a Weider Investor and to execute
appropriate stock transfer powers for delivery to the Custodian, and the
certificates for the transferred Weider Common Securities shall remain in the
custody of the Custodian. WHF agrees that it shall not sell, assign, donate,
pledge, hypothecate or otherwise transfer or dispose of the Weider Preferred on
or prior to the Preferred Cut-Off Date except to IHF Capital as contemplated by
this Agreement.
4.4. Assignment of Claims, Covenant Not to Sue. Simultaneously with the
-----------------------------------------
purchase of all, but not less than all, the Weider Securities by IHF Capital
pursuant to this Agreement (the "Assignment Date"), each Weider Investor shall
be deemed to have assigned to IHF Capital (a) any and all rights and claims such
Weider Investor may then have, either directly or derivatively, by reason of or
pertaining to such Weider Investor's ownership of the Weider Securities or any
other common stock of IHF Capital, but in no event the Unit Warrants, and (b)
any and all derivative, but only derivative, rights and claims such Weider
Investor may then have by reason of such Weider Investor's ownership of the Unit
Warrants (collectively with respect to such Weider Investor, the "Assigned
Weider Investor Claims"); provided, however, that (1) without expanding the
specificity of the foregoing, no Weider Investor shall, by reason of this
sentence, be deemed to have assigned to IHF Capital (x) any rights or claims
such Weider Investor may then have under any and all debt instruments, including
but not limited to (i) 15% Series A and Series B Senior Secured Discount Notes
due 2004 issued under the Indenture dated as of November 14, 1994 between IHF
Holdings and Fleet National Bank, as trustee and (ii) 13% Series A and Series B
Senior Subordinated Notes due 2002 issued under the Indenture dated as of
November 14, 1994 between ICON Health & Fitness, Inc. and Fleet National Bank,
as trustee, that such Weider Investor may continue to own from and after the
Assignment Date, or (y) any rights or claims such Weider Investor may have under
the Unit Warrants based solely on facts occurring after the Assignment Date, and
(2) IHF Capital may not sue under the Assigned Weider Investor Claims for its
own account or assign the Assigned Weider Investor Claims to a third party.
Each Weider Investor further agrees that to the extent, subsequent to the
Assignment Date, such Weider Investor continues to own Unit Warrants and has or
may have any rights or claims by reason of its ownership of the Unit Warrants,
no such right or claim may be enforced by means of injunctive relief, unless
such right or claim is based on a breach or threatened breach of that certain
Warrant Agreement, dated November 14, 1994, as from time to time in effect,
between IHF Capital and Fleet National Bank, as Warrant Agent, and no such right
or claim may be enforced by any
-11-
<PAGE>
means at all to the extent it is derivative in nature; provided, however,
-------- -------
that should any right or claim that is derivative in nature be brought by a
party other than a Weider Investor against any of the IHF Capital
Indemnitees without any involvement by a Weider Investor, the Weider
Investors shall have the right to participate to the extent reasonably
necessary to obtain their pro rata recovery or benefit by reason of any
judgment or court order entered in such proceeding. Each Weider Investor
severally and not jointly with any other Weider Investor covenants and
agrees (a) that such Weider Investor will not institute or maintain, cause
to be instituted or maintained, or assist in instituting or maintaining,
any demand, action, claim, lawsuit, arbitration or similar proceeding, in
any capacity whatsoever, against any of the IHF Capital Indemnitees (as
defined in clause (b) below) based upon any of the Assigned Weider Investor
Claims of such Weider Investor; and (b) to indemnify IHF Capital, IHF
Holdings, the Fund Investors, the affiliated entities of IHF Capital, IHF
Holdings and the Fund Investors, and any officer, director, shareholder,
partner, employee, agent, attorney, successor, heir or assign of IHF
Capital, IHF Holdings and the Fund Investors (collectively, the "IHF
---
Capital Indemnitees") for and against any and all costs, damages,
-------------------
liabilities or other expenses (including, without limitation, any
attorneys' fees) reasonably incurred by any of the IHF Capital Indemnitees
by reason of any violation of either clause (a) of this sentence, or the
second sentence of this Section 4.4 by such Weider Investor.
4.5. September 1, 1997 Payment. In consideration for the grant of the
-------------------------
options herein contained by the Weider Investors, in the event that 100% of
the Weider Common Securities and 100% of the Weider Preferred shall not
have been acquired by IHF Capital on or before September 1, 1997 (other
than Weider Common Securities or Weider Preferred which are not so
purchased by reason of the breach by a Weider Investor of its obligation to
sell and deliver such securities strictly in accordance with the provisions
of this Agreement not resulting from a breach by IHF Capital), IHF Capital
shall pay to the Weider Representative on September 1, 1997, for allocation
among the Weider Investors as they may agree, U.S. $5,000,000 by wire
transfer of immediately available funds to such account as the Weider
Representative may specify.
5. Bain Participation Rights. Fund Investors shall not sell any of their
-------------------------
shares of Common Stock (or any securities issued in exchange, substitution or on
account thereof) in the IPO; provided, however, that Fund Investors may sell
-------- -------
shares pursuant to the underwriters' over-allotment option granted in connection
with the IPO (the "IPO Green Shoe") provided that all of the Weider Common
--------------
Securities owned by the Weider Investors and the Weider Preferred shall have
been purchased by IHF Capital pursuant to this Agreement concurrently with or
prior to the initial closing of the IPO (other than Weider Common Securities or
Weider Preferred which are not so purchased by reason of the breach by a Weider
Investor of its obligation to sell and deliver such securities strictly in
accordance with the provisions of this Agreement not resulting from a breach by
IHF Capital). If the IPO occurs on or before August 31, 1997, the IPO Green
Shoe shall not exceed 15% of the aggregate number of shares of Common Stock to
be sold in the IPO. In addition, no Fund Investor shall sell or otherwise
-12-
<PAGE>
dispose of any shares of Common Stock (or any securities issued in exchange,
substitution or on account thereof) unless and until either one hundred percent
(100%) of the Weider Common Securities (or any securities issued in exchange,
substitution or on account thereof) shall have been purchased either
concurrently therewith or prior thereto from the Weider Investors pursuant to
Section 2 hereof (other than Weider Common Securities which are not so purchased
by reason of the breach by a Weider Investor of its obligation to sell and
deliver such securities strictly in accordance with the provisions of this
Agreement not resulting from a breach by IHF Capital) or, if the provisions of
Section 2.2.2 apply and less than one hundred percent (100%) of the Weider
Securities shall have been purchased from the Weider Investors, the stock
certificates evidencing the balance of the Weider Common Securities (or any
securities issued in exchange, substitution or on account thereof) shall have
been released to the Weider Representative and the Weider Investors given the
opportunity to register and sell such securities in a registered public
offering; provided however, that nothing herein shall restrict any sale or other
-------- -------
disposition by any Fund Investor of shares of Common Stock (or any securities
issued in exchange, substitution or on account thereof):
(a) to a Fund Investor or an Affiliated Fund; or
(b) to any trust established for the benefit of partners
of a Fund Investor or an Affiliated Fund or pro rata to the
partners of a Fund Investor or an Affiliated Fund; or
(c) 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
(c) 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 prior to giving effect to
the transfer in question). Terms used in this Section 5 and not
otherwise defined herein are used herein as defined in the
Stockholders Agreement .
6. Board of Director Representation.
--------------------------------
6.1. Renaud Resignation. Richard Renaud hereby resigns as a director
------------------
of IHF Capital, effective as of the date hereof, concurrently with the
execution and delivery hereof and the Weider Investors may designate a
replacement director to IHF Capital's board of directors.
7. Appointment of Custodian; Deposit of Weider Securities; Instructions;
---------------------------------------------------------------------
Successor.
- ---------
7.1. Appointment. The Weider Investors hereby appoint WHF to act as
-----------
the custodian (the "Custodian") of the certificates and instruments representing
---------
the Weider
-13-
<PAGE>
Securities on the terms and subject to the conditions set forth in this
Agreement. The Custodian is hereby authorized to act and rely upon any
statement, request, notice or instructions respecting this Agreement given to it
by the Weider Representative.
7.2. Delivery of Certificates. Each Weider Investor hereby delivers or
------------------------
causes to be delivered to the Custodian certificates and instruments
representing the Weider Securities accompanied by separate stock powers duly
endorsed, with signature(s) guaranteed by a financial institution reasonably
satisfactory to IHF Capital and in proper form for transfer. These certificates
are to be held by the Custodian for the account of the Weider Investors and are
to be disposed of by the Custodian in accordance with this Agreement.
7.3. Authorized Actions. Each Weider Investor hereby authorizes and
------------------
directs the Custodian to hold the certificates and instruments deposited
herewith in its custody and to take the following actions with full power in the
name of and for and on behalf of such Weider Investor:
7.3.1. Weider Common Securities.
------------------------
(a) to deliver the certificates and instruments representing
the Weider Common Securities required to be sold to IHF Capital
pursuant to Section 2 against receipt by the Custodian of
confirmation of, on or prior to the due date specified in Section 2,
(i) receipt, in trust account #37298381 of Latham & Watkins Attorney
Trust IOLA at Citibank, New York, ABA #021000089 by wire transfer in
immediately available funds or next day funds or (ii) receipt by the
Weider Representative of a certified check payable to the order of
the Weider Representative, in each case for the aggregate Common
Purchase Price for all Weider Common Securities being purchased
(which shall be not less than 100% thereof during the Fixed Price
Period and the Specified Amount during the Term Sheet Period),
provided that no such delivery of certificates and instruments
representing the Weider Common Securities may be made by the
Custodian to any Person other than the Weider Representative after
the close of business on the first to occur of (i) the last business
day of the Common Option Period or (ii) the Common Cut-Off Date.
(b) to deliver all of the certificates and instruments
representing the Weider Common Securities then in its custody to the
Weider Representative upon the opening of business on the first to
occur of (i) the business day next following the last day of the
Common Option Period or (ii) the first business day on or after the
fifth business day after receipt of notice from the Weider
Representative to the effect that
-14-
<PAGE>
the Common Cut-Off Date has occurred and that IHF Capital has been
furnished notice in accordance with Section 13 hereof by registered
mail; provided, however, that in the event that prior to such fifth
-------- -------
business day each of the Custodian and the Weider Representative
receives written notice from IHF Capital by registered mail in
accordance with Section 13 hereof contesting (and setting forth the
reasons for such contest) the determination by the Weider
Representative of the Common Cut-Off Date, such certificates and
instruments shall be held by the Custodian until receipt of further
direction in writing by both IHF Capital and the Weider
Representative or court order for the release of such securities.
(c) to deliver the certificates and instruments representing
the Weider Common Securities in its custody as directed in writing
signed by the Weider Representative and IHF Capital to allow for the
full and timely exercise of the Stockholder Agreement Rights. Each of
the Weider Representative and IHF Capital agree to sign such written
directions in order to facilitate such exercise of Stockholder
Agreement Rights.
(d) Upon receipt of payment and delivery of securities under
Section 7.3.1(a), if the Specified Percentage applies and is less
than 100%, the Custodian shall release the balance of securities on
the same day to the Weider Representative.
7.3.2. Weider Preferred.
----------------
(a) to deliver the certificates representing all but not
less than all of the Weider Preferred required to be sold to IHF
Capital pursuant to Section 3 against receipt by the Custodian of
confirmation of, on or prior to the due date specified in Section 3,
(i) receipt in trust account #37298381 of Latham & Watkins, Attorney
Trust IOLA at Citibank, New York, AA #021000089, by wire transfer in
immediately available funds or next day funds or (ii) receipt by the
Weider Representative of a certified check payable to the order of
the Weider Representative, in each case for the aggregate Preferred
Purchase Price for 100% of the Weider Preferred on not more than one
occasion on or prior to the close of business on the last day of the
Preferred Option Period or on or before the close of business on the
Preferred Cut-Off Date, whichever first occurs, provided that no such
delivery of certificates and instruments representing the Weider
Preferred may be made by the Custodian to any Person other than the
Weider Representative after the close of business on the first to
occur of (i) the last business day of the Preferred Option Period or
(ii) the Preferred Cut-Off Date.
-15-
<PAGE>
(b) to deliver all of the certificates representing the
Weider Preferred then in its custody to the Weider Representative
upon the opening of business on the first to occur of (i) the
business day next following the last day of the Preferred Option
Period or (ii) the first business day on or after the fifth business
day after receipt of notice from the Weider Representative to the
effect that the Preferred Cut-Off Date has occurred and that IHF
Capital has been furnished notice in accordance with Section 13
hereof by registered mail; provided, however, that in the event that
-------- -------
prior to such fifth business day each of the Custodian and the Weider
Representative receives written notice from IHF Capital by registered
mail in accordance with Section 13 hereof contesting (and setting
forth the reasons for such contest) the determination by the Weider
Representative of the Common Cut-Off Date, such certificates and
instruments shall be held by the Custodian until receipt of further
direction in writing by both IHF Capital and the Weider
Representative or court order for the release of such securities.
7.4. Successor Custodian. In the event of the resignation of the
-------------------
Custodian, the Weider Representative shall select a successor Custodian,
provided that such successor Custodian must be reasonably satisfactory to IHF
Capital.
7.5. No Liability. The parties hereto agree that (A) no Weider Investor
------------
shall be liable to any Person for any action or omission by the Custodian under
this Agreement, including any such action or omission in violation of the
provisions of this Agreement, and (B) no Weider Investor shall be liable to any
Person for any action or omission of any other Weider Investor under this
Agreement, including any such action or omission in violation of the provisions
of this Agreement.
8. Weider Investors Representations and Warranties. Each of the Weider
-----------------------------------------------
Investors hereby represents and warrants severally and not jointly with any
other Weider Investor that:
(a) such Weider Investor has full corporate or trust power
and authority, or personal capacity, as applicable, to enter into and
perform this Agreement; and
(b) such Weider Investor has good title to, and record and
beneficial ownership of, the Weider Securities indicated on Exhibit A
hereto, free and clear of all liens, encumbrances, other security
interests or adverse claims (other than rights of IHF Capital to
purchase the Weider Securities hereunder), and such Weider Investor
has all authorizations and approvals required by governmental
authorities to be
-16-
<PAGE>
obtained by such Weider Investor to enter into and perform this
Agreement, provided that such Weider Investor makes no representation
or warranty as to the applicability of or compliance with federal and
state securities laws.
Each Weider Investor acknowledges and confirms that it (i) has made such
investigation of IHF Capital, its subsidiaries, their business, prospects
and financial condition as such Weider Investor deems necessary for the
purpose of deciding to sell its Weider Securities on the date hereof; (ii)
has had the opportunity to discuss fully with the management of IHF Capital
the business, prospects and financial condition of IHF Capital and its
subsidiaries; (iii) has received all documents requested by such Weider
Investor with respect to IHF Capital and its subsidiaries (including without
limitation IHF Capital's Registration Statement on Form S-1 and Amendment
Nos.1 and 2 filed, respectively, with the Securities and Exchange Commission
on May 22, 1996, August 14, 1996 and August 28, 1996); (iv) acknowledges
that the eventual price paid for Common Stock in the proposed IPO or any
other future sale could well be at a substantially higher price than the
purchase price for the Weider Securities hereunder; and (v) confirms such
Weider Investor's satisfaction with the purchase price for the Weider
Securities held by it hereunder notwithstanding that the eventual price paid
for Common Stock in the proposed IPO or any other future sale could well be
at a substantially higher price.
9. IHF Representations and Warranties. IHF Capital (a) represents and
----------------------------------
warrants that it has full corporate power and authority and any approvals
required by governmental authorities, its Certificate of Incorporation, bylaws
and Delaware and securities law to enter into and perform this Agreement and to
purchase the Weider Securities, (ii) is an "accredited investor" as defined in
Regulation D under the Securities Act, and (iii) prior to the purchase of any
Weider Securities hereunder shall have received all required consents under all
material contracts, agreements and instruments to which it is a party or by
which it is bound; (b) acknowledges that the eventual price paid for Common
Stock in the proposed IPO or any other future sale could well be at a
substantially lower price than the purchase price for the Weider Securities
hereunder; and (c) confirms IHF Capital's satisfaction with the purchase price
paid for the Weider Securities hereunder notwithstanding that the eventual price
paid for Common Stock in the proposed IPO or any other future sale could well be
at a substantially lower price.
10. Termination of Agreement. All power and authority granted or conferred
------------------------
hereby is granted and conferred by the Weider Investors subject to the interests
of IHF Capital. In consideration of those interests and for the purpose of
assuring completion of the transactions contemplated by this Agreement, all such
power and authority is coupled with an interest and is irrevocable and shall not
be terminated by any act of the Weider Investors in violation of this Agreement
or by operation of law. If after the execution hereof any of the Weider
Investors shall be declared bankrupt or any other such event shall occur before
the completion of the transactions contemplated by this Agreement, the Custodian
is nevertheless
-17-
<PAGE>
authorized and directed, to the full extent permitted by law, to complete all of
such transactions as if such other event had not occurred and regardless of
notice thereof.
11. [Intentionally Deleted.]
---------------------
12. Governing Law; Jurisdiction; Jury Trial Waiver.
-----------------------------------------------
12.1. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the domestic substantive laws of the State of
New York, 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.
12.2. 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 New York. Each of the parties
hereto by execution hereof (a) hereby irrevocably submits to the
jurisdiction of the federal and state courts in the State of New York for
the purpose of any action, suit or proceeding arising out of or based upon
this Agreement or the subject matter hereof and (b) 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 (i) it is not subject personally to the jurisdiction
of the above-named courts,(ii) it is immune from extraterritorial
injunctive relief or other injunctive relief, (iii) its property is exempt
or immune from attachment or execution, (iv) any such action, suit or
proceeding may not be brought or maintained in one of the above-named
courts, (v) 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 (vi) 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 New York,
agrees that service of process by registered or certified mail, return
receipt requested, at the address specified in or pursuant to Section 13
hereof 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 13 hereof does not constitute good and sufficient
service of process. The provisions of this Section 12.2 shall not restrict
the ability of any party to enforce in any court of competent jurisdiction
any judgment obtained in a federal or state court of the State of New York.
-18-
<PAGE>
12.3. 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. Any of the parties hereto may
file an original counterpart or a copy of this Section 12.3 with any court
of competent jurisdiction as written evidence of the consent of each of the
parties hereto to the waiver of its right to trial by jury.
12.4. Reliance. Each of the parties hereto acknowledges that it has
--------
been informed by each other party that the provisions of this Section 12
constitute a material inducement upon which such party is relying and will
rely in entering into this Agreement and the transactions contemplated
hereby.
13. Notices.
-------
Any notices or other communications required or permitted hereunder shall
be effective if in writing and delivered personally or sent by telecopier,
Federal Express, or registered or certified mail, postage prepaid, addressed as
follows:
-19-
<PAGE>
If to IHF Capital or IHF Holdings,
to it at:
1500 South 1000 West
Logan, Utah 84321
Attention: President
General Counsel
With a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: R. Newcomb Stillwell
If to any Weider Investor,
to such Weider Investor at:
Weider Health and Fitness
21100 Erwin Street
Woodland Hills, California 91367-3772
Attention: President
With a copy to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Roger H. Kimmel
If to any of the Fund Investors, to
it at:
Bain Capital, Inc.
Two Copley Place - 7th Floor
Boston, Massachusetts 02116
Attention: Robert C. Gay
-20-
<PAGE>
With a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: R. Newcomb Stillwell
Unless otherwise specified herein, such notices or other communications shall be
deemed effective (a) on the date delivered, if delivered personally, (b) two
business days after being sent by Federal Express, if sent by Federal Express,
(c) one business day after being delivered, if delivered by telecopier with
confirmation of good transmission, and (d) three business days after being sent,
if sent by registered or certified mail. Each of the parties hereto shall be
entitled to specify a different address by giving notice as aforesaid to each of
the other parties hereto.
14. Miscellaneous.
-------------
14.1. Counterparts; Survival. This Agreement may be executed in any
-----------------------
number of counterparts, each of which shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.
The representations, warranties, covenants and agreements of IHF Holdings,
IHF Capital, the Weider Investors and the Fund Investors contained herein
shall survive the sale and delivery of the Weider Securities and the
termination of this Agreement.
14.2. Ownership Rights. Until delivery of the consideration provided
----------------
for in this Agreement has been made, the respective Weider Investors shall
remain the owner of the Weider Securities and shall have all rights thereto
which are not specifically superseded by this Agreement. Nothing in this
Agreement shall be construed to amend or modify any provision of the
Stockholders Agreement, the Certificates of Incorporation (as amended to
date) of IHF Capital and IHF Holdings or any other agreement, document or
instrument.
14.3. Cooperation. Each of the parties hereto shall, at the expense
-----------
of the requesting party, deliver or cause to be delivered to the other such
additional instruments as the requesting party may request if necessary for
the purpose of consummating the transactions contemplated by this
Agreement.
14.4. Entire Agreement; Waivers. This Agreement constitutes the
-------------------------
entire agreement among the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties with respect to
such subject matter. No waiver of any provision of this Agreement shall be
deemed to or shall constitute a waiver of any other
-21-
<PAGE>
provision hereof (whether or not similar), shall constitute a continuing waiver
unless otherwise expressly provided nor shall be effective unless in writing and
executed by each party against whom the same is to be enforced.
14.5. Amendment or Modification, etc. The parties hereto may not amend
------------------------------
or modify this Agreement except in such manner as may be agreed upon by a
written instrument executed by IHF Capital and the Weider Representative.
14.6. Headings, etc. Section and subsection headings are not to be
-------------
considered part of this Agreement, are included solely for convenience, are not
intended to be full or accurate descriptions of the content thereof and shall
not affect the construction hereof. This Agreement shall be deemed to express
the mutual intent of the parties, and no rule of strict construction shall be
applied against any party.
14.7. Severability. In the event that any provision hereof would, under
------------
applicable law, be invalid or unenforceable in any respect, such provision shall
(to the extent permitted by applicable law) be construed by modifying or
limiting it so as to be valid and enforceable to the maximum extent compatible
with, and possible under, applicable law. The provisions hereof are severable,
and in the event any provision hereof should be held invalid or unenforceable in
any respect, it shall not invalidate, render unenforceable or otherwise affect
any other provision hereof.
14.8. Time of the Essence. Time is of the essence with respect to all of
-------------------
the provisions of this Agreement.
14.9. Indemnity. Each party hereto hereby agrees to indemnify each other
---------
party hereto and hold such other party free and harmless from and against any
and all demands, judgments, assessments, losses, claims, damages, actions,
suits, decrees, orders, awards, penalties, fines, amounts paid in settlement,
costs, expenses, fees (including costs of collection and reasonable attorneys'
fees and expenses) arising from any breach of or inaccuracy in such indemnifying
party's representations, warranties and covenants hereunder.
14.10. French Language. The parties acknowledge that they have requested
---------------
this agreement and all ancillary documents to be drawn up in English language
only. Les parties reconnaissent avoir exige que cette convention ainsi que tous
les documents y afferents soient rediges en anglais seulement.
14.11. Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of, and shall be binding upon, each of the parties hereto and their
administrators, successors and assigns, as the case may be; provided, however,
-------- -------
that the parties hereto may not assign any of their respective rights and
obligations hereunder to any other person or entity.
-22-
<PAGE>
The following Weider Designated Director, who is not otherwise a party to
this Agreement, joins in Section 6.1 of this Agreement.
/s/ Richard Renaud
----------------------------------
Richard Renaud, indivdually
-23-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first written above.
IHF Capital: IHF CAPITAL, INC.
By:/s/ Brad H. Bearnson
--------------------------
Name: Brad H. Bearnson
Title: Secretary
IHF Holdings: IHF HOLDINGS, INC.
By:/s/ Brad H. Bearnson
--------------------------
Name: /s/ Brad H. Bearnson
Title: Secretary
<PAGE>
The following Fund Investors, who are not otherwise parties to this
Agreement, join in Section 5 of this Agreement:
The Fund 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 C. Gay
---------------------------
Name: Robert C. Gay
Title: Managing director
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 C. Gay
---------------------------
Name: Robert C. Gay
Title: Managing director
BCIP ASSOCIATES
By:/s/ Robert C. Gay
--------------------------
Name: Robert C. Gay
Title: a general partner
BCIP ASSOCIATES
By:/s/ Robert C. Gay
--------------------------
Name: Robert C. Gay
Title: a general partner
-25-
<PAGE>
/s/ Zbigniew Kindela
------------------------------------
Zbigniew Kindela, individually
<PAGE>
/s/ Barbara Harris
------------------------------------
Barbara Harris, individually
<PAGE>
/s/ Robert Reynolds
-------------------------------------
Robert Reynolds, individually
<PAGE>
/s/ Ronald Novak
-------------------------------------
Ronald Novak, individually
<PAGE>
/s/ Ronald Corey
-------------------------------------
Ronald Corey, individually
<PAGE>
/s/ Michael Carr
-------------------------------------
Michael Carr, individually
<PAGE>
/s/ Bernard J. Cartoon
-------------------------------------
Bernard J. Cartoon, individually
-32-
<PAGE>
/s/ Weider Europe
-------------------------------------
WEIDER EUROPE, B.V.
-33-
<PAGE>
HORNCHURCH INVESTMENTS
LIMITED
By [SIGNATURE APPEARS HERE]
----------------------------------
Title:
-34-
<PAGE>
BAYONNE SETTLEMENT
By [SIGNATURE APPEARS HERE]
----------------------------------
Title:
-35-
<PAGE>
GREYFRIARS LIMITED
By [SIGNATURE APPEARS HERE]
------------------------------
Title:
-36-
<PAGE>
/s/ E. Weider
----------------------------------
Eric Weider, individually
-37-
<PAGE>
WEIDER HEALTH AND FITNESS
By /s/ [SIGNATURE APPEARS HERE]
-------------------------------
Title:
-38-
<PAGE>
/s/ Richard Bizzaro
----------------------------------
Richard Bizzaro, individually
-39-
<PAGE>
/s/ Thomas Deters
----------------------------------
Thomas Deters, individually
-40-
<PAGE>
The undersigned, as Custodian, hereby acknowledges receipt of the certificates
above identified, to be held and disposed of pursuant to the directions in the
foregoing Agreement and hereby agrees to act as Custodian in accordance with the
terms of this Agreement, this _______ day of September, 1996.
WEIDER HEALTH & FITNESS,
By /s/ [SIGNATURE APPEARS HERE]
----------------------------
Title:
-41-
<PAGE>
Exhibit A
---------
The certificates representing the Weider Securities delivered herewith to
the Custodian by the Weider Investors pursuant to this Agreement are identified
as follows:
CLASS A COMMON STOCK
<TABLE>
<CAPTION>
Registered in
Certificate Number Number of Shares the Name of
------------------ ---------------- -----------
<S> <C> <C>
A-2 6,910 Ronald Corey
A-45 5,969.54 Richard Bizzaro
A-46 3,979.70 Robert Reynolds
A-42 18,994.92 Bernard J. Cartoon
A-50 883.24 Zbigniew Kindela
A-44 16,162.44 Eric Weider
A-49 3,543.15 Barbara Harris
A-43 8,081.22 Ronald Novak
A-47 8,842.64 Michael Carr
A-48 3,543.15 Thomas Deters
A-40 152,820 Weider Health & Fitness
A-11 138,890 Hornchurch Investments Limited
A-41 1,610,630 Greyfriars Limited
A-10 20,750 Bayonne Settlement
---------
Total 2,000,000
</TABLE>
-42-
<PAGE>
CLASS L COMMON STOCK
<TABLE>
<CAPTION>
Registered in
Certificate Number Number of Shares the Name of
------------------ ---------------- -----------
<S> <C> <C>
L-2 691 Ronald Corey
L-44 596.95 Richard Bizzaro
L-45 397.97 Robert Reynolds
L-41 1,899.49 Bernard J. Cartoon
L-49 88.32 Zbigniew Kindela
L-43 1,616.24 Eric Weider
L-48 354.32 Barbara Harris
L-42 808.12 Ronald Novak
L-46 884.26 Michael Carr
L-47 354.32 Thomas Deters
L-40 15,282 Weider Health & Fitness
L-50 161,063.01 Weider Health & Fitness
L-11 13,889 Hornchurch Investments Limited
L-10 2,075 Bayonne Settlement
----------
Total 200,000
</TABLE>
CLASS A WARRANTS
<TABLE>
<CAPTION>
Certificate Number of Registered in the
Number Shares Name of
------ ------ -------
<S> <C> <C>
1 407,647.06 Weider Health and Fitness
</TABLE>
-43-
<PAGE>
A-1 PREFERRED STOCK
<TABLE>
<CAPTION>
Certificate Number of Registered in the
Number Shares Name of
------ ------ -------
<S> <C> <C>
1 8,000 Weider Health and Fitness
</TABLE>
A-2 PREFERRED STOCK
<TABLE>
<CAPTION>
Certificate Number of Registered in the
Number Shares Name of
------ ------ -------
<S> <C> <C>
1 1,000 Weider Health and Fitness
</TABLE>
-44-
<PAGE>
EXHIBIT 10.44
AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT
------------------------------------------
This Amendment (the "Agreement") is made and entered into as of September
---------
6, 1996 among IHF Capital, Inc. (the "Company"), IHF Holdings, Inc. ("IHF"),
------- ---
each of Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., BCIP
Associates and BCIP Trust Associates, L.P. (together, the "Fund Initial
------------
Investors"), and each of the signatories hereto designated respectively as
- ---------
Management Signatories, Weider Signatories and Other Signatories on the
signature pages hereof (respectively the "Management Signatories", the "Weider
---------------------- ------
Signatories" and the "Other Signatories").
- ----------- -----------------
WHEREAS, the Company, IHF, the Fund Initial Investors, the Management
Signatories, the Weider Signatories, the Other Signatories, and certain other
Persons are parties to a Stockholders Agreement dated as of November 14, 1994
(as now in effect, the "Stockholders Agreement");
----------------------
WHEREAS, the Company, IHF, the Fund Initial Investors, the Management
Signatories, the Weider Signatories, and the Other Signatories by this Agreement
wish to amend the Stockholders Agreement and in the case of such persons other
than the Company and IHF collectively constitute the holders of the requisite
Securities under Section 13.2 of the Stockholders Agreement;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company is obtaining an option to purchase and has become subject
to an obligation to purchase all of the Initial Shares, Initial Warrants and IHF
Preferred held by the Weider Signatories, subject to, on the terms and
conditions of, and during the time period specified in the Stock and Warrants
Purchase Agreement, of even date herewith, among the Company, IHF, the Weider
Initial Investors and certain other parties (the "Weider Transaction"); and
------------------
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, but subject to and on the terms and provisions hereof, Richard
Renaud, one of the two Weider Designated Directors currently serving on the
Board of the Company, is resigning from the Board, subject to the right of the
Weider Investors to a replacement director on such Board;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements contained herein, the parties hereto hereby agree as follows:
1. Definitions. Terms defined in the Stockholders Agreement as amended
-----------
hereby and not otherwise defined herein are used herein as so defined. "Claims"
------
shall mean all debts, demands, actions, causes of action, suits, accounts,
covenants, contracts, agreements, torts,
<PAGE>
damages, and any and all rights, claims, demands, and liabilities whatsoever, of
every name and nature, both at law and in equity, whether direct or derivative,
whether liquidated or unliquidated, whether known or unknown, and including but
not limited to any and all "claims" as that term is defined in 11 U.S.C. (S)
101.
2. Amendment. The Stockholders Agreement shall be and hereby is amended
---------
as follows, effective upon the execution and delivery hereof by all of the
parties hereto:
2.1. Addition of Section 1.1.36A. The following Section 1.1.36A is
---------------------------
hereby added immediately following Section 1.1.36 of the Stockholders Agreement
to read in its entirety as follows:
"1.1.36A. "Weider Common Securities" shall have the meaning
------------------------
provided in the Stock and Warrant Purchase Agreement.
2.2. Amendment of Section 1.1.38. The definition of the term "Weider
---------------------------
Majority Holders" in Section 1.1.38 of the Stockholders Agreement is amended to
read in its entirety as follows:
"1.1.38. "Weider Majority Holders" shall mean, as of any date,
-----------------------
the holders of a majority of the Weider Securities outstanding on such
date (assuming that all Initial Warrants have been exercised);
provided, however, that at such time as the Weider Initial Investors
-------- -------
cease to own any Initial Shares, but WHF continues to own IHF
Preferred, the term "Weider Majority Holders" shall mean WHF."
2.3. Amendment of Section 3.2.2. Section 3.2.2 of the Stockholders
--------------------------
Agreement is amended to read in its entirety as follows:
"3.2.2. Subsequent Directors. As to directors other than (a) the
--------------------
initial directors referred to in Section 3.2.l above and (b) any Weider
Designated Director replacing a director referred to in clause (a) above or
replacing a director who resigns in connection with an Initial Public
Offering, as provided in Section 3.2.3, any such director may be removed
with or without Cause by decision of two-thirds (2/3) of the other
directors."
2.4. Addition of Section 3.2.3 and Section 3.2.4. The following
-------------------------------------------
Sections 3.2.3 and Section 3.2.4 are hereby added immediately following Section
3.2.2 of the Stockholders Agreement, each Section reading in its entirety as
follows:
"3.2.3 Resignation and Reinstatement of Weider Designated Directors.
------------------------------------------------------------
Each Weider Designated Director shall resign from the Board immediately
prior to execution of an underwriting agreement in connection with a
proposed Initial Public Offering;
-2-
<PAGE>
provided that if such Initial Public Offering shall not be consummated
within twenty-one days of the date of the execution thereof, the Weider
Majority Holders shall have the right to nominate a successor Weider
Designated Director or Directors (who shall be a person or persons other
than Richard Renaud) at any time following such twenty-first day.
"3.2.4 Election of Weider Designated Director or Directors. Each
---------------------------------------------------
holder of Voting Shares and the Company hereby agree that they will either
hold a special meeting of stockholders or take action by written consent
and vote all Voting Shares held by them for the election of, and to elect,
the Weider Designated Director or Directors nominated pursuant to Section
3.2.3 within five days after the date on which the Company shall have
received notice of the selection of such Weider Designated Director or
Directors by the Weider Majority Holders."
2.5. Amendment of Section 3.3. Section 3.3 of the Stockholders
------------------------
Agreement is amended so that clause (i) thereof reads in its entirety as
follows:
"(i) in the case of a Weider Designated Director, the Weider Majority
Holders shall have the right to nominate a successor Weider Designated
Director (who shall be a person other than Richard Renaud),"
2.6. Amendment of Section 8.2.2.1. Section 8.2.2.1 of the
----------------------------
Stockholders Agreement is amended by adding the following two sentences
immediately after the heading thereof:
"Subject to the provisions of the following sentence, the demand
registration rights granted pursuant to this Section 8.2.2.1 may not
be exercised after the timely purchase by the Company of Weider
Securities in accordance with the terms and conditions of the Stock
and Warrants Purchase Agreement (including, but not limited to,
Section 2 thereof), dated on or about September 6, 1996 (the "Stock
-----
and Warrant Purchase Agreement") among the Company, IHF, the Weider
-------------------------------
Initial Investors and certain other parties. The demand registration
rights set forth in the balance of this Section 8.2.2.1 shall continue
in full force and effect until (i) the purchase of the Weider
Securities referred in the preceding sentence and (ii) the rights of
the Weider Initial Investors set forth in Section 8.3.1.2.1 hereof
shall have become effective; and such demand registration rights shall
be reinstated if the Weider Initial Investors are not permitted to
exercise the rights set forth in Section 8.3.1.2.1 hereof for any
reason."
2.7. Amendment of Section 8.2.2.4. Section 8.2.2.4 of the
----------------------------
Stockholders Agreement is amended so that the first sentence thereof reads in
its entirety as follows:
-3-
<PAGE>
"At any time not earlier than one hundred eighty (180) days after the
closing of the Initial Public Offering, the holders of Unit Securities
(other than the Company, the Fund Initial Investors, the Weider
Initial Investors (but in the case of the Weider Initial Investors,
only prior to the date the demand registration rights granted pursuant
to Section 8.2.2.1 may no longer be exercised), the Other Initial
Investors or the Management Initial Investors) representing an
aggregate of at least 25% of the Unit Securities initially outstanding
(as to such registration, the "Initiating Holders" shall mean all
---------- -------
holders of Unit Securities participating therein) 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 holders."
2.8. Amendment of Section 8.3.1. Section 8.3.1 of the Stockholders
--------------------------
Agreement is amended to read in its entirety as follows:
8.3.1. Cutbacks.
--------
8.3.1.1. General Cutback Rules. Notwithstanding the
---------------------
foregoing provisions of this Section 8 and subject to the exceptions
and qualifications set forth in Section 8.3.1.2 hereof, 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 8.3.1.1:
8.3.1.1.1. Company Registration Rights 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 the 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
-4-
<PAGE>
(ii) second, securities proposed to be included by the
Company shall be reduced.
8.3.1.1.2. Demand Registration Rights. Upon the
--------------------------
exercise of demand registration rights by the Initiating
Holders pursuant to Section 8.2 (except in the case of the
Initial Public Offering), 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
reduced pro rata (based on the number of shares
requested to be included by such Persons).
8.3.1.2. Exceptions to General Cutback Rules. The general
-----------------------------------
rules regarding cutbacks which are set forth in Section 8.3.1.1 hereof
are subject to the following further exceptions and qualifications:
8.3.1.2.1. Weider Priority. Except as provided below,
---------------
no holders of Registrable Securities shall have any right to
participate in the first closing of the Initial Public
Offering. If at or prior to the first closing of the Initial
Public Offering, the Company shall not have purchased 100% of
the Initial Shares held by all Weider Investors (other than
Weider Common Securities which are not so purchased by reason
of the breach by a Weider Investor of its obligation to sell
and deliver such securities strictly in accordance with the
provisions of the Stock and Warrant Purchase Agreement not
resulting from a breach by the Company) then each such Weider
Investor (together with all other Weider Investors not so in
breach) shall have first priority to sell its remaining Initial
Shares pursuant to the underwriter's over-allotment option with
respect to the Initial Public Offering (pro rata among such
Weider Investors). If after the first closing of the Initial
Public Offering and the closing of the over-allotment option
with respect thereto, any Weider Investor shall not have sold
100% of the Initial Shares held by it (other than Weider Common
Securities which are not so purchased by reason of the breach
by such Weider Investor of its obligation to sell and deliver
such securities strictly in accordance with the provisions of
the Stock and Warrant Purchase Agreement not resulting from a
breach by the Company or any election on the part of such
Weider Investor not to
-5-
<PAGE>
exercise its rights hereunder to include such Weider Common
Securities in said over-allotment option, after receiving
timely the opportunity to do so in accordance with the
provisions hereof), such Weider Investor (together with the
other Weider Investors not so in breach or who have not made
such election, as the case may be) shall have first priority to
sell its remaining Initial Shares in the first registered
public offering following the Initial Public Offering (pro rata
among such Weider Investors). If after the closing of the first
registered public offering following the Initial Public
Offering, any Weider Investor shall not have sold 100% of the
Initial Shares held by it (other than Weider Common Securities
which are not so purchased by reason of the breach by a Weider
Investor of its obligation to sell and deliver such securities
strictly in accordance with the provisions of the Stock and
Warrant Purchase Agreement not resulting from a breach by the
Company or any election on the part of such Weider Investor not
to exercise its registration rights hereunder after receiving
timely the opportunity to do so in accordance with the
provisions hereof), such Weider Investor (together with the
other Weider Investors not so in breach or who have not made
such election, as the case may be) shall have first priority to
sell its remaining Initial Shares in each registered public
offering thereafter until all of the Initial Shares held by
such Weider Investor have been sold.
8.3.1.2.2. Remaining Investors. Subject to the
-------------------
prevailing provisions of Section 8.3.1.2.1, participation by
the holders of Registrable Securities other than the Weider
Investors shall be subject to cut-backs as set forth in Section
8.3.1.1 and as provided in Section 5 of the Stock and Warrant
Purchase Agreement; provided, however, that the holders of
-------- -------
Management Securities are excluded from any participation in
the first registered public offering following the Initial
Public Offering other than with respect to the underwriter's
over-allotment option in connection therewith, as to which
over-allotment option the holders of Management Securities
shall have first priority as to participation subject to the
prior rights of Weider Investors set forth in Section
8.3.1.2.1.
3. Special Consent. The undersigned parties consent to (i) the Weider
---------------
Transaction (notwithstanding Section 4.1 of the Stockholders Agreement) and,
(ii) upon the consummation of the first closing of the Initial Public Offering,
the payment of $2.75 million in prepayment in full by the Company, IHF and ICON
Health & Fitness, Inc. to Bain Capital Partners IV, L.P. of annual payments due
under paragraph (b) of Section 2 (Payment of Fees) of the Management and
Advisory Agreement dated as of November 14, 1994 among such parties
(notwithstanding Section 14.2 of the Stockholders Agreement); provided, however,
-------- -------
that unless WHF shall otherwise consent in writing, the consent set forth in
clause (ii) above shall not be
-6-
<PAGE>
effective unless (a) if such Initial Public Offering occurs prior to February 1,
1997, not less than 100% of the Initial Shares owned by the Weider Investors on
the date hereof and, (b) if such Initial Public Offering occurs on or after
February 1, 1997 and on or prior to August 31, 1997, at least 50% of the Initial
Shares held by the Weider Investors on the date hereof shall have been acquired
in accordance with the Stock and Warrant Purchase Agreement (other than Weider
Common Securities which are not so purchased by reason of the breach by a Weider
Investor of its obligation to sell and deliver such securities strictly in
accordance with the provisions of the Stock and Warrant Purchase Agreement and
not resulting from a breach by the Company) in each case, subject to adjustments
to reflect any stock dividends, stock splits, reverse stock splits, conversions
of Weider Class L into shares of Weider Class A, the conversion or exchange of
Weider Class A and Weider Class L into other shares of common stock,
recapitalizations and other similar events occurring after the date hereof and
on or prior to the purchase date thereof.
4. Required Consents. The Company hereby represents and warrants to each
-----------------
of the Weider Signatories that each stockholder whose consent is required under
Section 13.2 of the Stockholders Agreement in order for the provisions of this
Agreement to be valid and effective, and binding upon and enforceable against
all parties to the Stockholders Agreement, have been obtained.
5. Miscellaneous. Except to the extent specifically amended hereby, the
-------------
Stockholders Agreement shall remain unchanged. The Stockholders Agreement as
amended hereby is confirmed as being in full force and effect. 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. 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. 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.
6. Stockholders Agreement Release. Any and all Claims that any Person who
------------------------------
is a party to this Agreement may now have or may previously have had, based in
whole or in part on facts that occurred prior to the date hereof (i) pertaining
to, by reason of, or arising under, the Stockholders Agreement or (ii)
pertaining to, by reason of, or arising under, any other Person's obligations
under the Stockholders Agreement, or (iii) pertaining to, by reason of, or
arising under, any other Person's failure to comply with or to perform its
obligations thereunder prior to the date hereof, are hereby released and
extinguished; provided, however, that this release shall not operate to release
the parties to the Stockholders Agreement from (a) their obligations to perform
the provisions of the Stockholders Agreement itself after the execution and
delivery hereof, which obligations shall remain in full force and effect or (b)
-7-
<PAGE>
any Claims arising after the date hereof based solely upon facts that occur
entirely after the date hereof; provided, however, that this sentence shall not
-------- -------
release or extinguish (1) the Weider Securities or the Unit Securities held by
the Weider Investors or (2) any Claim that arises under or by reason of such
Weider Securities or Unit Securities and that is based solely upon facts (other
than the facts of issuance and ownership of the Weider Securities or Unit
Securities in question) that occur entirely after the date hereof.
-8-
<PAGE>
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.
COMPANY: IHF CAPITAL, INC.
By: [SIGNATURE APPEARS HERE]
-------------------------------
Title: Secretary
IHF: IHF HOLDINGS, INC.
By: [SIGNATURE APPEARS HERE]
-------------------------------
Title: Secretary
<PAGE>
THE FUND 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.
By: [SIGNATURE APPEARS HERE]
------------------------------
Title: Managing Director
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.
By: [SIGNATURE APPEARS HERE]
------------------------------
Title: Managing Director
BCIP ASSOCIATES
By: [SIGNATURE APPEARS HERE]
------------------------------
A General Partner
BCIP TRUST ASSOCIATES, L.P.
