-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QQWZtk03ETnzHu63tianlC02J+ZnNFQyduEFGJRoKzm+aXOBEHk4ALF5LdRp91Av JPWb3T5+WHW0FUfkKipl0w== 0000927016-02-004478.txt : 20020906 0000927016-02-004478.hdr.sgml : 20020906 20020906171845 ACCESSION NUMBER: 0000927016-02-004478 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 20020906 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICON INTERNATIONAL HOLDINGS INC CENTRAL INDEX KEY: 0000785312 IRS NUMBER: 841425493 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-89440-06 FILM NUMBER: 02758918 BUSINESS ADDRESS: STREET 1: C/O ICON HEALTH & FITNESS INC STREET 2: 1500 SOUTH 100 WEST CITY: LOGAN STATE: UT ZIP: 84321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORDICTRACK INC CENTRAL INDEX KEY: 0001174470 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-89440-01 FILM NUMBER: 02758913 BUSINESS ADDRESS: STREET 1: 1500 SOUTH STREET 2: 1000 WEST CITY: LOGAN STATE: UT ZIP: 86321 MAIL ADDRESS: STREET 1: 1500 SOUTH STREET 2: 1000 WEST CITY: LOGAN STATE: UT ZIP: 86321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREE MOTION FITNESS INC CENTRAL INDEX KEY: 0001174469 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-89440-02 FILM NUMBER: 02758914 BUSINESS ADDRESS: STREET 1: 1500 SOUTH STREET 2: 1000 WEST CITY: LOGAN STATE: UT ZIP: 86321 MAIL ADDRESS: STREET 1: 1500 SOUTH STREET 2: 1000 WEST CITY: LOGAN STATE: UT ZIP: 86321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICON IP INC CENTRAL INDEX KEY: 0001182076 IRS NUMBER: 870649577 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-89440-07 FILM NUMBER: 02758912 BUSINESS ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 BUSINESS PHONE: 4357505000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 510152 N B LTD CENTRAL INDEX KEY: 0001101202 FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-89440-03 FILM NUMBER: 02758915 BUSINESS ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 BUSINESS PHONE: 4357507737 MAIL ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JUMPKING INC CENTRAL INDEX KEY: 0001101201 IRS NUMBER: 870481821 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-89440-04 FILM NUMBER: 02758916 BUSINESS ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 BUSINESS PHONE: 4357507737 MAIL ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL TECHNICAL SERVICES INC CENTRAL INDEX KEY: 0001101200 IRS NUMBER: 870468754 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-89440-05 FILM NUMBER: 02758917 BUSINESS ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 BUSINESS PHONE: 4357507737 MAIL ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICON HEALTH & FITNESS INC CENTRAL INDEX KEY: 0000934798 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 870531206 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-89440 FILM NUMBER: 02758911 BUSINESS ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 BUSINESS PHONE: 4357507737 MAIL ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 S-4/A 1 ds4a.txt FORM S-4/A - AMENDMENT 1 As filed with the Securities and Exchange Commission on September 6, 2002 Registration No. 333-89440 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT under THE SECURITIES ACT OF 1933 ------------- ICON HEALTH & FITNESS, INC. (Primary Registrant) (Exact names of Registrant as specified in its charter) ------------- DELAWARE 3949 87-0531206 (State or other (Primary Standard (I.R.S. jurisdiction Industrial Classification Employer Identification of Incorporation or Code Number) No.) Organization)
1500 South, 1000 West, Logan, Utah 84321, (435) 750-5000 (Address, including ZIP code, and telephone number, including area code, of each Registrant's principal executive offices) ------------- Brad Bearnson, Esq. 1500 South, 1000 West Logan, Utah 84321 (435) 750-5000 (Name, address, including ZIP code, and telephone number, including area code, of agent for service) ------------- Copies to: Charles W. Robins, Esq. Weil, Gotshal & Manges LLP 101 Federal Street Boston, Massachusetts 02110 (617) 772-8300 ------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] (Additional registrants on next page) ------------- CALCULATION OF REGISTRATION FEE ================================================================================
Proposed Proposed Maximum Maximum Title of each Class of Amount to be Amount of Aggregate Amount of Securities to be Registered Registered(1) Offering Price Offering Price(1) Registration Fee(1) - ------------------------------------------------------------------------------------------------------ 11.25% Notes due 2012.............. $155,000,000 100% $155,000,000 $14,260 - ------------------------------------------------------------------------------------------------------ Guarantees of 11.25% Notes due 2012 $155,000,000 None(2) None(2) None(2)
================================================================================ (1) Estimated solely for the purpose of calculating the registration fee. (2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee is payable with respect to the guarantees. ------------- Each Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until each Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================
Primary Standard Industrial I.R.S. Employer State of Classification Identification Name of Additional Registrants* Incorporation Code Code - ------------------------------- ------------- -------------- --------------- Jumpking, Inc........................... Utah 3949 87-0481821 510152 N.B. Ltd......................... Canada 3949 N/A Universal Technical Services, Inc....... Utah 3949 87-0468754 ICON International Holdings, Inc........ Delaware 3949 84-1425493 NordicTrack, Inc........................ Utah 3949 87-0674680 Free Motion Fitness..................... Utah 3949 87-0666332 ICON IP, Inc............................ Delaware 3949 87-0649577
- -------- * Address and telephone number of principal executive offices are the same as ICON Health & Fitness, Inc. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, , 2002. ICON HEALTH & FITNESS, INC. EXCHANGE OFFER $155,000,000 11.25% SENIOR SUBORDINATED NOTES DUE 2012 This exchange offer will expire at 5:00 pm, New York City Time, on , 2002, unless extended. TERMS OF THE EXCHANGE OFFER: . We are offering a total of $155,000,000 of exchange notes, which are registered with the Securities and Exchange Commission, to all holders of initial notes. . We will exchange the exchange notes for all initial notes that are validly tendered and not withdrawn prior to the expiration of the exchange offer. . You may withdraw tenders of initial notes at any time before the exchange offer expires. . We will not receive any proceeds from the exchange offer. . The terms of the exchange notes are substantially identical to those of the initial notes, except for transfer restrictions and registration rights relating to the initial notes. . We have the option until April 1, 2005, to redeem up to 35% of the aggregate principal amount of notes originally issued, and any additional notes issued under the same indenture governing the notes, at a redemption price of 111.25% of the principal amount plus accrued and unpaid interest using the net cash proceeds of certain types of qualified equity offerings. . The initial notes are, and the exchange notes will be, guaranteed by the subsidiary guarantors set forth in this prospectus. . There is no existing market for the exchange notes, and we do not intend to apply for their listing on any securities exchange. See the "Description of the Exchange Notes" section on page for more information about the exchange notes. . Under certain circumstances specified in the registration rights agreement, we may be required to file a "shelf" registration statement for a continuous offer in connection with the initial notes pursuant to Rule 415 under the Securities Act of 1933. . Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be issued by a broker-dealer in connection with resales of Exchange Notes received in exchange for Initial Notes where such Notes were acquired as a result of market-making activities or other trading activities. The Issuer has agreed that for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until 2002, all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. See "Plan of Distribution." THIS INVESTMENT INVOLVES RISKS. SEE THE SECTION ENTITLED "RISK FACTORS" THAT BEGINS ON PAGE FOR A DISCUSSION OF THE RISKS THAT YOU SHOULD CONSIDER PRIOR TO TENDERING YOUR INITIAL NOTES FOR EXCHANGE. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is , 2002 TABLE OF CONTENTS
Page ---- Forward-Looking Statements.......................................................... 1 Trademarks.......................................................................... 1 Prospectus Summary.................................................................. 2 Summary of Exchange Offer........................................................... 6 Summary of the Exchange Notes....................................................... 10 Risk Factors........................................................................ 13 The Exchange Offer.................................................................. 23 Use of Proceeds..................................................................... 31 Capitalization...................................................................... 32 Selected Historical Consolidated Financial Data..................................... 34 Management's Discussion and Analysis of Financial Condition and Results of Operation 36 Business............................................................................ 50 Management.......................................................................... 60 Executive Compensation.............................................................. 62 Security Ownership of Certain Beneficial Owners and Management...................... 65 Certain Relationships and Related Party Transactions................................ 68 Description of Senior Indebtedness.................................................. 70 Description of the Exchange Notes................................................... 73 Certain United States Federal Income Tax Considerations............................. 109 Plan of Distribution................................................................ 111 Legal Matters....................................................................... 111 Experts............................................................................. 111 Available Information............................................................... 111 Index to Consolidated Financial Statements.......................................... F-1
- -------- You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. Until 2002 all dealers effecting transactions in these securities, 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. FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future results. When we use words in this document, such as "anticipates," "intends," "plans," "believes," "estimates," "expects," and similar expressions, we do so to identify forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements. These forward-looking statements are affected by risks, uncertainties, and assumptions that we make, including, among other things, the factors that are described in "Risk Factors" and: . price and product changes, . promotional activity by competitors, . the loss, or material change in the financial condition, of a significant customer, . capacity limitations, . the difficulties of integrating acquisitions, . adverse publicity and product liability claims, . industry trends and conditions, . technological advances, our level of debt, . interest rate fluctuations, . future cash flows, . dependence on key employees, . highly competitive nature of the fitness industry, and . general economic conditions which impact the level of consumer spending. You should keep in mind that any forward-looking statement made by us in this prospectus or elsewhere speaks only as of the date on which we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We do not intend to update or revise the forward-looking statements in this prospectus unless the securities laws require us to do so. In light of these risks and uncertainties, you should not place undue reliance upon any forward-looking statement made in this prospectus. TRADEMARKS We have proprietary rights to a number of trademarks important to our businesses, such as: ProForm(R), NordicTrack(TM), HealthRider(R), Image(TM), Weslo(R), JumpKing(R), Ground Zero(TM), Free Motion(TM), Workout Warehouse(TM), iFIT.com(TM), iFIT(TM), SpaceSaver(TM), Cross Trainer(TM), Cross Walk(TM), Cardioglide(R), Incline Trainer(TM), Hiker(TM), QuickSpeed(TM), QuickIncline(TM), EKG Grip Pulse(TM), SoftDeck(TM), PowerIncline(TM), PowerRamp(TM), and CustomCushioning(TM), all of which are owned by us, and Reebok, Weider and Gold's Gym, which are used by us under license agreements with the owners of such trademarks. 1 PROSPECTUS SUMMARY This summary contains basic information about us and this exchange offer but may not contain all the information that is important to you. We encourage you to read the more detailed information and financial statements appearing elsewhere in this prospectus. Unless the context requires otherwise: . "We," "us" and "the Company" refer to ICON Health & Fitness, Inc. and its subsidiaries on a consolidated basis; . Our market share, measured by retail sales dollars, refers to our share of the total United States home fitness equipment market according to the Sports Market Research Group ("SMRG"); . Historical and projected retail sales of home fitness equipment, including various product categories of home fitness equipment, and the growth rates of such historical retail sales are according to the National Sporting Goods Association ("NSGA"); . Historical and projected data regarding the size of the institutional market for fitness equipment and the consumer usage levels are according to The Sporting Goods Manufacturers' Association ("SGMA"); . "CAGR" refers to compound annual growth rate; and . Our fiscal year refers to the twelve-month period ended May 31 of the stated year. . The terms "initial notes" or "old notes" refer to the 11.25% Senior Subordinated Notes due 2012 which we issued in April 2002. . The terms "notes," "new notes," or "exchange notes" refer to the 11.25% Senior Subordinated Notes due 2012 offered in this prospectus. Our Company We manufacture and distribute a broad line of products in the fitness equipment market. These fall into two product categories, namely: cardiovascular and other equipment, and strength training equipment. We are one of the largest manufacturers and marketers of home fitness equipment in the United States. In addition, we manufacture and distribute an innovative line of products for the institutional fitness equipment market in both our cardiovascular and other equipment category and our strength training equipment category. We are one of the few manufacturers with a broad product line in each of our principal product categories. Our brand names include: ProForm, NordicTrack, HealthRider, Weslo, Image, JumpKing, Free Motion Fitness and, under license, Reebok, Weider and Gold's Gym. For the fiscal year ended May 31, 2002, we generated net sales of $896.1 million resulting in net income of $19.4 million and EBITDA (as defined herein) of $75.7 million. See "Selected Historical Consolidated Financial Data." Home fitness equipment is one of the fastest growing segments of the sporting goods industry. Retail sales of home fitness equipment have increased at a CAGR of 12.7% from $311 million in 1980 to an estimated $3.8 billion in 2001, according to NSGA. We believe that there are several leading reasons for this growth. First, there has been a significant increase in the United States population ages 45 to 64, which age group accounts for the majority of home fitness equipment purchases in the United States. Second, the number of Americans participating in fitness activities has increased from 42.3 million in 1987 to 51.6 million in 2000, we believe, in part, because Americans have become aware of the compelling medical evidence of the benefits of exercise. Third, from 1990 to 2000, the percentage of Americans who use equipment during their cardiovascular and strength training exercise routines has increased by 41% and 69%, respectively. Finally, we believe that consumers are dedicating more of their disposable income to activities at home, including fitness. 2 Our Products We manufacture and distribute a broad line of fitness equipment for the fitness market in the following product categories: . Cardiovascular and Other Fitness Equipment. This category consists of products aimed at providing the user with a calorie burning endurance workout. Primary products within this category include treadmills, ellipticals, and exercise bikes. Sales of cardiovascular fitness equipment has grown from $769.1 million in 1987 to $2.9 billion in 2000. This category also includes other related products we manufacture, including (i) fitness accessories (ii) trampolines and (iii) relaxation products such as spas. We believe these products complement our primary product offerings. . Strength Training Equipment. Strength training equipment is designed to develop muscle tone and strength. Primary products within this category include multi-purpose gyms, free weights, weight benches and cages. Retail sales of anaerobic strength training products industry-wide have increased from $208.7 million in 1980 to $856.9 million in 2000, a CAGR of 7.3%. In addition, we recently introduced a full line of fitness equipment for the institutional market that includes our innovative line of Free Motion strength training equipment and treadmills, Incline Trainers and other cardiovascular equipment sold to health clubs, elite athlete training centers and corporate wellness centers under our NordicTrack and Free Motion Fitness brand. Our Brands and Distribution Channels We market a complete line of products under multiple brands through multiple distribution channels to reach a wide range of consumers at various price points. We have some of the strongest brands in the industry, including NordicTrack which ranks among the top seven most widely recognized sporting goods brands according to American Sports Data. Our ProForm brand was ranked number one in terms of fitness market share by SMRG in 2000. We market our products through each distribution channel in which home fitness equipment products are sold, including: department stores, mass retailers and warehouse clubs, sporting goods and specialty fitness retailers, and direct-to-consumer sales through catalogs, infomercials, the Internet and our company-owned NordicTrack stores. Our History Our predecessor company, Weslo, was founded in 1977 by Scott Watterson, our Chairman and Chief Executive Officer, and Gary Stevenson, our President and Chief Operating Officer. In 1987, we acquired ProForm, and in 1988 we were acquired by Weider Health and Fitness ("Weider"). In 1994, affiliates of Bain Capital, LLC formed ICON Health & Fitness, Inc. and obtained control of us in a recapitalization transaction. As part of that transaction, we incurred substantial indebtedness and issued common and preferred stock to Weider. In 1996, we acquired HealthRider and CanCo, a Weider affiliated Canadian manufacturing firm, and we repurchased the common and preferred stock that had been issued to Weider in that recapitalization. We funded these transactions with additional indebtedness. In addition, in 1998 we acquired the assets of NordicTrack, Inc. In 1999, we consummated a recapitalization that included a $40.0 million cash contribution of capital, the exchange of our then-existing debt securities for cash and new debt and equity securities and the refinancing of our senior credit facility. 3 Our Competitive Strengths We attribute our market leadership, opportunities for continued growth and increased profitability to the following competitive strengths: . Leading Market Position. . Unique Multi-Brand, Multi-Channel Distribution Capability. . Strong Customer Relationships. . Strong Commitment to Research and Development. . Flexible Manufacturing Capability. . Experienced Management Team with Significant Equity Ownership. 4 Our Business Strategy We plan to increase our net sales and EBITDA by continuing to pursue a business strategy that has the following principal components: . Participate in Industry Growth. . Increase Direct-to-Consumer Sales. . Increase Our Presence in the Institutional Fitness Equipment Market. . Increase Our International Sales. . Selectively Pursue Acquisitions. 5 SUMMARY OF THE EXCHANGE OFFER As of the date of this prospectus, $155,000,000 aggregate principal amount of unregistered notes are outstanding. Simultaneously with the issuance of the initial notes, we entered into a registration rights agreement with the initial holders of the notes in which we agreed to deliver this prospectus to you and to complete the exchange offer no later than 30 business days after the effective date of the registration statement of which this prospectus is a part, which effective date must occur on or prior to October 7, 2002. If we do not complete the exchange offer before this date, the annual interest rate on the initial notes will increase in incremental amounts, up to a maximum increase of 1.5% over the original interest rate of the notes until the exchange offer is completed. You should read the description under "--Summary of the Exchange Notes" and "Description of the Notes" for more information about the registered notes. We believe that the notes to be issued in the exchange offer may be resold by you without compliance with the registration and prospectus delivery provisions of the Securities Act, unless you are an affiliate of our company. You should read the discussion under the heading "The Exchange Offer" for further information regarding the exchange offer and resale of the notes. The Exchange Offer.......... We are offering to exchange $1,000 principal amount of our 11.25% notes due 2012 which have been registered under the Securities Act for each $1,000 principal amount of our outstanding 11.25% notes due 2012 which were issued in April, 2002 in a private offering. In order to be exchanged, an initial note must be properly tendered and accepted. We will exchange all initial notes validly tendered and not validly withdrawn. Resales of Exchange Notes... Based on interpretations by the staff of the SEC, as enunciated in no-action letters issued to Exxon Capital Holdings Corporation (avail. May 13, 1988), Morgan Stanley & Co. (avail. June 5, 1991), and Shearman & Sterling (avail. July 2, 1993), each of which is unrelated to us, we believe that exchange notes issued pursuant to the exchange offer in exchange for initial notes may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act, unless you: . are an "affiliate" of ours within the meaning of Rule 405 under the Securities Act; . are a broker-dealer who purchased initial notes directly from us for resale, under Rule 144A or Regulation S under the Securities Act or any other available exemption under the Securities Act; . are a broker-dealer that receives exchange notes for your own account in exchange for initial notes which were acquired by you as a result of market-making or other trading activities; . acquired the exchange notes other than in the ordinary course of your business; . are engaging or intend to engage in a distribution of exchange notes; or 6 . have an arrangement or understanding with any person to participate or engage in the distribution of exchange notes. By tendering your initial notes (as described below) you will be making representations to this effect. However, the SEC has not considered our exchange offer in the context of a no-action letter and we cannot assure you that the staff of the SEC would make a similar determination with respect to the exchange offer. Furthermore, in order to participate in the exchange offer, you must make the representations set forth in the letter of transmittal that we are sending you with this prospectus. If our belief is not accurate, or if you satisfy one of the conditions listed above, and you transfer an exchange note without delivering a prospectus meeting the requirements of the federal securities laws or without an exemption from these laws, you may incur liability under the federal securities laws. We do not and will not assume, or indemnify you against, this liability. Each broker-dealer that receives exchange notes for its own account in exchange for initial notes, which were acquired by the broker-dealer as a result of market-making or other trading activities, must agree to deliver a prospectus meeting the requirements of the federal securities laws in connection with any resale of the exchange notes. See "The Exchange Offer" and "Plan of Distribution." Expiration and Exchange Dates This offer will expire at 5:00 PM, New York City time, on , 2002, unless we extend it, and we will consummate the exchange on the next business day. Exchange and Registration Rights Agreement.......... You have the right to exchange the initial notes that you now hold for exchange notes with substantially identical terms. This exchange offer is intended to satisfy these rights. After the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your notes. The registration rights agreement requires us to file a registration statement for a continuous offering in accordance with Rule 415 under the Securities Act for your benefit if, under applicable law, you would not receive freely tradeable registered notes in the exchange offer, you are ineligible to participate in the exchange offer, or in other specified circumstances, and you notify us that you wish to have your old notes registered under the Securities Act. See "The Exchange Offer--Shelf Registration Statement." Conditions.................. This offer is conditioned only upon compliance with the securities laws. The offer applies to any and all initial notes tendered by the deadline. 7 Withdrawal Rights........... You may withdraw your tender of initial notes at any time before the offer expires. Federal Income Tax Consequences.............. The exchange should not be a taxable event for United States federal income tax purposes. You should not recognize any taxable gain or loss or any interest income as a result of the exchange. Transfer Restrictions on Exchange Notes............ You may incur liability under the Securities Act if: (1) any of the representations listed above are not true; and (2) you transfer any exchange note issued to you in the exchange offer without: . delivering a prospectus meeting the requirements of the Securities Act; or . an exemption from the Securities Act's requirements to register your exchange notes. We do not assume or indemnify you against such liability. Each broker-dealer that is issued exchange notes for its own account in exchange for initial notes that were acquired as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the exchange notes. A broker-dealer may use this prospectus for an offer to resell, a resale or other retransfer of the exchange notes issued to it in the exchange offer. Procedures for Tendering Old Notes..................... Each holder of initial notes who wishes to accept the exchange offer must: . complete, sign and date the accompanying letter of transmittal, or a facsimile thereof; or . arrange for the Depository Trust Company to transmit certain required information to the exchange agent in connection with a book-entry transfer. You must mail or otherwise deliver such documentation and your old notes to The Bank of New York, as exchange agent, at the address set forth under "The Exchange Offer--Exchange Agent." Failure to Exchange will affect you adversely...... If you are eligible to participate in the exchange offer and you do not tender your initial notes, you will not have any further registration or exchange rights and your initial notes will continue to be subject to some restrictions on transfer. Accordingly, the liquidity of the initial notes could be adversely affected. Special Procedures for Beneficial Owners......... If you beneficially own initial notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your initial notes in the exchange offer, you should 8 contact such registered holder promptly and instruct it to tender on your behalf. If you wish to tender on your own behalf, you must, before completing and executing the letter of transmittal for the exchange offer and delivering your initial notes, either arrange to have your initial notes registered in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Guaranteed Delivery Procedures................ You may comply with the procedures described in this prospectus under the heading "The Exchange Offer--Guaranteed Delivery Procedures" if you wish to tender your initial notes and: . time will not permit your required documents to reach the exchange agent by the expiration date of the exchange offer, . you cannot complete the procedure for book-entry transfer on time, or . your initial notes are not immediately available. 9 SUMMARY OF THE EXCHANGE NOTES Interest.................... The notes will bear interest at an annual rate of 11.25%. Interest is payable semi-annually in arrears on January 1 and July 1 of each year, beginning July 1, 2002. Maturity Date............... April 1, 2012 Ranking..................... The notes and subsidiary guarantees will rank: . junior to all of our and the guarantors' existing and future senior indebtedness, including borrowings equal to $103.1 million in the aggregate as of May 31, 2002 under the new credit agreement; . equally with any of our and the guarantors' future senior subordinated indebtedness; . senior to any of our and the guarantors' future subordinated indebtedness; and . effectively junior to all existing and future liabilities, including trade payables, of our non-guarantor subsidiaries $7.2 million in the aggregate as of May 31, 2002. Optional Redemption......... We may redeem the notes at any time on or after April 1, 2007, in whole or in part, in cash at the redemption prices described in this offering circular, plus accrued and unpaid interest and additional interest, if any, to the date of redemption. In addition, on or before April 1, 2005, we may redeem up to 35% of the aggregate principal amount of notes originally issued, and any additional notes issued under the same indenture governing the notes, at a redemption price of 111.25% plus accrued and unpaid interest with the proceeds of specified equity offerings. This redemption would be made by the trustee in compliance with the requirements of the principal national securities exchange on which the notes are listed. If the notes are not listed on a national securities exchange the redemption shall be done pro rata by lot or other method the trustee deems fair. Change of Control........... Upon the occurrence of any of the following events: . the direct and indirect sale or disposition of all or substantially all of our properties and assets; . the liquidation or dissolution of ICON; . any transaction the result of which any person other than our current shareholders, becomes the owner of greater than 50% of our voting stock; 10 . a change in a majority of our directors; . if our Parent HF Holdings ceases to own 100% of our outstanding voting stock we will be required to make an offer to repurchase the notes at a purchase price equal to 101% of the principal amount of the notes on the date of repurchase, plus accrued and unpaid interest and additional interest, if any, to the date of repurchase. See "Description of the Exchange Notes--Repurchase at Option of Holders--Change of Control." Our ability to complete the change of control repurchase may be limited by the terms of our new credit agreement and our other indebtedness. Subsidiary Guarantees....... The notes will be jointly and severally guaranteed on an unsecured, senior subordinated basis by our existing and future Domestic Subsidiaries (as defined herein). Certain Covenants........... The indenture governing the notes will contain covenants that will, among other things, limit our ability and the ability of our restricted subsidiaries to: . incur additional indebtedness; . create certain liens; . pay dividends or make other equity distributions; . purchase or redeem capital stock; . make certain investments; . sell assets or consolidate or merge with or into other companies; . engage in transactions with affiliates; and . enter into certain sale and leaseback transactions However, these limitations will be subject to a number of important qualifications and exceptions. See "Description of the Exchange Notes." 11 Summary Historical Consolidated Financial Data The following table shows our summary historical consolidated financial data for the fiscal years ended May 31, 1999, 2000, 2001 and 2002. Our summary historical consolidated financial data for the fiscal years ended May 31, 1999, 2000, 2001 and 2002 were derived from our audited consolidated financial statements, included elsewhere in this prospectus. This summary financial data should be read in conjunction with, and is qualified in its entirety by, "Use of Proceeds," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and accompanying notes included elsewhere in this prospectus.
For the Years Ended May 31, --------------------------------- 1999 2000 2001 2002 ------ ------ ------ ------ (in millions) Operating Data: Net sales............................. $710.2 $733.0 $820.5 $896.1 Cost of sales......................... 514.0 531.6 580.5 635.1 Gross profit.......................... 196.2 201.4 240.0 261.0 Operating expenses.................... 168.7 166.0 184.1 205.2 Income from operations................ 27.5 35.4 55.9 55.8 Interest expense...................... 33.1 33.9 34.8 26.1 Amortization of deferred financing fees................................ 7.0 2.7 3.2 3.1 Net income (loss)..................... (24.7) (6.6) 13.3 19.4 Other Financial Data: Depreciation and amortization......... $ 17.4 $ 16.7 $ 17.4 $ 19.2 Purchases of property and equipment(1)........................ 11.6 12.9 16.1 11.6 Balance Sheet Data (at the end of the period): Cash.................................. $ 4.3 $ 5.9 $ 3.3 $ 4.8 Working capital....................... 108.0 132.3 157.6 164.0 Total assets.......................... 331.9 368.1 405.5 423.2 Total indebtedness.................... 260.6 253.2 264.7 255.9 Supplemental Data: Net cash provided by operating activities.......................... $ 38.0 $ 0.5 $ 12.4 $ 37.5 Net cash used in investing activities. (20.1) (19.9) (22.8) (17.1) Net cash provided by (used in) financing activities................ (17.1) 21.4 8.7 (19.3) Ratio of earnings to fixed charges.... --(2) 1.0x 1.4 x 1.8x EBITDA(3)............................. 44.9 52.5 72.1 75.7
- -------- (1) Excludes purchases of intangibles, trademarks and acquisitions of $8.5 million for fiscal year 1999, $4.4 million for fiscal year 2000, $6.7 million for the fiscal year 2001 and $5.5 million for the fiscal year 2002. (2) For fiscal year 1999 our earnings were inadequate to cover our fixed charges by $12.6 million. (3) EBITDA means earnings before net interest expense, income taxes, depreciation, amortization and extraordinary loss on extinguishment of debt. EBITDA is presented because we believe it is an indicator of our ability to incur and service debt and is used by our lenders in determining compliance with financial covenants. However, EBITDA should not be considered an alternative to cash flow from operating activities as measures of liquidity or as an alternative to net income as measures of operating results in accordance with generally accepted accounting principles. Our definition of EBITDA may differ from definitions of EBITDA used by other companies. For a list of unusual items that have affected EBITDA see "Selected Historical Consolidated Financial Data." 12 RISK FACTORS You should carefully consider the risk factors set forth below, as well as the other information contained in this prospectus, before purchasing the notes offered pursuant to this prospectus. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. Any of the following risks could materially adversely affect our business, financial condition, cash flows or results of operations. In such case, you may lose all or part of your original investment. Risks Relating to this Offering Our substantial leverage could adversely affect our financial condition and prevent us from fulfilling our obligations under the notes. We are, and will continue after this offering to be, highly leveraged. After giving pro forma effect to: . the issuance in April 2002 of the initial notes, . our initial borrowings of $117.3 million under the new credit facility, . the repayment of $194.1 million due and under our old credit facility, . the redemption of our 12% subordinated notes due 2005 in the aggregate amount of $46.1 million, and . the payment of the transaction fees and expenses related to the issuance of the initial notes and to our new credit facility, we had on May 31, 2002 total indebtedness of approximately $255.9 million (of which $152.8 million consisted of the initial notes and $103.1 million consisted of secured borrowings under our new credit facility), and stockholders' equity of approximately $16.2 million. Also, after giving pro forma effect to the same items, our ratio of earnings to fixed charges would have been 1.9 to 1.0 for the fiscal year ended May 31, 2002. In addition, we and our subsidiaries will be permitted to incur substantial additional indebtedness in the future. Our substantial indebtedness could have important consequences to you. For example, it could: . make it more difficult or render us unable to satisfy our obligations with respect to the notes; . increase our vulnerability to general adverse economic and industry conditions; . limit our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements, or to carry out other aspects of our business plan; . require us to dedicate a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures or other general corporate purposes, or to carry out other aspects of our planning for our business plan; . limit our flexibility in executing our business strategy or in reacting to changes in our business and the industry; . place us at a competitive disadvantage compared to our competitors that have less debt; and . limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds. Also, failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on us. 13 In addition, the indenture and our new credit facility contain financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debts. The notes and the guarantees are junior to our and the guarantors' senior debt, respectively. The notes and the guarantees are subordinated in right of payment to all of our and the guarantors' current and future senior debt, respectively. Upon any distribution to our or the guarantors' creditors in a liquidation or dissolution of us or the guarantors or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to us, the guarantors or our or their property, the holders of senior debt will be entitled to be paid in full before any payment may be made with respect to the notes or the guarantees, as applicable. In addition, the subordination provisions of the indenture will provide that payments with respect to the notes will be blocked in the event of a payment default on senior debt and may be blocked for up to 179 days each year in the event of certain non-payment defaults on senior debt. In the event of our or the guarantors' bankruptcy, liquidation or reorganization or similar proceeding, holders of the notes will participate ratably with all holders of subordinated indebtedness that is deemed to be of the same class as the notes and the guarantees, as applicable, and potentially with all other general creditors, based upon the respective amounts owed to each holder or creditor, in our or the guarantors remaining assets, as applicable. In any of the foregoing events, there can be no assurance that there would be sufficient assets to pay amounts due on the notes. As a result, holders of notes may receive less, ratably, than the holders of senior debt. In addition, under the subordination provisions of the indenture, payments that would otherwise be made to holders of the notes will instead be paid to holders of senior debt in the event of a default under our senior credit agreement. As a result of these provisions, other creditors (including trade creditors) that are not holders of senior debt may recover more, ratably, than the holders of the notes. In addition, the notes are effectively subordinated to all outstanding obligations of any of our subsidiaries that does not guarantee the notes. The notes will not be guaranteed by any unrestricted subsidiary under the indenture or by our foreign subsidiaries (other than our Canadian subsidiaries). Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage. We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indenture allow for additional indebtedness under specified conditions and do not fully prohibit us or our subsidiaries from doing so. As of May 31, 2002, subject to borrowing base limitations and after giving pro forma effect to: . the issuance in April 2002 of the initial notes, . our initial borrowings under our credit facility, . the repayment of our old credit facility, . the redemption of our 12% subordinated notes due 2005, and . the payment of fees and expenses related to the issuance of the initial notes and to our credit facility, our new credit facility would have permitted additional borrowings of up to $82.9 million and all of such borrowings would have ranked senior to the initial notes and the subsidiary guarantees. If new debt is added to our and our subsidiaries' current debt levels, the related risks that we and they now face could intensify. To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. Our ability to make scheduled payments of principal of, or to pay the interest on, or to refinance, our indebtedness, including the notes, or to fund planned capital expenditures will depend on our ability to generate 14 cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. See "Market Risk" page 48. Based on our current level of operations, management believes that cash flow from operations and available cash, together with available borrowings under our new credit facility, will be adequate to meet our future liquidity needs for at least the next few years. We may, however, need to refinance all or a portion of the principal amount of the notes on or prior to maturity. We cannot assure you, however, that our business will generate sufficient cash flow from operations, that anticipated revenue growth and operating improvements will be realized or that future borrowings will be available under our new credit facility in an amount sufficient to enable us to service our indebtedness, including the notes, or to fund our other liquidity needs. In addition, we cannot assure you that we will be able to refinance any of our indebtedness, including our new credit facility or the notes, on commercially reasonable terms or at all. The terms of the new credit facility and the indenture relating to the notes restrict our current and future operations, particularly our ability to respond to changes or to take some actions. The new credit facility contains numerous operating and financial covenants, and any future refinancing of the new credit facility likely would contain a number of restrictive covenants, that impose significant operating and financial restrictions on us. The new credit facility includes covenants restricting, among other things, our ability to: . incur additional indebtedness; . pay dividends and make restricted payments; . create liens; . use the proceeds from sales of assets and subsidiary stock; . enter into sale and leaseback transactions; . enter into transactions with affiliates; and . enter into certain mergers, consolidations and transfers of all or potentially all of our assets. The new credit facility also includes financial covenants, including requirements that we maintain a minimum debt service coverage ratio. The indenture relating to the notes also contains numerous operating and financial covenants including, among other things, restrictions on our ability to: . incur additional indebtedness; . create liens or other encumbrances; . make certain payments and investments; . enter into sale and leaseback transactions; . sell or otherwise dispose of assets; and . merge or consolidate with another entity. A failure by us to comply with covenants contained in the new credit facility or the indenture could result in an event of default which could materially and adversely affect our operating results and our financial condition. We may not have the ability to raise the funds necessary to finance any change of control offer required by the indenture governing the notes. Upon the occurrence of certain specific kinds of change of control events, we will be required to offer to repurchase all outstanding notes at 101% of the principal amount thereof plus accrued and unpaid interest and 15 additional interest, if any, to the date of repurchase. However, it is possible that we will not have sufficient funds at the time of the change of control to make any required repurchases of notes or that restrictions in our new credit facility will not allow such repurchases. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a "Change of Control" under the indenture. Federal and state statutes allow courts, under specific circumstances, to void guarantees and require noteholders to return payments received from guarantors. Under federal bankruptcy law or comparable provisions of state fraudulent transfer laws, a note or guarantee could be voided. Further, claims in respect of a note or guarantee could be subordinated to all other debts of us or those of the guarantor, as the case may be, if, among other things, we or the guarantor, at the time of incurring the indebtedness evidenced by the note or the guarantee: . received less than reasonably equivalent value or fair consideration for the incurrence of such indebtedness; and . was insolvent or rendered insolvent by reason of such incurrence; or . was engaged in a business or transaction for which our or the guarantor's remaining assets constituted unreasonably small capital; or . intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature. In addition, any payment made by us pursuant to the notes or by a guarantor pursuant to a subsidiary guarantee could be voided and required to be returned to the person making such payment, or to a fund for the benefit of our creditors or creditors of the guarantors, as the case may be. The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, we or a guarantor would be considered insolvent if: . the sum of its debts, including contingent liabilities, were greater than the saleable value of all of its assets; or . if the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or . it could not pay its debts as they become due. If an active trading market for the notes does not develop, the liquidity and value of the notes could be harmed. Prior to this offering, there was no public market for these notes. We have been informed by the initial purchasers that they intend to make a market in these notes after this offering is completed. However, the initial purchasers may cease their market-making at any time. The initial purchasers of the notes were Credit Suisse First Boston Corporation, JP Morgan Securities and Fleet Securities. In addition, the liquidity of the trading market in these notes, and the market price quoted for these notes, may be adversely affected by changes in the overall market for high yield securities and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, you cannot be sure that an active trading market will develop for these notes. If no active trading market develops, you may not be able to resell your notes at their fair market value or at all. 16 The trading price of the notes may be volatile. The trading price of the notes could be subject to significant fluctuation in response to, among other factors, variations in operating results, developments in industries in which we do business, general economic conditions, changes in securities analysts' recommendations regarding our securities and changes in the market for noninvestment grade securities generally. This volatility may adversely affect the market price of the notes. Consequences Of Failure To Exchange Holders of initial notes who are eligible to participate in the exchange offer but who do not tender their notes will not have any further registration rights, and their initial notes will continue to be subject to restrictions on transfer. Accordingly, such notes may be resold only: . to us, upon redemption of these notes or otherwise, . so long as the old notes are eligible for resale pursuant to Rule 144A under the Securities Act, to a person inside the United States whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A, . in accordance with Rule 144 under the Securities Act, or under another exemption from the registration requirements of the Securities Act, and based upon an opinion of counsel reasonably acceptable to us, . outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, or . under an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. Risks Relating to our Business We rely on a limited number of major customers, the loss of any of which could have a material adverse effect on our business. Our largest customer, Sears, accounted for approximately 39.1%, 42.4% and 44.5% of our net sales in fiscal years 2000, 2001 and the fiscal year ended May 31, 2002, respectively. The level of our sales to this customer depends in large part on consumers' continuing commitment to home fitness equipment products and on the success of the customer's efforts to market and promote our products, as well as our competitiveness in terms of price, quality, product innovation, customer service and other factors. Consistent with industry practice, we do not have long-term purchase agreements or other commitments as to levels of future sales. There can be no assurance that we will be able to maintain our current level of sales to this customer. The loss of, or a substantial decrease in the amount of purchases by, or a write-off of any significant receivables due from any of our major customers would have a material adverse effect on our business and financial condition. We rely heavily on product innovation. Product life cycles can be short in the home fitness industry and innovation is an important component of the competitive nature of the industry. While we emphasize new product innovation and product repositioning (i.e., design changes or revised marketing strategies), we may be unable to continue to develop competitive products in a timely manner or to respond adequately to market trends. In addition, we may not be able to ensure that repositioned products will gain initial market acceptance, that interest in our products will be sustained, or that significant start-up costs with respect to new products will be recouped. Moreover, although our management believes that fitness and health activities have become important to consumers, we cannot ensure that interest in any particular fitness activity will be sustained. 