By: [SIGNATURE APPEARS HERE]
------------------------------
A General Partner
<PAGE>
MANAGEMENT /s/ Gary E. Stevenson
SIGNATORIES: ----------------------------------
Gary E. Stevenson, individually
/s/ Scott R. Watterson
----------------------------------
Scott R. Watterson, individually
<PAGE>
/s/ Jon White
----------------------------------
Jon White, individually
<PAGE>
/s/ William Dalebout
----------------------------------
William Dalebout, individually
<PAGE>
/s/ S. Fred Beck
----------------------------------
S. Fred Beck, individually
<PAGE>
/s/ David Watterson
----------------------------------
David Watterson, individually
<PAGE>
/s/ Lynn C. Brenchley
----------------------------------
Lynn C. Brenchley, individually
<PAGE>
/s/ M. Joseph Brough
----------------------------------
M. Joseph Brough, individually
<PAGE>
/s/ Douglas Clausen
----------------------------------
Douglas Clausen, individually
<PAGE>
/s/ Wallace Smith
----------------------------------
Wallace Smith, individually
<PAGE>
/s/ Jeff Carmignani
----------------------------------
Jeff Carmignani, individually
<PAGE>
/s/ Wayne Euper
----------------------------------
Wayne Euper, individually
<PAGE>
/s/ Albert G. Nichols
----------------------------------
Albert G. Nichols, individually
<PAGE>
WEIDER HEALTH AND FITNESS
By [SIGNATURE APPEARS HERE]
--------------------------------
Title:
<PAGE>
GREYFRIARS LIMITED
By [SIGNATURE APPEARS HERE]
---------------------------------
Title:
<PAGE>
BAYONNE SETTLEMENT
By [SIGNATURE APPEARS HERE]
--------------------------------
Title:
<PAGE>
HORNCHURCH INVESTMENTS
LIMITED
By [SIGNATURE APPEARS HERE]
---------------------------------
Title:
<PAGE>
/s/ Robert Corey
----------------------------------
Ronald Corey, individually
<PAGE>
/s/ Bernard J. Cartoon
----------------------------------
Bernard J. Cartoon, individually
<PAGE>
/s/ Ronald Novak
----------------------------------
Ronald Novak, individually
<PAGE>
/s/ E. Weider
----------------------------------
Eric Weider, individually
<PAGE>
/s/ Richard Bizzaro
----------------------------------
Richard Bizzaro, individually
<PAGE>
/s/ Robert Reynolds
----------------------------------
Robert Reynolds, individually
<PAGE>
/s/ Michael Carr
----------------------------------
Michael Carr, individually
<PAGE>
/s/ Thomas Deters
----------------------------------
Thomas Deters, individually
<PAGE>
/s/ Barbara Harris
----------------------------------
Barbara Harris, individually
<PAGE>
/s/ Zbigniew Kindella
----------------------------------
Zbigniew Kindella, individually
<PAGE>
GENERAL ELECTRIC
CAPITAL CORPORATION
By /s/ Abigail Wolf
----------------------------------
Title: Authorized Signer
<PAGE>
/s/ Alan D. Gordon
----------------------------------
Alan D. Gordon, individually
<PAGE>
/s/ Stanley C. Tuttleman
----------------------------------
Stanley C. Tuttleman, individually
<PAGE>
/s/ Brad H. Bearnson
----------------------------------
Brad H. Bearnson, individually
<PAGE>
/s/ Charles W. Robins
----------------------------------
Charles W. Robins, individually
<PAGE>
EXHIBIT 10.45
AMENDMENT AND RESTATEMENT OF STOCKHOLDERS AGREEMENT
---------------------------------------------------
This Amendment and Restatement (the "Agreement") is made and entered
---------
into as of September 6, 1996 among IHF Capital, Inc. (the "Company"), IHF
-------
Holdings, Inc. ("IHF"), each of Bain Capital Fund IV, L.P., Bain Capital Fund
---
IV-B, L.P., BCIP Associates and BCIP Trust Associates, L.P. (together, the "Fund
----
Initial Investors"), and each of the signatories hereto designated respectively
- -----------------
as Management Signatories, Weider Signatories and Other Signatories on the
signature pages hereof (respectively the "Management Signatories", the "Weider
---------------------- ------
Signatories", and the "Other Signatories").
- ----------- -----------------
WHEREAS, the Company, IHF, the Fund Initial Investors, the Management
Signatories, the Weider Signatories, the Other Signatories and the Unit
Signatories, and certain other Persons are parties to a Stockholders Agreement
dated as of November 14, 1994 (as amended by Amendment No. 1 to Stockholders
Agreement dated as of the date hereof, the "Stockholders Agreement");
----------------------
WHEREAS, contemporaneously with or prior to the execution and delivery
of this Agreement, the Company, IHF, the Weider Signatories and certain other
parties have entered into a Stock and Warrants Purchase Agreement dated as of
the date hereof, providing for the purchase by the Company, subject to certain
conditions, of the Common Stock, Initial Warrants and IHF Preferred held by the
Weider Signatories; and
WHEREAS, the Company, IHF, the Fund Initial Investors, the Management
Signatories, the Weider Signatories and the Other Signatories wish to amend and
restate the Stockholders Agreement and, in the case of such persons other than
the Company and IHF, collectively constitute the holders of the requisite
Securities under Section 13.2 of the Stockholders Agreement;
NOW, THEREFORE, for and in consideration of the premises and the
mutual agreements contained herein, the parties hereto hereby agree as follows:
1. Definitions. Terms defined in the Stockholders Agreement as
-----------
amended and restated hereby and not otherwise defined herein are used herein as
so defined.
2. Amendment and Restatement. The Stockholders Agreement shall be
-------------------------
and hereby is amended and restated to read in its entirety as set forth in Annex
A attached hereto, effective upon the date specified in Section 3 hereof (the
"Restated Stockholders Agreement").
- --------------------------------
3. Effectiveness. The amendment and restatement of the
-------------
Stockholders Agreement pursuant to this Agreement shall be effective upon the
consummation of the initial
<PAGE>
closing (the "IPO Closing") of an underwritten Initial Public Offering;
-----------
provided, that, except as otherwise consented to in writing by WHF, the Restated
- --------
Stockholders Agreement shall not become effective unless the following
conditions are met: (i) upon the consummation of such IPO Closing there shall
exist a Significant Public Float, and (ii) contemporaneously therewith or prior
thereto, the Company shall have acquired (a) all the IHF Preferred owned by the
Weider Initial Investors, and (b) if such acquisition occurs prior to February
1, 1997, not less than 100% of the Initial Shares owned by the Weider Initial
Investors on the date hereof and, if such acquisition occurs on or after
February 1, 1997, and on or prior to August 31, 1997, at least 50% of the
Initial Shares owned by the Weider Initial Investors on the date hereof, in each
case subject to adjustments to reflect any stock dividends, stock splits,
reverse stock splits, conversions of Weider Class L into shares of Weider Class
A, the conversion or exchange of Weider Class A and Weider Class L into other
shares of common stock, recapitalizations and other similar events occurring
after the date hereof and on or prior to the purchase date thereof pursuant to
the Stock and Warrant Purchase Agreement (other than Weider Common Securities
and Weider Preferred (as defined in the Stock and Warrant Purchase Agreement)
which are not so purchased by reason of the breach by a Weider Investor of its
obligation to sell and deliver such securities strictly in accordance with the
provisions of the Stock and Warrant Purchase Agreement not resulting from a
breach by the Company). If the IPO Closing does not occur on or prior to August
31, 1997, this Agreement shall automatically terminate and be without further
force or effect and the Restated Stockholders Agreement shall not become
effective. Unless and until the Restated Stockholders Agreement shall become
effective in accordance with the preceding sentences of this Section 3, the
Stockholders Agreement shall continue in full force and effect and shall be
unaffected hereby. Notwithstanding the foregoing provisions of Section 2 or this
Section 3 of this Agreement, in the event a Come Along Notice shall have become
effective within ninety (90) days prior to the date on which the Restated
Stockholders Agreement becomes effective pursuant hereto, or in the event a Take
Along Notice shall have become effective within one hundred (120) days prior to
the date on which the Restated Stockholders Agreement becomes effective pursuant
hereto, then the provisions of Section 6 (in the case of such Come Along Notice)
and the provisions of Section 7 (in the case of such Take Along Notice) of the
Stockholders Agreement as in effect on the date hereof shall remain in effect
until the earlier of the consummation of the closing of the Sale to which such
notice relates and the ninetieth (90th) day thereafter (in the case of such
Come Along Notice) and the one hundred twentieth (120th) day thereafter (in the
case of such Take Along Notice).
4. Required Consents. The Company hereby represents and warrants to
-----------------
each of the Weider Signatories that each stockholder whose consent is required
under Section 13.2 of the Stockholders Agreement in order for the provisions of
this Agreement and the Restated Stockholders Agreement to be valid and
effective, and binding upon and enforceable against all parties to the
Stockholders Agreement and the Restated Stockholders Agreement, have been
obtained. The foregoing representations shall survive the execution and
delivery of this Agreement.
-2-
<PAGE>
5. Miscellaneous. 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. 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. 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.
-3-
<PAGE>
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.
COMPANY: IHF CAPITAL, INC.
By:[SIGNATURE APPEARS HERE]
-------------------------------
Title: Secretary
IHF: IHF HOLDINGS, INC.
By:[SIGNATURE APPEARS HERE]
-------------------------------
Title: Secretary
<PAGE>
THE FUND 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.
By:[SIGNATURE APPEARS HERE]
---------------------------------
Title: Managing Director
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.
By:[SIGNATURE APPEARS HERE]
------------------------------
Title: Managing Director
BCIP ASSOCIATES
By:[SIGNATURE APPEARS HERE]
------------------------------
A General Partner
BCIP TRUST ASSOCIATES, L.P.
By:[SIGNATURE APPEARS HERE]
------------------------------
A General Partner
<PAGE>
MANAGEMENT /s/ Gary Stevenson
SIGNATORIES: ----------------------------------
Gary Stevenson, individually
/s/ Scott Watterson
----------------------------------
Scott Watterson, individually
<PAGE>
/s/ Jon White
----------------------------------
Jon White, individually
<PAGE>
/s/ William Dalebout
----------------------------------
William Dalebout, individually
<PAGE>
/s/ S.Fred Beck
----------------------------------
S. Fred Beck, individually
<PAGE>
/s/ David Watterson
----------------------------------
David Watterson, individually
<PAGE>
/s/ Lynn C. Brenchley
----------------------------------
Lynn C. Brenchley, individually
<PAGE>
/s/ M. Joseph Brough
----------------------------------
M. Joseph Brough, individually
<PAGE>
/s/ Douglas Clausen
----------------------------------
Douglas Clausen, individually
<PAGE>
/s/ Wallace Smith
----------------------------------
Wallace Smith, individually
<PAGE>
/s/ Jeff Carmignani
----------------------------------
Jeff Carmignani, individually
<PAGE>
/s/ Wayne Euper
---------------------------------
Wayne Euper, individually
<PAGE>
/s/ Albert G. Nichols
----------------------------------
Albert G. Nichols, individually
<PAGE>
WEIDER HEALTH AND FITNESS
By[SIGNATURE APPEARS HERE]
________________________________
Title:
<PAGE>
GREYFRIARS LIMITED
By[SIGNATURE APPEARS HERE]
--------------------------------
Title:
<PAGE>
BAYONNE SETTLEMENT
By [SIGNATURE APPEARS HERE]
-------------------------
Title:
<PAGE>
HORNCHURCH INVESTMENTS
LIMITED
By [SIGNATURE APPEARS HERE]
---------------------------
Title:
<PAGE>
/s/ Ronald Corey
--------------------------------
Ronald Corey, individually
<PAGE>
/s/ Bernard J. Cartoon
--------------------------------
Bernard J. Cartoon, individually
<PAGE>
/s/ Ronald Novak
--------------------------------
Ronald Novak, individually
<PAGE>
/s/ Eric Weider
--------------------------------
Eric Weider, individually
<PAGE>
/s/ Richard Bizzaro
--------------------------------
Richard Bizzaro, individually
<PAGE>
/s/ Robert Reynolds
--------------------------------
Robert Reynolds, individually
<PAGE>
/s/ Michael Carr
--------------------------------
Michael Carr, individually
<PAGE>
/s/ Thomas Deters
--------------------------------
Thomas Deters, individually
<PAGE>
/s/ Barbara Harris
--------------------------------
Barbara Harris,individually
<PAGE>
/s/ Zbigniew Kindella
--------------------------------
Zbigniew Kindella, individually
<PAGE>
OTHER SIGNATORIES: GENERAL ELECTRIC
CAPITAL CORPORATION
By /s/ Abigail Wolf
--------------------------------
Title: Authorized Signer
<PAGE>
/s/ Alan D. Gordon
--------------------------------
Alan D. Gordon, individually
<PAGE>
/s/ Stanley C. Tuttleman
----------------------------------
Stanley C. Tuttleman, individually
<PAGE>
/s/ Brad H. Bearnson
----------------------------------
Brad H. Bearnson, individually
<PAGE>
/s/ Charles W. Robins
----------------------------------
Charles W. Robins, individually
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
IHF CAPITAL, INC.
----------
RESTATED STOCKHOLDERS AGREEMENT
----------
Dated as of _______________, 199__
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
1. DEFINITIONS ........................................................4
1.1. Certain Definitions ......................................4
1.2. Certain Matters of Construction ..........................9
1.3. Cross Reference Table ...................................10
2. [INTENTIONALLY DELETED.] ..........................................11
3. VOTING AGREEMENT. .................................................11
3.1. Election of Directors ...................................11
3.2. Removal .................................................11
3.3. Successors ..............................................12
3.4. Certain Transactions ....................................12
3.5. Committees ..............................................12
3.6. Special Rule for Fund Designated Directors ..............12
3.7. Proxy; the Company ......................................13
3.8. Period ..................................................13
4. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS ..........................14
4.1. Securities ..............................................14
4.2. Unit Securities and Weider Securities ...................16
4.3. Period ..................................................16
4.4. Status in Hands of Certain Transferees ..................16
4.5. Lock-Up .................................................16
5. [INTENTIONALLY DELETED.] ..........................................16
6. [INTENTIONALLY DELETED.] ..........................................16
7. [INTENTIONALLY DELETED.] ..........................................16
8. REGISTRATION RIGHTS ...............................................17
8.1. Piggyback Registration Rights ...........................17
8.2. Demand Registration Rights ..............................18
8.3. Certain Other Provisions ................................21
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<PAGE>
8.4. Indemnification and Contribution ........................26
8.5. Lock-up. ................................................29
9. [INTENTIONALLY DELETED.] ..........................................29
10. DETERMINATION OF FAIR MARKET VALUE ...............................29
11. REMEDIES .........................................................29
12. LEGENDS ..........................................................30
13. AMENDMENT, TERMINATION, ETC ......................................31
13.1. No Oral Modifications ..................................31
13.2. Written Modifications ..................................31
14. AGREEMENTS TO REFRAIN FROM CERTAIN ACTIONS .......................31
15. MISCELLANEOUS ....................................................32
15.1. Authority; Effect ......................................32
15.2. Notices ................................................32
15.3. Binding Effect, etc ....................................33
15.4. Descriptive Headings ...................................34
15.5. Counterparts ...........................................34
15.6. Severability ...........................................34
15.7. Joint and Several Liability of the Company and IHF .....34
16. GOVERNING LAW, ARBITRATION .......................................34
16.1. Governing Law ..........................................34
16.2. Arbitration ............................................34
16.3. Consent to Jurisdiction ................................35
16.4. Waiver of Jury Trial ...................................36
16.5. Reliance ...............................................36
-ii-
<PAGE>
RESTATED STOCKHOLDERS AGREEMENT
This Restated Stockholders Agreement (the "Agreement") is made as of
---------
_____________, 199 ___ by and among:
(i) IHF Capital, Inc. a Delaware corporation (the "Company"),
-------
(ii) IHF Holdings, Inc., a Delaware corporation ("IHF"),
---
(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 "Fund
----
Initial Investors," and each an "Fund Initial Investor") and each of the
----------------- ---------------------
other Fund Investors from time to time becoming or having become a party
hereto pursuant to the terms hereof,
(iv) each of Gary Stevenson, Scott Watterson, Jon White, William Dalebout,
David Watterson, S. Fred Beck, Lynn C. Brenchly, M. Joseph Brough,
Douglas Clausen, Wallace Smith, Jefferey Carmignani, Wayne Euper and
Albert G. Nichols (collectively, the "Management Initial Investors," and
----------------------------
each a "Management Initial Investor") and each of the other Management
---------------------------
Investors from time to time becoming or having become a party hereto
pursuant to the terms hereof,
(v) each of Weider Health and Fitness, a Nevada corporation ("WHF"),
Greyfriars Limited, Bayonne Settlement, Hornchurch Investments Limited,
Ronald Corey, Bernard J. Cartoon, Ronald Novak, Eric Weider, Richard
Bizzaro, Robert Reynolds, Michael Carr, Thomas Deters, Barbara Harris
and Zbigniew Kindella (collectively, the "Weider Initial Investors"),
and each of the other Weider Investors from time to time becoming or
having become a party hereto pursuant to the terms hereof,
(vi) each of General Electric Capital Corporation (the holders from time to
time of the Other Securities originally issued to General Electric
Credit Corporation and which constitute Securities being referred to
herein collectively as "GECC"), Alan D. Gordon, Stanley C. Tuttleman,
----
DLJ Capital Corporation, Charles W. Robins and Brad H. Bearnson
(collectively, the "Other Initial Investors," and each an "Other Initial
----------------------- -------------
Investor") and each of the Other Investors from time to time becoming or
--------
having become a party hereto pursuant to the terms hereof, and
(vii) each of the Unit Investors from time to time becoming or having become a
party hereto pursuant to the terms hereof (collectively, the "Unit
----
Initial Investors" and each a "Unit Initial Investor") and each of the
----------------- ---------------------
other Unit Investors from time to time becoming or having become a party
hereto pursuant to the terms hereof (each of the Fund Investors, the
Management Investors, the Weider Investors, and the Other Investors
being referred to herein as a "Company Investor" and collectively as the
----------------
"Company
-------
<PAGE>
Investors", and each of the Company Investors and the Unit Investors
---------
being referred to herein as an "Investor" and collectively as the
--------
"Investors").
---------
Recitals
--------
1. Prior to the date hereof, the following transactions occurred:
(a) On or about November 14, 1994, the Company, directly and indirectly
through IHF and other subsidiaries of the Company, acquired all of the issued
and outstanding capital stock of each of ProForm Fitness Products, Inc., a Utah
corporation ("ProForm"), Weslo, Inc., a Utah corporation ("Weslo"), and American
------- -----
Physical Therapy, Inc. a Division of Weider Health and Fitness, a Colorado
corporation ("APT"; each of ProForm, Weslo and APT being sometimes referred to
---
herein as an "Acquired Company" and collectively as the "Acquired Companies")
---------------- ------------------
other than shares of such stock referred to below, pursuant to a First Amended
and Restated Master Transaction Agreement dated as of October 12, 1994 (the
"Master Transaction Agreement") between the Company and the Sellers as defined
----------------------------
therein.
(b) Pursuant to a Bain Stock Subscription Agreement dated as of November 14,
1994, as listed on Schedule I hereto, the Fund Initial Investors purchased an
aggregate of 3,548,050 shares of Class A Common Stock, par value $.001 per
share ("Class A Common") of the Company and 354,805 shares of Class L Common
--------------
Stock, par value $.001 per share ("Class L Common", of the Company.
--------------
(c) Pursuant to a Bain Stock Subscription Agreement dated as of November 14,
1994, as listed on Schedule I hereto, the Other Initial Investors purchased an
aggregate of 386,000 shares of Class A Common and 38,600 shares of Class L
Common.
(d) Pursuant to a Stock Subscription and Exchange Agreement dated as of
November 14, 1994 (the "Parent Stock Exchange Agreement"), as listed on Schedule
-------------------------------
I hereto, certain of the Management Initial Investors and the Weider Initial
Investors purchased, in exchange for certain shares of the common stock of the
Acquired Companies, an aggregate of 2,253,600 shares of Class A Common, 225,360
shares of Class L Common (such shares of Common Stock, collectively, together
with any securities received with respect thereto, are referred to herein as
"Initial Shares").
- ---------------
(e) Pursuant to a Stock Subscription and Purchase Agreement dated as of
November 14, 1994 (the "Parent Stock Purchase Agreement"), as listed on Schedule
-------------------------------
I hereto, certain of the Management Investors acquired in exchange for cash and
notes, an aggregate of 123,200 shares of Class A Common and 12,320 shares of
Class L Common (such shares of Common Stock, collectively, together with any
securities received with respect thereto, are referred to herein as "Initial
-------
Shares").
- ------
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<PAGE>
(f) Pursuant to a Warrant Agreement dated as of November 14, 1994 (the
"Warrant Agreement"), as listed on Schedule I hereto, certain of the Management
------- ---------
Initial Investors and the Weider Initial Investors purchased, in exchange for
cash, warrants for the purchase of an aggregate of 452,941.18 shares of Class A
Common (the "Initial Warrants") (such shares of Common Stock including without
------- --------
limitation such shares issuable upon exercise of such warrants, collectively,
together with any securities received with respect thereto, are referred to
herein as "Initial Shares").
------- ------
(g) Pursuant to an IHF Holdings Stock Subscription and Exchange Agreement
dated as of November 14, 1994 (the "Intermediary Stock Exchange Agreement"), as
-------------------------------------
listed on Schedule I hereto, certain of the Weider Initial Investors purchased
in exchange for certain shares of the common stock of the Acquired Companies,
8,000 shares of the Series A-1 Preferred Stock of IHF and 1,000 shares of the
Series A-2 Preferred Stock of IHF (collectively "IHF Preferred").
-------------
(h) Pursuant to an IHF Capital Option Exchange Agreement dated as of November
14, 1994 (the "Parent Option Exchange Agreement"), as listed on Schedule I
--------------------------------
hereto, certain of the Management Initial Investors acquired, in exchange for
certain options for shares of common stock of the Acquired Companies, options
for an aggregate of 3,609,043.70 shares of Class A Common and 360,904.37 shares
of Class L Common (such shares of Common Stock including without limitation such
shares issuable upon exercise of such options, collectively, together with any
securities received with respect thereto, are referred to herein as "Initial
-------
Shares").
- ------
(i) Pursuant to an IHF Holdings Option Exchange Agreement dated as of
November 14, 1994 (the "Intermediary Option Exchange Agreement"), as listed
--------------------------------------
on Schedule I hereto, certain of the Management Initial Investors acquired, in
exchange for certain options for shares of common stock of the Acquired
Companies, options for an aggregate of 1,041.39 shares of the Series A-2
Preferred Stock of IHF.
(j) Subsequent to the Parent Stock Exchange Agreement, as listed on Schedule
1 hereto, WHF transferred to certain others of the Weider Initial Investors an
aggregate of 1,833,500 shares of Class A Common and 22,281.97 shares of Class L
Common.
(k) Pursuant to the 1994 Stock Option Plan, as listed on Schedule I hereto,
certain of the Management Initial Investors have been granted by the Company
certain options to acquire shares of Class A Common.
(l) Pursuant to a Purchase Agreement dated as of November 14, 1994,
Donaldson, Lufkin & Jenrette Securities Corporation and Bear, Stearns & Co.,
Inc. (the "Unit Initial Investors") acquired units consisting of an aggregate
----------------------
of (i) $101,250,000 original principal amount of the 13% Senior Subordinated
Notes due 2002 of ICON Health & Fitness, Inc., (ii) $123,700,000 original
stated principal amount of the 15% Senior Subordinated Discount Notes due 2004
("Discount Notes") of IHF and (ii) Warrants (the "Unit Warrants") for an
-------- ----- ---- --------
aggregate of 1,000,000 shares of Class A Common and 100,000 shares of
Class L Common.
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<PAGE>
(m) Following November 14, 1994 and in addition to the options referred to
above granted under the 1994 Stock Option Plan, the Company has granted certain
Management Investors certain options to acquire shares of Class A Common Stock,
all of which are reflected in Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
August 28, 1996.
(n) In connection with the Initial Public Offering upon the consummation of
the initial closing of which this Amended and Restated Stockholders Agreement is
becoming effective, the shares of Class A Common and Class L Common are being
converted into shares of Common Stock of the Company (together with the Class A
Common and the Class L Common, the "Common Stock").
2. The parties believe that it is in the best interests of the Company, IHF
and the Investors to: (i) amend and restate the Stockholders Agreement dated
November 14, 1994 as amended by Amendment No. 1 to Stockholders Agreement dated
September 6, 1996 (the "Original Agreement"), (ii) provide that certain shares
of Common Stock and the Initial Warrants shall be transferable only upon
compliance with the terms hereof; (iii) provide for certain rights and
obligations of the Investors with respect to the election of directors of the
Company; (iv) provide for certain rights and obligations with respect to the
registration of Common Stock; and (v) 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
----------------
Fund Investor or Affiliated Fund or (ii) any Person in which any Fund Investor
or Affiliated Fund holds any share 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
-4-
<PAGE>
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. "Board" shall mean the Board of Directors of the Company.
-----
1.1.5. "Competitor Institution" shall mean (i) any Person which is
----------------------
engaged, directly or indirectly, in any business which is the same as or
similar to any business of the Company and its Subsidiaries and (ii) any
Person which beneficially owns, directly or indirectly, 5% or more of any
class of outstanding capital stock of any Person described in clause (i)
above.
1.1.6. "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.
1.1.7. "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.
1.1.8. "Fund Investor" shall mean any Fund Initial Investor and any
-------------
Affiliated Fund or transferee 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
stockholder agrees to be bound by the terms of this Agreement to the same
extent as a Fund Initial Investor.
1.1.9. "Fund Majority Holders" shall mean, as of any date, the holders of
---------------------
a majority of the Fund Securities outstanding on such date.
1.1.10. "Fund Securities" shall mean all Shares originally issued to (or
---------------
issued upon conversion of or otherwise with respect to Shares originally
issued to) or held by the Fund Investors, whenever issued.
1.1.11. "Independent Investment Banking Firm" means any nationally
-----------------------------------
recognized investment banking firm listed on Schedule 1.1.11 hereto which is
not the Beneficial Owner of any equity interest in (i) the Company, (ii) any
shareholder of the Company, (iii) any Fund Investor or Affiliated Fund or (iv)
any Person controlled by any Fund Investor or Affiliated Fund.
1.1.12. "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.
-5-
<PAGE>
1.1.13. "Management Investor" shall mean any Management Initial Investor
-------------------
and any other officer or employee of the Company or any of its subsidiaries
designated by the Board to be a Management Investor hereunder and any
transferee pursuant to Section 4.1.2, 4.1.3, 4.1.5 or 4.1.8 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 Management Initial Investor.
1.1.14. "Management Majority Holders" shall mean, as of any date, the
---------------------------
holders of a majority of the Management Securities outstanding on such date.
1.1.15. "Management Securities" shall mean: (i) all Shares originally
---------------------
issued to (or issued upon conversion of or otherwise with respect to Shares
originally issued to) or held by the Management Investors, whenever issued,
including without limitation all Shares issued or issuable pursuant to the
exercise of any Options originally issued to or held by the Management
Investors, whenever issued; and (ii) all such Options; provided, however, that
-------- -------
the term "Management Securities" shall not include Options, or Shares issued
upon exercise of Options, issued on or about November 14, 1994 and titled "IHF
Capital, Inc. -- Unit Stock Option"; and, provided further, that if IHF
-------- -------
Exchange Shares are ever issued in respect of IHF Preferred subject to options
originally issued pursuant to the Intermediary Option Exchange Agreement, or
upon exercise of such options, such IHF Exchange Shares shall be Management
Securities hereunder for all purposes hereof from the date of such issuance.
1.1.16. "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.
1.1.17. "Non-Fund Securities" shall mean all Securities other than Fund
-------------------
Securities, whenever issued.
1.1.18. "Options" shall mean 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, but shall exclude the Warrants.
1.1.19. "Other Investor" shall mean any Other Initial Investor and any
--------------
other Person which, from time to time, acquires Other Securities 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
Other Initial Investor.
-6-
<PAGE>
1.1.20. "Other Majority Holders" shall mean, as of any date, the holders
----------------------
of a majority of the Other Securities outstanding on such date.
1.1.21. "Other Securities" shall mean all Shares originally issued to (or
----------------
issued upon conversion of or otherwise with respect to Shares originally
issued to) or held by the Other Investors, whenever issued.
1.1.22. "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, 4.1.5 or 4.1.8.
1.1.23. "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.
1.1.24. "Registrable Securities" shall mean (i) all shares of Class A
----------------------
Common, (ii) all shares of Class A Common issuable upon conversion of Shares
of Class L Common, (iii) all shares of Class A Common issuable upon exercise
of any Option or any Warrant, and (iv) all shares of Common Stock directly or
indirectly issued or issuable with respect to the securities referred to in
clauses (i), (ii) or (iii) 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 Unit Securities. As to any particular Registrable Securities, such shares
shall cease to be Registrable Securities when (a) a registration statement
with respect to the sale of such securities shall have become effective under
the Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (b) such securities shall have
been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (c) subject to the provisions of Section
12 hereof, such securities shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall
not require registration of them under the Securities Act and such securities
may be distributed without volume limitation or other restrictions on transfer
under Rule 144 (including without application of paragraphs (c), (e) (f) and
(h) of Rule 144), or (d) such securities shall have ceased to be outstanding.
1.1.25. "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).
1.1.26. "Securities" shall mean all Shares, all Initial Warrants and all
----------
Options included in the Fund Securities, the Other Securities, the Management
Securities or the Weider Securities, but shall not include the Shares or
Warrants included in the Unit Securities.
-7-
<PAGE>
1.1.27. "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.
1.1.28. "Shares" shall mean all shares of Common Stock.
------
1.1.29. "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 (other than IHF
Exchange 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
(other than IHF Exchange 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.
1.1.30. "Specified Information" shall mean, with respect to an Independent
---------------------
Investment Banking Firm at any time, the following information: (i) whether,
in any one of the past three (3) complete calendar years and the portion of
the calendar year then ended, such firm has received $100,000 or more
collectively from the Weider Majority Holders and their Affiliates or if there
exists any agreement with respect to such payment in the future, and, if so,
the amount received and the consideration received or rendered therefor; and
(ii) whether such firm has ever acted as the lead underwriter in an offering
for the account of any of the Weider Majority Holders or any of their
Affiliates.
1.1.31. "Transaction Agreements" shall mean each of the agreements listed
----------------------
on Schedule 1.1.31 hereto.
1.1.32. "Unit Investor" shall mean the Unit Initial Investors, and any
-------------
other Person which, from time to time, acquires Unit Securities and thereby
becomes party to this Agreement as a Unit Investor hereunder.
1.1.33. "Unit Majority Holders" shall mean, as of any date, the holders
---------------------
of a majority of the Unit Securities outstanding on such date.
1.1.34. "Unit Securities" shall mean all Shares and all Unit Warrants
---------------
originally issued to (or issued upon conversion or exercise of or otherwise with
respect to Shares or Unit Warrants originally issued to) the Unit Investors,
whenever issued.
1.1.35. "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, but shall not include the Shares included in the Unit Securities.
-8-
<PAGE>
1.1.36. "Warrants" shall mean all Initial Warrants and all Unit Warrants.
--------
1.1.37. "Weider Common Securities" shall have the meaning provided in the
------------------------
Stock and Warrant Purchase Agreement.
1.1.38. "Weider Investor" shall mean any Weider Initial Investor and any
---------------
other Person which, from time to time, acquires Weider Securities 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 Weider Initial
Investor.
1.1.39. "Weider Majority Holders" shall mean, as of any date, the
-----------------------
holders of a majority of the Weider Securities outstanding on such date
(assuming that all Initial Warrants have been exercised); provided, however,
-------- -------
that at such time as the Weider Initial Investors cease to own any Initial
Shares, but WHF continues to own IHF Preferred, the term "Weider Majority
Holders" shall mean WHF.
1.1.40. "Weider Securities" shall mean all Shares and all Initial Warrants
-----------------
originally issued to (or issued upon conversion or exercise of or otherwise with
respect to Shares or Initial Warrants originally issued to) the Weider
Investors, whenever issued; provided, however, if shares ("IHF Exchange Shares")
-------- ------- -------------------
are ever issued in respect of IHF Preferred originally issued to any Weider
Investor, such shares shall be Weider Securities hereunder for all purposes
hereof from the date of such issuance.
1.1.41. "1994 Stock Option Plan" shall mean the 1994 Stock Option Plan of
----------------------
the Company adopted on or about the date hereof.
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;
-9-
<PAGE>
(e) Except as otherwise provided herein, any Person who holds Options or
Warrants shall be deemed to be the holder of the Registrable Securities
obtainable upon exercise of the Options or Warrants in connection with the
transfer thereof or otherwise regardless of any restriction or limitation on
the exercise of the Options or 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
---- ----------
"AAA" Section 16.2.1
"Acquired Companies" Recitals
"Agreement" Preamble
"APT" Recitals
"Class A Common" Recitals
"Class L Common" Recitals
"Common Stock" Recitals
"Commission" Section 8.3.4
"Company" Preamble
"Company Investor" Preamble
"Covered Person" Section 8.4.2
"Exchange Agreement" Recitals
"Fund Initial Investor" Preamble
"GECC" Preamble
"IHF" Preamble
"IHF Exchange Shares" Section 1.1.39
"IHF Preferred" Recitals
"Individual Underwriting Agreement Representations" Section 8.1
"Initial Shares" Recitals
"Initial Warrants" Preamble
"Initiating Holders" Section 8.2
"Investor" Preamble
"Majority Initiating Holders" Section 8.2
"Management Designated Directors" Section 3.1
"Management Initial Investor" Preamble
"Master Transaction Agreement" Recitals
"Non-Complying Investor" Section 8
"Original Agreement" Recitals
"Other Initial Investor" Preamble
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<PAGE>
"Proform" Recitals
"Public Offering" Section 8.1
"Stock and Warrant Purchase Agreement" Section 8.2.2.1
"Transfer" Section 4
"Unit Initial Investor" Preamble
"Warrant Agreement" Recitals
"Weider Initial Investor" Preamble
"Weslo" Recitals
"WHF" Preamble
2. [INTENTIONALLY DELETED.]
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 such number equal
to or greater than five (5), as may be directed from time to time by
the Fund Majority Holders;
(ii) [intentionally deleted];
(iii) elect as a director of the Company each of two individuals (the
"Management Designated Directors") that may be designated by the
-------------------------------
Management Majority Holders for election; and
(iv) elect as the other members of the Board such other individuals as may
be designated by the Fund Majority Holders (the "Fund Designated
---------------
Directors")
---------
3.2. Removal.
-------
3.2.1. Initial Directors. As to the directors first elected to the
-----------------
Board pursuant to the above provisions immediately following the execution
and delivery of this Agreement, the following provisions shall apply: (i)
[intentionally deleted], (ii) no Management Designated Director may be removed
without the consent of the Management Majority Holders, except for Cause as
determined in good faith by unanimous decision of all directors other than the
Management Designated Directors, and (iii) no Fund Designated Director may be
removed without the consent of the Fund Majority Holders, except for Cause as
determined in good faith by unanimous decision of all directors other than the
Fund Designated Directors.
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<PAGE>
3.2.2. Subsequent Directors. As to directors other than the initial
--------------------
directors referred to in Section 3.2.1 above, any such director may be removed
with or without Cause by decision of two-thirds (2/3) of the other directors.
3.3. Successors. In the event a director shall cease to serve for any
----------
reason, then (i) [intentionally deleted], (ii) in the case of a Management
Designated Director, the Management Majority Holders shall have the right to
nominate a successor Management Designated Director, and (iii) in the case of
any Fund Designated Director, the Fund Majority Holders shall have the right
to nominate a successor Fund 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 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 Non-Fund Securities agrees to
--------------------
vote, or consent with respect to, such Investor's Shares, 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 Fund Majority Holders with
respect to: any offering of securities of the Company; 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 Fund Investor; any merger or consolidation
involving the Company or any of its subsidiaries with a Person which is not an
Affiliate of any Fund Investor; any transaction constituting a change in control
of the Company to a Person not an Affiliate of any Fund Investor; any merger or
consolidation of the Company with any one or more of its direct and indirect
subsidiaries and no other Person; and any transaction to which Section 6 or 7 of
the Original Agreement applies.
3.5. Committees. Each committee of the Board shall be composed so that the
----------
representation thereon of Management Designated Directors and Fund 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 Fund Designated Directors 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 Fund
------------------------------------------
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 Fund
Designated Directors then to be designated:
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<PAGE>
Shares Number
------ ------
Shares Originally Issued One half of the number to be designated
To Bain Capital Fund IV, L.P. plus one half, rounded up to the nearest
whole number.
Shares Originally Issued One half of the number to be designated
to Bain Capital Fund IV-B, L.P. 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) the Fund Designated Directors from time to time in office, 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, in
such manner as said proxies may, in the exercise of their sole and
absolute discretion, determine, and 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 clauses (i) and (iv) of Section
3.1, clause (iii) of Section 3.3 and Section 3.4;
(ii) [intentionally deleted]; and
(iii) the Management Designated Directors from time to time in office,
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, in
such manner as said proxies may, in the exercise of their sole and
absolute discretion, determine, and 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 clause (iii) of Section 3.1 and
clause (ii) 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.
3.8. Period. The foregoing provisions of this Section 3 shall expire on the
------
earliest of: (i) the tenth anniversary of the date hereof; (ii) the date of
termination of this Agreement; (iii) the first date on which the Fund Investors
own less than fifty percent (50%) of all Securities owned
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<PAGE>
by them immediately after the consummation of the initial closing of the Initial
Public Offering; or (iv) one year after the date, if any, after the Initial
Public Offering on which the Fund Investors shall distribute all Fund Securities
to any trust for the benefit of parties of a Fund Investor or an Affiliated Fund
or pro rata to the partners of a Fund Investor or Affiliated Fund; provided,
--------
however, that the provisions of clause (iii) of Section 3.1, clause (ii) of
- -------
Section 3.2.1, clause (ii) 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 Management Investors own less than fifty percent (50%) of all
Securities owned by them immediately after the consummation of the initial
closing of the Initial Public Offering.
4. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS.
4.1. Securities. No holder of any Non-Fund Security shall sell,
----------
pledge, assign, grant a participation interest in, encumber or otherwise
transfer or dispose of any of such Non-Fund 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 and except as
--------
provided in Section 4.3. Except as provided in Section 4.3, any attempted
Transfer of Non-Fund 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 orFund or pro rata to the all Non-Fund 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 Fund Investor, (iii) on the
terms and subject to the conditions of Section 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
Management Initial Investor; 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
-14-
<PAGE>
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, 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 Management Initial Investor; 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. [Intentionally Deleted]
4.1.5. Transfers of Certain Securities in Connection with Certain
----------------------------------------------------------
Loans. Any holder of Management Securities may pledge Initial Shares to any
-----
bank or other financial institution (other than a Competitor Institution) to
secure any bona fide recourse debt of such holder to such bank or financial
institution for borrowed money not exceeding the Fair Market Value of the
Securities subject to such pledge; provided, however, that no such pledge
-------- -------
may be made unless the pledgee shall have delivered to the Company a written
acknowledgment and agreement in form and substance reasonably satisfactory
to the Company to the effect that the Securities subject to such pledge
shall remain (both before and after foreclosure, if any) subject to all of
the terms and provisions hereof as Management Securities or Weider
Securities, respectively; and provided, further, that any such 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. For purposes of this Section 4.1.5, Fair Market
Value shall be determined in good faith by the Board as of the date of the
pledge in question; provided, however, that in the event of a dispute as to
-------- -------
Fair Market Value, such Fair Market Value shall be determined by an
Independent Investment Banking Firm selected by agreement of the Board and
the holder of Securities proposing to pledge the same; 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. All fees and costs
of such Independent Investment Banking Firm shall be paid by the holder of
Securities proposing to pledge the same.
4.1.6. [Intentionally Deleted]
4.1.7. Transfers of Other Securities. Any holder of Other
-----------------------------
Securities may Transfer any or all of such Securities to any Person
whatsoever; 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 the Securities to be received by such recipient are subject to all the
provisions of this Agreement and that such recipient is found hereby and a
party hereto to the same extent as a Other Initial Investor.
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<PAGE>
4.1.8. 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 Management Initial Investor; 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.
4.2. Unit Securities and Weider Securities. Unit Securities and Weider
-------------------------------------
Securities may be transferred without restriction under this Section 4;
provided, however, that by acceptance of delivery of such Securities the
- -------- -------
recipient thereof shall be bound hereby and be deemed a party hereto as a Unit
Investor or Weider Investor, as the case may be, and shall be deemed to have
ratified and approved the grant, execution and delivery of the proxies contained
in Section 3.7.1 by the Unit Initial Investors and Weider Initial Investors as
such Unit Investor's or Weider Investor's attornies-in-fact.
4.3. Period. The foregoing provisions of this Section 4 shall expire on
------
the first date on which the Fund Investors shall own less than fifty percent
(50%) of all Securities owned by them immediately after the consummation of the
initial closing of the Initial Public Offering; provided that, subject to
Section 4.5, none of the restrictions on transfer set forth in this Section 4
shall apply to the Weider Securities.
4.4. Status in Hands of Certain Transferees. Securities and Unit
--------------------------------------
Securities Transferred pursuant to and in compliance with Sections 6 or 7 of the
Original Agreement shall in the hands of the Proposed Buyer not constitute
Securities or Unit Securities for any purpose hereof. Securities or Unit
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 or otherwise pursuant to clause (c) of the definition of Registrable
Securities shall in the hands of the recipient not constitute Securities or Unit
Securities or Weider Securities for any purpose hereof.
4.5. 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. [INTENTIONALLY DELETED.]
6. [INTENTIONALLY DELETED.]
7. [INTENTIONALLY DELETED.]
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<PAGE>
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 Unit 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" 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 either (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
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<PAGE>
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 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, (ii) applicable transfer taxes, if any, and (iii) fees
and charges of any attorneys or other advisors (other than attorneys and
advisor 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.
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 primarily to employee benefit
plans, or
(b) Any Public Offering the proceeds of which are used
principally to financethe 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 Fund Securities. One
-----------------------------------------------------
or more holders of Fund Securities that wish to register securities
representing at least twenty-five percent (25%) of the total amount of Fund
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 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
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<PAGE>
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 Fund Securities
shall present any request for registration pursuant to this Section 8.2.1 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. The provisions of this
Section 8.2.1 are subject to the rights of the Weider Investors to sell the
Weider Securities in accordance with Section 8.3.1.2.1.
8.2.2. Registration on Request of Holders of Non-Fund Securities
---------------------------------------------------------
and Unit Securities. All rights under Sections 8.2.2.2, 8.2.2.3, 8.2.2.4
-------------------
and 8.2.2.5 below are subject to the rights of the Weider Investors to
sell the Weider Securities as set forth in Section 8.3.1.2.1.
8.2.2.1. Weider Investors. Subject to the provisions of the
----------------
following sentence, the demand registration rights granted pursuant
to this Section 8.2.2.1 may not be exercised after the timely
purchase by the Company of Weider Securities in accordance with the
terms and conditions of the Stock and Warrants Purchase Agreement
(including, but not limited to, Section 2 thereof), dated on or about
September 6, 1996 (the "Stock and Warrant Purchase Agreement") among
------------------------------------
the Company, IHF, the Weider Initial Investors and certain other
parties. The demand registration rights set forth in the balance of
this Section 8.2.2.1 shall continue in full force and effect until
the rights of the Weider Initial Investors set forth in Section
8.3.1.2.1 hereof shall have become effective and shall be reinstated
in the event the Weider Initial Investors are not permitted to
exercise the rights set forth in Section 8.3.1.2.1 hereof for any
reason. At any time not earlier than the fourth anniversary of the
closing under the Master Transaction Agreement, the Weider 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 holders. The demand registration rights
granted pursuant to this Section 8.2.2.1 may not be exercised on more
than two occasions, the second of which shall not be prior to one
hundred eighty (180) days after the fifth anniversary of the closing
under the Master Transaction Agreement.
8.2.2.2. Management Investors. At any time not earlier than
--------------------
the fourth anniversary of the closing under the Master Transaction
Agreement, the 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 holders.
The demand registration rights granted pursuant to this Section
8.2.2.2 may not be exercised on more than two
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<PAGE>
occasions, the second of which shall not be prior to one hundred
eighty (180) days after the fifth anniversary of the closing under
the Master Transaction Agreement.
8.2.2.3. Certain Management Investors. In addition to the
----------------------------
registration rights provided in Section 8.2.2.2, at any time not
earlier than the seventh anniversary of the closing under the Master
Transaction Agreement, each of Scott Watterson and Gary Stevenson (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 holders. The demand registration rights granted pursuant to this
Section 8.2.2.3 may be exercised by Scott Watterson or Gary Stevenson
on any number of occasions; provided, however, that such rights may
-------- -------
only be exercised by such holder at such time as (i) such holder
beneficially owns, directly or indirectly, more than 5% of the
outstanding Common Stock of the Company, (ii) each of the two
registration rights of such holder pursuant to Section 8.2.2.2 shall
have previously been exercised, and (iii) such holder has been cut
back in connection with the exercise of at least one such previous
registration right pursuant to Section 8.3.1.
8.2.2.4. Holders of Unit Securities. At any time not earlier
--------------------------
than one hundred eighty (180) days after the closing of the Initial
Public Offering, the holders of Unit Securities (other than the
Company, the Fund Initial Investors, the Weider Initial Investors
(but in the case of the Weider Initial Investors, only prior to the
date the demand registration rights granted pursuant to Section
8.2.2.1 may no longer be exercised), the Other Initial Investors or
the Management Initial Investors) representing an aggregate of at
least 25% of the Unit Securities initially outstanding (as to such
registration, the "Initiating Holders" shall mean all holders of
---------- -------
Unit Securities participating therein) 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
holders. The demand registration rights granted pursuant to this
Section 8.2.2.4 may not be exercised on more than two occasions, and
shall expire on such date, if any, as all Unit Securities are freely
tradeable under clause (k) of Rule 144 and no holder of Unit
Securities holds more than one percent (1%) of all outstanding shares
of Common Stock.
8.2.2.5. Certain Provisions. No holder of Non-Fund Securities
------------------
or Unit 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 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
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<PAGE>
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 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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8.3. Certain Other Provisions.
------------------------
8.3.1. Cutbacks.
--------
8.3.1.1. General Cutback Rules. Notwithstanding the foregoing
---------------------
provisions of this Section 8 and subject to the exceptions and
qualifications set forth in Section 8.3.1.2 hereof, 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 8.3.1.1:
8.3.1.1.1. Company Registration Rights 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.
8.3.1.1.2. 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),
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 reduced pro rata (based on the
number of shares requested to be included by such Persons).
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8.3.1.2. Exceptions to General Cutback Rules. The general rules
-----------------------------------
regarding cutbacks which are set forth in Section 8.3.1.1 hereof are
subject to the following further exceptions and qualifications:
8.3.1.2.1. Weider Priority. Except as provided below, no
---------------
holders of Registrable Securities shall have any right to
participate in the first closing of the Initial Public Offering.
If at or prior to the first closing of the Initial Public
Offering, the Company shall not have purchased 100% of the
Initial Shares held by all Weider Investors (other than Weider
Common Securities which are not so purchased by reason of the
breach by a Weider Investor of its obligation to sell and
deliver such securities strictly in accordance with the
provisions of the Stock and Warrant Purchase Agreement not
resulting from a breach by the Company) then each such Weider
Investor (together with all other Weider Investors not so in
breach) shall have first priority to sell its remaining Initial
Shares pursuant to the underwriter's over-allotment option with
respect to the Initial Public Offering (pro rata among such
Weider Investors). If after the first closing of the Initial
Public Offering and the closing of the over-allotment option
with respect thereto, any Weider Investor shall not have sold
100% of the Initial Shares held by it (other than Weider Common
Securities which are not so purchased by reason of the breach by
such Weider Investor of its obligation to sell and deliver such
securities strictly in accordance with the provisions of the
Stock and Warrant Purchase Agreement and not resulting from a
breach by the Company or any election on the part of such Weider
Investor not to exercise its rights hereunder to include such
Weider Common Securities in said over-allotment option, after
receiving timely the opportunity to do so in accordance with the
provisions hereof), such Weider Investor (together with the
other Weider Investors not so in breach or who have not made
such election, as the case may be) shall have first priority to
sell its remaining Initial Shares in the first registered public
offering following the Initial Public Offering (pro rata among
such Weider Investors). If after the closing of the first
registered public offering following the Initial Public
Offering, any Weider Investor shall not have sold 100% of the
Initial Shares held by it (other than Weider Common Securities
which are not so purchased by reason of the breach by a Weider
Investor of its obligation to sell and deliver such securities
strictly in accordance with the provisions of the Stock and
Warrant Purchase Agreement not resulting from a breach by the
Company or any election on the part of such Weider Investor not
to exercise its registration rights hereunder after receiving
timely the opportunity to do so in accordance with the
provisions hereof), such Weider Investor (together with the
other Weider Investors not so in breach or who have not made
such election, as the case may be) shall have first priority to
sell its remaining Initial Shares
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<PAGE>
in each registered public offering thereafter until all of the
Initial Shares held by such Weider Investor have been sold.
8.3.1.2.2. Remaining Investors. Subject to the
-------------------
prevailing provisions of Section 8.3.1.2.1, participation by the
holders of Registrable Securities other than the Weider
Investors shall be subject to cut-backs as set forth in Section
8.3.1.1 and as provided in Section 5 of the Stock and Warrant
Purchase Agreement; provided, however, that the holders of
-------- -------
Management Securities are excluded from any participation in the
first registered public offering following the Initial Public
Offering other than with respect to the underwriter's over-
allotment option in connection therewith, as to which over-
allotment option the holders of Management Securities shall have
priority as to participation subject to the prior rights of
Weider Investors set forth in Section 8.3.1.2.1.
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. Except in the
case of a demand pursuant to Section 8.2.2.4, no demand may be made unless
the Initiating Holders with respect thereto hold Registrable Securities
constituting at least ten percent (10%) of the aggregate outstanding number
of shares of Common Stock. 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 $40,000,000, 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 Unit Securities. In
---------------------------------------------
addition to the registration rights granted pursuant to Section 8.1 and 8.2
above, upon the request of the Unit Majority Holders, 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 Registrable Securities included in the Unit Securities until such time
as may be consented to by the Unit Majority Holders; provided, however,
-------- -------
that (i) the rights provided by this Section 8.3.3 shall expire on such
date, if any, as all Unit Securities are freely tradeable under clause (k)
of Rule 144 and no holder of Unit 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
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<PAGE>
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. Other Actions. In the case of each request for registration
-------------
of any Registrable Securities as provided in this Section 8, the Company
shall take or cause to be taken all appropriate or customary actions in
furtherance thereof, including, without limitation: (i) filing with the
Securities and Exchange Commission (the "Commission") a registration
----------
statement and using its reasonable best efforts to cause such registration
statement to become effective, (ii) preparing and filing with the
Commission such amendments and supplements to such registration statements
as may be required to comply with the Securities Act and to keep such
registration statement effective for a period not to exceed 180 days from
the date of effectiveness or such earlier time as the Registrable
Securities covered by such registration statement have been disposed of in
accordance with the intended method of distribution therefor or the
expiration of the time when a prospectus relating to such registration is
required to be delivered under the Securities Act, (iii) use its reasonable
best efforts to register or qualify such Registrable Securities under the
state securities or "blue sky" laws of such jurisdictions as the Majority
Initiating Holders (or in the case of a registration initiated under
Section 8.1, the holders of a majority of the Registrable Securities
requested to be included therein) shall reasonably request; provided,
--------
however, that the Company shall not be obligated to file any general
-------
consent to service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it would
not otherwise be so subject; and (iv) otherwise cooperate reasonably with,
and take such other actions as may reasonably be requested by the Majority
Initiating Holders (or in the case of a registration initiated under
Section 8.1, the holders of a majority of the Registrable Securities
requested to be included therein) in connection with, such registration.
8.3.5. 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 8.3.5, in the case
of the Initial Public Offering, the managing underwriter with respect
thereto shall be selected by the Fund Majority Holders and the co-managing
underwriter with respect thereto shall be selected by the Weider Majority
Holders.
8.3.6. 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 (other than Fund
Securities) requested pursuant to the provisions hereof to be included
therein.
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<PAGE>
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 of the Company or any of its subsidiaries under the Securities
Act pursuant to this Section 8 or otherwise, and in connection with any
registration statement or any other disclosure document produced by or on
behalf of the Company or any of its subsidiaries pursuant to which
securities of the Company or 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 or 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
Unit 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 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 (including without limitation reports and other
documents filed under the Exchange Act and any document incorporated by
reference therein) 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 or alleged violation by the Company or any of its
subsidiaries of any federal, state or common law rule or regulation
applicable to the Company or 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
-26-
<PAGE>
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 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, (each such person being also referred to
herein as a "Covered Person" ), 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 other disclosure document (including without limitation reports and
other documents filed under the Exchange Act or any document incorporated
therein) or other document or report, 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, incorporated document or other
document or report. 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. Indemnification Procedures. Promptly after receipt by a
--------------------------
Covered Person of notice of the commencement of any action or proceeding
involving a claim of the type referred to in the foregoing provisions of
this Section 8.4, such Covered Person will, if a claim in respect thereof
is to be made by such Covered Person against any indemnifying party, give
written notice to each such indemnifying party of the commencement of such
action; provided, however, that the failure of any Covered Person to give
-------- -------
notice to such indemnifying party as provided herein shall not relieve any
indemnifying party of its obligations under the foregoing provisions of
this Section 8.4, except and solely to the extent that such indemnifying
party is actually prejudiced by such failure to give notice. In case any
such action is brought against a Covered Person, each indemnifying party
will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent
that it may wish, with counsel reasonably satisfactory to such Covered
Person (who shall not, except with the consent of
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<PAGE>
the Covered Person, be counsel to such an indemnifying party), and after
notice from an indemnifying party to such Covered Person of its election so
to assume the defense thereof, such indemnifying party will not be liable
to such Covered Person for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof; provided,
--------
however, that (i) if the Covered Person reasonably determines that there
-------
may be a conflict between the positions of such indemnifying party and the
Covered Person in conducting the defense of such action or if the Covered
Person reasonably concludes that representation of both parties by the same
counsel would be inappropriate due to actual or potential differing
interests between them, then counsel for the Covered Person shall conduct
the defense to the extent reasonably determined by such counsel to be
necessary to protect the interests of the Covered Person and such
indemnifying party shall employ separate counsel for its own defense, (ii)
in any event, the Covered Person shall be entitled to have counsel chosen
by such Covered Person participate in, but not conduct, the defense and
(iii) the indemnifying party shall bear the legal expenses incurred in
connection with the conduct of, and the participation in, the defense as
referred to in clauses (i) and (ii) above. If, within a reasonable time
after receipt of the notice, such indemnifying party shall not have elected
to assume the defense of the action, such indemnifying party shall be
responsible for any legal or other expenses incurred by such Covered Person
in connection with the defense of the action, suit, investigation, inquiry
or proceeding. No indemnifying party will consent to entry of any judgment
or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Covered Person
of a release from all liabilities in respect of such claim or litigation.
8.4.4. 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 a Covered Person 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 Covered
Person, contribute to the amount paid or payable by such Covered Person 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 Covered Person 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 Covered Person 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 8.4.4 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
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<PAGE>
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to above in this Section 8.4.4 shall include any
legal or other expenses reasonably incurred by such Covered Person in
connection with investigating or defending any such action or claim. 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.
8.4.5. Limitation on Liability of Holders of Registrable Securities.
------------------------------------------------------------
The liability of each holder of Registrable Securities in respect of any
indemnification or contribution obligation 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. No holder of Securities or Unit Securities shall Transfer
-------
any Securities, Unit Securities or any other Shares for a period beginning seven
days immediately preceding and ending on the 180th day following any Public
Offering without the prior written consent of the underwriters managing the
offering; provided, however, that the provisions of this Section 8.5 shall not
-------- -------
prohibit any Transfers among any Affiliates, provided that the transferee
Affiliate agrees to be bound by the terms of this Agreement, including this
Section 8.5.
9. [INTENTIONALLY DELETED.]
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 or Warrant, the fair value of the
Shares that may then be purchased by the holder of such Option or Warrant upon
exercise thereof, minus the exercise 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.
11. REMEDIES. The Company, IHF and all holders of Securities and Unit
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, IHF, any holder of Securities or any holder of Unit 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.
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<PAGE>
12. LEGENDS.
12.1. Restrictive Legends. 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 November
14, 1994, 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 Shares 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 the certificates representing such
Shares.
12.2. 1933 Act Legends. Each certificate representing Securities or Unit
----------------
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."
12.3. Stop Transfer Instruction. The Company will instruct any transfer
-------------------------
agent not to register the Transfer of any Securities or Unit Securities until
the conditions specified in the foregoing legends are satisfied.
12.4. Termination of Certain Restrictions. The restrictions imposed by
-----------------------------------
Section 12.2 hereof upon the transferability of Shares shall cease and terminate
as to any particular Shares (i) when, in the opinion of Ropes & Gray, Latham &
Watkins, Hutchins, Wheeler & Dittmar 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 Shares have been
effectively registered under the Securities Act or transferred pursuant to Rule
144. Wherever (i) such restrictions shall cease and terminate as to any Shares
or (ii) such Shares 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 Section 12.2 hereof.
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<PAGE>
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 Fund 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 or Unit Securities subject hereto; provided, however,
-------- -------
that (i) no such amendment, modification, extension, termination or waiver which
adversely affects the rights of the holders of Non-Fund Securities hereunder in
any material respect or which amends, modifies, extends, terminates or waives
any of the provisions of Sections 4, 8, or 13 hereof or the definitions of terms
as used therein will be effective with respect to the holders of such Non-Fund
Securities unless and until the consent of the holders of not less than 50% of
such Non-Fund Securities has been obtained and (ii) no such amendment,
modification, extension, termination or waiver (a) which adversely affects the
rights of the holders of the Management Securities under Sections 3.1(iii),
3.2.1(ii), 3.3, 3.7.1(iii), 3.8, 4.1.2, 4.1.3, 4.1.8, the last sentence of
Section 8.1.2, or Section 8.2.2.2, Section 8.2.2.3 or Section 8.3.1 or the
definitions of terms as used therein shall be effective with respect to the
holders of Management Securities unless and until the consent of the Management
Majority Holders has been obtained, (b) which adversely affect the rights of the
holders of the Weider Securities under 4.2, 4.3, 4.4, 8.2.2.1 or 8.3.1.2 or the
definitions of terms as used therein shall be effective with respect to the
holders of Weider Securities unless and until the consent of the Weider Majority
Holders has been obtained, (c) which adversely affects the rights of the holders
of the Other Securities under Section 4.1.7, 8.1, 8.3 or 13 or the definitions
of terms as used therein shall be effective with respect to the holders of Other
Securities unless the consent of the Other Majority Holders has been obtained,
or (d) which adversely affects the rights of the holders of the Unit Securities
under Sections 4.2, 8.2.2.4 or 8.3.3 or the definitions of terms as used therein
shall be effective with respect to the holders of Unit Securities unless the
consent of the Unit Majority Holders has been obtained. In addition, each party
hereto and each holder of Securities or Unit Securities subject hereto may waive
any of its rights hereunder by an instrument in writing signed by such party or
holder.
14. AGREEMENTS TO REFRAIN FROM CERTAIN ACTIONS. The Company shall not,
without the written approval of holders of a majority of the shares of Class L
Common, pay any dividend or make any other distribution on any share of capital
stock or other equity security of or interest in the Company other than Class L
Common, or take any other action, so long as any share of Class L Common is
outstanding and for three years thereafter, if the effect of such dividend,
distribution or action might be to make the conversion of Class L Common to
Class A Common pursuant to Article IV of the Company's certificate of
incorporation as in effect on November 14, 1994 (the "Charter") or adjustment of
-------
the Class L Conversion Ratio (as defined in the Charter) a taxable event to
holders of Class L Common.
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<PAGE>
15. MISCELLANEOUS.
15.1. 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.
15.2. 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 or IHF, to it at:
c/o ICON Health & Fitness, Inc.
875 South Main Street
Logan, Utah 84321
Attention: President
General Counsel
with a copy to:
Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Attention: Robert C. Gay
Geoffrey S. Rehnert
If to the Fund Investors, to them at:
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Attention: Robert C. Gay
-32-
<PAGE>
Geoffrey S. Rehnert
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: R. Newcomb Stillwell
If to the Weider Investors, to them at:
c/o Weider Health and Fitness
21100 Erwin Street
Woodland Hills, California 91367-3772
with a copy to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Roger H. Kimmel
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:
Hutchins, Wheeler & Dittmar, a Professional Corporation
101 Federal Street
Boston, Massachusetts 02110
Attention: Charles W. Robins
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.
15.3. 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
-33-
<PAGE>
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.
15.4. 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.
15.5. 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.
15.6. 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.
15.7. Joint and Several Liability of the Company and IHF. IHF shall be
--------------------------------------------------
jointly and severally liable in respect of all payment obligations of the
Company under this Agreement.
16. GOVERNING LAW, ARBITRATION.
16.1. 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; provided, however, that any dispute relating to the provisions of
-------- -------
Section 16.2 hereof shall be governed by the United States Arbitration Act as
then in force.
16.2. Arbitration.
-----------
16.2.1. Generally. Except solely as set forth in Section 16.2.3
---------
hereof, 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 arbitrators, at
---
least one 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
-34-
<PAGE>
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 the other parties. In any arbitration
proceedings under this Section 16, the arbitrator(s) shall be instructed to
begin such proceedings within 30 days of appointment, and to reach a
decision within 45 days of the conclusion of the submission of all evidence
and, in the even that a decision is not so rendered, the arbitrator shall
lose all jurisdiction over such dispute.
16.2.2. Place of Arbitration. The place of arbitration shall be
--------------------
New York, New York.
16.2.3. Recourse to Courts. The parties hereby exclude any right of
------------------
appeal to any court on the merits of the dispute. The provisions of this
Section 16.2 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 16.2 shall prevent any party from seeking interim
measures of protection in the form of pre-award attachment of assets or
preliminary or temporary equitable relief.
16.3. Consent to Jurisdiction. Subject to the provisions of Section 16.2,
-----------------------
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 New York.
Subject to the provisions of Section 16.2, each of the parties hereto by
execution hereof (a) hereby irrevocably submits to the jurisdiction of the
federal and state courts in the State of New York for the purpose of any action,
suit or proceeding arising out of or based upon this Agreement or the subject
matter hereof and (b) 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 brought in the federal or state courts in
the State of New York, any claim that (i) he or it is not subject personally to
the jurisdiction of the above-named courts, (ii) he or it is immune from
extraterritorial injunctive relief or other injunctive relief, (iii) his or its
property is exempt or immune from attachment or execution, (iv) any such action,
suit or proceeding may not be brought or maintained in one of the above-named
courts, (v) 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 (vi) this
-35-
<PAGE>
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 New York, agrees that service of process by registered or
certified mail, return receipt requested, at the address specified in or
pursuant to Section 15.2 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 15.2 does not constitute good and sufficient service of
process. The provisions of this Section 16.3 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 New York.
16.4. 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 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
16.4 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.
16.5. Reliance. Each of the parties hereto acknowledges that he or it
--------
has been informed by each other party that the provisions of Section 16
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.]
-36-
<PAGE>
Schedule 1.1.11
Investment Banking Firms Currently Known As Follows:
---------------------------------------------------
Alex Brown
Bankers Trust
Bear Stearns
CS First Boston
DLJ
Goldman Sachs
Kidder Peabody
Merrill Lynch
Montgomery Securities
Morgan Stanley
Paine Webber
Robertson Stephens
Salomon Brothers
Smith Barney
<PAGE>
Schedule 1.1.31
List of Transaction Agreements
First Amended and Restated Master Transaction Agreement dated as of October 12,
1994 between ICON Health & Fitness, Inc., ("ICON"), Weider Health & Fitness
("WHF"), Weider Sporting Goods, Inc. ("WSGI"), and certain other parties
thereto.
IHF Capital Stock Subscription and Exchange Agreement dated as of November 14,
1994 between IHF Capital, Inc. ("Parent") and certain other parties thereto.
IHF Capital Stock Subscription and Purchase Agreement dated as of November 14,
1994 between Parent and certain other parties thereto.
IHF Holdings Stock Subscription and Exchange Agreement dated as of November 14,
1994 between IHF Holdings, Inc. ("Intermediate") and certain other parties
thereto.
IHF Capital Option Exchange Agreement dated as of November 14, 1994 between
Parent and certain other parties thereto.
IHF Holdings Option Exchange Agreement dated as of November 14, 1994 between
Intermediate and certain other parties thereto.
Warrant Agreement dated as of November 14, 1994 between Parent and certain other
parties thereto.
Bain Stock Subscription Agreement dated as of November 14, 1994 between Parent
and certain other parties thereto.
Registration Rights Agreement dated as of November 14, 1994 between ICON and
WHF.
Stockholders Agreement dated as of November 14, 1994 among Parent and certain
other parties thereto.
Non-Competition Agreement dated as of November 14, 1994 between ICON and certain
other parties thereto.
Bain Management and Advisory Agreement dated as of November 14, 1994 between
ICON, Parent, Intermediate and Bain Capital, Inc.
Distribution Agreement dated as of September 26, 1994, as amended by letter of
Ben Weider dated October 12, 1994 between ICON and Weider Sports Equipment Co.,
Ltd.
<PAGE>
EXHIBIT 10.46
KEY EXECUTIVE PREFERRED STOCK OPTION PURCHASE AGREEMENT
This Agreement is entered into as of September 6, 1996 by and among Scott
R. Watterson and Gary E. Stevenson (collectively, the "Sellers") and IHF
-------
Capital, Inc., a Delaware corporation ("IHF Capital").
-----------
The Sellers own in the aggregate options exercisable for ____ shares (the
"Executive Preferred Options") of the Series A Preferred Stock, $0.01 par value
- ----------------------------
per share (the "Preferred Stock"), of IHF Holdings, Inc., a Delaware
---------------
corporation. The Sellers have reviewed the Stock and Warrants Purchase Agreement
among IHF Capital, Weider Health and Fitness, a Nevada corporation, and certain
of its affiliates and related parties dated as of the date hereof (the "Weider
------
Stock Agreement"). The Sellers wish to sell the Executive Preferred Options to
- ---------------
IHF Capital contemporaneously with the sale of Preferred Stock pursuant to the
Weider Stock Agreement. Therefore, in consideration of the foregoing and the
mutual agreements and covenants set forth below, the parties hereto agree as
follows:
1. Purchase of Executive Preferred Options. Contemporaneously with the
---------------------------------------
purchase of Preferred Stock pursuant to the Weider Stock Agreement, IHF Capital
agrees to purchase from the Sellers, and the Sellers severally agree to sell to
IHF Capital, all the Executive Preferred Options at an aggregate purchase price
equal of $______. The purchase price shall be allocated $_____ to Watterson and
$_____ to Stevenson. The Sellers shall severally deliver certificates evidencing
the Executive Preferred Options owned by them, together with transfer powers in
form satisfactory to IHF Capital. Notwithstanding the foregoing, in the event
that the closing of the Weider Stock Agreement and all related transactions
thereto does not occur on or before October 31, 1996, then IHF Capital shall
make appropriate adjustments to the purchase price for the Executive Preferred
Options to account for any and all accrued and unpaid dividends for which each
of the Sellers would be entitled to for the period from September 1, 1996 to the
closing date had each Seller exercised his respective Executive Preferred
Options.
2. Representations and Warranties. Each Seller severally represents and
------------------------------
warrants that (a) such Seller has good and valid title to, and record and
beneficial ownership of, the Executive Preferred Options in the following
amounts: _____ shares by Watterson and ____ shares by Stevenson, free and clear
of all liens, encumbrances, security interests and adverse claims (other than
the right of IHF Capital to purchase the Executive Preferred Options pursuant to
this Agreement) and (b) such Seller has full right (and all authorizations and
approvals required by law to be obtained by him, provided that such Seller makes
no representation as to the applicability of, or compliance with, federal or
state securities laws) to sell the Executive Preferred Options owned by him and
deliver to IHF Capital certificates and transfer powers for such Executive
Preferred Options.
3. Assignment of Claims; Covenants Not to Sue. To the extent that IHF
------------------------------------------
Capital is assigned any and all rights and claims that the Weider Investors (as
such term is defined in the Weider Stock Agreement) may then have, either
directly or indirectly, against either of the
<PAGE>
Sellers in any capacity, pursuant to Section 4.4 of the Weider Stock Agreement
(the "Assigned Seller Claims"), IHF hereby agrees (a) that simultaneously with
the purchase of the Executive Preferred Options pursuant to this Agreement, IHF
Capital shall be deemed to have assigned to each Seller the Assigned Seller
Claims that IHF Capital may then have, either directly or indirectly, against
such Seller; (b) that it will not institute or maintain, cause to be instituted
or maintained, or assist in instituting or maintaining any demand, action,
claim, law suit, arbitration or a similar proceeding in any capacity whatsoever
against either Seller based upon any of the assigned Seller Claims; and (c) to
indemnify each Seller for and against any and all costs, damages, liabilities or
other expenses (including, without limitation, attorneys' fees) reasonably
incurred by such Seller by reason of any violation of clause (b) above.
4. General. This Agreement shall terminate upon the termination of the
-------
Weider Stock Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
shall be deemed one and the same instrument. Each of the parties hereto shall
deliver to the other such additional instruments as the requesting party may
reasonably request for the purpose of consummating the transactions contemplated
by this Agreement. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. This Agreement shall inure to
the benefit of, and shall be binding upon, each of the parties hereto and their
heirs, executors, administrators, successors and assigns, as the case may be.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first written above.
IHF CAPITAL, INC.
By: [SIGNATURE APPEARS HERE]
-------------------------
Name:
Title:
/s/ Scott R. Watterson
-------------------------
SCOTT R. WATTERSON
/s/ Gary E. Stevenson
-------------------------
GARY E. STEVENSON
<PAGE>
EXHIBIT 10.47
IHF Capital, Inc.
IHF Holdings, Inc.
ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
FIRST AMENDMENT TO
STEVENSON EMPLOYMENT AGREEMENT
September 6, 1996
Gary E. Stevenson
370 Abbey Lane
Providence, UT 84332
Dear Gary:
Reference is made to the Employment Agreement dated as of November 14, 1994
(the "Employment Agreement") among IHF Capital, Inc. (the "Company"), IHF
Holdings, Inc. and ICON Health & Fitness, Inc. (the "Principal Subsidiaries")
and you (the "Employee"). Terms defined in the Employment Agreement and not
otherwise defined herein are used herein as so defined.
You hereby agree with the undersigned as follows:
1. Amendments. The Employment Agreement is hereby amended as follows:
----------
1.1 Effective as of June 1, 1995, the annual base salary to be paid to
EMPLOYEE pursuant to section 3.1 of the Employment Agreement is
revised from "THREE HUNDRED THOUSAND DOLLARS ($300,000)" to "FOUR
HUNDRED THOUSAND DOLLARS ($400,000) ".
1.2 The lead-in clause of section 4.1 of the Employment Agreement is
deleted and replaced with:
<PAGE>
"The EMPLOYEE shall receive with respect to the fiscal years ended
May 31, 1996 and 1997 and each fiscal year thereafter during the
Term an annual bonus equal respectively to 1.3% for fiscal 1996,
1.4% for fiscal 1997 and for fiscal years thereafter a percentage
determined by the Board of Directors of COMPANY or the Compensation
Committee thereof which is at least as great as 1.4% of the
consolidated pre-interest (excluding revolving credit interest),
pre-tax, pre-bonus profits of COMPANY for such fiscal year (In
calculating consolidated pre-interest (excluding revolving credit
interest), pre-tax, pre-bonus profits of the Company, there shall
be added back any extraordinary and/or unusual, one-time or non-
recurring charges such as, but not limited to, those arising in
connection with settlement of the Weider litigation and
HealthRider, Inc. acquisition) provided :"
1.3 Section 4.3 is amended by deleting the words "on the 75th day after the end
of each such fiscal year." and inserting in place thereof the following:
"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."
1.4 The second sentence of Section 9.3 of the Employment Agreement is deleted
and replaced with the following:
"In the event the EMPLOYEE has given such a notice to the COMPANY,
the COMPANY may, at its option, terminate EMPLOYEE's employment."
1.5 Section 9.4 of the Employment Agreement is replaced with the
following:
"The Company may terminate the TERM by sending a notice in
writing to the EMPLOYEE."
1.6 Reference to Section 9.4 and 9.5 is deleted from Section 9.7 of the
Employment Agreement. The following new Section 9.8 is inserted after
Section 9.7 of the Employment Agreement:
"9.8. In the event of the termination of the TERM by virtue of Section 9.3,
9.4 or 9.5, COMPANY shall pay to EMPLOYEE a severance pay equal to
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 years following
the termination of the TERM. The bonuses shall be paid to EMPLOYEE within
<PAGE>
ninety (90) days from the end of COMPANY's applicable fiscal year, and
the base salary shall be paid to EMPLOYEE on the same payment schedule
as was applicable to EMPLOYEE during his employment."
1.7 Section 10.3 of the Employment Agreement is replaced with the following:
"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 EMPLOYEE within 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
COMPANY, at its option, pays to EMPLOYEE a severance pay equal to
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 years beyond that required to be paid by
COMPANY to EMPLOYEE under Section 9.4. If paid at COMPANY's option, such
bonuses are to be paid within ninety (90) days from the end of COMPANY's
applicable fiscal year, and the base salary shall be paid to EMPLOYEE on
the same payment schedule as was applicable to EMPLOYEE during his
employment."
2. Options. On or prior to the date hereof, the Company has granted the
-------
EMPLOYEE the options (including reset options) set forth on Exhibit A hereto.
3. Bonus. Upon the execution and delivery hereof, the Company shall pay the
-----
EMPLOYEE a one-time bonus of $___________ [allocated portion of $700,000].
4. Miscellaneous. This Agreement embodies the entire agreement between the
-------------
parties hereto concerning the subject matters herein and supersedes all previous
discussions, correspondence, understandings or agreements, whether written or
oral, with respect to such subject matters. Notwithstanding the foregoing,
nothing herein shall amend, modify, supersede or otherwise affect the Non-
Competition Agreement dated as of November 14, 1994 among ICON Health & Fitness,
Inc., Weider Health and Fitness, Gary E. Stevenson and Scott R. Watterson. This
agreement may be executed in counterparts, each of which shall be an original
but all of which together shall constitute one agreement, which shall be binding
upon and inure to the benefit of the parties, their heirs, executors,
administrators, successors and permitted assigns, and 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. Except to the extent amended hereby, the Employment Agreement has
not been otherwise amended, modified or superseded, and the provisions of the
Employment Agreement as amended hereby are hereby confirmed as in full force and
effect.
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign the enclosed copy of this letter in the space provided below and
return it to the undersigned, whereupon this letter shall be a binding agreement
by you and the undersigned.
Very truly yours,
IHF CAPITAL, INC.
By:
--------------------------
Name:
Title:
IHF HOLDINGS, INC.
By:
--------------------------
Name:
Title:
ICON HEALTH & FITNESS, INC.
By:
--------------------------
Name:
Title:
Accepted and agreed to
- -------------------------------
Gary E. Stevenson, individually
<PAGE>
Exhibit A
Options Granted to Gary E. Stevenson/1/
(a) Prior Grants
------------
Strike
Date Options Price
---- ------- -----
June 95 38,347 $5.80
(b) Current Grants
--------------
Strike
Date Options Price
---- ------- -----
May 96 246,316 $5.80
(c) Reset Grants (Existing Performance Options)
-------------------------------------------
Strike
Date Options Price
---- ------- -----
March 96 90,588 $8.92
(d) Vesting
-------
June 95 Grants: Fully vested.
Current Grants: Fully vested.
Reset Grants: See Section 6.1 of the Employment Agreement
- -----------------------
/1/ All Option numbers in this schedule are Class A shares, prior to
giving effect to any stock split effected in connection with the proposed IPO.
This schedule excludes any preferred stock options held.
<PAGE>
EXHIBIT 10.48
IHF Capital, Inc.
IHF Holdings, Inc.
ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
FIRST AMENDMENT TO
WATTERSON EMPLOYMENT AGREEMENT
September 6, 1996
Scott R. Watterson
560 South 1000 East
Logan, UT 843421
Dear Scott:
Reference is made to the Employment Agreement dated as of November 14, 1994
(the "Employment Agreement") among IHF Capital, Inc. (the "Company"), IHF
Holdings, Inc. and ICON Health & Fitness, Inc. (the "Principal Subsidiaries")
and you (the "Employee"). Terms defined in the Employment Agreement and not
otherwise defined herein are used herein as so defined.
You hereby agree with the undersigned as follows:
1. Amendments. The Employment Agreement is hereby amended as follows:
----------
1.1 The title "President and Chief Operating Officer" in Section 1.1 of
the Employment Agreement is deleted and replaced with the title
"Chairman and Chief Executive Officer".
1.2 The title "President and Chief Operating Officer" in section 2.2 of
the Employment Agreement is deleted and replaced with the title
"Chairman and Chief Executive Officer."
<PAGE>
1.3 Effective as of June 1, 1995, the annual base salary to be paid to
EMPLOYEE pursuant to section 3.1 of the Employment Agreement is
revised from "THREE HUNDRED THOUSAND DOLLARS ($300,000)" to "FOUR
HUNDRED FIFTY THOUSAND DOLLARS ($450,000)".
1.4 The lead-in clause of section 4.1 of the Employment Agreement is
deleted and replaced with:
"The EMPLOYEE shall receive with respect to the fiscal years
ended May 31, 1996 and 1997 and each fiscal year thereafter
during the Term an annual bonus equal respectively to 1.3% for
fiscal 1996, 1.4% for fiscal 1997 and for fiscal years thereafter
a percentage determined by the Board of Directors of COMPANY or
the Compensation Committee thereof which is at least as great as
1.4% of the consolidated pre-interest (excluding revolving credit
interest), pre-tax, pre-bonus profits of COMPANY for such fiscal
year (In calculating consolidated pre-interest (excluding
revolving credit interest), pre-tax, pre-bonus profits of the
Company, there shall be added back any extraordinary and/or
unusual, one-time or non-recurring charges such as, but not
limited to, those arising in connection with settlement of the
Weider litigation and HealthRider, Inc. acquisition) provided:"
1.5 Section 4.3 is amended by deleting the words "on the 75th day after
the end of each such fiscal year." and inserting in place thereof the
following:
"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 or reasonably practicable after the end of, but not
later than the 75th day after the end of , each such fiscal
year."
1.6 The title "President and Chief Operating Officer" in section 5.1 of
the Employment Agreement is deleted and replaced with the title
"Chairman and Chief Executive Officer".
1.7 The second sentence of Section 9.3 of the Employment Agreement is
deleted and replaced with the following:
"In the event the EMPLOYEE has given such a notice to the
COMPANY, the COMPANY may, at its option, terminate EMPLOYEE's
employment."
1.8 Section 9.4 of the Employment Agreement is replaced with the
following:
<PAGE>
"The Company may terminate the TERM by sending a notice in
writing to the EMPLOYEE."
1.9 Reference to Section 9.4 and 9.5 is deleted from Section 9.7 of the
Employment Agreement. The following new Section 9.8 is inserted after
Section 9.7 of the Employment Agreement:
"9.8. In the event of the termination of the TERM by virtue of Section
9.3, 9.4 or 9.5, COMPANY shall pay to EMPLOYEE a severance pay equal
to 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
years following the termination of the TERM. The bonuses shall be paid
to EMPLOYEE within ninety (90) days from the end of COMPANY's
applicable fiscal year, and the base salary shall be paid to EMPLOYEE
on the same payment schedule as was applicable to EMPLOYEE during his
employment."
1.10 Reference to Scott R. Watterson in Section 10.2(c) is deleted and
replaced with reference to Gary E. Stevenson.
1.11 Section 10.3 of the Employment Agreement is replaced with the
following:
"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 EMPLOYEE within 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
COMPANY, at its option, pays to EMPLOYEE a severance pay equal to
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 years beyond that required to be
paid by COMPANY to EMPLOYEE under Section 9.4. If paid at COMPANY's
option, such bonuses are to be paid within ninety (90) days from the
end of COMPANY's applicable fiscal year, and the base salary shall be
paid to EMPLOYEE on the same payment schedule as was applicable to
EMPLOYEE during his employment."
2. Options. On or prior to the date hereof, the Company has granted the
-------
EMPLOYEE the options (including reset options) set forth on Exhibit A hereto.
3. Bonus. Upon the execution and delivery hereof, the Company shall pay the
-----
EMPLOYEE a one-time bonus of $ __________ [allocated portion of $700,000].
<PAGE>
4. Miscellaneous. This Agreement embodies the entire agreement between the
-------------
parties hereto concerning the subject matters herein and supersedes all previous
discussions, correspondence, understandings or agreements, whether written or
oral, with respect to such subject matters. Notwithstanding the foregoing,
nothing herein shall amend, modify, supersede or otherwise affect the Non-
Competition Agreement dated as of November 14, 1994 among ICON Health & Fitness,
Inc., Weider Health and Fitness, Gary E. Stevenson and Scott R. Watterson. This
agreement may be executed in counterparts, each of which shall be an original
but all of which together shall constitute one agreement, which shall be binding
upon and inure to the benefit of the parties, their heirs, executors,
administrators, successors and permitted assigns, and 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. Except to the extent amended hereby, the Employment Agreement has
not been otherwise amended, modified or superseded, and the provisions of the
Employment Agreement as amended hereby are hereby confirmed as in full force and
effect.
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign the enclosed copy of this letter in the space provided below and
return it to the undersigned, whereupon this letter shall be a binding agreement
by you and the undersigned.
Very truly yours,
IHF CAPITAL, INC.
By:
--------------------------
Name:
Title:
IHF HOLDINGS, INC.
By:
--------------------------
Name:
Title:
ICON HEALTH & FITNESS, INC.
By:
--------------------------
Name:
Title:
Accepted and agreed to
- ------------------------------
Scott R. Watterson, individually
<PAGE>
Exhibit A
Options Granted to Scott R. Watterson/1/
(a) Prior Grants
------------
Strike
Date Options Price
---- ------- ------
June 95 38,347 $5.80
(b) Current Grants
--------------
Strike
Date Options Price
---- ------- ------
May 96 341,053 $5.80
(c) Reset Grants (Existing Performance Options)
-------------------------------------------
Strike
Date Options Price
---- ------- ------
March 96 90,588 $8.92
(d) Vesting
-------
June 95 Grants: Fully vested.
Current Grants: Fully vested.
Reset Grants: See section 6.1 of the Employment
Agreement
- -------------------------
/1/ All Option numbers in this schedule are Class A shares, prior to
giving effect to any stock split effected in connection with the proposed IPO.
This schedule excludes any preferred stock options held.
<PAGE>
EXHIBIT 10.49
WEIDER RELEASE
--------------
For purposes of the WEIDER Release, the capitalized terms used herein shall
have the meaning set forth in definitional section attached hereto as Exhibit 1.
In consideration of the mutual releases and of other adequate and
sufficient consideration, including the contract modifications entered into and
effective as of this date, the receipt and sufficiency of which is hereby
acknowledged, WEIDER (on behalf of themselves and the other WEIDER RELEASORS)
and the other WEIDER SIGNATORIES (on behalf of themselves) do hereby release,
remise, and forever discharge the RELEASED ICON PARTIES of and from the RELEASED
WEIDER CLAIMS, including without limitation:
1. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the case entitled Weider Health & Fitness v. IHF
------------------------------
Capital, Inc. et al, C.A. No. 14504, pending in the Chancery Court in Delaware;
- -------------------
2. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the case entitled Weider Sports Equipment Co., Ltd.
---------------------------------
v. Fitness First, Inc. d/b/a/ American Distributors v. ICON Health & Fitness,
- -----------------------------------------------------------------------------
Inc., C.A. No. 2:95-CV-0776W, pending in United States Federal District Court
- ----
for the District of Utah;
3. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled ICON Health &
-------------
Fitness, Inc. v. Weider Sporting Goods, Inc., Weider Health and Fitness, and
- ----------------------------------------------------------------------------
Weider Europe, B.V., Arbitration No. 13-T-13-723-95, pending before the American
- -------------------
Arbitration Association in New York City, New York;
<PAGE>
4. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled ICON Health &
-------------
Fitness, Inc. v. Weider Sports Equipment Co., Arbitration No. 13-T-133-887-95,
- ------------- ---------------------------
formerly identified as Arbitration No. 13-T-133-722-95, pending before the
American Arbitration Association in New York City, New York;
5. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled ICON Health &
-------------
Fitness, Inc. v. Weider Health & Fitness, Arbitration No. 13-137-715-95, pending
- ------------- -----------------------
before the American Arbitration Association in New York City, New York;
6. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled ICON Health &
-------------
Fitness, Inc. v. Les Industries Rickbend, Inc., Athletimonde, Inc. and Fitquip
- ------------- -------------------------------------------------------------
International, Inc., Arbitration No. 13-T-199-724-95, pending before the
- -------------------
American Arbitration Association in New York City, New York;
7. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled ICON Health &
-------------
Fitness, Inc. v. Les Industries Rickbend, Inc., Athletimonde, Inc. and Fitquip
- ------------- -------------------------------------------------------------
International, Inc., Arbitration No. 13-T-180-721-95, pending before the
- -------------------
American Arbitration Association in New York City, New York;
8. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled Weider Health &
---------------
Fitness, Weider Sporting Goods, Inc., Weider Europe, B.V. v. ICON Health &
- --------------------------------------------------------- -------------
Fitness, Inc., Arbitration No. 13-T-133-668-95, pending before the American
- -------------
Arbitration Association in New York City, New York;
-2-
<PAGE>
9. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled Weider Health &
---------------
Fitness v. ICON Health & Fitness, Inc., Arbitration No. 13-168-669-95, pending
- ------- ---------------------------
before the American Arbitration Association in New York City, New York;
10. any and all CLAIMS pertaining to, by reason of, or arising out of the
disputes at issue in mediation proceeding identified as Conciliation No. 8819/Ck
which was initiated in 1995 in the International Chamber of Commerce in London,
England concerning the Distribution Agreement dated September 26, 1994, as
amended by letter of Ben Weider dated October 12, 1994, between ICON Health &
Fitness, Inc. ("ICON Health") and Weider Sports Equipment Co., Ltd. ("Weider
Sports");
11. any and all CLAIMS pertaining to, by reason of or arising out of the
disputes at issue in that certain Statement of Disputes for Arbitration, In the
Matter of Disputes between Weider Health and Fitness, a Nevada corporation, and
Weider Sporting Goods, Inc., a California corporation, Claimants, and ICON
Health and Fitness, Inc., a Delaware corporation, Respondent, concerning the
Amended and Restated Management Agreement between the parties dated October 13,
1994;
12. any and all CLAIMS pertaining to, by reason of, or arising out of the
Advertising Space Contract between ICON and Weider Publications, Inc.
Notwithstanding anything to the contrary set forth above, the RELEASED
WEIDER CLAIMS do not include: (1) any CLAIM of any of the WEIDER RELEASORS other
than the WEIDER SIGNATORIES that is entirely unrelated to any contract,
transaction or relationship between any of the WEIDER SIGNATORIES and any of
the ICON
-3-
<PAGE>
SIGNATORIES; (2) the obligations of, or any causes of action arising directly
under the obligations of, the agreements set forth in Exhibits 3 and 4 hereto
(it being understood, however, that certain obligations of and certain causes of
action arising directly under the obligations of the agreements and documents
set forth in Exhibit 3 hereto are being released and extinguished not by means
of this Release, but rather by means of certain of the agreements set forth in
Exhibit 4 hereto); (3) the WEIDER SECURITIES or any CLAIM that arises under or
by reason of the WEIDER SECURITIES (other than debt securities) and that is
based solely upon facts (other than the facts of issuance and ownership of the
WEIDER SECURITY in question) that occur entirely after September 6, 1996; (4)
all CLAIMS relating to debt securities based on facts that occur on or prior to
September 6, 1996 to the extent and only to the extent that such CLAIMS are or
could be pursued (i) under, pursuant to, or as permitted by Sections 507 and 508
of the Indenture dated as of November 14, 1994 between IHF Holding and Fleet
National Bank, as trustee, with respect to the 15% Series A and Series B Senior
Secured Discount Notes due 2004 or the Indenture dated as of November 14, 1994
between ICON Health and Fitness, Inc. and Fleet National Bank, as trustee, with
respect to the 13% Series A and Series B Senior Subordinated Notes due 2002, in
each case as from time to time amended and in effect, (the "Indentures"), or
(ii) pursuant to final court order declaring that the requirements of Section
507 are excused, or (iii) in any bankruptcy or insolvency proceedings commenced
by any person or entity other than a WEIDER RELEASOR without any involvement by
a WEIDER RELEASOR, or (iv) in any proceedings by any person or entity other than
a WEIDER RELEASOR commenced without any involvement by a WEIDER RELEASOR to the
extent reasonably necessary to obtain their pro
-4-
<PAGE>
rata recovery or benefit by reason of any judgment or court order entered in
such proceedings; and (5) any CLAIM of Richard Renaud or Eric Weider, in their
capacities as ICON directors or former ICON directors, seeking coverage under
any applicable insurance policy or indemnification, which CLAIM is based upon
any CLAIM against them in that capacity (a) that is made by a person or entity
who is not a WEIDER RELEASOR and (b) that is first advanced or threatened after
September 6, 1996.
The WEIDER SIGNATORIES, on behalf of themselves and the other WEIDER
RELEASORS, knowingly waive any protection under California Civil Code section
1542, which provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR
or any similar protection afforded to the parties under other statutory or
common law.
The WEIDER Release shall become effective as of September 6, 1996;
provided, however, that the effectiveness of the WEIDER Release is contingent
upon and subject to the contemporaneous execution and delivery of each of the
Agreements identified in Exhibit 4 hereto and the contemporaneous making of the
payments listed on Schedule 7 to the Settlement Agreement identified on Exhibit
4 hereto.
The WEIDER Release shall be governed by and construed in accordance with
the domestic substantive laws of the State of New York, without giving effect to
any choice or
-5-
<PAGE>
conflict of law provision or rule that would cause the application of the
domestic substantive laws of any other jurisdiction.
Each of the WEIDER SIGNATORIES agrees that all actions, suits or
proceedings arising out of or based upon the WEIDER Release or the subject
matter hereof shall be brought and maintained exclusively in the federal and
state courts of the State of New York. Each of the WEIDER SIGNATORIES by
execution hereof (i) hereby irrevocably submits to the jurisdiction of the
federal and state courts in the State of New York for the purpose of any action,
suit or proceeding arising out of or based upon the WEIDER Release 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 he or it is
not subject personally to the jurisdiction of the above-named courts, that he or
it is immune from extraterritorial injunctive relief or other injunctive relief,
that his or 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 the WEIDER Release or the subject matter hereof may not be
enforced in or by any of the above-named courts. Each of the WEIDER SIGNATORIES
hereby consents to service of process in any such suit, action or proceeding in
any manner permitted by the laws of the State of New York, agrees that service
of process by registered or certified
-6-
<PAGE>
mail, return receipt requested, at the address specified in or pursuant to
Section 12 of the Settlement Agreement 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 12 of the Settlement Agreement does not
constitute good and sufficient service of process. The provisions of this
paragraph 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 New York.
To the extent not prohibited by applicable law which cannot be waived, each
of the WEIDER SIGNATORIES 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 the WEIDER Release 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 RELEASED ICON
PARTIES may file an original counterpart or a copy of the WEIDER Release with
any court as written evidence of the consent of each of the WEIDER SIGNATORIES
to the waiver of his or its right to trial by jury.
Each individual executing the WEIDER Release either as or on behalf of one
of the WEIDER SIGNATORIES represents and warrants, by his signature of the
WEIDER Release, that he read and fully understood the terms of the WEIDER
Release; that to the extent he is executing the WEIDER Release on his own behalf
he consulted with his own counsel for the purpose of reviewing and determining
whether to execute the WEIDER Release on his own behalf; that to the extent he
is executing the WEIDER Release on behalf of WEIDER, he
-7-
<PAGE>
consulted with counsel for such entity for the purpose of reviewing and
determining whether to execute the WEIDER Release on behalf of WEIDER; that
neither he nor any entity on behalf of which he is executing the WEIDER Release
relied upon any representations or statements made by anyone other than his own
counsel or counsel for any such entity in reviewing and deciding to execute the
WEIDER Release; and that insofar as he is executing the WEIDER Release on behalf
of WEIDER, he is authorized to execute and is executing the WEIDER Release on
behalf of all the WEIDER Releasors.
The WEIDER Release may be executed in counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument. The WEIDER Release may not be modified, amended or terminated,
nor may its provisions be waived, other than in a written instrument signed by
the WEIDER SIGNATORIES, and consented to in writing by ICON.
-8-
<PAGE>
IN WITNESS WHEREOF, WEIDER has caused the WEIDER Release to be executed and
delivered this 6 day of September, 1996.
WEIDER HEALTH & FITNESS
By:/s/ George Lengvari
---------------------------
an authorized signatory
WEIDER EUROPE, B.V.
By:/s/ George Lengvari
---------------------------
an authorized signatory
STATE OF )
)
COUNTY OF )
On September 6, 1996, before me personally came George Lengvari, to me
known, who, by me duly sworn, did depose and say that he resides at
__________________________________;that he is the Vice Chairman of the
corporation defined in the foregoing WEIDER Release as "WEIDER"; and that he
executed the forgoing WEIDER Release as the free act and deed for the uses and
purposes therein mentioned.