17 We are dependent on the sale of our treadmills. The sale of motorized treadmills accounts for a significant portion of our net sales. Motorized treadmills accounted for 63.9%, 60.5% and 58.6% of our net sales for fiscal years ended May 31, 2000, 2001 and 2002, respectively. We could be adversely affected if we experienced a significant decline in the popularity of our motorized treadmills and were unable to develop and introduce other successful products in a timely manner. Additionally, we could become dependent upon other product categories in the future which may evolve due to shifts in consumer trends. We operate in a very competitive business environment. Competition in the field of home fitness equipment is intense. The home fitness equipment market is served by a variety of entities including (i) manufacturers such as Life Fitness, Precor, Direct Focus, Fitness Quest, Keys and Horizon Fitness; (ii) retailers such as Omnifitness and Exercise Equipment Company and (iii) Asian direct exporters and international direct importers--such as Direct Focus, Tunturi and Helmut Kettler. Our primary competitors in the institutional fitness market include manufacturers such as Life Fitness, Precor, StarTrac and Cybex. Because of their greater resources, many of our competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, devote greater resources to the promotion and sale of their products than we can, or consummate strategic acquisitions. Many of these competitors may also have long-standing relationships with key suppliers and may offer other products and/or services which we do not provide. Providers of home fitness equipment have traditionally competed on the basis of price, quality, brand name recognition, product innovation and customer service. As we seek to maintain our position as one of the principal members of the home fitness equipment industry, we compete on price, product innovation and design, unique multi-channel distribution, our principal brand names and our strong customer relationships. We believe that developing and maintaining a competitive advantage will require our continued investment in research and development and sales and marketing. We cannot assure you that we will have sufficient resources to make the necessary investments to do so, nor can we assure you that we will be able to compete successfully in this market or against such competitors. We plan to increase our use of direct response advertising. We plan to increase our use of direct response advertising primarily through infomercials. Direct response advertising consists of infomercials, direct mail and other types of communications mailed or transmitted directly to consumers. Our principal competitors include Direct Focus, Fitness Quest and Thane. This form of advertising can have costs significantly higher than other types which we may not be able to recover if these advertising initiatives fail to produce sufficient sales. Our direct response advertising expenses were $7.1 million and $10.1 million for fiscal 2001 and the fiscal year ended May 31, 2002, respectively. We cannot be certain that these initiatives will produce sufficient sales to cover these costs. Our sales are highly price sensitive, which can prevent us from passing cost increases on to our customers. Sales to mass retailers, which are among our primary customers, are highly price sensitive. We set many product prices on an annual basis but we typically purchase raw materials and components under purchase orders with periods of less than one year. Accordingly, we often must set prices for many products before production costs have been firmly established, before we have complete knowledge of the costs of raw materials and components and sometimes before product development is complete. After we have established prices, we may be unable to pass cost increases along to our customers or to compete as effectively if we seek to pass such costs along. We are dependent on key suppliers. We rely on several key suppliers and several backup suppliers for electronic parts which include controller components and electric motors and walking belt materials used in the manufacture of our products. Our 18 agreements with these suppliers are terminable at will by either party. In the event that any of our key or backup suppliers terminated our relationship we may not be able to identify suitable replacement suppliers on similar or favorable terms. Our reliance on foreign suppliers exposes us to the general risks of doing business abroad. Since we purchase components and finished products from foreign suppliers, we are subject to the general risks of doing business abroad, including delays in shipment, work stoppages, adverse fluctuations in currency exchange rates, increases in import duties and tariffs, changes in applicable customs rules and regulations, disputes and litigation arising from applicable customs regulations, changes in foreign regulations, changes in most-favored-nation status and political instability. For example, we depend on manufacturers in mainland China for approximately 20% of our products (by dollar value). The Bush administration recently announced proposed increased tariffs on steel imported from certain countries into the United States. Steel is a primary raw material used in the manufacture of components used in our finished products. Increased steel tariffs may increase our cost of sales. The ultimate impact that this tariff proposal will have on our results of operations, if any, remains uncertain. There can be no assurance that foreign governments will not adopt regulations or take other actions that have a direct or indirect adverse impact on our business or that market opportunities within such countries will continue to be available to us. In addition, although we seek to maintain dual sources for the material and components required for our products, we currently rely on single sources for component parts, including electronic consoles and controllers and finished products including bikes, ellipticals and benches. The occurrence of any material negative events relating to our foreign suppliers or the loss of certain of these suppliers could adversely affect our business until alternative supply arrangements could be secured, particularly if such loss occurred during our key production periods. We are unable to ensure that we would be able to obtain products and supplies on substantially similar terms should any of these risks materialize. Fluctuations in foreign exchange rates could adversely affect our results of operations. Our functional currency is the U.S. dollar. A significant weakening of the currencies in which we generate sales relative to the U.S. dollar may adversely affect our ability to meet our U.S. dollar obligations. In addition, our results of operations are reported in U.S. dollars. A weakening of the currencies in which we generate sales relative to the U.S. dollar will cause our reported results to decline. In all jurisdictions in which we operate, we are also subject to laws and regulations that govern foreign investment, foreign trade and currency exchange transactions. These laws and regulations may limit our ability to repatriate cash as dividends or otherwise to the United States and may limit our ability to convert foreign currency cash flows into U.S. dollars. Outside the United States, our sales and costs are denominated in a variety of currencies including the euro and the British pound. A weakening of the currencies in which we generate sales relative to the currencies in which our costs are denominated may decrease our operating profits and cash flows. Economic conditions for retail businesses in general can affect our business, and we rely on continuing consumer interest in fitness activities. Our customers are primarily retail businesses. Retail businesses may be adversely affected by unfavorable local, regional or national economic developments which result in reduced consumer spending. We cannot guarantee that an economic downturn would not have a material adverse effect on our customers and, therefore, on us. On January 22, 2002, Kmart filed for bankruptcy protection from its creditors. At the time of the bankruptcy filing we had unsecured receivables outstanding with Kmart totaling $12.1 million. We have reserved $2.4 million against these receivables as of May 31, 2002. There can be no assurance that we will be able to collect any portion of our outstanding accounts receivable. In the fiscal year ended May 31, 2001, we had net sales to Kmart of approximately $38.9 million, representing approximately 4.7% of our total net sales for such fiscal year, and for the fiscal year ended May 31, 2002 we had total net sales to Kmart of approximately $30.6 million, 19 representing approximately 3.4% of our total net sales for such period. Also, Kmart has secured debtor in possession financing and continues to operate in bankruptcy. We resumed shipments to Kmart on February 5, 2002. There can be no assurance that Kmart would continue to operate in bankruptcy. There can be no assurance that we will be able to resume the same level of business we maintained with Kmart prior to their bankruptcy filing. Lastly, there can be no assurance that we would be able to identify or secure a customer or customers to replace any loss of sales to Kmart. The growth of the fitness industry may not continue. While the home fitness industry has grown from $311 million in 1980 to an estimated $3.8 billion in 2001, we cannot be certain consumers' interest in fitness will be sufficient to sustain continued growth in the future. If consumers' interest in fitness activity declines, we cannot assure you that such a decline would not have a material adverse effect on our results of operations, cash flow and financial condition. Our sales fluctuate by season, which can have a material adverse effect on our operating results and cash flow. In fiscal years 2000, 2001 and 2002, we sold approximately 64.3%, 64.7% and 64.4%, respectively, of our products to our customers in our second and third 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 customer promotions and increased consumer purchases. We have frequently incurred operating losses in the first and fourth quarters of our fiscal year. Such variations in demand could have a material adverse effect on the timing of our cash flows and therefore our ability to service our obligations with respect to the notes. The timing of large orders from customers and the mix of products sold may also contribute to quarterly or other periodic fluctuations. If actual sales in our second and third fiscal quarters do not meet or exceed projected sales for that period, expenditures and inventory levels could be disproportionately high for such period and our cash flow for that period and future periods could be adversely affected as we increase inventory levels during our busy season. We may enter similar businesses outside our core business lines. We may, through acquisitions or otherwise, decide to enter into businesses outside the scope of our core business lines. We cannot be certain that these businesses would be successful and will not adversely affect us due to the diversion of management's attention from our core business lines. Also, there can be no assurance that the costs incurred with entering these new businesses will not have a material adverse affect on us. We depend on key members of our management team. Our success depends to a considerable extent on the performance of our senior management team. While we believe that our senior management team has significant depth, the loss of services of our senior executives, particularly the loss of either Scott Watterson, our Chief Executive Officer, or Gary Stevenson, our Chief Operating Officer, could have a material adverse effect on us. Although Messrs. Watterson and Stevenson are parties to employment agreements through May 31, 2003, Messrs. Watterson and Stevenson may terminate such employment without cause upon six months' notice or, under certain circumstances, upon three months' notice. We are controlled by certain stockholders who may substantially influence our business. HF Investment Holdings, LLC ("HF Investment Holdings") owns approximately 79.7% (51.6% on a fully diluted basis) of the outstanding capital stock of HF Holdings, our parent company. Bain Capital Fund IV, L.P., Bain Capital Fund IV-B. L.P., BCIP Associates and BCIP Trust Associates, L.P., collectively own 59.8% of the membership interests of HF Investment Holdings (49.8% on a fully diluted basis). Additionally, Credit Suisse First Boston Corporation owns both membership interests in HF Investment Holdings and shares of our parent HF Holdings. Through such ownership of HF Investment Holdings and the provisions of the stockholders 20 agreement and operating agreement for HF Investment Holdings, these affiliates of Bain Capital, LLC and Credit Suisse First Boston Corporation have the ability to elect a majority of the Boards of Directors of HF Holdings and us and to determine the outcome of significant corporate transactions or other matters submitted to stockholders for approval. HF Holdings has no separate operations and its only asset is our capital stock. Circumstances may occur in which the interests of these stockholders could be in conflict with the holders of notes. In addition, such concentration of ownership may have the effect of preventing a change of control. We are subject to product liability claims and other litigation. Due to the nature of our products, we are subject to product liability claims involving personal injuries allegedly related to our products. Our involvement in the trampoline business through our JumpKing subsidiary has especially exposed us to such claims. We currently carry an occurrence-based product liability insurance policy. The current policy provides coverage for the period from October 25, 2001 to October 1, 2002 of up to $5.0 million per occurrence and $5.0 million in the aggregate. The policy has a deductible on each claim of up to $500,000. We believe that our insurance is generally adequate to cover product liability claims. Nevertheless, currently pending claims and any future claims are subject to the uncertainties related to litigation, and the ultimate outcome of any such proceedings or claims cannot be predicted. Due to uncertainty with respect to the nature and extent of manufacturers' and distributors' liability for personal injuries, we cannot guarantee that our product liability insurance is or will be adequate to cover such claims. In addition, we cannot guarantee that our insurers will be solvent when required to make payments on claims. Furthermore, we cannot guarantee that insurance will remain available, or if available, that it will not be prohibitively expensive. The loss of insurance coverage could have a material adverse effect on our results of operations, cash flows and financial condition. We are subject to government oversight and regulation. We are subject to general oversight by several governmental agencies. This oversight requires us to make certain public disclosures and, from time-to-time, to effect recalls and remediation of certain products. Recently we, in conjunction with the Consumer Product Safety Commission, initiated a recall of our Hiker product. To date, we have received fourteen reports from consumers that under certain circumstances an electrical component in the control system of our Hiker products which included approximately 7,500 units. These units could overheat causing a risk of fire. We effected a recall of the units and remediation of the defective machines at our retail outlets and those already purchased by consumers. While we have not received any reports of injuries we cannot assure you that we will not receive such reports in the future and that injuries, if incurred, will not have a material adverse effect on our results of operation, cash flow and financial condition. In addition, while we do not anticipate the costs to effect the recall and remediation will be material, there can be no assurance that these costs will not have a material adverse effect on our results of operations, cash flow and financial condition. We may be in competition with our retail customers. We currently conduct business directly with consumers through seven Websites over the Internet. We expect to continue to expand our sales efforts via the Internet. Our expansion strategy over the Internet may not, however, be successful, and our traditional retail customers may view this strategy and the continued operation of our retail specialty stores as a competitive effort against them, causing them to reduce or cease the purchase of our products. Additionally, our retail customers may develop direct relationships with suppliers and begin to market private label fitness equipment products under their own brand names in competition with our products. We operate retail stores. We currently operate approximately 70 retail store locations under our NordicTrack name. Retail businesses may be adversely affected by unfavorable local, regional or national economic developments which result in 21 reduced consumer spending. In addition, our retail store strategy of selling goods directly to consumers may be viewed negatively by our traditional retail customers as a competitive effort against them. Lastly, retail stores have many fixed costs including real property leases, personnel costs and other fixed costs associated with operating a retail location. We cannot assure you that an economic downturn would not have a material adverse effect on our retail stores and, therefore on us in general. Our business strategy includes acquisitions to supplement internal growth. Our business strategy is based in part on our ability to supplement internal growth by pursuing opportunistic acquisitions of complementary businesses. We do not know whether in the future we will be able to complete acquisitions on acceptable terms, identify suitable businesses to acquire or successfully integrate acquired businesses. Our competition and, due to our position in certain markets, regulatory considerations may result in fewer acquisition opportunities. If we cannot complete acquisitions, our financial condition or results of operations may be adversely affected. We are subject to potentially costly environmental regulation. Our operations are subject to federal, state and local environmental and health and safety laws and regulations that impose workplace standards and limitations on the discharge of pollutants into the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of materials, substances and wastes. The nature of our operations exposes us to the risk of claims with respect to environmental matters, and there can be no assurance that material costs or liabilities will not be incurred in connection with such claims. We believe that we are in material compliance with such laws and regulations and that the cost of maintaining compliance with such laws and regulations will not have a material adverse effect on our business or financial position. However, future events, such as changes in existing laws and regulations or enforcement policies or the discovery of contamination on sites presently or formerly owned or operated by us, may give rise to additional compliance costs or operational interruptions that could have a material adverse effect on our results of operations or financial condition. If our iFIT Internet service is not accepted by the market, we may not be able to sustain or expand our interactive technology and service business. We began selling interactive products and services through our iFIT operations in 2001, and the market for iFIT is new and evolving. The development of a mass market for our iFIT Internet service may be impacted by many factors which are out of our control, including: the cost competitiveness of our iFIT Internet service; consumer reluctance to try a new Internet service; regulatory requirements; consumer perception of our iFIT Internet service; and the emergence of newer and more competitive Internet services. We cannot assure you that the interactive products and services available through iFIT will prove to be commercially viable or that we will not experience operational problems with such products or services. 22 THE EXCHANGE OFFER We are offering to issue new 11.25% senior subordinated notes due 2012 in exchange for a like principal amount of our initial 11.25% senior subordinated notes due 2012 issued on April 9, 2002. We may extend, delay or terminate the exchange offer. Holders of initial notes will need to complete the exchange offer documentation related to the exchange. Purpose And Effect Of The Exchange We entered into a registration rights agreement with the initial purchasers of the initial notes in which we agreed to use all commercially reasonable efforts to file a registration statement relating to an offer to exchange the initial notes for new notes within 90 days after issuing the initial notes and to use all commercially reasonable efforts to have it declared effective within 180 days after issuing the initial notes. We are offering the new notes under this prospectus to satisfy those obligations under the exchange and registration rights agreement. The exchange of initial notes for exchange notes should be treated as a "non-event" for U.S. federal income tax purposes. The exchange notes should not be considered to differ materially in kind or extent from the initial notes. As a result, no U.S. federal income tax consequences would result to holders exchanging initial notes for exchange notes. Resale Of The Exchange Notes Based on no-action letters issued by the staff of the Securities and Exchange Commission to third parties, we believe that a holder of initial notes, but not a holder who is an affiliate of our company within the meaning of Rule 405 of the Securities Act, who exchanges initial notes for exchange notes in the exchange offer, generally may offer the exchange notes for resale, sell the exchange notes and otherwise transfer the exchange notes without further registration under the Securities Act and without delivery of a prospectus that satisfies the requirements of Section 10 of the Securities Act. This does not apply, however, to a holder who is an affiliate of our company within the meaning of Rule 405 of the Securities Act. We also believe that a holder may offer, sell or transfer the exchange notes only if the holder acquires the exchange notes in the ordinary course of its business and is not participating, does not intend to participate and has no arrangement or understanding with any person to participate in a distribution of the exchange notes. Any holder of initial notes using the exchange offer to participate in a distribution of exchange notes cannot rely on the no-action letters referred to above. This includes a broker-dealer that acquired initial notes directly from us for resale under Rule 144A or Regulation S or any other available exemption under the Securities Act, but not as a result of market-making activities or other trading activities. Consequently, the holder must comply with the registration and prospectus delivery requirements of the Securities Act in the absence of an exemption from such requirements. Each broker-dealer that receives exchange notes for its own account in exchange for initial notes, where such old notes were acquired by the broker-dealer as a result of market-making activities or other trading activities may be a statutory underwriter and must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with the resale of exchange notes received in exchange for initial notes. The letter of transmittal which accompanies this prospectus states that by so acknowledging and by delivering a prospectus, a participating broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. A participating broker-dealer may use this prospectus, as it may be amended from time to time, in connection with resales of exchange notes it receives in exchange for initial notes in the exchange offer. We will make this prospectus available to any participating broker-dealer in connection with any resale of this kind for a period of 180 days after the expiration date of the exchange offer. See "Plan of Distribution". 23 Each holder of the initial notes who wishes to exchange notes for exchange notes in the exchange offer will be required to represent and acknowledge, for the holder and for each beneficial owner of such initial notes, whether or not the beneficial owner is the holder, in the letter of transmittal that: . the exchange notes to be acquired by the holder and each beneficial owner, if any, are being acquired in the ordinary course of business, . neither the holder nor any beneficial owner is an affiliate, as defined in Rule 405 of the Securities Act, of our company or any of our subsidiaries, . any person participating in the exchange offer with the intention or purpose of distributing exchange notes received in exchange for initial notes, including a broker-dealer that acquired old notes directly from us, but not as a result of market-making activities or other trading activities cannot rely on the no-action letters referenced above and must comply with the registration and prospectus delivery requirements of the Securities Act, in connection with a secondary resale of the exchange notes acquired by such person, if the holder is not a broker-dealer, the holder and each beneficial owner, if any, are not participating, do not intend to participate and have no arrangement or understanding with any person to participate in any distribution of the exchange notes received in exchange for initial notes, and . if the holder is a broker-dealer that will receive exchange notes for the holder's own account in exchange for initial notes, the old notes to be so exchanged were acquired by the holder as a result of market-making or other trading activities and the holder will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such exchange notes received in the exchange offer. However, by so representing and acknowledging and by delivering a prospectus, the holder will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. Shelf Registration Statement If applicable law or interpretations of the staff of the SEC are changed so that the exchange notes received by holders who make all of the above representations in the letter of transmittal are not or would not be, upon receipt, transferable by each such holder without restriction under the Securities Act, our Company and the subsidiary guarantors will, at their cost: . file a shelf registration statement covering resales of the initial notes, . use their respective best efforts to cause the shelf registration statement to be declared effective under the Securities Act at the earliest possible time, but no later than the later of 180 days after the obligation to file a shelf registration arises, and . use their respective best efforts to keep effective the shelf registration statement until the earlier of 180 days after the effective date or the time when all of the applicable initial notes are no longer outstanding. We will, if and when we file the shelf registration statement, provide to each holder of the initial notes copies of the prospectus which is a part of the shelf registration statement, notify each holder when the shelf registration statement has become effective and take other actions as are required to permit unrestricted resales of the initial notes. A holder that sells initial notes pursuant to the shelf registration statement generally must be named as a selling security-holder in the related prospectus and must deliver a prospectus to purchasers, will be subject to civil liability provisions under the Securities Act in connection with these sales and will be bound by the provisions of the exchange and registration rights agreement which are applicable to the holder, including certain indemnification obligations. In addition, each holder of initial notes must deliver information to be used in connection with the shelf registration statement and provide comments on the shelf registration statement in order to have its initial notes included in the shelf registration statement and benefit from the provisions regarding any liquidated damages described under "Description of Exchange Notes--Registration Rights; Liquidated Damages". 24 Terms of the Exchange Offer Upon the exchange offer registration statement being declared effective, we will offer the exchange notes in exchange for surrender of the initial notes. We will keep the exchange offer open for at least 25 days, or longer if required by applicable law, after the date notice of the exchange offer is mailed to the holders of the initial notes. The exchange offer is not conditioned upon any minimum aggregate principal amount of initial notes being tendered for exchange. Upon the terms and subject to the conditions contained in this prospectus and in the letter of transmittal which accompanies this prospectus, we will accept any and all initial notes validly tendered and not withdrawn before 5:00 p.m., New York City time, on the expiration date of the exchange offer. We will issue an equal principal amount of exchange notes in exchange for the principal amount of initial notes accepted in the exchange offer. Holders may tender some or all of their initial notes under the exchange offer. Initial notes may be tendered only in integral multiples of $1,000. The form and terms of the exchange notes will be the same as the form and terms of the initial notes except that: (1) the exchange notes will have been registered under the Securities Act and therefore will not bear legends restricting their transfer, and (2) the exchange notes will not contain certain terms providing for an increase in the interest rate on the initial notes under specific circumstances which are described in the registration rights agreement. The exchange notes will evidence the same debt as the initial notes and will be entitled to the benefits of the indenture governing the initial notes. In connection with the exchange offer, holders of initial notes do not have any appraisal or dissenters' rights under law or the indenture governing the initial notes. We intend to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission related to such offers. We will be deemed to have accepted validly tendered initial notes when, as and if we have given oral or written notice of acceptance to The Bank of New York, exchange agent for the exchange offer. The exchange agent will act as agent for the tendering holders for the purpose of receiving the exchange notes from us. If any tendered initial notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events specified in this prospectus or if initial notes are submitted for a greater principal amount than the holder desires to exchange, the certificates for the unaccepted initial notes will be returned without expense to the tendering holder. If initial notes were tendered by book-entry transfer in the exchange agent account at The Depository Trust Company in accordance with the book-entry transfer procedures described below, these non-exchanged initial notes will be credited to an account maintained with The Depository Trust Company as promptly as practicable after the expiration date of the exchange offer. We will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the exchange offer. See "--Fees and Expenses." Holders who tender initial notes in the exchange offer will therefore not need to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of initial notes in the exchange offer. Expiration Date; Extensions; Amendments The expiration date of the exchange offer is 5:00 P.M., New York City time, on , 2002, unless we, in our sole discretion, extend the exchange offer, in which case the expiration date shall be the latest date and time to which the exchange offer is extended. We reserve the right, in our sole discretion: . to delay accepting any initial notes, to extend the exchange offer or to terminate the exchange offer if, in 25 its reasonable judgment, any of the conditions described below under "--Conditions" shall not have been satisfied, by giving oral or written notice of the delay, extension or termination to the exchange agent, or . to amend the terms of the exchange offer in any manner. We will give oral or written notice of any extension, delay, non-acceptance, termination or amendment as promptly as practicable by a public announcement, and in the case of an extension, no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date. During an extension, all notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. Any initial notes not accepted for exchange for any reason will be returned without cost to the holder that tendered them as promptly as practicable after the expiration or termination of the exchange offer. Conditions To The Exchange Offer Despite any other term of the exchange offer, if in our reasonable judgment the exchange offer, or the making of any exchange by a holder of initial notes, would violate applicable law or any applicable interpretation of the staff of the Commission: . we will not be required to accept for exchange, or exchange any new notes for, any initial notes; and . we may terminate the exchange offer as provided in this prospectus before accepting any initial notes for exchange. In addition, we will not be obligated to accept for exchange the initial notes of any holder that has not made the following: . the representations described under "--Resale of The Exchange Notes,", and . other representations as may be reasonably necessary under applicable Commission rules, regulations or interpretations to make available to us an appropriate form for registration of the new notes under the Securities Act. We expressly reserve the right to amend or terminate the exchange offer, and to reject for exchange any initial notes not previously accepted for exchange, upon the occurrence of any of the conditions to the exchange offer specified above. We will give oral or written notice of any extension, amendment, non acceptance or termination to the holders of the initial notes as promptly as practicable. These conditions are for our sole benefit, and we may assert them or waive them, in whole or in part, at any time or at various times in our sole discretion. If we fail at any time to exercise any of theses rights, this failure will not mean that we have waived our rights. Each right will be deemed an ongoing right that we may assert at any time or at various times. In addition, we will not accept for exchange any initial notes tendered and will not issue new notes in exchange for any initial notes, if at that time any stop order has been threatened or is in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture relating to the notes under the Trust Indenture Act of 1939. Procedures for Tendering To tender in the exchange offer, you must do the following: . complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal, . have the signatures thereon guaranteed if required by the letter of transmittal, and . except as discussed in "--Guaranteed Delivery Procedures," mail or otherwise deliver the letter of transmittal, or facsimile, together with the old notes and any other required documents, to the exchange agent prior to midnight, New York City time, on the expiration date of the exchange offer. 26 The exchange agent must receive the initial notes, a completed letter of transmittal and all other required documents at the address listed below under "--Exchange Agent" before 5:00 P.M., New York City time, on the expiration date for the tender to be effective. You may deliver your initial notes by using the book-entry transfer procedures described below, as long as the exchange agent receives confirmation of the book-entry transfer before the expiration date. The Depository Trust Company has authorized its participants that hold initial notes on behalf of beneficial owners of initial notes through The Depository Trust Company to tender their initial notes as if they were holders. To effect a tender of initial notes, The Depository Trust Company participants should either: (1) complete and sign the letter of transmittal (or a manually signed facsimile of the letter), have the signature thereon guaranteed if required by the instructions to the letter of transmittal, and mail or deliver the letter of transmittal (or the manually signed facsimile) to the exchange agent according to the procedure described in "Procedures for Tendering" or (2) transmit their acceptance to The Depository Trust Company through its automated tender offer program for which the transaction will be eligible and follow the procedure for book-entry transfer its described in "--Book-Entry Transfer." By tendering, each holder will make the representations contained in the fourth paragraph above under the heading "--Resale of the Exchange Notes." Each participating broker-dealer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See "Plan of Distribution." The tender by a holder and the acceptance of the tender by us will constitute the agreement between the holder and our company set forth in this prospectus and in the letter of transmittal. The method of delivery of initial notes and the letter of transmittal and all other required documents to the exchange agent is at the election and sole risk of the holder. As an alternative to delivery by mail, holders may wish to consider overnight or hand delivery service. In all cases, holders should allow sufficient time to assure delivery to the exchange agent before the expiration date. No letter of transmittal or initial notes or book-entry confirmation should be sent to us. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions on their behalf. Any beneficial owner whose initial notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct it to tender on the beneficial owner's behalf. See "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" included with the letter of transmittal. If the beneficial owner wishes to tender on his own behalf, such owner must, prior to completing and executing the letter of transmittal and delivering such beneficial owner's initial notes, either make appropriate arrangements to register ownership of the initial notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a letter of transmittal or a notice of withdrawal must be guaranteed by an eligible guarantor institution (within the meaning of Rule 17ad5 under the Exchange Act of 1934) unless the initial notes are tendered: . by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal, or . for the account of an eligible guarantor institution. If signatures on a letter of transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, the guarantee must be by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an eligible guarantor institution. 27 If a letter of transmittal is signed by a person other than the registered holder of any old notes listed in the letter of transmittal, the initial notes must be endorsed or accompanied by a properly completed bond power and signed by the registered holder as the registered holder's name appears on the initial notes. If a letter of transmittal or any initial notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by us, evidence satisfactory to us of their authority to so act must be submitted with the letter of transmittal. Promptly after the date of this prospectus, the exchange agent will establish a new account or utilize an existing account with respect to the initial notes at the book-entry transfer facility, The Depository Trust Company, for the purpose of facilitating the exchange offer. Subject to the establishment of the accounts, any financial institution that is a participant in the book-entry transfer facility's system may make book-entry delivery of initial notes by causing the book-entry transfer facility to transfer the old notes into the exchange agent's account with respect to the initial notes in accordance with that facility's procedures. Although delivery of the initial notes may be effected through book-entry transfer into the exchange agent's account at the book-entry transfer facility, an appropriate letter of transmittal properly completed and duly executed or an agent's message with any required signature guarantee and all other required documents may be delivered to the exchange agent at its address listed below on or before the expiration date of the exchange offer, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. Delivery of documents to the book-entry transfer facility does not constitute delivery to the exchange agent. The term "agent's message" means a message transmitted by The Depository Trust Company to, and received by, the exchange agent, which states that The Depository Trust Company has received an express acknowledgment from the participant in The Depository Trust Company tendering the initial notes stating: . the aggregate principal amount of old notes which have been tendered by such participant, . that such participant has received and agrees to be bound by the term of the letter of transmittal and . that ICON may enforce such agreement against the participant. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered initial notes and withdrawal of tendered initial notes will be determined by us in our sole discretion, which determination will be final and binding. We reserve the absolute right to reject any and all initial notes not properly tendered or any initial notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular initial notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of initial notes must be cured within a period of time that we shall determine. Neither our company, the exchange agent nor any other person shall incur any liability for failure to give notice of any defect or irregularity with respect to any tender of initial notes. Tenders of initial notes will not be deemed to have been made until such defects or irregularities mentioned above have been cured or waived. Any initial notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date of the exchange offer. Guaranteed Delivery Procedures A holder who wishes to tender its initial notes and: . whose old notes are not immediately available, . who cannot deliver the holder's initial notes, the letter of transmittal or any other required documents to the exchange agent prior to the expiration date, or 28 . who cannot complete the procedures for book-entry transfer, before the expiration date, may effect a tender if: . the tender is made through an eligible guarantor institution, . before the expiration date, the exchange agent receives from the eligible guarantor institution a properly completed and duly executed notice of guaranteed delivery by facsimile transmission, mail or hand delivery, the name and address of the holder, the certificate number(s) of the old notes and the principal amount of initial notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal (or facsimiles thereof) together with the certificate(s) representing the initial notes (or a confirmation of book-entry transfer of the old notes into the exchange agent's account at the book-entry transfer facility), and any other documents required by the letter of transmittal will be deposited by the eligible guarantor institution with the exchange agent, and . the exchange agent receives, within three New York Stock Exchange trading days after the expiration date, a properly completed and executed letter of transmittal or facsimile, as well as the certificate(s) representing all tendered initial notes in proper form for transfer or a confirmation of book-entry transfer of such initial notes into the exchange agent's account at the book-entry transfer facility, and all other documents required by the letter of transmittal. Withdrawal Of Tenders Except as otherwise provided in this prospectus, tenders of initial notes may be withdrawn at any time prior to 5:00 P.M., New York City time, on the expiration date of the exchange offer. To withdraw a tender of initial notes in the exchange offer, a letter or facsimile transmission notice of withdrawal must be received by the trustee at its address set forth below prior to the expiration date. Any notice of withdrawal must: . specify the name of the person having deposited the initial notes to be withdrawn, . identify the old notes to be withdrawn including the certificate number(s) and principal amount of such initial notes or, in the case of initial notes transferred by book-entry transfer, the name and number of the account at the book-entry transfer facility to be credited and otherwise comply with the procedures of the transfer agent, . be signed by the holder in the same manner as the original signature on the letter of transmittal by which the initial notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee under the indenture governing the initial notes register the transfer of the initial notes into the name of the person withdrawing the tender, and . specify the name in which any such initial notes are to be registered, if different from that of the person who deposited the notes. If certificates for initial notes have been delivered or otherwise identified to the exchange agent, then, before the release of the certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an eligible guarantor institution unless the holder is an eligible guarantor institution. All questions as to the validity, form and eligibility, including time of receipt, of such notices will be determined by us, and our determination shall be final and binding on all parties. Any initial notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer, and no exchange notes will be issued, unless the initial notes so withdrawn are validly retendered. Any initial notes which have been tendered but which are not accepted for exchange will be returned to the holder of the notes without cost to the holder as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time before the expiration date. 29 Exchange Agent The Bank of New York has been appointed as exchange agent for the exchange offer. Questions and requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to The Bank of New York addressed as follows: For Information by Telephone: (212) 815-3687 By Overnight Delivery Service or Registered/Certified Mail: The Bank of New York 101 Barclay Street New York, New York 10286 Attn.: Michael Pitfick By Hand: The Bank of New York 101 Barclay Street Ground Level Corporate Trust Services Window New York, New York 10286 Attn.: Michael Pitfick By Facsimile Transmission: (212) 815-6339 Telephone Confirmation to: (212) 815-3687 ------------- Fees And Expenses We will bear the expenses of soliciting tenders. We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. However, we will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection with providing the services. The cash expenses to be incurred in connection with the exchange offer will be paid by us. Such expenses include fees and expenses of The Bank of New York as exchange agent and as trustee under the indenture governing the notes, accounting and legal fees and printing costs, among others. Accounting Treatment The exchange notes will be recorded at the same carrying value as the initial notes as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes. The expenses of the exchange offer and the unamortized expenses related to the issuance of the initial notes will be amortized over the term of the notes. Consequences Of Failure To Exchange Holders of initial notes who are eligible to participate in the exchange offer but who do not tender their initial notes will not have any further registration rights, and their initial notes will continue to be subject to restrictions on transfer. Accordingly, such initial notes may be resold only: . to us, upon redemption of these notes or otherwise, . so long as the old notes are eligible for resale pursuant to Rule 144A under the Securities Act, to a person inside the United States whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A, 30 . in accordance with Rule 144 under the Securities Act, or under another exemption from the registration requirements of the Securities Act, and based upon an opinion of counsel reasonably acceptable to us, . outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, or . under an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. Other Participation in the exchange offer is voluntary and holders of initial notes should carefully consider whether to accept the terms and condition of this offer. Holders of the old notes are urged to consult their financial and tax advisors in making their own decisions on what action to take with respect to the exchange offer. Prior Exchange Offer In September 1999 we issued 12% Subordinated Notes in connection with a recapitalization. These notes were subject to a registration rights agreement which required that we file a registration statement on Form S-4 with the Commission and commence an exchange offer covering these notes within a specified time period. The registration rights agreement provided that in the event we failed to file, and have declared effective, a registration statement, we would be required to pay additional interest with respect to the notes. The registration statement was never declared effective and we paid additional interest on the notes until their repayment on April 9, 2002. The registration statement was withdrawn on June 12, 2002. USE OF PROCEEDS We will not receive any cash proceeds from the issuance of the exchange notes as described in this prospectus. We will receive in exchange the initial notes in like principal amount. The old notes surrendered in exchange for the exchange notes will be retired and cancelled and cannot be reissued. Accordingly, issuance of the exchange notes will not result in any change in our total indebtedness. 31 CAPITALIZATION The following table sets forth our consolidated capitalization as of May 31, 2002, on an actual basis: The information in the following table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial statements, and the related notes to those statements included in this prospectus.
May 31, 2002 ------------- Actual ------------- (In millions) Long-term debt (including current portion): 2002 Revolving.............................. $ 79.3 2002 Term Loan.............................. 23.8 11.25% Senior Subordinated notes............ 152.8 ------- Total long-term debt.................... 255.9 ------- Stockholder's equity: Common stock and additional paid-in capital. 204.1 Receivable from Parent...................... (2.2) Accumulated other comprehensive loss........ (1.8) Accumulated deficit......................... (183.9) ------- Total stockholder's equity.............. 16.2 ------- Total capitalization.................... $ 272.1 =======
32 UNAUDITED PRO FORMA FINANCIAL DATA The following unaudited pro forma financial data for the year ended May 31, 2002 has been derived by the application of pro forma adjustments to the historical financial data. The following pro forma financial data show the effect of the following transactions (dollar amounts in thousands): (1) the issuance of the 11.25% Senior Subordinated Notes, (2) the initial borrowings under the new 2002 credit facility, (3) the repayment of the existing credit facility and the existing 12% Subordinated Notes due 2005, (4) the payment of fees and expenses related to the transactions. These unaudited pro forma financial statements should be read in conjunction with the historical financial statements and notes thereto included elsewhere in this registration statement. The pro forma financial data do not purport to represent what our financial position or results of operations would have actually been had the transactions in fact occurred on such dates, or to project results of operations for any future period. The unaudited pro forma financial data is based on assumptions that we believe are reasonable and should be read in conjunction with the interim financial statements and the consolidated financial statements and notes accompanying them that are included elsewhere in, or annexed to, this prospectus. Unaudited Pro Forma Condensed Statement of Operations (in millions)
Historical Pro Forma Year Ended Year Ended May 31, 2002 Adjustments May 31, 2002 - - ------------ ----------- ------------ Net Sales.............................................................. $896.1 $ -- $896.1 Cost of goods sold..................................................... 635.1 -- 635.1 Operating expenses..................................................... 205.2 -- 205.2 ------ ----- ------ Income from operations.............................................. 55.8 -- 55.8 Interest expense and amortization of deferred financing fees........... (29.2) 2.5 A (26.7) Other income (expense), net............................................ .6 -- .6 ------ ----- ------ Income before income taxes and extraordinary item...................... 27.2 2.5 29.7 Provision for income taxes............................................. 3.2 1.0 B 4.2 ------ ----- ------ Income before extraordinary item....................................... 24.0 1.5 25.5 Extraordinary loss on extinguishment of debt, net of income tax benefit of $2.8.............................................................. (4.6) 4.6 -- ------ ----- ------ Net income.......................................................... $ 19.4 $ 6.1 $ 25.5 ====== ===== ======
Notes to the Unaudited Pro Forma Condensed Statements of Operations (in millions) A. Net adjustment for the elimination of historical interest expense and amortization of deferred financing fees of $29.2 and recognition of interest expense and amortization of deferred financing fees of $26.7 on the new debt. B. Reflects the estimated income tax provision resulting from the pro forma adjustments. C. Reflects the elimination of the extraordinary loss on extinguishment of debt. 33 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The selected financial data set forth below with respect to our statements of operations for the three years ended May 31, 2002 and the balance sheet data for May 31, 2001 and May 31, 2002 have been derived from our financial statements included elsewhere in this prospectus that have been audited by PricewaterhouseCoopers LLP, independent accountants, as indicated in their report included elsewhere in this prospectus. Our statement of operations data for the years ended May 31, 1998 and 1999, and our balance sheet data as of May 31, 1998, 1999 and 2000, have been derived from the financial statements audited by PricewaterhouseCoopers LLP but not included in this prospectus. The data set forth should be read together with, and is qualified in its entirety by, "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial statements, and the related notes thereto appearing elsewhere in this offering circular.
For the Years Ended May 31, -------------------------------------------- 1998 1999 2000 2001 2002 ------ ------ ------ ------ ------ (in millions) Operating Data: Net sales.......................................... $749.3 $710.2 $733.0 $820.5 $896.1 Cost of sales(1)................................... 536.0 514.0 531.6 580.5 635.1 ------ ------ ------ ------ ------ Gross profit....................................... 213.3 196.2 201.4 240.0 261.0 Operating expenses: Selling.......................................... 120.7 107.6 96.0 109.8 126.0 Research and development......................... 7.8 7.7 8.3 10.9 10.4 General and administrative....................... 60.9 53.4 61.7 63.4 68.8 ------ ------ ------ ------ ------ Total operating expenses....................... 189.4 168.7 166.0 184.1 205.2 ------ ------ ------ ------ ------ Income from operations............................. 23.9 27.5 35.4 55.9 55.8 Interest expense................................... 35.0 33.1 33.9 34.8 26.1 Amortization of deferred financing fees............ 4.8 7.0 2.7 3.2 3.1 Net income (loss).................................. (9.5) (24.7) (6.6) 13.3 19.4 Other Financial Data: Depreciation and amortization...................... $ 16.7 $ 17.4 $ 16.7 $ 17.4 $ 19.2 Purchases of property and equipment(2)............. 11.8 11.6 12.9 16.1 11.6 Net cash provided by operating activities.......... 47.6 38.0 0.5 12.4 37.5 Net cash provided by (used in) investing activities 6.4 (20.1) (19.9) (22.8) (17.1) Net cash provided by (used in) financing activities (55.7) (17.1) 21.4 8.7 (19.3) Ratio of earnings to fixed charges(3)(4)........... -- (5) -- (5) -- (5) 1.4x 1.8x Supplemental Data: EBITDA(6).......................................... $ 41.1 $ 44.9 $ 52.5 $ 72.1 $ 75.7 Balance Sheet Data (at the end of the period): Cash............................................... $ 3.9 $ 4.3 $ 5.9 $ 3.3 $ 4.8 Working capital.................................... 152.9 108.0 132.3 157.6 164.0 Total assets....................................... 363.1 331.9 368.1 405.5 423.2 Total indebtedness................................. 274.5 260.6 253.2 264.7 255.9
- -------- (1) We incurred a one-time charge of $0.3 million related to the inventory step-up in value associated with the HealthRider and ICON of Canada acquisitions in fiscal 1998. (2) Excludes purchases of intangibles, trademarks and acquisitions of $0 for fiscal year 1998, $8.5 for fiscal year 1999, $4.4 million for fiscal year 2000, $6.7 million for fiscal year 2001 and $5.5 million for fiscal year 2002. 34 (3) The ratio of earnings to fixed charges is derived by dividing earnings by fixed charges. For this purpose, earnings represent income (loss) before income taxes plus fixed charges. "Fixed Charges" consist of interest expense whether expensed or capitalized, the portion of the operating rental expense which management believes is representative of the interest component of rental expense and the amortization of deferred financing fees. (4) After giving effect to the issuance of the initial notes, our initial borrowings under our new credit facility, the repayment of our old credit facility, the redemption of our 12% senior subordinated notes due 2005 and the payment of fees and expenses in connection with the foregoing, our ratio of earnings to fixed charges was 1.9 for the fiscal year ended May 31, 2002. (5) For the fiscal years 1998, 1999 and 2000, our earnings were inadequate to cover our fixed charges by $15.4 million, $12.6 million and $1.0 million, respectively. (6) EBITDA means earnings before net interest expense, income taxes, depreciation, and amortization and extraordinary loss on extinguishment of debt. EBITDA is presented because we believe it is an indicator of our ability to incur and service debt and is used by our lenders in determining compliance with financial covenants. However, EBITDA should not be considered as an alternative to cash flow from operating activities as measures of liquidity or as an alternative to net income as measures of operating results in accordance with generally accepted accounting principles. Our definition of EBITDA may differ from definitions of EBITDA used by other companies. The following table includes a list of unusual items that have affected EBITDA.