/s/ Matthew T. Collins
-----------------------------------
Notary Public
My Commission Expires:
MATTHEW T. COLLINS
Notary Public, State of New York
No. 31-4971893
Qualified in New York County
Commission Expires Sept. 10, 1998
-9-
<PAGE>
IN WITNESS WHEREOF, WEIDER has caused the WEIDER Release to be
executed and delivered this 5th day of September, 1996.
--- ---------
WEIDER SPORTS EQUIPMENT CO., LTD.
By:[SIGNATURE APPEARS HERE]
-----------------------------
an authorized signatory
STATE OF )
)
COUNTY OF )
On September 5, 1996, before me personally came Mr. Ben Weider, to me
--------- - --------------
known, who, by me duly sworn, did depose and say that he resides at 165 Finchley
Road, Hampstead, Province of Quebec that he is the Chairman of the Board of the
----------------------------- ---------------------
corporation defined in the foregoing WEIDER Release as "WEIDER"; and that he
executed the foregoing WEIDER Release as the free act of deed of WEIDER for the
uses and purposes therein mentioned.
[SIGNATURE APPEARS HERE]
____________________________
Commissioner of Oath for the City
and District of Montreal, Province
of Quebec.
<PAGE>
IN WITNESS WHEREOF, WEIDER has caused the WEIDER Release to be
executed and delivered this 5th day of September, 1996.
ALLFITNESS, INC.
By:[SIGNATURE APPEARS HERE]
-----------------------------
an authorized signatory
WEIDER SPORTING GOODS, INC.
By:[SIGNATURE APPEARS HERE]
-----------------------------
an authorized signatory
STATE OF NEW YORK )
)
COUNTY OF ORANGE )
On September 5, 1996, before me personally came Richard Renaud, to me
known, who, by me duly sworn, did depose and say that he resides at 49 Brock
North, Montreal, Canada that he is the Chairman of the corporation defined in
the foregoing WEIDER Release as "WEIDER"; and that he executed the foregoing
WEIDER Release as the free act of deed of WEIDER for the uses and purposes
therein mentioned.
[SIGNATURE APPEARS HERE]
____________________________
Notary Public
My Commission expires:
<PAGE>
IN WITNESS WHEREOF, BEN WEIDER has caused the WEIDER Release to be
executed and delivered this 5th day of September, 1996.
--- ---------
BEN WEIDER
/s/ Ben Weider
-----------------------------
STATE OF )
)
COUNTY OF )
On September 5, 1996, before me personally came Ben Weider to me known,
--------- -
who, by me duly sworn, did depose and says that he resides at 165 Finchley Road,
Hampstead, Province of Quebec; and that he executed the foregoing WEIDER Release
------------------
as his free act and deed for the uses and purposes therein mentioned.
/s/ Lina Rocca
----------------------------
Notary Public
My Commission expires:
Commissioner of Oaths for the City
and District of Montreal, Province
of Quebec.
[SEAL APPEARS HERE]
<PAGE>
IN WITNESS WHEREOF, ERIC WEIDER has caused the WEIDER Release to be
executed and delivered this 5th day of September, 1996.
--- ---------
ERIC WEIDER
/s/ Eric Weider
--------------------------------
STATE OF CALIFORNIA )
)
COUNTY OF LOS ANGELES )
On September 5, 1996, before me personally came Eric Weider to me known,
--------- -
who, by me duly sworn, did depose and say that he resides at 21100 Erwin Street,
Woodland Hills, CA; and that he executed the foregoing WEIDER Release as his
- --------------
free act and deed for the uses and purposes therein mentioned.
/s/ Evelyn Romo
[NOTARY SEAL OF ____________________________
EVELYN ROMO Notary Public
APPEARS HERE] My Commission Expires: 11/27/98.
<PAGE>
IN WITNESS WHEREOF, RICHARD RENAUD has caused the WEIDER Release to
be executed and delivered this 5th day of Sept., 1996.
--- -----
RICHARD RENAUD
/s/ Richard Renaud
--------------------------------
STATE OF QUEBEC )
)
COUNTY OF MONTREAL )
On September 5, 1996, before me personally came Richard Renaud, to me
--------- -
known, who, by me duly sworn, did depose and say that he resides at 49 Brock
--------
North, Montreal West, Quebec; and that he executed the foregoing WEIDER Release
- ----------------------------
as his free act and deed for the uses and purposes therein mentioned.
[SIGNATURE APPEARS HERE]
-----------------------------
Notary Public
My Commission Expires: lifetime
<PAGE>
EXHIBIT 1
DEFINITIONS FOR WEIDER RELEASE
==============================
For purposes of the Weider Release:
1. "AFFILIATE" shall mean any person or entity that, directly or indirectly,
controls, or is controlled by, or is under common control with, such
entity. The term "control" shall mean the possession, directly or
indirectly, of the power to direct or to cause the direction of the
management and policies or a person, whether through ownership of an equity
interest, by corporate position, by contract, or otherwise.
2. "CLAIMS" shall mean all debts, demands, actions, causes of action, suits,
accounts, covenants, contracts, agreements, torts, damages, and any and
all claims, rights, demands, and liabilities whatsoever, of every name and
nature, both at law and in equity, whether direct to derivative, whether
liquidated or unliquidated, whether known or unknown, and including but not
limited to any and all "claims" as that term is defined in 11 U.S.C. (S)
101.
3. "ICON" shall mean ICON Health & Fitness, Inc., IHF Capital, Inc., and IHF
Holdings, Inc.
4. "ICON AFFILIATES" shall mean any and all entities currently or formerly
affiliated with ICON, including without limitation the entities listed on
Exhibit 2 to this Release and any and all current or former general or
limited partners of the entities identified in Exhibit 2 to this Release.
5. "ICON REPRESENTATIVES" shall mean any and all current or former general or
limited partners, officers, directors, shareholders, employees, agents,
attorneys, affiliates, predecessors, successors, heirs, assigns, and other
representatives of any of the ICON SIGNATORIES or any of the ICON
AFFILIATES.
6. "ICON SIGNATORIES" shall mean ICON, Scott Watterson, GAry Stevenson, and
the entities identified in Exhibit 2 to this Release.
7. "CURRENT ICON AFFILIATES" shall mean any and all ICON AFFILIATES currently
affiliated with ICON.
8. "CURRENT ICON REPRESENTATIVES" shall mean any and all ICON REPRESENTATIVES
that currently are general or limited partners, officers, directors,
shareholders, employees, agents, attorneys, affiliates, predecessors,
successors, heirs, assigns, or other representatives of any of the ICON
SIGNATORIES or any of the CURRENT ICON AFFILIATES.
<PAGE>
9. "WEIDER SECURITIES" shall mean the securities identified in Exhibit 5 to
this Release.
10. "RELEASED WEIDER CLAIMS" shall mean any and all CLAIMS that any of the
WEIDER RELEASORS now has, ever had, or may ever have with or against any of
the RELEASED ICON PARTIES by reason of any matter, thing, event or
occurrence existing on or before the September 6, 1996.
11. "RELEASED ICON PARTIES" shall mean the ICON SIGNATORIES, the ICON
AFFILIATES and the ICON REPRESENTATIVES. Notwithstanding the preceding
sentence, the following shall not be included in the definition of RELEASED
ICON PARTIES: (a) Ben Weider; (b) Eric Weider; (c) Richard J. Renaud; (d)
the WEIDER SIGNATORIES; (e) the CURRENT WIEDER AFFILIATES; and (f) the
CURRENT WIEDER REPRESENTATIVES.
12. "WEIDER" shall mean Weider Health & Fitness, Weider Sports Equipment Co.,
Ltd., Weider Sporting Goods, Inc., Weider Europe, B.V., and Allfitness Inc.
13. "WEIDER AFFILIATES" shall mean any and all entities currently or formerly
affiliated with WEIDER.
14. "WEIDER REPRESENTATIVES" shall mean any and all current or former general
or limited partners, officers, directors, shareholders, employees, agents,
attorneys, affiliates, predecessors, successors, heirs, assigns, and other
representatives of any of the WEIDER SIGNATORIES or any of the WEIDER
AFFILIATES.
15. "CURRENT WEIDER AFFILIATES" shall mean any and all WEIDER AFFILIATES
currently affiliated with WEIDER.
16. "CURRENT WEIDER REPRESENTATIVES" shall mean any and all WEIDER
REPRESENTATIVES that currently are general or limited partners, officers,
directors, shareholders, employees, agents, attorneys, affiliates,
predecessors, successors, heirs, assigns, and other representatives of any
of the WEIDER SIGNATORIES or any of the CURRENT WEIDER AFFILIATES.
17. "WEIDER RELEASORS" shall mean the WEIDER SIGNATORIES, the WEIDER
AFFILIATES, and the WEIDER REPRESENTATIVES. Notwithstanding the preceding
sentence, the following shall not be included in the definition of WEIDER
RELEASORS: (a) Scott Watterson; (b) David Watterson; (c) Gary Stevenson;
(d) S. Fred Beck; (e) ProForm Fitness Products, Inc.; (f) Weslo, Inc.; (g)
American Physical Therapy, Inc.; and (h) the CURRENT ICON AFFILIATES; and
(h) the CURRENT ICON REPRESENTATIVES.
-2-
<PAGE>
18. "WEIDER SIGNATORIES" shall mean (a) WEIDER; (b) Ben Weider; (c) Eric
Weider; and (d) Richard J. Renaud.
-3-
<PAGE>
EXHIBIT 2
---------
Bain Capital Fund IV, L.P.
Bain Capital Fund IV-B, L.P.
BCIP Associates
BCIP Trust Associates, L.P.
Bain Capital, Inc.
<PAGE>
ICON/WEIDER RELEASES
EXHIBIT 3
- --------------------------------------------------------------------------------
1. First Amended and Restated Master Transaction Agreement dated as of October
12, 1994 among ICON Health & Fitness, Inc., a Delaware corporation
("ICON") and each of Weider Health and Fitness, a Nevada corporation
("WHF"), and Weider Sporting Goods, Inc., a California corporation ("WSG",
and together with WHF, the "Corporate Sellers"), and each of Hornchurch
Investments Limited, Bayonne Settlement, The Joe Weider Foundation, Ronald
Corey, Jon White, William Dalebout David Watterson, S. Fred Beck, Gary
Stevenson and Scott Watterson (collectively, the "Individual Sellers," and,
together with the Corporate Sellers, the "Sellers"), including all
Schedules and Exhibits thereto.
2. Adjustment Agreement dated as of November 14, 1994 between WHF and ICON.
3. Stockholders Agreement dated as of November 14, 1994 among ICON, IHF
Capital, Inc., a Delaware corporation ("Parent"), IHF Holdings, Inc., a
Delaware corporation ("Intermediary"), each of the Bain Funds named therein
and certain other persons named therein.
4. Non-Competition Agreement dated as of November 14, 1994 among ICON and the
Sellers.
5. Bain Management and Advisory Agreement dated as of November 14, 1994 among
ICON, Intermediary, Parent and Bain Capital Partners IV, L.P.
6. Distribution Agreement dated as of September 26, 1994, as amended by letter
of Ben Weider dated October 12, 1994, between ICON and Weider Sports
Equipment Co. Ltd. ("Weider Canada").
7. Exclusive License Agreement dated as of November 14, 1994 among WHF, WSG,
Weider Europe, B.V. ("Weider Europe") and ICON.
<PAGE>
8. Canada Exclusive License Agreement dated as of November 14, 1994
between Weider Canada and ICON.
9. Employment Agreement dated as of November 14, 1994 among ICON,
Parent, Intermediary and each of the following individuals:
9.1. Gary Stevenson
9.2. Scott Watterson
10. Asset Option Agreement dated as of November 14, 1994 among ICON,
WSG and Weider Europe, including all Schedules and Exhibits thereto.
11. Asset Option Agreement dated as of November 14, 1994 among ICON and
each of Athletimonde Inc., Les Industries Rickbend Inc. and Fitquip
International Inc. (collectively, "Canco"), including all Schedules
and Exhibits thereto.
12. Canco Management and Advisory Agreement dated as of November 14,
1994 between ICON and Canco.
13. Weider Europe Management Agreement dated as of November 14, 1994
between ICON and Weider Europe.
14. Amended and Restated WSG Management Agreement dated as of June 1,
1994 among ICON, WHF and WSG.
15. IHF Capital Stock Subscription and Exchange Agreement dated as of
November 14, 1994 among Parent and each of the Sellers named
therein.
16. Warrant Agreement dated as of November 14, 1994 among Parent, WHF,
Scott Watterson and Gary Stevenson.
17. IHF Holdings Stock Subscription and Exchange Agreement dated as of
November 14, 1994 among Intermediary and each of the Sellers named
therein.
18. Agreement and Plan of Merger dated as of November 14, 1994 among,
ICON, Weslo, ProForm and WeiderCare.
-2-
<PAGE>
ICON/WEIDER RELEASES
EXHIBIT 4
- --------------------------------------------------------------------------------
1. WSE Asset Purchase Agreement dated September 6, 1996 by and between ICON
Health & Fitness, Inc. ("ICON"), ICON of Canada Inc. ("ICON Canada") and
Weider Sports Equipment Co. Ltd ("WSE"), including all schedules and
exhibits thereto.
2. CANCO Asset Purchase Agreement dated September 6, 1996 (the "CANCO Purchase
Agreement") by and between ICON Canada, ICON, AllFitness, Inc. ("CANCO")
(the sole successor to each of Les Industries Rickbend Inc., Athletimonde
Inc., Fitquip International Inc. and 3002993 Canada Inc.) and solely with
respect to sections 2 and 9 thereof, Scott Watterson and Gary Stevenson,
including all schedules and exhibits thereto.
3. Stock and Warrants Purchase Agreement dated September 6, 1996 by and among
IHF Capital, Inc. ("IHF Capital"), IHF Holdings, Inc. ("IHF Holdings"),
Weider Health & Fitness ("WHF"), Greyfriars Limited, Bayonne Settlement,
Hornchurch Investments Limited, Ronald Corey, Bernard J. Cartoon, Ronald
Novak, Eric Weider, Richard Bizzaro, Robert Reynolds, Michael Carr, Thomas
Deters, Barbara Harris and Zbigniew Kindella, and, solely with respect to
Section 5 thereof, Bain Capital Fund IV, L.P., Bain Capital Fund IV-B,
L.P., BCIP Associates and BCIP Trust Associates, L.P. (collectively, the
"Fund Investors"), and, solely with respect to Section 6.1 thereof, Richard
Renaud, and solely with respect to Section 7 thereof, WHF, including all
schedules and exhibits thereto.
4. Key Executive Preferred Stock Purchase Agreement dated September 6, 1996 by
and among IHF Capital, Gary Stevenson and Scott Waterson.
5. Amendment No. 1 to the Stockholders Agreement dated September 6, 1996 among
IHF Capital, IHF Holdings, WHF, Greyfriars Limited, Bayonne Settlement,
Hornchurch Investments Limited, the Fund Investors, DLJ Capital
Corporation, General Electric Capital Corporation and certain other
signatories named therein.
6. Amendment and Restatement of the Stockholders Agreement dated September 6,
1996 among IHF Capital, IHF Holdings, WHF, Greyfriars Limited, Bayonne
Settlement, Hornchurch Investments Limited, the Fund Investors, DLJ Capital
Corporation, General Electric Capital Corporation, the Fund Investors and
certain other signatories named therein, together with Restated
Stockholders Agreement.
<PAGE>
7. Amendment No. 1 dated September 6, 1996 to the Non-Competition Agreement
dated November 14, 1994 between ICON, WHF, Scott R. Watterson and Gary E.
Stevenson.
8. Amendment dated September 6, 1996 to the Employment Agreement dated
November 14, 1994 among ICON, IHF Capital, Inc., IHF Holdings, Inc. and
Gary Stevenson, including all schedules and exhibits thereto.
9. Amendment dated September 6, 1996 to the Employment Agreement dated
November 14, 1994 among ICON, IHF Capital, Inc., IHF Holdings, Inc. and
Scott Watterson, including all schedules and exhibits thereto.
10. Representation Agreement dated September 6, 1996 by and between ICON and
Ben Weider.
11. Letter Agreement dated September 6, 1996 regarding advertising space by and
between ICON and Weider Publications.
12. Release dated September 6, 1996 made by ICON, IHF Capital, IHF Holdings,
Scott Watterson, Gary Stevenson and the ICON Releasors as defined therein.
13. Release dated September 6, 1996 made by Weider Health & Fitness, Weider
Sports Equipment Co., Ltd., Weider Sporting Goods, Inc., Weider Europe,
B.V., CANCO, Ben Weider, Eric Weider, Richard Renaud and the Weider
Releasors as defined therein.
14. The mutual releases dated on or about September 6, 1996 between WSG and
each of: The Borges Lamont Co. d/b/a/ C&S International, Datum Inc.,
Fitness First, Inc. d/b/a/ American Distributors.
15. Settlement Agreement dated September 6, 1996 by and among ICON, IHF
Capital, the Fund Investors, IHF Holdings, WHF, WSE, CANCO, WSG, Weider
Europe, B.V. and each of Ben Weider, Eric Weider, Richard Renaud, Gary
Stevenson, and Scott Watterson, and the other parties thereto including
all schedules and exhibits thereto.
16. Letter of Credit issued by Royal Bank of Canada to ICON and ICON Canada
under CANCO Purchase Agreement.
17. Escrow Agreement among (a) ICON and ICON Canada, (b) CANCO, and (c)
LaPointe Rosenstein and Goodman Phillips & Vineberg, acting jointly as
Escrow Agent, with respect to the Letter of Credit contemplated by the
CANCO Purchase Agreement.
-2-
<PAGE>
18. Watterson Option Settlement and Release Agreement dated September 6, 1996
by Scott R. Watterson in favor of WHF and certain other parties named
therein, including all exhibits thereto.
19. Stevenson Option Settlement and Release Agreement dated September 6, 1996
by Gary E. Stevenson in favor of WHF and certain other parties named
therein, including all exhibits thereto.
20. Confidentiality Agreement by and among ICON and Weider entities dated 1996.
21. Distribution Agreements dated September 6, 1996 by and between ICON and
each of Good Health Distributors (PTE) Ltd. and O.O.O. Victory Sport Ltd.
22. Distribution letters to certain existing Weider distributors executed by
WSE, ICON and the distributors; see Schedule 3.2.2B1-9 of the WSE asset
Purchase Agreement.
23. Lease dated September 6, 1996 by and between ICON Canada and Ben Weider
regarding Bates Road WSE office space.
24. Guarantee by ICON of the obligations of ICON Canada under the Hickmore
Lease.
25. Deed of Sale to ICON Canada of (i) CANCO plant leased by CANCO from Ben
Weider and Richard Hebert., (ii) CANCO plant leased by CANCO from Eric
Weider and Richy Hebert and (iii) vacant CANCO property described therein.
26. Guarantee by ICON of the obligations of ICON Canada under the lease with
Athletimonde Inc.
27. Guarantee of ICON of the obligations of ICON Canada under equipment leases.
28. All certificates, documents and instruments delivered on or about September
6, 1996 pursuant to or otherwise in connection with the above agreements
and releases.
-3-
<PAGE>
EXHIBIT 5
WEIDER SECURITIES
Class A Common Stock, $.01 par value per share, IHF Capital, Inc.
Class L Common Stock, $.01 par value per share, IHF Capital, Inc.
Series A-1 Cumulative Redeemable Preferred Stock, $0.01 par value per share
Series A-2 Cumulative Redeemable Preferred Stock, $0.01 par value per share
ICON Health & Fitness, Inc. 13% Senior Subordinated Notes due 2002, Series B
IHF Holdings, Inc., 15% Senior Secured Discount Notes due 2004, Series B
IHF Capital, Inc., Class A Common Stock Warrants to purchase Class A Common
Stock at an exercise price of $.10 per share
IHF Capital, Inc., Class A Common Stock Warrants to purchase Class A Common
Stock at an exercise price of $.01 per share
IHF Capital, Inc., Class L. Common Stock Warrants to purchase Class L Common
Stock at an exercise price of $.01 per share
<PAGE>
EXHIBIT 10.50
ICON RELEASE
-------------
For purposes of the ICON Release, the capitalized terms used herein shall
have the meaning set forth in definitional section attached hereto as Exhibit 1.
In consideration of the mutual releases and of other adequate and
sufficient consideration, including the contract modifications entered into and
effective as of this date, the receipt and sufficiency of which is hereby
acknowledged, ICON (on behalf of themselves and the other ICON RELEASORS) and
the other ICON SIGNATORIES (on behalf of themselves) do hereby release, remise,
and forever discharge the RELEASED WEIDER PARTIES of and from the RELEASED ICON
CLAIMS, including without limitation:
1. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the case entitled Weider Health & Fitness v. IHF
------------------------------
Capital, Inc. et al, C.A. No. 14504, pending in the Chancery Court in Delaware;
- -------------------
2. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the case entitled Weider Sports Equipment Co., Ltd.
---------------------------------
v. Fitness First, Inc. d/b/a/ American Distributors v. ICON Health & Fitness,
- -----------------------------------------------------------------------------
Inc., C.A. No. 2:95-CV-0776W, pending in United States Federal District Court
- ----
for the District of Utah;
3. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled ICON Health &
-------------
Fitness, Inc. v. Weider Sporting Goods, Inc., Weider Health and Fitness, and
- ----------------------------------------------------------------------------
Weider Europe, B.V., Arbitration No.
- -------------------
<PAGE>
13-T-13-723-95, pending before the American Arbitration Association in New York
City, New York;
4. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled ICON Health &
-------------
Fitness, Inc. v. Weider Sports Equipment Co., Arbitration No. 13-T-133-887-95,
- ------------- ---------------------------
formerly identified as Arbitration No. 13-T-133-722-95, pending before the
American Arbitration Association in New York City, New York;
5. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled ICON Health &
-------------
Fitness, Inc. v. Weider Health & Fitness, Arbitration No. 13-137-715-95, pending
- ------------- -----------------------
before the American Arbitration Association in New York City, New York;
6. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled ICON Health &
-------------
Fitness, Inc. v. Les Industries Rickbend, Inc., Athletimonde, Inc. and Fitquip
- ------------- -------------------------------------------------------------
International, Inc., Arbitration No. 13-T-199-724-95, pending before the
- -------------------
American Arbitration Association in New York City, New York;
7. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled ICON Health &
-------------
Fitness, Inc. v. Les Industries Rickbend, Inc., Athletimonde, Inc. and Fitquip
- ------------- -------------------------------------------------------------
International, Inc., Arbitration No. 13-T-180-721-95, pending before the
- -------------------
American Arbitration Association in New York City, New York;
8. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled Weider Health &
---------------
Fitness, Weider Sporting Goods, Inc., Weider Europe, B.V. v. ICON Health &
- --------------------------------------------------------- -------------
Fitness, Inc., Arbitration No. 13-T-
- -------------
-2-
<PAGE>
133-668-95, pending before the American Arbitration Association in New York
City, New York;
9. any and all CLAIMS pertaining to, by reason of, or arising out of any
of the matters at issue in the arbitration matter entitled Weider Health &
---------------
Fitness v. ICON Health & Fitness, Inc., Arbitration No. 13-168-669-95, pending
- ------- ---------------------------
before the American Arbitration Association in New York City, New York;
10. any and all CLAIMS pertaining to, by reason of, or arising out of the
disputes at issue in mediation proceeding identified as Conciliation No. 8819/Ck
which was initiated in 1995 in the International Chamber of Commerce in London,
England concerning the Distribution Agreement dated September 26, 1994, as
amended by letter of Ben Weider dated October 12, 1994, between ICON Health &
Fitness, Inc. ("ICON Health") and Weider Sports Equipment Co., Ltd. ("Weider
Sports");
11. any and all CLAIMS pertaining to, by reason of or arising out of the
disputes at issue in that certain Statement of Disputes for Arbitration, In the
Matter of Disputes between Weider Health and Fitness, a Nevada corporation, and
Weider Sporting Goods, Inc., a California corporation, Claimants, and ICON
Health and Fitness, Inc., a Delaware corporation, Respondent, concerning the
Amended and Restated Management Agreement between the parties dated October 13,
1994;
12. any and all CLAIMS pertaining to, by reason of, or arising out of the
Advertising Space Contract between ICON Health and Weider Publications, Inc.;
and
13. any debt or equity interest that Scott R. Watterson or Gary E.
Stevenson may have, and any claim or right that Scott R. Watterson or Gary E.
Stevenson may have (whether
-3-
<PAGE>
by contract or otherwise) to acquire any debt or equity interest, in any of the
WEIDER RELEASORS.
Notwithstanding anything to the contrary set forth above, the RELEASED ICON
CLAIMS do not include: (1) any CLAIM of any of the ICON RELEASORS other than the
ICON SIGNATORIES that is entirely unrelated to any contract, transaction, or
relationship between any of the ICON SIGNATORIES and any of the WEIDER
SIGNATORIES; and (2) the obligations of, or any causes of action arising
directly under the obligations of, the agreements set forth in Exhibits 3 and 4
hereto (it being understood, however, that certain obligations of and certain
causes of action arising directly under the obligations of agreements and
documents set forth in Exhibit 3 hereto are being released and extinguished not
by means of this Release, but rather by means of certain of the agreements set
forth in Exhibit 4 hereto).
The ICON SIGNATORIES, on behalf of themselves and the other ICON RELEASORS,
knowingly waive any protection under California Civil Code section 1542, which
provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR
or any similar protection afforded to the parties under other statutory or
common law.
The ICON Release shall become effective as of September 6, 1996; provided,
however, that the effectiveness of the ICON Release is contingent upon and
subject to the contemporaneous execution and delivery of each of the Agreements
identified in Exhibit 4
-4-
<PAGE>
hereto and the contemporaneous making of the payments listed on Schedule 7 to
the Settlement Agreement identified on Exhibit 4 hereto.
The ICON Release shall be governed by and construed in accordance with the
domestic substantive laws of the State of New York, 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.
Each of the ICON SIGNATORIES agrees that all actions, suits or proceedings
arising out of or based upon the ICON Release or the subject matter hereof shall
be brought and maintained exclusively in the federal and state courts of the
State of New York. Each of the ICON SIGNATORIES by execution hereof (i) hereby
irrevocably submits to the jurisdiction of the federal and state courts in the
State of New York for the purpose of any action, suit or proceeding arising out
of or based upon the ICON Release 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 he or it is not subject personally to the
jurisdiction of the above-named courts, that he or it is immune from
extraterritorial injunctive relief or other injunctive relief, that his or 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 the
ICON
-5-
<PAGE>
Release or the subject matter hereof may not be enforced in or by
any of the above-named courts. Each of the ICON SIGNATORIES hereby consents to
service of process in any such suit, action or proceeding in any manner
permitted by the laws of the State of New York, agrees that service of process
by registered or certified mail, return receipt requested, at the address
specified in or pursuant to Section 12 of the Settlement Agreement 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 12
of the Settlement Agreement does not constitute good and sufficient service of
process. The provisions of this paragraph 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 New York.
To the extent not prohibited by applicable law which cannot be waived, each
of the ICON SIGNATORIES 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 the ICON Release 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 RELEASED WEIDER
PARTIES may file an original counterpart or a copy of the ICON Release with any
court as written evidence of the consent of each of the ICON SIGNATORIES to the
waiver of his or its right to trial by jury.
-6-
<PAGE>
Each individual executing the ICON Release either as or on behalf of one of
the ICON SIGNATORIES represents and warrants, by his signature of the ICON
Release, that he read and fully understood the terms of the ICON Release; that
to the extent he is executing the ICON Release on his own behalf he consulted
with his own counsel for the purpose of reviewing and determining whether to
execute the ICON Release on his own behalf; that to the extent he is executing
the ICON Release on behalf of ICON, he consulted with counsel for such entity
for the purpose of reviewing and determining whether to execute the ICON Release
on behalf of ICON; that neither he nor any entity on behalf of which he is
executing the ICON Release relied upon any representations or statements made by
anyone other than his own counsel or counsel for any such entity in reviewing
and deciding to execute the ICON Release; and that insofar as he is executing
the ICON Release on behalf of ICON, he is authorized to execute and is executing
the ICON Release on behalf of all the ICON Releasors.
The ICON Release may be executed in counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument. The ICON Release may not be modified, amended or terminated,
nor may its provisions be waived, other than in a written instrument signed by
the ICON SIGNATORIES, and consented to in writing by WEIDER.
-7-
<PAGE>
IN WITNESS WHEREOF, BAIN CAPITAL FUND IV, L.P., BAIN CAPITAL FUND IV-B,
L.P., BCIP ASSOCIATES, BCIP TRUST ASSOCIATES, L.P. AND BAIN CAPITAL INC. have
executed and delivered the ICON Release this 6th day of September, 1996.
--- ---------
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.
By: /s/ [SIGNATURE APPEARS HERE]
-----------------------------
Title: Managing Director
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.
By: /s/ [SIGNATURE APPEARS HERE]
-----------------------------
Title: Managing Director
BCIP ASSOCIATES
By: /s/ [SIGNATURE APPEARS HERE]
-----------------------------
A General Partner
BCIP TRUST ASSOCIATES, L.P.
By: /s/ [SIGNATURE APPEARS HERE]
-----------------------------
A General Partner
BAIN CAPITAL INC.
By: /s/ [SIGNATURE APPEARS HERE]
-----------------------------
Title: Managing Director
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On September 6, 1996, before me personally came Robert C. Gay, to me known,
who, by me duly sworn, did depose and say that he resides at 10 Shadow Lake
Road, Ridgefield, Connecticut; that he is a general partner of BCIP Associates,
a general partner of BCIP Trust Associates, L.P. and a managing director of Bain
Capital Investors, Inc., which is a general partner of Bain Capital Partners IV,
L.P., which is a general partner of Bain Capital Fund IV, L.P. and Bain Capital
Fund IV-B, L.P.; and that he executed the foregoing ICON release as the free act
of said entities for the uses and purposes therein mentioned.
/s/ [SIGNATURE APPEARS HERE]
---------------------------------
Notary Public
My Commission Expires:
MATTHEW T. COLLINS
Notary Public, State of New York
No. 31-4971893
Qualified in New York County
Commission Expires Sept. 10, 1998
--
<PAGE>
IN WITNESS WHEREOF, ICON has caused the ICON Release to be executed and
delivered this 6th day of September, 1996.
ICON HEALTH & FITNESS, INC.
By:[SIGNATURE APPEARS HERE]
---------------------------------
an authorized signatory
IHF CAPITAL, INC.
By:[SIGNATURE APPEARS HERE]
---------------------------------
an authorized signatory
IHF HOLDINGS, INC.
By:[SIGNATURE APPEARS HERE]
---------------------------------
an authorized signatory
STATE OF NEW YORK )
)
COUNTY OF ORANGE )
On September 5, 1996, before me personally came Brad H. Bearnson to me
known, who, by me duly sworn, did depose and say that he resides at 80 North
Satsuma, Providence, UT 84332; that he is the Secretary of ICON Health and
Fitness, Inc., IHF Capital, Inc. and IHF Holdings, Inc.; and that he executed
the foregoing ICON release as the free act of said entities for the uses and
purposes therein mentioned.
\s\Matthew T. Collins
------------------------------
Notary Public
My Commission Expires:
MATTHEW T. COLLINS
Notery Public, State of New York
No. 31-4971893
Qualified in New York County
Commission Expires Sept. 10, 1998
<PAGE>
IN WITNESS WHEREOF, SCOTT R. WATTERSON has executed and delivered the
ICON Release this 6th day of Sept., 1996.
--- -----
SCOTT R. WATTERSON
/s/ Scott R. Watterson
----------------------------
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On September 6, 1996, before me personally came Scott R. Watterson to me
--------- -
known, who, by me duly sworn, did depose and say that he resides at 560 South
1000 East, Logan, Utah 84321; and that he executed the foregoing ICON Release as
his free act and deed for the uses and purposes therein mentioned.
/s/ Matthew T. Collins
-----------------------------
Notary Public
My Commission Expires:
[NOTARY STAMP OF MATTHEW
COLLINS APPEARS HERE]
<PAGE>
IN WITNESS WHEREOF, GARY E. STEVENSON has executed and delivered the
ICON Release this 6th day of September, 1996.
--- ---------
GARY E. STEVENSON
/s/ Gary E. Stevenson
-----------------------------
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On September 6, 1996, before me personally came Gary E. Stevenson, to me
--------- -
known, who, by me duly sworn, did depose and say that he resides at 370 Abbey
Lane, Providence, Utah 84332; and that he executed the foregoing ICON Release as
his free act and deed for the uses and purposes therein mentioned.
/s/ Matthew T. Collins
------------------------------
Notary Public
My Commission Expires:
[NOTARY STAMP OF MATTHEW
COLLINS APPEARS HERE]
<PAGE>
EXHIBIT 2
---------
Bain Capital Fund IV, L.P.
Bain Capital Fund IV-B, L.P.
BCIP Associates
BCIP Trust Associates, L.P.
Bain Capital, Inc.
<PAGE>
EXHIBIT 1
DEFINITIONS FOR ICON RELEASE
============================
For purposes of the ICON Release:
1. "AFFILIATE" shall mean any person or entity that, directly or indirectly,
controls, or is controlled by, or is under common control with, such
entity. The term "control" shall mean the possession, directly or
indirectly, of the power to direct or to cause the direction of the
management and policies or a person, whether through ownership of an equity
interest, by corporate position, by contract, or otherwise.
2. "CLAIMS" shall mean all debts, demands, actions, causes of action, suits,
accounts, covenants, contracts, agreements, torts, damages, and any and all
claims, rights, demands, and liabilities whatsoever, of every name and
nature, both at law and in equity, whether direct or derivative, whether
liquidated or unliquidated, whether known or unknown, and including but not
limited to any and all "claims" as that term is defined in 11 U.S.C.
(S)101.
3. "ICON" shall mean ICON Health & Fitness, Inc., IHF Capital, Inc., and IHF
Holdings, Inc.
4. "ICON AFFILIATES" shall mean any and all entities currently or formerly
affiliated with ICON including without limitation the entities listed on
Exhibit 2 to this Release and any and all current or former general or
limited partners of the entities identified in Exhibit 2 to this Release.
5. "ICON REPRESENTATIVES" shall mean any and all current or former general or
limited partners, officers, directors, shareholders, employees, agents,
attorneys, affiliates, predecessors, successors, heirs, assigns, and other
representatives of any of the ICON SIGNATORIES or any of the ICON
AFFILIATES.
6. "ICON SIGNATORIES" shall mean ICON, Scott Watterson, Gary Stevenson, and
the entities identified in Exhibit 2 to this Release.
7. "CURRENT ICON AFFILIATES" shall mean any and all ICON AFFILIATES currently
affiliated with ICON.
8. "CURRENT ICON REPRESENTATIVES" shall mean any and all ICON REPRESENTATIVES
that currently are general or limited partners, officers, directors,
shareholders, employees, agents, attorneys, affiliates, predecessors,
successors, heirs, assigns or other representatives of any of the ICON
SIGNATORIES or any of the CURRENT ICON AFFILIATES.
<PAGE>
9. "ICON RELEASORS" shall mean the ICON SIGNATORIES, the ICON AFFILIATES and
the ICON REPRESENTATIVES. Notwithstanding the preceding sentence, the
following shall not be included in the definition of ICON RELEASORS: (a)
Ben Weider; (b) Eric Weider; (c) Richard J. Renaud; (d) Weider Health &
Fitness; (e) the CURRENT WEIDER AFFILIATES; AND (f) the CURRENT WEIDER
REPRESENTATIVES.
10. "RELEASED ICON CLAIMS" shall mean any and all CLAIMS that any of the ICON
RELEASORS now has, ever had, or may ever have with or against any of the
RELEASED WEIDER PARTIES by reason of any matter, thing, event, or
occurrence existing on or before the on or before the September 6, 1996.
11. "WEIDER" shall mean Weider Health & Fitness, Weider Sports Equipment Co.,
Ltd., Weider Sporting Goods, Inc., Weider Europe, B.V., and Allfitness Inc.
12. "WEIDER AFFILIATES" shall mean any and all entities currently or formerly
affiliated with WEIDER.
13. "WEIDER REPRESENTATIVES" shall mean any and all current or former general
or limited partners, officers, directors, shareholders, employees, agents,
attorneys, affiliates, predecessors, successors, heirs, assigns, and other
representatives of any of the WEIDER SIGNATORIES or any of the WEIDER
AFFILIATES.
14. "WEIDER SIGNATORIES" shall mean (a) WEIDER; (b) Ben Weider; (c) Eric
Weider; and (d) Richard J. Renaud.
15. "CURRENT WEIDER AFFILIATES" shall mean any and all WEIDER AFFILIATES
currently affiliated with WEIDER.
16. "CURRENT WEIDER REPRESENTATIVES" shall mean any and all WEIDER
REPRESENTATIVES that currently are general or limited partners, officers,
directors, shareholders, employees, agents, attorneys, affiliates,
predecessors, successors, heirs, assigns, or other representatives of any
of the WEIDER SIGNATORIES or any of the CURRENT WEIDER AFFILIATES.
17. " RELEASED WEIDER PARTIES" shall mean the WEIDER SIGNATORIES, the WEIDER
AFFILIATES, and the WEIDER REPRESENTATIVES. Notwithstanding the preceding
sentence, the following shall not be included in the definition of RELEASED
WEIDER PARTIES: (a) Scott Watterson: (b) David Watterson; (c) Gary
Stevenson; (d) S. Fred Beck; (e) ProForm Fitness Products, Inc.; (f) Weslo,
Inc., (g) American Physical Therapy, Inc., (h) the ICON SIGNATORIES and (i)
the CURRENT ICON AFFILIATES; AND (h) the CURRENT ICON REPRESENTATIVES.
-2-
<PAGE>
ICON/WEIDER RELEASES
EXHIBIT 3
================================================================================
1. First Amended and Restated Master Transaction Agreement dated as of October
12, 1994 among ICON Health & Fitness, Inc., a Delaware corporation ("ICON")
and each of Weider Health and Fitness, a Nevada corporation ("WHF"), and
Weider Sporting Goods, Inc., a California corporation ("WSG", and together
with WHF, the "Corporate Sellers"), and each of Hornchurch Investments
Limited, Bayonne Settlement, The Joe Weider Foundation, Ronald Corey, Jon
White, William Dalebout, David Watterson, S. Fred Beck, Gary Stevenson and
Scott Watterson (collectively, the "Individual Sellers," and, together with
the Corporate Sellers, the "Sellers"), including all Schedules and Exhibits
thereto.
2. Adjustment Agreement dated as of November 14, 1994 between WHF and ICON.
3. Stockholders Agreement dated as of November 14, 1994 among ICON, IHF
Capital, Inc., a Delaware corporation ("Parent"), IHF Holdings, Inc., a
Delaware corporation ("Intermediary"), each of the Bain Funds named therein
and certain other persons named therein.
4. Non-Competition Agreement dated as of November 14, 1994 among ICON and the
Sellers.
5. Bain Management and Advisory Agreement dated as of November 14, 1994 among
ICON, Intermediary, Parent and Bain Capital Partners IV, L.P.
6. Distribution Agreement dated as of September 26, 1994, as amended by letter
of Ben Weider dated October 12, 1994, between ICON and Weider Sports
Equipment Co. Ltd. ("Weider Canada").
7. Exclusive License Agreement dated as of November 14, 1994 among WHF, WSG,
Weider Europe, B.V. ("Weider Europe") and ICON.
<PAGE>
8. Canada Exclusive License Agreement dated as of November 14, 1994 between
Weider Canada and ICON.
9. Employment Agreement dated as of November 14, 1994 among ICON, Parent,
Intermediary and each of the following individuals:
9.1. Gary Stevenson
9.2. Scott Watterson
10. Asset Option Agreement dated as of November 14, 1994 among ICON, WSG and
Weider Europe, including all Schedules and Exhibits thereto.
11. Asset Option Agreement dated as of November 14, 1994 among ICON and each of
Athletimonde Inc., Les Industries Rickbend Inc. and Fitquip International
Inc. (collectively, "Canco"), including all Schedules and Exhibits thereto.
12. Canco Management and Advisory Agreement dated as of November 14, 1994
between ICON and Canco.
13. Weider Europe Management Agreement dated as of November 14, 1994 between
ICON and Weider Europe.
14. Amended and Restated WSG Management Agreement dated as of June 1, 1994
among ICON, WHF and WSG.
15. IHF Capital Stock Subscription and Exchange Agreement dated as of November
14, 1994 among Parent and each of the Sellers named therein.
16. Warrant Agreement dated as of November 14, 1994 among Parent, WHF, Scott
Watterson and Gary Stevenson.
17. IHF Holdings Stock Subscription and Exchange Agreement dated as of November
14, 1994 among Intermediary and each of the Sellers named therein.
18. Agreement and Plan of Merger dated as of November 14, 1994 among ICON,
Weslo, ProForm and WeiderCare
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<PAGE>
ICON/WEIDER RELEASES
EXHIBIT 4
- -------------------------------------------------------------------------------
1. WSE Asset Purchase Agreement dated September 6, 1996 by and between ICON
Health & Fitness, Inc. ("ICON"), ICON of Canada Inc. ("ICON Canada") and
Weider Sports Equipment Co. Ltd. ("WSE"), including all schedules and
exhibits thereto.
2. CANCO Asset Purchase Agreement dated September 6, 1996 (the "CANCO Purchase
Agreement") by and between ICON Canada, ICON, AllFitness, Inc. ("CANCO")
(the sole successor to each of Les Industries Rickbend Inc., Athletimonde
Inc., Fitquip International Inc. and 3002993 Canada Inc.) and solely with
respect to sections 2 and 9 thereof, Scott Watterson and Gary Stevenson,
including all schedules and exhibits thereto.
3. Stock and Warrants Purchase Agreement dated September 6, 1996 by and among
IHF Capital, Inc. ("IHF Capital"), IHF Holdings, Inc. ("IHF Holdings"),
Weider Health & Fitness ("WHF"), Greyfriars Limited, Bayonne Settlement,
Hornchurch Investments Limited, Ronald Corey, Bernard J. Cartoon, Ronald
Novak, Eric Weider, Richard Bizzaro, Robert Reynolds, Michael Carr, Thomas
Deters, Barbara Harris and Zbigniew Kindella, and, solely with respect to
Section 5 thereof, Bain Capital Fund IV, L.P., Bain Capital Fund IV-B,
L.P., BCIP Associates and BCIP Trust Associates, L.P. (collectively, the
"Fund Investors"), and, solely with respect to Section 6.1 thereof, Richard
Renaud, and solely with respect to Section 7 thereof, WHF, including all
schedules and exhibits thereto.
4. Key Executive Preferred Stock Purchase Agreement dated September 6, 1996 by
and among IHF Capital, Gary Stevenson and Scott Watterson.
5. Amendment No. 1 to the Stockholders Agreement dated September 6, 1996 among
IHF Capital, IHF Holdings, WHF, Greyfriars Limited, Bayonne Settlement,
Hornchurch Investments Limited, the Fund Investors, DLJ Capital
Corporation, General Electric Capital Corporation and certain other
signatories named therein.
6. Amendment and Restatement of the Stockholders Agreement dated September 6,
1996 among IHF Capital, IHF Holdings, WHF, Greyfriars Limited, Bayonne
Settlement, Hornchurch Investments Limited, the Fund Investors, DLJ Capital
Corporation, General Electric Capital Corporation, the Fund Investors and
certain other signatories named therein, together with Restated
Stockholders Agreement.
<PAGE>
7. Amendment No. 1 dated September 6, 1996 to the Non-Competition Agreement
dated November 14, 1994 between ICON, WHF, Scott R. Watterson and Gary E.
Stevenson.
8. Amendment dated September 6, 1996 to the Employment Agreement dated
November 14, 1994 among ICON, IHF Capital, Inc., IHF Holdings, Inc. and
Gary Stevenson, including all schedules and exhibits thereto.
9. Amendment dated September 6, 1996 to the Employment Agreement dated
November 14, 1994 among ICON, IHF Capital Inc., IHF Holdings, Inc. and
Scott Watterson, including all schedules and exhibits thereto.
10. Representation Agreement dated September 6, 1996 by and between ICON and
Ben Weider.
11. Letter Agreement dated September 6, 1996 regarding advertising space by and
between ICON and Weider Publications.
12. Release dated September 6, 1996 made by ICON, IHF Capital, IHF Holdings,
Scott Watterson, Gary Stevenson and ICON Releasors as defined therein.
13. Release dated September 6, 1996 made by Weider Health & Fitness, Weider
Sports Equipment Co., Ltd., Weider Sporting Goods, Inc., Weider Europe,
B.V., CANCO, Ben Weider, Eric Weider, Richard Renaud and the Weider
Releasors as defined therein.
14. The mutual releases dated on or about September 6, 1996 between WSG and
each of: The Borges Lamont Co. d/b/a C&S International, Datum Inc., Fitness
First, Inc. d/b/a American Distributors.
15. Settlement Agreement dated September 6, 1996 by and among ICON, IHF
Capital, the Fund Investors, IHF Holdings, WHF, WSE, CANCO, WSG, Weider
Europe, B.V. and each of Ben Weider, Eric Weider, Richard Renaud, Gary
Stevenson, and Scott Watterson, and the other parties thereto including all
schedules and exhibits thereto.
16. Letter of Credit issued by Royal Bank of Canada to ICON and ICON Canada
under CANCO Purchase Agreement.
17. Escrow Agreement among (a) ICON and ICON Canada, (b) CANCO, and (c)
LaPointe Rosenstein and Goodman Phillips & Vineberg, acting jointly as
Escrow Agent, with respect to the Letter of Credit contemplated by the
CANCO Purchase Agreement.
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<PAGE>
18. Watterson Option Settlement and Release Agreement dated September 6, 1996
by Scott R. Watterson in favor of WHF and certain other parties named
therein, including all exhibits thereto.
19. Stevenson Option Settlement and Release Agreement dated September 6, 1996
by Gary E. Stevenson in favor of WHF and certain other parties named
therein, including all exhibits thereto.
20. Confidentiality Agreement by and among ICON and Weider entities dated 1996.
21. Distribution Agreements dated September 6, 1996 by and between ICON and
each of Good Health Distributors (PTE) Ltd. and O.O.O. Victory Sport Ltd.