For the Year Ended May 31, ----------------------------------- 1998 1999 2000 2001 2002 ----- ----- ----- ----- ----- (In millions) EBITDA........................................................... $41.1 $44.9 $52.5 $72.1 $75.7 Step-up of Healthrider and ICON of Canada inventories(a)......... 0.3 -- -- -- -- Weider settlement and HealthRider integration.................... -- -- -- -- -- Non-recurring costs in selling expense........................... -- 10.5(c) -- -- -- Equity grant to senior management................................ -- -- 3.1(d) -- -- Non-recurring recapitalization cost.............................. -- -- 1.8(e) -- -- Excess air freight charges....................................... -- -- 6.0(f) -- -- ----- ----- ----- ----- ----- EBITDA without the unusual items................................. $41.4 $55.4 $63.4 $72.1 $75.7 ===== ===== ===== ===== =====
----- (a) We recorded a one-time charge of $0.3 million related to the inventory step-up in value associated with the HealthRider and ICON of Canada acquisitions in fiscal 1998. (b) We recorded $10.5 million of non-recurring costs (in selling expenses) related to the write-off of accounts receivable due to the bankruptcy of Service Merchandise. (c) We recorded $3.1 million of non-recurring non-cash costs (in general and administrative expense) related to an equity grant made to certain members of senior management due to our recapitalization in September 1999. (d) We recorded $1.5 million of non-recurring costs (in general and administrative expense) related to management retention bonuses, paid to certain executive officers, and $0.3 million of one-time non-recurring costs associated with the redemption of our 13% senior subordinated notes due 2002, both in connection with our recapitalization in September 1999. (e) We incurred $6.0 million of in-bound air freight charges (in cost of sales) in excess of normal freight costs. Due to our significant indebtedness, certain of our vendors shortened our payment terms prior to our recapitalization in September 1999. Due to liquidity constraints we had to delay the purchase of certain component parts and finished goods, and we therefore incurred additional in-bound air freight expenses related to these items that we needed to receive rapidly in order to meet our customers' delivery schedules. 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following should be read in conjunction with the financial statements and the related notes thereto appearing elsewhere in this prospectus. Our fiscal year ends on May 31 of the corresponding calendar year. For example, fiscal 2002 ended on May 31, 2002. Overview We manufacture and market a broad line of products in the fitness equipment industry. These fall into two major product categories, namely: cardiovascular and other equipment, and strength training equipment. We are one of the largest manufacturers and marketers of home fitness equipment in the United States. In addition, we manufacture and distribute an innovative line of products for the institutional fitness equipment market in both our cardiovascular equipment category and our strength training equipment category. We sell our products under a wide variety of brand names and we use our portfolio of brands to tailor our product offerings to specific distribution channels. We sell our products to department stores, mass retailers and warehouse clubs, sporting goods and specialty fitness retailers, and directly to consumers. The following paragraphs provide a brief description of certain items that appear in our Consolidated Statements of Operations. Net sales. Net sales primarily represents our gross sales adjusted for returns and allowances. We limit our customers' ability to return merchandise to us to products sold to their customers in which defects were discovered within the warranty coverage period (usually 90 days from the time of retail sale). We do not permit our customers to return unsold merchandise. Cost of sales. Cost of sales primarily includes the cost of components that we purchase, direct manufacturing labor and overhead, inbound shipping and freight and depreciation expense related to our property, plant, equipment and tooling. Selling expense. Selling expense primarily includes our direct advertising expense, advertising allowances provided to certain customers and the costs related to our sales and marketing staff for our home fitness and institutional fitness business. Research and development expense. Research and development expense relates primarily to the activities of our product development group and external sources related to the decision of new products and product enhancements. General and administrative expense. General and administrative expense primarily includes expenses related to our senior management team, all accounting and finance functions, management information systems, legal and human resources expenses and unallocated overhead expenses. 1999 recapitalization. In order to provide additional liquidity for our operations, we consummated a recapitalization in September 1999 that included a $40.0 million cash contribution of capital from our parent HF Holdings, Inc. in connection with an investment of new equity from certain of our existing shareholders and new investors. Holders of certain of our and our parent's then existing debt securities exchanged their securities for a combination of cash, new debt securities offered by us and equity offered by HF Holdings, Inc. and we also refinanced our then existing senior debt. As a result of our recapitalization in September 1999 and our improved operating performance, we 36 reduced our indebtedness from a seasonal peak of $547.3 million at January 30, 1998 to $255.9 million at May 31, 2002, and significantly reduced our interest expense. Results of Operations The following table sets forth certain of our financial data, expressed as a percentage of net sales, for fiscal years ended May 31, 2000, 2001 and 2002:
For the Years Ended May 31, -------------------------- 2000 2001 2002 ----- ----- ----- Net sales................................................... 100.0% 100.0% 100.0% Cost of sales............................................... 72.5% 70.7% 70.9% ----- ----- ----- Gross profit................................................ 27.5% 29.3% 29.1% Operating expenses: Selling.................................................. 13.1% 13.4% 14.1% Research and development................................. 1.1% 1.3% 1.2% General and administrative............................... 8.4% 7.7% 7.7% ----- ----- ----- Total operating expenses............................. 22.6% 22.4% 23.0% ----- ----- ----- Income from operations...................................... 4.8% 6.8% 6.2% Interest expense............................................ 4.6% 4.2% 2.9% Amortization of deferred financing fees and other expense (income).................................................. 0.3% 0.5% 0.3% Income (loss) before income taxes and extraordinary item.... (0.1)% 2.0% 3.0% Provision for income taxes.................................. 0.5% 0.4% 0.4% Extraordinary loss, net..................................... 0.3% -- 0.5% ----- ----- ----- Net income (loss)........................................... (0.9)% 1.6% 2.2% ===== ===== ===== EBITDA...................................................... 7.2% 8.8% 8.4% ===== ===== =====
Year Ended May 31, 2002 Compared to Year Ended May 31, 2001 Net sales for fiscal 2002 increased $75.6 million, or 9.2%, to $896.1 million from $820.5 million in the comparable period in 2001. Sales increased primarily due to increased customer demand and the introduction of our new line of institutional fitness equipment which represented $11.0 million, or 14.6%, of the sales increase. Sales of our cardiovascular and other equipment in fiscal 2002 increased $58.3 million, or 8.2%, to $766.6 million. Sales of our strength training equipment in fiscal 2002 increased $17.3 million, or 15.4%, to $129.5 million. Gross profit for fiscal 2002 was $261.0 million, or 29.1% of net sales, compared to $240.0 million, or 29.3% of net sales, in fiscal 2001. Selling expenses increased $16.2 million, or 14.8%, to $126.0 million in fiscal 2002. This increase was the result of higher selling costs associated with the increase in sales combined with the impact of the introduction of our new line of institutional fitness equipment as well as increased advertising expenses. "See Management's Discussion and Analysis of Financial Condition and Results of Operation--Liquidity and Capital Resources." Expressed as a percentage of net sales, selling expenses were 14.1% in fiscal 2002 compared to 13.4% in fiscal 2001. Research and development expenses decreased $0.5 million, or 4.6%, to $10.4 million in fiscal 2002. Expressed as a percentage of net sales, research and development expenses were 1.2% in fiscal 2002 and 1.3% in fiscal 2001. 37 General and administrative expenses increased $5.4 million, or 8.5%, to $68.8 million in fiscal 2002. This increase was the result of higher costs associated with our increase in sales combined with the impact of our introduction of our new line of institutional fitness equipment. Expressed as a percentage of net sales, general and administrative expenses were 7.7% in fiscal 2002 and 7.7% in fiscal 2001. As a result of the foregoing factors, operating income decreased $0.1 million, or 0.2%, to $55.8 million in fiscal 2002. Expressed as a percentage of net sales, operating income was 6.2% in fiscal 2002 compared with 6.8% in fiscal 2001. As a result of the foregoing factors, EBITDA increased $3.6 million, or 5.0%, to $75.7 million in fiscal 2002. Expressed as a percentage of net sales, EBITDA was 8.4% in fiscal 2002 compared with 8.8% in fiscal 2001. Interest expense including amortization of deferred financing fees decreased $8.8 million, or 23.2%, to $29.2 million for fiscal 2002. This decrease reflects our lower borrowing levels during the period combined with lower interest rates on our borrowings during the period. Income tax provision decreased $0.3 million, or 8.6%, to $3.2 million in fiscal 2002. Our effective tax rate was 2% in fiscal 2002 compared to 21% in fiscal 2001. The lower effective tax rate was the result of adjustments pursuant to an Internal Revenue Service audit. These adjustments created a deferred tax benefit of approximately $11.5 million. No valuation allowance was recorded against this asset because we believe that we will generate sufficient future taxable income through operations to realize the net deferred asset. However, there can be no assurance that we will generate any specific level of taxable earnings or that we will be able to realize any of the deferred tax asset in future periods. If we are unable to generate sufficient taxable income in the future, an additional valuation allowance against this deferred tax asset would result in a charge to earnings. An extraordinary loss of $7.4 million ($4.6 million net of income tax benefit) was recorded on the extinguishment of the existing credit facility and the 12% Notes. As a result of the foregoing factors, our net income was $19.4 million in fiscal 2002 compared to net income in fiscal 2001 of $13.3 million. Year Ended May 31, 2001 Compared to the Year Ended May 31, 2000 Net sales for fiscal 2001 increased $87.5 million, or 11.9%, to $820.5 million from $733.0 million in fiscal 2000. Sales increased primarily due to increased customer demand across our product categories and the introduction of our new line of institutional fitness equipment in December of 2000, which represented $3.3 million, or 3.8%, of the sales increase. Sales of our cardiovascular and other fitness equipment in fiscal 2001 increased $76.1 million, or 12.0%, to $708.3 million. Sales of our strength training equipment in fiscal 2001 increased $11.4 million, or 11.3%, to $112.2 million. Gross profit for fiscal 2001 was $240.0 million, or 29.3% of net sales, compared to $201.4 million, or 27.5% of net sales, for fiscal 2000. The increase of 1.8% in profit margin was attributable to lower manufacturing costs due to higher operating efficiency, including lower air freight, labor, overhead and material costs. Selling expenses increased $13.8 million, or 14.4%, to $109.8 million in fiscal 2001. This increase was the result of higher selling costs associated with the increase in sales combined with higher advertising expenses. Expressed as a percentage of net sales, selling expenses were 13.4% in fiscal 2001 compared to 13.1% in fiscal 2000. Research and development increased $2.6 million, or 31.3%, to $10.9 million in fiscal 2001. Expressed as a percentage of net sales, research and development expenses were 1.3% in fiscal 2001 and 1.1% in fiscal 2000. This increase reflects our continued efforts to develop both current and future products. 38 General and administrative expenses increased $1.7 million, or 2.8%, to $63.4 million in fiscal 2001. This increase was the result of costs associated with increased customer demand for our products. General and administrative expenses in fiscal year 2000 included $4.9 million of costs related to our September 1999 recapitalization. Expressed as a percentage of net sales, general and administrative expenses were 7.7% in fiscal 2001 and 8.4% in fiscal 2000. As a result of the foregoing factors, operating income increased $20.5 million, or 57.9%, to $55.9 million in fiscal 2001. Expressed as a percentage of net sales, operating income was 6.8% in fiscal 2001 compared with 4.8% in fiscal 2000. As a result of the foregoing factors, EBITDA increased $19.6 million, or 37.3%, to $72.1 million in fiscal 2001. Expressed as a percentage of net sales, EBITDA was 8.8% in fiscal 2001 compared with 7.2% in fiscal 2000. Interest expense including amortization of deferred fees increased $1.4 million, or 3.8%,to $38.0 million in fiscal 2001. This increase reflects our higher borrowing levels during the period combined with higher interest rates on our borrowing during the period. Amortization on deferred financing fees was also higher as a result of the September 1999 recapitalization. Income taxes decreased $0.4 million, or 10.3%, to $3.5 million in fiscal 2001. The lower expense for fiscal 2001 reflects our use of approximately $9.5 million of net operating losses carried forward from our September 1999 recapitalization for the period from September 29, 1999 through May 31, 2000. The provision in fiscal 2000 reflected our write-off of a portion of our deferred tax assets that were not realized due to our September 1999 recapitalization. At the end of fiscal 2001, we had a net deferred tax asset of $6.9 million. No valuation allowance was recorded against this asset because we believed that we would generate sufficient future taxable income through operations to realize the net deferred asset. However, there can be no assurance that we will generate any specific level of taxable earnings or that we will be able to realize any of the deferred tax assets in future periods. If we were unable to generate sufficient taxable income in the future, an additional valuation allowance against this deferred tax asset would result in a charge to earnings. As a result of the foregoing factors, our net income was $13.3 million for fiscal 2001 compared to a net loss of $6.6 million in fiscal 2000. 39 Seasonality The following are the net sales, net income and EBITDA by quarter for fiscal years 2000, 2001 and 2002:
First Second Third Fourth Quarter(1) Quarter(2) Quarter(3) Quarter(4) ---------- ---------- ---------- ---------- (dollars in millions) Net Sales 2000.................. 99.5 234.8 236.5 162.2 2001.................. 129.5 276.0 254.6 160.5 2002.................. 138.1 272.1 304.9 181.0 Net Income 2000.................. (11.7) 1.6 7.3 (3.5) 2001.................. (8.2) 11.7 10.8 (1.0) 2002.................. (7.5) 11.1 25.5 (9.7) EBITDA 2000.................. (2.2) 22.4 24.9 7.4 2001.................. 1.6 34.2 32.2 4.1 2002.................. (0.1) 31.3 38.7 5.8
- -------- (1) Our first quarter ended August 28, September 2, and September 1 for fiscal years 2000, 2001 and 2002, respectively. (2) Our second quarter ended November 27, December 2 and December 1 for fiscal years 2000, 2001 and 2002, respectively. (3) Our third quarter ended February 26, March 3 and March 2 for fiscal years 2000, 2001 and 2002, respectively. (4) Our fourth quarter ended May 31 for the fiscal years 2000, 2001 and 2002, respectively. We sell a majority of our products to customers in our second and third fiscal quarters (i.e., from September through February). Increased sales and distribution typically occur in the Christmas retail season and the beginning of a new calendar year because of increased promotions by our retail customers, increased consumer purchases and seasonal changes that prompt people to exercise inside. If actual sales for a quarter do not meet or exceed projected sales for that quarter, expenditures and inventory levels could be disproportionately high for such quarter and our cash flow for that quarter and future quarters could be adversely effected. The timing of large orders from customers and the mix of products sold may also contribute to periodic fluctuations. Liquidity and Capital Resources Net cash provided by operating activities was $37.5 million in fiscal 2002, as compared to $12.4 million of cash provided by operations in fiscal 2001. In fiscal 2002, major sources of funds were net income of $19.4 million, non-cash provisions of $19.2 million for depreciation and amortization, and a decrease in inventory of $12.2 million. These changes were offset by increases in accounts receivable of $20.0 million. These changes are due to our increasing sales during the course of the first several months of the fiscal year leading up to our peak selling season, which occurs between the months of October and December. We sell the majority of our products to customers in the second and third fiscal quarters (i.e., from September through February). In fiscal 2001, major sources of funds were net income of $13.3 million, non-cash provisions of $17.4 million for depreciation and amortization, and increases in accrued expenses and payables of $10.0 million. These increases were offset by increases in accounts receivable of $14.1 million and inventory of $14.8 million. Such increases were due to the aforementioned factors relating to sales increases. Net cash used in investing activities was $17.1 million in fiscal 2002, compared to $22.8 million in fiscal 2001. Investing activities in fiscal 2002 consisted primarily of capital expenditures of $11.6 million related to 40 upgrades in plant and tooling and purchases of additional manufacturing equipment and purchases of intangibles of $5.2 million. Cash used in investing activities in fiscal 2001, was primarily for capital expenditures of $16.1 million, acquisitions of $4.0 million and purchases of intangibles of $2.7 million. Net cash used in financing activities was $19.3 million in fiscal 2002, compared to $8.7 million of cash provided by financing activities in fiscal 2001. Cash used by financing activities resulted from the issuance in April 2002 of the 11.25% Senior Subordinated Notes, our borrowings on our new credit facility, the repayment of our old credit facility and the redemption of our 12% subordinated notes. Net cash provided by operating activities was $12.4 million in fiscal 2001, as compared to $0.5 million in fiscal 2000. In fiscal 2001, major sources of funds were net income of $13.3 million, non-cash provisions of $17.4 million for depreciation and amortization, and increases in accrued expenses and payables of $10.0 million. These increases were partially offset by increases in inventories of $14.8 million and accounts receivable of $14.1 million. These increases are due, in part, to the incremental materials purchases associated with the build up of inventories in anticipation of the upcoming busy season. Our production is near or at full capacity from August to March and we also build inventory from April to July to be able to meet future customer demand. In addition, because we sell the majority of our products to customers in the second and third fiscal quarters (i.e., from September through February), fourth quarter results can create fluctuations or timing differences in quarterly and or year-end results. Operating cash flows were $0.5 million in fiscal 2000. Major sources of funds were non-cash provisions of $16.7 million for depreciation and amortization and increases in accrued expenses and payables of $13.3 million. These increases were offset by a net loss of $6.6 million as well as increases in inventories of $23.9 million and accounts receivable of $11.6 million, related to our increase in net sales. Net cash used in investing was $22.8 million in fiscal 2001, as compared to $19.9 million in fiscal 2000. Investing activities in fiscal 2001 consisted primarily of capital expenditures of $16.1 million related to upgrades in plant and tooling and purchases of additional manufacturing equipment and a strategic acquisition of $4.0 million. Cash used in investing activities in fiscal 2000 was primarily for capital expenditures of $12.9 million, a loan to senior management of $2.2 million and $4.4 million related to the purchase of intangibles and trademarks. Net cash provided by (used in) financing activities was $8.7 million in fiscal 2001, as compared to $21.4 million in fiscal 2000. Cash provided by financing activities consisted principally of borrowings under our existing credit facility. Borrowings increased $19.5 million in fiscal 2001 and were used to fund working capital needs. We were provided $21.4 million during fiscal 2000 primarily as a result of our recapitalization in September 1999. We made capital expenditures of approximately $11.6 million during fiscal 2002 and expect to make capital expenditures of approximately $15.0 million in fiscal 2003. Capital expenditures are primarily for expansion of physical plant, purchases of additional or replacement manufacturing equipment and revisions and upgrades in plant tooling. On January 22, 2002, Kmart, a customer for over a decade, filed for bankruptcy protection. At the time of the filing we had $12.1 million of unsecured accounts receivable outstanding with Kmart. As of May 31, 2002 we have reserved $2.4 million against these receivables. We are in the process of attempting to collect the remaining accounts receivable outstanding but may be required to reserve additional amounts if it becomes clear that we will be unsuccessful in our attempts to collect these amounts. In fiscal 2001, we had net sales to Kmart of $38.9 million representing approximately 4.7% of our total net sales for that fiscal year. In fiscal 2002 we had net sales to Kmart of approximately $30.6 million representing approximately 3.4% of our total net sales for that period. Kmart has secured debtor in possession financing and will continue to operate in bankruptcy. We resumed shipments to Kmart as of February 5, 2002 with payment terms of 30 days, reduced from 60 days. 41 Our primary short-term liquidity needs consist of financing seasonal merchandise inventory buildups and paying cash interest expense under our existing credit facilities and on the 11.25% subordinated notes due 2012. Our principal source of financing for our seasonal merchandise inventory buildup and increased accounts receivable is revolving credit borrowings under the existing credit facilities. At May 31, 2002, we had $82.9 million of availability under these facilities. Our working capital borrowing needs are typically at their lowest level in April through June, increase somewhat through the summer and sharply increase from September through November to finance accounts receivable and purchases of inventory in advance of the Christmas and post-holiday selling season. Generally, in the period from November through February, our working capital borrowings remain at their highest level and then are paid down to their lowest annual levels from April through August. In connection with our refinancing in April 2002, we entered into our existing credit facility totaling $235.0 million of revolving and term loans with a syndicate of banks and financial services companies. Proceeds of our existing credit facility were used to refinance our then existing senior credit facilities and 12% senior subordinated notes due 2005, to fund transaction fees and expenses, and to provide for general working capital. As of May 31, 2002 the balance outstanding under the existing credit facility consisted of (in millions): Revolver.................................................... $ 79.3 Term Loan................................................... 23.8 ------ $103.1 ======
We have a significant amount of indebtedness. As of May 31, 2002, our consolidated indebtedness was approximately $255.9 million, of which approximately $103.1 million was senior indebtedness. Our ability to make scheduled payments of principal of, or to pay the interest on, or to refinance our indebtedness, including the notes, or to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations, management believes that cash flow from operations and available cash, together with available borrowings under our new credit facility, will be adequate to meet our future liquidity needs for at least the next few years. We may, however, need to refinance all or a portion of the principal amount of the notes on or prior to maturity. We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available under our new credit facility in an amount sufficient to enable us to service our indebtedness, including the notes, or to fund our other liquidity needs. In addition, we cannot assure you that we will be able refinance any of our indebtedness, including our new credit facility and the notes, on commercially reasonable terms or at all. See "Risk Factors--To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control." At May 31, 2002, future minimum principal payments of contractual obligations are as follows:
Less than Contractual Obligations Total One Year 1-3 Years 4-5 Years ----------------------- ------ --------- --------- --------- Long-term debt.......................... $255.9 $5.0 $15.0 $235.9
42 Off-balance-sheet Financings and Commitments We do not have any material off-balance-sheet financing arrangements or other commitments (including non-exchange traded contracts) other than: . currency exchange rate contracts which are described in "Market Risk;" . commitments under non-cancelable operating leases, primarily for warehouse and production facilities and computer and production equipment, that expire over the next five years and require the Company to pay all executory costs such as maintenance and insurance. Future minimum payments under non-cancellable operating leases consist of the following (in millions):
Year ending May 31, ------------------- 2003.............................................. $12.9 2004.............................................. 11.3 2005.............................................. 8.9 2006.............................................. 3.5 2007.............................................. 1.1 Thereafter........................................ 2.2 ----- $39.9 =====
As part of our cash management activities, we seek to manage accounts receivable credit risk, collections, and accounts payable and payments thereof to maximize our free cash at any given time. Careful management of credit risk has allowed us to avoid significant accounts receivable losses in light of the poor financial condition of many of our potential and existing customers. In light of current and prospective global and regional economic conditions, we cannot assure you that we will not be materially adversely affected by accounts receivable losses in the future. Market Risk Fluctuations in the general level of interest rates on our current and future fixed and variable rate debt obligations expose us to market risk. We are vulnerable to significant fluctuations in interest rates on our variable rate debt and on any future repricing or refinancing of our fixed rate debt and on future debt. We use long-term and medium-term debt as a source of capital. At May 31, 2002, we had approximately $152.8 million in outstanding fixed rate debt, consisting of 11.25% subordinated notes maturing in April 2012. When debt instruments of this type mature, we typically refinance such debt at the then-existing market interest rates, which may be more or less than the interest rates on the maturing debt. Our credit facility has variable interest rates and any fluctuation in interest rates could increase or decrease our interest expense. At May 31, 2002, we had approximately $103.1 million in outstanding variable rate debt. Due to the uncertainty of fluctuations in interest rates and the specific actions that might be taken by us to mitigate the impact of such fluctuations and their possible effects, the foregoing sensitivity analysis assumes no changes in our financial structure. We import some finished products and components from Canada and Asia. All purchases from Asia have been fixed in United States dollars and, therefore, we are not subject to foreign currency fluctuations on such purchases, although our vendors may respond to foreign currency fluctuations by seeking to raise their prices. Purchases of inventory from Canada have been settled in Canadian dollars and therefore we have been subject to fluctuations in the value of the Canadian dollar which could have an impact on our operating results. In connection with the importation of products and components from Canada, we from time to time engage in 43 hedging transactions by entering into forward contracts for the purchase of Canadian dollars which are designed to protect against such fluctuations. Our hedging transactions do not subject us to exchange rate risk because gains and losses on these contracts offset losses and gains on the transaction being hedged. The unhedged portion of purchases from Canada is not significant. As of May 31, 2002 and 2001, we had no open forward exchange contracts to sell Canadian dollars. During fiscal years 2002 and 2001 we recognized no significant gains or losses upon settlement of foreign currency transactions denominated in Canadian dollars. Recent Accounting Pronouncements In fiscal 2002, we adopted Statements of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities." as amended. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 was issued by the Financial Accounting Standards Board ("FASB") in June of 1998 and requires that an entity recognizes all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Because we had no open forward exchange contracts at May 31, 2001, the adoption of SFAS No. 133 did not have a significant effect on our earnings and financial position. In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which provides a comprehensive standard of accounting for business combinations. SFAS 141 is effective for all business combinations after June 30, 2001. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which requires a change in accounting for goodwill and certain other intangible assets. SFAS 142 is effective for fiscal years beginning after December 15, 2001. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. SFAS 143 is effective for fiscal years beginning after June 15, 2002. In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" which supercedes SFAS No. 121 and requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. SFAS 144 broadens the presentation of discontinued operations to include more disposal transactions. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. In November of 2001, the Emerging Issues Task Force issued EITF 01-9, Accounting for Consideration Given by Vendor to a Customer ("EITF 01-9") effective for annual or interim financial statements beginning after December 15, 2001. EITF 01-9 provides guidance on the accounting treatment of various types of consideration given by a vendor to a customer. The Company will adopt EITF 01-9 in fiscal 2003. In April 2002, the FASB issued SFAS No. 145, "Recission of FAS Nos. 4, 44 and 64, Amendment of FAS 13 and Technical Corrections as of April 2002", which rescinds FAS Nos. 4, 44 and 64 and amends other existing authoritative pronouncements to make various technical corrections, clarify meaning, or describe their applicability under changed conditions. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which addresses significant issues relating to the recognition, measurement, and reporting of costs associated with exit and disposal activities. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. Based on current circumstances, except for SFAS 145 as discussed in Note 2 to the financial statements, we believe the application of the new accounting rules described above will not have a material impact on our financial statements. Critical Accounting Policies The SEC recently issued disclosure guidance for critical accounting policies. The SEC defines critical accounting policies as those that require application of management's most difficult, subjective or complex 44 judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our significant accounting policies are described in Note 3 to the Consolidated Financial Statements. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following accounting policies could be deemed to be critical. Inventories--Inventories consist primarily of raw materials (principally parts and supplies) and finished goods, and are valued at the lower of cost or market. Cost is determined using standard costs which approximate the first-in, first-out (FIFO) method. Long-Lived Assets--Long-lived assets are periodically reviewed for impairment in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Assets to Be Disposed Of". SFAS 121 requires the assessment of whether there has been an impairment whenever events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable. The carrying value of a long-lived asset is considered impaired when the anticipated cumulative undiscounted cash flow from that asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset, which is generally based on discounted cash flows. As a result of its review, the Company does not believe that any impairment currently exists related to its long-lived assets. Advertising Costs--The Company expenses the costs of advertising as incurred, except for the cost of 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. 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 are made to Sears Roebuck ("Sears"). Sears accounted for approximately 44.5%, 42.4% and 39.1% of total sales for the fiscal years ended May 31, 2002, 2001 and 2000, respectively. Accounts receivable from Sears accounted for approximately 35.0% and 42.0% of gross accounts receivable at May 31, 2002 and 2001, respectively. The Company is not the exclusive supplier of home fitness equipment to any of its major customers. The loss of, or a substantial decrease in the amount of purchases by, or a write-off of any significant receivable due from, any of its major customers would have a material adverse effect on the Company's business. Income Taxes--The Company accounts for income taxes utilizing the asset and liability method as prescribed by SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities at currently enacted tax rates. If appropriate, deferred tax assets are reduced by a valuation allowance which reflects expectations of the extent to which such assets will be realized. Contingencies. We account for contingencies in accordance with SFAS No. 5, "Accounting for Contingencies." SFAS No. 5 requires that we record an estimated loss from a loss contingency when information available prior to issuance of the Consolidated Financial Statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the Consolidated Financial Statements and the amount of the loss can be reasonably estimated. Accounting for contingencies such as environmental, legal and 45 income tax matters requires us to use our judgment. While we believe that our accruals for these matters are adequate, if the actual loss from a loss contingency is significantly different from the estimated loss, our results of operations may be overstated or understated. Assessment of the Euro On January 1, 1999, eleven of the member countries of the European Union established fixed conversion rates between their existing currencies (called "LEGACY CURRENCIES") and one common currency called the euro. The euro trades on currency exchanges and may be used in business transactions. Beginning in January 2002, the legacy currencies are being withdrawn from circulation. Our subsidiaries affected by the conversion have established plans to address issues raised by the conversion. We believe that, under current conditions, the conversion of legacy currencies into the euro will not have a materially adverse effect on us. 46 INDUSTRY OVERVIEW The home fitness equipment industry in the United States includes treadmills, other popular cardiovascular fitness equipment such as ellipticals and exercise bikes and strength training fitness equipment such as multi-purpose home gyms and weights and weight benches. These products are distributed in various channels of distribution in a wide range of price points, including: department stores such as Sears and JCPenney; mass retailers and warehouse clubs such as Wal-Mart, Sam's Club, Kmart and Costco; sporting goods retailers such as The Sports Authority, Gart Sports, Galyan's and Dick's Sporting Goods; specialty fitness equipment retailers, and direct-to-consumers through our own NordicTrack stores, catalogues, infomercials and the Internet. According to the NSGA 2001 annual report, total retail sales industry-wide of home fitness equipment, one of the largest hard goods categories of sporting goods, are estimated to total $3.8 billion in calendar year 2001. According to NSGA, in calendar year 2000 retail sales of home fitness equipment exceeded retail sales of the following categories combined: camping, snowboarding, downhill skiing, baseball, softball, basketball, hockey and football. According to the NSGA, sales of home fitness equipment have grown at a CAGR of 12.7% from $311.2 million 1980 to an estimated $3.8 billion in 2001, making it among the fastest growing categories in the sporting goods hard goods industry. The following chart illustrates the growth in retail sales of home fitness equipment for the years 1980 through 2001E. United States Personal Fitness Equipment Industry Retail Sales 1980--2001E (dollars in billions) [CHART]
United States Personal Fitness Equipment Industry Sales 1980-2001E 1980 0.3 1981 0.4 1982 0.6 1983 0.8 1984 0.9 1985 1.1 1986 1.1 1987 1.1 1988 1.5 1989 1.7 1990 1.8 1991 2.1 1992 2.1 1993 2.5 1994 2.4 1995 2.9 1996 3.2 1997 3.0 1998 3.2 1999 3.4 2000 3.6 2001E 3.8
We believe that the home exercise market has grown at a healthy pace in response to several main factors: favorable demographics, increased awareness of the compelling medical benefits of exercise and dedication of more disposable income to activities at home, including fitness. Favorable Industry Demographics There has been a significant increase in the United States population, ages 45 to 64, and this age group accounts for the majority of purchases in most categories of fitness equipment and approximately 68% of treadmill purchases in the United States. Moreover, according to the United States Census Bureau, this segment of the population (which accounts for the majority of households with a yearly income greater than $50,000) is expected to increase by 26% from 2001 to 2010 (a CAGR of 2.6%). Depending on the type of equipment, 47 between 50% and 70% of the users of home exercise equipment have household incomes of $50,000 or more. We believe that the aging of the American population further supports the projected future growth in industry sales of home fitness equipment as the preferred method for maintaining fitness. Increased Awareness of the Compelling Medical Benefits of Exercise According to SGMA, the number of Americans participating in fitness activities has increased from 42.3 million in 1987 to 51.6 million in 2000, in part because Americans have become increasingly aware of the compelling medical evidence of the benefits of exercise. Medical research has demonstrated the unique role exercise plays in managing chronic diseases such as heart disease and diabetes and in preventing osteoporosis. As recently as December 2001, United States Surgeon General David Satcher proclaimed the need for a national plan to educate Americans to balance their caloric intake with regular physical activity. Increase in the Use of Fitness Equipment During Aerobic and Anaerobic Exercise Consumers are increasingly exercising with home fitness equipment. While cardiovascular exercise without the use of machines (primarily running and walking) decreased in the period from 1990-2000, exercise with cardiovascular equipment has increased 41% in the period from 1990-2000 and exercise with strength training equipment has increased 69% in the period from 1990-2000. Shift in Consumer Activity to Home-Orientated Activities We believe the increased use of cardiovascular and strength training equipment can be attributed to consumers' desires for time efficient, low impact workouts and a shift in consumer activity to more activities at home, including fitness. Primary Product Categories We believe the home fitness equipment industry is comprised of two main product categories: cardiovascular equipment and strength training equipment. The chart below reflects industry-wide sales and percentages in each product category. We believe our product mix is generally consistent with that of the industry. United States Home Fitness Equipment Retail Sales In 2000--By Product Category (dollars in millions) Industry [CHART] Cardiovascular $2786.3 Strength Training $856.9 48 Cardiovascular Products Treadmills, the largest subcategory in this product line, have become a major home equipment category, popularized to a large extent by manufacturers who have made treadmills affordable to many households. Treadmills have proven to be one of the most effective and easy-to-use pieces of home exercise equipment across a broad array of consumers. A study published in the May 1996 Journal of the American Medical Association asserted that treadmills are the most efficient piece of exercise equipment for burning calories, as compared to cross country skiers, stationary bikes, rowing machines and stair steppers. According to NSGA and as illustrated by the chart below, retail sales of treadmills have grown from $118.4 million in 1987 to $2.1 billion in 2000, representing a CAGR of approximately 24.7%. According to SGMA, more people named the treadmill as their favorite piece of cardiovascular exercise equipment than any other piece of fitness equipment. The following chart illustrates the growth in retail sales of treadmills from 1987 to 2000. United States Retail Sales of Treadmills 1987-2000 (dollars in billions) [CHART]
Treadmills Historical Market Size in Retail Dollars 1987 0.1 1988 0.3 1989 0.4 1990 0.5 1991 0.6 1992 0.5 1993 0.8 1994 0.9 1995 1.0 1996 1.2 1997 1.5 1998 1.8 1999 1.9 2000 2.1
Other cardiovascular fitness products include popular products such as ellipticals and exercise bikes. In calendar year 2000, retail sales of other cardiovascular products in the United States totaled $696.0 million, or approximately 19% of the home fitness market. Elliptical trainers, a relatively new product in this category, have grown at a CAGR of 11.3% since 1997. While retail sales of other cardiovascular equipment as a group have increased at a CAGR of 10.1% from $102.5 million in 1980 to $696.0 million in 2000, retail sales have recently decreased from their high of $1.4 billion in 1996. We believe that such a reduction in sales is primarily due to the decline of infomercial advertising and the presence of a number of cardiovascular products in this category that have relatively shorter life cycles, such as stair steppers, gliders and abdominal exercisers, and the growing popularity of treadmills. Strength Training Products Strength training products are designed to develop muscle tone and strength. The most widely sold products in this category include home gyms, free weights and weight benches and cages. In calendar year 2000, strength training products sales in the United States were $856.9 million, or approximately 24% of the home fitness market. This category has grown from approximately $208.7 million in sales in 1980, a CAGR of 7.3%. 49 BUSINESS General Industry The fitness equipment industry in the United States includes cardiovascular and other fitness equipment, and strength training equipment. Cardiovascular and other fitness equipment includes treadmills, ellipticals, exercise bike, other cardiovascular fitness equipment, such as trampolines, relaxation products such as spas, motorized massage chairs and massage pillows. Strength training equipment includes multi-purpose home gyms, free weights and weight benches and cages. Products in each product category are distributed in various channels of distribution in a wide range of price points. According to the NSGA 2001 annual report, total retail sales industry-wide of home fitness equipment, one of the largest hard goods categories of sporting goods, are estimated to total $3.8 billion in calendar year 2001. According to NSGA, in calendar year 2000 retail sales of home fitness equipment exceeded retail sales of the following categories combined: camping, snowboarding, downhill skiing, baseball, softball, basketball, hockey and football. Our Company We manufacture and distribute a broad line of products in the fitness equipment market. These fall into two product categories, namely: cardiovascular and other fitness equipment, and strength training equipment. We are one of the largest manufacturers and marketers of fitness equipment for home use in the United States. In addition, we manufacture and distribute an innovative line of products for the institutional fitness equipment market in both our cardiovascular and other equipment category, and our strength training equipment category. Our brand names include: ProForm, NordicTrack, HealthRider, Weslo, Image, JumpKing, Free Motion Fitness and, under license, Reebok, Weider and Gold's Gym. In fiscal 2002, we generated net sales of $896.1 million, net income of $19.4 million and EBITDA of $75.7 million. Our Brands and Distribution Channels We market a complete line of products under multiple brands through multiple distribution channels to reach a wide range of consumers at various price points. We have some of the strongest brands in the industry, including NordicTrack which ranks among the top seven most widely recognized sporting goods brands according to American Sports Data. Our ProForm brand was ranked number one in terms of fitness market share by SMRG in 2000. We market our products through each distribution channel in which home fitness equipment products are sold, including: department stores, mass retailers and warehouse clubs, sporting goods and specialty fitness retailers, and direct-to-consumer sales through catalogs, infomercials, the Internet and our company-owned NordicTrack stores. Our History Our predecessor company, Weslo, was founded in 1977 by Scott Watterson, our Chairman and Chief Executive Officer, and Gary Stevenson, our President and Chief Operating Officer. In 1987, we acquired ProForm, and in 1988 we were acquired by Weider Health and Fitness ("Weider"). In 1994, affiliates of Bain Capital, LLC formed ICON Health and Fitness, Inc. and obtained control of us in a recapitalization transaction. As part of that transaction, we incurred substantial indebtedness and issued common and preferred stock to Weider. In 1996, we acquired HealthRider and CanCo, a Weider affiliated Canadian manufacturing firm, and we repurchased the common and preferred stock issued to Weider in that recapitalization. We funded these transactions with additional indebtedness. In addition, in 1998 we acquired the assets of NordicTrack, Inc. In 1999, we consummated a recapitalization that included a $40.0 million cash contribution of capital, the exchange of our then-existing debt securities for cash and new debt and equity securities and the refinancing of our then existing senior secured credit facility. 50 Our Competitive Strengths We attribute our market leadership, opportunities for continued growth and increased profitability to the following competitive strengths: . Leading Market Position. We are well positioned to grow as the overall industry grows. We maintain a broad product line in each of our two major product categories. Our broad range of products enables us to appeal to consumers with varying fitness needs and incomes, which reduces our dependence on any single product and enables us to respond quickly to changes in consumer preferences. In addition, we are well-positioned to serve retailers that want to increase their sales of home fitness products, while reducing their number of vendors; . Unique Multi-Brand, Multi-Channel Distribution Capability. Our ability to serve multiple distribution channels with multiple products and well-known brand names differentiates us from our competitors, insulates us from the impact of a downturn in any single channel and allows us to make products with varying designs and innovative features that address the pricing strategies of our customers. In addition, we are able to leverage our product development capabilities to maximize product lifecycles by repositioning products into new channels and under different brand names as they mature; . Strong Customer Relationships. We have strong, long-term relationships with many leading retailers. We have been a supplier to Sears since 1984. We have served Wal-Mart and The Sports Authority since 1985 and 1988, respectively. We have received numerous awards and recognition from our customers. These include, among others, Sears' Vendor of the Year in 2000 and their annual Partner in Progress award eleven times since 1985; Wal-Mart's Vendor of the Quarter award once in each of fiscal 1999 and fiscal 2000; and the SPARC Award ("Supplier Performance Awards by Retail Category"), awarded by Discount Store News magazine and based on votes by a committee of mass retailers, five times including the last four years consecutively; . Strong Commitment to Research and Development and Product Innovation. We are dedicated to product innovation. We hold, or have pending, an aggregate 250 United States and foreign patents and 711 United States and foreign trademarks. Our vertically integrated in-house research and development capabilities enable us to develop a product from concept to fully functional prototype and to launch products rapidly; . Flexible Manufacturing Capability. We have four manufacturing in facilities in Utah, one in Texas and three in Canada. All of our manufacturing, warehouse and logistical retail facilities in Utah are ISO 9001 certified. We also have two suppliers in China dedicated exclusively to us from whom we source some of our product requirements. Our facilities are flexible and permit us to shift our product mix quickly and efficiently to meet customer needs. . Experienced Management Team with Significant Equity Ownership. Our top 12 senior executives have an average of approximately 15 years of experience with us, which we believe, makes them among the most experienced management teams in the industry. Our senior management owns approximately 18.6% of our fully diluted shares outstanding. Our Business Strategy We plan to increase our net sales and EBITDA by continuing to pursue a business strategy that has the following principal components: . Participate in Industry Growth. We intend to continue to participate in the dynamic home fitness equipment industry by continuing to develop innovative products in our existing product lines as well as new product lines, such as ellipticals. In addition, we intend to continue our multi-brand, multi-channel distribution strategy. 51 . Increase Direct-to-Consumer Sales. We intend to continue to participate in direct-to-consumer sales, which we believe also enhances our retail sell-through and strengthens our brands. Our direct product and service offerings sold through television and print advertising and the Internet include selections from our core categories of treadmills, aerobic and anaerobic equipment, and our iFIT products and services. Our patented iFIT remote control interactive technology allows us to offer users the opportunity to work with a personal trainer online and prepare customized workout programs for a fee. . Increase Our Presence in the Institutional Fitness Equipment Market. According to SGMA, sales of fitness equipment to health clubs, spas, hotels and other institutions have grown at a CAGR of 20.9% from $77.0 million in 1988 to $750.0 million in 2000. This increase largely reflects the growth in fitness club memberships in the United States, from 17.0 million in 1987 to 32.8 million in 2000, according to the International Health, Racquet and Sportsclub Association. In order to gain entry into this growing market, we acquired the Free Motion Fitness business in December 2000. This new division offers a full line of innovative institutional fitness equipment including patented strength training equipment under the Free Motion brand, and treadmills and aerobic equipment under the NordicTrack brand name. . Increase Our International Sales. We believe that we are positioned to capitalize on our brands in order to increase our sales in several international markets. In Europe, we intend to leverage our significant sales and distribution infrastructure in France, Germany, Italy and the United Kingdom. . Selectively Pursue Acquisitions. The home and institutional fitness equipment markets are highly fragmented, and we believe that there may be attractive acquisition opportunities for us. We will selectively seek opportunities to leverage our strong manufacturing, product development, distribution and marketing capabilities to increase the cashflow from acquired businesses. Products Cardiovascular and Other Fitness Equipment Our products in the cardiovascular and other fitness equipment category cover a broad range of technological sophistication and a variety of price points. Primary products within this category includes the following: Treadmills We design, innovate, manufacture, market and distribute motorized and manual treadmills, designed to promote cardiovascular fitness. Our principal competitors in this category are Schwinn, Life Fitness, Pacemaster, Cybex, Precor and Keys, whose products are primarily targeted at the higher price point range of the market, and Sportcraft recently began supplying Wal-Mart a motorized treadmill targeted at the lower price point range of the market. We are the leading producer of motorized treadmills. Our treadmills include proprietary technologies in the electronics console and drive train systems. In the March 2002 issue of Consumer Reports, six of our treadmills ranked among the top eleven treadmills worldwide, based on criteria such as quality, durability, features and ease of use. Certain features offered by our motorized treadmills that enhance the home user's experience include bio- feedback electronics such as heartrate control, pulse and body fat, certain programmable speeds and inclines, electronic feedback on speed, elapsed time, distance traveled, calories/fat calories burned, and cross-training upper body exercise functions. The SpaceSaver feature for treadmills (introduced in 1996), for which we hold 16 United States patents, enables treadmills with this feature to fold vertically for easy storage. As of the Fall of 2001, we have equipped all our brands of treadmills with a price point of $599 and above with iFIT technology, for which we hold one United States patent and have seven patents pending. iFIT technology automatically controls a treadmill's speed and incline. iFIT technology combines automatic equipment control, heart-rate paced music, and the pre-recorded coaching of a personal trainer. Consumers can enjoy iFIT technology using 52 streaming workouts from the iFIT Website, music workouts on compact discs, or multi-media iFIT videos. In addition, we also offer live personal training services via the Internet for consumers who choose to subscribe to our service. Other popular features on our treadmill line of products include: cushioning mechanisms such as adjustable leaf springs and soft belts for a quiet, shock-absorbent workout and the CrossWalk line of treadmills, which provides users with upper body exercise for a total body workout. Ellipticals. The relatively new category of elliptical crosstrainers was launched in the institutional fitness market in the early 1990's. Ellipticals are now the fastest growing category of products in the home fitness industry, growing at a CAGR of 11.3% from 1997 to 2000. Ellipticals offer a low-impact, high-intensity aerobic workout which harnesses the momentum of a natural striding motion, and eliminates the impact of typical running or walking. We pioneered an innovative mechanism that links upper-body motion with the lower-body motion for a synchronized rhythmic total-body workout. Our ellipticals typically provide an electronic display that provides heartrate control, programmed workouts and feedback on speed, time, distance and calories burned. Our iFIT technology, which automatically adjusts resistance on elliptical trainers, is included on many elliptical trainers priced at $399 and above. Retail prices of our ellipticals range from $179 to $999 and are available in the NordicTrack, ProForm, HealthRider, Image, Reebok and Weslo brands. Our Reebok, ProForm and NordickTrack brand ellipticals were rated the number one, two and three ellipticals, respectively, in the March 2002 Consumer Reports ranking of home exercise equipment. Our principal competitors in this category are Fitness Quest and Thane. Exercise Bikes. We offer exercise bikes featuring a variety of resistance mechanisms including electromagnetic, self-generating, flywheel and air, electronic monitors which display elapsed time, speed, distance and calories burned, and dual function design, which allows the user to exercise the upper body, lower body or both simultaneously. Certain units include heartrate control, motivational electronics and programmable resistance which allow users to design their own workouts. Our iFIT technology which automatically adjusts resistance, is included on several recumbent and upright bikes priced at $299 and above. Recreational Sports Products. Through our JumpKing subsidiary, we manufacture and market 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 for approximately $25 while retail prices for our full-sized trampolines range from $179 to $399. Relaxation Products. Beginning in the Spring of 1996, we introduced a line of relaxation products such as acrylic and soft-sided hydrotherapy spas, motorized massage chairs and massage pillows. These products are currently distributed through various channels including department stores, mass retailers and warehouse clubs, sporting goods retailers, and direct-to-consumers through home shopping cable networks, catalogs and our own direct response marketing efforts. Strength Training Equipment We offer a complete line of anaerobic strength training equipment designed to develop muscle tone and strength under the NordicTrack, Image, ProForm, Weslo, Weider, Gold's Gym, and Reebok brand names. Our principal competitors in this category include Nautilus Group, Inc., Fitness Quest, Soloflex, Life Fitness and Cybex. Our products in this category include the following: Home Gyms. Our multi-purpose home gyms offer a range of resistance mechanisms, from selectorized weight stacks to plate-loaded gyms to our powerstroke leverage system. New products within this category include our patented Free Motion equipment, which enables users to enjoy a full range of motion with "functional movement" versus the rigid "fixed path movement" of traditional equipment. Functional movement training is a significant trend in strength training for home fitness as well as for professional athletes. Other products within this category include our multi-purpose home gyms, which integrate aerobic functions for 53 crosstraining. Selected units are designed to allow multiple users to use the equipment simultaneously, thereby allowing circuit training. Our principal competitors in this category include Direct Focus, Fitness Quest Paramount and Life Fitness. Weight Benches, Cages and Free Weights. We offer a range of weight benches and squat cages under our NordicTrack, Image, Proform and Weider brand names. Retail prices for these products range from $49 to $299. We also offer a broad assortment of cast-iron weight plates, vinyl and neoprene dipped weights and dumbbells, in standard and Olympic size formats. Exercise Accessories. We offer a line of back support belts, workout gloves and exercise accessories, including ankle and hand weights and grip devices. These products are sold under the Reebok, HealthRider, Weider, ProForm and NordicTrack brands. Brands We design, innovate, and market our products under some of the best known brands in the fitness industry, including NordicTrack, HealthRider, Free MotionFitness, ProForm, Image, Weslo, and under license, Reebok, Weider and Gold's Gym. See "Trademarks." Our NordicTrack brand name is recognized by 86.6% of Americans, according to a quantitative survey conducted by American Sports Data, a market research firm. NordicTrack ranked number 7 out of 185 sporting goods brands in this study conducted in 1997, which included Nike and Reebok. The NordicTrack brand has broad awareness, as evidenced by the nearly even awareness levels across various age, income, ethnic and education groups in the American Sports Data study. In addition, our ProForm brand is the number one fitness brand in the United States according to SMRG. Institutional Fitness Equipment In order to gain entry into the growing market of institutional fitness equipment, in December 2000 we acquired the Free Motion Fitness business, a designer, manufacturer and marketer of innovative and patented institutional strength training equipment called "Free Motion." As part of our strategy to gain share in this market, we have also recently begun to offer treadmills and other cardio fitness equipment, such as Incline Trainers, under the NordicTrack brand into the institutional market. We use our institutional fitness equipment sales force to market and distribute our institutional fitness equipment predominantly to health clubs, corporate wellness centers and elite athlete training centers. Our principal competitors in the institutional fitness market are Life Fitness, Precor, StarTrac and Cybex. Sales, Marketing and Distribution Sales and Marketing. We market our products under multiple brands through multiple distribution channels, including department stores, mass retailers and warehouse clubs, sporting goods and specialty fitness retailers and direct-to-consumers through our own Internet sites, catalogs and retail stores. Distribution Capabilities. We believe our distribution capabilities and post-sales support place us in a unique position to service major retailers. This has been done through the successful implementation of our integrated distribution plan that allows us to respond to customer orders with a computerized bar-coded inventory management system that is used to insure that the necessary components are available for manufacturing. This system is also capable of tracking finished goods through all levels of the distribution chain. Through the effective use of electronic data interchange, we are able to run manufacturing jobs to fill specific customer orders, arrange for shipping from many of our manufacturing facilities and make timely deliveries to any of our customer locations. 54 International Operations Foreign revenue (sales originating in countries other than the United States) in fiscal years 2001, 2000 and 1999 was $72.2 million, $61.5 million and $61.6 million, respectively. Revenue from no single country was material to the consolidated revenues of the Company. Sales outside the United States are concentrated in Europe, Asia/Pacific Rim, Canada and Central/South America. In order to meet the growing demand for home and institutional fitness equipment, we maintain offices, showrooms and warehouses in Leeds, England; Perugia, Italy; and Carrieres, France, employing nearly 85 people. Retail Operations As of March 2, 2002, we operated 70 retail stores throughout the United States serving metro New York City, Chicago, Seattle, San Francisco, Los Angeles, Atlanta and other cities. Our NordicTrack product line in these stores and other locations includes treadmills, ellipticals, incline trainers, stationary bikes, multi-purpose home gyms, Pilates machines, jogging strollers and fitness apparel. Product Design and Innovation Product and design innovation has contributed significantly to our growth. On an ongoing basis, we evaluate new product concepts and seek to respond to the desires and needs of consumers by frequently introducing new products and repositioning existing products. As of March 2, 2002, we had approximately 382 employees in our research and development group. We hold 181 United States patents, we have 97 United States and 509 foreign trademarks, we have 35 United States and 34 foreign patents pending and 23 United States and 82 foreign trademarks pending. We had research and development expenses of $10.9 million in fiscal 2001. We conduct most of our research and development in 40,000 square feet of space in our Logan, Utah headquarters. This facility includes plastic, mechanical and electrical engineering capabilities that are used in creating proprietary designs and features. Customers Our largest customer since 1985 has been Sears. In fiscal 2002, Sears accounted for approximately 44.5% of our total net sales, a 2.1% increase over fiscal 2001. Other important customers include Wal-Mart, Sam's Club, The Sports Authority, Gart's Sports, Galyan's and Dick's Sporting Goods. Although Sears still accounts for a substantial portion of our sales, the percentage of net sales to Sears has decreased over the past decade from a high of approximately 68% in fiscal 1989. Nevertheless, the dollar amount of our net sales to Sears has increased during this time period. Several customers have distinguished us with several vendor awards for our commitment in providing quality and value to the American consumer, including, among others, Sears' Vendor of the Year in 2000 and their Partner in Progress award eleven times since 1985, Wal-Mart's Vendor of the Quarter once in each of fiscal 1999 and fiscal 2000 and the annual SPARC Award five times including the last four years consecutively. This annual award is the only industry-wide vendor recognition program in mass market retailing, and is awarded by Discount Store News, a magazine which employs a panel made up of key merchandising executives from the mass market retailing industry. This award honors those who excel in self-sell packaging, new product innovation, on-time delivery, advertising support and quality control. We sell our products to customers representing over 7,600 consumer locations, excluding those consumers we sell to directly through our retail and Internet distribution channels. Consistent with industry practice, we generally do not have long-term purchase agreements or other commitments from our customers as to levels of future sales. The level of our sales to large customers depends in large part on our continuing commitment to home fitness products and the success of our efforts to market and promote our products, as well as our competitiveness in terms of price, quality, product innovation and customer service. We are not the exclusive supplier of home fitness equipment to any of our major customers. The loss of, or a substantial decrease in the 55 amount of purchases by, or a write-off of any significant receivable due from any of our major customers could have a material adverse effect on our business. See "Risk Factors--We rely on a limited number of major customers, the loss of any of which could have a material adverse effect on our business." Competition The fitness equipment market is highly competitive. It is characterized by frequent introduction of new products, often accompanied by major advertising and promotional programs. We believe that the principal competitive factors affecting our business include price, quality, brand name recognition, product innovation and customer service. We compete with several domestic manufacturers and distributors such as Fitness Quest, Life Fitness (a division of Brunswick), Cybex/Trotter, Precor (a division of Illinois Tool Works), and Direct Focus. In Europe, we principally compete with Tunturi, Helmut Kettler and other domestic competitors. The following table shows our five largest competitors in the United States: Top Five United States Fitness Competitors
Company Name Primary Distribution Channel Principal Products - ------------ ---------------------------- ------------------ Cybex / Trotter............... Specialty fitness dealers, Cardiovascular, institutional clubs and spas Strength Training Nautilus Group, Inc........... TV infomercials, institutional Cardiovascular, clubs and spas Strength Training Fitness Quest................. TV infomercials, mass Cardiovascular, distribution channels Strength Training Life Fitness.................. Institutional clubs and spas, Cardiovascular, specialty fitness dealers Strenth Training Precor........................ Institutional clubs and spas, specialty fitness dealers and Cardiovascular, sporting goods retailers Strength Training
Manufacturing and Purchasing In fiscal 2002, we manufactured or assembled over 80% of our products and component parts at our facilities in Utah, Texas and Canada. The balance of our products and component parts were manufactured and assembled by third parties, principally in mainland China. We have long-standing supply relationships with several offshore vendors, many of which have exclusive relationships in the fitness industry with us. The combination of internal manufacturing and assembly capacity and our access to third-party vendors has helped us meet customer demand on a competitive basis. In addition, the third party vendors provide greater flexibility in manufacturing capacity to satisfy seasonal demands. We utilize more than 1.1 million square feet for manufacturing, including a 300,000 square foot facility in Logan, Utah, where the majority of our treadmills are manufactured or assembled. We constructed our Logan, Utah plant in 1990 and equipped the facility with modern manufacturing and assembly features, including fully integrated metal fabrication, powdercoat painting, robotic welding and injection molding equipment. In 1990, we purchased a trampoline manufacturing operation in Dallas, Texas, which produces the JumpKing trampoline brand. In 1991, we began operating our plant in Smithfield, Utah. In 1994, we began operating our Clearfield, Utah manufacturing facility. In 1995, we opened our Smithfield North Plant. In 1996, we expanded our manufacturing capacity by 233,671 square feet through the acquisition of our Canadian manufacturing facility in St. Jerome, Canada. 56 We apply a management system to control and monitor freight, labor, overhead and material cost components of our finished goods. We emphasize product quality by monitoring operations according to uniform quality control standards. In fiscal 1994, we received ISO 9001 certification for all of our non-retail facilities in Utah. 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. ISO 9001 is a certification process used for companies which business includes a range of activities from design and development to production, installation and servicing. The primary raw materials and component parts that we use to manufacture our products are electronics, steel tubing, belt material, motors, rollers, walking decks and plastics. In fiscal 2001, no single raw material or component part accounted for more than 10% of our materials cost. The Bush administration recently announced proposed increased tariffs on raw steel imported from certain countries into the United States. Steel is a primary raw material used in the manufacture of components used into our finished products. Increased steel tariffs may increase our cost of goods. The ultimate impact that this tariff proposal will have on our results of operations remains uncertain. From fiscal 1996 to fiscal 2002 we invested over $80.0 million in tooling, molding, production and computer equipment to develop state-of-the-art production, research and development, distribution and reporting systems. We have a fully implemented Enterprise Resource Planning ("ERP") system that integrates all manufacturing, planning, inventory, purchasing, order entry and financial functions. We have not been required by our auditors to shut down for physical inventories for six years due to the strength of our materials management controls and systems. Our fully-automated management information and reporting systems also allow for efficient operating performance, strong ties to retailers and accurate performance analysis. Our inventory management and manufacturing productivity are enhanced by our just-in-time system for purchasing materials and components. We have also invested in Electronic Data Interchange ("EDI") capabilities, including Wal-Mart's Retail Link system, which provides us and a substantial number of our primary customers a seamless flow from initial retailer orders to parts purchasing to product manufacturing to shipping. We have also implemented EDI capabilities with substantially all of our primary customers. Employees As of May 31, 2002, we employed approximately 3,910 people, 185 of whom were and are represented by a Canadian labor union. We are party to a collective bargaining agreement with this union which expires on August 7, 2004. We believe that we have good relationships with our employees. Factory employees are compensated through a targeted incentive system. Managerial employees receive bonuses tied to the achievement of performance targets. As of May 31, 2002, approximately 382 employees were engaged in research and development, 425 in sales and marketing, 2,369 in manufacturing and 397 in other areas, primarily administrative. We are also subject to two employment agreements with senior executives. See "Certain Relationships and Related Party Transactions--Employment Agreements." Environmental Matters Our operations are subject to federal, state and local health and safety and environmental laws and regulations that impose workplace standards and limitations on the discharge of pollutants into the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of materials, substances and wastes. The nature of our manufacturing and assembly operations exposes us to the risk of claims with respect to environmental matters, and although compliance with local, state and federal requirements relating to the protection of the environment has not had a material adverse effect on our financial condition or results of operations, there can be no assurance that material costs or liabilities will not be incurred in connection with such environmental matters. Future events, such as changes in existing laws and regulations or enforcement policies or the discovery of contamination on sites owned or operated by us may give rise to 57 additional compliance costs or operational interruptions which could have a material adverse effect on our financial condition. In addition, many but not all of our properties have been the subject of either Phase I or Phase II Environmental Site Assessments. While we are not aware of any existing conditions that are likely to result in material costs or liabilities to us, there can be no assurance that all potential instances of soil or ground water contamination have been identified even where Environment Site Assessments have been conducted. Accordingly, there can be no assurance that previously unknown environmental conditions will not be discovered at any of our properties, whether presently or formerly owned or leased, or that the cost of remediating such condition will not be material. Insurance and Product Recalls Due to the nature of our products, we are subject to product liability claims involving personal injuries allegedly related to our products. Our involvement in the trampoline business through our JumpKing subsidiary has especially exposed us to such claims. We currently carry an occurrence-based product liability insurance policy. The current policy provides coverage for the period from October 25, 2001 to October 1, 2002 of up to $5.0 million per occurrence and $5.0 million in the aggregate. The policy has a deductible on each claim of up to $500,000. We believe that our insurance is generally adequate to cover product liability claims. Nevertheless, currently pending claims and any future claims are subject to the uncertainties related to litigation, and the ultimate outcome of any such proceedings or claims cannot be predicted. Due to uncertainty with respect to the nature and extent of manufacturers' and distributors' liability for personal injuries, we cannot guarantee that our product liability insurance is or will be adequate to cover such claims. From time to time we are subject to product recalls of defective products. Recently we, in conjunction with the Consumer Product Safety Commission, initiated a recall of our Hiker Product. To date, we have received fourteen reports from consumers that under certain circumstances an electrical component in the control system of our Hiker product which included approximately 7,500 total units. These units could overheat causing a risk of fire. We effected a recall of the units and remediation of the defective machines at our retail outlets and those already purchased by consumers. While we cannot be certain of the ultimate costs of effecting this remediation we do not believe the costs will be material. Facilities Our headquarters are located in Logan, Utah, and we own the related land and buildings. Additionally, we own land and buildings in Canada. The total square footage of our owned buildings is approximately 485,000 square feet. We lease additional facilities for manufacturing, warehouses and offices in the United States and various foreign countries including the United Kingdom, Italy, France and Germany. We sublease certain of these facilities where space is not fully utilized or has been involved in restructuring activities. We believe that these facilities are well maintained, in good operating condition and are adequate for our current needs and that suitable additional or substitute space will be available as needed to accommodate any expansion of our operations. In addition, as of May 31, 2002 we operated under lease 70 NordicTrack retail stores in various cities in the United States. Legal Proceedings We are party to a variety of non-product liability commercial lawsuits involving contract claims, arising in the ordinary course of our business. We believe that adverse resolution of these lawsuits would not have a material adverse effect upon our results of operations or financial position. 58 We are party to a variety of product liability lawsuits, arising in the ordinary course of our business, as a result of injuries sustained by customers while using a variety of our products. These claims include injuries sustained by individuals using trampolines and treadmills. We vigorously defend any and all product liability claims brought against us and do not believe that any currently pending claim or series of claims will have a material adverse effect on our results of operations or financial position. We are also involved in several intellectual property and patent infringement claims, arising in the ordinary course of our business. We believe that the ultimate outcome of these matters will not have a material adverse effect upon our results of operations or financial position. We are involved in litigation with Service Merchandise in connection with its filing for bankruptcy protection. Service Merchandise filed three (3) separate adversarial proceedings against us in the United States Bankruptcy Court, Middle District of Tennessee, Nashville Division, alleging preferential transfer in Adversarial Proceeding Nos. 301-0738A and 301-0770A, and Breach of Contract in Adversarial Proceeding No. 301-0586A. The bankruptcy trustee has filed suit in connection with the foregoing seeking to recapture an aggregate amount of $1,670,000 in payments made to us as a voidable preference. The summons was issued on April 16, 2001. On September 25, 2000, the United States Customs Service proposed an assessment against us in the United States Court of International Trade, Court No. 00-09-00467, for United States duties of approximately $1.3 million regarding the disputed treatment of certain imports. On September 1, 2000 we made a partial payment in the amount of $213,188. On September 25, 2000, we initiated proceedings with the United States Customs Service to obtain a ruling on the correct treatment of these imports. If this proceeding results in a favorable ruling for us, we hope to obtain a refund of the partial payment paid on September 1, 2000. We can make no assurance that we will obtain a favorable result with respect to these amounts. 59 MANAGEMENT Directors And Executive Officers The directors and executive officers of our company, and their ages, are as follows:
Years Name Age with ICON Position - ---- --- --------- -------- Scott R. Watterson................. 47 24 Chairman of the Board and Chief Executive Officer Gary E. Stevenson.................. 47 24 President, Chief Operating Officer and Director S. Fred Beck....................... 44 13 Chief Financial and Accounting Officer, Vice President and Treasurer David J. Watterson................. 43 22 Senior Vice President, Marketing and Research and Development Jon M. White....................... 54 15 Senior Vice President, Manufacturing William T. Dalebout................ 54 14 Vice President, Design M. Joseph Brough................... 39 13 Vice President, Operations and Information Technology Matthew N. Allen................... 38 18 Vice President of Product Development Douglas L. Clausen................. 55 11 Vice President, Purchasing Brad A. Bearnson................... 48 7 General Counsel, Secretary Robert C. Gay...................... 50 -- Vice Chairman of the Board Ronald P. Mika..................... 41 -- Director Gregory Benson..................... 48 -- Director David J. Matlin.................... 41 -- Director Christopher R. Pechock............. 37 -- Director Stanley C. Tuttleman............... 83 -- Director W. McComb Dunwoody................. 57 -- Director
Scott R. Watterson. Mr. Watterson has served as Chairman of our Board of Directors and Chief Executive Officer since 1988. Prior to 1988, Mr. Watterson co-founded Weslo, Inc., a predecessor entity of the Company, in 1977. In addition, Mr. Watterson is a director of the Utah State University Foundation. He is also on the Board of Trustees for the Utah Foundation and the Make-A-Wish Foundation of Utah. Gary E. Stevenson. Mr. Stevenson has served as our President, Chief Operating Officer and as one of our directors since 1988. Prior to 1988, Mr. Stevenson co-founded Weslo, Inc., the predecessor entity of the Company, in 1977. S. Fred Beck. Mr. Beck has served as our Chief Financial Officer and Accounting Officer, Vice President and Treasurer since 1989. 60 David J. Watterson. Mr. Watterson has served as Senior Vice President of Marketing and Research and Development since November 1992. Mr. Watterson is Scott R. Watterson's brother. Jon M. White. Mr. White has served as our Senior Vice President of Manufacturing since 1994, and was our Vice President of Manufacturing from 1988 to 1994. William T. Dalebout. Mr. Dalebout has served as our Vice President of Design since 1987. M. Joseph Brough. Mr. Brough joined us in 1989 and has served as our Vice President of Operations and Information Technology since 1993. Matthew N. Allen. Mr. Allen joined us in 1984 and has served as our Vice President of Product Development since November 1999. Douglas L. Clausen. Mr. Clausen has served as our Vice President of Purchasing since 1991. Brad A. Bearnson. Mr. Bearnson has served as our Secretary since November 1994 and our General Counsel since March 1995. Robert C. Gay. Mr. Gay became Vice Chairman of our Board of Directors in November 1994. Mr. Gay has been a Managing Director of Bain Capital, a private investment firm, since April 1993 and has been a General Partner of Bain Venture Capital, the venture capital arm of Bain Capital, which focuses on first and second institutional round investing in software, technology-driven business services, hardware and information companies, since February 1989. In addition, Mr. Gay serves as a director of Nutraceutical, GS Technologies Corporation, Anthony Crane, Alliance Laundry and Buhrmann. Ronald P. Mika. Mr. Mika became one of our directors in November 1994. Mr. Mika joined Bain Capital in 1989, where he has been Managing Director since 1996. In addition, Mr. Mika serves as a director of Professional Service Industries. Gregory Benson. Mr. Benson became one of our directors in September 1999. Mr. Benson has been an executive vice president of Bain Capital since 1996. Prior to joining Bain Capital, Mr. Benson was an executive vice president of American Pad and Paper Company. David J. Matlin. Mr. Matlin became one of our directors in September 1999. Mr. Matlin joined Credit Suisse First Boston Corporation, an investment bank, in May 1994, where he has served as a managing director since that time. Prior to that, Mr. Matlin was a partner at Merrion Group LP, a boutique securities firm that he co-founded in 1991. In addition, Mr. Matlin is a director of Imagyn Medical Technologies, California Coastal Communities, Vasocor, Inc., and Forstmann Textiles. Christopher R. Pechock. Mr. Pechock became one of our directors in September 1999. Mr. Pechock joined Credit Suisse First Boston Corporation in November 1998, where he has served as an investment manager since that time. Prior to joining Credit Suisse First Boston Corporation, Mr. Pechock was a portfolio manager at Turnberry Capital Management from 1997 until 1998 and at Eos Partners from 1996 until 1997. From 1993 until 1996, Mr. Pechock was a Vice President at PaineWebber, Incorporated. Stanley C. Tuttleman. Mr. Tuttleman became one of our directors in September 1999. Mr. Tuttleman has been the Chief Executive Officer and President of Tuttson Capital Corp., a financial services corporation, since 1983. Mr. Tuttleman also serves as the Chief Executive Officer of Telepartners International, a wireless program company. In addition, Mr. Tuttleman is a director of Mothers Work, Inc., and a trustee of the Franklin Institute, the Philadelphia Orchestra, the Philadelphia Museum of Art, Graduate Hospital, Gratz College and the Harrison Foundation. W. McComb Dunwoody. Mr. Dunwoody became one of our directors in September 1999. Mr. Dunwoody founded The Inverness Group Incorporated in 1975 and has served as its President since that time. He has served as Managing Director of Inverness Management LLC, a private investment firm, since 1998. Through Inverness Management LLC and its affiliates, Mr. Dunwoody has been engaged in sponsoring and investing in private equity transactions since 1981. Mr. Dunwoody was a member of the Corporate Finance Departments of the First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation. He is Chairman of the Executive Committee of the Board of Directors of National-Oilwell, Inc. 61 EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation for fiscal 2002, 2001 and 2000 for Mr. Scott Watterson and our other four most highly compensated executive officers (collectively, the "Named Executive Officers"): Summary Compensation Table
Annual Compensation Other Long-term All ------------------------ Annual Compensation Other Fiscal Salary Bonus Compensation Options Compensation Name and Principal Position Year ($) ($) ($) (#)(4) ($)(5) - --------------------------- ------ ------- --------- ------------ ------------ ------------ Scott R. Watterson.................................. 2002 578,813 1,495,000 103,679(2)(7) -- 80,527(6) Chairman of the Board and Chief Executive Officer 2001 551,250 448,905 116,808(2)(7) -- 42,000(6) 2000 525,000 746,447 2,053,794(1)(2)(3) -- 1,894 Gary E. Stevenson................................... 2002 524,000 1,175,600 62,213(2)(7) 68,969(6) President and Chief Operating Officer 2001 498,750 398,149 62,900(2)(7) -- 42,000(6) 2000 475,000 656,874 1,650,136(1)(2)(3) -- 1,444 S. Fred Beck........................................ 2002 249,000 345,910 -- -- -- Chief Financial and Accounting Officer 2001 235,000 145,059 -- -- 9,230 Vice President and Treasurer 2000 223,000 201,459(8) -- 99,990 544 David J. Watterson.................................. 2002 300,000 595,910 -- -- 10,165 Vice President, Marketing and Research 2001 284,400 155,559 -- -- 8,500 and Development 2000 270,000 209,459(9) -- 119,957 1,717 Richard Hebert...................................... 2002 262,000 145,850 8,700(2) -- -- General Manager, ICON Du Canada, Inc. 2001 296,974 155,000 10,496(2) -- -- 2000 297,945 109,459 10,893(2) -- --
- -------- (1) On September 27, 1999, HF Holdings issued to Mr. Watterson and Mr. Stevenson, without cost, an aggregate of 666,700 shares of the common stock of HF Holdings as part of the Company's Recapitalization. Mr. Watterson received 375,000 of those shares, while Mr. Stevenson received 291,700 shares. (2) Includes the annual cost of providing the named person with the use of an automobile during the year. (3) On September 27, 1999, the Company and HF Holdings entered into management agreements with each of Mr. Watterson and Mr. Stevenson, which provide for a closing fee of $417,000 in the aggregate and shared equally. Messrs. Watterson and Stevenson also receive an annual management fee of $67,000 in the aggregate and shared equally. (4) Options to purchase shares of HF Holdings' common stock (5) Includes amounts contributed by the Company for the benefit of the Named Executive Officers under the Company's 401 (K) Plan and the Company's deferred compensation plan. (6) Includes a management fee of $33,500 paid by the Company. (7) Includes amounts for personal use of the Company jet. (8) Includes a one-time retention bonus of $92,000 as an incentive to stay through the 1999 restructuring. (9) Includes a one-time retention bonus of $100,000 as an incentive to stay through the 1999 restructuring. 62 The following table sets forth information as of May 31, 2002, concerning options of HF Holdings, Inc. exercised by each of the named executive officers in 2002 and year-end option values: Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
Value of Unexercised Number of Unexercised In-the-Money Shares Acquired Value Options at May 31, 2001 (#) Options at May 31, 2001 ($)(1) on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/ Unexercisable --------------- ------------ --------------------------- ------------------------------ Common Common Common Common Name Stock Stock Stock Stock - ---- --------------- ------------ --------------------------- ------------------------------ Scott Watterson.......... -- -- -- -- Gary Stevenson........... -- -- -- -- S. Fred Beck............. -- -- 49,995/49,995 -- David J. Watterson....... -- -- 59,979/59,979 -- Richard Hebert........... -- -- -- --
- -------- (1) As of May 31, 2002 there was no market for the common stock of HF Holdings, Inc., no value has been attributed to the equity underlying these options. There has been no arm's length sales of HF Holding's common stock since the closing of the recapitalization in September of 1999. 1999 Junior Management Stock Option Plan In September 1999, HF Holdings adopted its 1999 Junior Management Stock Option Plan (the "1999 Stock Option Plan") which provides for the grant to eligible employees of the Company of nonstatutory options. A total of 333,300 shares of common stock of HF Holdings were reserved and issued under the 1999 Stock Option Plan, which is administered by the Board of Directors or a committee thereof. Committee Interlocks and Insider Participation We did not maintain a compensation committee during 2002. Messrs. Scott Watterson's and Stevenson's fiscal 2002 compensation was determined prior to the September restructuring pursuant to employment contracts that had been in place since 1989 and, after the September restructuring, pursuant to the newly entered into employment agreements described below under the caption "--Employment Agreements". Messrs. Watterson and Stevenson participated in the deliberations concerning the compensation of other officers, and Mr. Beck participated in the deliberations concerning the compensation of officers other than himself and Messrs. Watterson and Stevenson. Compensation of Directors Our directors do not receive any compensation for serving on the Board of Directors except for Messrs. Tuttleman and Dunwoody who are paid $25,000 annually for their services as directors. 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 its directors. See "Certain Relationships and Related Party Transactions--Management Fees" for a more detailed description of these arrangements. Employment Agreements On September 27, 1999, we entered into three-year employment agreements with each of Mr. Watterson and Mr. Stevenson. Subsequently these agreements have been extended to May 31, 2003. The employment agreements provide for the continued employment of Mr. Watterson as Chairman and Chief Executive Officer with an increase in base salary from $450,000 to $525,000, and Mr. Stevenson as President and Chief Operating Officer with an increase in base salary from $400,000 to $475,000. Except as set forth below, in all other material respects the agreements are substantially identical. 63 On September 27, 1999, each of Mr. Watterson and Mr. Stevenson received a bonus of $500,000. Each executive is also entitled to participate in a bonus program providing for a bonus equal to a percentage of the consolidated EBITDA (as defined in the Company's credit facility) of the Company and its subsidiaries (the Company's "EBITDA") which percentage shall equal 1.25% for Mr. Watterson and 1.10% for Mr. Stevenson. The executives will not be entitled to a bonus, however, unless the Company's Profits exceed 5.5% of net sales. We may terminate each executive's employment (1) for cause as provided in each agreement, (2) upon six months' disability, or (3) without cause. Each executive may similarly terminate his employment immediately for cause as provided in his employment agreement, upon three months notice to perform full-time church service or for any reason upon six months' notice. In the event we terminate either executive's employment for cause, or such employment terminates as a result of the death of the executive, as the case may be, the executive will not be entitled to further salary, benefits or bonus. If we terminate the executive's employment without cause, or the executive terminates his employment with or without cause, we will be obligated to pay the executive his salary and bonus for a period of two years from the date of termination. If we terminate the executive's employment upon the executive's disability, we are obligated to pay as severance an amount equal to one month's base salary then in effect for each calendar year or part thereof elapsed since January 1, 1988, provided that such severance pay is reduced by payments under applicable disability insurance. The employment agreements prohibit the executives from engaging in outside business activity during the term, subject to exceptions. The employment agreements provide for customary confidentiality obligations and, in addition, a non-competition obligation for a period of four years following termination (two years if the executive quits with cause or without cause or is terminated without cause, except that we may, at our option, extend such period for up to two additionally years by paying the executive his salary and bonus during the extended period). Under the employment agreements, the executives (and their affiliates) shall be entitled to indemnification to the fullest extent allowed by Delaware law with respect to all losses, costs, expenses and other damages in connection with any lawsuits or other claims brought against them in their capacity as officers or directors or shareholders (or affiliates thereof) of HF Holdings or any of its past or present parent or subsidiary or other affiliated companies. 64 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT HF Holdings, Inc. owns all of our outstanding common stock. The following table and related notes set forth information with respect to the beneficial ownership of HF Holdings' 7,771,613 outstanding shares of common stock as of May 31, 2002 by (i) each person known to HF Holdings to beneficially own more than 5.0% of the outstanding shares of common stock of HF Holdings, and (ii) each director and executive officer of HF Holdings individually and (iii) all directors and executive officers of HF Holdings as a group. Common Stock Beneficially Owned (1)
Percent of Number of Outstanding Names Shares Shares ----- --------- ----------- Scott R. Watterson+ (2)........................... 376,000 4.86% c/o ICON Health & Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 Gary E. Stevenson+ (3)............................ 292,700 3.78% c/o ICON Health & Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 The Bain Funds (4)................................ 5,161,035 66.69% c/o Bain Capital, Inc. 111 Huntington Avenue Boston, Massachusetts 02199 Robert C. Gay+ (5)................................ 5,161,035 66.69% c/o Bain Capital, Inc. 111 Huntington Avenue Boston, Massachusetts 02199 Ronald P. Mika+ (5)............................... 5,161,035 66.69% c/o Bain Capital, Inc. 111 Huntington Avenue Boston, Massachusetts 02199 Gregory Benson+ (5)............................... 5,161,035 66.69% c/o Bain Capital, Inc. Devonshire House Mayfair Place London WIJ 8AJ Credit Suisse First Boston Corporation (6)........ 1,312,934 16.96% c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Christopher R. Pechock+ (7)....................... 1,312,934 16.96% c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629
65
Percent of Number of Outstanding Names Shares Shares - ----- --------- ----------- David Matlin+ (7)........................................... 1,312,934 16.96% c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 HF Investment Holdings, LLC................................. 5,160,035 66.69% c/o ICON Health & Fitness, Inc. 1500 South 100 West Logan, Utah 8432 W. McComb Dunwoody+......................................... 344,002 3.44% c/o Inverness/Phoenix Capital LLC 630 Fifth Avenue, Suite 2435 New York, New York 10111 Stanley C. Tuttleman+....................................... 172,002 1.72% Tuttson's Inc. 349 Montgomery Avenue P.O. Box 22405 Bala Cynwyd, Pennsylvania 19004 David J. Watterson (8)...................................... 18,173 -- c/o ICON Health & Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 S. Fred Beck (8)............................................ 15,149 -- c/o ICON Health & Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 All directors and executive officers as a group (11 persons) 7,692,264 98.55% + Director of HF Holdings................................... 7,314,620
- -------- (1) Except as otherwise indicated, (a) each owner has sole voting and investment power with respect to the shares set forth and (b) the figures in this table are calculated in accordance with Rule 13d-3, under the Exchange Act of 1934, as amended. The table includes the HF Holdings Warrants (which have an exercise price, subject to adjustment, of $.01 per share) which are presently exercisable. The shares reported in this table as owned by a stockholder do not include the shares over which such stockholder has the right to direct the vote pursuant to the Stockholders Agreement. (2) Includes 1,000 shares of common stock owned by HF Investment Holdings, of which Mr. Watterson is deemed the beneficial owner by virtue of being a director. Mr. Watterson disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. (3) Includes 1,000 shares of common stock owned by HF Investment Holdings, of which Mr. Stevenson is deemed the beneficial owner by virtue of being a director. Mr. Stevenson disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. (4) Includes 5,160,035 shares of common stock beneficially owned by HF Investment Holdings, of which the Bain Funds may be deemed the beneficial owners by virtue of their control of HF Investment Holdings pursuant to its operating agreement. Also includes 1,000 shares of common stock owned by HF Investment Holdings, of which the Bain Funds may be deemed the beneficial owners by virtue of the fact that one or more of their general partners or principals, or one or more general partners or principals of one of their general partners, is a director of HF Investment Holdings. The Bain Funds disclaim beneficial ownership of any shares in which they do not have a pecuniary interest. 66 (5) Includes the shares beneficially owned by each of the Bain Funds, of which each of Mr. Gay, Mr. Mika and Mr. Benson may be deemed the beneficial owner by virtue of being a general partner or principal, or a general partner or a principal of the general partner, of such Bain Fund. Also includes 1,000 shares owned by HF Investment Holdings, of which each of Mr. Gay, Mr. Mika or Mr. Benson may be deemed the beneficial owner by virtue of each being a director. Each of Mr. Gay, Mr. Mika and Mr. Benson disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. (6) Includes 669,179 shares of common stock subject to purchase upon exercise of warrants that are presently exercisable. (7) Includes 1,312,934 shares beneficially owned by Credit Suisse First Boston Corporation, of which each of Mr. Pechock or Mr. Matlin may be deemed the beneficial owner by virtue of each being officers of Credit Suisse First Boston Corporation. Each of Mr. Pechock and Mr. Matlin disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. (8) Represents shares of common stock issuable upon exercise of the vested portion of options awarded pursuant to the 1999 HF Holdings Junior Management Stock Option Plan. 67 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Our 1999 Recapitalization General. As part of our recapitalization in September 1999, Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., BCIP Associates and BCIP Trust Associates (collectively "Bain"), Scott Watterson, Gary Stevenson, and Credit Suisse First Boston Corporation ("CSFB") made an equity investment in HF Holdings which then made a $40.0 million cash contribution of capital to us. Investment By Bain Affiliates And Senior Management. Bain, CSFB and Gary Stevenson and Scott Watterson purchased membership interests in HF Investment Holdings, LLC ("HF Investment Holdings") for an aggregate of $30.0 million of cash. Bain purchased $14,950,000 worth of membership interests in the form of Class B Units, each member of our senior management purchased an aggregate of $5,000,000 worth of membership interests in the form of Class A Units, CSFB purchased for $5,000,000 a warrant (the "CSFB Warrant") to purchase Class C Units and Bain purchased an aggregate of $5,050,000 worth of Class C Units. HF Investment Holdings in turn purchased, for $30.0 million in cash, 5,160,035 shares of the common stock of HF Holdings (or approximately 51.6% of the common stock of HF Holdings outstanding on a fully diluted basis upon consummation of the 1999 recapitalization). Investment By CSFB. In addition to its investment in HF Investment Holdings, CSFB, in September, 1999 purchased for an aggregate purchase price of $10.0 million in cash: (i) $7.5 million principal amount of convertible notes (which are reflected as common stock on the balance sheet of HF Holdings) that were convertible into shares of common stock of HF Holdings and (ii) 643,755 shares of common stock of HF Holdings. The convertible notes purchased by CSFB will mature on September 27, 2011, with no interest accruing thereon and no payments of principal until maturity. The notes (x) are convertible (by the holders thereof or by HF Holdings), subject to limited exceptions, into shares of common stock of HF Holdings upon a liquidation, insolvency or Liquidity Event (as defined below) and (y) automatically convert into shares of common stock of HF Holdings upon a bankruptcy, in each case at a conversion price of $3.88347 per share (subject to readjustment upon stock splits, stock dividends and combinations of shares). CSFB received, as a participant in a private exchange offering, including the retirement of the above described convertible notes, an aggregate of approximately $4.0 million in cash, $4.5 million principal amount of 12% subordinated notes due 2005 and warrants to purchase 669,179 shares of common stock of HF Holdings. It is anticipated that a portion of the proceeds from the sale of the notes will be used to redeem the 12% senior subordinated notes due 2005 held by CFSB. Management Equity Grant. On September 27, 1999, HF Holdings issued to Scott Watterson and Gary Stevenson, without cost, an aggregate of 666,700 shares of the common stock of HF Holdings (or approximately 6.7% of its common stock outstanding on a fully diluted basis upon the consummation of the September recapitalization). Mr. Watterson received 375,000 of these shares, while Mr. Stevenson received 291,700 shares. Stockholders Agreement. On September 27, 1999, we entered into a stockholders agreement (the "Stockholders Agreement") with HF Holdings, HF Investment Holdings, Bain, Credit Suisse First Boston Corporation and certain members of our senior management. Under the Stockholders Agreement, holders of HF Holdings' common stock, who received such common stock in the exchange offer, are subject to transfer restrictions with respect to their common stock. In addition, these holders received customary tag along and drag along rights with respect to sales of common stock of HF Holdings (including sales by any Bain Holder) and pre-emptive rights with respect to any issuances of common stock by HF Holdings to HF Investment Holdings. The tag along, drag along and registration rights of our 68 management are subject to the condition that our senior management own at least 25% of the common stock held by all management holders and the junior management own at least 15% of the common stock of HF Holdings held by all management holders, provided such person is still employed by us or has been employed within the 12 preceding months and the purchaser of the common stock is a financial buyer. Holders of warrants to purchase common stock of HF Holdings issued in the exchange offer received registration rights with respect to the common stock issuable upon exercise of such warrants. Pursuant to the Stockholders Agreement, HF Investment Holdings granted to CSFB an option to purchase a certain percentage (based on the date of exercise of such option) of the common stock of HF Holdings held by HF Investment Holdings. HF Investment Holdings also granted to members of our junior management an option to purchase 216,700 shares of the common stock of HF Holdings held by HF Investment Holdings. Each of these options is exercisable only upon the occurrence of a Liquidity Event (as defined in the Stockholders Agreement). In addition, HF Investment Holdings is entitled to appoint seven directors and CSFB is entitled to appoint two directors to our Board of Directors. Upon a liquidation of HF Investment Holdings, Bain will be entitled to appoint five directors and Scott Watterson and Gary Stevenson shall have the right to be directors, provided they remain employed by us. Management Agreements. On September 27, 1999, our company and HF Holdings also entered into a new management agreement with a Bain which provides an annual management fee not to exceed $366,500 in exchange for management consulting services including providing advice on strategic planning, development and acquisitions. In addition, if we enter into any acquisition transactions involving a gross purchase price of at least $10.0 million, Bain will receive (subject in some circumstances to CSFB's fee described below) a fee in an amount which will approximate 1% of the gross purchase price of the transaction (including assumed debt). Additionally, HF Holdings entered into a management arrangement with CSFB which provides for an annual management fee of $366,500 in exchange for consulting services. In addition, if we enter into transactions which constitute a Liquidity Event (as defined in the Stockholders Agreement), CSFB will receive a fee in an amount which will approximate 50% of the fee payable under the management agreement with Bain in connection with such transaction. On September 27, 1999, our company and HF Holdings also entered into management agreements with each of Mr. Watterson and Mr. Stevenson which provide, so long as Bain is receiving a management fee under its management agreement, an annual management fee of $67,000 in the aggregate shall be paid to Mr. Watterson and Mr. Stevenson. The respective management agreements include full indemnification and expense reimbursement provisions in favor of Bain, CSFB, Mr. Watterson and Mr. Stevenson, respectively. Loans to Senior Management On September 27, 1999 we made non-recourse loans to Scott Waterson and Gary Stevenson in the principal amounts of $1,209,340 and $990,660 respectively. The loans were made in connection with stock grants made to Messrs. Waterson and Stevenson at the time of our September 1999 recapitalization. The notes bear interest only to the extent that we have taxable net income less than $0 in any given fiscal year. The notes are secured by shares of ICON and shares of HF Investment Holdings LCC held by Messrs. Waterson and Stevenson. The notes have a maturity of 10 years and may be accelerated upon specified events of default and liquidity events. Aircraft Lease On February 8, 2002, we entered into an agreement with FG Aviation, Inc. ("FG"), a company which is jointly owned by certain of our officers, whereby we have committed to lease a Gulf Stream II jet from FG. Minimum rentals under the lease, which expires February 2009, are $120,000 per month. In addition, we are responsible for payment of the aircraft crew and any unscheduled maintenance of the aircraft. 69 DESCRIPTION OF SENIOR INDEBTEDNESS Senior Credit Facility We are party to a credit agreement (the "Credit Agreement") with General Electric Capital Corporation ("GE"), as administrative and collateral agent sole and exclusive lead arranger and the lenders, pursuant to which the lenders, subject to certain conditions, have made available to us a credit facility of up to $235.0 million. Structure The credit facility consists of (i) revolving loans of up to $210.0 million including a letter of credit subfacility of up to $10.0 million (the "Revolving Credit Facility"), and (ii) a term loan of $25.0 million (the "Term Loan Facility"). Availability and Use of Proceeds The Revolving Credit Facility is subject to a borrowing base defined as up to 85% of our and our subsidiary guarantors' eligible accounts receivable and up to the lesser of (a) 60% of our and our subsidiary guarantors' eligible inventory (with a seasonal increase to 70% during the months from July through November) valued at the lower of cost or market value, less reserves or (b) 85% of the appraised net orderly liquidation value of inventory. The undrawn portion of the Revolving Credit Facility is available to us for general corporate purposes, including to effect permitted acquisitions. The full amount of the Term Loan Facility was borrowed pursuant to a single drawing on April 9, 2002, and any amounts repaid or prepaid under the Term Loan Facility may not be reborrowed. Interest; Fees Borrowings under the Revolving Credit Facility will, at our option, bear interest at either (i) a floating rate equal to the index rate (to be defined as the higher of the prime rate as reported by the Wall Street Journal or the Overnight Federal Funds rate plus 50 basis points) plus 1.250%, or (ii) a fixed rate for periods of one, two, three or six months equal to the reserve adjusted LIBOR plus 2.625%. Borrowings under the Term Loan Facility will, at our option, bear interest at either (i) a floating rate equal to the above-described index rates plus 1.750%, or (ii) a fixed rate for periods of one, two, three or six months equal to the reserve adjusted LIBOR plus 3.125%. Interest will be payable monthly in arrears for all index rate loans and at the expiration of each LIBOR period for all LIBOR loans, provided that with respect to LIBOR periods greater than three months interest will be payable at three-month intervals and on the expiration of such LIBOR period. We will be subject to certain LIBOR breakage fees in connection with any LIBOR based advances. We are required to pay administration fees, commitment fees and certain expenses and to provide certain indemnities, all of which we believe are customary for financings of this type. For so long as any event of default is continuing, any applicable interest rate shall be increased by 2.0% per annum. An unused facility fee calculated at a rate equal to 0.50% on the average unused daily balance of the Revolving Credit Facility will be payable monthly in arrears. This unused facility fee is subject to upward adjustment annually to 0.75% if the average annual utilization of the facility is less than 50%. Fees in respect of letters of credit issued under the Revolving Credit Facility will be equal to 2.0% per annum on the face amount of the letters of credit, payable monthly in arrears. We are also required to pay any costs and expenses incurred by GE in arranging for the issuance or guaranty of letters of credit and any charges assessed by the issuing bank. Maturity and Amortization Loans made under the Revolving Credit Facility will mature on the fifth anniversary of the closing date. The loan made under the Term Loan Facility will mature over five years, and amounts due thereunder will amortize 70 on a quarterly basis in twenty equal installments. In the event that the Revolving Credit Facility is terminated for any reason the Term Loan Facility shall become immediately due and payable. Mandatory Repayments We are required to prepay borrowings under our new credit facility with net cash proceeds from any of the following: (i) asset sales not in the ordinary course of business, subject to certain exceptions (ii) sales of equity or debt securities, (iii) insurance casualty events or condemnation events respecting any of our property, subject to exceptions for replacement or repair, and (iv) 50% of our consolidated excess cash flow. The foregoing prepayments shall be applied against principal due, in the inverse order of maturity, on the Term Loan Facility until such loan is paid in full and thereafter against the Revolving Credit Facility. Voluntary Prepayments We are permitted to make voluntary prepayments of the Term Loan Facility and to permanently reduce the commitment under the Revolving Credit Facility, in each case in whole or in part, at our option and without premium or penalty, subject to certain requirements including reimbursement of the Lenders' redeployment costs in the case of prepayment of Adjusted LIBOR borrowings other than at the end of an interest period. Security and Guarantees Our parent, HF Holdings, has guaranteed the repayment of the new credit facility and has secured its guarantee by the pledge of all of the outstanding common stock of our company. The new credit facility is also secured by substantially all of our assets, including the assets of our existing and future domestic and Canadian subsidiaries. Substantially all of the capital stock of each of our Domestic Subsidiaries has been pledged as part of the security for the new credit facility. Additionally, substantially all of the capital stock of ICON du Canada Inc. and 65% of the capital stock of certain foreign subsidiaries has been pledged as part of the security for the new credit facility. Each of our domestic and Canadian subsidiaries has directly or indirectly guaranteed the repayment of the credit facility (with the guarantee of our Quebec subsidiary to consist of its guarantee of the obligations of our New Brunswick subsidiary, which in turn will undertake, pursuant to its guarantee, to guarantee repayment of the new credit facility). Covenants The credit agreement contains affirmative and negative covenants customary for such financings. The covenants, among other things: . Require us to provide the lenders with monthly unaudited financial statements and annual audited financial statements; . Require us to maintain cash management systems consistent with our current practices; . Require us to obtain and maintain commercially reasonable insurance protection for all assets and risks; . Limit commercial transactions, management agreements, service agreements and loan transactions between us and our officers, directors, employees and affiliates; . Limit certain sale-leaseback transactions; . Limit our ability to pay cash dividends and other payments or distributions to our stockholders and holders of our subordinated debt and limit payments of management fees to affiliates in certain circumstances; . Require any acquisitions funded through a sub-facility of $25.0 million established under the Revolving Credit Facility to meet certain criteria, including (a) compliance with all financial and other 71 covenants on a pro forma basis after giving effect to any proposed transaction; (b) $20.0 million in minimum remaining availability after giving effect to the proposed acquisition; and (c) the lenders' right to approve contingent liabilities associated with any acquisition including without exception environmental reviews; . Prohibit the sale of our stock or material portion of our assets; and . Prohibit a direct or indirect change in control. The Credit Agreement also contains standard financial covenants customary in connection with facilities of this type. Events of Default The credit agreement contains events of default customary for such financings, including, but not limited to: nonpayment of principal, interest, fees or other amounts when due; violation of covenants; failure of any representation or warranty to be true in all material respects when made or deemed made; cross defaults; ERISA; change of control; bankruptcy events; material judgments; and actual or company-asserted invalidity of the loan documents, liens or security interests or other material agreements. Such events of default allow for certain grace periods and materiality concepts. 72 DESCRIPTION OF EXCHANGE NOTES You can find the definitions of certain terms used in this description under the subheading "Certain Definitions." In this description, "ICON" refers only to ICON Health & Fitness, Inc. and not to any of its subsidiaries. ICON issued the initial notes to the initial purchases on April 9, 2002 under an indenture among itself, the Guarantors and The Bank of New York, as trustee, in a private transaction not subject to the registration requirements of the Securities Act. The initial purchasers sold all of the outstanding initial notes to "qualified institutional buyers" as defined in Rule 144A, under the Securities Act and to persons outside the United States under Regulation S. The form and terms of the exchange notes are the same as the form and terms of the initial notes they will replace except that: . ICON will register the exchange notes under the securities act; . the exchange notes will not bear legends restricting transfer; and . holders of the exchange notes will not be entitled to some rights under the registration rights agreement. See "Notice to Investors." The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. The following description is a summary of the material provisions of the indenture and the registration rights agreement. It does not restate those agreements in their entirety. We urge you to read the indenture and the registration rights agreement because they, and not this description, define your rights as holders of the notes. Copies of the indenture and the registration rights agreement are available as set forth below under "--Additional Information." Certain defined terms used in this description but not defined below under "--Certain Definitions" have the meanings assigned to them in the indenture. The registered holder of a note will be treated as the owner of it for all purposes. Only registered holders will have rights under the indenture. Brief Description of the Notes and the Guarantees The Notes The notes: . are general unsecured obligations of ICON; . are subordinated in right of payment to all existing and future Senior Debt of ICON; . are pari passu in right of payment with any future senior subordinated Indebtedness of ICON; and . are unconditionally guaranteed by the Guarantors. The Guarantees The notes are guaranteed by all of ICON's Domestic Subsidiaries. Each guarantee of the notes: . is a general unsecured obligation of the Guarantor; . is subordinated in right of payment to all existing and future Senior Debt of that Guarantor; and . is pari passu in right of payment with any future senior subordinated indebtedness of that Guarantor. 73 As indicated above and as discussed in detail below under the caption "--Subordination," payments on the notes and under these guarantees will be subordinated to the payment of Senior Debt. The indenture will permit us and the Guarantors to incur additional Senior Debt. Not all of our subsidiaries will guarantee the notes. In the event of a bankruptcy, liquidation or reorganization of any of these non-guarantor subsidiaries, the non-guarantor subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to us. See footnote 19 to our Consolidated Financial Statements included at the back of this offering circular for detail about the division of our consolidated revenues and assets between our guarantor and non-guarantor subsidiaries. As of the date of the indenture, all of our Domestic Subsidiaries will be "Restricted Subsidiaries." However, under the circumstances described below under the subheading "--Certain Covenants--Designation of Restricted and Unrestricted Subsidiaries," we will be permitted to designate certain of our subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture. Our Unrestricted Subsidiaries and our Foreign Subsidiaries will not guarantee the notes. Our Canadian Subsidiaries will guarantee the notes. Principal, Maturity and Interest The notes are initially being offered in the principal amount of $155.0 million. We may, without the consent of the holders, increase such principal amount in the future on the same terms and conditions and with the same CUSIP number(s) as the notes being offered hereby. Any offering of additional notes is subject to the covenant described below under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." The notes and any additional notes subsequently issued under the indenture will be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. ICON will issue notes in denominations of $1,000 and integral multiples of $1,000. The notes will mature on April 1, 2012. Interest on the notes will accrue at the rate of 11.25% per annum and will be payable semi-annually in arrears on January 1 and July 1, commencing on July 1, 2002. ICON will make each interest payment to the holders of record on the immediately preceding December 15 and June 15. Interest on the notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Methods of Receiving Payments on the Notes If a holder has given wire transfer instructions to ICON, ICON will pay all principal, interest and premium and Additional Interest, if any, on that holder's notes in accordance with those instructions. All other payments on notes will be made at the office or agency of the paying agent and registrar within the City and State of New York unless ICON elects to make interest payments by check mailed to the holders at their address set forth in the register of holders. Paying Agent and Registrar for the Notes The trustee will initially act as paying agent and registrar. ICON may change the paying agent or registrar without prior notice to the holders of the notes, and ICON or any of its subsidiaries may act as paying agent or registrar. Transfer and Exchange A holder may transfer or exchange notes in accordance with the indenture. The registrar and the trustee may require a holder to furnish appropriate endorsements and transfer documents in connection with a transfer of 74 notes. Holders will be required to pay all taxes due on transfer. ICON is not required to transfer or exchange any note selected for redemption. Also, ICON is not required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed. Subsidiary Guarantees The notes will be guaranteed, directly or indirectly, by each of ICON's current and future Domestic subsidiaries (with the Subsidiary Guarantee of our Quebec subsidiary to consist of its guarantee of the obligations of our New Brunswick subsidiary, which in turn will undertake, pursuant to its Subsidiary Guarantee, to guarantee repayment of the notes). These subsidiary guarantees will be joint and several obligations of the guarantors. Each subsidiary guarantee will be subordinated to the prior payment in full of all Senior Debt of that Guarantor on the same basis and to the same extent as the notes are subordinated to the Senior Debt of ICON. The obligations of each guarantor under its subsidiary guarantee will be limited as necessary to prevent that subsidiary guarantee from constituting a fraudulent conveyance under applicable law. See, however, "Risk Factors--Federal and state statutes allow courts, under specific circumstances, to void guarantees and require noteholders to return payments received from guarantors." A guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such guarantor is the surviving person), another person, other than ICON or another guarantor, unless: (1) immediately after giving effect to that transaction, no Default or Event of Default exists; and (2) either: (a) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger assumes all the obligations of that guarantor under the indenture, its subsidiary guarantee and the registration rights agreement pursuant to a supplemental indenture reasonably satisfactory to the trustee; or (b) the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the indenture. The subsidiary guarantee of a guarantor will be released: (1) in connection with any sale or other disposition of all or substantially all of the assets of that guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) a subsidiary of ICON, if such sale or other disposition, merger or consolidation complies with the relevant provisions of the indenture; (2) in connection with any sale of all of the Capital Stock of a guarantor to a person that is not (either before or after giving effect to such transaction) a subsidiary of ICON, if the sale complies with the "Asset Sale" provisions of the indenture; or (3) if the guarantor is designated by ICON as an Unrestricted Subsidiary in accordance with the applicable provisions of the indenture. See "--Repurchase at the Option of Holders--Asset Sales." Subordination The payment of principal, interest and premium and Additional Interest, if any, on the notes will be subordinated to the prior payment in full in cash of all Senior Debt of ICON, including Senior Debt incurred after the date of the indenture. 75 The holders of Senior Debt will be entitled to receive payment in full in cash of all obligations due in respect of Senior Debt (including interest after the commencement of any bankruptcy proceeding at the rate specified in the applicable Senior Debt) before the holders of notes will be entitled to receive any payment with respect to the notes (except that holders of notes may receive and retain Permitted Junior Securities and payments made from the trust described under "--Legal Defeasance and Covenant Defeasance"), in the event of any distribution to creditors of ICON or any guarantor: (1) in a liquidation or dissolution of ICON or any guarantor; (2) in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to ICON or any guarantor or their respective property; (3) in an assignment for the benefit of creditors of ICON or any guarantor; or (4) in any marshaling of ICON's or any guarantor's assets and liabilities. ICON also may not make any payment or distribution on account of or in respect of the notes (except in Permitted Junior Securities or from the trust described under "--Legal Defeasance and Covenant Defeasance") if: (1) a payment default on Designated Senior Debt occurs and is continuing beyond any applicable grace period; or (2) any other default occurs and is continuing on any series of Designated Senior Debt that permits holders of that series of Designated Senior Debt to accelerate its maturity and the trustee receives a notice of the default (a "Payment Blockage Notice") from ICON or the holders (or their representative) of any Designated Senior Debt. Payments on the notes may and will be resumed: (1) in the case of a payment default, upon the date on which the default is cured or waived; and (2) in the case of a nonpayment default, upon the earlier of the date on which the nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. No new Payment Blockage Notice may be delivered unless and until: (1) 360 days have elapsed since the delivery of the immediately prior Payment Blockage Notice; and (2) all scheduled payments of principal, interest and premium and Additional Interest, if any, on the notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the trustee will be, or be made, the basis for a subsequent Payment Blockage Notice unless the default has been cured or waived for a period of not less than 90 days. If the trustee or any holder of the notes receives a payment in respect of the notes (except in Permitted Junior Securities or from the trust described under "--Legal Defeasance and Covenant Defeasance") when: (1) the payment is prohibited by these subordination provisions; and (2) the trustee or the Holder has actual knowledge that the payment is prohibited; the trustee or the holder, as the case may be, will hold the payment in trust for the benefit of the holders of Senior Debt. Upon the proper written request of the holders of Senior Debt, the trustee or the Holder, as the case may be, will deliver the amounts in trust to the holders of Senior Debt or their proper representative. ICON must promptly notify holders of Designated Senior Debt (or their representative) if payment of the notes is accelerated because of an Event of Default. 76 As a result of the subordination provisions described above, in the event of a bankruptcy, liquidation or reorganization of ICON, holders of notes may recover less ratably than creditors of ICON who are holders of Senior Debt. See "Risk Factors--The notes and the guarantees will be junior to our and the guarantors' senior debt respectively." Optional Redemption At any time prior to April 1, 2005, ICON may on any one or more occasions redeem up to 35% of the aggregate principal amount of notes issued under the indenture at a redemption price of 111.25% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings; provided that: (1) at least 65% of the aggregate principal amount of notes issued under the indenture remains outstanding immediately after the occurrence of a redemption (excluding notes held by ICON and its Subsidiaries); and (2) the redemption occurs within 90 days of the date of the closing of a Equity Offering. Except pursuant to the preceding paragraph, the notes may not be redeemed at the option of ICON prior to April 1, 2007. Thereafter, the notes may be redeemed at the option of ICON in whole or, in part, upon not less than 30 nor more than 60 days' notice by mail to holders of the notes. The redemption prices (expressed as percentages of principal amount) are as follows for notes redeemed during the periods set forth below:
Redemption Period Price - ------ ---------- April 1, 2007 through March 31, 2008............................. 105.625% April 1, 2008 through March 31, 2009............................. 103.750% April 1, 2009 through March 31, 2010............................. 101.875% April 1, 2010 and thereafter..................................... 100.000%