22. Distribution letters to certain existing Weider distributors executed by
WSE, ICON and the distributors; see Schedule 3.2.2B1-9 of the WSE asset
Purchase Agreement.
23. Lease dated September 6, 1996 by and between ICON Canada and Ben Weider
regarding Bates Road WSE office space.
24. Guarantee by ICON of the obligations of ICON Canada under the Hickmore
Lease.
25. Deed of Sale to ICON Canada of (i) CANCO plant leased by CANCO from Ben
Weider and Richard Hebert., (ii) CANCO plant leased by CANCO from Eric
Weider and Richy Hebert and (iii) vacant CANCO property described therein.
26. Guarantee by ICON of the obligations of ICON Canada under the lease with
Athletimonde Inc.
27. Guarantee of ICON of the obligations of ICON Canada under equipment leases.
28. All certificates, documents and instruments delivered on or about September
6, 1996 pursuant to or otherwise in connection with the above agreements
and releases.
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<PAGE>
EXHIBIT 10.51
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (this "Agreement") is made as of
September 6, 1996 by and among ICON Health & Fitness, Inc., a Delaware
corporation ("ICON"), IHF Capital, Inc., a Delaware corporation ("IHF"), IHF
Holdings, Inc., a Delaware corporation ("Holdings"), 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"), Weider Health and Fitness, a Nevada
corporation ("WHF"), Weider Sports Equipment Co., Ltd., a Quebec corporation
("WSE"), Weider Europe, B.V., a Dutch company ("Weider Europe"), AllFitness,
Inc., a Canadian corporation ("AllFitness") (successor by amalgamation to each
of the following Canadian corporations: Les Industries Rickbend Inc.,
Athletimonde Inc. and Fitquip International Inc.), Weider Sporting Goods, Inc.,
a California corporation ("WSG," and together with WHF, WSE, Weider Europe and
AllFitness, the "Weider Entities"), and each of Ben Weider, Eric Weider, Richard
Renaud, Hornchurch Investments Limited ("Hornchurch"), Gary E. Stevenson and
Scott R. Watterson (collectively, the "Individual Sellers").
WHEREAS, ICON, IHF Holdings, the Weider Entities, the Individual Sellers
and the Bain Funds desire to resolve and settle certain issues that have arisen
in connection with the First Amended and Restated Master Transaction Agreement
made as of the 14th day of November, 1994 (as in effect prior to the date
hereof, the "MTA"), among ICON and WHF, WSG and the other Sellers (as defined
therein) and related transactions contemplated thereby and to make payments in
settlement of certain lawsuits among the parties;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants herein contained, the parties hereto hereby
agree as follows:
1. DEFINITIONS.
1.1. Generally. Terms not otherwise defined herein are used with the
meanings set forth in the MTA.
1.2. Claims. As used herein, the term "Claims" shall mean all debts,
demands, actions, causes of action, suits, accounts, covenants, contracts,
agreements, torts, damages, and any and all claims, rights, demands, and
liabilities whatsoever, of every name and nature, both at law and in equity,
whether direct or derivative, whether liquidated or unliquidated, whether known
or unknown, and including but not limited to any and all "claims" as that term
is defined in 11 U.S.C. (S) 101.
<PAGE>
2. AMENDMENT AND TERMINATION OF OTHER AGREEMENTS.
2.1. WSG Management Agreement. ICON, WHF and WSG agree that the
provisions of this Section 2.1 shall be deemed an amendment for all purposes of
the Amended and Restated WSG Management Agreement dated as of June 1, 1994 (as
in effect prior to the date hereof, the "WSG Management Agreement") among ICON,
WHF and WSG. Except for the following provisions of this Section 2.1, which
provisions shall survive the execution and delivery hereof, ICON, WHF and WSG
agree that the WSG Management Agreement is hereby terminated and of no further
force or effect, and that neither ICON nor WHF nor WSG nor any other Person
shall have any further or outstanding rights or obligations thereunder. Except
for the obligations of the parties to perform the provisions set forth below in
this Section 2.1, any and all Claims any Person may now have or may previously
have had based in whole or in part on facts that occurred prior to the date
hereof (i) pertaining to, by reason of, or arising under, the WSG Management
Agreement or (ii) pertaining to, by reason of, or arising under, any other
Person's obligations under the WSG Management Agreement, or (iii) pertaining to,
by reason of, or arising under, any other Person's failure to comply with or to
perform its obligations under the WSG Management Agreement, are hereby released
and extinguished.
(a) General Ledger. Concurrently herewith, ICON is providing to
--------------
WSG the general ledger of WSG as of May 31, 1996, June 30, 1996,
July 31, 1996 and the last business day of the most recent week ending
prior to the date hereof. Each such general ledger contains: (i) accounts
receivable trial balances, (ii) accounts payable trial balances, (iii) an
inventory listing by product and historical cost, (iv) a bank
reconciliation for each of the cash accounts referred to in paragraph
(e)(i) below, (v) an analysis of intercompany accounts, (vi) an analysis
of prepaid expenses and accrued expense accounts for the period from
June 1, 1995 through each general ledger date and (vii) adjustments for
credit memos, scrap and other similar adjustments, if any, recently made
to inventory quantities. All data provided under this paragraph (a) shall
be in the same form prepared by ICON management for its own internal
purposes.
(b) Intercompany Payables. Concurrently herewith, WSG is paying
---------------------
to ICON the sum of $1,197,000 as set forth in Schedule 7 hereto in full
----------
and complete payment and satisfaction of any and all amounts due and
payable or to become due and payable by the Weider Entities to ICON under
the WSG Management Agreement and the Adjustment Agreement described in
Section 2.4 below.
(c) Inventory.
---------
(i) ICON hereby represents to WSG that
Schedule 2.1A hereto constitutes ICON's internal listing by
-------------
product and historical cost (as of the last business day of the
most recent week ending prior to the date hereof) of the Jane
Fonda inventory, kiosks and other WSG inventory under ICON's
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<PAGE>
control at the date hereof (the "WSG Inventory") and confirms
that the WSG Inventory is and shall remain the property of WSG.
The foregoing list is derived from records prepared for ICON
management's internal purposes prepared in the same fashion and
with the same care as lists of ICON's own inventory and is
subject to a shrinkage factor equal to ICON's own shrinkage
factor for comparable finished goods inventory. ICON has
conducted no physical count of the WSG Inventory. WSG
acknowledges that, except as expressly provided for in this
Agreement, it is accepting the WSG Inventory "as is" and "with
all faults", and without any representation or warranty of any
nature whatsoever from ICON or any of its Affiliates, express
or implied, conventional or legal, including, without
limitation, warranties of merchantability or fitness for a
particular purpose or use or warranties of ownership or quality
set forth in the Civil Code of Quebec or the Uniform Commercial
Code in force in any U.S. jurisdiction, to the extent
applicable to the transactions contemplated herein, except that
ICON and its Affiliates represent and warrant that they have
not sold any WSG Inventory for any of their own account or
created any lien, security interest, charge or other
encumbrance thereon.
(ii) ICON agrees that until December 31, 1996,
ICON will continue to warehouse and otherwise maintain, track
and insure the WSG Inventory on behalf of WSG at no cost or
expense to WSG, without prejudice to WSG's right to remove or
cause to be removed any or all of the WSG Inventory at any time
and from time to time on or prior to December 31, 1996. ICON
shall warehouse, maintain, track and insure the WSG Inventory
in the same fashion and with the same diligence as ICON uses
for ICON inventory. ICON will pay all insurance proceeds
received with respect to WSG Inventory to WSG upon receipt.
ICON shall store the WSG Inventory at the same location where
it presently exists or in such other location as ICON may
select as a principal warehouse for its own inventory, after
giving WSG at least 10 business days prior written notice of
such proposed move (the "Warehouse Space"). Through the
Warehouse Termination Date (as defined below), WHF and WSG
shall be entitled to review all records regarding the WSG
Inventory and to make such copies thereof as either of them
shall reasonably request.
(iii) ICON agrees that WSG shall have the right, if
it so elects, to continue to receive the same warehouse and
other related services and benefits contemplated by paragraph
(c)(ii) above (other than insurance coverage, which ICON shall
no longer be required to provide) during the period commencing
on January 1, 1997 and ending on the earlier (the "Warehouse
Termination Date") of (A) December 31, 1997 and (B) such date
prior to December 31, 1997 as WSG may elect by at least 10
business
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<PAGE>
days advance written notice to ICON. For such services and
benefits, WSG agrees to pay, monthly in advance on the first
business day of each month (the "Due Date"), the aggregate sum
of $24,000 ("Warehouse Rental") (which includes $16,000 in pass
through rent for the Warehouse Space, $6,700 for utilities and
$1,300 for labor), with proration for any period less than one
full month and pro rata reduction of lease payments if any of
the WSG Inventory is scrapped. Rental payments under this
clause (iii) shall cease for periods following the Warehouse
Termination Date. The Warehouse Rental shall be payable by
check or wire transfer and shall not be subject to prejudgment
termination, set-off or withholding for any reason whatsoever
and there shall be no grounds excusing WSG from its obligation
to pay the Warehouse Rental. If, after notice is provided to
WSG in accordance with Section 12 hereof ("Notice of Non-
Payment"), WSG fails to make any payments of the Warehouse
Rental for any reason, then, subject to the proviso to this
sentence, (A) the unpaid balance of the Warehouse Rental
through the Warehouse Termination Date shall immediately and
automatically become due and payable in full and will bear
interest at a rate per annum equal to the rate announced by The
Royal Bank of Canada in Montreal, Quebec, from time to time, as
the rate used in determining the rate of interest charged to
its most credit-worthy customers for commercial loans in
Canadian currency, plus six percent (6.0%), from the date of
acceleration of such payment until the date such payment is
made and (B) ICON shall have the right to ship all WSG
Inventory to WSG at its address in Section 12 hereof and WSG
shall be responsible for freight charges only in accordance
with the provisions of clause (vi) below; provided, however,
-------- -------
that the provisions of this sentence shall not apply if WSG
fails to pay when due not more than three (3) monthly payments
of the Warehouse Rental in any twelve month period, so long as
WSG shall have paid each such monthly payment within 10
calendar days of the date Notice of Non-Payment is given with
respect thereto.
(iv) Unless the WSG Inventory shall have been
removed from the Warehouse Space prior thereto, no later than
the fifth business day prior to the Warehouse Termination Date,
WSG shall provide notice to ICON of the single address where it
wants all WSG Inventory to be shipped on or about the Warehouse
Termination Date or earlier date specified in such notice. ICON
shall ready the WSG Inventory for shipment, arrange shipping
and load the WSG Inventory on the common carrier for shipment
in accordance with clause (vi) below and WSG shall be
responsible for the payment of freight charges only in
accordance with clause (vi) below. In the event WSG fails to
provide the shipping address as required above by the close of
business on the Warehouse Termination Date, ICON may provide
written notice to WSG of such failure. In the event that WSG
fails to
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<PAGE>
provide the shipping address within fifteen (15) days of the
date of receipt of the notice referred to in the preceding
sentence, all WSG Inventory shall become the property of ICON
at no expense to ICON to be held or disposed of in ICON's
discretion and for its benefit.
(v) From the date hereof and until the Warehouse
Termination Date, ICON agrees to conduct cycle counts on a
spot-test basis of WSG inventory quantities at the same time as
it conducts cycle counts of ICON's own inventory. ICON further
agrees to reconcile such cycle count quantities to the
quantities on the inventory listing prepared at each such date
immediately prior to the cycle count. ICON shall bear the risk
of loss (valued at net book value) for inventory movements not
authorized by WSG if in excess of a shrinkage factor of 2% from
the date hereof through December 31, 1996 (4% per annum) and,
for periods after December 31, 1996, for any loss of WSG
Inventory caused by fire, casualties and other risks of the
same type as are covered by insurance maintained by ICON with
respect to its own finished goods inventory at the date hereof.
ICON and its Affiliates agree and confirm that the Weider
Entities and their agents and representatives shall have access
at all reasonable times to the Warehouse Space.
(vi) ICON agrees that, from the date hereof
through and including the Warehouse Termination Date, it shall
be responsible for, and shall pay all labor and handling costs
payable for readying WSG Inventory for shipment, arranging
shipment thereof and loading such inventory on the common
carrier for shipment, in each such case upon receipt of and in
accordance with reasonable written instructions of WSG, but in
any event only in a manner consistent with the manner in which
ICON performs such tasks for its own inventory. ICON agrees
that the services described in this paragraph (vi) will be
rendered by ICON free of any charge through December 31, 1996
and that for the period January 1, 1997 through the Warehouse
Termination Date the cost of providing such services is
included in the charges payable by WSG pursuant to clause
(c)(iii) above. WSG shall be responsible for the payment of
freight charges, unless WSG's customer is responsible therefor,
as WSG shall specify to ICON. ICON shall be responsible for
filling orders for WSG Inventory as indicated by WSG in its
written shipment instructions. ICON shall arrange shipments at
the rates it receives on shipments of its own orders (i.e.,
----
best, lowest rate available to ICON).
(vii) WSG has instructed ICON not to accept returns
of WSG Inventory. ICON shall accept returns on behalf of WSG
if, and only if, it receives prior written consent from WSG
given in each applicable instance
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<PAGE>
after the date hereof. Returns of WSG Inventory received by
ICON on behalf of WSG with WSG's prior written consent given in
each applicable instance after the date hereof, shall be held
by ICON with the other WSG Inventory, in accordance with the
provisions of this Section 2.1(c). In the event ICON
inadvertently accepts returns of WSG inventory without WSG's
prior written consent, ICON shall ship the same back to the
sender without expense to or liability of WSG.
(viii) WSG agrees that it shall not knowingly sell
WSG Inventory to Jane Fonda or Affiliates of Jane Fonda or to
any of the 15 ICON customers listed on Schedule 2.1C hereto;
-------------
provided that WSG shall have the right to sell WSG Inventory to
Jane Fonda and Affiliates of Jane Fonda for resale outside the
United States of America. The Non-Competition Agreement
referred to in Schedule 6 hereto is hereby modified to the
----------
extent necessary to allow WSG to sell the WSG Inventory to any
person or entity of WSG's choice, other than those specifically
prohibited in this clause (viii).
(ix) WSG Inventory may not be scrapped by ICON
except with the prior written consent of WSG, which consent
shall not be unreasonably withheld. ICON shall pay all
scrapping costs (except freight and reasonable dumping costs)
and WSG shall receive all proceeds of scrapping of WSG
Inventory.
(x) As between the parties to this Agreement, it
is acknowledged and agreed that the value of the WSG Inventory
is not in excess of $1,100,000.
(d) WSG Accounts Receivable.
-----------------------
(i) WSG agrees, subject to the provisions of
paragraph (f) below, to be responsible for the collection of
all outstanding WSG accounts receivable, and the parties agree
that all such WSG accounts receivable shall be collected, for,
on behalf and for the benefit of, WSG.
(ii) ICON represents that at the date hereof
neither ICON nor any of its Affiliates holds any of the sale
proceeds of any WSG-owned products received from and including
June 1, 1996 and that all monies received by ICON or any of its
Affiliates for collection of WSG receivables since June 1, 1996
have been remitted to WSG in full. Any cash or other property
received by ICON for the account of WSG, including but not
limited to all monies received by ICON or any of its Affiliates
for collection of WSG receivables, on or after the date hereof
shall be held by ICON in
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<PAGE>
trust for and remitted by ICON to WSG, immediately upon
receipt, and in the form received.
(e) WSG Bank Accounts.
-----------------
(i) ICON hereby represents and warrants that the only
bank accounts that have been opened by ICON in the name of or
on behalf of WSG and have been controlled at any time since
November 14, 1994 to the date hereof by ICON or any of its
officers, directors, employees or agents are as follows:
Bank Account No.
---- -----------
Zions First National Bank 061125829
(ii) WSG hereby confirms that ICON has surrendered control
to it of the bank account specifically identified in
paragraph (e)(i) above.
(f) Records. ICON represents and warrants to WSG that ICON is
-------
delivering to WSG at ICON's address in Section 12 hereof on
September 9, 1996, free of charge to the Weider Entities, all records
held by ICON pertaining to WSG, which records include, without
limitation, records pertaining to WSG's inventory, accounts receivable
and accounts payable, and WSG's purchasing records. ICON covenants that
if after the date hereof it shall become apparent to ICON or WSG that any
WSG records held by ICON have not been delivered to WSG, ICON shall
immediately deliver such records to WSG.
(g) Indemnity. ICON hereby agrees to indemnify and hold WHF and
---------
its Affiliates free and harmless from and against any and all demands,
judgments, assessments, losses, claims, damages, actions, suits, decrees,
orders, awards, penalties, fines, amounts paid in settlement, costs,
expenses, fees (including costs of collection and reasonable attorneys'
fees and expenses) arising from a material breach of its covenants,
representations and warranties in this Section 2.1.
2.2. WHF License Agreement. ICON (the "Licensee") and WSG, WHF and Weider
Europe (collectively, the "Licensor") agree that the provisions of this
Section 2.2 shall be deemed an amendment for all purposes of the Exclusive
License Agreement dated as of November 14, 1994 (the "Exclusive License
Agreement") among the Licensee and the Licensor. Concurrently herewith, ICON
is paying to WHF the sum of (a) US $3,933,225 as set forth in Schedule 7 hereto
----------
in full payment and settlement of all accrued and unpaid and future royalty and
other payment obligations of ICON under Sections 3 and 6.3 of the Exclusive
License Agreement and (b) $3,860,000 as set forth in Schedule 7 in full payment
----------
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<PAGE>
and settlement of the litigation described in the following sentence. Except to
the extent Licensor may have Claims against Licensee based upon statements,
actions or any failure to act by Licensee, its employees, agents or Affiliates
that affect Licensor's ownership of, or the validity or enforceability of, the
Marks or the New Marks (as defined in the Exclusive License Agreement), which
Claims, if any, are preserved (other than Claims that the Licensor may now have
or may previously have had through the date hereof by reason of Licensee's
obligations under Sections 7.1 and 7.3 of the Exclusive License Agreement), any
and all Claims that any Person may now have or may previously have had, based in
whole or in part on facts that occurred prior to the date hereof, (i) pertaining
to, by reason of, or arising under, the Exclusive License Agreement, or
(ii) pertaining to, by reason of, or arising under, any other Person's
obligations under the Exclusive License Agreement or (iii) pertaining to, by
reason of, or arising under, any other Person's failure to comply with or to
perform its obligations thereunder prior to the date hereof, including but not
limited to any and all Claims relating to any and all of the matters at issue
in the arbitrations entitled Weider Health & Fitness, Weider Sporting Goods,
Inc. and Weider Europe B.V. v. ICON Health & Fitness, Inc., case
no. 13 T 133 00668 95 and Icon Health & Fitness v. Weider Sporting Goods, Inc.
Weider Health & Fitness and Weider Europe B.V., case no. 13 T 133 00723 95,
which are pending before the American Arbitration Association in New York City,
New York, are hereby released and extinguished, and ICON shall have no further
or outstanding payment obligations thereunder; provided, however, that this
sentence shall not operate to release the parties from (i) their obligations
under the Exclusive License Agreement itself, which obligations, except to the
extent modified by the foregoing provisions of this Section 2.2, shall remain
in full force and effect, or (ii) any Claims arising after the date hereof
based solely upon facts that occur entirely after the date of execution and
delivery of this Agreement. Without limiting the generality of the foregoing
sentence in any way, nothing in this Section 2.2 or otherwise in this
Settlement Agreement shall be deemed to be an approval or ratification by
Licensor of any usage by ICON of the Marks or the New Marks (each as defined in
the Exclusive License Agreement) and ICON's rights to use the Marks and the
New Marks in the future shall be no greater than as provided for in the
Exclusive License Agreement.
Licensor agrees from time to time upon reasonable written request of
Licensee to designate and grant power of attorney to an individual or
corporation selected by Licensor to act on Licensor's behalf with respect to the
execution and delivery to Licensee of such documents (prepared by Licensee at
its own cost) as Licensee may reasonably request that are reasonably desirable
for Licensee to perform its obligations under Section 7.3 of the Exclusive
License Agreement. The fees of such attorney-in-fact, if any, with respect to
the execution of such documents, shall be for the account of Licensor.
Initially WHF has appointed as attorney-in-fact the individuals designated in
the power of attorney attached as Exhibit 2.2.
2.3. Canada License Agreement. ICON and WSE agree that the provisions of
this Section 2.3 shall be deemed an amendment for all purposes of the Canada
Exclusive License Agreement dated as of November 14, 1994 (the "Canada License
Agreement") between WSE and ICON. Concurrently, herewith, ICON is paying to WSE
the sum of US $500 as set forth
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<PAGE>
in Schedule 7 hereto in full payment and settlement of the litigation described
----------
below in this Section 2.3. Except to the extent WSE may have Claims against
ICON based upon statements, actions or any failures to act by ICON, its
employees, agents or Affiliates that affect WSE's ownership of, or the validity
or enforceability of, the Marks or the New Marks (each as defined in the Canada
License Agreement), which Claims are preserved (other than Claims that WSE may
now have or may previously have had through the date hereof by reason of, ICON's
obligations under Sections 7.1 and 7.3 of the Canada License Agreement), any and
all Claims that any Person may now have or may previously have had, based in
whole or in part on facts that occurred prior to the date hereof, (i) pertaining
to, by reason of, or arising under, the Canada License Agreement or
(ii) pertaining to, by reason of, or arising under, any other Person's
obligations under the Canada License Agreement or (iii) pertaining to, by
reason of, or arising under, any other Person's failure to comply with or to
perform its obligations thereunder prior to the date hereof, including but not
limited to any and all Claims pertaining to, by reason of, or arising out of
any and all of the matters at issue in the arbitrations entitled ICON Health &
-------------
Fitness, Inc. v. Les Industries Rickbend, Inc., Athletimonde, Inc. and Fitquip
- ------------- -------------------------------------------------------------
International, Inc., Arbitration No. 13-T-199-724-95, pending before the
- -------------------
American Arbitration Association in New York City, New York; and ICON Health &
-------------
Fitness, Inc. v. Les Industries Rickbend, Inc., Athletimonde, Inc. and Fitquip
- ------------- -------------------------------------------------------------
International, Inc., Arbitration No. 13-T-180-721-95, pending before the
- -------------------
American Arbitration Association in New York City, New York, are hereby released
and extinguished, and ICON shall have no further or outstanding payment
obligations thereunder; provided, however, that this sentence shall not operate
to release the parties from (i) their obligations under the Canada License
Agreement itself, which obligations, except to the extent modified by the
foregoing provisions of this Section 2.3, shall remain in full force and effect,
or (ii) any Claims arising after the date hereof based solely upon facts that
occur entirely after the date of execution and delivery of this Agreement.
Without limiting the generality of the foregoing sentence in any way, nothing in
this Section 2.3 or otherwise in this Settlement Agreement shall be deemed to be
an approval or ratification by WSE of any usage by ICON of the Marks or the New
Marks (each as defined in the Canada License Agreement) and ICON's rights to use
the Marks and the New Marks in the future shall be no greater than as provided
for in the Canada License Agreement.
Exhibit B to the Canada License Agreement is hereby amended to insert the
following marks at the end of the list under the heading "Quit Claim Marks":
(i) WEIDER CIRCUIT 12 FLEX TECH FITNESS CENTER, registered on January 10, 1986
under No. TMA 310,421 in association with "body building equipment, physical
fitness and exercise equipment"; (ii) WEIDER GRIPPER, registered on
June 10, 1977 under No. TMA 221,156 in association with "hand held exercising
device namely, a barrel shaped spring coil having adjacent threads of the coil
in resilient contact"; and (iii) WEIDER HERCULEAN, registered on June 28, 1985
under TMA 304,156 in association with "barbells, exercise benches, exercise
equipment for use in the sport of body building and weight training".
WSE agrees from time to time upon reasonable written request of ICON to
designate and grant power of attorney to an individual or corporation selected
by WSE to act on WSE's
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<PAGE>
behalf with respect to the execution and delivery to ICON of such documents
(prepared by Licensee at its own cost), as Licensee may reasonably request that
are reasonably desirable for Licensee to perform its obligations under
Section 7.3 of the Canada License Agreement. The fees of such attorney-in-fact,
if any, with respect to the execution of such documents, shall be for the
account of WSE. Initially WSE has appointed as attorney-in-fact the individuals
designated in the Power of Attorney attached as Exhibit 2.3.
2.4. Adjustment Agreement. WHF and ICON agree that the provisions of this
Section 2.4 shall be deemed an amendment for all purposes of the Adjustment
Agreement dated as of November 14, 1994 (the "Adjustment Agreement") between
them. Except as set forth in the last sentence of this Section 2.4, the
Adjustment Agreement is hereby terminated and of no further force or effect, and
neither WHF nor ICON nor any other Person shall have any further or outstanding
rights or obligations thereunder. Any and all Claims any Person may now have or
may previously have had (i) pertaining to, by reason of, or arising under, the
Adjustment Agreement or (ii) pertaining to, by reason of, or arising under any
other Person's obligations thereunder, or (iii) pertaining to, by reason of, or
arising under, any other Person's failure to comply with or to perform its
obligations thereunder, are hereby released and extinguished. Sections 2.7, 2.8,
3, 4 and 9 of this Agreement and the Releases referred to in Schedule 6 of this
Agreement shall be deemed for all purposes of this Agreement to be amendments to
the Adjustment Agreement.
2.5. WSG Asset Option Agreement.
(a) ICON, WSG and Weider Europe agree that the provisions of
paragraph (b) of this Section 2.5 shall be deemed an amendment of the
Asset Option Agreement made as of the 14th day of November, 1994 between
ICON, WSG and Weider Europe (as amended prior to the date hereof, the
"Option Agreement"). Except for the provisions of paragraph (b) of this
Section 2.5, which provisions shall survive the execution and delivery
hereof, ICON, WSG and Weider Europe agree that the provisions of the
Option Agreement are hereby terminated and of no further force or effect,
and that neither ICON nor WSG nor Weider Europe nor any other Person
shall have any further or outstanding rights or obligations thereunder.
Except for obligations of the parties to perform the provisions set forth
below in this Section 2.5, any and all Claims any Person may now have or
may previously have had (i) pertaining to, by reason of, or arising
under, the Option Agreement, or (ii) pertaining to, by reason of, or
arising under, any other Person's obligations under the Option Agreement,
or (iii) pertaining to, by reason of, or arising under any other Person's
failure to comply with or to perform its obligations under the Option
Agreement, are hereby released and extinguished.
(b) Concurrently herewith, ICON (whose rights and obligations
under this Section 2.5 may be assigned to ICON of Canada Inc.) is paying to WSG
the sum of $226,700, as set forth on Schedule 7 hereto, in full payment of the
----------
purchase price for
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<PAGE>
the equipment listed on Annex I to the Bill of Sale referred to below
("Equipment"). ICON agrees to pay when due any sales taxes payable with
respect to such sale of the Equipment. ICON acknowledges having received
physical possession of all of the Equipment from WSG prior to the date
hereof, in an AS IS, WHERE IS and WITH ALL FAULTS condition, and without
any representation or warranty of any nature whatsoever, expressed or
implied, conventional or legal, including warranties of merchantability
or fitness for any particular purpose or use, other than the following
representations and warranties. WSG represents and warrants that: at the
time of delivery of such Equipment to ICON, WSG had good and marketable
title to the Equipment, free and clear of any liens, security interests,
charges or encumbrances created by WSG, other than ICON Liens (as defined
below), and since the date of delivery of the Equipment to ICON, WSG has
not sold the Equipment to any Person, in whole or in part, other than to
ICON pursuant hereto, and has not created or granted to any other Person
any lien, security interest, charge or encumbrance on the Equipment,
other than ICON Liens. "ICON Liens" means any theft, loss or
disappearance of the Equipment or any part thereof from and after the
date it was delivered to ICON by WSG, any sale or purported sale of the
Equipment or any part thereof by ICON whether on behalf of WSG or
otherwise prior to the date hereof and any lien, security interest,
charge or encumbrance on the Equipment or any part thereof created by
ICON whether on behalf of WSG or otherwise, or in favor of ICON. ICON
hereby confirms that it has had full opportunity to inspect the Equipment
received by it from WSG and has no claim against WSG with respect
thereto. Concurrently herewith, WSG is executing a Bill of Sale in favor
of ICON in the form attached hereto as Schedule 2.5 reflecting the sale
------------
of the Equipment on the terms and conditions set forth in this
Section 2.5(b). Each of IHF, Holdings and ICON agrees that it shall not
at any time make any Claim of any nature whatsoever, in contract, tort or
otherwise, against any Weider Entity with respect to the Equipment and
shall not commence or pursue any action, suit or proceeding against any
Weider Entity with respect thereto, except for any Claims arising from a
breach of WSG's representation of title set forth above.
2.6. LAPD Invoice Cancellation. Each of ICON, Holdings and IHF hereby
cancels all invoices sent to Ben Weider or any members of his family with
respect to equipment donated by Ben Weider or any of his Affiliates or by any of
ICON, Holdings or IHF on his behalf or at his request, to the Los Angeles,
California Police Department at any time prior to the date hereof. No such
invoices shall be sent to Ben Weider, members of his family, WHF or any of their
Affiliates after the date hereof.
2.7. Release of Rehab Case. Any and all Claims any party hereto may now
have or may previously have had against any other party hereto relating to the
matters in dispute in the Rehab Case (U.S. Dist. Ct., Northern Dist. of TX,
Lubbock Div., 5-95-000076-C) (including any Claim that any party may have for
indemnity or contribution with respect to the payments each is obligated to make
under the settlement agreement in that matter) are hereby released
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<PAGE>
and extinguished; provided, however, that this release shall not operate to
-------- -------
release the parties from their obligations under the Rehab Settlement Agreement
itself, which shall remain in full force and effect.
2.8. Release by Certain Distributors. Concurrently herewith, ICON is
delivering to WSG a duly executed release for each of the distributors listed
below in the form attached as Exhibit 2.8 and WSG is executing the same:
The Borges Lamont Co. d/b/a C&D International
Datam, Inc.
Fitness First, Inc. d/b/a American Distributors
2.9. Stock Subscription Agreement. IHF and WHF agree that the
provisions of this Section 2.9 shall be deemed an amendment for all purposes of
the IHF Capital Stock Subscription and Exchange Agreement, dated
November 14, 1994 (the "Stock Subscription Agreement"), among IHF and WHF and
certain other parties. Except as set forth in the proviso of the next following
sentence, which proviso shall survive the execution and delivery hereof, the
Stock Subscription Agreement is hereby terminated and of no further force or
effect, and neither IHF nor WHF nor any other Person shall have any further or
outstanding rights or obligations thereunder. Any and all Claims any Person may
now have or may have previously had (i) pertaining to, by reason of, or arising
under, the Stock Subscription Agreement, (ii) pertaining to, by reason of, or
arising under, any other Person's obligations under the Stock Subscription
Agreement, or (iii) pertaining to, by reason of, or arising under, any other
Person's failure to comply with or to perform its obligations under the Stock
Subscription Agreement, are hereby released and extinguished; provided, that
this sentence shall not operate to release the parties from the representations
and obligations set forth in Sections 3.3 and 3.5 of the Stock Subscription
Agreement, which shall remain in full force and effect.
2.10. Holdings Stock Subscription Agreement. Holdings and WHF agree that
the provisions of this Section 2.10 shall be deemed an amendment for all
purposes of the IHF Holdings Stock Subscription and Exchange Agreement, dated
November 14, 1994 (the "Holdings Stock Subscription Agreement"), between
Holdings and WHF. Except as set forth in the proviso of the next following
sentence, which proviso shall survive the execution and delivery hereof, the
Holdings Stock Subscription Agreement is hereby terminated and of no further
force or effect, and neither Holdings nor WHF nor any other Person shall have
any further or outstanding rights or obligations thereunder. Any and all Claims
any Person may have now or may previously have had (i) pertaining to, by reason
of, or arising under, the Holdings Stock Subscription Agreement, (ii) pertaining
to, by reason of, or arising under any other Person's obligations under the
Holdings Stock Subscription Agreement, or (iii) pertaining to, by reason of, or
arising under, any other Person's failure to comply with or to perform its
obligations under the Holdings Stock Subscription Agreement, are hereby released
and extinguished; provided, that this sentence shall not operate to release the
parties from the
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<PAGE>
representations and obligations set forth in Sections 3.3, 3.5, 7 and 9 of the
Holdings Stock Subscription Agreement, which shall remain in full force and
effect.
2.11. Master Transaction Agreement. Except for Reserved Claims (as
defined in Section 10.2 of the MTA) surviving in accordance with the provisions
of Section 10.2 of the MTA (other than Claims based upon intentional fraud
referred to in Section 10.2(viii) of the MTA, which Claims are released), any
and all Claims any Person may now have or may previously have had (i) pertaining
to, by reason of, or arising under, the MTA, or (ii) pertaining, to by reason
of, or arising under, any other Person's obligations under the MTA, or (iii)
pertaining to, by reason of, or arising under, any other Person's failure to
comply with or to perform its obligations under the MTA, are hereby released and
extinguished; provided, however, that this sentence shall not operate to release
-------- -------
any Person from (1) their obligations to perform the covenants and agreements
set forth in the MTA itself after the execution and delivery hereof, which
obligations shall remain in full force and effect in accordance with their
terms, or (2) any Claims arising after the date hereof based solely upon facts
that occur entirely after the execution and delivery hereof.
2.12. Weider Europe Management Agreement. ICON and Weider Europe agree
that the provisions of this Section 2.12 shall be deemed an amendment for all
purposes of the Weider Europe Management Agreement, dated November 14, 1994 (the
"Weider Europe Management Agreement"), between ICON and Weider Europe. ICON and
Weider Europe agree that the provisions of the Weider Europe Management
Agreement are hereby terminated and of no further force or effect, and that
neither ICON nor Weider Europe nor any other Person shall have any further or
outstanding rights or obligations thereunder. Any and all Claims any Person may
now have or may previously have had (i) pertaining to, by reason of, or arising
under, the Weider Europe Management Agreement, or (ii) pertaining to, by reason
of, or arising under, any other Person's obligations under the Weider Europe
Management Agreement, (iii) pertaining to, by reason of, or arising under, any
other Person's failure to comply with or to perform its obligations under the
Weider Europe Management Agreement, are hereby released and extinguished.
3. TAX AUDIT.
Each of IHF, Holdings and ICON shall provide to WHF and its Affiliates,
including WSG, promptly upon WHF's request (a) all information in their
possession as WHF may reasonably request, including accountants' working papers
and files relating to, (i) ICON and its Affiliates for periods prior to
November 15, 1994 and (ii) WSG for periods prior to the date hereof, and
(b) access to accountants and personnel reasonably requested by WHF, in each
case in connection with any tax audit by the Internal Revenue Service or any
foreign, state, local or other tax agency of WHF or any of its Affiliates,
including WSG. IHF, Holdings and ICON confirm (without thereby seeking to limit
or define what constitutes "reasonableness") that any request by WHF of
information requested by taxing authorities or responsive to claims asserted by
taxing authorities shall be reasonable. To the extent any such
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<PAGE>
request by a taxing authority is overly broad or unduly burdensome, WHF shall
consult with ICON in regard to its response to the taxing authorities.
Each of IHF, Holdings and ICON understands that failure by it to comply
with the foregoing covenant timely or at all may result in substantial damage or
loss to WHF and/or its Affiliates, and IHF, Holdings and ICON hereby agree,
jointly and severally, to indemnify and hold WHF and its Affiliates free and
harmless from and against any and all demands, judgments, assessments, losses,
claims, damages, action, suits, decrees, orders, awards, penalties, fines,
amounts paid in settlement, costs, expenses and fees (including costs of
collection and reasonable attorneys' fees and expenses) arising from its breach
of the foregoing covenant.
4. CERTAIN TAX INDEMNITY.
4.1. Intended Tax Treatment.
----------------------
Each of ICON, IHF and Holdings acknowledges that WHF intends to file
federal income and other tax returns on the basis that the payment by WHF to
each of Gary Stevenson and Scott Watterson of the Settlement Amount (as defined
in each of the respective Option Settlement and Release Agreements between WHF
and Gary Stevenson and Scott Watterson, respectively, dated of even date
herewith, collectively the "Settlement Amounts") will represent capital
contributions to IHF under the principles of Reg. Section 1.83-6(d) and that,
accordingly, (i) WHF's tax basis in the Common Stock of IHF ("Common Stock")
owned by it will be increased by an amount equal to the Settlement Amounts, and
(ii) upon the sale of such Common Stock by WHF to IHF or any other Person, WHF
will compute and report its taxable gain by reference to its basis in such
Common Stock, computed in the manner provided in clause (i) above.
4.2. Advance.
-------
On November 15, 1996, if as of that date WHF shall not yet have sold
the Common Stock, ICON shall pay to WHF an amount equal to $1,500,000 in cash as
an interest-free advance (the "Advance"), which amount shall be prorated if as
of such date WHF shall have sold a portion, but not all of the Common Stock. As
and when WHF and ICON agree that WHF has a reasonable basis (for purposes of
applying Code Section 6662(b)(1)) for claiming any tax benefit (a "Tax Benefit")
from the Settlement Amounts (other than a Tax Benefit relating to a sale by WHF
of Common Stock), it shall claim such Tax Benefit on its applicable tax returns,
and it will make an Advance repayment to ICON in an amount equal to the value of
such Tax Benefit. For any fiscal quarter during which WHF sells any portion of
its Common Stock, WHF shall on the estimated tax payment due date relating to
such quarter repay a portion of the then remaining balance of the Advance
corresponding to the ratio of (i)
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<PAGE>
the amount of Common Stock sold during such quarter and (ii) the amount of
Common Stock owned by WHF at the beginning of such quarter.
4.3. Tax Audits.
----------
WHF shall promptly notify ICON of any tax audits of WHF in which a
tax authority (i) asserts that WHF's tax basis in the Common Stock should be
decreased because WHF's payment of the Settlement Amounts does not constitute a
capital contribution to IHF or (ii) otherwise seeks to disallow a Tax Benefit.
ICON shall have the right to require that WHF defend and continue to defend
itself against any such assertion or disallowance (and engage counsel of its
choice reasonably acceptable to ICON to assist in such defense) subject to the
active participation of ICON (and/or its counsel) in directing the nature, scope
and settlement of such matter, provided that ICON (i) undertakes to bear all
reasonable out-of-pocket expenses of such defense (including, but not limited
to, the engagement of counsel to WHF to conduct such defense at such counsel's
customary hourly rate and reimbursement of disbursements) and (ii) does in fact
pay such reasonable out-of-pocket expense currently as and when billed. It is
hereby agreed that Latham & Watkins and/or Pierre Vogelenzang of Alschuler,
Grossman & Pines shall be reasonably acceptable to ICON.
4.4. Indemnity Payment.
-----------------
If (i) any portion of WHF's tax basis in the Common Stock is
decreased in connection with a taxable disposition of such Common Stock by WHF
because the payments of the Settlement Amounts are held not to constitute
capital contributions or (ii) a Tax Benefit is otherwise disallowed (in either
case, a "Tax Benefit Disallowance"), then IHF, Holdings and ICON shall, jointly
and severally, upon written demand by WHF, indemnify WHF for any additional
taxes, interest and penalties actually paid by WHF in the following manner. Upon
a determination (as defined in Section 1313(a) of the Code) from the applicable
taxing authority that any additional tax, interest or penalties are due from WHF
as a consequence of such Tax Benefit Disallowance after giving effect to any
corresponding tax benefits currently or previously realized to the extent not
otherwise paid to ICON under Section 4.2 hereof (such additional tax, together
with any such interest or penalty, collectively the "Deficiency"), then WHF will
be entitled to receive an indemnity payment (the "Indemnity Payment") in an
amount such that after payment by WHF of all taxes imposed on it with respect to
the Indemnity Payment, WHF retains a net amount equal to the Deficiency.
4.5. Reimbursement.
-------------
This Section 4.5 shall apply in the event of a Tax Benefit
Disallowance giving rise to an Indemnity Payment, if it appears reasonably
likely that a tax benefit attributable to the payments of the Settlement Amounts
(other than a Tax Benefit previously accounted for under Section 4.2 hereof)
will likely accrue to WHF for any year (i) subsequent to the taxable year as to
which such Tax Benefit Disallowance was asserted and (ii) beginning within five
years
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<PAGE>
from the date of the determination of the Deficiency. In such event, ICON and
WHF shall negotiate in good faith on a method of reimbursing IHF, Holdings and
ICON for an appropriate portion of the present value of such anticipated tax
benefit (grossed-up as if such tax benefit were offset against the Indemnity
Payment described in Section 4.4), provided that nothing in this Section 4.5
shall entitle ICON to delay the payment owed by it under Section 4.4 hereof
pending the resolution of such negotiations.
5. REPRESENTATIONS AND WARRANTIES.
Each of the parties hereto hereby represents and warrants, severally and
not jointly with any other party, that:
(a) such party has full corporate or trust power and authority,
or personal capacity, as applicable, to enter into and perform this
Agreement and any agreement or instrument set forth opposite such party's
name on Schedule 6 hereto.
----------
(b) such party has all authorizations and approvals required by
law or contract to be obtained by such party to enter into and perform
this Agreement and any agreement or instrument set forth on Schedule 6
----------
hereto to which it is a party, except to the extent any further
contractual approvals may be required to be obtained by IHF to consummate
the purchase of securities under the Stock and Warrant Purchase
Agreement, as to which IHF represents and warrants that prior to the
purchase of any Weider Securities under the Stock and Warrant Purchase
Agreement, IHF shall have received all required consents under all
material contracts, agreements and instruments to which it is a party or
by which it is bound; and
(c) Each of this Agreement and each agreement or instrument set
forth opposite such party's name on Schedule 6 hereto constitutes (or
----------
upon being executed by such party will constitute) the legal, valid and
binding obligation of such party and is enforceable against such party in
accordance with its terms.
Each of the parties hereto agrees that its representations and warranties
contained in this Agreement shall survive the execution and delivery hereof and
the consummation of the transactions contemplated hereby.
6. EXECUTION AND DELIVERY OF DOCUMENTS.
Simultaneously with the execution of this Agreement, each of the parties
will execute and deliver the agreements and instruments set forth on Schedule 6
----------
hereto opposite such party's respective name. The effectiveness of this
Agreement is subject to the contemporaneous execution and delivery of all
agreements and instruments set forth on Schedule 6 and the contemporaneous
----------
making of the payments listed on Schedule 7 hereto. All payments contemplated
----------
by this Agreement and the agreements and instruments set forth on
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<PAGE>
Schedule 6 to be made contemporaneously with the execution and delivery of this
- ----------
Agreement shall be made contemporaneously with the execution and delivery of
this Agreement and all such other agreements and instruments. None of the
transactions contemplated hereby or thereby to be consummated contemporaneously
with the execution and delivery hereof shall be effective unless all such
transactions are consummated contemporaneously and are effective.
7. PAYMENTS TO BE MADE.
Contemporaneously with the execution and delivery of this Agreement and
the other agreements and instruments set forth on Schedule 6, the payments
----------
listed on Schedule 7 hereto will be paid by such party to the designated
----------
recipient and in the amounts indicated and for any purposes so indicated on such
Schedule 7.
- ----------
8. WIRE TRANSFERS.
Schedule 8 hereto sets forth a statement of reconciliation by which each
----------
of the payments to be made by a party to another party listed on Schedule 7
----------
hereto is offset, as appropriate, against any payments to be received by such
party from such other party pursuant to such Schedule 7. The payment amounts
----------
remaining due after such reconciliation and offset shall be paid by the payor so
indicated on Schedule 8 via wire transfer of immediately available funds
----------
pursuant to the wire transfer instructions set forth in Schedule 8 opposite the
----------
name of the payee so indicated with respect to such payment, or if such amount
is less than $1,000, by check at the option of such payor.
9. COVENANT NOT TO SUE.
9.1. Definitions. For purposes of this Section 9, the terms "ICON", "ICON
Releasors", "Released Weider Parties", "Released ICON Claims", "Weider", "Weider
Releasors", "Released ICON Parties" and "Released Weider Claims" shall have the
meanings set forth for such terms in the ICON Release and the Weider Release,
respectively, which documents are identified in Schedule 6 hereto.
----------
9.2. ICON Covenant and Indemnity. ICON covenants (a) that none of the
ICON Releasors will (either individually or in concert with another) institute
or maintain, cause to be instituted or maintained, or knowingly facilitate the
institution or maintenance of (other than such facilitation as may occur
pursuant to the order or the rules or the processes of a court of competent
jurisdiction, provided that to the extent practicable ICON provides WHF with
sufficient advance notice of such facilitation to enable WHF to seek a
protective order from such court) any demand, action, claim, lawsuit,
arbitration or dispute resolution proceeding of any sort, in any capacity
whatsoever, against any of the Released Weider Parties based upon any of the
Released ICON Claims or based upon any claim, right or obligation that is
released, extinguished or terminated pursuant to Section 2 of this Settlement
Agreement, Section 2 of the CANCO Asset Purchase Agreement referred to in
Schedule 6 hereto, Section 2 of the
- ----------
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<PAGE>
WSE Asset Purchase Agreement referred to in Schedule 6 hereto or Section 6 of
----------
the Amendment No. 1 to Non-Competition Agreement referred to in Schedule 6
----------
hereto; and (b) to indemnify the Released Weider Parties for and against any and
all costs, damages, liabilities or other expenses (including, without
limitation, any attorneys' fees) reasonably incurred by any of the Released
Weider Parties by reason of any violation of clause (a) of this Section 9.2.
9.3. Weider Covenant and Indemnity. WHF covenants (a) that none of the
Weider Releasors (other than Richard Renaud and Hornchurch) will (either
individually or in concert with another) institute or maintain, cause to be
instituted or maintained, or knowingly facilitate the institution or maintenance
of (other than such facilitation as may occur pursuant to the order or the rules
or the processes of a court of competent jurisdiction, provided that to the
extent practicable WHF provides ICON with sufficient advance notice of such
facilitation to enable ICON to seek a protective order from such court) any
demand, action, claim, lawsuit, arbitration or dispute resolution proceeding of
any sort, in any capacity whatsoever, against any of the Released ICON Parties
based upon any of the Released Weider Claims or based upon any claim, right or
obligation that is released, extinguished or terminated pursuant to Section 2 of
this Settlement Agreement, Section 2 of the CANCO Asset Purchase Agreement
referred to in Schedule 6 hereto, or Section 2 of the WSE Asset Purchase
----------
Agreement referred to in Schedule 6 hereto; and (b) to indemnify the Released
----------
ICON Parties for and against any and all costs, damages, liabilities or other
expenses (including, without limitation, any attorneys' fees) reasonably
incurred by any of the Released ICON Parties by reason of any violation of
clause (a) of this Section 9.3.