in each case together with accrued interest up to but not including the redemption date; provided that if the redemption date falls after an interest payment record date and on or before an interest payment date, then the interest payment shall be payable to holders of record on the relevant record date. Mandatory Redemption ICON is not required to make mandatory redemption or sinking fund payments with respect to the notes. Repurchase at the Option of Holders Change of Control If a Change of Control occurs, each Holder of notes will have the right to require ICON to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that Holder's notes pursuant to a Change of Control Offer on the terms set forth in the indenture. In the Change of Control Offer, ICON will offer a Change of Control Payment in cash equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest and Additional Interest, if any, on the notes repurchased, to the date of purchase. Within 30 days following any Change of Control, ICON will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the Change of Control Payment Date specified in the notice. The Change of Control Payment date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the indenture, ICON will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the indenture by virtue of any conflict. 77 On the Change of Control Payment Date, ICON will, to the extent lawful and subject to the provisions set forth under the caption "--Subordination": (1) accept for payment all notes or portions of notes properly tendered pursuant to the Change of Control Offer; (2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes properly tendered; and (3) deliver or cause to be delivered to the trustee the notes properly accepted together with an officers' certificate stating the aggregate principal amount of notes or portions of notes being purchased by ICON. The paying agent will promptly mail to each Holder of notes properly tendered the Change of Control Payment for the notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each new note will be in a principal amount of $1,000 or an integral multiple of $1,000. The indenture provides that prior to complying with any of the provisions of this "Change of Control" covenant, but in any event within 60 days following a Change of Control, ICON will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of notes required by this covenant. ICON will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require ICON to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the indenture are applicable. Except as described above with respect to a Change of Control, the indenture does not contain provisions that permit the holders of the notes to require that ICON repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction. ICON will not be required to make a Change of Control Offer if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by ICON and purchases all notes properly tendered and not withdrawn under the Change of Control Offer. The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the properties or assets of ICON and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law and it may be unclear as to whether a Change of Control has occurred. Accordingly, the ability of a Holder of notes to require ICON to repurchase its notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of ICON and its Subsidiaries taken as a whole to another Person or group may be uncertain. Asset Sales ICON will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) ICON (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; (2) the fair market value is determined by ICON's Board of Directors and evidenced by a resolution of the Board of Directors set forth in an officers' certificate delivered to the trustee; and (3) at least 75% of the consideration received in the Asset Sale by ICON or a Restricted Subsidiary is in the form of cash. For purposes of this provision, each of the following will be deemed to be cash: 78 (a) any liabilities, as shown on ICON's or such Restricted Subsidiary's most recent balance sheet, of ICON or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary agreement that releases ICON or such Restricted Subsidiary from further liability; (b) any securities, notes or other obligations received by ICON or any such Restricted Subsidiary from such transferee that are converted within 30 days by ICON or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion; and (c) any payment of Senior Debt secured by the assets sold in the Asset Sale. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, ICON may apply those Net Proceeds at its option: (1) to repay Senior Debt and, if the Senior Debt repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; (2) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business; (3) to make capital expenditures; (4) to acquire other long-term assets that are used or useful in a Permitted Business; or (5) for any combination of clauses (1) through (4) above. Pending the final application of any Net Proceeds, ICON may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, ICON will make an Asset Sale Offer to all Holders of notes and all holders of other Indebtedness that is pari passu with the notes. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest and Additional Interest, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, ICON may use those Excess Proceeds for any purpose not otherwise prohibited by the indenture. If the aggregate principal amount of notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee will select the notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero. ICON will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of the indenture, ICON will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the indenture by virtue of such conflict. The agreements governing ICON's Senior Debt prohibit ICON from purchasing any notes, and also provide that certain change of control or asset sale events with respect to ICON will constitute a default under these agreements. Any future credit agreements or other agreements relating to Senior Debt to which ICON becomes a party may contain similar restrictions and provisions. In the event a Change of Control or Asset Sale occurs at a time when ICON is prohibited from purchasing notes, ICON could seek the consent of its senior lenders to the purchase of notes or could attempt to refinance the borrowings that contain such prohibition. If ICON does not obtain such a consent or repay the borrowings, ICON will remain prohibited from purchasing notes. In this 79 case, ICON's failure to purchase tendered notes would constitute an Event of Default under the indenture which would, in turn, constitute a default under such Senior Debt. In such circumstances, the subordination provisions in the indenture would likely restrict payments to the Holders of notes. Selection and Notice If less than all of the notes are to be redeemed at any time, the trustee will select notes for redemption as follows: (1) if the notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or (2) if the notes are not listed on any national securities exchange, on a pro rata basis, by lot or by a method as the trustee deems fair and appropriate. No notes of $1,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of notes to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the notes or a satisfaction and discharge of the indenture. Notices of redemption may not be conditional. If any note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount of that note that is to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the Holder of notes upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption. Certain Covenants Restricted Payments ICON will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of ICON's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving ICON or any of its Restricted Subsidiaries) or to the direct or indirect holders of ICON's or any of its Restricted Subsidiaries' Equity Interests in their capacity as a holder (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of ICON or to ICON or a Restricted Subsidiary of ICON); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving ICON) any Equity Interests of ICON or any direct or indirect parent of ICON; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the notes or the Subsidiary Guarantees, except a payment of interest or principal at the Stated Maturity thereof; or (4) make any Restricted Investment (all payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of the Restricted Payment; and 80 (2) ICON would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock;" and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by ICON and its Restricted Subsidiaries after the date of the indenture (excluding Restricted Payments permitted by clauses (2), (3), (4), (6), (7) and (8) of the next succeeding paragraph), is less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income of ICON for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the indenture to the end of ICON's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds received by ICON since the date of the indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of ICON (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of ICON that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of ICON), plus (c) to the extent that any Restricted Investment that was made after the date of the indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to the Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus (d) to the extent that any of our Unrestricted Subsidiaries is redesignated as a Restricted Subsidiary after the date of the indenture, the fair market value of ICON's Investment in such Subsidiary as of the date of such redesignation. The preceding provisions will not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of the indenture; (2) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of ICON or any Guarantor or of any Equity Interests of ICON in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of ICON) of, Equity Interests of ICON (other than Disqualified Stock); provided that the amount of any net cash proceeds that are utilized for any redemption, repurchase, retirement, defeasance or other acquisition will be excluded from clause (3)(b) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of ICON or any Guarantor with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend by a Restricted Subsidiary of ICON to the holders of its Equity Interests on a pro rata basis; (5) so long as no Default has occurred and is continuing or would be caused thereby, the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of ICON or any 81 Restricted Subsidiary of ICON held by any of ICON's (or any of its Subsidiaries') current or former employees, officers or directors pursuant to any management equity subscription agreement, stock option agreement, employment agreement, severance agreement, employee benefits plan or similar agreement or plan; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0 million; (6) repurchases of Equity Interests deemed to occur upon exercise of stock options if those Equity Interests represent a portion of the exercise price of those options; (7) distributions to a parent corporation for administrative expenses in an amount not to exceed $500,000 in any fiscal year; (8) cash dividends to a parent corporation in amounts required for that parent corporation to pay any federal, state or local income taxes to the extent that the income taxes are directly attributable to the income of ICON and its Subsidiaries; and (9) so long as no Default has occurred and is continuing or would be caused thereby, other Restricted Payments in an amount not to exceed $5.0 million. The amount of all Restricted Payments (other than cash) will be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by ICON or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant will be determined by the Board of Directors whose resolution with respect thereto will be delivered to the trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $5.0 million. Not later than the date of making any Restricted Payment, ICON will deliver to the trustee an officers' certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this "Restricted Payments" covenant were computed, together with a copy of any fairness opinion or appraisal required by the indenture. Incurrence of Indebtedness and Issuance of Preferred Stock ICON will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt). In addition, ICON will not, and will not permit any of the Guarantors to, issue any Disqualified Stock and will not permit any of its Subsidiaries that do not guarantee the notes to issue any shares of preferred stock; provided, however, that ICON and any Guarantor may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, if the Fixed Charge Coverage Ratio for ICON's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the additional Indebtedness is incurred or the Disqualified Stock is issued would have been at least (a) 2.25 to 1.0, if the incurrence or issuance is on or prior to April 1, 2004 or (b) 2.50 to 1.0, if the incurrence or issuance is after April 1, 2004, in each case, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (1) the incurrence by ICON and any Guarantor of additional Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of ICON and its Subsidiaries thereunder) not to exceed the greater of (x) $235.0 million (provided that such amount 82 shall be reduced to the extent of any reduction or elimination of any commitment under any Credit Facility resulting from or relating to the formation of any Receivables Subsidiary or the consummation of any Qualified Receivables Transaction and shall thereafter be increased to an amount not greater than $235.0 million to the extent of any increase in the commitment under any Credit Facility resulting from or relating to the termination of any Qualified Receivables Transaction or the elimination of any Receivables Subsidiary) or (y) the amount of the Borrowing Base as of the date of such incurrence; (2) the incurrence by ICON and its Restricted Subsidiaries of the Existing Indebtedness; (3) the incurrence by ICON and the Guarantors of Indebtedness represented by the notes and the related Subsidiary Guarantees to be issued on the date of the indenture and the exchange notes and the related Subsidiary Guarantees to be issued pursuant to the registration rights agreement; (4) the incurrence by ICON or any of its Restricted Subsidiaries of Indebtedness (including, without limitation, Capital Lease Obligations) incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of ICON or a Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4), not to exceed $10.0 million at any time outstanding; (5) the incurrence by ICON or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the indenture to be incurred under the first paragraph of this covenant or clauses (2), (3), (4), (5), (10) or (13) of this paragraph; (6) the incurrence by ICON or any of its Restricted Subsidiaries of intercompany Indebtedness between or among ICON and any of its Restricted Subsidiaries; provided, however, that: (a) if ICON or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the notes, in the case of ICON, or the Subsidiary Guarantee (other than in the case of intercompany Indebtedness of a Guarantor to ICON), in the case of a Guarantor except to the extent the notes are pledged as collateral for Senior Debt; and (b) (i) any subsequent issuance or transfer of Equity Interests that results in any Indebtedness being held by a Person other than ICON or a Restricted Subsidiary of ICON and (ii) any sale or other transfer of any Indebtedness to a Person that is not either ICON or a Restricted Subsidiary of ICON; will be deemed, in each case, to constitute an incurrence of such Indebtedness by ICON or a Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); (7) the incurrence by ICON or any of its Restricted Subsidiaries of Hedging Obligations in the ordinary course of business or to the extent required under the Credit Facilities; (8) the guarantee by ICON or any of the Guarantors of Indebtedness of ICON or a Restricted Subsidiary of ICON that was permitted to be incurred by another provision of this covenant; (9) the incurrence by ICON's Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event will be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of ICON that was not permitted by this clause (9); (10) the incurrence by ICON or any Restricted Subsidiary of Indebtedness arising from agreements of ICON or any Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of the business, assets or Subsidiary for the purpose of financing the acquisition; provided, however, that (i) 83 the Indebtedness is not reflected on the balance sheet of ICON or any Restricted Subsidiary (contingent obligations referred to in a footnote or footnotes to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (i)) and (ii) the maximum assumable liability in respect of such Indebtedness shall at no time exceed the gross proceeds, including noncash proceeds (the fair market value of such noncash proceeds being measured at the time received and without giving effect to any subsequent changes in value), actually received by ICON and/or the Restricted Subsidiary in connection with the disposition; (11) the incurrence by any Foreign Subsidiaries of ICON in an aggregate principal amount (or accreted value, as applicable) at any time outstanding including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (11), not to exceed $10.0 million; (12) the incurrence by a Receivables Subsidiary of Indebtedness in a Qualified Receivables Transaction that is without recourse to ICON or to any other Restricted Subsidiary of ICON or their assets (other than a Receivables Subsidiary and its assets and, as to ICON or any of its Restricted Subsidiaries, other than pursuant to representations, warranties, covenants and indemnities customary for transactions this type) and is not guaranteed by any such Person; and (13) the incurrence by ICON or any of the Guarantors of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (13), not to exceed $7.0 million. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each case, that the amount thereof is included in Fixed Charges of ICON as accrued. For purposes of determining compliance with this "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (13) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, ICON will, in its sole discretion, be permitted to classify the item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of the item of Indebtedness, in any manner that complies with this covenant. Indebtedness under Credit Facilities outstanding on the date on which notes are first issued and authenticated under the indenture will be deemed to have been incurred on that date in reliance on the exception provided by clause (1) of the definition of Permitted Debt. Sale and Leaseback Transactions ICON will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that ICON or any Restricted Subsidiary may enter into a sale and leaseback transaction if: (1) ICON or that Restricted Subsidiary, as applicable, could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the covenant described above under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to the covenant described below under the caption "--Liens;" (2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors and set forth in an officers' certificate delivered to the trustee, of the property that is the subject of that sale and leaseback transaction; and (3) the transfer of assets in that sale and leaseback transaction is permitted by, and ICON applies the proceeds of such transaction in compliance with, the covenant described above under the caption "--Repurchase at the Option of Holders--Asset Sales." 84 Notwithstanding the foregoing, ICON or any of its Restricted Subsidiaries may enter into sale and leaseback transactions that in the aggregate amount do not exceed $2.0 million in any twelve-month period without complying with the above provisions. Anti-Layering ICON will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of ICON and senior in any respect in right of payment to the notes. No Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to the Senior Debt of such Guarantor and senior in any respect in right of payment to such Guarantor's Subsidiary Guarantee. Liens ICON will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind securing Indebtedness, Attributable Debt or trade payables on any asset now owned or hereafter acquired, except Permitted Liens. Dividend and Other Payment Restrictions Affecting Subsidiaries ICON will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its capital stock to ICON or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to ICON or any of its Restricted Subsidiaries; (2) make loans or advances to ICON or any of its Restricted Subsidiaries; or (3) transfer any of its properties or assets to ICON or any of its Restricted Subsidiaries. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (1) agreements governing Existing Indebtedness and Credit Facilities as in effect on the date of the indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements, provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of the indenture; (2) the indenture, the notes and the Subsidiary Guarantees; (3) applicable law; (4) any instrument governing Indebtedness or Capital Stock of a Person acquired by ICON or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the indenture to be incurred; (5) customary non-assignment provisions in contracts or leases entered into in the ordinary course of business and consistent with past practices; 85 (6) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on that property of the nature described in clause (3) of the preceding paragraph; (7) any agreement for the sale or other disposition of the Capital Stock or assets of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending the closing of such sale or other disposition; (8) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (9) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of the covenant described above under the caption "--Liens" that limit the right of the debtor to dispose of the assets subject to such Liens; (10) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business; (11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; (12) agreements not described in clause (1) in effect on the date of the indenture; (13) covenants in agreements relating to the Indebtedness of Foreign Subsidiaries; (14) Indebtedness or other contractual requirements of a Receivables Subsidiary in connection with a Qualified Receivables Transaction, provided that such restrictions apply only to such Receivables Subsidiary; and (15) any amendments to any of the foregoing that, when taken as a whole, are not more restrictive than those contained in the agreement being amended. Merger, Consolidation or Sale of Assets ICON may not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not ICON is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of ICON and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (1) either: (a) ICON is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than ICON) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than ICON) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of ICON under the notes, the indenture and the registration rights agreement pursuant to a supplemental indenture or other agreements reasonably satisfactory to the trustee; (3) immediately after such transaction no Default or Event of Default exists; and (4) ICON or the Person formed by or surviving any consolidation or merger (if other than ICON), or to which the sale, assignment, transfer, conveyance or other disposition has been made will, on the date of the transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock." 86 In addition, ICON may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. This "Merger, Consolidation or Sale of Assets" covenant will not apply to: (1) a sale, assignment, transfer, conveyance or other disposition of assets between or among ICON and any of the Guarantors; (2) a merger or consolidation of a Restricted Subsidiary into ICON; or (3) the merger or consolidation of ICON into an affiliate of ICON consummated for the sole purpose of reincorporating in another jurisdiction under the laws of the United States, any state of the United States or the District of Columbia. Transactions with Affiliates ICON will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are no less favorable to ICON or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by ICON or such Restricted Subsidiary with an unrelated Person; and (2) ICON delivers to the trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $2.0 million, a resolution of the Board of Directors set forth in an officers' certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) any employment agreement entered into by ICON or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of ICON or such Restricted Subsidiary; (2) payment of fees, compensation, benefits, indemnities or similar payments and issuances of stock options to officers, directors and employees of ICON or any of its Restricted Subsidiaries in the ordinary course of business; (3) transactions between or among ICON and/or its Restricted Subsidiaries or transactions between a Receivables Subsidiary and any Person in which the Receivables Subsidiary has an Investment; (4) transactions with a Person that is an Affiliate of ICON solely because ICON owns an Equity Interest in, or controls, such Person; (5) payment of reasonable directors fees to Persons who are not otherwise Affiliates of ICON; (6) loans or advances by ICON or any of its Restricted Subsidiaries to employees of ICON or any of its Restricted Subsidiaries that are entered into in the ordinary course of business and that are approved by the Board of Directors of ICON; provided that the aggregate principal amount of all such loans or advances do not exceed $1.5 million at any one time outstanding; 87 (7) sales of Equity Interests (other than Disqualified Stock) to Affiliates of ICON; (8) Restricted Payments that are permitted by the provisions of the indenture described above under the caption "--Restricted Payments;" (9) transactions pursuant to the Stockholders Agreement; (10) payments of fees and the reimbursement of expenses by ICON for management services pursuant to the management agreements, each dated September 27, 1999, with Bain Capital, LLC, Credit Suisse First Boston Corporation and Gary Stevenson and Scott Watterson, as such agreements may be amended from time to time; provided that the amendments do not contain modifications that are materially adverse to the holders of the notes; and (11) payments of rent and other expenses by ICON to FG Aviation, Inc. made pursuant to the aircraft lease agreement, dated February 8, 2002, as that agreement may be amended from time to time; provided that the amendments do not contain modifications that are materially adverse to the holders of the notes. Additional Subsidiary Guarantees If ICON or any of its Subsidiaries acquires or creates another Domestic Subsidiary (other than a Receivables Subsidiary) after the date of the indenture, then that newly acquired or created Domestic Subsidiary will become a Guarantor and execute a supplemental indenture. However, any Domestic Subsidiary that has been properly designated as an Unrestricted Subsidiary in accordance with the indenture shall not be required to become a Guarantor so long as it continues to constitute an Unrestricted Subsidiary. Designation of Restricted and Unrestricted Subsidiaries The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by ICON and its Restricted Subsidiaries in the Subsidiary properly designated will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the first paragraph of the covenant described above under the caption "--Restricted Payments" or under one or more clauses of the definition of Permitted Investments, as applicable, as determined by ICON. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a Default. Any Unrestricted Subsidiary properly designated to be a Restricted Subsidiary will become a Guarantor and execute a supplemental indenture and deliver an opinion of counsel satisfactory to the trustee within 10 Business Days of the date of such designation. Business Activities ICON will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to ICON and its Restricted Subsidiaries taken as a whole. Payments for Consent ICON will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the indenture or the notes unless such consideration is offered to 88 be paid and is paid to all Holders of the notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Reports Whether or not required by the Commission, so long as any notes are outstanding, ICON will furnish to the Holders of notes, within the time periods specified in the Commission's rules and regulations: (1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if ICON were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on the annual financial statements by ICON's certified independent accountants; and (2) all current reports that would be required to be filed with the Commission on Form 8-K if ICON were required to file such reports. If ICON has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of ICON and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of ICON. In addition, following the consummation of the exchange offer contemplated by the registration rights agreement, whether or not required by the Commission, ICON will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, ICON and the Subsidiary Guarantors have agreed that, for so long as any notes remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Events of Default and Remedies Each of the following is an Event of Default: (1) default for 30 days in the payment when due of interest on, or Additional Interest with respect to, the notes whether or not prohibited by the subordination provisions of the indenture; (2) default in payment when due of the principal of, or premium, if any, on the notes, whether or not prohibited by the subordination provisions of the indenture; (3) failure by ICON or any of its Subsidiaries to comply with the provisions described under the captions "--Repurchase at the Option of Holders--Change of Control," "--Certain Covenants--Restricted Payments," or "--Certain Covenants--Merger, Consolidation or Sale of Assets;" (4) failure by ICON or any of its Subsidiaries for 30 days after notice to comply with the provisions described under the captions "--Repurchase at the Option of Holders--Asset Sales" and "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock;" (5) failure by ICON or any of its Subsidiaries for 60 days after notice to comply with any of the other agreements in the indenture; (6) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by ICON or any of its 89 Subsidiaries (or the payment of which is guaranteed by ICON or any of its Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the indenture, if that default: (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $15.0 million or more; (7) failure by ICON or any of its Subsidiaries to pay final judgments aggregating in excess of $15.0 million (net of applicable insurance which has not been denied in writing by the insurer), which judgments are not paid, discharged or stayed for a period of 60 days; (8) except as permitted by the indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (9) certain events of bankruptcy or insolvency described in the indenture with respect to ICON, any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary. In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to ICON, any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the trustee or the Holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately by notice in writing to the trustee and ICON; provided that so long as any Indebtedness permitted to be incurred pursuant to Credit Facilities shall be outstanding, such acceleration shall not be effective until the earlier of (1) the acceleration of such Indebtedness under Credit Facilities or (2) five business days after receipt by ICON of written notice of such acceleration. Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding notes may direct the trustee in its exercise of any trust or power. The trustee may withhold from Holders of the notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal or interest or Additional Interest. The Holders of a majority in aggregate principal amount of the notes then outstanding by notice to the trustee may on behalf of the Holders of all of the notes waive any existing Default or Event of Default and its consequences under the indenture except a continuing Default or Event of Default in the payment of interest or Additional Interest on, or the principal of, the notes. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of ICON with the intention of avoiding payment of the premium that ICON would have had to pay if ICON then had elected to redeem the notes pursuant to the optional redemption provisions of the indenture, an equivalent premium will also become and be immediately due and payable to the extent permitted by law upon the acceleration of the notes. If an Event of Default occurs prior to April 1, 2007, by reason of any willful action (or inaction) taken (or not taken) by or on behalf of ICON with the intention of avoiding the prohibition on redemption of the notes prior to April 1, 2007, then the premium specified in the indenture will also become immediately due and payable to the extent permitted by law upon the acceleration of the notes. 90 ICON is required to deliver to the trustee annually a statement regarding compliance with the indenture. Upon becoming aware of any Default or Event of Default, ICON is required to deliver to the trustee a statement specifying such Default or Event of Default. No Personal Liability of Directors, Officers, Employees and Stockholders No director, officer, employee, incorporator or stockholder of ICON or any Guarantor, as such, will have any liability for any obligations of ICON or the Guarantors under the notes, the indenture or the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws. Legal Defeasance and Covenant Defeasance ICON may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding notes and all obligations of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal Defeasance") except for: (1) the rights of Holders of outstanding notes to receive payments in respect of the principal of, or interest or premium and Additional Interest, if any, on such notes when such payments are due from the trust referred to below; (2) ICON's obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust; (3) the rights, powers, trusts, duties and immunities of the trustee, and ICON's and the Guarantor's obligations in connection therewith; and (4) the Legal Defeasance provisions of the indenture. In addition, ICON may, at its option and at any time, elect to have the obligations of ICON and the Guarantors released with respect to certain covenants that are described in the indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "--Events of Default and Remedies" will no longer constitute an Event of Default with respect to the notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) ICON must irrevocably deposit with the trustee, in trust, for the benefit of the Holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium and Additional Interest, if any, on the outstanding notes on the stated maturity or on the applicable redemption date, as the case may be, and ICON must specify whether the notes are being defeased to maturity or to a particular redemption date; (2) in the case of Legal Defeasance, ICON has delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that (a) ICON has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the Holders of the outstanding notes will not recognize income, gain or 91 loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, ICON has delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); (5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the indenture) to which ICON or any of its Subsidiaries is a party or by which ICON or any of its Subsidiaries is bound; (6) ICON must deliver to the trustee an officers' certificate stating that the deposit was not made by ICON with the intent of defeating, hindering, delaying or defrauding creditors of ICON or others; and (7) ICON must deliver to the trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Amendment, Supplement and Waiver Except as provided in the next three succeeding paragraphs, the indenture or the notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing default or compliance with any provision of the indenture or the notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any notes held by a non-consenting Holder): (1) reduce the principal amount of notes whose Holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any note or alter the provisions with respect to the redemption of the notes (other than provisions relating to the covenants described above under the caption "--Repurchase at the Option of Holders"); (3) reduce the rate of or change the time for payment of interest on any note; (4) waive a Default or Event of Default in the payment of principal of, or interest or premium, or Additional Interest, if any, on the notes (except a rescission of acceleration of the notes by the Holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration); (5) make any note payable in money other than that stated in the notes; (6) make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of Holders of notes to receive payments of principal of, or interest or premium or Additional Interest, if any, on the notes; 92 (7) waive a redemption payment with respect to any note (other than a payment required by one of the covenants described above under the caption "--Repurchase at the Option of Holders"); (8) release any Guarantor from any of its obligations under its Subsidiary Guarantee or the indenture, except in accordance with the terms of the indenture; or (9) make any change in the preceding amendment and waiver provisions. In addition, any amendment to, or waiver of, the provisions of the indenture relating to subordination that adversely affects the rights of the Holders of the notes will require the consent of the Holders of at least 75% in aggregate principal amount of notes then outstanding. Notwithstanding the preceding, without the consent of any Holder of notes, ICON, the Guarantors and the trustee may amend or supplement the indenture or the notes: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated notes in addition to or in place of certificated notes; (3) to provide for the assumption of ICON's obligations to Holders of notes in the case of a merger or consolidation or sale of all or substantially all of ICON's assets; (4) to make any change that would provide any additional rights or benefits to the Holders of notes or that does not adversely affect the legal rights under the indenture of any such Holder; (5) to comply with requirements of the Commission in order to effect or maintain the qualification of the indenture under the Trust indenture Act; or (6) to add Guarantors with respect to the notes. Satisfaction and Discharge The indenture will be discharged and will cease to be of further effect as to all notes issued thereunder, when: (1) either: (a) all notes that have been authenticated, except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has been deposited in trust and thereafter repaid to ICON, have been delivered to the trustee for cancellation; or (b) all notes that have not been delivered to the trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year either upon Stated Maturity or by virtue of earlier redemption under arrangements reasonably satisfactory to the trustee in accordance with the terms of the indenture and ICON or any Guarantor has irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the notes not previously delivered to the trustee for cancellation for principal, premium and Additional Interest, if any, and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default has occurred and is continuing on the date of the deposit or will occur as a result of the deposit and the deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which ICON or any Guarantor is a party or by which ICON or any Guarantor is bound; 93 (3) ICON or any Guarantor has paid or caused to be paid all other sums payable by it under the indenture; and (4) ICON has delivered irrevocable instructions to the trustee under the indenture to apply the deposited money toward the payment of the notes at maturity or the redemption date, as the case may be. In addition, ICON must deliver an officers' certificate and an opinion of counsel to the trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Concerning the Trustee If the trustee becomes a creditor of ICON or any Guarantor, the indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee, subject to certain exceptions. The indenture provides that in case an Event of Default occurs and is continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any Holder of notes, unless such Holder has offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense. Additional Information Anyone who receives this offering circular may obtain a copy of the indenture and registration rights agreement without charge by writing to ICON Health & Fitness, Inc., 1500 South 1000 West, Logan, Utah 84321, Attention: Brad Bearnson, Esq. Certain Definitions Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. No Person (other than ICON or any Restricted Subsidiary of 94 ICON) in whom a Receivables Subsidiary makes an Investment in connection with a Qualified Receivables Transaction will be deemed to be an Affiliate of ICON or any of its Restricted Subsidiaries solely by reason of such Investment. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights, other than sales of inventory in the ordinary course of business and the granting of Liens permitted under the terms of the indenture; provided that the sale, conveyance or other disposition of all or substantially all of the assets of ICON and its Subsidiaries taken as a whole will be governed by the provisions of the indenture described above under the caption "--Repurchase at the Option of Holders--Change of Control" and/or the provisions described above under the caption "--Certain Covenants--Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant; and (2) the issuance of Equity Interests in any of ICON's Restricted Subsidiaries or the sale of Equity Interests in any of its Restricted Subsidiaries. Notwithstanding the preceding, the following items will not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that involves assets having a fair market value of less than $2.0 million; (2) a transfer of assets between or among ICON and its Restricted Subsidiaries, (3) an issuance of Equity Interests by a Restricted Subsidiary to ICON or to another Restricted Subsidiary; (4) the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business; (5) the licensing or sub-licensing of intellectual property in the ordinary course of business consistent with past practice; (6) the sale, lease or other disposition of obsolete equipment; (7) the sale or other disposition of cash or Cash Equivalents; (8) a Restricted Payment or Permitted Investment that is permitted by the covenant described above under the caption "--Certain Covenants--Restricted Payments;" (9) sales of accounts receivable and related assets of the type specified in the definition of "Qualified Receivables Transaction" to a Receivables Subsidiary for the fair market value thereof, including cash in an amount at least equal to 75% of the book value thereof as determined in accordance with GAAP, it being understood that, for the purposes of this clause (9), notes received in exchange for the transfer of accounts receivable and related assets will be deemed cash if the Receivables Subsidiary or other payor is required to repay said notes as soon as practicable from available cash collections less amounts required to be established as reserves pursuant to contractual agreements with entities that are not Affiliates of ICON entered into as part of a Qualified Receivables Transaction; and (10) transfers of accounts receivable and related assets of the type specified in the definition of "Qualified Receivables Transaction" (or a fractional undivided interest therein) by a Receivables Subsidiary in a Qualified Receivables Transaction. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. 95 "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "Borrowing Base" means, as of any date, an amount equal to: (1) 85% of the face amount of all accounts receivable owned by ICON and the Guarantors as of the end of the most recent fiscal quarter preceding such date that were not more than 90 days past due; plus (2) 60% of the book value of all inventory owned by ICON and the Guarantors during the period of December 1 through June 30 of any fiscal year or 70% of the book value of all inventory owned by ICON and its Restricted Subsidiaries during the period from July 1 through November 30 of any fiscal year, in each case as of the end of the most recent fiscal quarter preceding such date; provided, however, that any accounts receivable owned by a Receivables Subsidiary, or which ICON or any Guarantor has agreed to transfer to a Receivables Subsidiary, shall be excluded for purposes of determining such amount. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than six months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better; 96 (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each case maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of ICON and its Restricted Subsidiaries, taken as a whole, to any "person" (as that term is used in Section 13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a Principal; (2) the adoption of a plan relating to the liquidation or dissolution of ICON; (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the Principals and their Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of ICON, measured by voting power rather than number of shares; provided, that any transaction that results in any "person" (as defined above) Beneficially Owning less than 50% of the Voting Stock of ICON, measured by voting power rather than number of shares, subject to the Stockholders Agreement or the LLC Agreement shall not, in any case, constitute a Change of Control under this clause (3) unless such person Beneficially Owns in the aggregate more than 50% of the Voting Stock of ICON; (4) the first day on which a majority of the members of the Board of Directors of ICON are not Continuing Directors; or (5) the first day on which HF Holdings ceases to own 100% of the outstanding Equity Interests of ICON. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses 97 (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue or the reversal of reserves in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition will be excluded; (4) the cumulative effect of a change in accounting principles will be excluded; and (5) the Net Income (but not loss) of any Unrestricted Subsidiary will be excluded, whether or not distributed to the specified Person or one of its Subsidiaries. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of ICON who: (1) was a member of such Board of Directors on the date of the indenture; (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election; or (3) was nominated for election by, or is a designee of, a Principal. "Credit Agreement" means that certain Credit Agreement, dated as of April 9, 2002, by and among ICON, the lenders signatory thereto and General Electric Capital Corporation, as administrative agent, providing for up to $210.0 million of revolving loan credit borrowings and a term loan of $25.0 million, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Credit Facilities" means, one or more debt facilities (including, without limitation, the Credit Agreement) or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. 98 "Default" means any event that is, or with the passage of time or the giving of notice, or both, would be, an Event of Default. "Designated Senior Debt" means: (1) any Indebtedness outstanding under the Credit Facilities; and (2) after payment in full of all Obligations under the Credit Facilities, any other Senior Debt permitted under the indenture the principal amount of which is $25.0 million or more and that has been designated in writing by ICON as "Designated Senior Debt" for purposes of the indenture. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require ICON to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that ICON may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "--Certain Covenants--Restricted Payments." "Domestic Subsidiary" means any Subsidiary of ICON that was formed under the laws of the United States or any state of the United States or the District of Columbia or that guarantees or otherwise provides direct credit support for any Indebtedness of ICON. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means any public offering of Capital Stock of ICON (other than Disqualified Stock). "Existing Indebtedness" means the Indebtedness of ICON and its Restricted Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of the indenture, until such amounts are repaid. "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus (3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity 99 Interests payable solely in Equity Interests of ICON (other than Disqualified Stock) or to ICON or a Restricted Subsidiary of ICON, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period will be calculated on a pro forma basis in accordance with Regulation S-X under the Securities Act, but without giving effect to clause (3) of the proviso set forth in the definition of Consolidated Net Income; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date. "Foreign Subsidiary" means any Subsidiary of ICON that is not a Domestic Subsidiary. "GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the indenture. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "Guarantors" means each of: (1) each Domestic Subsidiary of ICON; and (2) any other subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of the indenture; and their respective successors and assigns. 100 "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; (2) any commodities future contract, commodity option or other similar agreement or arrangement designed to protect against fluctuations in the price of commodities used by that entity at the time; (3) agreements entered into for the purpose of fixing or hedging the risks associated with fluctuations in foreign currency exchange rates; and (4) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "HF Holdings" means HF Holdings, Inc., a Delaware corporation. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations; (5) representing the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date will be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount of the Indebtedness, together with any interest on the Indebtedness that is more than 30 days past due, in the case of any other Indebtedness. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If ICON or any Restricted Subsidiary of ICON sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of ICON such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of ICON, ICON will be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "--Certain Covenants--Restricted Payments." The acquisition by ICON or any Restricted Subsidiary of ICON of a Person that holds an Investment in a third Person will be deemed to be an 101 Investment by ICON or such Restricted Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption "--Certain Covenants--Restricted Payments." "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and, except in connection with any Qualified Receivables Transaction, any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "LLC Agreement" means that certain Limited Liability Company Agreement by and among Credit Suisse First Boston Corporation, affiliates of Bain Capital, LLC and certain other persons listed therein, as in effect on the date of the indenture; provided, however, that such Limited Liability Company Agreement may be amended from time to time if after giving effect to such amendment Credit Suisse First Boston Corporation and its affiliates and Bain Capital, LLC and its affiliates Beneficially Own more than 50% of the common equity of HF Holdings subject to the LLC Agreement. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by ICON or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Indebtedness under a Credit Facility, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustments in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness: (1) as to which neither ICON nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the notes) of ICON or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing, or the terms of which provide, that they will not have any recourse to the stock or assets of ICON or any of its Restricted Subsidiaries. 102 "Obligations" means any principal, interest, penalties, fees, expenses, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Business" means any business that derives a majority of its revenues from the business engaged in by ICON and its Restricted Subsidiaries on the date of original issuance of the notes and/or activities that are reasonably similar, ancillary or related to, or a reasonable extension, development or expansion of, the businesses in which ICON and its Restricted Subsidiaries are engaged on the date of original issuance of the notes. "Permitted Investments" means: (1) any Investment in ICON or in a Restricted Subsidiary of ICON; (2) any Investment in Cash Equivalents; (3) any Investment by ICON or any Restricted Subsidiary of ICON in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of ICON; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, ICON or a Restricted Subsidiary of ICON; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "--Repurchase at the Option of Holders--Asset Sales;" (5) any acquisition of assets (including Capital Stock) in exchange for the issuance of Equity Interests (other than Disqualified Stock) of ICON or HF Holdings; (6) any Investments received in compromise of obligations of such persons incurred in the ordinary course of trade creditors or customers that were incurred in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; (7) Investments arising in connection with Hedging Obligations; (8) Investments existing on the date of the indenture; (9) loans or advances by ICON or any of its Restricted Subsidiaries to employees of ICON or any of its Restricted Subsidiaries that are entered into in the ordinary course of business and that are approved by the Board of Directors of ICON; provided that the aggregate principal amount of all such loans or advances do not exceed $1.5 million at any one time outstanding; (10) the acquisition by a Receivables Subsidiary in connection with a Qualified Receivables Transaction of Equity Interests of a trust or other Person established by such Receivables Subsidiary to effect such Qualified Receivables Transaction; and any other Investment by ICON or a Restricted Subsidiary of ICON in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any other Person in connection with a Qualified Receivables Transaction, provided, that such other Investment is in the form of a note or other instrument that the Receivables Subsidiary or other Person is required to repay as soon as practicable from available cash collections less amounts required to be established as reserves pursuant to contractual agreements with entities that are not Affiliates of ICON entered into as part of a Qualified Receivables Transaction; and (11) other Investments in any Person other than HF Holdings or an Affiliate of HF Holdings that is not also a Subsidiary of ICON having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (11) that are at the time outstanding not to exceed $10.0 million. 103 "Permitted Junior Securities" means: (1) Equity Interests in ICON or any Guarantor; or (2) debt securities that are subordinated to all Senior Debt and any debt securities issued in exchange for Senior Debt to substantially the same extent as, or to a greater extent than, the notes and the Subsidiary Guarantees are subordinated to Senior Debt under the indenture. "Permitted Liens" means: (1) Liens on all assets of ICON or any Subsidiary securing Senior Debt; (2) Liens in favor of ICON or the Guarantors; (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with ICON or any Restricted Subsidiary of ICON; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets of ICON or any Restricted Subsidiary other than those of the Person merged into or consolidated with ICON or the Restricted Subsidiary; (4) Liens on property existing at the time of acquisition of the property by ICON or any Subsidiary of ICON, provided that such Liens were in existence prior to the contemplation of such acquisition; (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business (including, without limitation, landlord liens on leased properties); (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant entitled "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the assets acquired with such Indebtedness; (7) Liens existing on the date of the indenture; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; (9) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (10) carriers' warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like liens arising in the ordinary course of business in respect of obligations not overdue for a period in excess of 60 days or which are being contested in good faith by appropriate proceedings promptly instituted and diligently prosecuted; provided that any reserve or other appropriate provisions as shall be required to conform with GAAP shall have been made therefore; (11) easements, right-of-way, zoning and similar restrictions and other similar encumbrances or title defects incurred, or leases or subleases granted to others, in the ordinary course of business, which do not in any case materially detract from the value of the property subject thereto or do not interfere with, or adversely affect in any material respect, the ordinary conduct of the business of ICON and its Restricted Subsidiaries taken as a whole; (12) liens in favor of customs and revenue authorities to secure payment of custom duties in connection with the importation of goods in the ordinary course of business and other similar liens arising in the ordinary course of business; (13) leases or subleases granted to third persons not interfering with the ordinary course of business of ICON or any of its Restricted Subsidiaries; 104 (14) liens (other than any Lien imposed by ERISA or any rule or regulation promulgated thereunder) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance, and other types of social security; (15) deposits, in an aggregate amount not to exceed $250,000, made in the ordinary course of business to secure liability to insurance carriers; (16) any attachment or judgment Lien not constituting an Event of Default under clause (6) of the first paragraph of the section described above under the caption "--Events of Default and Remedies;" (17) any interest or title of a lessor or sublessor under any operating lease; (18) liens arising solely by virtue of any statutory, contractual or common law provisions relating to banker's liens, right of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a depositary institution; provided that: (a) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by ICON or the issuer, as applicable, in excess of those set forth by regulations promulgated by the Federal Reserve Board of the United States or other applicable governmental or banking regulatory authority; and (b) such deposit account is not intended by ICON or any of its Restricted Subsidiaries to provide collateral to the depositary institution; (19) liens under any title retention agreement entered into in the ordinary course of business; (20) liens arising under Uniform Commercial Code financing statement filings regarding operating leases entered into by ICON and its Restricted Subsidiaries in the ordinary course of business; (21) Liens on assets of ICON or a Receivables Subsidiary incurred in connection with a Qualified Receivables Transaction; (22) Liens on assets of Foreign Subsidiaries; and (23) other Liens incurred in the ordinary course of business of ICON or any Subsidiary of ICON with respect to obligations that do not exceed $10.0 million at any one time outstanding. "Permitted Refinancing Indebtedness" means any Indebtedness of ICON or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of ICON or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) or, in the case of a Credit Facility, the committed amount of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) or, in the case of a Credit Facility, the committed amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on such Indebtedness and the amount of all expenses and premiums incurred in connection with such extension, refinancing, renewal, replacement, defeasement or refund); (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the notes on terms at least as favorable to the Holders of notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and 105 (4) such Indebtedness is incurred either by ICON or by the Restricted Subsidiary (or both) who are the obligors on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Principals" means Bain Capital, LLC and its affiliates and Credit Suisse First Boston Corporation and its affiliates and the collective parties to the Stockholders Agreement or the LLC Agreement. "Qualified Receivables Transaction" means any transaction or series of transactions entered into by ICON or any of its Restricted Subsidiaries pursuant to which ICON or any of its Restricted Subsidiaries sells, conveys or otherwise transfers to (i) a Receivables Subsidiary (in the case of a transfer by ICON or any of its Restricted Subsidiaries) and (ii) any other Person (in the case of a transfer by a Receivables Subsidiary), or grants a security interest in, any accounts receivable (whether now existing or arising in the future) of ICON or any of its Restricted Subsidiaries, and any assets related thereto including, without limitation, all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable. "Receivables Subsidiary" means a Subsidiary of ICON which engages in no activities other than in connection with the financing of accounts receivable and which is designated by the Board of Directors of ICON (as provided below) as a Receivables Subsidiary (a) no portion of the Indebtedness or any other Obligations (contingent or otherwise) of which (i) is guaranteed by ICON or any of its Restricted Subsidiaries (excluding guarantees of Obligations (other than the principal of, and interest on, Indebtedness) pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction), (ii) is recourse to or obligates ICON or any of its Restricted Subsidiaries in any way other than pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction or (iii) subjects any property or asset of ICON or any of its Restricted Subsidiaries (other than accounts receivable and related assets as provided in the definition of "Qualified Receivables Transaction"), directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction, (b) with which neither ICON nor any of its Restricted Subsidiaries has any material contract, agreement, arrangement or understanding other than on terms no less favorable to ICON or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of ICON, other than fees payable in the ordinary course of business in connection with servicing accounts receivable and (c) with which neither ICON nor any of its Restricted Subsidiaries has any obligation to maintain or preserve such Subsidiary's financial condition or cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of ICON will be evidenced to the trustee by filing with the trustee a certified copy of the resolution of the Board of Directors of ICON giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing conditions. "Related Party" means: (1) any controlling stockholder, 80% (or more) owned Subsidiary, or immediate family member (in the case of an individual) of any Principal; or (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Principals and/or such other Persons referred to in the immediately preceding clause (1). "Restricted Investment" means an Investment other than a Permitted Investment. 106 "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Senior Debt" means: (1) all Indebtedness of ICON or any Guarantor outstanding under Credit Facilities and all Hedging Obligations with respect thereto; (2) any other Indebtedness of ICON or any Guarantor permitted to be incurred under the terms of the indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the notes or any Subsidiary Guarantee; and (3) all Obligations with respect to the items listed in the preceding clauses (1) and (2). Notwithstanding anything to the contrary in the preceding, Senior Debt will not include: (1) any liability for federal, state, local or other taxes owed or owing by ICON; (2) any intercompany Indebtedness of ICON or any of its Subsidiaries to ICON or any of its Affiliates; (3) any trade payables; or (4) that portion of any Indebtedness that is incurred in violation of the indenture. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal or any final amount of principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Stockholders Agreement" means that certain Stockholders Agreement by and among certain common equity stockholders of HF Investment Holdings, LLC, including Credit Suisse First Boston Corporation, affiliates of Bain Capital, LLC and certain other persons listed therein, as in effect on the date of the indenture; provided, however, that such Stockholders Agreement may be amended from time to time if after giving effect to such amendment Credit Suisse First Boston Corporation and its affiliates and Bain Capital, LLC and its affiliates Beneficially Own more than 50% of the common equity of HF Holdings subject to the Stockholders Agreement. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). "Subsidiary Guarantee" means, the Guarantee by each Guarantor of ICON's payment obligations under the indenture and the notes, executed pursuant to the terms of the indenture. 107 "Unrestricted Subsidiary" means any Subsidiary of ICON that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with ICON or any Restricted Subsidiary of ICON unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to ICON or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of ICON; (3) is a Person with respect to which neither ICON nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of ICON or any of its Restricted Subsidiaries; and (5) has at least one director on its Board of Directors that is not a director or executive officer of ICON or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of ICON or any of its Restricted Subsidiaries. Any designation of a Subsidiary of ICON as an Unrestricted Subsidiary will be evidenced to the trustee by filing with the trustee a certified copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption "--Certain Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of ICON as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," ICON will be in default of such covenant. The Board of Directors of ICON may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of ICON of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. 108 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a summary of the material U.S. federal income tax consequences expected to apply to the exchange of initial notes for exchange notes and the ownership and disposition of exchange notes under currently applicable law. The discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), the final and temporary U.S. Treasury Regulations promulgated thereunder, published administrative positions of the Internal Revenue Service ("IRS") and reported judicial decisions, all as now existing and currently applicable and all of which are subject to change (possibly with retroactive effect) or to different interpretations. We have not sought and will not seek a ruling from the IRS with respect to the U.S. federal income tax consequences of acquiring, owning and disposing of an exchange note. There can be no assurance that the IRS will not challenge one or more of the tax considerations described herein. This discussion does not cover all aspects of U.S. federal income taxation that may be relevant to, or the actual tax effect that any of the matters described herein will have on, particular holders, and does not address other aspects of U.S. federal taxation or state, local, foreign and other tax laws. Further, the U.S. federal income tax treatment of a holder of the initial notes and the exchange notes may vary depending on the holder's particular situation. Certain holders (including banks, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, taxpayers subject to the alternative minimum tax, dealers in securities, persons holding a note as part of a "straddle", "hedge", "conversion transaction" or other risk reduction transaction, persons who have a "functional currency" other than the U.S. dollar, U.S. expatriates and non-U.S. holders) may be subject to special rules not discussed below. Also, the description below applies only to those holders of the initial notes and the exchange notes who hold them as "capital assets" (generally, property held for investment purposes) within the meaning of Section 1221 of the Code, and it does not address notes held through a partnership or other pass-through entity. Holders of the initial notes and of the exchange notes should consult their own tax advisors with respect to their particular circumstances and with respect to the effects of state, local and foreign tax laws to which they may be subject. The Exchange An exchange of initial notes for exchange notes should be treated as a "non-event" for U.S. federal income tax purposes because the exchange notes should not be considered to differ materially in kind or extent from the initial notes. As a result, no U.S. federal income tax consequences would result to holders exchanging initial notes for exchange notes. The Exchange Notes Interest Payments on the Exchange Notes. The stated interest on the exchange notes should be considered to be "qualified stated interest" and, therefore, will be includible in a holder's gross income (except to the extent attributable to accrued interest at the time of purchase) as ordinary income for U.S. federal income tax purposes in accordance with the holder's regular method of tax accounting. Tax Basis. A holder's adjusted tax basis (determined by taking into account accrued interest at the time of purchase) in an exchange note received in exchange for an initial note will equal the cost of the initial note to the holder, increased by the amounts of market discount previously included in income by the holder and reduced by any principal payments received by the holder with respect to the exchange note and by amortized bond premium. A holder's adjusted tax basis in an exchange note purchased by the holder will be equal to the price paid for such an exchange note (determined by taking into account accrued interest at the time of purchase), increased by amounts of market discount previously included in income by the holder and reduced by any principal payments received by the holder with respect to the exchange note and by amortized bond premium. See "Market Discount and Bond Premium" below. 109 Sale, Exchange or Retirement. Upon the sale, exchange or retirement of an exchange note, a holder will recognize taxable gain or loss, if any, equal to the difference between the amount realized on the sale, exchange or retirement and the holder's adjusted tax basis in the exchange note. The gain or loss will be a capital gain or loss (except to the extent of any accrued market discount), and will be a long-term capital gain or loss if the exchange note has been held for more than one year at the time of such sale, exchange or retirement. The amount realized does not include any amount received that is attributable to the payment of accrued interest on an exchange note not previously included in income, which amount will be taxable as ordinary income. Market Discount and Bond Premium. Holders should be aware that the market discount provisions of the Code may affect the exchange notes. These rules generally provide that a holder who purchases an exchange note for an amount that is less than its principal amount will be considered to have purchased the exchange note at a "market discount" equal to the amount of such difference. The holder will be required to treat any gain realized upon the disposition of the exchange note as interest income to the extent of the market discount that is treated as having accrued during the period that the holder held the exchange note, unless an election is made to include such market discount in income on a current basis. A holder of an exchange note who acquires the exchange note at a market discount and who does not elect to include market discount in income on a current basis may also be required to defer the deduction of a portion of the interest on any indebtedness incurred or continued to purchase or carry the exchange note until the holder disposes of the exchange note in a taxable transaction. If a holder's tax basis in an exchange note immediately after acquisition exceeds the stated redemption price at maturity of the exchange note, the holder may be eligible to elect to deduct the excess as amortizable bond premium pursuant to Section 171 of the Code. Purchasers of the exchange notes should consult their own tax advisors concerning the application to such purchasers of the market discount and bond premium rules. Backup Withholding The holder of an initial note and the holder of an exchange note may be subject, under certain circumstances, to "backup withholding" at the applicable rate with respect to certain "reportable payments", including interest on the note and the gross proceeds from the disposition of the note. The backup withholding rules apply if the holder is not otherwise exempt and, among other things, (i) fails to furnish a social security number or other taxpayer identification number ("TIN") certified under penalties of perjury within a reasonable time after the request therefor, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed to report properly the receipt of interest or dividends, or (iv) under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN furnished is the correct number and that the holder is not subject to backup withholding. Backup withholding will not apply with respect to payments made to certain holders, including corporations and tax-exempt organizations, provided their exemptions from backup withholding are properly established. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against the holder's U.S. federal income tax liability provided the requisite procedures are followed. HOLDERS OF THE INITIAL NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND DISPOSING OF THE INITIAL NOTES AND THE EXCHANGE NOTES, INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND POSSIBLE FUTURE CHANGES IN SUCH FEDERAL TAX LAWS. 110 PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be issued by a broker-dealer in connection with resales of Exchange Notes received in exchange for Initial Notes where such Notes were acquired as a result of market-making activities or other trading activities. The Issuer has agreed that for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until 2002, all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. The Issuer will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such brokerdealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Issuer will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Issuer has agreed to pay all expenses incident to the Exchange Offer other than commissions or concessions of any brokers or dealers and will indemnify the holders of the Notes (including any brokerdealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS Certain legal matters in connection with the notes and the guarantees offered hereby will be passed upon for us by Weil, Gotshal & Manges LLP, Boston, Massachusetts. EXPERTS The consolidated financial statements as of May 31, 2002 and 2001 and for each of the three years in the period ended May 31, 2002, included in this prospectus, have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. AVAILABLE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-4, covering the exchange notes offered in this prospectus. This prospectus does not contain all the information that is included in the registration statement. You will find additional information in the registration statement. 111 Statements made in this prospectus as to the contents of any contract, agreement or other document are not necessarily complete. For a more complete understanding and description of each contract, agreement or other document filed as an exhibit to the registration statement, we encourage you to read the documents contained in the exhibits. You may read and copy the registration statement and any other documents we file with the Securities and Exchange Commission at the Securities and Exchange Commission's public reference room located at 450 Fifth St., N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. In addition, reports and other filings will be available to the public on the Securities and Exchange Commission's web site at www.sec.gov. If for any reason we are not subject to the reporting requirements of the Securities Exchange Act of 1934 in the future, we will still be required under the indenture governing the notes to furnish the holders of the notes with annual reports containing financial statements audited by its independent certified public accountants and with quarterly reports containing unaudited financial statements for each of the first three quarters of each fiscal year. 112 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Accountants.................................... F-2 Consolidated Balance Sheets.......................................... F-3 Consolidated Statements of Operations and Comprehensive Income (Loss) F-4 Consolidated Statement of Stockholder's Equity (Deficit)............. F-5 Consolidated Statements of Cash Flows................................ F-6 Notes to Consolidated Financial Statements........................... F-7 Financial Statement Schedule II...................................... F-32