9.4. Renaud and Hornchurch Covenant and Indemnity. Each of Hornchurch and
Richard Renaud, severally and not jointly, covenant for itself or himself alone
(a) that such one of Hornchurch and Renaud will not institute or maintain, cause
to be instituted or maintained, or knowingly facilitate the institution or
maintenance of (either individually or in concert with another) (other than such
facilitation as may occur pursuant to the order or the rules or the processes of
a court of competent jurisdiction, provided that to the extent practicable such
one of Hornchurch and Renaud provides ICON with sufficient advance notice of
such facilitation to enable ICON to seek a protective order from such court) any
demand, action, claim, lawsuit, arbitration or dispute resolution proceeding of
any sort, in any capacity whatsoever, against any of the Released ICON Parties
based upon any of the Released Weider Claims or based upon any claim, right or
obligation that is released, extinguished or terminated pursuant to Section 2 of
this Settlement Agreement, Section 2 of the CANCO Asset Purchase Agreement
referred to in Schedule 6 hereto, or Section 2 of the WSE Asset Purchase
----------
Agreement referred to in Schedule 6 hereto; and (b) to indemnify the Released
----------
ICON Parties for and against any and all costs, damages, liabilities or other
expenses (including, without limitation, any attorneys' fees) reasonably
incurred by any of the Released ICON Parties by reason of any violation of
clause (a) of this Section 9.4 by such one of Hornchurch and Renaud.
10. GOVERNING LAW; JURISDICTION; JURY TRIAL WAIVER.
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<PAGE>
10.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of New York, 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.
10.2. Consent to Jurisdiction. Each of the parties agrees that all
actions, suits or proceedings arising out 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 New York. Each of the parties hereto by
execution hereof (a) hereby irrevocably submits to the jurisdiction of the
federal and state courts in the State of New York for the purpose of any action,
suit or proceeding arising out of or based upon this Agreement or the subject
matter hereof and (b) 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 brought in the federal or state courts in
the State of New York, any claim that (i) he or it is not subject personally to
the jurisdiction of the above-named courts, (ii) he or it is immune from
extraterritorial injunctive relief or other injunctive relief, (iii) his or its
property is exempt or immune from attachment or execution, (iv) any such action,
suit or proceeding may not be brought or maintained in one of the above-named
courts, (v) 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 (vi) 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 of or proceeding in any manner permitted by the
laws of the State of New York, agrees that service of process by registered of
or certified mail, return receipt requested, at the address specified in of or
pursuant to Section 12 hereof is reasonably calculated to give actual notice and
waives and agrees not to assert by way of motion, as a defense of or otherwise,
in any such action, suit or proceeding any claim that service of process made in
accordance with Section 12 hereof does not constitute good and sufficient
service of process. The provisions of this Section 10.2 shall not restrict the
ability of any party to enforce in any court of competent jurisdiction any
judgment obtained in a federal or state court of the State of New York.
10.3. 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 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
10.3 with any court of competent jurisdiction 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-
<PAGE>
10.4. Reliance. Each of the parties hereto acknowledges that he or it has
been informed by each other party that the provisions of this Section 10
constitute a material inducement upon which such party is relying and will rely
in entering into this Agreement and the transactions contemplated hereby.
11. GENERAL.
11.1. Cooperation. Each of the parties hereto shall, at the expense of
the requesting party, deliver or cause to be delivered to the other and at such
other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of consummating
the transactions contemplated by this Agreement.
11.2. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto pertaining to the subject matter hereof and supersede
all prior and contemporaneous oral agreements, understandings, negotiations and
discussions and all prior written agreements and other writings of the parties
with respect to such subject matter.
11.3. Amendment or Modification, etc. The parties hereto may not amend
or modify this Agreement except in such manner as may be agreed upon by a
written instrument executed by each party to be affected by such amendment or
modification. No waiver of any provision of this Agreement shall be deemed to or
shall constitute a waiver of any other provision hereof (whether or not
similar), shall constitute a continuing waiver unless otherwise expressly
provided nor shall be effective unless in writing and executed by each party
against whom the same is to be enforced.
11.4. Survival, etc. All covenants, agreements, representations and
warranties made by or on behalf of any party hereto in this Agreement (including
without limitation the Schedules hereto), or pursuant to any document,
certificate, financial statement or other instrument referred to herein or
delivered in connection with the transactions contemplated hereby, shall be
deemed to have been material, of independent significance and relied upon by the
parties hereto, notwithstanding any investigation made by or on behalf of any of
the parties hereto or any opportunity therefor or any actual or constructive
knowledge thereby obtained, and shall survive the execution and delivery of this
Agreement and the closing contemplated hereby.
11.5. Headings, etc. Section and subsection headings are not to be
considered part of this Agreement, are included solely for convenience, are not
intended to be full or accurate descriptions of the content thereof and shall
not affect the construction hereof. This Agreement shall be deemed to express
the mutual intent of the parties, and no rule of strict construction shall be
applied against any party.
-20-
<PAGE>
11.6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
11.7. Successors and Assigns. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective transferees, successors and assigns (each of which
such transferees, successors and assigns shall be deemed to be a party hereto
for all purposes hereof); provided, however that (i) no party may transfer any
-------- -------
of its rights or obligations hereunder without the consent of each of IHF and
WHF; except that (a) each of ICON, IHF and Holdings and any permitted transferee
thereof may assign its rights and obligations hereunder, in whole or in part, to
any entity, which is controlled by or under common control with ICON, provided
ICON guarantees all obligations hereunder of any such transferee, (b) each of
WSE, WSG, Allfitness Inc., Weider Europe and WHF and any permitted transferee
thereof may assign its rights and obligations hereunder, in whole or in part, to
any entity which is controlled by or under common control with WHF, provided
that WHF guarantees all obligations hereunder of any such transferee, (c) each
of WHF, WSG, WSE, Allfitness Inc. and Weider Europe and any permitted transferee
thereof may transfer any of its rights hereunder to General Electric Capital
Corporation or any other institutional lender and their respective successor for
security purposes, and (d) each of ICON, IHF and Holdings and any permitted
transferee thereof may transfer any of its rights hereunder to General Electric
Capital Corporation or any other institutional lender and their respective
successors for security purposes and (ii) no transfer or assignment by any party
shall relieve such party of any of its obligations hereunder. This Agreement
shall not confer any right or remedy upon any Person other than the parties and
their respective transferees, successors and assigns. A merger shall not
constitute a transfer or assignment for purposes of this Section 11.7.
11.8. French Language. The parties acknowledge that they have requested
this agreement and all ancillary documents to be drawn up in English language
only. Les parties reconnaissent avoir exige que cette convention ainsi que tous
les documents y afferents soient rediges en anglais seulement.
12. NOTICES.
Any notices or other communications required or permitted hereunder shall
be effective if in writing and delivered personally or sent by telecopier,
Federal Express, or registered or certified mail, postage prepaid, addressed as
follows:
If to ICON, IHF, Holdings, Gary E. Stevenson or
Scott R. Watterson, to it or him at:
ICON Health & Fitness, Inc.
1500 South 1000 West
-21-
<PAGE>
Logan, Utah 84321
Attention: Chief Executive Officer and
General Counsel
with a copy to:
Bain Capital, Inc.
Two Copley Place - 7th Floor
Boston, Massachusetts 02116
Attention: Robert C. Gay
and with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: R. Newcomb Stillwell
and with a copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Attention: Charles W. Robins
If to any of the Bain Funds,
to it at:
Bain Capital, Inc.
Two Copley Place - 7th Floor
Boston, Massachusetts 02116
Attention: Robert C. Gay
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: R. Newcomb Stillwell
If to any of the Weider Entities, Ben Weider, Eric Weider or Richard
Renaud, to it or him at:
-22-
<PAGE>
Weider Health & Fitness
21100 Erwin Street
Woodland Hills, California 91637-3772
Attention: General Counsel
With a copy to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Roger H. Kimmel
Unless otherwise specified herein, such notices or other communications shall be
deemed effective (a) on the date delivered, if delivered personally, (b) two
business days after being sent by Federal Express, if sent by Federal Express,
(c) one business day after being delivered, if delivered by telecopier with
confirmation of good transmission, and (d) three business days after being sent,
if sent by registered or certified mail. Each of the parties hereto shall be
entitled to specify a different address by giving notice as aforesaid to each of
the other parties hereto.
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ICON HEALTH & FITNESS, INC.
By [SIGNATURE APPEARS HERE]
-----------------------------------
Title: Secretary
IHF CAPITAL, INC.
By [SIGNATURE APPEARS HERE]
-----------------------------------
Title: Secretary
IHF HOLDINGS, INC.
By [SIGNATURE APPEARS HERE]
-----------------------------------
Title: Secretary
-24-
<PAGE>
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.
By: [SIGNATURE APPEARS HERE]
---------------------------------
Title: Managing Director
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.
By: [SIGNATURE APPEARS HERE]
---------------------------------------
Title: Managing Director
BCIP ASSOCIATES
By: [SIGNATURE APPEARS HERE]
---------------------------------------
A General Partner
BCIP TRUST ASSOCIATES, L.P.
By: [SIGNATURE APPEARS HERE]
---------------------------------------
A General Partner
<PAGE>
WEIDER HEALTH AND FITNESS
By [SIGNATURE APPEARS HERE]
---------------------------------------
Title:
<PAGE>
WEIDER SPORTS EQUIPMENT CO., LTD.
By /s/ Eugene Theriault
---------------------------------------
Title: President & CEO.
<PAGE>
[SIGNATURE APPEARS HERE]
---------------------------------------
WEIDER EUROPE, B.V.
<PAGE>
ALLFITNESS, INC.
By [SIGNATURE APPEARS HERE]
---------------------------------------
Title:
<PAGE>
WEIDER SPORTING GOODS, INC.
By [SIGNATURE APPEARS HERE]
---------------------------------------
Title: Secretary
<PAGE>
/s/ Ben Weider
------------------------------------------
Ben Weider, individually
<PAGE>
/s/ Eric Weider
------------------------------------------
Eric Weider, individually
<PAGE>
/s/ Richard Renaud
------------------------------------------
Richard Renaud, individually
<PAGE>
/s/ Scott R. Watterson
------------------------------------------
SCOTT R. WATTERSON
/s/ Gary E. Stevenson
------------------------------------------
GARY E. STEVENSON
<PAGE>
HORNCHURCH INVESTMENTS
LIMITED
By [SIGNATURE APPEARS HERE]
----------------------------------------
Title:
<PAGE>
Schedule 6 to Settlement Agreement
----------------------------------
I. BASIC AGREEMENTS
II.1. Asset Purchase Agreements
II.1.1. WSE Asset Purchase Agreement dated September 6, 1996 (the "WSE
Asset Purchase Agreement") by and between ICON of Canada Inc.
("ICON Canada"), ICON Health & Fitness, Inc. ("ICON") and Weider
Sports Equipment Co. Ltd ("WSE"), including all schedules and
exhibits thereto.
II.1.2. CANCO Asset Purchase Agreement dated September 6, 1996 (the
"CANCO Asset Purchase Agreement") by and between ICON Canada,
ICON, AllFitness, Inc. ("CANCO") (the sole successor to each of
Les Industries Rickbend Inc., Athletimonde Inc. and Fitquip
International Inc.) and solely with respect to sections 2 and 9
thereof, Scott Watterson and Gary Stevenson, including all
schedules and exhibits thereto.
II.2. Stock Purchase Agreements
II.2.1. Stock and Warrants Purchase Agreement dated September 6, 1996 by
and among IHF Capital, Inc. ("IHF Capital"), IHF Holdings, Inc.
("IHF Holdings"), Weider Health & Fitness ("WHF"), Greyfriars
Limited, Bayonne Settlement, Hornchurch Investments Limited,
Ronald Corey, Bernard J. Cartoon, Ronald Novak, Eric Weider,
Richard Bizzaro, Robert Reynolds, Michael Carr, Thomas Deters,
Barbara Harris and Zbigniew Kindella (collectively, the "Weider
Investors"), and, solely with respect to Section 5 thereof, Bain
Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., BCIP
Associates and BCIP Trust Associates, L.P. (collectively, the
"Fund Investors"), and, solely with respect to Section 6.1 thereof,
Richard Renaud, including all schedules and exhibits thereto.
II.2.2. Key Executive Preferred Stock Purchase Agreement dated September 6,
1996 by and among IHF Capital, Gary Stevenson and Scott Watterson.
<PAGE>
II.3. Amendments
II.3.1. Amendment No. 1 to the Stockholders Agreement dated September 6,
1996 among IHF Capital, IHF Holdings, the Weider Investors,
the Fund Investors, and certain other signatories named therein.
II.3.2. Amendment and Restatement of the Stockholders Agreement dated
September 6, 1996 among IHF Capital, IHF Holdings, the Weider
Investors, the Fund Investors and certain other signatories named
therein, together with Annex A (the Restated Stockholders
Agreement).
II.3.3. Amendment No. 1 dated September 6, 1996 to the Non-Competition
Agreement dated November 14, 1994 between ICON, WHF, Scott R.
Watterson and Gary E. Stevenson.
II.3.4. Amendment dated September 6, 1996 to the Employment Agreement
dated November 14, 1994 among ICON, IHF Capital, Inc., IHF
Holdings, Inc. and Gary Stevenson, including all schedules and
exhibits thereto.
II.3.5. Amendment dated September 6, 1996 to the Employment Agreement
dated November 14, 1994 among ICON, IHF Capital, Inc., IHF
Holdings, Inc. and Scott Watterson, including all schedules and
exhibits thereto.
II.4. Other Agreements
II.4.1. Representation Agreement dated September 6, 1996 by and
between ICON and Ben Weider.
II.4.2. Letter Agreement dated September 6, 1996 regarding
advertising space by and between ICON and Weider
Publications.
II.4.3. Release dated September 6, 1996 made by ICON, IHF
Capital, IHF Holdings, Scott Watterson, Gary Stevenson
and the ICON Releasors as defined therein.
II.4.4. Release dated September 6, 1996 made by Weider Health &
Fitness, Weider Sports Equipment Co., Ltd., Weider
Sporting Goods, Inc., Weider Europe, B.V., CANCO, Ben
Weider, Eric Weider, Richard Renaud and the Weider
Releasors as defined therein.
II.4.5. Mutual General Releases between WSE and each of Datam
Inc., Fitness First, Inc. d/b/a American Distributors and
Borges Lamont Co. d/b/a C&D International.
-2-
<PAGE>
II.4.6. Letter of Credit issued by Royal Bank of Canada to ICON
and ICON Canada under the CANCO Purchase Agreement.
II.4.7. Escrow Agreement among (a) ICON and ICON Canada, (b)
CANCO, and (c) Lapointe Rosenstein and Goodman Phillips &
Vineberg, acting jointly as Escrow Agent, with respect to
the Letter of Credit contemplated by the CANCO Asset
Purchase Agreement.
II.4.8. Watterson Option Settlement and Release Agreement dated
September 6, 1996 by Scott Watterson in favor of WHF and
certain other parties named therein, including all
exhibits thereto.
II.4.9. Stevenson Option Settlement and Release Agreement dated
September 6, 1996 by Gary Stevenson in favor of WHF and
certain other parties named therein, including all
exhibits thereto.
II.4.10. Confidentiality Agreement by and among ICON and Weider
entities dated 1996.
II.4.11. Letter from ICON to Ben Weider and Eric Weider regarding
charitable contributions dated September 6, 1996.
III. CLOSING OF WSE ASSET PURCHASE AGREEMENT
III.1. Bill of Sale to ICON Canada dated September 6, 1996 executed by
WSE regarding WSE assets.
III.2. Assumption of Assumed Liabilities dated September 6, 1996 between
ICON Canada and WSE regarding certain liabilities and obligations
of WSE.
III.3. Assumption of Contracts dated September 6, 1996 between ICON
Canada and WSE.
III.4. Distribution Agreements dated September 6, 1996 by and between
ICON and each of Good Health Distributors (PTE) Ltd. and O.O.O.
Victory Sport Ltd. as set forth in Schedule 3.2.2A of the WSE
Asset Purchase Agreement.
III.5. Distribution letters to certain existing Weider distributors
executed by WSE, ICON and the distributors as set forth in
Schedule 3.2.2B1-9 of the WSE Asset Purchase Agreement.
III.6. Lease dated September 6, 1996 by and between ICON Canada and WSE
-3-
<PAGE>
regarding Bates Road WSE office space.
III.7. Partial discharge by Royal Bank of Canada in favor of WSE in
respect of Assets purchased by ICON and ICON Canada.
IV. CLOSING OF CANCO ASSET PURCHASE AGREEMENT
IV.1. Bill of Sale to ICON Canada dated September 6, 1996 executed by
CANCO regarding CANCO assets.
IV.2. Assumption of Assumed Liabilities dated September 6, 1996 between
ICON Canada and CANCO regarding certain liabilities and
obligations of CANCO.
IV.3. Assumption of Contracts dated September 6, 1996 between ICON
Canada and CANCO.
IV.4. Deed of Sale to ICON Canada of (i) CANCO plant leased by CANCO
from Ben Weider and Richard Hebert., (ii) CANCO plant leased by
CANCO from Eric Weider and Richard Hebert and (iii) vacant CANCO
property described therein.
IV.5. Directions for closing transaction contemplated by Deed of Sale.
IV.6. Title opinions for each of the three parcels purchased pursuant to
the Deed of Sale.
IV.7. Total Mainlevee and Discharge by Royal Bank of Canada of Mortgage
on CANCO plant leased by CANCO from Eric Weider and Richard Hebert.
IV.8. Total Mainlevee and Discharge by Royal Bank of Canada of Mortgage
on CANCO plant leased by CANCO from Ben Weider and Richard Hebert.
IV.9. Lease Assignment Agreement dated September 6, 1996 among Royal
Bank of Canada, CANCO and ICON Canada regarding assignment of
equipment leases.
IV.10. Letter from Royal Bank of Canada outlining terms of financing by
Royal Bank in favor of ICON Canada.
IV.11. Standby Letter of Credit from ABN Amro Bank N.V. to Royal Bank of
Canada as beneficiary and ICON Canada as counterparty.
IV.12. Guarantee of ICON of the obligations of ICON Canada under the
equipment leases.
-4-
<PAGE>
V. CLOSING OF WEIDER EUROPE ASSET OPTION
V.1. Bill of Sale to ICON dated September 6, 1996 executed by WSG
regarding WSG assets.
VI. CORPORATE ORGANIZATION, EXISTENCE AND AUTHORITY
VI.1. IHF Capital
VI.1.1. Certificate of the Secretary of IHF Capital dated
September 6, 1996 certifying as to (a) resolutions of
the Board of Directors; (b) incumbency and signature of
signing officers; (c) due authorization and execution of
documents; (d) by-laws and (e) no change in charter
documents and good standing.
VI.1.2. Certificate of the Delaware Secretary of State as of a
recent date as to the good standing of IHF Capital.
VI.1.3. Copies, certified by the Delaware Secretary of State, of
the charter documents of IHF Capital.
VI.2. IHF Holdings
VI.2.1. Certificate of the Secretary of IHF Holdings dated
September 6, 1996 certifying as to (a) resolutions of
the Board of Directors; (b) incumbency and signature of
signing officers; (c) due authorization and execution of
documents; (d) by-laws and (e) no change in charter
documents and good standing.
VI.2.2. Certificate of the Delaware Secretary of State as of a
recent date as to the good standing of IHF Holdings.
VI.2.3. Copies, certified by the Delaware Secretary of State, of
the charter documents of IHF Holdings.
VI.3. ICON
VI.3.1. Certificate of the Secretary of ICON dated September 6,
1996 certifying as to (a) resolutions of the Board of
Directors; (b) incumbency and signature of signing
officers; (c) due authorization and execution of
documents; (d) by-laws and (e) no change in charter
documents and good standing.
-5-
<PAGE>
VI.3.2. Certificate of the Delaware Secretary of State as of a
recent date as to the good standing of ICON.
VI.3.3. Copies, certified by the Delaware Secretary of State, of
the charter documents of ICON.
VI.4. ICON Canada
VI.4.1. Certificate of the Secretary of ICON Canada dated
September 6, 1996 certifying as to (a) resolutions of
the Board of Directors; (b) incumbency and signature of
signing officers; (c) due authorization and execution of
documents; (d) by-laws and (e) no change in charter
documents and good standing.
VI.4.2. Copies of the articles of incorporation of ICON Canada
certified by the Quebec Inspector General of Financial
Institutions.
VI.4.3. Certificate of Attestation of ICON Canada issued by the
Quebec Inspector General of Financial Institutions.
VI.4.4. "Certificat de Regularite" of ICON Canada issued by the
Quebec Inspector General of Financial Institutions.
VI.5. WHF
VI.5.1. Certificate of the Secretary of WHF dated September 6,
1996 certifying as to (a) resolutions of the Board of
Directors; (b) incumbency and signature of signing
officers; (c) due authorization and execution of
documents; (d) by-laws and (e) no change in charter
documents and good standing.
VI.5.2. Certificate of the Nevada Secretary of State, as of a
recent date as to the good standing of WHF.
VI.5.3. Copies, certified by the Nevada Secretary of State, of
the charter documents of WHF.
VI.6. WSG
VI.6.1. Certificate of Secretary of WSG dated September 6, 1996
certifying as to (a) resolutions of the Board of
Directors; (b) incumbency and signature of signing
officer; (c) due authorization and execution of
documents; (d) by-laws and (e) no change in
-6-
<PAGE>
charter documents and good standing.
VI.6.2. Certificate of the California Secretary of State of a
recent date as to the good standing of WSG.
VI.6.3. Copies, certified by the California Secretary of State,
of the charter documents of WSG.
VI.7. WSE
VI.7.1. Certificate of the Secretary of WSE dated September 6,
1996 certifying as to (a) resolutions of the Board of
Directors; (b) incumbency and signature of signing
officers; (c) due authorization and execution of
documents; (d) by-laws and (e) no change in charter
documents and good standing.
VI.7.2. Copies of the articles of incorporation of WSE certified
by the Quebec Inspector General of Financial
Institutions.
VI.7.3. Certificate of Attestation of WSE issued by the Quebec
Inspector General of Financial Institutions.
VI.7.4. "Certificat de Regularite" of WSE issued by the Quebec
Inspector General of Financial Institutions.
VI.8. CANCO
VI.8.1. Copies of the articles of incorporation of AllFitness,
Inc. certified by the Quebec Inspector General of
Financial Institutions.
VI.8.2. Certificate of Compliance issued by the Deputy Director
of Industry Canada as to good standing of AllFitness,
Inc.
VI.8.3. Certificate of Attestation of AllFitness, Inc. issued by
the Quebec Inspector General of Financial Institutions.
VI.8.4. Certificate of the Secretary of AllFitness, Inc.
certifying as to (a) resolutions of the Board of
Directors, (b) incumbency, (c) due authorization and
execution of documents, (d) by-laws and (e) no change in
charter documents and good standing.
-7-
<PAGE>
Schedule 7
----------
FUNDS FLOW/1/
----------
I WSE Asset Purchase Agreement
----------------------------
<TABLE>
<CAPTION>
Section
Description/Comments of Agr. Payor Payee Amount
- -------------------- ------- ----- ----- ------
<S> <C> <C> <C> <C>
(1) Cash Purchase Price 3.1.2 ICON WSE $8,430,000
(2) Royalty Payment under 2.2 ICON WSE $200,750
the Distribution
Agreement for alleged
extraterratorial sales
(3) Settlement Payment with 2.3 ICON WSE $8,000,000
respect to termination
of, and pending
litigation under,
Distribution Agreement
(4) Payable to WSE ICON WSE $32,000 (payment by ICON
to WSE in respect of the
$64,000 disputed portion)
(5) WSE indebtedness to 3.2.1(b) ICON Royal CAN $321,639
Royal Bank of Canada Bank of
assumed by ICON Canada
(6) Payment for product 3.2.4 WSE ICON $29,200
liability policy
(i.e., $40,000 CAN)(7) WSE ICON $43,800 (i.e., $60,000
Receivables Bad CAN)
- -----------------------------
</TABLE>
/1/ All amounts in U.S. dollars unless otherwise stated. Description and
commentary is for convenience of reference only and shall not effect
construction of referenced agreements.
<PAGE>
Debt Split
(II) Canco Asset Purchase Agreement
------------------------------
<TABLE>
<CAPTION>
Section
Description/Comments of Agr. Payor Payee Amount
- -------------------- ------- ----- ----- ------
<S> <C> <C> <C> <C>
(1) Cash Purchase Price 3.1.2 ICON CANCO CAN $2,209,222
of CANCO option assets
(2) Payroll Reimbursement ICON CANCO CAN $197,960
(3) Management Fee 2.2 CANCO ICON CAN $654,763
(4) Management Fee 2.2 CANCO Scott CAN $458,334
Watterson
(5) Management Fee 2.2 CANCO Gary CAN $458,334
Stevenson
</TABLE>
(III) Deed to (i) Plant Leased by CANCO From Ben Weider and Richard Hebert; (ii)
--------------------------------------------------------------------------
Plant Leased by CANCO from Eric Weider, Richard Hebert and (iii) vacant
-----------------------------------------------------------------------
strip of land owned by CANCO.
----------------------------
<TABLE>
<CAPTION>
Description/Comments Payor Payee Amount
- -------------------- ------- ----- ------
<S> <C> <C> <C>
(1) Purchase Price. ICON Ben Weider US $125,000
Assumes assumption of CANADA
Royal Bank mortgage
(2) Purchase Price. ICON Eric Weider US $125,000
Assumes assumption of CANADA
Royal Bank mortgage
(3) Purchase Price. ICON Richard US $250,000
Assumes assumption of CANADA Hebert
Royal Bank mortgage
(4) Purchase Price ICON CANCO CAN $1.00
CANADA
(5) Payment with respect ICON Applicable CAN
to taxes on purchased CANADA gvmt. entity $43,702.50
real
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
estate
(6) Prepaid expenses for ICON L&W on CAN $15,347
land purchased behalf of
Eric (25%),
Ben (25%),
Richie
(50%)
(IV) Settlement Agreement
--------------------
<CAPTION>
Section
Description/Comments of Agr. Payor Payee Amount
- -------------------- ------- ----- ----- ------
<S> <C> <C> <C> <C>
(1) Purchase of WSG 2.5(b) ICON WSG $226,700
Equipment
(2) Full payment of all 2.2 ICON WHF $3,933,225
accrued and unpaid and
future royalty
obligations of ICON
under the WHF License
Agreement
(3) Settlement of 2.2 ICON WHF $3,860,000
litigation under the
WHF License Agreement
(4) Settlement of 2.3 ICON WSE $500
litigation under the
Canada License
Agreement
(5) Intercompany payable 2.1(b) WSG ICON $3,000,000
(6) WSG Receivable for 2.1(b) ICON WSG $663,000
products purchased from
WSG by ICON
(7) Reimbursement for 2.1(b) ICON WSG $1,140,000
receipts relating to
WSG sales
(V) Representation Agreement
------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section
Description/Comments of Agr. Payor Payee Amount
- -------------------- ------- ----- ----- ------
<S> <C> <C> <C> <C>
(1) Ambassador's 6 ICON Ben Weider $39,583
compensation for the
month of September
paid in advance at
Closing
(VI) Payments with respect to Scott Watterson and Gary Stevenson
-----------------------------------------------------------
<CAPTION>
Description/Comments Payor Payee Amount
- -------------------- ------- ----- ------
<S> <C> <C> <C>
(1) Consideration under WHF (a) Watterson $2,306,763 (less tax
the Option Settlement $817,747)
and Release Agreements (b) Stevenson $1,905,260 (less tax
$675,414)
(2) Retirement Benefits WHF (a) Watterson $250,000 (less tax
$88,625)
(b) Stevenson $250,000 (less tax
$88,625)
(3) Charitable WHF Watterson $150,000
Contributions designated
charity
(4) Charitable WHF Stevenson $150,000
Contributions designated
charity
</TABLE>
<PAGE>
EXHIBIT 10.52
ESCROW AGREEMENT
This ESCROW AGREEMENT is dated as of September 6, 1996, among (a) ICON
Health & Fitness, Inc., a Delaware corporation ("ICON"), Icon of Canada Inc., a
Quebec company ("ICON Canada"; ICON and ICON Canada being sometimes referred to
herein collectively as the "Buyers"), (b) ALLFITNESS INC., a Canadian company
(the "Seller"), and (c) Lapointe Rosenstein and Goodman Phillips & Vineberg,
acting jointly as escrow agent (the "Escrow Agent").
Recitals
The Seller and the Buyers have entered into the CANCO Asset Purchase
Agreement dated as of the date hereof (as from time to time in effect, the
"Purchase Agreement").
The Purchase Agreement contemplates that Seller provide a $2,100,000
(Canadian) letter of credit (the "Letter of Credit") to Buyers and that, in
certain circumstances described in the Letter of Credit, payment under the
Letter of Credit be made to the Escrow Agent under this Escrow Agreement.
Copies of the Agreement and the Letter of Credit have been delivered to the
Escrow Agent, and the Escrow Agent is willing to act as the Escrow Agent
hereunder.
Agreement
Therefore, in consideration of the foregoing and of the mutual covenants
and agreements set forth below, the parties hereto hereby agree as follows:
1. Establishment of Escrow Fund. Pursuant to the Letter of Credit, cash
in an amount not to exceed $2,100,000 (Canadian) may be paid to the Escrow Agent
by the Letter of Credit issuer prior to September 6, 1997 (or a later date in
the event the Letter of Credit has been extended or renewed). Such amount,
together with all interest or profit thereon, or proceeds therefrom, from time
to time held by the Escrow Agent pursuant to the terms hereof are herein
referred to as the "Escrow Fund." The Escrow Fund shall be held by the Escrow
Agent in accordance with the terms and conditions hereinafter set forth.
<PAGE>
2. Investment of Escrow Fund. The Escrow Agent shall invest the Escrow
Fund in:
(a) marketable obligations of, or fully and directly guaranteed by,
(i) Canada or any of its provinces or
(ii) the United States,
each of which obligations have a maturity of not more than 90 days
from the date of acquisition thereof; or
(b) repurchase obligations with a term of not more than ten days for
underlying securities of the types described in clause (a) entered into
with
(i) any Canadian financial institution listed on Exhibit A
hereto or
(ii) any bank organized under the laws of the United States or
any State thereof, the commercial paper of which bank is rated A-2 or
better by Standard & Poor's Rating Group or P-2 or better by Moody's
Investors Service, Inc.; or
(c) the investments specified on Exhibit A hereto; or
(d) such other investments as the Seller and the Buyer
Representative (as herein defined) may jointly authorize the Escrow Agent
to make from time to time.
Within the above mentioned categories, the Seller shall direct in writing the
investments by the Escrow Agent and, in the absence of such instructions, the
Escrow Agent shall, within such categories, invest the Escrow Fund as it deems
appropriate. As used herein, "Buyer Representative" means ICON as
representative of both Buyers.
3. Disposition of Escrow Fund. The Escrow Agent will hold the Escrow
Fund in its possession until authorized hereunder to deliver such Escrow Fund
under either paragraph (a) or (b) or (c) below:
(a) upon receipt of a certificate requesting the delivery of all or
any portion of the Escrow Fund signed by the Buyer Representative and the
Seller, the Escrow Agent shall deliver the Escrow Fund or the portion(s)
thereof specified in such certificate to either or both Buyers and/or the
Seller, as directed in such certificate; or
(b) upon receipt of a final and nonappealable judgment or order of a
court of competent jurisdiction with respect to payment of all or any
portion of the Escrow
-2-
<PAGE>
Fund, the Escrow Agent shall deliver the amount of the Escrow Fund
specified in such judgment or order to either or both Buyers with respect
to L/C Claims only (as defined in the Purchase Agreement) only, and/or the
Seller as directed in such judgment or order; or
(c) upon receipt of a certificate signed by either Buyer or Seller,
enclosing the written determination, signed by the Arbitrator (as defined
in the Purchase Agreement), of the Estimated Net L/C Claim (as defined in
the Purchase Agreement), the Escrow Agent shall deliver to Seller the
dollar amount by which the Escrow Fund exceeds the Estimated Net L/C Claim.
Notwithstanding any provision to the contrary, each Buyer hereby confirms
its covenant provided in Section 6.7.3(b) of the Purchase Agreement that
such Buyer shall not use, or demand payment of, any part of the funds held
in or constituting part of the Escrow Fund to pay any claim either of them
may have against Seller or its Affiliates, other than L/C Claims (as
defined in the Purchase Agreement). The Escrow Agent shall have no
obligation with respect to the compliance or noncompliance by the Buyers
with the foregoing covenant.
4. Liquidation of the Escrow Fund. Whenever the Escrow Agent shall be
required to make payment from the Escrow Fund, the Escrow Agent shall pay such
amounts by liquidating such investments of the Escrow Fund as shall be directed
in writing by the Seller; provided, however that if the Seller shall not have
furnished such direction to the Escrow Agent as promptly as practicable upon
written request, the Escrow Agent shall pay such amounts by liquidating such
investments of the Escrow Fund as shall be determined by the Escrow Agent.
5. Escrow Agent.
(a) Unless otherwise provided herein, the Escrow Agent is not to be
concerned with the Purchase Agreement, the Letter of Credit or any other
agreement that may affect the Escrow Fund. The Escrow Agent is not a party
to, or bound by, any agreement (other than this Escrow Agreement) which may
be deposited under, evidenced by, or arise out of either the Purchase
Agreement or the Letter of Credit.
(b) The Escrow Agent shall be protected in acting upon any notice,
request, waiver, consent, receipt or other paper or document believed by
the Escrow Agent to be signed by the proper party or parties; and the
Escrow Agent shall be entitled to make any payments or other deliveries
required to be made to the Buyers or either of them under this Escrow
Agreement to the Buyer Representative.
(c) The Escrow Agent shall not be liable for any error or judgment
or for any act done or step taken or omitted by it or for any mistake of
fact or law, or for
-3-
<PAGE>
anything which it may do or refrain from doing in connection herewith,
except its own willful misconduct or fraud, and the Escrow Agent shall have
no duties to anyone except those set forth in this Escrow Agreement.
(d) The Escrow Agent may consult legal counsel in the event of any
dispute or question as to the construction of this Escrow Agreement, or
Escrow Agent's duties hereunder, and the Escrow Agent shall incur no
liability and shall be fully protected in acting in accordance with the
written opinion and instructions of counsel.
(e) In the event of any disagreement between the Seller and Buyers,
or either of them, and/or any other person, resulting in adverse claims and
demands being made in connection with or for the Escrow Fund:
(i) the Escrow Agent shall be entitled at its option to refuse
to comply with any such claim or demand, so long as such disagreement
shall continue, and in so doing the Escrow Agent shall not be or
become liable for damages or interest to the undersigned or any of
them or to any person named herein for its failure or refusal to
comply with such conflicting or adverse demands; and the Escrow Agent
shall be entitled to continue so to refrain and refuse so to act until
(A) the rights of the adverse claimants have been finally adjudicated
in a court assuming and having jurisdiction of the parties and the
money, papers and property involved herein or affected hereby; and/or
(B) all differences shall have been adjusted by agreement and the
Escrow Agent shall have been notified thereof in writing signed by the
Buyer Representative and the Seller; and
(ii) the Escrow Agent, in its discretion, may file a suit in
interpleader for the purpose of having the respective rights of the
claimants adjudicated, and deposit with the court all documents and
property held hereunder.
(f) Each of the Buyers and the Seller, being solidarily liable,
agrees to indemnify the Escrow Agent from all losses, costs and expenses
which may be incurred by it as a result of its involvement in any
litigation or arbitration proceeding arising from performance of its duties
hereunder, provided that such litigation shall not result from any action
taken or omitted by the Escrow Agent and for which it shall have been
adjudged to have acted with gross negligence, willful misconduct or
fraudulently; and such indemnification shall survive termination of this
Escrow Agreement until extinguished by any applicable statute of
limitations; provided, however, that only as between the Seller (on one
-------- -------
hand) and the Buyers (as one group, on the other hand), all such losses,
costs and expenses shall be allocated one half to the Seller and one half
to the Buyers.
-4-
<PAGE>
(g) The Escrow Agent does not have any interest in the Escrow Fund
deposited hereunder but is serving as escrow holder only and having only
possession thereof. This paragraph shall survive notwithstanding any
termination of this Escrow Agreement or the resignation of the Escrow
Agent.
(h) The Escrow Agent (and any successor Escrow Agent) may at any
time resign as such by delivering the Escrow Fund to any successor Escrow
Agent jointly designated by the Buyer Representative and the Seller in
writing, or to any court of competent jurisdiction, whereupon the Escrow
Agent shall be discharged of and from any and all further obligations
arising in connection with this Escrow Agreement. The resignation of the
Escrow Agent will take effect on the earlier of (i) the appointment of a
successor (including appointment by a court of competent jurisdiction) or
(ii) the day which is 60 days after the date of delivery of its written
notice of resignation to the Buyer Representative and the Seller. If at
that time the Escrow Agent has not received a designation of a successor
Escrow Agent, the Escrow Agent's sole responsibility after that time shall
be to safekeep the Escrow Fund until receipt of a designation of successor
Escrow Agent or a joint written disposition instruction by the Buyer
Representative and the Seller or a final and nonappealable order of a court
competent jurisdiction.
(i) The Escrow Agent hereby accepts its appointment and agrees to
act as escrow agent under the terms and conditions of this Escrow
Agreement. LaPointe Rosenstein and Goodman Phillips & Vineberg shall act
jointly as Escrow Agent, and if only one of LaPointe Rosenstein and Goodman
Phillips & Vineberg takes an action as Escrow Agent, it must be with the
consent of the other. Each of the Buyers and the Seller, being solidarily
liable, shall pay to the Escrow Agent for its services hereunder the
compensation set forth in Exhibit B hereto; provided, however, that only as
-------- -------
between the Seller (on one hand) and the Buyers (as one group, on the other
hand), all such compensation shall be allocated one half to the Seller and
one half to the Buyers. Each of the Buyers and the Seller, being solidarily
liable, agrees to reimburse the Escrow Agent for the amount of all
reasonable out-of-pocket expenses and disbursements incurred or made by the
Escrow Agent in performance of its duties as Escrow Agent hereunder
(including reasonable fees, out-of-pocket expenses and disbursements of its
counsel); provided, however, that only as between the Seller (on one hand)
-------- -------
and the Buyers (as one group, on the other hand), all such expenses and
disbursements shall be allocated one half to the Seller and one half to the
Buyers. Brokerage and similar fees and charges relating to investment
transactions shall be charged to the Escrow Fund.
(j) Each of the Seller and the Buyers hereby acknowledges that the
Escrow Agent has acted and will continue to act as the solicitors for the
Buyers and the Seller, respectively, with respect to various matters,
including, without limitation, matters pertaining to the Purchase Agreement
and this Escrow Agreement and agrees that the
-5-
<PAGE>
Escrow Agent shall not, by virtue of acting as Escrow Agent hereunder, be
disqualified from continuing to act for and represent the Buyers and the
Seller, respectively in any manner or in any matter whatsoever.
Notwithstanding its duties as Escrow Agent, each of the Seller and the
Buyers agree that neither the Escrow Agent's services hereunder, nor any
provision hereof either express or implied, shall restrict or inhibit the
Escrow Agent in any way from acting as the Buyers' or Seller's, as
applicable, legal counsel in any action, dispute, controversy, arbitration,
suit or negotiation arising under this Escrow Agreement, under the Purchase
Agreement, or under any other agreement or in any other manner or context
whatsoever, whether or not directly or indirectly involving any of the
parties hereto.
(k) The Escrow Agent shall not be required to give security nor
shall it be responsible for the acts, omissions, faults, errors, fraud,
failure or misconduct of any agent whom it may reasonably employ in the
exercise of the powers conferred upon it hereunder, nor for loss occasioned
by its acts, omissions or defaults, unless such acts, omissions or defaults
constitute gross negligence, willful misconduct or fraud on the part of the
Escrow Agent.
(l) The Escrow Agent shall not be required to institute, defend or
intervene in any legal action to enforce the terms and conditions of this
Agreement until the Escrow Agent has been indemnified by each of the Buyers
and the Seller, being solidarily liable, against all expenses and
liabilities incurred and to be incurred by the Escrow Agent.
(m) Each of the Buyers and the Seller agree, on a solidarily liable
basis, to indemnify and hold the Escrow Agent harmless from and against any
and all expenses, assessments, liabilities, claims, damages, actions, suits
or other charges incurred by or assessed against the Escrow Agent or
anything done or omitted by the Escrow Agent in the performance of its
duties, except as a result of its willful gross negligence, misconduct or
fraud; provided, however, that only as between the Seller (on one hand) and
-------- -------
the Buyers (as one group, on the other hand), all such indemnification
shall be allocated one half to the Seller and one half to the Buyers. The
Escrow Agent shall have no responsibility as to the validity,
collectability or value of the Escrow Fund.
6. Notices. Any notices and other communications required or permitted
under this Agreement shall be effective if in writing and delivered personally
or sent by telecopier, Federal Express or registered or certified mail, postage
prepaid, addressed as follows:
If to the Seller, to:
Weider Health and Fitness
21100 Erwin Street
Woodland Hills, California 91367-3772
-6-
<PAGE>
Attention: President
with a copy to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Roger H. Kimmel
If to either Buyer, to:
ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, UT 84321
Telecopier: (801) 750-5238
Attention: Chief Executive Officer
with copies to:
Bain Capital, Inc.
Two Copley Place - 7th Floor
Boston, Massachusetts 02116
Attention: Robert C. Gay
and:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: R. Newcomb Stillwell
If to the Escrow Agent, to it at the address set forth under its name on
the signature pages hereof.
Unless otherwise specified herein, such notices or other communications
shall be deemed effective (a) on the date delivered, if delivered personally,
(b) two business days after being sent, if sent by Federal Express, (c) one
business day after being sent, if sent by telecopier with confirmation of good
transmission and receipt, and (d) three business days after being sent, if sent
by registered or certified mail. Each of the parties herewith shall be entitled
to specify another address by giving notice as aforesaid to each of the other
parties hereto.
7. Buyer Representative; Power of Attorney. ICON Canada, by its
execution and delivery hereof, does hereby irrevocably constitute and appoint
ICON, as such Buyer's true
-7-
<PAGE>
and lawful attorney-in-fact and agent, with full power of substitution, to (a)
execute, acknowledge, verify, swear to, deliver, record and file in such Buyer's
name, place and stead, all notices, certificates, instruments and documents
which may from time to time be required in connection with the appointment of
the Escrow Agent or any successor escrow agent, the investment or disposition of
the Escrow Fund and the resolution of any disputes with respect to such matters,
(b) receive from the Escrow Agent, and hold on behalf of and deliver to such
Buyer, any and all portions of the Escrow Fund to be delivered to such Buyer and
(c) to perform such other acts as such attorney-in-fact may deem appropriate to
carry out the intent of this Escrow Agreement. The power of attorney granted
herein shall be deemed to have been executed under seal and to be coupled with
an interest. Any person may conclusively presume and rely upon the fact that
any instrument referred to above executed by any such attorney-in-fact and agent
is authorized, regular and binding, without further inquiry.
8. Binding Effect. This Escrow Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, executors,
successors and, subject to Section 12 hereof, assigns.
9. Amendments. This Escrow Agreement may be amended or modified at any
time or from time to time in a writing executed by Buyer Representative and the
Seller.
10. Governing Law. This Escrow Agreement shall be construed and enforced
in accordance with the domestic substantive laws of Quebec, Canada, 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.
11. Termination. This Escrow Agreement shall automatically terminate upon
the complete distribution of the Escrow Fund in accordance with the terms
hereof.
12. Successors. This Escrow Agreement may not be assigned by any party
without the prior written consent of the other parties, which consent will not
be unreasonably withheld.
13. Counterparts. This Escrow 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.
14. French Language. The parties acknowledge that they have requested
this agreement and all ancillary documents to be drawn up in English language
only. Les parties reconnaissent avoir exige que cette convention ainsi que tous
les documents y afferents soient rediges en anglais seulement.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of
the day and year first above written.
ICON HEALTH & FITNESS, INC.
By /S/ [SIGNATURE APPEARS HERE]
-----------------------------
Title:
ICON OF CANADA INC.
By /S/ [SIGNATURE APPEARS HERE]
-----------------------------
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of
the day and year first above written.
ICON HEALTH & FITNESS, INC.
By
----------------------------
Title:
ICON OF CANADA INC.
By
----------------------------
Title:
ALLFITNESS INC.
By [SIGNATURE APPEARS HERE]
----------------------------
Title:
<PAGE>
GOODMAN PHILLIPS & VINEBERG,
as Escrow Agent
By: /S/ [SIGNATURE APPEARS HERE]
-----------------------------
Title: Attorney
Goodman Phillips & Vineberg
1501 McGill College Avenue
Montreal, Quebec, Canada H3A 3N9
Telecopy: (514) 841-6499
LAPOINTE ROSENSTEIN,
as Escrow Agent
By: /S/ [SIGNATURE APPEARS HERE]
-----------------------------
Title: Attorney
Lapointe Rosenstein
1250 Rene Levesque Blvd., Suite 1400
Montreal, Quebec, Canada H3B SE9
Telecopy: (514) 925-9001
<PAGE>
EXHIBIT 10.53
REPRESENTATION AGREEMENT
------------------------
This Representation Agreement (the "Agreement") dated as of September 6,
1996, is entered into by and between ICON Health & Fitness, Inc. (the "Company"
or "ICON") and Ben Weider (the "Ambassador").
PREAMBLE
--------
WHEREAS, Ben Weider is the founder of Weider Sports Equipment Co., Ltd.
("Weider Sports"):
WHEREAS, Ben Weider is recognized as one of the founders of the health and
fitness industry and has played a significant role in its development and
promotion throughout the world;
WHEREAS, the Company has purchased substantially all of the assets relating
to the sports equipment line of business of Weider Sports;
WHEREAS, the Company recognizes and acknowledges that it derives a
significant benefit from Ben Weider's promotion of health and fitness and
desires that he should play a role as a goodwill ambassador for health and
fitness for and on behalf of the Company; and
WHEREAS, this Preamble forms an integral part hereof;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Company and the Ambassador agree as follows:
1. Services - The Company desires to have the Ambassador continue to promote
--------
health and fitness, and the Ambassador agrees to continue to do so under the
terms and conditions herein provided.
2. Term - The Agreement and Ambassador's provision of services to the Company
----
shall commence on the date of execution and delivery hereof, and shall terminate
on September __, 2001 (the "Termination Date"). The Ambassador's period of
services under this Agreement is hereinafter referred to as the "Term."
3. Duties - During the Term, the Ambassador agrees to continue to play a role
------
as a goodwill ambassador promoting health and fitness. The Ambassador shall be
under no obligation to attend any specific promotions or events and shall have
no specific time commitment to, or responsibilities for, the Company.
<PAGE>
4. Inability to perform - The Company recognizes that the Ambassador's
--------------------
association with Weider Sports has created unique goodwill to the Company in
connection with its acquisition of the home fitness equipment line of business
of Weider Sports. Accordingly, it is expressly understood that Ambassador's
inability to continue in his role as Ambassador because of absences, temporary
or permanent illness, disability, or incapacity, or for any other reasonable
cause (including, but not limited to, the reasons set forth in paragraph 10
hereof) shall not constitute a failure to perform his obligations hereunder and
shall not be deemed to be a breach or default by him.
5. Authority - The Ambassador shall not hold himself out as having authority to
---------
act for ICON or its Affiliates (as defined below) nor enter into any commitment
or agreement on behalf of ICON or its Affiliates.
For purposes of this Agreement, "Affiliates" shall mean, with respect to the
Company, any other person or entity directly or indirectly controlled by,
controlling, or under direct or indirect common control with the Company. For
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control with"), shall
mean, with respect to any person or entity, the ownership of 50% or more of the
voting securities of any other person or entity.
6. Compensation - For the Ambassador's role hereunder during the Term, the
------------
Company will pay the Ambassador $475,000 (U.S.) per annum in monthly payments of
$39,583.33 each (the "Monthly Payments") through the Termination Date, payable
is advance on the first business day of each month (the "Due Date"). The
payments made pursuant to this Agreement shall not be subject to termination,
set-off or withholding for any reason whatsoever and there shall be no grounds
excusing ICON from its obligation to pay the amounts set forth herein. If, after
notice is provided to ICON in accordance with Section 18 hereof ("Notice of Non-
Payment"), ICON fails to make any such payments for any reason, the unpaid
balance of the compensation payable to the Ambassador under this Agreement shall
immediately and automatically become due and payable in full and will bear
interest at a rate per annum equal to the rate announced by The Royal Bank of
Canada in Montreal, Quebec from time to time, as the rate used in determining
the rate of interest charged to its most credit worthy customers for commercial
loans in Canadian currency, plus six percent (6.0%) from the date of
acceleration of such payment until the date such payment is made; provided,
however that the foregoing provisions of this sentence shall not apply if ICON
fails to pay when due not more than three (3) Monthly Payments in any twelve
month period, so long as ICON shall have paid each such Monthly Payment within
10 calendar days of the date Notice of Non-Payment is given with respect
thereto, ICON shall be obligated to pay any and all legal expenses incurred by
or on the Ambassador's behalf in connection with the collection of any Monthly
Payments not paid when due.
7. Travel Expenses - The Ambassador hereby agrees to pay all out-of-pocket
---------------
expenses associated with any travel by Ambassador pursuant to this Agreement.
2
<PAGE>
8. Benefit in the Case of Disability or Death - Should Ambassador die or
------------------------------------------
become disabled during the term of this Agreement, the Company shall make the
payments provided for in this Section 8 and all obligations of the Ambassador
under the Agreement shall terminate as of the day of his death or Disability (as
defined below), as the case may be. The Company, shall, within 60 days of
Ambassador's death or Disability, as the case may be, pay to his legal
representativesor such other persons as may be designated by the Ambassador or
his legal representatives, an amount, in cash, equal to the net present value,
calculated as set forth below, of the aggregate Monthly Payments which would
have been payable under Section 6 had this Agreement been in full force and
effect through the Termination Date (the "Remaining Payments").
For purposes of this Agreement, "Disability" shall mean the Ambassador's
inability to discharge his duties hereunder as a result of extended physical or
mental illness or incapacity, as determined by a physician selected by the
Ambassador (the "Ambassador's Physician"); provided that: If the Company
disagrees with the determination of Disability made by the Ambassador's
Physician, the Company shall, within ten calendar days from the Company's
receipt of notice of the Ambassador's Disability, notify both the Ambassador and
the Ambassador's Physician of such disagreement (the "ICON Notice") and such
ICON Notice shall include the name of a physician practicing in Montreal, Quebec
selected by the Company (the "ICON Physician"). The Ambassador's Physician and
the ICON Physician shall jointly select, within 10 calendar days after receipt
of the ICON Notice, a mutually agreeable third physician (the "Alternate
Physician") to determine whether the Ambassador has a Disability for purposes of
this Agreement. In the event that, after notice of the Ambassador's Disability
is provided to the Company in accordance with Section 18 hereof, the Company
fails to notify the Ambassador and the Ambassador's Physician in accordance with
the first sentence of this proviso, the Company shall be deemed to have
consented to the Ambassador's Physician's determination of Disability for all
purposes under this Agreement.
The determination of the Alternate Physician shall be binding upon both
of the parties hereto. ICON shall bear the cost of the ICON Physician and the
parties shall share the costs of the Alternate Physician equally.
For purposes of the second sentence of this Section 8, the net present
value of the Remaining Payments shall be calculated by discounting the sum of
all Remaining Payments at a discount rate equal to the yield to maturity of
actively traded United States Treasury securities having a maturity equal to the
weighted average life to maturity of the Remaining Payments calculated in
accordance with United States generally accepted accounting principles or, if no
such securities exist, by using the then most current United States Treasury
securities whose maturities are closest to the weighted average life to maturity
of the Remaining Payments, as such yields are published in the Federal Reserve
Statistical Release H.15 (or a successor or substitute financial publication
containing reliable financial information) at the close of business on the day
immediately preceding the Ambassador's death or on which notice of Disability is
given to ICON, as the case may be.
3
<PAGE>
9. Support Staff - The Company agrees to reimburse Ambassador or Ambassador's
-------------
designee on a monthly basis in accordance with the terms and conditions set
forth in Section 8 of that certain WSE Asset Purchase Agreement, dated as of the
date hereof.
10. Contemporaneous Business Activities - The Company recognizes that the
-----------------------------------
Ambassador now has or may in the future have a proprietary interest in or be
engaged in: (i) the nutrition business of Weider Sports; (ii) Weider
Publications; and (iii) certain other business, community and cultural
activities, including but not limited to activities in connection with the
International Federation of Body Building (clauses (i), (ii) and (iii) are
collectively referred to as the "Other Activities"). The Company further
recognizes that the Other Activities in which the Ambassador is currently
engaged will require substantially all of the Ambassador's time and that, as a
result, the Ambassador will spend substantially all of his time working engaged
in such Other Activities. The provisions of this Section 10 are not intended to,
and shall not, modify, curtail, expand or otherwise affect in any way the
provisions of (i) that certain Non-Competition Agreement, dated as of November
14, 1994, among the Company, Weider Health and Fitness, a Nevada corporation,
and each of Gary Stevenson and Scott Watterson, as amended by Amendment No. 1 to
Non-Competition Agreement dated as of date hereof, (ii) Section 12.5 of that
certain Distribution Agreement between Weider Sports and the Company, dated
September 26, 1994, as such Section 12.5 is modified by Section 2.1 of that
certain WSE Asset Purchase Agreement, between Weider Sports and the Company,
dated as of the date hereof of (iii) clause (viii) of Section 2.1(c) of that
certain Settlement Agreement of even date herewith among the parties hereto and
certain other Persons.
11. Amendments - This Agreement may not be amended or changed except by written
----------
agreement signed by each of the Company and the Ambassador.
12. Governing Law, Choice of Forum and Waiver of Jury Trial - THIS AGREEMENT
-------------------------------------------------------
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE PROVINCE OF QUEBEC AND THE LAWS OF CANADA APPLICABLE THERIN.
Each of the parties hereto (i) hereby irrevocably submits to the
jurisdiction of the courts located in the City and District of Montreal,
Province of Quebec 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 he or it is not subject personally to the
jurisdiction of the above-name courts, that he or it is immune from
extraterritorial injunctive relief or other injunctive relief, that his or 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
4
<PAGE>
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
Province of Quebec, agrees that service of process by registered or certified
mail, return receipt requested, at the address specified in Section 18 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 18
does not constitute good and sufficient service of process. The provisions of
this Section 12 shall not restrict the ability of any party to enforce in any
court any judgment obtained in a court in the City and District of Montreal,
Province of Quebec.
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 exiting or hereafter arising and whether in
contract tort or otherwise.
13. Assignment - Neither party shall assign, delegate or otherwise transfer any
----------
of its rights or obligations under this Agreement without the prior written
consent of the other party. In the event of such assignment, all the rights and
obligations of the assigning party under this Agreement shall be binding on all
successors and assigns.
14. Indemnification - ICON will (and will cause its subsidiaries to) defend,
---------------
indemnify and hold harmless the Ambassador and his employees, agents,
representatives and affiliates (each being an "Indemnified Party") from and
-----------------
against any and all losses, claims, damages and liabilities, joint or several,
to which such Indemnified Party may become subject under any applicable federal,
state, provincial or foreign law, or any claim made by any third party, or
otherwise, to the extent they relate to or arise out of advisory or consulting
services performed under this Agreement. ICON will not be liable under the
foregoing indemnification provision to the extent that any loss, claim, damage,
liability, cost or expense is determined by a court, in a final and
non-appealable judgment, to have resulted primarily from the gross negligence or
willful misconduct of any Indemnified Party or a breach of his obligations under
Section 5 of this Agreement by the Ambassador.
15. Liability - Neither the Ambassador nor any of his employees, agents,
---------
representatives or affiliates shall be liable to the Company for any loss,
claim, damage or liability to the extent such loss, claim, damage or liability
relates to or arises out of the advisory and consulting services contemplated by
this Agreement, the engagement of the Ambassador pursuant to this Agreement or
any act or omission by the Ambassador in connection with the performance of
services contemplated by this Agreement, unless such loss, claim, damage or
liability is determined by a court, in a final and non-appealable judgment, to
have resulted primarily from the gross negligence or willful misconduct of the
Ambassador or any of his employees, agents,
5
<PAGE>
representatives or affiliates or a breach of his obligations under Section 5 of
this Agreement by the Ambassador.
16. Severability - If any one or more of the provisions contained in this
------------
Agreement are held to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
17. Captions - All Section titles or captions contained in this Agreement are
--------
for convenience only and shall not be deemed as part of this Agreement.
18. Notices - Any and all notices hereunder shall, in the absence of receipted
-------
hand delivery, be deemed duly given when mailed, if the same shall be sent by
registered or certified mail, return receipt requested, and the mailing date
shall be deemed the date from which all time periods pertaining to a date of
notice shall run. Notices shall be addressed to the parties at the following
addresses:
if to ICON:
ICON Health and Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Attention: Chief Executive Officer
with a copy to:
ICON Health and Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Attention: General Counsel
if to the Ambassador:
Weider Sports Equipment Co., Ltd.
2875 Bates Road
Montreal, Quebec H35 1B7
Attention: Chief Executive Officer
with a copy to:
Weider Health & Fitness
21100 Erwin Street
Woodland Hills, California 91637-3772
Attention: General Counsel
6
<PAGE>
19. This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes (a) all prior agreements,
understanding, negotiations and discussions, whether oral or written, of the
parties and (b) all contemporaneous oral negotiations, discussions,
understandings and agreements of the parties, in each case with respect to the
subject matter contained herein.
20. Counterparts - This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts together shall constitute and be one and the same
instrument.
21. Language - The parties hereto have expressly agreed that this Agreement be
--------
executed in English. Les parties ont expressement convenu que la presente
convention soit redigee en anglais.
[Balance of page intentionally left blank]
7
<PAGE>
The parties hereto have executed this Agreement as of the date and year first
above written.
ICON HEALTH & FITNESS, INC.
By: /s/ SIGNATURE APPEARS HERE
-----------------------------
Its:
-----------------------------
AMBASSADOR
Signed: /s/ Ben Weider
-------------------------
Ben Weider
[Balance of page intentionally left blank]
<PAGE>
EXHIBIT 10.54
September 6, 1996
ICON Health & Fitness, Inc.
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, MA
Gentlemen:
The undersigned, Weider Publications, Inc. ("Publications"), hereby agrees
with you as follows:
During the period from the date hereof through September 6, 1998, if ICON
Health & Fitness, Inc. ("ICON") or any of its subsidiaries, provided that ICON
owns or controls 80% of the voting power of such subsidiary (such subsidiaries
referred to herein as the "Subsidiaries"), submits an insertion order to
Publications for advertising space in any U>S. or European magazines published
by Publications, Publications will offer a 40% discount (the "Discount") off the
specific magazine's 1X rate on its then current rate card to ICON for each year
in which: (i) in the case of magazines published by Publications in the United
States, ICON and its Subsidiaries shall have purchased (which shall mean the
advertising page ran in the specified magazine during the year), in the
aggregate, an annual minimum of $500,000 (U.S.) of advertising space in such
magazines or (ii) in the case of magazines published by Publications in Europe,
ICON and its Subsidiaries shall have purchased (as defined above), in the
aggregate, an annual minimum of %150,000 (U.S.) of advertising space in such
magazines.
If ICON has not met the annual minimum required to receive the Discount in
the U.S. or Europe, as the case may be, on or before the last business day
immediately preceding each anniversary date of this letter agreement,
Publications will send frequency rate for all of the advertising purchased by
ICON throughout the year in the U.S. or Europe, as the case may be, that would
have applied but for the provisions of this agreement minus (ii) the amount
-----
originally billed to ICON for such purchases. ICON shall pay the amount of such
invoice within 30 days of the receipt of such invoice.
In the event that ICON does not comply with the preceding paragraph or if
ICON fails to pay any amount owing when due (each Publications invoice for
advertising space sold to ICON is due 30 days from the date of the invoice),
Publications will have no further obligations to sell advertising space to ICON
or its subsidiaries, without prejudice to Publication's right to receive payment
in full for any amounts due and owing hereunder.
Nothing in this letter shall be construed as a requirement
<PAGE>
that ICON purchase any advertising space in any magazines published by
Publications.
Upon either (i) the initial filing with the Securities and Exchange
Commission of an initial public offering of debt or equity securities of
Publications or an exchange offer pursuant to Rule 144A for debt securities of
Publications or (ii) a sale of all or substantially all of the assets or stock
of Publications to an unaffiliated third party, neither Publications, nor the
purchaser of its business in the case of the preceding clause (ii), will have
any further obligations to sell advertising space to ICON and its subsidiaries
and this agreement shall be terminated, without prejudice to Publication's right
to receive payment in full for any amounts due and owing hereunder.
If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and the accompanying copies thereof in the appropriate
space below. This letter shall become a binding agreement between Publications
and ICON when one or more copies hereof shall have been executed by Publications
and ICON.
<PAGE>
Very truly yours,
/s/
-------------------------------------------
Weider Publications, Inc.
21100 Erwin Street
Woodland Hills, CA 91367-3772
Accepted and agreed to:
ICON HEATH & FITNESS, INC.
By:
------------------------
Title:
WEIDER PUBLICATIONS, INC.
By
----------------------------
Title:
<PAGE>
EXHIBIT 10.55
[ROYAL BANK LETTERHEAD APPEARS HERE]
- --------------------------------------------------------------------------------
September 5, 1996 Royal Bank of Canada
International Trade Centre-Quebec
1 Place Ville Marie, P.O. Box 6029
Montreal, Quebec H3O3A7
ICON Health & Fitness, Inc.
ICON of Canada, Inc. Transit 02121
c/o ICON Health & Fitness, Inc. (514) 874-5760
1500 South 1000 West
Logan, UT 84321
U.S.A.
Re: Our Letter of Credit Number P77452M04061
--------------------------------------------
Beneficiaries: ICON Health & Fitness, Inc.
ICON of Canada, Inc.
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, UT 84321
U.S.A.
At the request and for the account of Allfitness Inc., a Canadian
company (the "Applicant"), we, Royal Bank of Canada, International Trade Centre,
1 Place Ville Marie, Montreal, Quebec (the "Bank") hereby establish in favour of
ICON Health & Fitness, Inc. and ICON of Canada, Inc. (the "Beneficiaries"), this
Irrevocable Letter of Credit No. P77452M04061 for the aggregate amount set forth
below, available in multiple drawings, bearing this Letter of Credit Number
P77452M04061, each such drawing to be subject to the conditions specified below.
The aggregate amount that may be drawn on this Letter of Credit shall
not exceed Two million one hundred thousand Canadian Dollars (CAD$2,100,000).
Each honored drawing on this Letter of Credit shall reduce the aggregate amount
of this letter of Credit pro tanto.
--- -----
This Letter of Credit will become effective immediately upon issuance by
the Bank and shall automatically expire and be null and void at 5:00 PM,
Montreal time, on September 3, 1997 (the "Expiration Date") or, in the event the
Expiration Date hereof is extended by the Bank in writing on one or more
occasions, at 5:00 PM, Montreal time, upon such extended Expiration Date (the
"Extended Expiration Date"). This Letter of Credit shall be promptly surrendered
to the Bank after the Expiration Date or the Extended Expiration Date, as
applicable.
Subject to the conditions set out in this Letter of Credit, the Bank
hereby undertakes to pay the amount claimed in any demand for payment made under
and in compliance with the terms of this Letter of Credit upon presentation, at
Royal Bank of Canada, International Trade Center-Quebec, 1 Place Ville Marie,
Montreal, Quebec, Canada (the "Montreal Office"), prior to 5:00 PM, Montreal
time, on any business day no later than the third business day next
<PAGE>
preceding the Expiration Date or the Extended Expiration Date, as applicable, of
the following documents:
1. the original of this Letter of Credit; AND
2. either document i) or document ii):
i) a written demand for payment in the form attached hereto as
Exhibit A, duly completed and signed by a duly authorized
officer of the Applicant and of each Beneficiary respectively;
OR
ii) a written demand for payment in the form attached hereto as
Exhibit B, duly completed and signed by a duly authorized
officer of the Applicant and of each Beneficiary respectively.
The amount to be paid to each of the Beneficiaries with respect to any
drawing effected as provided for in paragraph 2. i) above shall be established
strictly in accordance with the direction for payment contained in the demand
for payment. The Bank shall have no obligation to pay any amount so claimed
unless the aggregate amount of the drawing is within the maximum aggregate
amount then available under this Letter of Credit and unless the sum of the
amounts indicated in the demand for payment as being payable to each Beneficiary
equals exactly the amount of such drawing.
If a demand for payment is made as provided for in paragraph 2. ii)
above, the amount claimed in the demand for payment shall not exceed the lesser
of:
-- the maximum aggregate amount available under this Letter of Credit
at the time of drawing; and
-- the aggregate amount set forth in the demand for payment as being
payable to either one or both Beneficiaries under the judgment
referred to in such demand for payment.
If, and only if, all the following events occur:
1. the Bank has received by 5:00 PM, Montreal time, on the third
business day next preceding the Expiration Date or Extended
Expiration Date, as applicable, the original of this Letter of
Credit, together with a certificate in the form attached hereto as
Exhibit C duly completed and executed; AND
2. this letter of credit has not been extended or renewed by the Bank
on the Expiration Date or Extended Expiration Date, as applicable,
<PAGE>
the Bank shall pay to the joint escrow agents indicated in the certificate
referred to in 1 above the amount claimed in such certificate in accordance with
the instructions contained therein, provided such amount does not exceed the
maximum aggregate amount then available for drawing under this Letter of Credit.
A demand for payment presented prior to 5:00 PM, Montreal time, in
accordance with the terms of this Letter of Credit will be paid within three (3)
business days of the day of presentation. No demand for payment may be presented
on or after 5:00 PM, Montreal time. Business day means any day on which the
Montreal Office of the Bank is open for business.
This Letter of Credit sets forth in full the terms of our undertaking
and this undertaking shall not in any way be modified, amended, amplified or
limited by reference to any document, instrument or agreement referred to herein
or to which this Letter of Credit relates.
This Irrevocable Letter of Credit shall be governed by and construed in
accordance with the Uniform Customs and Practices for Documentary Credits (1993
Revision), ICC Publication No. 500 (the "UCP").
As to matters not governed by the UCP, this Letter of Credit shall be
governed by the laws of the Province of Quebec and the laws of Canada applicable
therein and shall be construed in accordance with said laws.
ROYAL BANK OF CANADA
By:/s/ D. M. Miranda
---------------------------
D.M. MIRANDA
By:/s/ Suzanne Ratell
---------------------------
SUZANNE RATELL
<PAGE>
EXHIBIT A
FORM OF DEMAND FOR PAYMENT
--------------------------
To: Royal Bank of Canada
Your Letter of Credit No. P77452M04061 ____________, 199
Gentlemen:
1. The undersigned are, respectively, the Beneficiaries and the Applicant of the
above-referenced Letter of Credit.
2. The undersigned hereby confirm that the Beneficiaries are entitled to make a
demand for payment for an amount of CAD$______________ under the
above-referenced Letter of Credit.
3. The Beneficiaries hereby demand payment of the amount set forth in paragraph
2. above.
4. You are hereby directed to pay the amount claimed hereunder as follows:
(a) The sum of CAD$ [A]* to ICON Health & Fitness, Inc., in account number
[***] held at [insert name, address (account must be located in the
U.S.A. or Canada) and ABA number of applicable bank].
(b) The sum of CAD$ [B]* to ICON of Canada, Inc., in account number [***]
held at [insert name, address (account must be located in the U.S.A. or
Canada) and ABA number of applicable bank].
IN WITNESS WHEREOF, each of the Applicant and of the Beneficiaries has hereunto
set its hand this ____ day of ____________, 199_ by its duly authorized
representative.
Allfitness Inc.
By: ________________________________
Title: _____________________________
ICON Health & Fitness, Inc.
By: ________________________________
Title: _____________________________
ICON of Canada, Inc.
By: ________________________________
Title: _____________________________
- ---------------------------------------
*The sum of A and B cannot exceed the amount set forth in paragraph 2.
<PAGE>
EXHIBIT B
FORM OF DEMAND FOR PAYMENT
To: Royal Bank of Canada
Your Letter of Credit No. P77452M04061 _______________, 199_
Gentlemen:
1. The undersigned are, respectively, the Beneficiaries and the Applicant of the
above-referenced Letter of Credit.
2. This will confirm that Allfitness Inc. and [either or both of ICON Health &
Fitness, Inc. and ICON of Canada, Inc.,] are parties to [insert case name and
file number] (the "Case") before [insert name of court] (the "Court"),
related to a dispute arising from an L/C Claim under and as defined in the
Canco Asset Purchase Agreement dated as of September ___________, 1996 among
Allfitness Inc., ICON Health & Fitness, Inc. and ICON of Canada, Inc.;
3. The Court has rendered it judgment in the Case, and the judgment has become
final and is not appealable;
4. The net amount payable to [either or both of ICON Health & Fitness, Inc. and
ICON of Canada, Inc.] by Allfitness Inc. under the said judgment with respect
to such L/C Claim is CAD$_________________________;
5. In the event that the above-mentioned judgment has been rendered in favour of
one of the Beneficiaries only, both Beneficiaries agree that such payment be
requested under the above-referenced Letter of Credit;
6. The amount claimed hereunder has not otherwise been paid to both or either of
the Beneficiaries, whether directly or indirectly;
7. You are hereby requested to effect payment of the aggregate amount of
CAD$________________ under the above-referenced Letter of Credit to the order
of "___________________", who will receive such payment on behalf of both
Beneficiaries under the said Letter of Credit.
IN WITNESS WHEREOF, each of the Applicant and of the Beneficiaries has hereunto
set its hand this ______ day of ________________, 199_ by its duly authorized
representative.
Allfitness Inc.
By: _______________________________
Title:_____________________________
ICON Health & Fitness, Inc.
By: _______________________________
Title:_____________________________
ICON of Canada, Inc.
By: _______________________________
Title:_____________________________
<PAGE>
EXHIBIT C
CERTIFICATE
-----------
To: Royal Bank of Canada
Your Letter of Credit No. P77452M04061 ___________, 199__
Gentlemen:
The undersigned are the Beneficiaries of the above-referenced Letter of Credit
and hereby certify as follows:
1. The Beneficiaries have satisfied the requirements of Section 6.7.1 of
the Canco Asset Purchase Agreement among the Beneficiaries and
Allfitness Inc. dated September _____, 1996 (the "Agreement") and
Allfitness Inc. has not provided the Beneficiaries with a replacement
letter of credit satisfying the requirements of the Agreement.
2. Unless the above-referenced Letter of Credit shall have been extended
or renewed by the Bank for a period of at least 364 days and for an
amount of CAD$_________________on the [Expiration Date] "[Extended
Expiration Date]", such amount must be paid to the joint order of
Lapointe Rosenstein and Goodman, Philipps and Vineberg, Montreal,
[insert instructions for payment] as joint escrow agents under that
certain Escrow Agreement among Allfitness Inc., the Beneficiaries and
said escrow agents, dated September _________, 1996.
IN WITNESS WHEREOF, each of the Beneficiaries has hereunto set its
hand this _______day of _____________ 199___ by its duly authorized
representative.
ICON Health & Fitness, Inc.
By:
-----------------------------
Title:
--------------------------
ICON of Canada, Inc.
By:
-----------------------------
Title:
--------------------------
- -------------------------------------
Retain the applicable wording only
<PAGE>
[LOGO OF ROYAL BANK OF CANADA APPEARS HERE]
PLACE VILLE MARIE BUSINESS BANKING CENTRE
CENTRE D'AFFAIRES PLACE VILLE-MARIE
COVER PAGE FOR TELECOPIER USE
PAGE DE COUVERTURE POUR UTILISATION DU BELINOGRAPHE/TELECOPIEUR
DATE: September 6, 1996
- ----- ----------------------
TO/A: /s/ Ms. Still Well
- ----- ----------------------
----------------------
FAX NO./
- --------
NO. TELECOPIEUR (212) 753-1574 TEL. NO.: ( )
- --------------- ------------------ --------- -------------------
NO. OF PAGES (INCLUDING COVER PAGE)/
- ------------------------------------
NO. DE PAGES (INCLUANT LA PAGE COUVERTURE): 7
- ------------------------------------------- ------------
FROM/DE: /s/ Andre' Filiox
- -------- -----------------------------------------------------------------
TEL.: (514) 874-5548
-----------------
OUR FAX NO./NO. DE TELECOPIEUR: (514) 874-3144
- ------------------------------- --------------
PLEASE DELIVER THE FOLLOWING MESSAGE AS SOON AS POSSIBLE
VEUILLES REMETTRE CE MESSAGE LE PLUS TOT POSSIBLE
THANK YOU / MERCI
COMMENTS/
COMMENTAIRES:
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
<PAGE>
EXHIBIT 10.56
[LOGO OF ROYAL BANK APPEARS HERE]
- --------------------------------------------------------------------------------
September 5, 1996
[LETTERHEAD OF ROYAL BANK OF CANADA
APPEARS HERE]
ICON Health & Fitness, Inc.
ICON of Canada, Inc.
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, UT 84321
U.S.A.
Re: Our Letter of Credit Number P77452M04061
---------------------------------------------
Beneficiaries: ICON Health & Fitness, Inc.
ICON of Canada, Inc.
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, UT 84321
U.S.A.
At the request and for the account of Allfitness Inc., a Canadian
company (the "Applicant"), we, Royal Bank of Canada, International Trade Centre,
1 Place Ville Marie, Montreal, Quebec (the "Bank") hereby establish in favour of
ICON Health & Fitness, Inc. and ICON of Canada, Inc. (the "Beneficiaries"), this
Irrevocable Letter of Credit No. P77452M04061 for the aggregate amount set forth
below, available in multiple drawings, bearing this Letter of Credit Number
P77452M04061, each such drawing to be subject to the conditions specified below.
The aggregate amount that may be drawn on this Letter of Credit shall
not exceed Two million one hundred thousand Canadian Dollars (CAD$2,100,000).
Each honored drawing on this Letter of Credit shall reduce the aggregate amount
of this Letter of Credit pro tanto.
--- -----
This Letter of Credit will become effective immediately upon issuance by
the Bank and shall automatically expire and be null and void at 5:00 PM,
Montreal time, on September 3, 1997 (the "Expiration Date") or, in the event the
Expiration Date hereof is extended by the Bank in writing on one or more
occasions, at 5:00 PM, Montreal time, upon such extended Expiration Date (the
"Extended Expiration Date"). This Letter of Credit shall be promptly surrendered
to the Bank after the Expiration Date or the Extended Expiration Date, as
applicable.
Subject to the conditions set out in this Letter of Credit, the Bank
hereby undertakes to pay the amount claimed in any demand for payment made under
and in compliance with the terms of this Letter of Credit upon presentation, at
Royal Bank of Canada, International Trade Center - Quebec, 1 Place Ville Marie,
Montreal, Quebec, Canada (the "Montreal Office"), prior to 5:00 PM, Montreal
time, on any business day no later than the third business day next
<PAGE>
preceding the Expiration Date or the Extended Expiration Date, as applicable,
of the following documents:
1. the original of this Letter of Credit; AND
2. either document i) or document ii):
i) a written demand for payment in the form attached hereto as
Exhibit A, duly completed and signed by a duly authorized officer
of the Applicant and of each Beneficiary respectively;
OR
ii) a written demand for payment in the form attached hereto as
Exhibit B, duly completed and signed by a duly authorized officer
of the Applicant and of each Beneficiary respectively.
The amount to be paid to each of the Beneficiaries with respect to any
drawing effected as provided for in paragraph 2. i) above shall be established
strictly in accordance with the direction for payment contained in the demand
for payment. The Bank shall have no obligation to pay any amount so claimed
unless the aggregate amount of the drawing is within the maximum aggregate
amount then available under this Letter of Credit and unless the sum of the
amounts indicated in the demand for payment as being payable to each Beneficiary
equals exactly the amount of such drawing.
If a demand for payment is made as provided for in paragraph 2. ii)
above, the amount claimed in the demand for payment shall not exceed the lesser
of:
- the maximum aggregate amount available under this Letter of Credit at
the time of drawing; and
- the aggregate amount set forth in the demand for payment as being
payable to either one or both Beneficiaries under the judgement
referred to in such demand for payment.
If, and only if, all the following events occur:
1. the Bank has received by 5:00 PM, Montreal time, on the third
business day next preceding the Expiration Date or Extended
Expiration Date, as applicable, the original of this Letter of
Credit, together with a certificate in the form attached hereto as
Exhibit C duly completed and executed; AND
2. this Letter of Credit has not been extended or renewed by the Bank on
the Expiration Date or Extended Expiration Date, as applicable,
<PAGE>
the Bank shall pay to the joint escrow agents indicated in the certificate
referred to in 1 above the amount claimed in such certificate in accordance with
the instructions contained therein, provided such amount does not exceed the
maximum aggregate amount then available for drawing under this Letter of Credit.
A demand for payment presented prior to 5:00 PM, Montreal time, in
accordance with the terms of this Letter of Credit will be paid within three (3)
business days of the day of presentation. No demand for payment may be presented
on or after 5:00 PM, Montreal time. Business day means any day on which the
Montreal Office of the Bank is open for business.
This Letter of Credit sets forth in full the terms of our undertaking and
this undertaking shall not in any way be modified, amended, amplified or limited
by reference to any document, instrument or agreement referred to herein or to
which this Letter of Credit relates.
This Irrevocable Letter of Credit shall be governed by and construed in
accordance with the Uniform Customs and Practices for Documentary Credits (1993
Revision), ICC Publication No. 500 (the "UCP").
As to matters not governed by the UCP, this Letter of Credit shall be
governed by the laws of the Province of Quebec and the laws of Canada applicable
therein and shall be construed in accordance with said laws.
ROYAL BANK OF CANADA
By:/s/ D. M. MIRAND
---------------------
D. M. MIRAND
By:/s/ SUZANNE RATELL
---------------------
SUZANNE RATELL
<PAGE>
EXHIBIT A
---------
FORM OF DEMAND FOR PAYMENT
--------------------------
To: Royal Bank of Canada
Your Letter of Credit No. P77452M04061 ________, 199
Gentlemen:
1. The undersigned are, respectively, the Beneficiaries and the Applicant of the
above-referenced Letter of Credit.
2. The undersigned hereby confirm that the Beneficiaries are entitled to make a
demand for payment for an amount of CAD$ _________ under the above-referenced
Letter of Credit.
3. The Beneficiaries hereby demand payment of the amount set forth in paragraph
2, above.
4. You are hereby directed to pay the amount claimed hereunder as follows:
(a) The sum of CAD$ [A]* to ICON Health & Fitness, Inc., in account number
[***] held at [insert name, address (account must be located in the
U.S.A. or Canada) and ABA number of applicable bank].
(b) The sum of CAD$ [B]* to ICON of Canada, Inc., in account number [***]
held at [insert name, address (account must be located in the U.S.A. or
Canada) and ABA number of applicable bank].
IN WITNESS WHEREOF, each of the Applicant and of the Beneficiaries has hereunto
set its hand this ______ day of _____ , 199__ by its duly authorized
representative .
Allfitness Inc.
By:
--------------------------
Title:
--------------------------
ICON Health & Fitness, Inc.
By:
---------------------------
Title:
---------------------------
ICON of Canada, Inc.
By:
----------------------------
Title:
----------------------------
______________________________
* The sum of A and B cannot exceed the amount set forth in paragraph 2.
<PAGE>
EXHIBIT B
FORM OF DEMAND FOR PAYMENT
To: Royal Bank of Canada
Your Letter of Credit No. P77452M04061 ____________, 199__
Gentlemen:
1. The undersigned are, respectively, the Beneficiaries and the Applicant of
the above-referenced Letter of Credit.
2. This will confirm that Allfitness Inc. and [either or both of ICON Health &
Fitness, Inc. and ICON of Canada, Inc.,] are parties to [insert case name
and file number] (the "Case") before [insert name of court] (the "Court"),
related to a dispute arising from an L/C Claim under and as defined in the
Canco Asset Purchase Agreement dated as of September ______, 1996 among
Allfitness Inc., ICON Health & Fitness, Inc. and ICON of Canada, Inc.;
3. The Court has rendered its judgment in the Case, and the judgment has become
final and is not appealable;
4. The net amount payable to [either or both of ICON Health & Fitness, Inc. and
ICON of Canada, Inc.] by Allfitness Inc. under the said judgment with
respect to such L/C Claim is CAD$________________________;
5. In the event that the above-mentioned judgment has been rendered in favour
of one of the Beneficiaries only, both Beneficiaries agree that such payment
be requested under the above-referenced Letter of Credit;
6. The amount claimed hereunder has not otherwise been paid to both or either
of the Beneficiaries, whether directly or indirectly;
7. You are hereby requested to effect payment of the aggregate amount
CAD$____________ under the above-referenced Letter of Credit to the order of
"________________", who will receive such payment on behalf of both
Beneficiaries under the said Letter of Credit.
IN WITNESS WHEREOF, each of the Applicant and of the Beneficiaries has hereunto
set its hand this _______ day of ____________, 199__ by its duly authorized
representative.
Allfitness Inc.
By:
------------------------
Title:
---------------------
ICON Health & Fitness, Inc.
By:
------------------------
Title:
---------------------
ICON of Canada, Inc.
By:
------------------------
Title:
---------------------
<PAGE>
EXHIBIT C
CERTIFICATE
-----------
To: Royal Bank of Canada
Your Letter of Credit No. P77452M04061 ___________,199___
Gentlemen:
The undersigned are the Beneficiaries of the above-referenced Letter of Credit
and hereby certify as follows:
1. The Beneficiaries have satisfied the requirements of Section 6.7.1 of
the Canco Asset Purchase Agreement among the Beneficiaries and
Allfitness Inc. dated September____, 1996 (the "Agreement") and
Allfitness Inc. has not provided the Beneficiaries with a replacement
letter of credit satisfying the requirements of the Agreement.
2. Unless the above-referenced Letter of Credit shall have been extended
or renewed by the Bank for a period of at least 364 days and for an
amount of CAD$_____________________on the [Expiration Date] "[Extended
Expiration Date]", such amount must be paid to the joint order of
Lapointe Rosenstein and Goodman, Philipps and Vineberg, Montreal,
[insert instructions for payment] as joint escrow agents under that
certain Escrow Agreement among Allfitness Inc., the Beneficiaries and
said escrow agents, dated September______,1996.
IN WITNESS WHEREOF, each of the Beneficiaries has hereunto set its
hand this____day of ___________199___by its duly authorized representative.
ICON Health & Fitness, Inc.
By: _________________________
Title: ______________________
ICON of Canada, Inc.
By: _________________________
Title: ______________________
- ------------------------------------
Retain the applicable wording only
<PAGE>
EXHIBIT 10.57
[LOGO OF ROYAL BANK APPEARS HERE]
- --------------------------------------------------------------------------------
[LETTERHEAD OF ROYAL BANK APPEARS HERE]
September 5, 1996
CONFIDENTIAL
- ------------
Icon of Canada Inc.
900 Industrial Boulevard
St. Jerome, Quebec
J7Y 4B8
Attention: Me Arielle Meloul
- ----------------------------
Dear Me Meloul:
OFFER TO FINANCE
- ----------------
This letter replaces our offer to finance dated August 27, 1996.
LENDER Royal Bank of Canada (the "Bank")
- ------
BORROWER Icon of Canada Inc. (the "Borrower")
- --------
CREDIT FACILITIES Segment (1): $148,950. balance of leases held
- ----------------- at our Montreal Leasing Centre.
Segment (2): $10,000. Visa corporate expense
accounts.
Segment (3): $550,560. commercial mortgage.
Segment (4): $903,992. commercial mortgage.
CURRENCY All dollar amounts stated herein refer to
- -------- Canadian funds unless otherwise specified.
PURPOSES Segment (1) Leases granted to the company
- -------- Allfitness Inc. to finance purchase
of equipment. These leases will be
transferred to the Borrower at
reception of Icon Health & Fitness
Inc.'s guarantee.
Segment (2) Travel and entertainment expenses.
.../2
<PAGE>
ICON OF CANADA INC. Page 2
September 5, 1996
PURPOSES (Cont.) Segment (3) Demand loan to finance the building
- -------- located at 901 Daniel-Johnson Blvd. in
St-Jerome.
Segment (4) Demand loan to finance the building
located at 900 Industrial Blvd. in St-
Jerome.
INTEREST RATES Segment (1) Leasing rate.
- --------------
Segment (2) Standard Visa rate.
Segment (3) Fixed rate (10%) until January 1, 1997.
Segment (4) Prime Rate + 0.75% per annum beginning
August 4, 1996.
The expression "Prime Rate" means the annual rate of
interest announced by the Bank from time to time as
its reference rate then in effect for determining
interest rates on Canadian dollar commercial loans
made by the Bank in Canada.
The Borrower shall pay outstanding accrued interest
monthly on the date fixed by the Bank. Interest shall
be calculated on the daily principal balance at the
aforementioned annual interest rates based on the
actual number of calendar days elapsed during the
period in which interest is calculated, divided by
365. The annual rates of interest, which correspond
to the rates calculated as aforesaid, are the rates
so determined multiplied by the actual number of days
in a calendar year and divided by 365. Outstanding
interest payable bears interest at the rate of
interest applicable to the relative loan and is
payable on demand. Interest is payable in the same
currency as the relative loan.
FEES A credit set-up fee of $500.00 will be payable on
- ---- date of acceptance of this letter and is non-
refundable.
LEGAL COSTS All legal costs, fees and expenses incurred by the
- ----------- Bank or on its behalf for establishing the credit
facilities and related documentation, including
security documentation, are for the account of the
Borrower and payable on demand. As of today's date,
we estimate the fees at $2,000.
REPAYMENT Segment (1): Leases payable $8,785 per month with a
- --------- purchase option totalling $44,075
purchasable at different dates between
this present date and June 29,1998.
These leases will be repaid from cash
flow operations and/or a letter of
guarantee by Icon Health & Fitness Inc.
Segment (2): Repayment in full on demand.
<PAGE>
<PAGE>
ICON OF CANADA INC. Page 3
September 5, 1996
REPAYMENT (Cont.) Segment (3): Repayment in full on demand at the
- --------- earliest occurrence of an event of
default mentioned hereunder or on
November 25, 1996; payable $8,074.01 per
month capital and interest. Original
amortization of 10 years, term of 2
years ending January 1, 1997. This loan
is payable from cash flow from
operations and/or a letter of guarantee
in favour of the Royal Bank of Canada.
Segment (4): Repayment in full on demand at the
earliest occurrence of an event of
default mentioned hereunder or on
November 25, 1996; payable $10,464.82
per month capital and interest. Original
amortization of 14 years, term of 2
years ending August 4, 1996. Payable
from cash flow from operations and/or a
letter of guarantee in favour of the
Royal Bank of Canada.
Segments (1), (2), (3) and (4):
The intent of the Borrower is to transfer the existing
loans of Weider Group to Icon of Canada Inc.
The Royal Bank of Canada agrees to analyze the
possibility of granting similar financing on the
assets purchased by Icon of Canada Inc. As we have not
received financial information, it was agreed to
temporarily transfer the financing in place upon
reception of a letter of guarantee in favour of the
Royal Bank of Canada.
If the Bank and the Borrower do not reach an agreement
for permanent financing, the above mentioned loans
will become due and said loans will be repaid from the
proceeds of the letter of guarantee.
PRIOR REDEMPTION If loans are repaid prior to the date originally
- ---------------- agreed upon with the transfer of Weider, a penalty
has to be paid as follows:
Segment 1): a penalty will be charged to cover the
purchase option.
Segment 2): no penalty.
Segment 3): the penalty will be equivalent to the
difference in interest rates.
Segment 4): no penalty.
COLLATERAL SECURITY a) Irrevocable letter of guarantee in the amount of
- ------------------- $1,665,000 in favour of the Royal Bank of Canada
emitted by an acceptable financial institution to
the Royal Bank of Canada and text approval from
International Trade Centre Quebec (applicable to
Segments 3) and 4)).
b) Suretyship and subordination of claims for
$148,950, signed by Icon Health & Fitness Inc.
(applicable to Segment 1)).
<PAGE>
ICON OF CANADA Page 4
September 5, 1996
COVENANTS The Borrower covenants with the Bank as follows:
- ---------
a) The Borrower will deliver to the Bank such
financial and other information as the Bank may
reasonably require, including:
(i) Audited annual financial statements of
Icon of Canada Inc. within 120 days of
fiscal year-end;
(ii) Audited annual financial statements of
Icon Health & Fitness Inc. within 120 days
of each year-end.
b) The Borrower will promptly pay, when due, all
income and other taxes payable.
c) The Borrower agrees to remit, as prescribed
under the Income Tax Act (Canada), the Taxation
-------------- --------
Act (Quebec) and any other applicable fiscal
---
legislation, all deductions and withholdings
made by the Borrower, as they fall due and to
notify the Bank immediately upon failure to do
so.
d) In respect of credit facilities repayable on
demand, compliance by the Borrower with the
above covenants does not affect nor limit the
Bank's right to demand full repayment of the
facilities at its discretion and at any time,
such covenants being an indication of what must
be complied with for the Bank to favourably
consider, without any obligation, to maintain a
business relationship with the Borrower.
EVENTS OF DEFAULT Without limiting its right to demand at any time
- ----------------- payment of sums which are payable on demand, the
Bank may, to the extent permitted by and in
compliance with applicable law, immediately
terminate the right of the Borrower to make further
borrowings under the credit facilities, and demand
immediate payment of all sums owing thereunder,
including accrued interest, and realize on all or
any portion of the security granted in its favor,
upon the occurrence of any of the following events:
a) failure by the Borrower to pay the principal,
interest or any other amount when due;
b) failure by the Borrower to observe or satisfy
any covenant, condition or provision in this
agreement or in any other agreement with the
Bank, or in any security document established in
favor of the Bank;
c) if the Borrower becomes insolvent, files a
notice of intention to make a proposal to its
creditors under the Bankruptcy and Insolvency
-------------------------
Act, is declared bankrupt, makes an assignment
---
of its property for the benefit of its
creditors, or makes a bulk sale of any part of
its assets without the prior consent of the
Bank;
<PAGE>
ICON OF CANADA INC. Page 5
September 5, 1996
EVENTS OF DEFAULT (Cont.) d) if any step is taken with respect to a
- ----------------- compromise or arrangement with the creditors of
the Borrower, or to have the Borrower declared
bankrupt or wound up, or if a receiver is
appointed with respect to any part of the
property encumbered by security in favor of the
Bank, or if any encumbrancer takes possession of
any part of the Borrower's assets;
e) if in the opinion of the Bank, there occurs:
(i) a material adverse change in the
Borrower's financial condition;
(ii) an unacceptable change in the ownership of
the capital stock of the Borrower;
(iii) the Borrower is subject to legal
proceedings detrimental to its affairs;
f) the breach of any law, regulation, bylaw or
requirement whether federal, provincial,
municipal, or otherwise, concerning pollution of
the environment, toxic materials, or other
environmental hazards, or public health and
safety, affecting any of the Borrower's property
or activities.