F-1 Report of Independent Accountants To the Board of Directors and Shareholder of ICON Health & Fitness, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income (loss), of stockholder's equity (deficit) and of cash flows present fairly, in all material aspects, the financial position of ICON Health & Fitness, Inc. and its subsidiaries at May 31, 2001 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, 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 our opinion. /s/ PricewaterhouseCoopers LLP Salt Lake City, Utah July 18, 2002 F-2 ICON HEALTH & FITNESS, INC. CONSOLIDATED BALANCE SHEETS (In thousands)
May 31, -------------------- 2001 2002 --------- --------- ASSETS Current assets: Cash......................................................... $ 3,324 $ 4,773 Accounts receivable, net..................................... 142,946 153,178 Inventories, net............................................. 145,984 133,753 Deferred income taxes........................................ 5,058 4,807 Other current assets......................................... 15,846 18,675 --------- --------- Total current assets..................................... 313,158 315,186 Property and equipment, net..................................... 46,758 44,985 Intangible assets, net.......................................... 30,517 30,201 Deferred income taxes........................................... 1,824 12,084 Other assets, net............................................... 13,247 20,768 --------- --------- Total Assets............................................. $ 405,504 $ 423,224 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt............................ $ 11,346 $ 5,044 Accounts payable............................................. 120,155 113,927 Accrued expenses............................................. 19,608 23,751 Income taxes payable......................................... 345 5,421 Interest payable............................................. 4,118 3,045 --------- --------- Total current liabilities................................ 155,572 151,188 Long-term debt.................................................. 253,327 250,893 Other liabilities............................................... -- 4,934 --------- --------- Total liabilities........................................ 408,899 407,015 --------- --------- Commitments and contingencies (Notes 9 and 13) Stockholder's equity (deficit): Common stock and additional paid-in capital.................. 204,155 204,155 Receivable from Parent....................................... (2,200) (2,200) Accumulated deficit.......................................... (203,335) (183,941) Accumulated other comprehensive loss......................... (2,015) (1,805) --------- --------- Total stockholder's equity (deficit)..................... (3,395) 16,209 --------- --------- Total Liabilities and Stockholder's Equity (Deficit)..... $ 405,504 $ 423,224 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. F-3 ICON HEALTH & FITNESS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands)
Year Ended May 31, ---------------------------- 2000 2001 2002 -------- -------- -------- Net sales................................................................. $733,022 $820,496 $896,079 Cost of sales............................................................. 531,622 580,484 635,046 -------- -------- -------- Gross profit.............................................................. 201,400 240,012 261,033 -------- -------- -------- Operating expenses: Selling................................................................ 95,973 109,781 126,035 Research and development............................................... 8,309 10,851 10,405 General and administrative............................................. 61,675 63,477 68,756 -------- -------- -------- Total operating expenses........................................... 165,957 184,109 205,196 -------- -------- -------- Income from operations.................................................... 35,443 55,903 55,837 Interest expense.......................................................... (33,899) (34,771) (26,149) Amortization of deferred financing fees................................... (2,743) (3,189) (3,146) Other income (expense), net............................................... 404 (1,154) 667 -------- -------- -------- Income (loss) before income taxes and extraordinary item.................. (795) 16,789 27,209 Provision for income taxes................................................ 3,913 3,483 3,205 -------- -------- -------- Income (loss) before extraordinary item................................... (4,708) 13,306 24,004 Extraordinary loss on extinguishment of debt, net of income tax benefit of $1,244 in 2000 and $2,825 in 2002....................................... (1,948) -- (4,610) -------- -------- -------- Net income (loss)......................................................... (6,656) 13,306 19,394 Other comprehensive income (loss), comprised of foreign currency translation adjustment, net of income tax expense of $285 in 2000 and income tax benefit of $325 in 2001 and $129 in 2002..................... (466) (532) 210 -------- -------- -------- Comprehensive income (loss)............................................... $ (7,122) $ 12,774 $ 19,604 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-4 ICON HEALTH & FITNESS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT) (In thousands, except share amounts)
Common stock and additional Accumulated paid-in capital Receivable from other Total --------------- officers and Accumulated comprehensive stockholder's Shares Amount Parent deficit loss equity (deficit) ------ -------- --------------- ----------- ------------- ---------------- Balance at May 31, 1999......... 1,000 $163,819 $ (656) $(209,985) $(1,017) $(47,839) Cash contribution of capital from Parent (net of financing fees of $4,375).. -- 35,625 -- -- -- 35,625 Common stock of HF Holdings, Inc. issued to management................. -- 3,175 -- -- -- 3,175 Cancellation of receivables from officers.............. -- (656) 656 -- -- -- Warrants of HF Holdings, Inc. granted to holders of 13% Notes.................. -- 2,192 -- -- -- 2,192 Other comprehensive loss..... -- -- -- -- (466) (466) Receivable from Parent....... -- -- (2,200) -- -- (2,200) Net loss..................... -- -- -- (6,656) -- (6,656) ----- -------- ------- --------- ------- -------- Balance at May 31, 2000......... 1,000 204,155 (2,200) (216,641) (1,483) (16,169) Other comprehensive loss..... -- -- -- -- (532) (532) Net income................... -- -- -- 13,306 -- 13,306 ----- -------- ------- --------- ------- -------- Balance at May 31, 2001......... 1,000 204,155 (2,200) (203,335) (2,015) (3,395) Other comprehensive income..................... -- -- -- -- 210 210 Net income................... -- -- -- 19,394 -- 19,394 ----- -------- ------- --------- ------- -------- Balance at May 31, 2002......... 1,000 $204,155 $(2,200) $(183,941) $(1,805) $ 16,209 ===== ======== ======= ========= ======= ========
The accompanying notes are an integral part of the consolidated financial statements. F-5 ICON HEALTH & FITNESS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended May 31, ------------------------------ 2000 2001 2002 --------- -------- --------- Operating activities: Net income (loss)................................................................... $ (6,656) $ 13,306 $ 19,394 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision (benefit) for deferred taxes.............................................. 1,859 (588) (7,313) Depreciation and amortization....................................................... 16,749 17,372 19,162 Amortization of deferred financing fees............................................. 2,743 3,189 3,146 Amortization of gain on extinguishment of debt...................................... (816) (1,300) (1,191) Amortization of debt discount....................................................... -- -- 18 Common stock of HF Holdings, Inc. issued to management.............................. 3,175 -- -- Write-off of loans to junior management............................................. 452 -- -- Extraordinary loss on extinguishment of debt........................................ 1,948 -- 4,610 Changes in operating assets and liabilities, net of acquisition: Accounts receivable, net............................................................ (11,625) (14,097) (19,968) Inventories, net.................................................................... (23,939) (14,784) 12,231 Income taxes payable................................................................ (939) 345 5,076 Other assets, net................................................................... 3,797 (3,098) (4,162) Accounts payable and accrued expenses............................................... 13,287 10,040 (671) Other liabilities................................................................... -- -- 4,934 Interest payable.................................................................... 506 2,022 2,272 --------- -------- --------- Net cash provided by operating activities........................................... 541 12,407 37,538 --------- -------- --------- Investing activities: Purchase of property and equipment.................................................. (12,877) (16,095) (11,624) Purchase of intangible assets....................................................... (4,382) (2,693) (5,200) Receivable from Parent.............................................................. (2,200) -- -- Loans to junior management.......................................................... (452) -- -- Acquisition, net of cash acquired................................................... -- (3,997) (306) --------- -------- --------- Net cash used in investing activities............................................... (19,911) (22,785) (17,130) --------- -------- --------- Financing activities: Borrowings (payments) on revolving credit facility, net............................. (113,051) 19,497 32,831 Payments on other long-term debt.................................................... (580) (376) (48) Proceeds from April 2002 term notes................................................. -- -- 25,000 Payments on April 2002 term notes................................................... -- -- (1,250) Proceeds from September 1999 term notes............................................. 180,000 -- -- Payments on September 1999 term notes............................................... (5,321) (9,273) (172,834) Payments on old term notes.......................................................... (19,464) -- -- Proceeds from 11.25% notes.......................................................... -- -- 152,813 Payments to 12% noteholders......................................................... -- -- (46,053) Payments to 13% noteholders......................................................... (40,908) -- -- Payment of fees-debt portion........................................................ (14,876) (1,153) (9,757) Cash contribution of capital from Parent............................................ 40,000 -- -- Payment of fees-equity portion...................................................... (4,375) -- -- --------- -------- --------- Net cash provided by (used in) financing activities................................. 21,425 8,695 (19,298) --------- -------- --------- Effect of exchange rate changes on cash................................................. (466) (857) 339 --------- -------- --------- Net increase (decrease) in cash......................................................... 1,589 (2,540) 1,449 Cash, beginning of period............................................................... 4,275 5,864 3,324 --------- -------- --------- Cash, end of period..................................................................... $ 5,864 $ 3,324 $ 4,773 ========= ======== =========
The accompanying notes are an integral part of the consolidated financial statements. F-6 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Description of Business Basis of Presentation--The consolidated financial statements include the accounts of ICON Health & Fitness, Inc. and its wholly-owned subsidiaries ("the Company"). At May 31, 2002 and 2001, the Company was a wholly-owned subsidiary of HF Holdings, Inc. ("HF Holdings" or the "Parent") On July 20, 1999, prior to the September 1999 Restructuring discussed in Note 8, a new holding company, HF Holdings was formed. HF Holdings was formed through equity investments by current shareholders of IHF Capital, Inc., members of Company management and other investors. Following the September 1999 Restructuring, a wholly-owned subsidiary of HF Holdings merged with the Company, whereupon the Company became a wholly-owned subsidiary of HF Holdings. There was no adjustment to the assets and liabilities of the Company as a result of this transaction. Description of Business--The Company is principally involved in the development, manufacturing and distribution of home fitness equipment. The Company's revenues are derived from the sale of various aerobic and anaerobic fitness product lines in domestic and foreign markets. Because product life cycles can be short in the fitness industry, the Company emphasizes new product innovation and product repositioning. The Company primarily sells its products to retailers and, to a limited extent, to end-users through direct response advertising efforts and retail outlets. 2. Significant Accounting Policies Principles of Consolidation--All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Cash--At May 31, 2002, substantially all of the Company's cash is held by two banks located in Chicago and Massachusetts. The Company does not believe that as a result of this concentration it is subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. Inventories--Inventories consist primarily of raw materials (principally parts and supplies) and finished goods, and are valued at the lower of cost or market. Cost is determined using standard costs which approximate the first-in, first-out (FIFO) method. Property, Equipment and Tooling--Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets. Tooling is stated at cost and depreciated using the straight-line method over the estimated useful life, approximately three years. Expenditures for renewals and improvements are capitalized, and maintenance and repairs are charged to expense as incurred. Intangible Assets--Intangible assets are recorded at cost and are amortized on a straight-line basis over the following estimated useful lives: Goodwill.. 5 years Trademarks 20 years Other..... 5 years
Long-Lived Assets--Long-lived assets are periodically reviewed for impairment in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS 121 requires the assessment of whether there has F-7 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) been an impairment whenever events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable. The carrying value of a long-lived asset is considered impaired when the anticipated cumulative undiscounted cash flow from that asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset, which is generally based on discounted cash flows. As a result of its review, the Company does not believe that any impairment currently exists related to its long-lived assets. Deferred Financing Costs--The Company deferred certain debt issuance costs relating to the establishment of the New 2002 Credit Facilities and the issuance of the 11.25% Notes as part of the April 2002 Refinancing (see Note 9). These costs are capitalized in other long-term assets and are being amortized using the effective interest method. Deferred costs relating to the 13% Notes and existing bank credit agreement were written-off as part of the Restructuring in September of 1999 (see Note 8). Deferred costs relating to the 12% Notes and existing bank credit agreement were written off as part of the April 2002 Refinancing. Advertising Costs--The Company expenses the costs of advertising as incurred, except for the cost of 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, 2001 and 2002, $1,629,000 and $1,586,000, respectively, of capitalized advertising costs were included in other assets. For the fiscal years ended May 31, 2000, 2001 and 2002, total advertising expense was approximately $9,198,000, $13,011,000 and $17,169,000, respectively. Revenue Recognition--The Company recognizes revenue upon the shipment of product to the customer. Allowances are recognized for estimated returns, discounts, advertising programs and warranty costs associated with these sales. Concentration of Credit Risk--The primary financial instruments which potentially expose the Company to concentration of credit risk include trade accounts receivable. To minimize this risk, ongoing credit evaluations of customers' financial condition are performed and reserves are maintained; however, collateral is not required. A significant portion of the Company's sales are made to Sears Roebuck ("Sears"). Sears accounted for approximately 40%, 42% and 45% of total sales for the fiscal years ended May 31, 2000, 2001 and 2002, respectively. Accounts receivable from Sears accounted for approximately 42% and 35% of gross accounts receivable at May 31, 2001 and 2002, respectively. The Company is not the exclusive supplier of home fitness equipment to any of its major customers. The loss of, or a substantial decrease in the amount of purchases by, or a write-off of any significant receivable due from, any of its major customers would have a material adverse effect on the Company's business. Research and Development Costs--Research and development costs are expensed as incurred. Research and development activities include the design of new products and product enhancements, and are performed by both internal and external sources. Income Taxes--The Company accounts for income taxes utilizing the asset and liability method as prescribed by SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities at currently enacted tax rates. If appropriate, deferred tax assets are reduced by a valuation allowance which reflects expectations of the extent to which such assets will be realized. F-8 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) As of May 31, 2002 and 2001, the Company was included as part of the consolidated tax return filed by HF Holdings, Inc. Prior to the September 1999 Restructuring, the Company was included as part of the consolidated tax return filed by IHF Capital, Inc. The income tax provision for the Company has been prepared on a separate company basis. Foreign Operations--Assets and liabilities of the Company's European and Canadian subsidiaries are translated into U.S. dollars at the applicable rates of exchange at each period end. The Company's foreign transactions are primarily denominated in Canadian dollars, British pounds, German marks, French francs, Italian lire and Euro and transactions with foreign entities that result in income and expense for the Company are translated at the weighted average rate of exchange during the period. Translation gains and losses are reflected as a separate component of other comprehensive income (loss). Transaction gains and losses are recorded in the consolidated statements of operations and comprehensive income (loss) and were not material in the fiscal years ended May 31, 2000, 2001 and 2002. For the fiscal years ended May 31, 2000, 2001 and 2002, the Company's foreign operations represented less than 11% of the Company's net sales and the effects of exchange rate changes did not have a material impact on the Company's earnings. Barter Transaction--Included in other current and other long-term assets at May 31, 2001 and 2002 are barter credits of $2,477,000 and $1,063,000, respectively, which were recorded in connection with a barter agreement the Company entered into during the fiscal year ended May 31, 1997. The Company intends to use these barter credits primarily to purchase certain products from vendors and advertising through August 31, 2003, the expiration date of the barter credits. The total amount of cash required to utilize the credits will range from $1,300,000 to $2,000,000 over the next year. Fair Value of Financial Instruments--The following methods and assumptions were used to estimate the fair value disclosures for financial instruments: 11.25% Notes--based on face value at May 31, 2002, due to timing of issuance. 12% Notes--estimated by discounting the future cash flows using rates currently offered for borrowings of similar remaining maturities at May 31, 2001. Other long-term debt--fair value approximates carrying value since such debt is primarily variable rate debt. The carrying amounts and fair values of long-term debt at May 31, 2001 and 2002 were as follows (in thousands):
2001 2002 ------------------- ------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- 11.25% Notes........ $ -- $ -- $152,831 $152,831 12% Notes........... 48,614 44,282 -- -- Other long-term debt 216,059 216,059 103,106 103,106
Use of Estimates--The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 for the period presented. Actual results could differ from those estimates. F-9 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) New Accounting Standards--Effective June 1, 2001, the Company adopted the provisions of Statements of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities." as amended. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS 133 requires that an entity recognizes all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Because the Company had no open forward exchange contracts at May 31, 2002 and 2001, the adoption of SFAS 133 did not have any effect on the Company's financial position or results of operations. In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which provides a comprehensive standard of accounting for business combinations. SFAS 141 is effective for all business combinations after June 30, 2001. In addition, in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that amortization of goodwill and certain other intangible assets be replaced with an annual impairment test. SFAS 142 is effective for fiscal years beginning after December 15, 2001. Other than eliminating goodwill amortization effective June 1, 2002, the adoption of SFAS 141 and 142 is not expected to have a material effect on the Company's financial position or results of operations. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The Company has not yet determined whether SFAS 143 will have a material effect on its financial position or results of operations. In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" which supercedes SFAS No. 121 and requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. SFAS 144 broadens the presentation of discontinued operations to include more disposal transactions. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS 144 is not expected to have a material effect on the Company's financial position or results of operations. In April 2002, the FASB issued SFAS No. 145, "Rescission of FAS Nos. 4, 44 and 64, Amendment of FAS 13 and Technical Corrections as of April 2002", which rescinds SFAS Nos. 4, 44 and 64 and amends other existing authoritative pronouncements to make various technical corrections, clarify meaning, or describe their applicability under changed conditions. SFAS 145 is effective for fiscal years beginning after May 15, 2002 and will require the modification of prior financial statements to reclassify the 2002 and 2000 losses on debt extinguishment from extraordinary to income from continuing operations. In November of 2001, the Emerging Issues Task Force issued EITF 01-09, "Accounting for Consideration Given by a Vendor to a Customer". EITF 01-09 provides guidance on the accounting treatment of various types of consideration given by a vendor to a customer. The Company will adopt EITF 01-9 effective June 1, 2002. If the Company had adopted EITF 01-09 for the fiscal years ended May 31, 2000, 2001 and 2002, net sales would have been reduced by approximately $20,200,000, $23,500,000 and $24,600,000, respectively, with a corresponding reduction of selling, general and administrative expenses. This change will have no effect on income from operations or net income (loss). Reclassifications--Certain balances of the prior years have been reclassified to conform to the current year's presentation. These reclassifications had no effect on net income (loss) or total assets. F-10 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. Accounts Receivable Accounts receivable, net, consist of the following (table in thousands):
May 31, ------------------ 2001 2002 -------- -------- Trade accounts receivable................................................... $149,698 $161,117 Less allowance for doubtful accounts, advertising discounts and credit memos (6,752) (7,939) -------- -------- $142,946 $153,178 ======== ========
4. Inventories Inventories, net, consist of the following (table in thousands):
May 31, ----------------- 2001 2002 -------- -------- Raw materials, principally parts and supplies $ 62,666 $ 60,136 Finished goods............................... 83,318 73,617 -------- -------- $145,984 $133,753 ======== ========
Inventories are net of allowances (primarily for finished goods) of $3,185,000 and $3,275,000 at May 31, 2001 and 2002, respectively. These allowances are established based on management's estimates of inventory held at fiscal year end that is potentially obsolete or for which its market value is below cost. 5. Property and Equipment Property and equipment, net, consist of the following (table in thousands):
May 31, Estimated ------------------ Useful Lives 2001 2002 ------------ -------- -------- (Years) Land......................... -- $ 1,472 $ 1,472 Building and improvements.... up to 31 20,513 21,174 Equipment and tooling........ 3-7 70,620 73,304 -------- -------- 92,605 95,950 Less accumulated depreciation (45,847) (50,965) -------- -------- $ 46,758 $ 44,985 ======== ========
For the fiscal years ended May 31, 2000, 2001 and 2002, the Company recorded depreciation expense of $14,223,000, $13,619,000 and $13,398,000, respectively. F-11 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. Intangible Assets Intangible assets, net, consist of the following (table in thousands):
May 31, ------------------ 2001 2002 -------- -------- Goodwill..................... $ 11,973 $ 12,279 Trademarks................... 23,227 23,227 Other........................ 6,071 10,813 -------- -------- 41,271 46,319 Less accumulated amortization (10,754) (16,118) -------- -------- $ 30,517 $ 30,201 ======== ========
7. Other Assets Other assets, net, consist of the following (table in thousands):
May 31, --------------- 2001 2002 ------- ------- Deferred financing costs, net $11,333 $ 9,142 Long-term receivables, net... 626 10,362 Other........................ 1,288 1,264 ------- ------- $13,247 $20,768 ======= =======
At May 31, 2001 and 2002, capitalized deferred financing costs are net of accumulated amortization of $5,856,000 and $171,000, respectively. Long-term receivables consist of receivables whose collection is not considered to be current because the customer is in bankruptcy and whose carrying values have been written down to net realizable value. At May 31, 2001 and 2002, long-term receivables are net of an allowance for doubtful accounts of $0 and $2,434,000, respectively. 8. September 1999 Restructuring To provide ongoing funding for the Company's operations and debt repayment requirements, on September 27, 1999, the Company consummated a troubled debt restructuring of its capital structure (the "September 1999 Restructuring") and refinanced its existing bank credit facility. As part of the September 1999 Restructuring, the Company consummated an exchange offer (the "Exchange Offer") for all of its outstanding 13% Senior Subordinated Notes ("13% Notes"). Significant components of the Exchange Offer were as follows: The 13% noteholders received: i. $39,408,000 in cash, ii. $44,282,000 in new 12% Subordinated Notes ("12% Notes") of the Company issued in connection with the Exchange Offer, F-12 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) iii. $10,086,000 payment for accrued interest, and iv. warrants to purchase 423,939 shares of HF Holdings common stock for a nominal exercise price which were valued at $2,192,000 and rights to purchase an aggregate of 343,336 shares of HF Holdings common stock at a purchase price of $5.83 per share, or an aggregate purchase price of $2,000,000, which were assigned no value. In connection with the Exchange Offer, the indentures governing the 13% Notes were amended to eliminate most of the related restrictive covenant provisions of the 13% Notes. No gain was realized on the extinguishment of the 13% Notes. Unamortized deferred financing fees of $6,346,000 related to the 13% Notes were reflected as a component of the adjustment to establish the carrying value of the 12% Notes. 9. Long-Term Debt Long-term debt consists of the following (table in thousands):
May 31, ------------------ 2001 2002 -------- -------- Old 1999 Revolving Credit Facility......................................... $ 46,478 $ -- 2002 Revolver.............................................................. 79,312 2002 Term Loan............................................................. 23,750 Term Loan A................................................................ 23,182 -- Term Loan B................................................................ 78,075 -- Term Loan C................................................................ 58,482 -- Intellectual Property Loan................................................. 9,750 -- 12% Subordinated Notes, face amount $44,282, including unamortized net gain of $4,332 at May 31, 2001................................................ 48,614 -- 11.25% Senior Subordinated Notes, face amount $155,000 including unamortized discount of $2,169 at May 31, 2002........................... -- 152,831 Other...................................................................... 92 44 -------- -------- 264,673 255,937 Less current portion.................................................... (11,346) (5,044) -------- -------- Total long-term debt................................................ $253,327 $250,893 ======== ========
April 2002 Refinancing In April 2002, the Company entered into new credit facilities and issued new 11.25% senior subordinated notes ("April 2002 Refinancing"). The Company used the net proceeds of the 11.25% Notes and the New 2002 Credit Facilities to repay all outstanding indebtedness under the existing credit agreement, to redeem in full all of the outstanding 12% subordinated notes due 2005, to pay accrued interest and premiums thereon, and pay certain transaction fees and expenses. New Credit Facilities In connection with the April 2002 Refinancing, the Company entered into new credit facilities (the "New 2002 Credit Facilities") of $235 million with a syndicate of banks and financial services companies. F-13 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The New 2002 Credit Facilities include a $210 million revolving credit line (the "2002 Revolver"), which includes a letter of credit sub-facility of up to $10 million and a swing line sub-facility of up to $10 million. The term is five years. Borrowing availability is limited to certain percentages of qualified assets as specified in the agreement. The letter of credit margin of 2% and an unused facility fee of .50% per annum of the average unused daily balance of the 2002 Revolver is due monthly. In addition, the New 2002 Credit Facilities include a $25 million Term Loan ("2002 Term Loan") with a 58-month term. The 2002 Term Loan amortizes quarterly at a rate of $1,250,000. At the Company's option, the 2002 Revolver and 2002 Term Loan bear interest at either (a) a floating rate equal to the Index Rate plus the applicable margin of 1.25% and 1.75%, respectively, or (b) a floating rate equal to the LIBOR rate plus the applicable margin of 2.625% and 3.125%, respectively. If the 2002 Revolver is terminated, the 2002 Term Loan will immediately be due and payable in full. If the 2002 Revolver is terminated or if the 2002 Term Loan is prepaid, certain prepayment premiums will apply. All loans under the New 2002 Credit Facilities are collateralized by a first priority security interest in all of the existing and subsequently acquired assets of the Company and its domestic and Canadian subsidiaries, subject to specified exceptions, and a pledge of 65% of the stock of the Company's first-tier foreign subsidiaries. All loans are cross-collateralized and contain cross default provisions. All of the outstanding common stock of the Company, owned by HF Holdings, has been pledged to the lenders under the New 2002 Credit Facilities. If the Company was to default under these New 2002 Credit Facilities, the lenders would foreclose on the pledge and take control of the Company. The new credit agreement contains a number of restrictive covenants that, among other things, limit or restrict the Company's and its subsidiaries' ability to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other indebtedness, make restricted payments, create liens, make equity or debt investments, make certain acquisitions, modify terms of the indenture, engage in mergers or consolidations, enter into operating leases or engage in transactions with affiliates. In addition, the Company is expected to comply with various financial ratios and tests, including a maximum capital expenditures test, minimum debt service coverage ratio, minimum EBITDA, maximum senior leverage ratio and minimum revenue. At May 31, 2002, the Company was in compliance with all of its debt covenants. 11.25% Senior Subordinated Notes The new 11.25% Notes are due April 2012. The 11.25% Notes were issued with a face principal amount of $155 million at a price of 98.589%. Interest is due January 1 and July 1 of each year, beginning on July 1, 2002. The 11.25% Notes are redeemable for a premium of between 1% and 5.625% anytime after April 2007, as outlined in the indenture. Up to 35% of the 11.25% Notes can be redeemed prior to April 1, 2005 at an 11.25% premium. The 11.25% Notes are guaranteed on an unsecured, senior subordinated basis by the Company's existing and future Domestic Subsidiaries. The 11.25% Notes contain certain restrictive covenants that, among other things, limit the ability of the Company and its subsidiaries to incur additional debt, pay dividends or make other distributions, make investments, dispose of assets, issue capital stock of subsidiaries, enter into mergers or consolidations or sell all, or substantially all, of their assets. F-14 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The table below reflects the scheduled principal payment terms of the Company's long-term debt (table in thousands):
Year ending May 31, ------------------- 2003........... $ 5,044 2004........... 5,000 2005........... 5,000 2006........... 5,000 2007........... 83,062 Thereafter..... 152,831 -------- $255,937 ========
Old Credit Facilities In connection with the September 1999 Restructuring, the Company entered into new credit facilities (the "Old 1999 Credit Facilities") of $300 million with a syndicate of banks and financial services companies. The Old 1999 Credit Facilities consisted of a $120 million revolving credit facility, a $30 million term loan ("Term Loan A"), an $80 million term loan ("Term Loan B"), a $55 million term loan ("Term Loan C"), and a $15 million term loan ("Intellectual Property Loan"). At the Company's option, all loans bore interest at either (a) a floating rate equal to the "index rate" plus an applicable margin of between 1.5% and 5.5% or (b) a fixed rate for periods of one, two, three or six months equal to an interest rate based on the LIBOR rate plus an applicable margin of between 3% and 7%. The index rate was a floating rate equal to the higher of (i) the rate quoted by The Wall Street Journal as the "base rate on corporate loans at large U.S. money center commercial banks" and (ii) the federal funds rate plus 0.5%. In addition, the Term Loan C accrued additional interest at 5% per annum which was added to the loan principal quarterly. 12% Subordinated Notes The 12% Subordinated Notes were due September 2005 and were guaranteed by each of the Company's Domestic Subsidiaries (Note 17). The 12% Notes were redeemable at any time for a premium of 1%-4%, as outlined in the indenture. The Company was paying a rate of 13.5% on the 12% Notes until the notes were registered pursuant to an effective registration statement under the Securities Act of 1933. The notes were not registered prior to their redemption For the fiscal year ended May 31, 2002, an extraordinary loss of approximately $7.4 million ($4.6 million net of income tax benefit) was recorded on the extinguishment of the existing credit facilities and the 12% Notes. For the fiscal year ended May 31, 2000, an extraordinary loss of approximately $3.2 million ($1.9 million net of income tax benefit) was recorded on the extinguishment of the Company's existing senior credit facilities and the remaining 13% Notes. 10. Stockholder's Equity The Company has 3,000 shares of $.01 par value common stock authorized, and 1,000 shares issued and outstanding. F-15 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Subsequent to the September 1999 Restructuring, the Company established a new junior management stock option plan (the "Plan") and issued 333,300 options to purchase common stock of HF Holdings with an exercise price of $5.83 to members of the Plan. These options have a ten-year life, 25% vest immediately and the balance vests in 25% increments on each anniversary of the grant date. The following table summarizes activity under the Plan for the fiscal years ended May 31, 2000, 2001 and 2002:
May 31, 2000 May 31, 2001 May 31, 2002 ----------------- ----------------- ----------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price -------- -------- -------- -------- -------- -------- Outstanding at beginning of year..... -- -- 333,300 $5.83 333,300 $5.83 Granted.............................. 333,300 $5.83 -- -- -- -- Expired.............................. -- -- -- -- -- -- Exercised............................ -- -- -- -- -- -- Forfeited............................ -- -- -- -- -- -- -------- -------- -------- Outstanding at end of year........... 333,300 $5.83 333,300 $5.83 333,300 $5.83 ======== ======== ======== Options exercisable at end of year... 83,325 166,650 249,975 ======== ======== ======== Weighted average fair market value of options granted during year........ $ 1.51 $ -- $ -- ======== ======== ========
The following table summarizes information about stock options outstanding at May 31, 2002:
Options Outstanding Options Exercisable - ------------------------------------------- ----------------------------------------- Weighted Average Remaining Weighted Weighted Range of Number Contractual Average Number Average Exercise Prices Outstanding Life (in years) Exercise Price Exercisable Exercise Price - --------------- ----------- --------------- -------------- ----------- -------------- $5.83 333,300 7.3 $5.83 249,975 $5.83
No compensation expense has been recognized for these options. Had the compensation expense associated with these options been determined based on the fair value of such options on the respective grant dates, the Company's pro forma net income (loss) would have been as indicated below (table in thousands):
------- ------- ------- 2000 2001 2002 ------- ------- ------- Net income (loss): As reported....... $(6,656) $13,306 $19,394 Pro forma......... (6,865) 13,173 19,261
The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: (1) risk-free interest rate of 6.00%; (2) expected life of five years; (3) dividend yield of zero; and (4) a volatility of zero. F-16 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 11. Income Taxes The provision for (benefit from) income taxes consists of the following (table in thousands):
Year ended May 31, -------------------------- 2000 2001 2002 ------- ------- -------- Current: Federal............................................... $ 412 $ 2,720 $ 10,178 State................................................. 77 233 872 Foreign............................................... 1,280 1,118 2,293 ------- ------- -------- Total current..................................... 1,769 4,071 13,343 ------- ------- -------- Deferred: Federal............................................... 1,503 (1,041) (9,720) State................................................. 218 (90) (833) Foreign............................................... 423 543 415 ------- ------- -------- Total deferred.................................... 2,144 (588) (10,138) ------- ------- -------- Provision for income taxes before extraordinary loss..... 3,913 3,483 3,205 Benefit from extraordinary loss on extinguishment of debt (1,244) -- (2,825) ------- ------- -------- Total provision for income taxes......................... $ 2,669 $ 3,483 $ 380 ======= ======= ========
The components of the Company's income (loss) before income taxes and extraordinary item are as follows (table in thousands):
Year ended May 31, ------------------------ 2000 2001 2002 ------- ------- ------- Domestic................................................ $(6,452) $14,964 $17,017 Foreign................................................. 2,465 1,825 2,757 ------- ------- ------- $(3,987) $16,789 $19,774 ======= ======= ======= Income (loss) before income taxes and extraordinary item $ (795) $16,789 $27,209 Pre-tax extraordinary loss.............................. (3,192) -- (7,435) ------- ------- ------- $(3,987) $16,789 $19,774 ======= ======= =======
F-17 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before taxes as follows:
Year ended May 31, ----------------- 2000 2001 2002 ---- ---- ---- Statutory federal income tax rate...................................... (35)% 35% 35% State tax provision (benefit).......................................... (2) 3 3 Losses for which no benefit has been recognized........................ 40 -- -- Benefit from net operating loss related to September 1999 Restructuring -- (17) -- Benefit from Internal Revenue Service adjustment....................... -- -- (59) Foreign income taxes................................................... -- 9 25 Foreign tax credit..................................................... -- (1) (9) Other.................................................................. 15 (8) 7 Change in valuation allowance.......................................... 49 -- -- --- --- --- Provision for income taxes............................................. 67% 21% 2% === === ===
As of May 31, 2001 and 2002, the Company recorded gross deferred tax assets and gross deferred tax liabilities as follows (table in thousands):
May 31, ---------------- 2001 2002 ------- ------- Gross deferred tax assets..... $19,741 $28,959 Gross deferred tax liabilities (5,239) (3,824) ------- ------- 14,502 25,135 Valuation allowance........... (7,620) (8,244) ------- ------- $ 6,882 $16,891 ======= =======
As of May 31, 2001 and 2002, net deferred tax assets consist of the following (table in thousands):
May 31, ---------------- 2001 2002 ------- ------- Foreign net operating loss carryforwards.... $ 7,620 $ 8,244 Expenses capitalized for income tax purposes -- 11,332 Property and equipment...................... (2,364) (2,044) Reserves and allowances..................... 4,637 4,478 Uniform capitalization of inventory......... 647 728 Restructuring gain.......................... 2,944 -- Other, net.................................. 1,018 2,397 ------- ------- 14,502 25,135 Valuation allowance......................... (7,620) (8,244) ------- ------- Net deferred tax asset...................... $ 6,882 $16,891 ======= =======
F-18 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In February 2002, the Internal Revenue Service ("IRS") completed an examination of the Company's taxable years ended May 31, 1997, 1996 and 1995. As a result of this examination, approximately $35.0 million of previously deducted expenses were capitalized and will be amortized over the next fifteen years. These adjustments created a long-term deferred tax asset of approximately $11.5 million. Because of the nature of the audit, the final examination report must be reviewed and approved by the Congressional Joint Committee. The Company does not anticipate that any changes to the final examination report will be made as a result of this review. During fiscal year ended May 31, 2002, the valuation allowance increased by $624,000 due to additional foreign net operating loss carryforwards that may not be utilized in future years. During the fiscal year ended May 31, 2001, the valuation allowance decreased by $16,466,000 due to the elimination of net operating loss carryforwards that would provide no future benefit to the Company. During the fiscal year ended May 31, 2000, the valuation allowance increased by $6,456,000, primarily as a result of the increase in the net operating loss carryforwards that may not be realized. Management believes that it is more likely than not that the Company will generate sufficient future taxable income to realize the balance of the net deferred tax asset at May 31, 2002. However, there can be no assurance that the Company will generate any specific level of taxable income or that it will be able to realize any of the remaining deferred tax assets in future periods. If the Company were unable to generate sufficient taxable income in the future, an additional valuation allowance against this deferred tax asset would result in a charge to earnings. During the fiscal year ended May 31, 2001, the Company utilized approximately $9.5 million in net operating loss carryforwards generated during the period from September 1999 to May 2000. During the fiscal year ended May 31, 2000, the Company did not realize any income tax benefit from federal and state net operating loss carryforwards. At May 31, 2002, the Company had approximately $21.1 million of foreign net operating loss carryforwards which may be carried forward indefinitely. The Company has provided a full valuation allowance against the deferred tax asset related to these carryforwards. 12. Supplemental Disclosures of Cash Flow Information
Year Ended May 31, ----------------------- 2000 2001 2002 ------- ------- ------- Cash paid during the year for (table in thousands): Interest........................................ $34,121 $34,063 $27,222 Income taxes, net............................... 3,688 6,131 8,221
Non-cash investing and financing activities: During the fiscal years ended May 31, 2001 and 2000, the Company added interest of $2.9 million and $1.2 million, respectively, to long-term debt principal. During the fiscal year ended May 31, 2000, the Company exchanged the 13% Notes for 12% Notes (Notes 8); issued warrants to the holders of 13% Notes (Note 8); and canceled loans to officers (Note 14). F-19 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 13. Commitments and Contingencies Leases--The Company has noncancellable operating leases, primarily for warehouse and production facilities and 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 noncancellable operating leases consist of the following (table in thousands):
Year ending May 31, ------------------- 2003........... $12,891 2004........... 11,356 2005........... 8,866 2006........... 3,474 2007........... 1,086 Thereafter..... 2,233 ------- $39,906 =======
Rental expense under noncancellable operating leases was approximately $13,960,000, $15,282,000 and $15,060,000 for the fiscal years ended May 31, 2000, 2001 and 2002, respectively. Environmental Issues--The Company's operations are subject to federal, state and local health, safety and environmental laws and regulations that impose workplace standards and limitations on the discharge of pollutants into the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of materials, substances and wastes. At this time, the Company is unaware of any environmental, health or safety violations. Product Liability--Due to the nature of the Company's products, the Company is subject to product liability claims involving personal injuries allegedly related to the Company's products. The Company currently carries an occurrence-based product liability insurance policy. The current policy provides coverage for the period from October 25, 2001 to October 1, 2002 of up to $5.0 million per occurrence and $5.0 million in the aggregate. The policy has a deductible on each claim of up to $500,000. The Company believes that its insurance is generally adequate to cover product liability claims. Nevertheless, currently pending claims and any future claims are subject to the uncertainties related to litigation, and the ultimate outcome of any such proceedings or claims cannot be predicted. Due to uncertainty with respect to the nature and extent of manufacturers' and distributors' liability for personal injuries, the Company cannot guarantee that its product liability insurance is or will be adequate to cover such claims. Product Recall--In January 2002, the Company notified the Consumer Product Safety Commission that it would be recalling and remediating a defect in the Hikers product. To date, the Company has not received any reports of injuries. The Company does not believe that this recall will have a material effect on its financial position or results of operations. Other Litigation--The Company is party to a variety of non-product liability commercial lawsuits involving contract claims. The Company believes that adverse resolution of these lawsuits would not have a material adverse effect upon its results of operations or financial position. F-20 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In December 2001, a claim was made against the Company alleging the Company received $1.7 million of preferential transfers in connection with the 1999 Service Merchandise bankruptcy proceedings. The proposed claim is currently being vigorously defended by the Company's counsel. At this time, the Company and its counsel are unable to determine the likelihood of an unfavorable outcome or the amount or range of potential recovery or loss. The Company has received a proposed assessment from United States Customs Service for approximately $1.3 million with respect to a series of issues regarding compliance with the North American Free Trade Agreement ("NAFTA"). The Company believes it has complied with NAFTA. The proposed assessment is currently being vigorously defended by the Company's counsel. The Company does not believe the outcome will have a material adverse effect upon the Company's results of operations or financial position. The Company is also involved in several intellectual property and 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 upon its results of operations or financial position. 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, 2001 and 2002, the Company had an accrual for warranty costs on products sold of approximately $2,557,000 and $1,290,000, respectively, included in accrued expenses. Retirement Plans--All employees who have met minimum age and service requirements are eligible to participate in the 401(k) savings plan. Company contributions to the plan for the fiscal years ended May 31, 2000, 2001, and 2002 were $512,000, $540,000 and $610,000, respectively. In September 2001, the Company established a nonqualified deferred compensation plan that permits certain employees to annually elect to defer a portion of their compensation for their retirement. The amount of compensation deferred and related investment earnings have been placed in an irrevocable rabbi trust and recorded within other assets in the Company's consolidated balance sheet, as this trust will be available to the Company's general creditors in the event of insolvency. An offsetting deferred compensation liability, which equals the total value of the trust at May 31, 2002 of $1,238,000, reflects amounts due to employees who contributed to the plan. The Company's contributions to the deferred compensation plan were $120,000 in the fiscal year ended May 31, 2002. Employment Agreements--On September 27, 1999, the Company entered into new three-year employment agreements with two senior officers. The employment agreements provide for the continued employment of the Chairman and Chief Executive Officer with a base salary of $525,000 and the President and Chief Operating Officer with a base salary of $475,000. The Company may terminate each executive's employment (1) for cause as provided in each agreement, (2) upon six months' disability, or (3) without cause. Each executive may similarly terminate his employment immediately for cause as provided in his employment agreement, upon three months notice to perform full-time church service or for any reason upon six months' notice. The employment agreements prohibit the executives from engaging in outside business activity during the term, subject to certain exceptions. The employment agreements provide for customary confidentiality obligations and, in addition, a non-competition obligation for a period of four years following termination (two F-21 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) years if the executive quits with cause or without cause or is terminated without cause, except that the Company may, at the Company's option, extend such period for up to two additional years by paying the executive his salary and bonus during the extended period). 14. Related Party Transactions Management Fees The Company has an agreement with major stockholders of HF Holdings who provide management and advisory services to the Company. Total annual fees due under this agreement are $800,000 for the fiscal years ended May 31, 2000, 2001, and 2002. The Company recorded management fee expense of $800,000 each year. In addition, the Company paid a fee of $3,500,000 upon closing of the September 1999 Restructuring to certain major stockholders of HF Holdings. In addition, if the Company enters into any acquisition transaction involving at least $10 million, the Company must pay a fee of approximately 1% of the gross purchase price, including liabilities assumed, of the transaction to these stockholders. Airplane Lease In June 1996, the Company entered into an agreement with FG Aviation, Inc. ("FG"), a company which is jointly owned by officers of the Company, whereby the Company has committed to lease an airplane from FG. Minimum rentals under the lease, which expires in May 2005, are $56,610 per month. On February 8, 2002, the Company entered into a new agreement with FG, whereby the Company terminated the original airplane lease and committed to lease a new airplane from FG. Minimum lease rentals under the lease, which expires February 2009, are $120,000 per month. The Company is responsible for scheduled maintenance and fuel costs; however, these costs reduce the monthly rental. In addition, the Company is responsible for payment of the aircraft crew and any unscheduled maintenance of the aircraft. In connection with its airplane lease commitments, the Company recorded $938,000, $903,000 and $695,000 of rental expense for the fiscal years ended May 31, 2000, 2001 and 2002, respectively. In addition, in February 2002, the Company advanced $280,000 to FG as a security deposit on the aircraft lease. Receivables from Officers and Parent In connection with the purchase of stock in 1994, the Company accepted as partial payment, notes bearing interest at a per annum rate of 7.5% in the amount of $656,000 from officers. During the fiscal year ended May 31, 2000, as a result of the September 1999 Restructuring, the Company canceled these notes. The stock collateralizing such loans was delivered back to the Company. As part of the September 1999 Restructuring, HF Holdings loaned to senior management an aggregate of $2.2 million against non-recourse notes with a maturity of 10 years. HF Holdings used funds advanced from the Company to make the loans. The notes bear interest at a rate equal to that of the New Credit Facilities, payable in cash until the first date as of which the cumulative net taxable income of the Company arising on or after the date of consummation of the September 1999 Restructuring exceeds $0. As of May 31, 2002 and 2001, these notes are non-interest bearing. The notes may be accelerated upon specified defaults and liquidity events, and are collaterized by shares of HF Holdings common stock. In addition, as part of the September 1999 Restructuring, the Company made loans in the aggregate amount of $452,000 to certain members of junior management. Such loans were forgiven (both as to principal and interest) as of May 31, 2000. F-22 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Management Equity Grant In connection with the September 1999 Restructuring, HF Holdings granted two members of senior management 666,700 shares of HF Holdings common stock at no cost. The Company recognized a compensation charge and contribution of capital of $3,175,000, the estimated fair value assigned to this common stock grant. 15. Acquisition of Business On December 20, 2000, the Company acquired certain assets of a corporation. The aggregate purchase price was $4,000,000, less cash acquired of $3,438. The acquisition was accounted for under the purchase method of accounting. The costs of the acquisition have been allocated on the basis of the estimated fair market value of the assets acquired and the liabilities assumed as reflected in the following table (in thousands). The results of the operations of the acquired business have been included in the accompanying financial statements since the date of acquisition. The acquired corporation's historical revenue and net income for the period preceding the acquisition date is not significant to the Company. Fair value of assets acquired: Trade accounts receivable......... $ 756 Inventories....................... 835 Property and equipment............ 429 Goodwill.......................... 4,430 Other............................. 32 ------- Total assets acquired......... 6,482 Liabilities assumed: Accounts payable.................. (2,320) Other............................. (100) Note payable...................... (65) ------- Total liabilities assumed..... (2,485) ------- Cash paid for acquisition............ $ 3,997 =======
As a result of a contingent purchase price agreement, the Company paid $306,000 of additional costs during the fiscal year ended May 31, 2002, which were classified as goodwill. 16. Geographic Segment Information Based on the Company's method of internal reporting, the Company operates and reports as a single industry segment, which is, development, manufacturing and distribution of home fitness equipment. F-23 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Revenue and long-lived asset information by geographic area as of and for the fiscal years ended May 31 is as follows (table in thousands):
Long-lived assets Revenues for the years ended May 31, (net) as of May 31, ------------------------------------ ------------------- 2000 2001 2002 2001 2002 -------- -------- -------- ------- ------- United States $671,550 $748,301 $814,196 $43,407 $41,650 Foreign...... 61,472 72,195 81,883 3,351 3,335 -------- -------- -------- ------- ------- Total..... $733,022 $820,496 $896,079 $46,758 $44,985 ======== ======== ======== ======= =======
Foreign revenue is based on the country in which the sales originate (i.e., where the legal subsidiary is domiciled). Revenue from no single foreign country was material to the consolidated revenues of the Company. 17. Consolidating Condensed Financial Statements The Company's subsidiaries Jumpking, Inc., 510152 N.B. Ltd., Universal Technical Services, Inc., ICON International Holdings, Inc., NordicTrack, Inc. and Free Motion Fitness, Inc. ("Subsidiary Guarantors") have fully and unconditionally guaranteed on a joint and several basis, the obligation to pay principal and interest with respect to the 11.25% Notes. A significant portion of the Company's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet the Company's debt service obligations are provided in part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Company's subsidiaries, could limit the Company's ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the 11.25% Notes. Although holders of the 11.25% Notes will be direct creditors of the Company's principal direct subsidiaries by virtue of the guarantees, the Company has indirect subsidiaries located primarily in Europe ("Non-Guarantor Subsidiaries") that are not included among the Guarantor Subsidiaries, and such subsidiaries will not be obligated with respect to the 11.25% Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Company, including the holders of the 11.25% Notes. The following supplemental consolidating condensed financial statements are presented (in thousands): 1. Consolidating condensed balance sheets as of May 31, 2001 and 2002 and consolidating condensed statements of operations and cash flows for each of the years in the three year period ended May 31, 2002. 2. The Company's combined Subsidiary Guarantors and combined Non-Guarantor subsidiaries with their investments in subsidiaries accounted for using the equity method. 3. Elimination entries necessary to consolidate the Company and all of its subsidiaries. F-24 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Supplemental Consolidating Condensed Balance Sheet
May 31, 2001 ----------------------------------------------------------------- ICON Combined Combined Health & Guarantor Non-Guarantor Fitness, Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------- ------------ ------------- ------------ ------------ ASSETS Current assets: Cash................................... $ 1,615 $ 613 $ 1,096 $ -- $ 3,324 Accounts receivable, net............... 110,586 33,543 11,156 (12,339) 142,946 Inventories, net....................... 103,903 35,584 6,949 (452) 145,984 Deferred income taxes.................. 4,714 344 -- -- 5,058 Other current assets................... 11,394 3,110 1,342 -- 15,846 --------- ------- -------- --------- --------- Total current assets...................... 232,212 73,194 20,543 (12,791) 313,158 --------- ------- -------- --------- --------- Property and equipment, net............... 39,934 6,230 594 -- 46,758 Receivable from affiliates................ 73,872 6,314 -- (80,186) -- Intangible assets, net.................... 25,093 5,424 -- -- 30,517 Deferred income taxes..................... 1,625 199 -- -- 1,824 Investment in subsidiaries................ 44,909 -- -- (44,909) -- Other assets, net......................... 7,872 4,061 1,314 -- 13,247 --------- ------- -------- --------- --------- Total Assets.............................. $ 425,517 $95,422 $ 22,451 $(137,886) $ 405,504 ========= ======= ======== ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt...... $ 11,255 $ 91 $ -- $ -- $ 11,346 Accounts payable....................... 92,423 21,788 18,283 (12,339) 120,155 Accrued expenses....................... 20,434 1,557 1,735 -- 23,726 Income taxes payable................... -- -- 345 -- 345 --------- ------- -------- --------- --------- Total current liabilities................. 124,112 23,436 20,363 (12,339) 155,572 --------- ------- -------- --------- --------- Long-term debt............................ 253,326 1 -- -- 253,327 --------- ------- -------- --------- --------- Payable to affiliates..................... 29,337 31,778 19,071 (80,186) -- Stockholder's equity (deficit): Common stock and additional paid-in capital.............................. 232,484 11,099 5,481 (44,909) 204,155 Receivable from Parent................. (2,200) -- -- -- (2,200) Accumulated deficit.................... (211,522) 30,422 (21,783) (452) (203,335) Accumulated other comprehensive loss... (20) (1,314) (681) -- (2,015) --------- ------- -------- --------- --------- Total stockholder's equity (deficit)...... 18,742 40,207 (16,983) (45,361) (3,395) --------- ------- -------- --------- --------- Total Liabilities and Stockholder's Equity (Deficit)............................... $ 425,517 $95,422 $ 22,451 $(137,886) $ 405,504 ========= ======= ======== ========= =========
F-25 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Supplemental Consolidating Condensed Balance Sheet
May 31, 2002 ----------------------------------------------------------------- ICON Combined Combined Health & Guarantor Non-Guarantor Fitness, Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------- ------------ ------------- ------------ ------------ ASSETS Current assets: Cash................................... $ 327 $ 1,448 $ 2,998 $ -- $ 4,773 Accounts receivable, net............... 104,553 54,071 11,249 (16,695) 153,178 Inventories, net....................... 82,558 45,657 5,847 (309) 133,753 Deferred income taxes.................. 4,591 214 2 -- 4,807 Other current assets................... 8,472 8,457 1,746 -- 18,675 --------- -------- -------- --------- --------- Total current assets...................... 200,501 109,847 21,842 (17,004) 315,186 --------- -------- -------- --------- --------- Property and equipment, net............... 34,031 10,101 853 -- 44,985 Receivable from affiliates................ 81,636 16,361 -- (97,997) -- Intangible assets, net.................... 20,466 8,517 1,218 -- 30,201 Deferred income taxes..................... 11,402 377 305 -- 12,084 Investment in subsidiaries................ 44,909 -- -- (44,909) -- Other assets, net......................... 20,756 -- 12 -- 20,768 --------- -------- -------- --------- --------- Total Assets....................... $ 413,701 $145,203 $ 24,230 $(159,910) $ 423,224 ========= ======== ======== ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt...... $ 5,000 $ 44 $ -- $ -- 5,044 Accounts payable....................... 81,909 28,586 20,127 (16,695) 113,927 Accrued expenses....................... 19,325 4,998 2,473 -- 26,796 Income taxes payable................... -- 5,069 352 -- 5,421 --------- -------- -------- --------- --------- Total current liabilities................. 106,234 38,697 22,952 (16,695) 151,188 --------- -------- -------- --------- --------- Long-term debt............................ 247,197 3,696 -- -- 250,893 Other liabilities......................... 4,934 -- -- -- 4,934 Payable to affiliates..................... 16,361 60,784 20,852 (97,997) -- Stockholder's equity (deficit): Common stock and additional paid-in capital.............................. 206,324 37,259 5,481 (44,909) 204,155 Receivable from Parent................. (2,200) -- -- -- (2,200) Accumulated deficit.................... (165,149) 5,632 (24,115) (309) (183,941) Accumulated other comprehensive loss................................. -- (865) (940) -- (1,805) --------- -------- -------- --------- --------- Total stockholder's equity (deficit)...... 38,975 42,026 (19,574) (45,218) 16,209 --------- -------- -------- --------- --------- Total Liabilities and Stockholder's Equity (Deficit)............................... $ 413,701 $145,203 $ 24,230 $(159,910) $ 423,224 ========= ======== ======== ========= =========
F-26 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Supplemental Consolidating Condensed Statement of Operations
Year Ended May 31, 2000 ------------------------------------------------------------------- Combined Combined ICON Health Guarantor Non-Guarantor & Fitness, Inc. Subsidiaries Subsidiaries Eliminations Consolidated --------------- ------------ ------------- ------------ ------------ Net sales........................................ $594,388 $107,458 $31,176 $ -- $733,022 Cost of sales.................................... 433,492 77,047 20,850 233 531,622 -------- -------- ------- ----- -------- Gross profit..................................... 160,896 30,411 10,326 (233) 201,400 Total operating expenses......................... 128,095 25,446 12,416 -- 165,957 -------- -------- ------- ----- -------- Income from operations........................... 32,801 4,965 (2,090) (233) 35,443 Interest expense................................. (31,742) (797) (1,360) -- (33,899) Amortization of deferred financing fees.......... (2,743) -- -- -- (2,743) Other income, net................................ 404 -- -- -- 404 -------- -------- ------- ----- -------- Income (loss) before income taxes and extraordinary item............................. (1,280) 4,168 (3,450) (233) (795) Provision for income taxes....................... 2,742 1,024 147 -- 3,913 -------- -------- ------- ----- -------- Income (loss) before extraordinary item.......... (4,022) 3,144 (3,597) (233) (4,708) Extraordinary loss on extinguishment of debt, net of income tax benefit of $1,244................ (1,948) -- -- -- (1,948) -------- -------- ------- ----- -------- Net income (loss)................................ $ (5,970) $ 3,144 $(3,597) $(233) $ (6,656) ======== ======== ======= ===== ========
F-27 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Supplemental Consolidating Condensed Statement of Operations
Year Ended May 31, 2001 ------------------------------------------------------------------- Combined Combined ICON Health Guarantor Non-Guarantor & Fitness, Inc. Subsidiaries Subsidiaries Eliminations Consolidated --------------- ------------ ------------- ------------ ------------ Net sales.............................. $670,354 $111,878 $38,264 $ -- $820,496 Cost of sales.......................... 474,343 81,163 25,055 (77) 580,484 -------- -------- ------- ---- -------- Gross profit........................... 196,011 30,715 13,209 77 240,012 Total operating expenses............... 138,895 31,063 14,151 -- 184,109 -------- -------- ------- ---- -------- Income from operations................. 57,116 (348) (942) 77 55,903 Interest expense....................... (31,875) (1,408) (1,488) -- (34,771) Amortization of deferred financing fees (3,189) -- -- -- (3,189) Other expense, net..................... (1,154) -- -- -- (1,154) -------- -------- ------- ---- -------- Income (loss) before income taxes...... 20,898 (1,756) (2,430) 77 16,789 Provision for income taxes............. 3,089 60 334 -- 3,483 -------- -------- ------- ---- -------- Net income (loss)...................... $ 17,809 $ (1,816) $(2,764) $ 77 $ 13,306 ======== ======== ======= ==== ========
Supplemental Consolidating Condensed Statement of Operations
Year Ended May 31, 2002 ----------------------------------------------------------------- ICON Combined Combined Health & Guarantor Non-Guarantor Fitness, Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------- ------------ ------------- ------------ ------------ Net sales................................ $641,598 $211,848 $42,633 $ -- $896,079 Cost of sales............................ 464,431 141,733 29,025 (143) 635,046 -------- -------- ------- ----- -------- Gross profit............................. 177,167 70,115 13,608 143 261,033 Total operating expenses................. 117,497 73,782 13,917 -- 205,196 -------- -------- ------- ----- -------- Income from operations................... 59,670 (3,667) (309) 143 55,837 Interest expense......................... (23,200) (1,177) (1,772) -- (26,149) Amortization of deferred financing fees.. (3,146) -- -- -- (3,146) Other income, net........................ 667 -- -- -- 667 -------- -------- ------- ----- -------- Income (loss) before income taxes and extraordinary item..................... 33,991 (4,844) (2,081) 143 27,209 Provision for (benefit from) income taxes 3,358 (404) 251 -- 3,205 -------- -------- ------- ----- -------- Income (loss) before extraordinary item.. 30,633 (4,440) (2,332) 143 24,004 Extraordinary loss on extinguishment of debt, net of income tax benefit of $2,825.............................. (4,610) -- -- -- (4,610) -------- -------- ------- ----- -------- Net income (loss)........................ $ 26,023 $ (4,440) $(2,332) $ 143 $ 19,394 ======== ======== ======= ===== ========
F-28 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Supplemental Consolidating Condensed Statement of Cash Flows
Year Ended May 31, 2000 ----------------------------------------------------------------- ICON Combined Combined Health & Guarantor Non-Guarantor Fitness, Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------- ------------ ------------- ------------ ------------ Operating activities: Net cash provided by (used in) operating activities............................. $ 4,950 $(4,950) $ (115) $ 656 $ 541 --------- ------- ------ --------- --------- Investing activities: Net cash provided by (used in) investing activities............................. (18,445) (1,306) (160) -- (19,911) --------- ------- ------ --------- --------- Financing activities: Borrowings (payments) on revolving credit facility, net.......................... (108,756) (4,295) -- -- (113,051) Payments on other long-term debt......... (470) (110) -- -- (580) Proceeds from September 1999 term notes.. 180,000 -- -- -- 180,000 Payments on September 1999 term notes.... (5,321) -- -- -- (5,321) Payments on old term notes............... (19,464) -- -- -- (19,464) Payments to 13% noteholders.............. (40,908) -- -- -- (40,908) Payment of fees-debt portion............. (14,876) -- -- -- (14,876) Cash contribution of capital from parent. 205,988 -- -- (165,988) 40,000 Payment of fees-equity portion........... (4,375) -- -- -- (4,375) Other.................................... (177,312) 11,531 449 165,332 -- --------- ------- ------ --------- --------- Net cash provided by (used in) financing activities............................. 14,506 7,126 449 (656) 21,425 Effect of exchange rate changes on cash.. -- (414) (52) -- (466) --------- ------- ------ --------- --------- Net increase (decrease) in cash.......... 1,011 456 122 -- 1,589 Cash, beginning of period................ 2,622 77 1,576 -- 4,275 --------- ------- ------ --------- --------- Cash, end of period...................... $ 3,633 $ 533 $1,698 $ -- $ 5,864 ========= ======= ====== ========= =========
F-29 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Supplemental Consolidating Condensed Statement of Cash Flows
Year Ended May 31, 2001 ----------------------------------------------------------------- ICON Combined Combined Health & Guarantor Non-Guarantor Fitness, Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------- ------------ ------------- ------------ ------------ Operating activities: Net cash provided by (used in) operating activities............................. $ 27,960 $(14,425) $ (330) $(798) $ 12,407 -------- -------- ------ ----- -------- Investing activities: Net cash provided by (used in) investing activities............................. (16,526) (7,271) 149 863 (22,785) -------- -------- ------ ----- -------- Financing activities: Borrowings (payments) on revolving credit facility, net.......................... 19,497 -- -- -- 19,497 Payments on other long-term debt......... (393) 17 -- -- (376) Payments on September 1999 term notes.... (9,273) -- -- -- (9,273) Payment of fees-debt portion............. (1,153) -- -- -- (1,153) Other.................................... (22,195) 22,381 (186) -- -- -------- -------- ------ ----- -------- Net cash provided by (used in) financing activities............................. (13,517) 22,398 (186) -- 8,695 Effect of exchange rate changes on cash.. -- (622) (235) -- (857) -------- -------- ------ ----- -------- Net increase (decrease) in cash.......... (2,083) 80 (602) 65 (2,540) Cash, beginning of period................ 3,633 533 1,698 -- 5,864 -------- -------- ------ ----- -------- Cash, end of period...................... $ 1,550 $ 613 $1,096 $ 65 $ 3,324 ======== ======== ====== ===== ========
F-30 ICON HEALTH & FITNESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Supplemental Consolidating Condensed Statement of Cash Flows
Year Ended May 31, 2002 ------------------------------------------------------------------- Combined Combined ICON Health Guarantor Non-Guarantor & Fitness, Inc. Subsidiaries Subsidiaries Eliminations Consolidated --------------- ------------ ------------- ------------ ------------ Operating activities: Net cash provided by operating activities $ 30,169 $ 6,133 $1,236 $-- $ 37,538 --------- ------- ------ --- --------- Investing activities: Net cash used in investing activities.... (13,747) (2,834) (549) -- (17,130) --------- ------- ------ --- --------- Financing activities: Borrowings (payments) on revolving credit facility, net................... 32,831 -- -- -- 32,831 Payments on other long-term debt......... -- (48) -- -- (48) Proceeds from April 2002 term notes...... 25,000 -- -- -- 25,000 Payments on April 2002 term notes........ (1,250) -- -- -- (1,250) Payments on September 1999 term notes.... (172,834) -- -- -- (172,834) Proceeds from 11.25% notes............... 152,813 -- -- -- 152,813 Payments to 12% noteholders.............. (46,053) (46,053) Payment of fees-debt portion............. (9,757) -- -- -- (9,757) Other.................................... 1,540 (2,688) 1,149 -- -- --------- ------- ------ --- --------- Net cash provided by (used in) financing activities............................. (17,710) (2,737) 1,149 -- (19,298) Effect of exchange rate changes on cash.. -- 273 66 -- 339 --------- ------- ------ --- --------- Net increase (decrease) in cash.......... (1,288) 835 1,902 -- 1,449 Cash, beginning of period................ 1,615 613 1,096 -- 3,324 --------- ------- ------ --- --------- Cash, end of period...................... $ 327 $ 1,448 $2,998 $-- $ 4,773 ========= ======= ====== === =========
F-31 Valuation Qualifying Accounts Financial Statement Schedule II (in thousands)
Year Ended May 31, -------------------------- 2000 2001 2002 -------- -------- ------ Accounts Receivable-- Allowances for Doubtful Accounts, Advertising Discounts and Credit Memos: Balance at beginning of year.................................................. $ 8,219 $ 7,004 $6,752 Additions: Charged to costs and expenses (allowance for doubtful accounts and credit memos)........................................................... 2,055 3,582 -- Charged to costs and expenses (discounts and advertising)................. 29,714 41,668 -- Recoveries on accounts charged off........................................ 156 -- -- Deductions: Accounts charged off (allowance for doubtful accounts and credit memos)... (2,759) (5,044) -- Accounts charged off (advertising)........................................ (30,381) (40,458) -- -------- -------- ------ Balance at end of year........................................................ $ 7,004 $ 6,752 $6,752 ======== ======== ====== Year Ended May 31, -------------------------- 2000 2001 2002 -------- -------- ------ Inventory Reserve: Balance at beginning of year.................................................. $ 4,815 $ 2,829 $3,185 Additions: Charged to costs and expenses (Inventory reserve)......................... 769 506 -- Charged to costs and expenses (NordicTrack purchase accounting)........... -- -- -- Deductions: NordicTrack purchase accounting........................................... (2,216) -- -- Reduction in reserve...................................................... (539) (150) -- -------- -------- ------ Balance at end of year........................................................ $ 2,829 $ 3,185 $3,185 ======== ======== ====== Year Ended May 31, -------------------------- 2000 2001 2002 -------- -------- ------ Warranty Reserve: Balance at beginning of year.................................................. $ 2,301 $ 2,570 $2,577 Additions: Charged to costs and expenses............................................. 269 50 -- Deductions: Reduction in reserve...................................................... -- (43) -- -------- -------- ------ Balance at end of year........................................................ $ 2,570 $ 2,577 $2,577 ======== ======== ====== Year Ended May 31, -------------------------- 2000 2001 2002 -------- -------- ------ Long-term Receivables, Allowances for Doubtful Accounts: Balance at beginning of year.................................................. $ 14,738 $ 18,843 $ 0 Additions: Charged to costs and expenses............................................. 4,105 -- 2,434 Deductions: Reduction in reserve...................................................... -- 18,843 -- -------- -------- ------ Balance at end of year........................................................ $ 18,843 $ 0 $2,434 ======== ======== ======
F-32 PART II Item 20. Indemnification of Directors and Officers ICON is a Delaware corporation. In its Certificate of Incorporation, ICON has adopted the provisions of Section 102(b)(7) of the Delaware General Corporation Law (the "Delaware Law"), which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director for monetary damages for breach of the director's fiduciary duty, except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware law (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director will personally receive a benefit in money, property or services to which the director is not legally entitled. ICON has also adopted indemnification provisions pursuant to Section 145 of the Delaware Law, which provides that a corporation may indemnify any persons, including officers and directors, who are, or are threatened to be made, parties to any threatened, pending or completed legal action, suit or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that such person was an officer, director, employee or agent of the corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to criminal proceedings, had no reasonable cause to believe that his conduct was unlawful. A Delaware corporation may indemnify officers or directors in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against expenses (including attorney's fees) that such officer or director actually and reasonably incurred. ICON has entered into indemnification agreements with each of ICON's officers and directors. Item 21. Exhibits and Financial Statement Schedules (A) Exhibits 2.1* Agreement and Plan of Merger dated as of September 27, 1999, among HF Holdings, Inc., ICON Health & Fitness, Inc. and HF Acquisition, Inc. 3.1* Certificate of Incorporation of ICON Health & Fitness, Inc. 3.2* By-Laws of ICON Health & Fitness, Inc. 4.1*** Indenture, dated April 9, 2002 between ICON Health & Fitness, Inc., the Guarantors set forth therein and The Bank of New York, as Trustee 5.1+ Opinion of Weil, Gotshal & Manges LLP 10.1** Lease Agreement, dated January 29, 1990, by and between The Prudential Insurance Company of America and Unit Distribution of Utah 10.2** Sublease, dated July 6, 1994, by and between Unit Distribution of Utah and ICON Health & Fitness, Inc. (formerly known as Proform Fitness Products, Inc. and Weslo, Inc.), including amendments thereto 10.3** Lease, dated June 29, 1998, by and between Ogden City and ICON Health & Fitness, Inc., including all amendments thereto 10.4** Lease Agreement by and between Panattoni/Hillwood Development Company, LLC and ICON Health & Fitness, Inc, including all amendments thereto
II-1 10.5** Lease Agreement, dated March 30, 2000, by and between International Center I, LLC and ICON Health & Fitness, Inc. 10.6** Lease, dated March 1, 1997, by and between Aeroterm De Montreal, Inc. and ICON of Canada Inc. 10.7** Lease, dated October 1, 1994, by and between Freeport Center Associates and Proform Fitness Products, Inc., including all amendments thereto 10.8** Deed of Lease, dated January 26, 2001, by and between Indome 43 Inc. and ICON of Canada Inc. 10.9*** Purchase Agreement, dated as of March 28, 2002, by and between ICON Health & Fitness, Inc., the Guarantors named therein, Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., and Fleet Securities, Inc. (the "Purchase Agreement") 10.10*** Registration Rights Agreement dated April 9, 2002 by and between ICON Health and Fitness, Inc., the Guarantors set forth therein and Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc. and Fleet Securities, Inc. 10.11*** Credit Agreement dated as of April 9, 2002 among ICON Health & Fitness, Inc., HF Holdings, Inc., JumpKing, Inc., Universal Technical Services, ICON International Holdings, Inc., ICON IP, Inc., Free Motion Fitness, Inc., NordicTrack, Inc., ICON du Canada Inc. and 510152 N.B. Ltd., General Electric Capital Corporation, as Agent and Lender, and GECC Capital Markets Group, Inc. 10.12* Stockholders Agreement, dated as of September 27, 1999, among HF Holdings, Inc., ICON Health & Fitness, Inc., HF Investment Holdings, LLC, Bain, certain Bain designees, Scott Watterson and Gary Stevenson and Credit Suisse First Boston Corporation 10.13* Joinder and Supplement to Stockholders Agreement, among HF Holdings, Inc., ICON Health & Fitness, Inc. and the Employee Stockholders named therein 10.14* Employment Agreement, dated as of September 27, 1999, between HF Holdings, Inc., ICON Health & Fitness, Inc. and Scott Watterson 10.15* Employment Agreement, dated as of September 27, 1999, between HF Holdings, Inc., ICON Health & Fitness, Inc. and Gary Stevenson 10.16* Non-Recourse Note, dated as of September 27, 1999, issued to HF Holdings, Inc. by Scott Watterson in the principal amount of $1,209,340 10.17* Non-Recourse Note, dated as of September 27, 1999, issued to HF Holdings, Inc. by Gary Stevenson in the principal amount of $990,660 10.18* Pledge and Security Agreement, dated as of September 27, 1999, between HF Holdings, Inc. and Scott Watterson 10.19* Pledge and Security Agreement, dated as of September 27, 1999, between HF Holdings, Inc. and Gary Stevenson 10.20* 1999 HF Holdings, Inc. Junior Management Stock Option Plan 10.21* 1999 ICON Health & Fitness, Inc. Junior Management Deferred Bonus Plan 10.22* Management Agreement, dated as of September 27, 1999, among HF Holdings, Inc. ICON Health & Fitness, Inc. and a Bain affiliate 10.23* Management Agreement, dated as of September 27, 1999, among ICON Health & Fitness, Inc., HF Holdings, Inc. and Scott Watterson 10.24* Management Agreement, dated as of September 27, 1999, among ICON Health & Fitness, Inc., HF Holdings, Inc. and Gary Stevenson 10.25* Tax Agreement, dated as of September 27, 1999, among HF Holdings, Inc. and its subsidiaries 12.1* Statements re Computation of Ratios 21.1* Subsidiaries of Registrant 23.1* Consent of PricewaterhouseCoopers LLP
II-2 23.2+ Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in their opinion filed as Exhibit 5.1 24.1* Power of Attorney (included on the signature page of the registration statement) 25.1* Statement on Form T-1 of Eligibility of Trustee 99.1** Form of Letter of Transmittal 99.2** Form of Notice of Guaranteed Delivery 99.3** Form of Letter to Clients 99.4** Form of Letter to Nominees
- -------- * Previously filed ** Filed herewith *** Supercedes previously filed exhibit + To be filed by amendment Item 22. Undertakings. (a) 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 such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the option of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (b) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of this Registration Statement through the date of responding to the request. (c) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this Registration Statement when it became effective. (d) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. II-3 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (e) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act, ICON Health & Fitness, Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing a Form S-4 and has duly caused this Amendment No. 1 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Logan, State of Utah, on the 6th day of September, 2002. ICON HEALTH & FITNESS, INC. By: /s/ S. FRED BECK ----------------------------- Name: S. Fred Beck Title: Chief Financial and Accounting Officer, Vice President and Treasurer POWER OF ATTORNEY Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- * Chairman of the Board and September 6 , 2002 - ----------------------------- Chief Executive Officer Scott R. Watterson (Principal Executive Officer) /s/ GARY E. STEVENSON President and Chief Operating September 6, 2002 - ----------------------------- Officer and Director Gary E. Stevenson /s/ S. FRED BECK Chief Financial and September 6, 2002 - ----------------------------- Accounting Officer, Vice S. Fred Beck President and Treasurer (Principal Financial and Accounting Officer) * Vice Chairman of the Board September 6, 2002 - ----------------------------- Robert C. Gay * Director September 6, 2002 - ----------------------------- Ronald P. Mika * Director September 6, 2002 - ----------------------------- Greg Benson - ----------------------------- Director David J. Matlin * Director September 6, 2002 - ----------------------------- Chris R. Pechock * Director September 6, 2002 - ----------------------------- Stanley C. Tuttleman - ----------------------------- Director W. McComb Dunwoody * /s/ S. FRED BECK - ----------------------------- S. Fred Beck Attorney-in-Fact
II-5 SIGNATURES Pursuant to the requirements of the Securities Act, Jumpking, Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing a Form S-4 and has duly caused this Amendment No. 1 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Logan, State of Utah, on the 6th day of September, 2002. JUMPKING, INC. By: /s/ S. FRED BECK ----------------------------- Name: S. Fred Beck Title: President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement on Form S-4 has been signed by the following person in the capacity and on the date indicated. Signature Title Date --------- ----- ---- /s/ S. FRED BECK President and Sole September 6, 2002 - ----------------------------- Director (Principal S. Fred Beck Executive, Financial and Accounting Officer) II-6 SIGNATURES Pursuant to the requirements of the Securities Act, 510152 N.B. Ltd. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing a Form S-4 and has duly caused this Amendment No. 1 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Logan, State of Utah, on the 6th day of September, 2002. 510152 N.B. LTD. By: * ----------------------------- Name: M. Joseph Brough Title: President Pursuant to the requirement of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement on Form S-4 has been signed by the following person in the capacity and on the date indicated. Signature Title Date --------- ----- ---- * President and Sole September 6, 2002 - ----------------------------- Director (Principal M. Joseph Brough Executive, Financial and Accounting Officer) * /s/ S. FRED BECK - ----------------------------- S. Fred Beck Attorney-in-Fact II-7 SIGNATURES Pursuant to the requirements of the Securities Act, Universal Technical Services, Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing a Form S-4 and has duly caused this Amendment No. 1 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Logan, State of Utah, on the 6th day of September, 2002. UNIVERSAL TECHNICAL SERVICES, INC. By: /s/ GARY E. STEVENSON ----------------------------- Name: Gary E. Stevenson Title: President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ GARY E. STEVENSON President and September 6, 2002 - ----------------------------- Director (Principal Gary E. Stevenson Executive Officer) /s/ S. FRED BECK Assistant Secretary and September 6, 2002 - ----------------------------- Director (Principal S. Fred Beck Financial and Accounting Officer) II-8 SIGNATURES Pursuant to the requirements of the Securities Act, ICON International Holdings, Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing a Form S-4 and has duly caused this Amendment No. 1 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Logan, State of Utah, on the 6th day of September, 2002. ICON INTERNATIONAL HOLDINGS, INC. By: /s/ GARY E. STEVENSON ----------------------------- Name: Gary E. Stevenson Title: President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ GARY E. STEVENSON President and Director September 6, 2002 - ----------------------------- (Principal Executive Gary E. Stevenson Officer) /s/ S. FRED BECK Treasurer and Director September 6, 2002 - ----------------------------- (Principal Financial and S. Fred Beck Accounting Officer) II-9 SIGNATURES Pursuant to the requirements of the Securities Act, NordickTrack, Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing a Form S-4 and has duly caused this Amendment No. 1 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Logan, State of Utah, on the 6th day of September, 2002. NORDICKTRACK, INC. By: * ----------------------------- Name: David Watterson Title: President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- * President and Sole Director September 6, 2002 - ----------------------------- (Principal Executive David Watterson Officer) /S/ S. FRED BECK Treasurer (Principal September 6, 2002 - ----------------------------- Financial and Accounting S. Fred Beck Officer) * /S/ S. FRED BECK - ----------------------------- S. Fred Beck Attorney-in-Fact II-10 SIGNATURES Pursuant to the requirements of the Securities Act, Free Motion Fitness, Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing a Form S-4 and has duly caused this Amendment No. 1 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Logan, State of Utah, on the 6th day of September, 2002. FREE MOTION FITNESS, INC. By: * ----------------------------- Name: Roy Simonson Title: President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /S/ GARY E. STEVENSON Director September 6, 2002 - ----------------------------- Gary E. Stevenson * Director September 6, 2002 - ----------------------------- David Watterson * President and Director September 6, 2002 - ----------------------------- (Principal Executive Roy Simonson Officer) * Director September 6, 2002 - ----------------------------- Lynn Brenchley /S/ S. FRED BECK Treasurer and Director September 6, 2002 - ----------------------------- (Principal Financial and S. Fred Beck Accounting Officer) * /S/ S. FRED BECK - ----------------------------- S. Fred Beck Attorney-in-Fact II-11 SIGNATURES Pursuant to the requirements of the Securities Act, ICON IP, Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing a Form S-4 and has duly caused this Amendment No. 1 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Logan, State of Utah, on the 6th day of September, 2002. ICON IP, INC. By: /s/ S. FRED BECK ----------------------------- Name: S. Fred Beck Title: President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /S/ S. FRED BECK President (Principal September 6, 2002 - ----------------------------- Executive, Financial and S. Fred Beck Accounting Officer) /S/ BRAD H. BEARNSON Sole Director September 6, 2002 - ----------------------------- Brad H. Bearnson II-12 EXHIBIT INDEX 2.1* Agreement and Plan of Merger dated as of September 27, 1999, among HF Holdings, Inc., ICON Health & Fitness, Inc. and HF Acquisition, Inc. 3.1* Certificate of Incorporation of ICON Health & Fitness, Inc. 3.2* By-Laws of ICON Health & Fitness, Inc. 4.1*** Indenture, dated April 9, 2002 between ICON Health & Fitness, Inc., the Guarantors set forth therein and The Bank of New York, as Trustee 5.1+ Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation 10.1** Lease Agreement, dated January 29, 1990, by and between The Prudential Insurance Company of America and Unit Distribution of Utah 10.2** Sublease, dated July 6, 1994, by and between Unit Distribution of Utah and ICON Health & Fitness, Inc. (formerly known as Proform Fitness Products, Inc. and Weslo, Inc.), including amendments thereto 10.3** Lease, dated June 29, 1998, by and between Ogden City and ICON Health & Fitness, Inc., including all amendments thereto 10.4** Lease Agreement by and between Panattoni/Hillwood Development Company, LLC and ICON Health & Fitness, Inc, including all amendments thereto 10.5** Lease Agreement, dated March 30, 2000, by and between International Center I, LLC and ICON Health & Fitness, Inc. 10.6** Lease, dated March 1, 1997, by and between Aeroterm De Montreal, Inc. and ICON of Canada Inc. 10.7** Lease, dated October 1, 1994, by and between Freeport Center Associates and Proform Fitness Products, Inc., including all amendments thereto 10.8** Deed of Lease, dated January 26, 2001, by and between Indome 43 Inc. and ICON of Canada Inc. 10.9*** Purchase Agreement, dated as of March 28, 2002, by and between ICON Health & Fitness, Inc., the Guarantors named therein, Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., and Fleet Securities, Inc. (the "Purchase Agreement") 10.10*** Registration Rights Agreement dated April 9, 2002 by and between ICON Health and Fitness, Inc., the Guarantors set forth therein and Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc. and Fleet Securities, Inc. 10.11*** Credit Agreement dated as of April 9, 2002 among ICON Health & Fitness, Inc., HF Holdings, Inc., JumpKing, Inc., Universal Technical Services, ICON International Holdings, Inc., ICON IP, Inc., Free Motion Fitness, Inc., NordicTrack, Inc., ICON du Canada Inc. and 510152 N.B. Ltd., General Electric Capital Corporation, as Agent and Lender, and GECC Capital Markets Group, Inc. 10.12* Stockholders Agreement, dated as of September 27, 1999, among HF Holdings, Inc., ICON Health & Fitness, Inc., HF Investment Holdings, LLC, Bain, certain Bain designees, Scott Watterson and Gary Stevenson and Credit Suisse First Boston Corporation 10.13* Joinder and Supplement to Stockholders Agreement, among HF Holdings, Inc., ICON Health & Fitness, Inc. and the Employee Stockholders named therein 10.14* Employment Agreement, dated as of September 27, 1999, between HF Holdings, Inc., ICON Health & Fitness, Inc. and Scott Watterson 10.15* Employment Agreement, dated as of September 27, 1999, between HF Holdings, Inc., ICON Health & Fitness, Inc. and Gary Stevenson
10.16* Non-Recourse Note, dated as of September 27, 1999, issued to HF Holdings, Inc. by Scott Watterson in the principal amount of $1,209,340 10.17* Non-Recourse Note, dated as of September 27, 1999, issued to HF Holdings, Inc. by Gary Stevenson in the principal amount of $990,660 10.18* Pledge and Security Agreement, dated as of September 27, 1999, between HF Holdings, Inc. and Scott Watterson 10.19* Pledge and Security Agreement, dated as of September 27, 1999, between HF Holdings, Inc. and Gary Stevenson 10.20* 1999 HF Holdings, Inc. Junior Management Stock Option Plan 10.21* 1999 ICON Health & Fitness, Inc. Junior Management Deferred Bonus Plan 10.22* Management Agreement, dated as of September 27, 1999, among HF Holdings, Inc. ICON Health & Fitness, Inc. and a Bain affiliate 10.23* Management Agreement, dated as of September 27, 1999, among ICON Health & Fitness, Inc., HF Holdings, Inc. and Scott Watterson 10.24* Management Agreement, dated as of September 27, 1999, among ICON Health & Fitness, Inc., HF Holdings, Inc. and Gary Stevenson 10.25* Tax Agreement, dated as of September 27, 1999, among HF Holdings, Inc. and its subsidiaries 12.1* Statements re Computation of Ratios 21.1* Subsidiaries of Registrant 23.1* Consent of PricewaterhouseCoopers LLP 23.2+ Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in their opinion filed as Exhibit 5.1) 24.1* Power of Attorney (included on the signature page of the registration statement) 25.1* Statement on Form T-1 of Eligibility of Trustee 99.1** Form of Letter of Transmittal 99.2** Form of Notice of Guaranteed Delivery 99.3** Form of Letter to Clients 99.4** Form of Letter to Nominees
- -------- * Previously filed ** Filed herewith *** Supercedes previously filed exhibit + To be filed by amendment EX-4.1 3 dex41.txt EXHIBIT 4.1 - INDENTURE DATED 04/09/02 EXHIBIT 4.1 EXECUTION COPY - -------------------------------------------------------------------------------- ICON HEALTH & FITNESS, INC. and each of the Guarantors named herein SERIES A AND SERIES B 11.25% SENIOR SUBORDINATED NOTES DUE 2012 __________________ INDENTURE Dated as of April 9, 2002 __________________ and THE BANK OF NEW YORK, as Trustee - -------------------------------------------------------------------------------- CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section 310(a)(1) 7.10 (a)(2) .............................................................. 7.10 (a)(3) .............................................................. N.A. (a)(4) .............................................................. N.A. (a)(5) .............................................................. 7.10 (b) ................................................................. 7.10 (c) ................................................................. N.A. 311(a) ................................................................. 7.11 (b) ................................................................. 7.11 (c) ................................................................. N.A. 312(a) ................................................................. 2.05 (b) 13.03 (c) ................................................................. 13.03 313(a) ................................................................. 7.06 (b)(2) .............................................................. 7.06; 7.07 (c) ................................................................. 7.06; 13.02 (d) ................................................................. 7.06 314(a) ................................................................. 4.03;13.02; 13.05 (c)(1) .............................................................. 13.04 (c)(2) .............................................................. 13.04 (c)(3) .............................................................. N.A. (e) ................................................................. 13.05 (f) ................................................................. N.A. 315(a) ................................................................. 7.01 (b) ................................................................. 7.05,13.02 (c) ................................................................. 7.01 (d) ................................................................. 7.01 (e) ................................................................. 6.11 316(a) (last sentence) ................................................. 2.09 (a)(1)(A) ........................................................... 6.05 (a)(1)(B) ........................................................... 6.04 (a)(2) .............................................................. N.A. (b) ................................................................. 6.07 (c) ................................................................. 2.12 317(a)(1) .............................................................. 6.08 (a)(2) .............................................................. 6.09 (b) ................................................................. 2.04 318(a) ................................................................. 13.01 (b) ................................................................. N.A. (c) ................................................................. 13.01
N.A. means not applicable * This Cross Reference Table is not part of the Indenture. TABLE OF CONTENTS
Page ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions.............................................. 1 Section 1.02 Other Definitions........................................ 21 Section 1.03 Incorporation by Reference of Trust Indenture Act........ 21 Section 1.04 Rules of Construction.................................... 22 ARTICLE 2. THE NOTES Section 2.01 Form and Dating.......................................... 22 Section 2.02 Execution and Authentication............................. 24 Section 2.03 Registrar and Paying Agent............................... 24 Section 2.04 Paying Agent to Hold Money in Trust...................... 24 Section 2.05 Holder Lists............................................. 25 Section 2.06 Transfer and Exchange.................................... 25 Section 2.07 Replacement Notes........................................ 37 Section 2.08 Outstanding Notes........................................ 37 Section 2.09 Treasury Notes........................................... 37 Section 2.10 Temporary Notes.......................................... 37 Section 2.11 Cancellation............................................. 38 Section 2.12 Defaulted Interest....................................... 38 ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee....................................... 38 Section 3.02 Selection of Notes to Be Redeemed or Purchased........... 38 Section 3.03 Notice of Redemption..................................... 39 Section 3.04 Effect of Notice of Redemption........................... 40 Section 3.05 Deposit of Redemption or Purchase Price.................. 40 Section 3.06 Notes Redeemed or Purchased in Part...................... 40 Section 3.07 Optional Redemption...................................... 40 Section 3.08 Mandatory Redemption..................................... 41 Section 3.09 Offer to Purchase by Application of Excess Proceeds...... 41 ARTICLE 4. COVENANTS Section 4.01 Payment of Notes......................................... 43 Section 4.02 Maintenance of Office or Agency.......................... 43 Section 4.03 Reports.................................................. 43 Section 4.04 Compliance Certificate................................... 44 Section 4.05 Taxes.................................................... 45 Section 4.06 Stay, Extension and Usury Laws........................... 45 Section 4.07 Restricted Payments...................................... 45 Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries............................................. 47 Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock.......................................... 49
i Section 4.10 Asset Sales. ............................................. 51 Section 4.11 Transactions with Affiliates. ............................ 53 Section 4.12 Liens. ................................................... 54 Section 4.13 Business Activities. ..................................... 54 Section 4.14 Corporate Existence. ..................................... 54 Section 4.15 Offer to Repurchase Upon Change of Control. .............. 55 Section 4.16 Anti-Layering ............................................ 56 Section 4.17 Payments for Consent. .................................... 57 Section 4.18 Additional Subsidiary Guarantees. ........................ 57 Section 4.19 Designation of Restricted and Unrestricted Subsidiaries .. 57 Section 4.20 Sale and Leaseback Transactions .......................... 57 ARTICLE 5. SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets. ................ 58 Section 5.02 Successor Corporation Substituted. ....................... 59 ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01 Events of Default. ....................................... 59 Section 6.02 Acceleration. ............................................ 61 Section 6.03 Other Remedies. .......................................... 62 Section 6.04 Waiver of Past Defaults. ................................. 62 Section 6.05 Control by Majority. ..................................... 62 Section 6.06 Limitation on Suits. ..................................... 62 Section 6.07 Rights of Holders of Notes to Receive Payment. ........... 63 Section 6.08 Collection Suit by Trustee. .............................. 63 Section 6.09 Trustee May File Proofs of Claim. ........................ 63 Section 6.10 Priorities. .............................................. 63 Section 6.11 Undertaking for Costs. 64 ARTICLE 7. TRUSTEE Section 7.01 Duties of Trustee. ....................................... 64 Section 7.02 Rights of Trustee. ....................................... 65 Section 7.03 Individual Rights of Trustee. ............................ 66 Section 7.04 Trustee's Disclaimer. .................................... 66 Section 7.05 Notice of Defaults. ...................................... 66 Section 7.06 Reports by Trustee to Holders of the Notes. .............. 66 Section 7.07 Compensation and Indemnity. .............................. 67 Section 7.08 Replacement of Trustee. .................................. 67 Section 7.09 Successor Trustee by Merger, etc. ........................ 68 Section 7.10 Eligibility; Disqualification. ........................... 68 Section 7.11 Preferential Collection of Claims Against Company. ....... 69 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.. 69 Section 8.02 Legal Defeasance and Discharge. .......................... 69 Section 8.03 Covenant Defeasance. ..................................... 69 Section 8.04 Conditions to Legal or Covenant Defeasance. .............. 70
ii Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions...................... 71 Section 8.06 Repayment to Company. ..................................... 71 Section 8.07 Reinstatement. ............................................ 72 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes. ...................... 72 Section 9.02 With Consent of Holders of Notes. ......................... 73 Section 9.03 Compliance with Trust Indenture Act. ...................... 74 Section 9.04 Revocation and Effect of Consents. ........................ 74 Section 9.05 Notation on or Exchange of Notes. ......................... 74 Section 9.06 Trustee to Sign Amendments, etc. .......................... 75 ARTICLE 10. SUBORDINATION Section 10.01 Agreement to Subordinate. ................................. 75 Section 10.02 Certain Definitions. ...................................... 75 Section 10.03 Liquidation; Dissolution; Bankruptcy. ..................... 76 Section 10.04 Default on Designated Senior Debt. ........................ 76 Section 10.05 Acceleration of Notes. .................................... 77 Section 10.06 When Distribution Must Be Paid Over. ...................... 77 Section 10.07 Notice by Company. ........................................ 78 Section 10.08 Subrogation. .............................................. 78 Section 10.09 Relative Rights. .......................................... 78 Section 10.10 Subordination May Not Be Impaired by Company. ............. 78 Section 10.11 Distribution or Notice to Representative. ................. 79 Section 10.12 Rights of Trustee and Paying Agent. ....................... 79 Section 10.13 Authorization to Effect Subordination. .................... 79 Section 10.14 Amendments. ............................................... 79 ARTICLE 11. NOTE GUARANTEES Section 11.01 Guarantee. ................................................ 79 Section 11.02 Limitation on Guarantor Liability. ........................ 81 Section 11.03 Execution and Delivery of Subsidiary Guarantee. ........... 81 Section 11.04 Guarantors May Consolidate, etc., on Certain Terms. ....... 81 Section 11.05 Releases Following Sale of Assets. ........................ 82 Section 11.06 Subordination of Subsidiary Guarantee. .................... 83 Section 11.07 Release Following Designation as an Unrestricted Subsidiary. ............................................... 83 ARTICLE 12. SATISFACTION AND DISCHARGE Section 12.01 Satisfaction and Discharge. ............................... 83 Section 12.02 Application of Trust Money. ............................... 84 ARTICLE 13. MISCELLANEOUS Section 13.01 Trust Indenture Act Controls. ............................. 84 Section 13.02 Notices. .................................................. 84 Section 13.03 Communication by Holders of Notes with Other Holders of Notes. ......................................... 85
iii Section 13.04 Certificate and Opinion as to Conditions Precedent. ......... 86 Section 13.05 Statements Required in Certificate or Opinion. .............. 86 Section 13.06 Rules by Trustee and Agents. ................................ 86 Section 13.07 No Personal Liability of Directors, Officers, Employees and Stockholders. ........................................... 86 Section 13.08 Governing Law. .............................................. 87 Section 13.09 No Adverse Interpretation of Other Agreements. .............. 87 Section 13.10 Successors. ................................................. 87 Section 13.11 Severability. ............................................... 87 Section 13.12 Counterpart Originals. ...................................... 87 Section 13.13 Table of Contents, Headings, etc. ........................... 87
EXHIBITS Exhibit A1 FORM OF NOTE Exhibit A2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Exhibit E FORM OF NOTE GUARANTEE Exhibit E1 FORM OF NOTE GUARANTEE (QUEBEC GUARANTOR) Exhibit F FORM OF SUPPLEMENTAL INDENTURE iv INDENTURE dated as of April 9, 2002 among ICON Health & Fitness, Inc., a Delaware corporation (the "Company"), the Guarantors (as defined) and The Bank of New York, a New York banking corporation, as trustee (the "Trustee"). The Company, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined) of the 11.25% Series A Senior Subordinated Notes due 2012 (the "Series A Notes") and the 11.25% Series B Senior Subordinated Notes due 2012 (the "Series B Notes" and, together with the Series A Notes, the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions. "144A Global Note" means a Global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Additional Interest" means all Additional Interest then owing pursuant to Section 5 of the Registration Rights Agreement. "Additional Notes" means Notes issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the Notes issued on the date of this Indenture. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. No Person (other than the Company or any Restricted Subsidiary of the Company) in whom a Receivables Subsidiary makes an Investment in connection with a Qualified Receivables Transaction shall be deemed to be an Affiliate of the Company or any of its Restricted Subsidiaries solely by reason of such Investment. "Agent" means any Registrar, co-registrar, Paying Agent or additional paying agent. 1 "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer or exchange. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights, other than sales of inventory in the ordinary course of business and the granting of Liens permitted under the terms of this Indenture; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole shall be governed by Sections 4.15 and 5.01 and not by Section 4.10; and (2) the issuance of Equity Interests in any of the Company's Restricted Subsidiaries or the sale of Equity Interests in any of its Restricted Subsidiaries. Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that involves assets having a fair market value of less than $2.0 million; (2) a transfer of assets between or among the Company and its Restricted Subsidiaries, (3) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary; (4) the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business; (5) the licensing or sub-licensing of intellectual property in the ordinary course of business consistent with past practice; (6) the sale, lease or other disposition of obsolete equipment; (7) the sale or other disposition of cash or Cash Equivalents; (8) a Restricted Payment or Permitted Investment that is permitted by Section 4.07; (9) sales of accounts receivable and related assets of the type specified in the definition of "Qualified Receivables Transaction" to a Receivables Subsidiary for the fair market value thereof, including cash in an amount at least equal to 75% of the book value thereof as determined in accordance with GAAP, it being understood that, for the purposes of this clause (9), notes received in exchange for the transfer of accounts receivable and related assets will be deemed cash if the Receivables Subsidiary or other payor is required to repay said notes as soon as practicable from available cash collections less amounts required to be established as reserves pursuant to contractual agreements with entities that are not Affiliates of the Company entered into as part of a Qualified Receivables Transaction; and (10) transfers of accounts receivable and related assets of the type specified in the definition of "Qualified Receivables Transaction" (or a fractional undivided interest therein) by a Receivables Subsidiary in a Qualified Receivables Transaction. 2 "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "Borrowing Base" means, as of any date, an amount equal to: (1) 85% of the face amount of all accounts receivable owned by the Company and the Guarantors as of the end of the most recent fiscal quarter preceding such date that were not more than 90 days past due; plus (2) 60% of the book value of all inventory owned by the Company and the Guarantors during the period of December 1 through June 30 of any fiscal year or 70% of the book value of all inventory owned by the Company and its Restricted Subsidiaries during the period from July 1 through November 30 of any fiscal year, in each case as of the end of the most recent fiscal quarter preceding such date; provided, however, that any accounts receivable owned by a Receivables Subsidiary, or which the Company or any Guarantor has agreed to transfer to a Receivables Subsidiary, shall be excluded for purposes of determining such amount. "Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. 3 "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than six months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each case maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Clearstream" means Clearstream Banking, S.A. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries, taken as a whole, to any "person" (as that term is used in Section 13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a Principal; (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the Principals and their 4 Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares; provided, that any transaction that results in any "person" (as defined above) Beneficially Owning less than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares, subject to the Stockholders Agreement or the LLC Agreement shall not, in any case, constitute a Change of Control under this clause (3) unless such person Beneficially Owns in the aggregate more than 50% of the Voting Stock of the Company; (4) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors; or (5) the first day on which HF Holdings ceases to own 100% of the outstanding Equity Interests of the Company. "Company" means the issuer, and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue or the reversal of reserves in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. 5 "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (4) the cumulative effect of a change in accounting principles shall be excluded; and (5) the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the specified Person or one of its Subsidiaries. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who: (1) was a member of such Board of Directors on the date of this Indenture; (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election; or (3) was nominated for election by, or is a designee of, a Principal. "Corporate Trust Office" means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof is located at 101 Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate Trust Department, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the Holders and the Company). "Corporate Trust Office of the Trustee" will be at the address of the Trustee specified in Section 13.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Agreement" means that certain Credit Agreement, dated as of April 9, 2002, by and among the Company, the lenders signatory thereto and General Electric Capital Corporation, as administrative agent, providing for up to $210,000,000 of revolving loan credit borrowings and a term loan of $25.0 million, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. 6 "Credit Facilities" means, one or more debt facilities (including, without limitation, the Credit Agreement) or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 4.07 hereof. "Domestic Subsidiary" means any Subsidiary of the Company that was formed under the laws of the United States or any state of the United States or the District of Columbia or that guarantees or otherwise provides direct credit support for any Indebtedness of the Company. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means any public offering of Capital Stock of the Company (other than Disqualified Stock). "Euroclear" means Euroclear Bank S.A./N.V., as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means the Notes issued in the Exchange Offer pursuant to Section 2.06(f) hereof. 7 "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Existing Indebtedness" means the Indebtedness of the Company and its Restricted Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of this Indenture, until such amounts are repaid. "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus (3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period. 8 In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated on a pro forma basis in accordance with Regulation S-X under the Securities Act, but without giving effect to clause (3) of the proviso set forth in the definition of Consolidated Net Income; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges shall not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date. "Foreign Subsidiary" means any Subsidiary of the Company that is not a Domestic Subsidiary. "GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of this Indenture. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, substantially in the form of Exhibit A1 hereto issued in accordance with Section 2.01, 2.06(b)(3), 2.06(b)(4), 2.06(d)(2) or 2.06(f) hereof. "Global Note Legend" means the legend set forth in Section 2.06(g)(2), which is required to be placed on all Global Notes issued under this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "Guarantors" means each of: (1) each Domestic Subsidiary of the Company; and (2) any other subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of this Indenture; 9 and their respective successors and assigns. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; and (2) any commodities future contract, commodity option or other similar agreement or arrangement designed to protect against fluctuations in the price of commodities used by that entity at the time; (3) agreements entered into for the purpose of fixing or hedging the risks associated with fluctuations in foreign currency exchange rates; and (4) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "HF Holdings" means HF Holdings, Inc., a Delaware corporation. "Holder" means a Person in whose name a Note is registered. "IAI Global Note" means a Global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations; (5) representing the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. 10 The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount of the Indebtedness, together with any interest on the Indebtedness that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Purchasers" means Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc. and Fleet Securities, Inc. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of Section 4.07. The acquisition by the Company or any Restricted Subsidiary of the Company of a Person that holds an Investment in a third Person shall be deemed to be an Investment by the Company or such Restricted Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of Section 4.07. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and, except in connection with any Qualified Receivables Transaction, any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. 11 "LLC Agreement" means that certain Limited Liability Company Agreement by and among Credit Suisse First Boston Corporation, affiliates of Bain Capital, LLC and certain other persons listed therein, as in effect on the date of this Indenture; provided, however, that such Limited Liability Company Agreement may be amended from time to time if after giving effect to such amendment Credit Suisse First Boston Corporation and its affiliates and Bain Capital, LLC and its affiliates Beneficially Own more than 50% of the common equity of HF Holdings subject to the LLC Agreement. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Indebtedness under a Credit Facility, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustments in respect of the sale price of such asset or assets established in accordance with GAAP. "New Brunswick Guarantor" means 510152 N.B. Ltd., a Guarantor incorporated in New Brunswick, Canada. "Non-Recourse Debt" means Indebtedness: (1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing, or the terms of which provide, that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Non-U.S. Person" means a Person who is not a U.S. Person. 12 "Notes" has the meaning assigned to it in the preamble to this Indenture. For purposes of this Indenture, the term "Notes" shall include any Additional Notes issued under the Indenture in accordance with Section 2.02 and 4.09 hereof, as part of the same series of Notes issued on the date of this Indenture. "Obligations" means any principal, interest, penalties, fees, expenses, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 13.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 13.