EVIDENCE OF If loans and transactions pertaining to the credit
- ----------- facilities are not evidenced by promissory notes or
INDEBTEDNESS other debt instruments, or by any other agreement
- ------------ with the Bank, the books and records of the Bank's
unit or office in charge of the credit facilities,
in which are kept the accounts and statements
showing the principal amounts owing, interest
thereon, fees and other sums due by the Borrower,
and recorded the transactions pertaining to the
credit facilities, shall, in the absence of
manifest error, constitute conclusive evidence of
the Borrower's indebtedness hereunder and of such
transactions.
REVIEW The Bank may, at any time, revise the conditions
- ------ applicable to the credit facilities and withdraw
their availability.
CONDITIONS PRECEDENT a) The letter of guarantee must be received and
- -------------------- accepted by the Royal Bank of Canada.
b) The credit facilities are offered and shall be
maintained provided the risk represented by the
environmental situation of the Borrower, if any,
is acceptable to the Bank.
GOVERNING LAW This agreement shall be governed by the laws in
- ------------- force in the province of Quebec.
LANGUAGE The undersigned has expressly requested that this
- -------- Agreement and all related documents be drawn up in
the English language. A la demande expresse du
soussigne, ce contrat, et tout document y afferent
ont ete rediges en langue anglaise.
<PAGE>
ICON OF CANADA INC. Page 6
September 5, 1996
We trust the foregoing is satisfactory to you and request that you indicate your
acceptance by signing and returning the duplicate of this letter.
Yours truly,
ROYAL BANK OF CANADA
/s/ Andre Filion
- -------------------------
Andre Filion
Senior Account Manager
Read and accepted on this 5th day
of September 1996.
ICON OF CANADA INC.
By: [SIGNATURE APPEARS HERE] BY:
--------------------------- -------------------------
Title: Authorized Rep. Title:
--------------------------- -------------------------
P.S.: This letter must be duly signed by the authorized signing officer(s) of
the company.
<PAGE>
PROMISSORY NOTE--FIXED RATE
September 5 19 96 $550,559.80
- ---------------------------- ---- -------------------
FOR VALUE RECEIVED We PROMISE TO PAY ROYAL BANK OF CANADA (the "Bank")
--------------
or order at its 1 Place Ville Marie, Montreal, Quebec
-----------------------------------------------------------------
Branch, the sum of -- FIVE HUNDRED FIFTY THOUSAND FIVE HUNDRED FIFTY NINE---.80
--------------------------------------------------------------
Dollars (hereinafter called the "principal") with interest thereon at the rate
of 10% percent per annum, calculated monthly as well after as before
--------
maturity, default and judgment, with interest on overdue interest at the same
rate as on the principal, by monthly payments of $ 8,074.01 each on the
----------- ---------
day of each and every month from the ,19 until the January 1st ,
--------- ---- --------------
1997 inclusive, and the balance, if any,of the principal and interest on the
- ----
date last mentioned, the whole without days of grace.
Each such payment shall be applied firstly to unpaid interest, and the balance,
if any, shall be applied in reduction of the principal.
In the event that any payment due hereunder is not paid on its due date, then
the entire balance of the principal with accrued interest thereon shall
forthwith become due and payable at the option of the holder of his Note.
THE UNDERSIGNED ACKNOWLEDGES that payments of the amount due under this Note
otherwise than as set forth above are not permitted.
Note
For the purpose of this Note, the "undersigned" shall mean "the undersigned or
anyone of them".
ICON OF CANADA INC.
- -------------------------------------------------------------
NAME:
- ------------------------------------------------------------- ------------------
LOAN ACCT No. LOAN NO.
- -------------------------------------------------------------
CR. ACCT NO. TRANSIT NO. CASUAL MGR. INIT.
- --------------------- DISCOUNT [SIGNATURE
REN $ [_] APPEARS HERE]
- -------------------------------------------------------------- -----------------
<PAGE>
September 5, 1996 $ 903,992.33
------------------------ ----------------
DATE
ON DEMAND AFTER DATE FOR VALUE RECEIVED I PROMISE TO PAY TO
ROYAL BANK OF CANADA OR ORDER
----------------------------------------------------
ROYAL BANK OF CANADA 1 Place Ville Marie, Montreal, Quebec THE SUM OF
- ----------------------------------------------------------------------
- ----- NINE HUNDRED THREE THOUSAND NINE HUNDRED NINETY TWO ---------- .33 DOLLARS
- -------------------------------------------------------------------------
WITH INTEREST THEREON CALCULATED AND PAYABLE MONTHLY AT A RATE EQUAL TO ROYAL
BANK OF CANADA'S PRIME INTEREST RATE PER ANNUM IN EFFECT FROM TIME TO TIME PLUS
3/4 % PER ANNUM AS WELL AFTER AS BEFORE MATURITY. DEFAULT AND JUDGEMENT,
- --------
WITH INTEREST ON OVERDUE INTEREST AT THE SAME RATE AS ON THE PRINCIPAL AT THE
DATE OF THIS NOTE. SUCH PRIME INTEREST RATE IS 5 3/4 % PER ANNUM. THE
-------------
UNDERSIGNED HEREBY WAIVE(S) PRESENTMENT FOR PAYMENT OF THIS PROMISSORY NOTE.
PRIME INTEREST RATE IS THE ANNUAL RATE OF INTEREST ANNOUNCED FROM TIME TO TIME
BY ROYAL BANK OF CANADA AS A REFERENCE RATE THEN IN EFFECT FOR DETERMINING
INTEREST RATES ON CANADIAN DOLLAR COMMERCIAL LOANS IN CANADA.
ICON OF CANADA INC.
---------------------------
/s/ (SIGNATURE APPEAR HERE)
---------------------------
- -----------------------------------------------------
NAME:
- -----------------------------------------------------
LOAN ACCT. NO. LOAN NO.
- -----------------------------------------------------
CR. ACCT. NO. TRANSIT NO CASUAL MGR. INIT
- ------------------------ DISCOUNT
REN.S [_]
- -----------------------------------------------------
[LOGO OF RECYCLED PAPER APPEARS HERE]
<PAGE>
EXHIBIT 10.58
September 6, 1996
Mr. Ben Weider
Weider Sports Equipment Co. Ltd.
2875 Bates Road
Montreal, Quebec H3B3Y2
Mr. Eric Weider
Weider Health & Fitness
21100 Erwin Street
Woodland Hills, CA 91637-3773
Dear Ben and Eric:
As part of a global settlement of certain disputes among and between Weider
Health and Fitness ("WHF"), Weider Sports Equipment Co. Ltd. ("WSE"), ICON
Health & Fitness, Inc. ("ICON") and their respective affiliates, and in partial
consideration for each of Messrs. Ben Weider and Eric Weider entering into that
certain Settlement Agreement, dated of even date herewith among, inter alia,
----- ----
WHF, WSE, Mr. Ben Weider, Mr. Eric Weider, ICON and certain other parties (the
"Settlement Agreement"), and into certain other documentation contemplated by
the Settlement Agreement, we are pleased to confirm our agreement with you
regarding charitable contributions to be made by ICON as follows:
ICON shall contribute, from time to time, within 30 days of the date a
Charitable Donation Order Form (substantially in the form attached as Exhibit A
hereto, and referred to herein as the "Order") is given by either Ben Weider or
Eric Weider, such Eligible Equipment as either of you shall specify in the Order
to such Qualifying Charities as either of you shall specify in the Order, in
your names, or in such name or names as either of you shall specify in the
Order, provided that the value of such Eligible Equipment (as determined in
accordance with Annex I hereto) does not exceed $16,666 per month, which monthly
amount has accrued from November 14, 1994 through the date hereof and shall
continue to accrue monthly until the first to occur of a (i) change in control
of IHF Capital, Inc. or any of its wholly-owned subsidiaries or (ii) the initial
public offering of the common stock of IHF Capital, Inc. or any of its
subsidiaries (clauses (i) and (ii) are collectively referred to herein as the
"Termination Events"). ICON confirms that the amount accrued at August 31, 1996
was $359,147 and such amount and any additional accrual shall be contributed as
directed notwithstanding the occurrence of either of the Termination Events.
Capitalized terms used herein and not defined shall have the meanings set forth
on Annex II hereto.
<PAGE>
Mr. Ben Weider
Mr. Eric Weider
Page 2
In addition to the contributions set forth in the foregoing paragraph, and
irrespective of the Termination Events, ICON shall, during the year beginning on
the sixth anniversary date of the date hereof, make such contributions of
Eligible Equipment to such Qualifying Charities as Mr. Ben Weider or his legal
representative shall specify, with an aggregate value of $200,000 (as determined
in accordance with Annex I hereto).
[Remainder of page intentionally left blank]
<PAGE>
Mr. Ben Weider
Mr. Eric Weider
Page 3
If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and the accompanying copies thereof in the appropriate
space below.
Sincerely,
\s\Scott Watterson
Scott Watterson
Chief Executive Officer,
IHF Capital, Inc.
ICON Health & Fitness, Inc.
AGREED:
Mr. Ben Weider
\s\Ben Weider
- --------------------
Ben Weider
Mr. Eric Weider
\s\Eric Weider
- --------------------
Eric Weider
<PAGE>
EXHIBIT A
Form of Charitable Donation Order Form
[Date]
TO: ___________________________
ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Pursuant to the letter agreement between ICON and the undersigned, dated
September __, 1996, please donate the following items: [list Eligible Equipment]
to [insert name of Qualified Charity] within 30 days of the date specified
above.
The Eligible Equipment donated pursuant to this Order will be donated in
the name of: [specify name or names].
If for any reason you are unable to comply with this order, you will notify
the undersigned within 5 business days so that the undersigned may provide you
with alternative instructions. Thank you for your prompt attention in this
matter.
-----------------------------
Name:
<PAGE>
ANNEX I
Terms and Conditions
Section 1. VALUE OF ELIGIBLE SPORTS EQUIPMENT
The value of all Eligible Equipment donated by ICON or its subsidiaries, as the
case may be, shall be equal to (i) the cost of such equipment to ICON or its
subsidiaries, as applicable, plus (ii) the Shipping Cost (as defined in Section
2 below) for Eligible Equipment.
Section 2. SHIPPING COST
The "Shipping Cost" for all Eligible Equipment shall be determined in accordance
with the following: ICON shall arrange shipments of Eligible Equipment at rates
identical to the rates it receives on shipments for its own orders (i.e. the
---
best, lowest rate available to ICON) and shall apply such rates to such Eligible
Equipment on pro rata basis as determined by multiplying: (i) the total shipping
cost for such shipment by (ii) the approximate percentage of space occupied in
such shipment by such Eligible Equipment.
Section 3. ACCOUNTING AND ACCESS
a. Within 45 days after the date of each Charitable Contribution Order
Form, ICON shall provide a statement to each of Mr. Eric Weider and
Mr. Ben Weider, confirming:
i. the quantity and type of each item shipped to the Qualifying
Charity; and
ii. the total aggregate value of the items (calculated in
accordance Section 1 of the Annex B), shipped to the
Qualifying Charity.
b. Upon your request, ICON will provide you with access to its records
to verify the information provided hereunder, including but not
limited to, (i) the quantity, type and value of the pieces of
Eligible Equipment that have been shipped; (ii) the destination of
each shipment; and (iii) verification that the Shipping Costs are
being charged in accordance with Section 2 of this Annex B.
<PAGE>
ANNEX II
Definitions
"Eligible Sports Equipment" shall mean all products now or hereafter
acquired offered by ICON or any entity directly or indirectly controlled by,
controlling or under direct or indirect common control with ICON.
"Qualifying Charities" shall mean any entity for which contributions are
deductible for income tax purposes under the United States Internal Revenue
Code.
<PAGE>
Exhibit 10.59
IN THE YEAR NINETEEN HUNDRED AND NINETY SIX, on the
________ day of September.
BEFORE Mtre Gaetan RUEL, notary at St. Jerome, district
of Terrebonne, Province of Quebec,
APPEARED:
Richard HEBERT, businessman, residing at 4 Place Briey,
in Lorraine, Province of Quebec, Canada, J6Z 4K5,
(hereinafter called "Hebert")
AND:
Eric WEIDER, businessman, residing at 18023 Osborne
St., in Northbridge, California, in the United States of
America, 91325.
Herein acting and represented by Richard Hebert,
businessman, residing at 4 Place Briey, in Lorraine,
Province of Quebec, Canada, his attorney duly authorized for
the purposes hereof by a power of attorney signed under
private signature at Los Angeles, California, on the fifth
day of August, nineteen hundred and ninety-six (August 5,
1996), which power of attorney has not been revoked, altered
or modified since the date thereof and remains in full force
and effect on the date hereof, a copy of which is annexed to
the present deed of sale after having been acknowledged as
true and signed by the attorney and the undersigned notary;
(hereinafter called "E. Weider")
AND:
Ben WEIDER, businessman, residing at 165 Finchley Road,
Hampstead, Province of Quebec, Canada, H3X 3A6
(hereinafter called "B. Weider")
AND:
ALLFITNESS INC., a corporation duly constituted by
-1-
<PAGE>
Articles of amalgamation in virtue of the Canadian Business
Corporations Act, having its head office at 901 Daniel-
Johnson Blvd., in St. Jerome, Province of Quebec, Canada,
herein acting and represented by Richard HEBERT, its
President, duly authorized for the purposes hereof by a
resolution of its Board of Directors duly adopted on the
fifth day of September, nineteen hundred and ninety-six
(September 5, 1996) which resolution has not been revoked,
altered or modified since the date of its adoption and
remains in full force and effect on the date hereof, a
certified copy of which is annexed to the present Deed after
having been acknowledged as true and signed by the
representative in the presence of the notary,
(hereinafter called "AllFitness")
(Hebert, E. Weider, B. Weider and AllFitness being
hereinafter collectively called the "Vendors")
AND:
ICON OF CANADA INC., a corporation duly incorporated in
virtue of the Companies Act (Quebec), having its head office
at 1080 Beaver Hall Hill, Suite 605, in Montreal, Province
of Quebec, Canada, herein acting and represented by Luc
Dupuis, its representative, duly authorized for the purposes
hereof by a resolution of its Board of Directors duly
adopted on the twenty-sixth day of August, nineteen hundred
and ninety-six (August 26, 1996), which resolution has not
been revoked, altered or modified since the date of its
adoption and remains in full force and effect on the date
hereof, a certified copy of which is annexed to the present
deed after having been acknowledged as true and signed by
the representative in the presence of the notary,
(hereinafter called the "Purchaser")
WHICH PARTIES HAVE DECLARED AND AGREED IN THE PRESENCE
OF THE UNDERSIGNED NOTARY, AS FOLLOWS:
FIRST SALE
Hebert and E. Weider hereby sell, cede, transfer and
convey
-2-
<PAGE>
to the Purchaser, hereto present and accepting, the
following immovable property (the "First Property"):
DESCRIPTION
An immoveable situated in the industrial park of the
Town of Saint-Jerome, Province of Quebec, fronting on
Daniel-Johnson Boulevard, known and designated as follows:
A) the whole of lot number forty-three of the
official subdivision of the original lot number four hundred
and eighty-three (483-43) of the official cadastre of the
Village of Saint-Jerome, land registry of Terrebonne, of
irregular figure and containing an area of one hundred ten
thousand, four hundred twenty square feet (110,420 sq.ft.).
B) a part of lot number fifty-four of the official
subdivision of the original lot number four hundred and
eighty one (Pt. 481-54) of the official cadastre of the
Village of Saint-Jerome, land registry of Terrebonne.
Of irregular figure, measuring two hundred and fifty
one feet and six tenths of a foot (251.6') in front in its
northwesterly line, five hundred and ten feet (510.0') in
its northerly line, two hundred and fifty nine feet and six
tenths of a foot (259.6') in its southerly line, one hundred
and sixty one feet and fifteen hundredths of a foot
(161.15') in a southeasterly line, one hundred and seventy
six feet and seven tenths of a foot (176.7') in another
southeasterly line, fifty six feet and four tenths of a foot
(56.4') in another southerly line and sixty feet (60.0') in
an easterly line; containing an area of approximately ninety
four thousand nine hundred and eleven square feet (94,911.0
sq.ft.).
Bounded towards the northwest by lot number 481-53
(Daniel-Johnson Blvd.); towards the north, by lot number
483-43; towards the south, in a first line, by lot number
481-52; towards the southeast and towards the south, in a
second line, by a part of said lot number 481-54 belonging
to Transport Papineau Inc. and towards the east, by lot
number 481-58.
With the industrial building thereon erected bearing
civic number 901 boulevard Daniel-Johnson, in St-Jerome,
Province of Quebec, J7X 4C2, with all its rights, members
and appurtenances,
-3-
<PAGE>
the whole without exception or reserve of any kind on the
part of Hebert and E. Weider.
With all the servitudes affecting said property, more
particularly, the ones granted for:
- a servitude granted in favour of Compagnie
d'Electricite Gatineau by deed published under
number 279799 against the original lots four
hundred and eighty one (481) and four hundred and
eighty three (483), the situs of which is not
described, this servitude authorizes the
maintaining of seven (7) hydro poles and three (3)
anchors with shrouds and grants a right of passage
over a strip of land five (5) feet wide on each
side of the transmission line;
- a servitude granted in favour of Hydro-
Quebec published under number 365987 against the
First Property, the situs of which is not
described, this servitude authorizes the
maintaining of three (3) poles and three (3)
anchors with shrouds and grants a right of passage
over a strip of land fifteen (15) feet wide on
each side of the transmission line;
- a servitude granted in favour of Compagnie
de Telephone Bell du Canada published under number
139807 against the original lots four hundred and
eighty one (481) and four hundred and eighty three
(483), the situs of which is not described, this
servitude authorizes the maintaining of a line of
communication and the necessary rights of passage.
SECOND SALE
Hebert and B. Weider hereby sell, cede, transfer and
assign to the Purchaser, hereto present and accepting, the
following immovable property (the "Second Property"):
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DESCRIPTION:
An immovable property situated in the industrial park
of the Town of St-Jerome, fronting on De l'Industrie
Boulevard, composed of:
A) lot known and designated under number fifty five
of the official subdivision of the original lot number four
hundred and eighty one (lot 481-55) of the official cadastre
of the Village of Saint-Jerome, land registry of Terrebonne,
of irregular figure and containing an area of two hundred
and fifty eight thousand six hundred and ninety-three square
feet (258,693.0 sq. ft.), English measure.
B) lot known and designated under number forty two of
the official subdivision of the original lot number four
hundred and eighty-three (lot 483-42) of the official
cadastre of the Village of Saint-Jerome, land registry of
Terrebone, of irregular figure and containing an area of
twelve thousand eight hundred and thirty two square feet
(12,832.0 sq. ft.), English measure.
With the industrial building thereon erected bearing
civic number 900, boulevard de l'Industrie, in St-Jerome,
Province of Quebec, J7Y 4B8, with all its rights, members
and appurtenances, the whole without exception or reserve of
any kind on the part of Hebert and B. Weider.
With all servitudes affecting said property namely a
servitude in favour of Compagnie de Telephone Bell du Canada
published under number 139807 against the original lots four
hundred and eighty one (481) and four hundred and eighty
three (483), the situs of which is not described, this
servitude authorizes the maintaining of a line of
communication and the necessary rights of passage.
THIRD SALE
AllFitness hereby sells, cedes, transfers and assigns
to the Purchaser, hereto present and accepting, the
following immovable property (the "Third Property")
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<PAGE>
DESCRIPTION:
A strip of vacant land situated in the industrial park
of the Town of St-Jerome, fronting on Daniel Johnson
Boulevard, composed as follows:
A) A part of original lot number four hundred and
eighty-three (Pt lot 483) of the official cadastre of the
Village of Saint-Jerome, land registry of Terrebonne.
Of irregular figure, measuring one hundred and fifty
five meters and fifty five centimetres (155,55 m) in its
northerly line; twenty eight meters and twenty eight
centimetres (28,28 m) in its easterly line; one hundred and
fifty two meters and forty centimetres (152,40 m) in its
southerly line; and thirteen meters and two centimetres
(13,02 m) in its westerly line. Containing an area of three
thousand one hundred and six square meters and ninety square
centimetres (3 106,90 sq. m).
Bounded towards the north by a part of lot number 484;
towards the east by a part of lot number 483; towards the
south by lot number 483-43; and towards the west by lot
number 483-41 (Daniel-Johnson Blvd.).
B) A part of original lot number four hundred and
eighty four (Pt. lot 484) of the official cadastre of the
Village of Saint-Jerome, land registry of Terrebonne.
Of irregular figure, measuring one hundred and fifty
two meters and forty centimetres (152,40 m) in its northerly
line; seventeen meters and forty four centimetres (17,44 m)
in its easterly line; one hundred and fifty five meters and
fifty five centimetres (155,55 m) in its southerly line; and
thirty two meters and seventy one centimetres (32,71 m) in
its westerly line. Containing an area of three thousand
seven hundred and seventy two square meters and ninety
square centimetres (3 772,90 sq.m).
Bounded towards the north and the east by a part of lot
number 484; towards the south by a part of lot number 483;
and towards the west by lot number 484-75 (Daniel Johnson
Blvd.).
With all the servitudes affecting said property namely
a servitude in favour of Compagnie de Telephone Bell du
Company published under number 139807 against the original
lots four hundred and eighty four (484) and four hundred and
eighty three (483), the situs of which is not described,
this servitude authorizes
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the maintaining of a line of communication and the necessary
rights of passage.
TITLE TO PROPERTY
1. Hebert and E. Weider are the owners of the First
Property, having acquired it in virtue of the following
deeds:
(a) deed of sale by EKCO Canada Inc. to Allan
DALFEN, Richard HEBERT and Eric WEIDER, passed before Mtre
Arnold Isaacson, notary, on the twenty second day of
December nineteen hundred and eighty-six (December 22nd,
1986) and published at the Terrebonne Registry Office under
number 771790, and
(b) deed of sale by Allen DALFEN to Richard HEBERT
and Eric WEIDER, passed before Mtre Gaetan RUEL, notary, on
the tenth day of November, nineteen hundred and ninety four
(November 10th, 1994) and published by summary at the
Terrebonne Registry Office under number 1072948.
2. Hebert and B. Weider are the owners of the Second
Property, having acquired it in virtue of the deed of sale
by LES CUISINES NELKEN INC. to Richard HEBERT and Ben
WEIDER, passed before Mtre Gaetan RUEL, notary, on the sixth
day of March, nineteen hundred and ninety two (March 6th,
1992) and published at the Terrebonne Registry Office under
number 983636.
3. AllFitness is the owner of the Third Property,
having acquired it in virtue of the deed of sale by the TOWN
OF ST. JEROME to RICKBEND INDUSTRIES INC. (a corporation
amalgamated with 3002993 Canada Inc., Athletimonde Inc. and
Fitquip International Inc. to form AllFitness), passed
before Mtre Gaetan RUEL, notary, on the ninth day of July,
nineteen hundred and ninety-three (July 9th, 1993) and
published at the Terrebonne Registry Office under number
1033819.
TITLE DEEDS
The Vendors do not supply the Purchaser with any title
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deeds, survey plan or certificate of location other than
those in their possession.
WARRANTY
The Sale of each of the First Property, the Second
Property and the Third Property (individually a "Property")
is made by the applicable Vendor thereof only with legal
warranty as to title, and the Purchaser acknowledges that
except for such legal warranty as to title and the
declarations of each Vendor expressly contained herein with
respect to the Property being sold by such Vendor, the
Purchaser is purchasing the Property at its own risk,
without any other representation or warranty of any nature
whatsoever including, without limitation, any representation
or warranty relating to environmental matters.
POSSESSION
By means of the present deed, the Purchaser will be
sole and absolute owner of each Property and will take
immediate and exclusive possession and occupancy of each
Property, effective from the date of execution of this deed.
DECLARATIONS OF HEBERT AND E. WEIDER
Hebert and E. Weider hereby declare, represent and
warrant to the Purchaser that:
(a) They are the beneficial and registered owners of
the First Property with good and marketable title.
(b) They have the right to sell the First Property to
the Purchaser.
(c) The First Property is free and clear of all
encumbrances, including, without limitation, all
unregistered or unpublished encumbrances, prior claims,
hypothecs, charges, reserves, servitudes (apparent and non
apparent), encroachments (on or from the First Property),
homologated lines, arrears of taxes (including, without
limitation, school, municipal (whether special
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<PAGE>
or general), intermunicipal, local improvement, business,
water, sewer and ecclesiastical taxes) and other title
defects or charges of any nature whatsoever, the whole save
and except as disclosed in the title opinion of Notary
Gaetan Ruel dated the date hereof addressed to the
Purchaser.
(d) All assessments, rates, levies, transfer duties,
surtaxes and taxes of every nature and kind whatsoever,
including, without limitation, general and special,
municipal, intermunicipal, for schools, local improvements,
sewers, business, water or others, affecting the First
Property, due and payable, have been paid in full up to the
date hereof without subrogation.
(e) They have not received in the last year, any
written notice from any competent authority to the effect
that the First Property does not conform with the
regulations and laws in force in the Province of Quebec or
the Federal laws applicable therein.
(f) The First Property is not situated in an
agricultural zone.
(g) The First Property is not a classified cultural
property or recognized as such and is not situated within an
historic or natural area, within a classified historic site,
or in a protected area within the meaning of the Loi sur les
biens culturels.
(h) The above-mentioned power of attorney is still in
force and has full effect, unamended as of the date hereof.
(i) Each of the Vendors of the First Property hereby
covenants and agrees, jointly but not solidarily with the
other Vendor, to indemnify and hold harmless the Purchaser
in respect of the following as it pertains to the First
Property:
(a) any and all damages, defects, defaults or
deficiencies relating to or arising from (i) any
material breach of its representations or
warranties, (ii) any material failure to execute,
fulfil and perform any of its obligations,
covenants or agreements contained herein;
(b) any and all actions, proceedings, suits,
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claims, liabilities, losses, assessments,
amendments, costs, fees, damages, expenses
(including reasonable attorney fees and expenses)
and demands accessory to, relating to, arising
from or in respect of any of the foregoing;
(c) any obligations under all contracts or other
agreements of any nature whatsoever affecting the
First Property entered into prior to the date
hereof, which are not in the ordinary course of
business;
(d) any and all claims for or under any prior
claim or other security charging the Property with
respect to any work contracted prior to the date
hereof, or to any supplies or materials furnished
pursuant to any contract entered into prior to the
date hereof, regardless of whether such work,
supplies or materials are completed or executed
and delivered after the date hereof or whether
said hypothec or prior claims are published prior
or subsequent to the date hereof.
DECLARATIONS OF HEBERT AND B. WEIDER
Hebert and B. Weider hereby declare, represent and
warrant to the Purchaser that:
(a) They are the beneficial and registered owners of
the Second Property with good and marketable title.
(b) They have the right to sell the Second Property to
the Purchaser.
(c) The Second Property is free and clear of all
encumbrances, including, without limitation, all
unregistered or unpublished encumbrances, prior claims,
hypothecs, charges, reserves, servitudes (apparent and non
apparent), encroachments (on or from the Second Property),
homologated lines, arrears of taxes (including, without
limitation, school, municipal (whether
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<PAGE>
special or general), intermunicipal, local improvement,
business, water, sewer and ecclesiastical taxes) and other
title defects or charges of any nature whatsoever, the whole
save and except as disclosed in the title opinion of Notary
Gaetan Ruel dated the date hereof addressed to the
Purchaser.
(d) All assessments, rates, levies, transfer duties,
surtaxes and taxes of every nature and kind whatsoever,
including, without limitation, general and special,
municipal, intermunicipal, for schools, local improvements,
sewers, business, water or others, affecting the Second
Property, due and payable, have been paid in full up to the
date hereof without subrogation.
(e) They have not received in the last year, any
written notice from any competent authority to the effect
that the Second Property does not conform with the
regulations and laws in force in the Province of Quebec or
the Federal laws applicable therein.
(f) The Second Property is not situated in an
agricultural zone.
(g) The Second Property is not a classified cultural
property or recognized as such and is not situated within an
historic or natural area, within a classified historic site,
or in a protected area within the meaning of the Loi sur les
biens culturels.
(h) Each of the Vendors of the Second Property hereby
covenants and agrees, jointly but not solidarily with the
other Vendor, to indemnify and hold harmless the Purchaser
in respect of the following:
(a) any and all damages, defects, defaults or
deficiencies relating to or arising from (i) any
material breach of its representations or
warranties, (ii) any material failure to execute,
fulfil and perform any of its obligations,
covenants or agreements contained herein;
(b) any and all actions, proceedings, suits,
claims, liabilities, losses, assessments,
amendments, costs, fees, damages, expenses
(including reasonable attorney fees and expenses)
and
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<PAGE>
demands accessory to, relating to, arising from or
in respect of any of the foregoing.
(c) any obligations under all contracts or other
agreements of any nature whatsoever affecting the
Second Property entered into prior to the date
hereof, which are not in the ordinary course of
business;
(d) any and all claims for or under any prior
claim or other security charging the Property with
respect to any work contracted prior to the date
hereof, or to any supplies or materials furnished
pursuant to any contract entered into prior to the
date hereof, regardless of whether such work,
supplies or materials are completed or executed
and delivered after the date hereof or whether
said hypothec or prior claims are published prior
or subsequent to the date hereof.
DECLARATIONS OF ALLFITNESS
AllFitness hereby declares, represents and warrants to
the Purchaser that:
(a) It is the beneficial and registered owner of the
Third Property with good and marketable title.
(b) It has the right to sell the Third Property to the
Purchaser.
(c) The Third Property is free and clear of all
encumbrances, including, without limitation, all
unregistered or unpublished encumbrances, prior claims,
hypothecs, charges, reserves, servitudes (apparent and non
apparent), encroachments (on or from the Third Property),
homologated lines, arrears of taxes (including, without
limitation, school, municipal (whether special or general),
intermunicipal, local improvement, business, water, sewer
and ecclesiastical taxes) and other title defects or charges
of any nature whatsoever, the whole save and except as
disclosed in the title opinion of Notary Gaetan Ruel dated
the date hereof addressed to the Purchaser.
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<PAGE>
(d) All assessments, rates, levies, transfer duties,
surtaxes and taxes of every nature and kind whatsoever,
including, without limitation, general and special,
municipal, intermunicipal, for schools, local improvements,
sewers, business, water or others, affecting the Third
Property, due and payable, have been paid in full up to the
date hereof without subrogation.
(e) It has not received in the last year, any written
notice from any competent authority to the effect that the
Third Property does not conform with the regulations and
laws in force in the Province of Quebec or the federal laws
applicable therein.
(f) The Third Property is not situated in an
agricultural zone.
(g) The Third Property is not a classified cultural
property or recognized as such and is not situated within an
historic or natural area, within a classified historic site,
or in a protected area within the meaning of the Loi sur les
biens culturels.
(h) The above-mentioned resolution is still in force
and has full effect, unamended as of the date hereof.
(i) AllFitness hereby covenants and agrees to
indemnify and hold harmless the Purchaser in respect of the
following as it pertains to the third Property:
(a) any and all damages, defects, defaults or
deficiencies relating to or arising from (i) any
material breach of its representations or
warranties, (ii) any material failure to execute,
fulfil and perform any of its obligations,
covenants or agreements contained herein;
(b) any and all actions, proceedings, suits,
claims, liabilities, losses, assessments,
amendments, costs, fees, damages, expenses
(including reasonable attorney fees and expenses)
and demands accessory to, relating to, arising
from or in respect of any of the foregoing;
(c) any obligations under all contracts or other
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<PAGE>
agreements of any nature whatsoever affecting the
Third Property entered into prior to the date
hereof, which are not in the ordinary course of
business;
(d) any and all claims for or under any prior
claim or other security charging the Property with
respect to any work contracted prior to the date
hereof, or to any supplies or materials furnished
pursuant to any contract entered into prior to the
date hereof, regardless of whether such work,
supplies or materials are completed or executed
and delivered after the date hereof or whether
said hypothec or prior claims are published prior
or subsequent to the date hereof.
OBLIGATIONS
In consideration of the present Sale, the Purchaser
obliges itself:
To take each Property in its present state, the
Purchaser hereby declaring having visited and examined same
to its satisfaction and having itself verified with the
competent authorities that the use it intends to make of
each Property is in conformity with applicable laws and
regulations.
2. From the date hereof, to respect those conditions
and restrictions stipulated in the original deed of sale
(the "Original Deed") of land by the Town of St-Jerome to
Rickbend Industries Inc. (a corporation amalgamated with
3002993 Canada Inc., Athletimonde Inc. and Fitquip
International Inc. to form Allfitness), passed before Mtre.
Gaetan Ruel, Notary, on the ninth day of July, nineteen
hundred and ninety-three (July 9, 1993) and published at the
Terrebonne Registry Office under number 1033819 relating to
industrial park restrictions. For greater certainty, the
Vendors declare having at all times prior to the date
hereof, complied with those conditions and restrictions
stipulated in the Original Deed.
3 To pay the costs of these presents, their
publication and copies for all parties; however, each party
shall pay the fees
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<PAGE>
and disbursements in connection with the negotiation and
conclusion of this deed and any other document executed in
relation to the transaction consummated pursuant to this
deed.
4. To pay all transfer duties deriving from the
present Sale.
THE GOODS AND SERVICES TAX AND THE QUEBEC SALES TAX
1. The Vendors and the Purchaser declare that the
sale of the Property consummated by the execution of this
deed is a "taxable supply" subject to the payment of the tax
commonly referred to as "Goods and Services Tax" (the "GST")
under the Act respecting Excise Taxes (the "ETA") and the
"Quebec Sales Tax" (the "QST") under An Act respecting the
Quebec Sales Tax and Amending Various Fiscal Legislation,
S.Q. 1991, c. 67 (the "QSTA"). Moreover, the Vendors and
the Purchaser declare that the sale price provided for in
this deed does not include any amount in respect of such
taxes.
2. The Purchaser declares that it is registered under
subdivision (d) of Division V of Part IX of the ETA, and
that its registration number thereunder is 141405407, and
that it is registered under Division I of Chapter VIII of
Title I of the QSTA and that it registration number
thereunder is 1019115565TQ0001.
3. ALLFITNESS INC. declares that it is registered
under subdivision (d) of Division V of Part IX of the ETA,
and that its registration number thereunder is 139933188RJ,
and that it is registered under Division I of Chapter VIII
of Title I of the QSTA and that its registration number
thereunder is 1017407909TQ0001.
4. The Vendors and the Purchaser declare that, in
accordance with section 221(s)(b) of the ETA and paragraph
(2) of section 423 of the QSTA, the Purchaser shall not be
required to pay to the Vendors and the Vendors are relieved
of their obligation to collect from the Purchaser the GST
and the QST imposed, inter alia, in respect of the sale
contemplated hereby, pursuant to sections 165(1) and 221(1)
of the ETA and section 16 of the QSTA, respectively.
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<PAGE>
ADJUSTMENTS
The parties declare they have made between them, to
their mutual satisfaction, the usual adjustments as of the
twenty-sixth (26th) day of August, Nineteen hundred and
ninety-six (1996). If other adjustments become necessary,
they will be made promptly.
PRICE
The Sale of the Property is made for the price of five
hundred thousand and one dollars of the United States of
America ($500,001.00 U.S.), of which one dollar ($1 U.S.) is
allocated to the Third Property and paid to AllFitness and
the balance allocated to the First Property and the Second
Property and paid to the Vendors other than AllFitness
which the Vendors acknowledge to have received from the
Purchaser, whereof quit for so much.
This Sale is also made under the condition that
Purchaser hereby personally undertakes and assumes on behalf
of the Vendors and to the latter's complete exoneration, all
sums owing in virtue of the following deeds and documents:
a) the sum of nine hundred and three thousand, nine
hundred ninety-two Canadian dollars and thirty-three cents
($903,992.33), being the balance owing as of September 5,
1996, to the Royal Bank of Canada, to which said sum is due
in virtue of a hypothecary loan in an original amount of
$1,100,000.00, passed before Mtre. Gaetan RUEL, notary, on
the 4th day of March, 1992 and published in the land
registry of Terrebonne under number 983358.
b) the sum of five hundred and fifty thousand, five
hundred fifty-nine Canadian dollars and eighty cents
($550,559.80), being the balance owing as of September 5,
1996, to the Royal Bank of Canada, to which said sum is due
in virtue of a promissory note or a deed of loan in an
original amount of $616,178.00 secured by a collateral
hypothec passed before Mtre Gaetan RUEL, notary, on the 9th
day of December, 1994 and published in the land registry of
Terrebonne under number 1075239.
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<PAGE>
The Vendors declare having obtained the consent of the
Royal Bank of Canada to the transfer and assumption by the
Purchaser of the loans above-mentioned.
RESIDENCE
The Vendor ALLFITNESS INC., declares that it is not a
non-resident of Canada within the meaning of the Income Tax
Act (Canada) and the Taxation Act (Quebec) and that the
representative of ALLFITNESS INC. making this present
declaration does so conscientiously believing it to be true
and knowing it is of the same force and effect as if made
under oath and by and in virtue of the Canadian Evidence
Act.
The Vendor Richard HEBERT declares that he is a
Canadian resident within the meaning of the Income Tax Act
(Canada) and the Taxation Act (Quebec) and that he makes the
present declaration conscientiously believing it to be true
and knowing it is of the same force and effect as if made
under oath and by and in virtue of the Canada Evidence Act.
The Vendor Ben WEIDER declares that he is a Canadian
resident within the meaning of the Income Tax Act (Canada)
and the Taxation Act (Quebec) and that he makes the present
declaration conscientiously believing it to be true and
knowing it is of the same force and effect as if made under
oath and by and in virtue of the Canada Evidence Act.
The Vendor Eric WEIDER declares that he is a "non-
resident" within the meaning of the Income Tax Act (Canada)
and the Taxation Act (Quebec) and shall comply with the
provisions of Article 116 of the Income Tax Act (Canada) and
Article 1099 and following of the Taxation Act (Quebec); he
shall supply the Purchaser without delay with the necessary
certificates with respect to the disposition of property by
a non-resident of Canada.
CIVIC STATUS, MATRIMONIAL REGIME AND CAPACITY
Richard HEBERT declares to be married in first wedding to
Jocelyn LEPORE, under the regime of separation as to
property according to the laws of the Province of Quebec, in
virtue of a
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marriage contract passed before Mtre Gaston GRATTON,
notary, on the eight (8th) day of May, nineteen hundred and
sixty-nine (May 8, 1969) and registered at the Registration
Division of Montreal under number 2136303, and that there
are no proceedings pending in order to change or modify
their matrimonial regime.
Eric WEIDER declares to be married in first wedding to
Renee L. MUDGETT, under the regime of separation as to
property according to the laws of California, one of the
United States of America, without marriage contract and that
there are no proceedings pending in order to change or
modify their matrimonial regime.
Ben WEIDER declares to be married in first wedding to
Hugette DROUIN, under the regime of separation as to
property according to the laws of the Province of Quebec, in
virtue of a marriage contract passed before Mtre. Irwin B.
BLOND, notary, on the tenth (10th) day of July, nineteen
hundred and fifty-nine (July 10, 1959) and that there are no
proceedings pending in order to change or modify their
matrimonial regime.
ALLFITNESS INC. declares that it has full legal
capacity and is capable of providing certificates of status
from the authorities governing it and it has validly
acquired and has the power to own and sell the Third
Property without further formalities than those already
fulfilled.
INTERVENTION
To these presents intervened Dame Renee L. MUDGETT,
residing at 18023 Osborne St. in Northbridge, California, in
the United States of America, 91325.
Herein acting and represented by Richard Hebert,
businessman, residing at 4 Place Briey, in Lorraine,
Province of Quebec, Canada, her attorney duly authorized for
the purposes hereof by a power of attorney signed under
private signature at Los Angeles, California, on the fifth
day of August, nineteen hundred and ninety-six (August 5,
1996), which power of attorney has not been revoked, altered
or modified since the date thereof and remains in full force
and effect on the date hereof, a copy of which
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is annexed to the present deed of sale after having been
acknowledged as true and signed by the attorney and the
undersigned notary.
Who, after having taken communication of these
presents, corroborates the declarations made by her husbands
concerning his civil status and matrimonial regime and
consents and concurs to the present sale for all legal
purposes.
ELECTION OF DOMICILE
For the execution of the present deed, the Purchaser
and the Vendors elect domicile at their respective addresses
above mentioned. Either party may change his said domicile
to another by a written notice served upon the other party.
In the event that it is impossible to effect service at the
above addresses, the parties elect domicile at the office of
the clerk of the Superior Court for the District of
Terrebonne.
INTERPRETIVE CLAUSE
Unless the context should call for a different meaning,
the masculine form includes the feminine form and vice-versa
and the singular form includes the plural form and vice-
versa.
The words "Vendors" and "Purchaser" may refer to one or
more persons of feminine or masculine gender as well as to
one or more legal or physical persons.
The declarations, warranties and obligations of the
different Vendors are joint but not solidary. In addition,
no vendor shall be liable in any manner whatsoever for any
obligations or liabilities of any other vendor.
For the purposes of the present deed, the word
"immovable" or "Property" includes all that is presently
sold.
Unless otherwise indicated, the word "dollar" and the
symbol "$" mean Canadian currency.
This deed is governed and interpreted by the laws of
the
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Province of Quebec and the federal laws of Canada
applicable therein.
The parties have requested that this deed and any other
contracts, documents and notices related hereto be drafted
in English. Les parties ont exige que le present acte et
tous autres contrats, documents ou avis y afferents ou
accessoires aux presente, soient rediges en langue
anglaise.
DECLARATIONS CONCERNING THE LAND TRANSFER DUTIES ACT
The Purchaser declares that he is not a "cessionaire"
or a corporation not residing in Canada within the meaning
of the Land Transfer duties Act.
DECLARATIONS REQUIRED UNDER ARTICLE 9 OF THE ACT
RESPECTING DUTIES ON TRANSFERS OF IMMOVEABLES
The Vendors and Purchaser herein (hereinafter called
the "Transferor" and the "Transferee", respectively) for the
purposes of this present declaration declare:
The names and the addresses of the Transferor are:
Richard HEBERT, residing at 4 Place Briey, in
Lorraine, Province of Quebec, Canada, J6Z 4K5;
and
Eric WEIDER, residing at 18023 Osborne St. in
Northbridge, California, in the United States of America,
91325;
and
Ben WEIDER, residing at 165 Finchley Road,
Hampstead, Province of Quebec, Canada, H3X 3A6;
and
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ALLFITNESS INC., having its head office at 901
Daniel-Johnson Blvd., in St-Jerome, Province of Quebec,
Canada.
The name and the address of the Transferee are:
ICON OF CANADA INC., having its head office at
1080 Beaver Hall Hill, Suite 605, in Montreal, Province of
Quebec, Canada.
The immovable properties hereinabove described and
herein sold are situated in the Town of St-Jerome, Province
of Quebec.
The consideration paid is:
Property at 901 Daniel-Johnson Blvd.:
550 559,80$ CAN, plus 250 000,00$ U.S.,
(337 500,00$ CAN) =888 059,80 $
Property at 900 de l'Industrie Blvd.:
903 992,33$ CAN, plus 250 000,00$ U.S.,
(337 500,00$ CAN) = 1 241 492,33 $
Vacant lot on Daniel-Johnson Blvd.: 1.00$ U.S. 1,40 $
The imposition base is:
Property at 901 Daniel-Johnson Blvd.:1 271 600,00 $
Property at 900 de l'Industrie Blvd.:1 832 100,00 $
Vacant lot on Daniel-Johnson Blvd.:29 600,00 $
The amount of the transfer duty is:
Property at 901 Daniel-Johnson Blvd.:17 574,00 $
Property at 900 de l'Industrie Blvd.:25 981,50 $
Vacant lot on Daniel-Johnson Blvd.:148,00 $
The consideration for the said sale is the
transfer of an immovable only and does not include the
transfer of an immovable and movables as defined in Article
1.01 of Loi 146.
WHEREOF ACT, at under
number of the minutes of the
undersigned Notary.
-21-
<PAGE>
AFTER DUE READING, the parties have signed in the
presence of the undersigned notary.
-----------------------
Richard HEBERT
Eric WEIDER
By:
-----------------------
Richard HEBERT
Renee L. MUDGETT
By:
-----------------------
Richard HEBERT
-----------------------
Ben WEIDER
ALLFITNESS INC.
By:
-----------------------
Richard HEBERT, President and
Chief-Executive Officer
ICON OF CANADA INC.
-22-
<PAGE>
By:
-----------------------
Luc Dupuis
------------------------
Mtre Gaetan RUEL, Notary
-23-
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors of
IHF Capital, Inc.:
Logan, Utah
We consent to the use in this Amendment No. 1 to the Registration Statement
No. 333-04279 of IHF Capital, Inc. (to be renamed ICON Fitness Corporation) on
Form S-1 of our report dated July 15, 1994 (December 23, 1994 as to Note 1)
relating to the consolidated financial statements of IHF Capital, Inc. and
subsidiaries (the Company) appearing in the Prospectus, which is a part of
this Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
Our audit of the consolidated financial statements of the Company referred to
in our aforementioned report also included the consolidated financial
statement schedule of the Company for the year ended May 31, 1994. This
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audit. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
September 17, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 3 to the Registration Statement on Form S-1 (No. 333-04279) of
our report dated August 13, 1996, relating to the financial statements of IHF
Capital, Inc. (to be renamed ICON Fitness Corporation and formerly known as
Weslo, Inc., ProForm Fitness Products, Inc., and American Physical Therapy,
Inc. and subsidiaries (the "Recapitalized Companies")), which appears on page
F-2 of such Prospectus. We also consent to the application of such report to
the Financial Statement Schedules for the two years ended May 31, 1996 listed
under Item 16(b) of this Registration Statement when such schedules are read
in conjunction with the financial statements referred to in our report. The
audit referred to in such report also included these schedules. We also
consent to the references to us under the heading "Experts" in such
Prospectus.
Price Waterhouse LLP
Boston, Massachusetts
September 17, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated July 22, 1996 (except with respect to the consummation of the
asset purchase agreement discussed in Notes 1,7 and 13, as to which the date
is August 16, 1996), relating to the consolidated financial statements of
HealthRider, Inc. and subsidiaries as of December 31, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995, (and to all
references to our Firm) included in or made a part of this registration
statement on Form S-1 File No. 333-04279.
Arthur Andersen LLP
Salt Lake City, Utah
September 17, 1996