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Participant" means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream). "Permitted Business" means any business that derives a majority of its revenues from the business engaged in by the Company and its Restricted Subsidiaries on the date of original issuance of the Notes and/or activities that are reasonably similar, ancillary or related to, or a reasonable extension, development or expansion of, the businesses in which the Company and its Restricted Subsidiaries are engaged on the date of original issuance of the Notes. "Permitted Investments" means: (1) any Investment in the Company or in a Restricted Subsidiary of the Company; (2) any Investment in Cash Equivalents; (3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of the Company; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; (5) any acquisition of assets (including Capital Stock) in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company or HF Holdings; 13 (6) any Investments received in compromise of obligations of such persons incurred in the ordinary course of trade creditors or customers that were incurred in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; (7) Investments arising in connection with Hedging Obligations; (8) Investments existing on the date of this Indenture; (9) loans or advances by the Company or any of its Restricted Subsidiaries to employees of the Company or any of its Restricted Subsidiaries that are entered into in the ordinary course of business and that are approved by the Board of Directors of the Company; provided that the aggregate principal amount of all such loans or advances do not exceed $1.5 million at any one time outstanding; (10) the acquisition by a Receivables Subsidiary in connection with a Qualified Receivables Transaction of Equity Interests of a trust or other Person established by such Receivables Subsidiary to effect such Qualified Receivables Transaction; and any other Investment by the Company or a Restricted Subsidiary of the Company in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any other Person in connection with a Qualified Receivables Transaction, provided, that such other Investment is in the form of a note or other instrument that the Receivables Subsidiary or other Person is required to repay as soon as practicable from available cash collections less amounts required to be established as reserves pursuant to contractual agreements with entities that are not Affiliates of the Company entered into as part of a Qualified Receivables Transaction; and (11) other Investments in any Person other than HF Holdings or an Affiliate of HF Holdings that is not also a Subsidiary of the Company having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (11) that are at the time outstanding not to exceed $ 10.0 million. "Permitted Liens" means: (1) Liens on all assets of the Company or any Subsidiary securing Senior Debt; (2) Liens in favor of the Company or the Guarantors; (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets of the Company or any Restricted Subsidiary other than those of the Person merged into or consolidated with the Company or the Restricted Subsidiary; (4) Liens on property existing at the time of acquisition of the property by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; 14 (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business (including, without limitation, landlord liens on lease properties); (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by Section 4.09(b)(4) hereof covering only the assets acquired with such Indebtedness; (7) Liens existing on the date of this Indenture; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; (9) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (10) carriers' warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like liens arising in the ordinary course of business in respect of obligations not overdue for a period in excess of 60 days or which are being contested in good faith by appropriate proceedings promptly instituted and diligently prosecuted; provided that any reserve or other appropriate provisions as shall be required to conform with GAAP shall have been made therefore; (11) easements, right-of-way, zoning and similar restrictions and other similar encumbrances or title defects incurred, or leases or subleases granted to others, in the ordinary course of business, which do not in any case materially detract from the value of the property subject thereto or do not interfere with, or adversely affect in any material respect, the ordinary conduct of the business of the Company and its Restricted Subsidiaries taken as a whole; (12) liens in favor of customs and revenue authorities to secure payment of custom duties in connection with the importation of goods in the ordinary course of business and other similar liens arising in the ordinary course of business; (13) leases or subleases granted to third persons not interfering with the ordinary course of business of the Company or any of its Restricted Subsidiaries; (14) liens (other than any Lien imposed by ERISA or any rule or regulation promulgated thereunder) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance, and other types of social security; (15) deposits, in an aggregate amount not to exceed $250,000, made in the ordinary course of business to secure liability to insurance carriers; (16) any attachment or judgment Lien not constituting an Event of Default under Section 6.01(6) hereof; (17) any interest or title of a lessor or sublessor under any operating lease; (18) liens arising solely by virtue of any statutory, contractual or common law provisions relating to banker's liens, right of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a depositary institution; provided that: 15 (a) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company or the issuer, as applicable, in excess of those set forth by regulations promulgated by the Federal Reserve Board of the United States or other applicable governmental or banking regulatory authority; and (b) such deposit account is not intended by the Company or any of its Restricted Subsidiaries to provide collateral to the depositary institution; (19) liens under any title retention agreement entered into in the ordinary course of business; (20) liens arising under Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Restricted Subsidiaries in the ordinary course of business; (21) Liens on assets of the Company or a Receivables Subsidiary incurred in connection with a Qualified Receivables Transaction; (22) Liens on assets of Foreign Subsidiaries; and (23) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $10.0 million at any one time outstanding. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) or, in the case of a Credit Facility, the committed amount of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) or, in the case of a Credit Facility, the committed amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on such Indebtedness and the amount of all expenses and premiums incurred in connection with such extension, refinancing, renewal, replacement, defeasement or refund); (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. 16 "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Principals" means Bain Capital, LLC and its affiliates and Credit Suisse First Boston Corporation and its affiliates and the collective parties to the Stockholders Agreement or the LLC Agreement. "Private Placement Legend" means the legend set forth in Section 2.06(g)(1) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "Qualified Receivables Transaction" means any transaction or series of transactions entered into by the Company or any of its Restricted Subsidiaries pursuant to which the Company or any of its Restricted Subsidiaries sells, conveys or otherwise transfers to (i) a Receivables Subsidiary (in the case of a transfer by the Company or any of its Restricted Subsidiaries) and (ii) any other Person (in the case of a transfer by a Receivables Subsidiary), or grants a security interest in, any accounts receivable (whether now existing or arising in the future) of the Company or any of its Restricted Subsidiaries, and any assets related thereto including, without limitation, all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable. "Quebec Guarantor" means ICON du Canada Inc., a corporation incorporated in the Province of Quebec, Canada. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Receivables Subsidiary" means a Subsidiary of the Company which engages in no activities other than in connection with the financing of accounts receivable and which is designated by the Board of Directors of the Company as a Receivables Subsidiary (a) no portion of the Indebtedness or any other Obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any of its Restricted Subsidiaries (excluding guarantees of Obligations (other than the principal of, and interest on, Indebtedness) pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction), (ii) is recourse to or obligates the Company or any of its Restricted Subsidiaries in any way other than pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction or (iii) subjects any property or asset of the Company or any of its Restricted Subsidiaries (other than accounts receivable and related assets as provided in the definition of "Qualified Receivables Transaction"), directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction, (b) with which neither the Company nor any of its Restricted Subsidiaries has any material contract, agreement, arrangement or understanding other than on terms no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company, other than fees payable in the ordinary course of business in connection with servicing accounts receivable and (c) with which neither the Company nor any of its Restricted Subsidiaries has any obligation to maintain or preserve such Subsidiary's financial condition or cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company will be evidenced to the trustee by filing with the trustee a certified copy of the resolution of the Board of Directors of the Company giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing conditions. 17 "Registration Rights Agreement" means the Registration Rights Agreement, dated as of April 9, 2002, among the Company, the Guarantors and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time and, with respect to any Additional Notes, one or more registration rights agreements among the Company, the Guarantors and the other parties thereto, as such agreement(s) may be amended, modified or supplemented from time to time relating to rights given by the Company to the purchasers of Additional Notes to register such Additional Notes. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent Global Note in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a temporary Global Note in the form of Exhibit A2 hereto deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Related Party" means: (1) any controlling stockholder, 80% (or more) owned Subsidiary, or immediate family member (in the case of an individual) of any Principal; or (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Principals and/or such other Persons referred to in the immediately preceding clause (1). "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject and who shall here direct responsibility for the administration of this Indenture. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Period" means the 40-day distribution compliance period as defined in Regulation S. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. 18 "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal or any final amount of principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Stockholders Agreement" means that certain Stockholders Agreement by and among certain common equity stockholders of HF Investment Holdings, LLC, including Credit Suisse First Boston Corporation, affiliates of Bain Capital, LLC and certain other persons listed therein, as in effect on the date of this Indenture; provided, however, that such Stockholders Agreement may be amended from time to time if after giving effect to such amendment Credit Suisse First Boston Corporation and its affiliates and Bain Capital, LLC and its affiliates Beneficially Own more than 50% of the common equity of HF Holdings subject to the Stockholders Agreement. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). "Subsidiary Guarantee" means, the Guarantee, whether direct or indirect, by each Guarantor of the Company's payment obligations under this Indenture and the Notes, executed pursuant to the terms of this Indenture. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. 19 "Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Global Note" means a permanent global Note substantially in the form of Exhibit A1 attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (5) has at least one director on its Board of Directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.07. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09, the Company shall be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under the covenant described under Section 4.09, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. 20 "U.S. Person" means a U.S. Person as defined in Rule 902(o) under the Securities Act. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. Section 1.02 Other Definitions. Defined in Term Section ---- ------- "Affiliate Transaction" ................................ 4.11 "Asset Sale Offer" ..................................... 3.09 "Authentication Order" ................................. 2.02 "Change of Control Offer" .............................. 4.15 "Change of Control Payment" ............................ 4.15 "Change of Control Payment Date" ....................... 4.15 "Covenant Defeasance" .................................. 8.03 "Designated Senior Debt" ............................... 10.02 "DTC" .................................................. 2.03 "Event of Default" ..................................... 6.01 "Excess Proceeds" ...................................... 4.10 "incur" ................................................ 4.09 "Legal Defeasance" ..................................... 8.02 "Offer Amount" ......................................... 3.09 "Offer Period" ......................................... 3.09 "Paying Agent" ......................................... 2.03 "Permitted Debt" ....................................... 4.09 "Permitted Junior Securities" .......................... 10.02 "Purchase Date" ........................................ 3.09 "Registrar" ............................................ 2.03 "Representative" ....................................... 10.02 "Restricted Payments" .................................. 4.07 "Senior Debt" .......................................... 10.02 Section 1.03 Incorporation by Reference of Trust Indenture Act. 21 Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Subsidiary Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.04 Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) "will" shall be interpreted to express a command; (6) provisions apply to successive events and transactions; and (7) references to sections of or rules under the Securities Act will be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES Section 2.01 Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication will be substantially in the form of Exhibit A1 hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note will be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes will constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery 22 of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form will be substantially in the form of Exhibits A1 or A2 attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form will be substantially in the form of Exhibit A1 attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note will represent such of the outstanding Notes as will be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby will be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S will be issued initially in the form of the Regulation S Temporary Global Note, which will be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Clearstream Bank, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period will be terminated upon the receipt by the Trustee of: (1) a written certificate from the Depositary, together with copies of certificates from Euroclear and Clearstream Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an IAI Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(b) hereof); and (2) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note will be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee will cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. (3) Euroclear and Clearstream Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Clearstream Banking" and "Customer Handbook" of Clearstream will be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by Participants through Euroclear or Clearsteam. 23 Section 2.02 Execution and Authentication. Two Officers must sign the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note will nevertheless be valid. A Note will not be valid until authenticated by the manual signature of the Trustee. The signature will be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee will, upon receipt of a written order of the Company signed by two Officers (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount set forth in such Authentication Order. The aggregate principal amount of Notes outstanding at any time may not exceed the aggregate amount of Notes authenticated for original issue pursuant to all Authentication Orders issued by the Company, except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. Section 2.03 Registrar and Paying Agent. The Company will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes. Section 2.04 Paying Agent to Hold Money in Trust. The Company will require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or Additional Interest, if any, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) will have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it will segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon 24 any bankruptcy or reorganization proceedings relating to the Company, the Trustee will serve as Paying Agent for the Notes. Section 2.05 Holder Lists. The Trustee will preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is not the Registrar, the Company will furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA (S) 312(a). Section 2.06 Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if: (1) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary; or (2) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the preceding events in (1) or (2) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes will be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes will be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also will require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a 25 beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Temporary Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchasers). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1). (2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar either: (A) both: (i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and (ii) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase; or (B) both: (i) written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged; and (ii) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon consummation of an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(2) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof 26 in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Permanent Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (4) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(2) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; 27 and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (1) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; or (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof, 28 the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Restricted Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(1) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Restricted Definitive Notes to the Persons in whose names such Notes are so registered. Any Restricted Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(1) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (2) Beneficial Interests in Regulation S Temporary Global Note to Definitive Notes. Notwithstanding Sections 2.06(c)(1)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (3) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; 29 and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (4) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(2) hereof, the Trustee will cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company will execute and the Trustee will authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(4) will be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest requests through instructions to the Registrar from or through the Depositary and the Participant or Indirect Participant. The Trustee will deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(4) will not bear the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. (1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a 30 certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee will cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (2) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (ii) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the 31 Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(2), the Trustee will cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (3) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee will cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (2)(B), (2)(D) or (3) above at a time when an Unrestricted Global Note has not yet been issued, the Company will issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar will register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e). (1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (D) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the 32 Securities Act other than those listed in subparagraphs (A) through (C) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; or (E) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof. (2) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a broker-dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (ii) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (3) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. 33 (f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company will issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will authenticate: (1) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered into the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Company; and (2) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee will cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company will execute and the Trustee will authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount. (g) Legends. The following legends will appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (1) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE." 34 (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(4), (c)(3), (c)(4), (d)(2), (d)(3), (e)(2), (e)(3) or (f) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) will not bear the Private Placement Legend. (2) Global Note Legend. Each Global Note will bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." (3) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note will bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note will be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note will be reduced accordingly and an 35 endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note will be increased accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. (1) To permit registrations of transfers and exchanges, the Company will execute and the Trustee will authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 or at the Registrar's request. (2) No service charge will be made to a Holder of a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). The Registrar will not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (3) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes will be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (4) The Company will not be required: (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection; (B) to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date. (5) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (6) The Trustee will authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (7) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. 36 Section 2.07 Replacement Notes. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company will issue and the Trustee, upon receipt of an Authentication Order, will authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and will be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08 Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes will be deemed to be no longer outstanding and will cease to accrue interest. Section 2.09 Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, will be considered as though not outstanding, except that for the purposes of determining whether the Trustee will be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned will be so disregarded. Section 2.10 Temporary Notes. Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, will authenticate temporary Notes. Temporary Notes will be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Company will prepare and the Trustee will authenticate definitive Notes in exchange for temporary Notes. 37 Holders of temporary Notes will be entitled to all of the benefits of this Indenture. Section 2.11 Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent will forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else will cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and will dispose of canceled Notes (subject to the record retention requirement of the Exchange Act). The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12 Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it will pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company will notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company will fix or cause to be fixed each such special record date and payment date, provided that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) will mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth: (1) the clause of this Indenture pursuant to which the redemption shall occur; (2) the redemption date; (3) the principal amount of Notes to be redeemed; and (4) the redemption price. Section 3.02 Selection of Notes to Be Redeemed or Purchased. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee will select Notes for redemption or purchase as follows: (1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or (2) if the Notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. 38 In the event of partial redemption or purchase by lot, the particular Notes to be redeemed or purchased will be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption or purchase date by the Trustee from the outstanding Notes not previously called for redemption or purchase. The Trustee will promptly notify the Company in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected will be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase. Section 3.03 Notice of Redemption. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company will mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture pursuant to Articles 8 or 12 of this Indenture. The notice will identify the Notes to be redeemed (including the CUSIP numbers) and will state: (1) the redemption date; (2) the redemption price; (3) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued upon cancellation of the original Note; (4) the name and address of the Paying Agent; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee will give the notice of redemption in the Company's name and at its expense; provided, however, that the Company has delivered to the Trustee, at least 45 days 39 prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05 Deposit of Redemption or Purchase Price. One Business Day prior to the redemption or purchase price date, the Company will deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest and Additional Interest, if any, on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent will promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest and Additional Interest, if any, on, all Notes to be redeemed or purchased. If the Company complies with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest will cease to accrue on the Notes or the portions of Notes called for redemption or purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption or purchase is not so paid upon surrender for redemption or purchase because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06 Notes Redeemed or Purchased in Part. Upon surrender of a Note that is redeemed or purchased in part, the Company will issue and, upon receipt of an Authentication Order, the Trustee will authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered. Section 3.07 Optional Redemption. (a) At any time prior to April 1, 2005, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under this Indenture at a redemption price of 111.25% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings, provided that: (1) at least 65% of the aggregate principal amount of Notes issued under this Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and (2) the redemption occurs within 90 days of the date of the closing of such Equity Offering. 40 (b) Except pursuant to the preceding paragraph, the Notes may not be redeemed at the option of the Company prior to April 1, 2007. (c) After April 1, 2007, the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, and Additional Interest, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below: Year Percentage ---- ---------- 2007 ........................................................ 105.6 2008 ........................................................ 103.7 2009 ........................................................ 101.8 2010 and thereafter ......................................... 100.000% (d) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. (e) In the event that the Company is required to commence a Change of Control Offer to all Holders to purchase Notes, it will follow the procedures specified in Section 4.15. Section 3.08 Mandatory Redemption. The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.09 Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company is required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it will follow the procedures specified below. The Asset Sale Offer shall be made to all Holders and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets. The Asset Sale Offer will remain open for a period of at least 20 Business Days following its commencement and not more than 30 Business Days, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than three Business Days after the termination of the Offer Period (the "Purchase Date"), the Company will apply all Excess Proceeds (the "Offer Amount") to the purchase of Notes and such other pari passu Indebtedness (on a pro rata basis, if applicable) or, if less than the Offer Amount has been tendered, all Notes and other Indebtedness tendered in response to the Asset Sale Offer. Payment for any Notes so purchased will be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest, and Additional Interest, if any, will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company will send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice will contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The notice, which will govern the terms of the Asset Sale Offer, will state: 41 (1) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer will remain open; (2) the Offer Amount, the purchase price and the Purchase Date; (3) that any Note not tendered or accepted for payment will continue to accrue interest; (4) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer will cease to accrue interest after the Purchase Date; (5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only; (6) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (7) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (8) that, if the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by Holders exceeds the Offer Amount, the Company will select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness surrendered (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, will be purchased); and (9) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and will deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, will promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company will promptly issue a new Note, and the Trustee, upon written request from the Company will authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company will publicly announce the results of the Asset Sale Offer on the Purchase Date. 42 Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS Section 4.01 Payment of Notes. The Company will pay or cause to be paid the principal of, premium, if any, and interest and Additional Interest, if any, on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest and Additional Interest, if any will be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company will pay all Additional Interest, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02 Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company fails to maintain any such required office or agency or fails to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission will in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. Section 4.03 Reports. (a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company will furnish to the Holders of Notes, within the time periods specified in the SEC's rules and regulations: 43 (1) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on the annual financial statements by the Company's certified independent accountants; and (2) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports. If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. In addition, following the consummation of the Exchange Offer contemplated Company will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company will at all times comply with TIA (S) 314(a). (b) For so long as any Notes remain outstanding, the Company and the Guarantors will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Section 4.04 Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate (one of the signatories of which is the chief executive officer, chief financial officer or chief accounting officer) stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such 44 violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) So long as any of the Notes are outstanding, the Company shall deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05 Taxes. The Company will pay, and will cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06 Stay, Extension and Usury Laws. The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07 Restricted Payments. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes or the Subsidiary Guarantees, except a payment of interest or principal at the Stated Maturity thereof; or (4) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as "Restricted Payments"), 45 unless, at the time of and after giving effect to such Restricted Payment: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; and (2) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of this Indenture (excluding Restricted Payments permitted by clauses (2), (3), (4), (6), (7) and (8) of Section 4.07(b) hereof), is less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of this Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds received by the Company since the date of this Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus (c) to the extent that any Restricted Investment that was made after the date of this Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus (d) to the extent that any of the Unrestricted Subsidiaries is redesignated as a Restricted Subsidiary after the date of this Indenture, the fair market value of the Company's Investment in such Subsidiary as of the date of such redesignation. (b) So long as no Default has occurred and is continuing or would be caused thereby, the provisions of Section 4.07(a) will not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of this Indenture; (2) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of the Company or any Guarantor or of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, 46 repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3)(b) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of the Company or any Guarantor with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its Equity Interests on a pro rata basis; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') current or former employees, officers or directors pursuant to any management equity subscription agreement, stock option agreement, employment agreement, severance agreement, employee benefits plan or similar agreement or plan; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0 million; (6) repurchases of Equity Interests deemed to occur upon exercise of stock options if those Equity Interests represent a portion of the exercise price of those options; (7) distributions to a parent corporation for administrative expenses in an amount not to exceed $500,000 in any fiscal year; (8) cash dividends to a parent corporation in amounts required for that parent corporation to pay any federal, state or local income taxes to the extent that such income taxes are directly attributable to the income of the Company and its Subsidiaries; and (9) other Restricted Payments in an amount not to exceed $5.0 million. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $5.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.08 were computed, together with a copy of any fairness opinion or appraisal required by this Indenture. Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Restricted Subsidiaries; 47 (2) make loans or advances to the Company or any of its Restricted Subsidiaries; or (3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. (b) The restrictions in Section 4.08(a) will not apply to encumbrances or restrictions existing under or by reason of: (1) agreements governing Existing Indebtedness and Credit Facilities as in effect on the date of this Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements, provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of this Indenture; (2) this Indenture, the Notes and the Subsidiary Guarantees; (3) applicable law; (4) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred; (5) customary non-assignment provisions in contracts or leases entered into in the ordinary course of business and consistent with past practices; (6) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on that property of the nature described in clause (3) of Section 4.08(a); (7) any agreement for the sale or other disposition of the Capital Stock or assets of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending the closing of such sale or other disposition; (8) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (9) Liens securing Indebtedness otherwise permitted to be incurred under Section 4.12 that limit the right of the debtor to dispose of the assets subject to such Liens; (10) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business; (11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; (12) agreements not described in clause (1) in effect on the date of this Indenture; 48 (13) covenants in agreements relating to the Indebtedness of Foreign Subsidiaries; (14) Indebtedness or other contractual requirements of a Receivables Subsidiary in connection with a Qualified Receivables Transaction, provided that such restrictions apply only to such Receivables Subsidiary; and (15) any amendments to any of the foregoing that, when taken as a whole, are not more restrictive than those contained in the agreement being amended. Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock. (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company shall, and shall not permit any of the Guarantors to, issue any Disqualified Stock and will not permit any of its Subsidiaries that do not guarantee the Notes to issue any shares of preferred stock; provided, however, that the Company and any Guarantor may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least (a) 2.25 to 1.0, if such incurrence or issuance is on or prior to April 1, 2004 or (b) 2.50 to 1.0, if such incurrence or issuance is after April 1, 2004, in each case, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period; (b) The provisions of Section 4.09(a) will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (1) the incurrence by the Company and any Guarantor of additional Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1)(with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) not to exceed the greater of (x) $235.0 million (provided that such amount shall be reduced to the extent of any reduction or elimination of any commitment under any Credit Facility resulting from or relating to the formation of any Receivables Subsidiary or the consummation of any Qualified Receivables Transaction and shall thereafter be increased to an amount not greater than $235.0 million to the extent of any increase in the commitment under any Credit Facility resulting from or relating to the termination of any Qualified Receivables Transaction or the elimination of any Receivables Subsidiary) or (y) the amount of the Borrowing Base as of the date of such incurrence; (2) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (3) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the related Subsidiary Guarantees to be issued on the date of this Indenture and the Exchange Notes and the related Subsidiary Guarantees to be issued pursuant to the Registration Rights Agreement; (4) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness (including, without limitation, Capital Lease Obligations) incurred for the purpose of financing all or any part 49 of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4), not to exceed $10.0 million at any time outstanding; (5) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under this Section 4.09(a) or clauses (2), (3), (4), (5), (10) or (13) of this Section 4.09(b); (6) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that: (a) if the Company or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes, in the case of the Company, or the Subsidiary Guarantee (other than in the case of intercompany Indebtedness of a Guarantor to the Company), in the case of a Guarantor except to the extent such Notes are pledged as collateral for Senior Debt; and (b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary of the Company and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary of the Company; will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); (7) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations in the ordinary course of business or to the extent required under the Credit Facilities; (8) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this Section 4.09; (9) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event will be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (9); (10) the incurrence by the Company or any Restricted Subsidiary of Indebtedness arising from agreements of the Company or any Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided, however, that (i) such Indebtedness is not reflected on the balance sheet of the Company or any Restricted Subsidiary (contingent obligations referred to in a footnote or footnotes to financial statements and not 50 otherwise reflected on the balance sheet shall not be deemed to be reflected on such balance sheet for purposes of this clause (i)) and (ii) the maximum assumable liability in respect of such Indebtedness shall at no time exceed the gross proceeds, including noncash proceeds (the fair market value of such noncash proceeds being measured at the time received and without giving effect to any subsequent changes in value), actually received by the Company and/or the Restricted Subsidiary in connection with such disposition; (11) the incurrence by any Foreign Subsidiaries of the Company in an aggregate principal amount (or accreted value, as applicable) at any time outstanding including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (11), not to exceed $10.0 million; (12) the incurrence by a Receivables Subsidiary of Indebtedness in a Qualified Receivables Transaction that is without recourse to the Company or to any other Restricted Subsidiary of the Company or their assets (other than such Receivables Subsidiary and its assets and, as to the Company or any of its Restricted Subsidiaries, other than pursuant to representations, warranties, covenants and indemnities customary for such transactions) and is not guaranteed by any such Person; and (13) the incurrence by the Company or any of the Guarantors of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (13), not to exceed $7.0 million. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock shall not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section 4.09; provided, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued. For purposes of determining compliance with this Section 4.09, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (13) above, or is entitled to be incurred pursuant to this Section 4.09(a), the Company will, in its sole discretion, be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section 4.09. Indebtedness under Credit Facilities outstanding on the date on which Notes are first issued and authenticated under this Indenture will be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of the definition of Permitted Debt. Section 4.10 Asset Sales. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; 51 (2) the fair market value is determined by the Company's Board of Directors and evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee; and (3) at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash. For purposes of this provision, each of the following will be deemed to be cash: (a) any liabilities, as shown on the Company's or such Restricted Subsidiary's most recent balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability; (b) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted within 30 days by the Company or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion; and (c) any payment of Senior Debt secured by the assets sold in the Asset Sale. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply those Net Proceeds at its option: (1) to repay Senior Debt and, if the Senior Debt repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; (2) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business; (3) to make capital expenditures; (4) to acquire other long-term assets that are used or useful in a Permitted Business; or (5) for any combination of clauses (1) through (4) above. Pending the final application of any Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million within five business days thereof, the Company will make an Asset Sale Offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets in accordance with Section 3.09 hereof to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest and Additional Interest, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess 52 Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness tendered. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of Section 3.09 or 4.10 of this Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under those provisions of this Indenture by virtue of such conflict. Section 4.11 Transactions with Affiliates. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (2) the Company delivers to the Trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $2.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with this Section 4.11 and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. (b) The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of Section 4.11(a): (1) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary; (2) payment of fees, compensation, benefits, indemnities or similar payments and issuances of stock options to officers, directors and employees of the Company or any of its Restricted Subsidiaries in the ordinary course of business; 53 (3) transactions between or among the Company and/or its Restricted Subsidiaries or transactions between a Receivables Subsidiary and any Person in which the Receivables Subsidiary has an Investment; (4) transactions with a Person that is an Affiliate of the Company solely because the Company owns an Equity Interest in, or controls, such Person; (5) payment of reasonable directors fees to Persons who are not otherwise Affiliates of the Company; (6) loans or advances by the Company or any of its Restricted Subsidiaries to employees of the Company or any of its Restricted Subsidiaries that are entered into in the ordinary course of business and that are approved by the Board of Directors of the Company; provided that the aggregate principal amount of all such loans or advances do not exceed $1.5 million at any one time outstanding; (7) sales of Equity Interests (other than Disqualified Stock) to Affiliates of the Company; (8) Restricted Payments that are permitted by Section 4.07 hereof; (9) transactions pursuant to the Stockholders Agreement; (10) payments of fees and the reimbursement of expenses by the Company for management services pursuant to the management agreements, each dated September 27, 1999, with Bain Capital, LLC, Credit Suisse First Boston Corporation and Gary Stevenson and Scott Watterson, as such agreements may be amended from time to time; provided that such amendments do not contain modifications that are materially adverse to the Holders; and (11) payments of rent and other expenses by the Company to FG Aviation, Inc. made pursuant to the aircraft lease agreement, dated February 8, 2002, as such agreement may be amended from time to time; provided that such amendments do not contain modifications that are materially adverse to the Holders. Section 4.12 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind securing Indebtedness, Attributable Debt or trade payables on any asset now owned or hereafter acquired, except Permitted Liens. Section 4.13 Business Activities. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. Section 4.14 Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect: 54 (1) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary; and (2) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.15 Offer to Repurchase Upon Change of Control. (a) Upon the occurrence of a Change of Control, the Company will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Additional Interest on the Notes repurchased, if any, to the date of purchase (the "Change of Control Payment"). Within thirty days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. 55 The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change in Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of Sections 3.09 or 4.15 of this Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under Section 3.09 or this Section 4.15 by virtue of such conflict. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful and subject to the provisions set forth under Article 10: (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer; (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and (3) deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company. The Paying Agent will promptly mail to each Holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Within 60 days following a Change of Control, the Company shall either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this Section 4.15. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require the Company to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of this Indenture are applicable. Except as described above with respect to a Change of Control, this Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. (c) Notwithstanding anything to the contrary in this Section 4.15, the Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.15 and Section 3.09 hereof and purchases all Notes validly tendered and not withdrawn under the Change of Control Offer. Section 4.16 Anti-Layering The Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of the Company and senior in any respect in right of payment to the Notes. No Guarantor will incur, create, issue, assume, 56 guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to the Senior Debt of such Guarantor and senior in any respect in right of payment to such Guarantor's Subsidiary Guarantee. Section 4.17 Payments for Consent. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Section 4.18 Additional Subsidiary Guarantees. If the Company or any of its Subsidiaries acquires or creates another Domestic Subsidiary (other than a Receivables Subsidiary) after the date of this Indenture, then that newly acquired or created Domestic Subsidiary will become a Guarantor and execute a supplemental indenture substantially in the form attached as Exhibit F hereto and deliver an opinion of counsel and an officer's certificate satisfactory to the Trustee within 10 Business Days of the date on which it was acquired or created; provided, however, that any such Domestic Subsidiary that has been properly designated as an Unrestricted Subsidiary in accordance with this Indenture shall not be required to become a Guarantor so long as it continues to constitute an Unrestricted Subsidiary. Section 4.19 Designation of Restricted and Unrestricted Subsidiaries The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary properly designated will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the first paragraph of Section 4.07 or under one or more clauses of the definition of Permitted Investments, as applicable, as determined by the Company. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a Default. Any such Unrestricted Subsidiary properly designated to be a Restricted Subsidiary will become a Guarantor and execute a supplemental indenture and deliver an opinion of counsel satisfactory to the Trustee within 10 Business Days of the date of such designation. Section 4.20 Sale and Leaseback Transactions The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company or any Restricted Subsidiary may enter into a sale and leaseback transaction if: (a) the Company or that Restricted Subsidiary, as applicable, could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under Section 4.09 and (b) incurred a Lien to secure such Indebtedness pursuant to Section 4.12; 57 (b) the gross cash proceeds of that sale and leaseback transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors and set forth in an officers' certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and (c) the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with Section 4.10. Notwithstanding the foregoing, the Company or any of its Restricted Subsidiaries may enter into sale and leaseback transactions that in the aggregate amount do not exceed $2.0 million in any twelve-month period without complying with the above provisions. ARTICLE 5. SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets. The Company shall not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (1) either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Company under the Notes, this Indenture and the Registration Rights Agreement pursuant to a supplemental indenture or other agreements reasonably satisfactory to the Trustee; (3) immediately after such transaction no Default or Event of Default exists; and (4) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been made shall, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09. In addition, the Company shall not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. This Section 5.01 shall not apply to: (1) a sale, assignment, transfer, conveyance or other disposition of assets between or among the Company and any of the Guarantors; (2) a merger or consolidation of a Restricted Subsidiary into the Company; or 58 (3) the merger or consolidation of the Company into an affiliate of the Company consummated for the sole purpose of reincorporating in another jurisdiction under the laws of the United States, any state of the United States or the District of Columbia. Section 5.02 Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01 Events of Default. Each of the following is an "Event of Default": (1) the Company defaults for 30 days in the payment when due of interest on, or Additional Interest with respect to, the Notes, whether or not prohibited by the subordination provisions of this Indenture; (2) the Company defaults in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on the Notes, whether or not prohibited by the subordination provisions of this Indenture; (3) the Company or any of its Subsidiaries fails to comply with the provisions of Section 4.07, 4.15 or 5.01 hereof; (4) failure by the Company or any of its Subsidiaries for 30 days after notice to comply with the provisions of Section 4.09 or 4.10 hereof;" (5) the Company fails to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class; (6) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, if that default: 59 (A) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (B) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $15.0 million or more; (7) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, which judgment or judgments are not paid, discharged or stayed for a period of 60 days; provided that the aggregate of all such undischarged judgments exceeds $15.0 million (net of applicable insurance which has not been denied in writing by the insurer); and (8) the Company, any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) generally is not paying its debts as they become due; or (9) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (B) appoints a custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (C) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days; or 60 (10) except as permitted by this Indenture, any Subsidiary Guarantee is held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. Section 6.02 Acceleration. In the case of an Event of Default specified in clause (8) or (9) of Section 6.01 hereof, with respect to the Company or any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately by notice in writing to the Trustee and the Company; provided that so long as any Indebtedness permitted to be incurred pursuant to Credit Facilities shall be outstanding, such acceleration shall not be effective until the earlier of (1) the acceleration of such Indebtedness under Credit Facilities or (2) five business days after receipt by the Company of written notice of such acceleration. Upon any such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (8) or (9) of Section 6.01 hereof occurs with respect to the Company, any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. If an Event of Default occurs on or after April 1, 2007 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to April 1, 2007 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on April 1, as set forth below (expressed as a percentage of the principal amount of the Notes on the date of payment that would otherwise be due but for the provisions of this sentence): Year Percentage ---- ---------- 2002 .................................................. 11.250% 2003 .................................................. 10.125% 2004 .................................................. 9.000% 2005 .................................................. 7.875% 2006 .................................................. 6.750% 61 Section 6.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium and Additional Interest, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04 Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Additional Interest, if any, or interest on, the Notes (including in connection with an offer to purchase); provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05 Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. Section 6.06 Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (1) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (3) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and 62 (5) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07 Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Additional Interest, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 6.08 Collection Suit by Trustee. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Additional Interest, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09 Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10 Priorities. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: 63 First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Additional Interest, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Additional Interest, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE Section 7.01 Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee will exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the duties of the Trustee will be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee will examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: 64 (1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01; (2) the Trustee will not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee will not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01. (e) No provision of this Indenture will require the Trustee to expend or risk its own funds or incur any liability. The Trustee will be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee will not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02 Rights of Trustee. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee will not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel will be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and will not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee will not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company will be sufficient if signed by an Officer of the Company. (f) The Trustee will be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) The Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. 65 (h) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture. (i) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder. (j) The Trustee may request that the Company deliver an Officer's Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officer's Certificate may be signed by any person authorized to sign an Officer's Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. Section 7.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04 Trustee's Disclaimer. The Trustee will not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it will not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it will not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05 Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee will mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium or Additional Interest, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06 Reports by Trustee to Holders of the Notes. (a) Within 60 days after each March 15 beginning with the March 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee will mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA (S) 313(a) (but if no event described in TIA (S) 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also will comply with TIA (S) 313(b)(2). The Trustee will also transmit by mail all reports as required by TIA (S) 313(c). 66 (b) A copy of each report at the time of its mailing to the Holders of Notes will be mailed by the Trustee to the Company and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA (S) 313(d). The Company will promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07 Compensation and Indemnity. (a) The Company will pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as shall be agreed upon, in writing, by the Company and Trustee. The Trustee's compensation will not be limited by any law on compensation of a trustee of an express trust. The Company will reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses will include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. (b) The Company and the Guarantor will indemnify the Trustee and any predecessor trustee against any and all losses, liabilities, expenses, damages or taxes (other than taxes based upon, measured by or determined by the income of the Trustee.) incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company and the Guarantors (including this Section 7.07) and defending itself against any claim (whether asserted by the Company, the Guarantors or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee will notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company will not relieve the Company or any of the Guarantors of their obligations hereunder. The Company or such Guarantor will defend the claim and the Trustee will cooperate in the defense. The Trustee may have separate counsel of its selection and the Company will pay the reasonable fees and expenses of such counsel. Neither the Company nor any Guarantor need pay for any settlement made without its consent, which consent will not be unreasonably withheld. (c) The obligations of the Company and the Guarantors under this Section 7.07 will survive the satisfaction and discharge of this Indenture. (d) To secure the Company's payment obligations in this Section 7.07, the Trustee will have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien will survive the satisfaction and discharge of this Indenture. (e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(7) or (8) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. (f) The Trustee will comply with the provisions of TIA (S) 313(b)(2) to the extent applicable. Section 7.08 Replacement of Trustee. (a) A resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. 67 (b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. (c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company will promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. (d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction at the expense of the Company in the case of the Trustee, for the appointment of a successor Trustee. (e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (f) A successor Trustee will deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee will become effective, and the successor Trustee will have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee will mail a notice of its succession to Holders. The retiring Trustee will promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof will continue for the benefit of the retiring Trustee. Section 7.09 Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act will be the successor Trustee. Section 7.10 Eligibility; Disqualification. There will at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. 68 This Indenture will always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b). Section 7.11 Preferential Collection of Claims Against Company. The Trustee is subject to TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. Section 8.02 Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company and each of the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes (including the Subsidiary Guarantees) on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company and the Guarantors will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes (including the Subsidiary Guarantees), which will thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all their other obligations under such Notes, the Subsidiary Guarantees and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which will survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium and Additional Interest, if any, on such Notes when such payments are due from the trust referred to in Section 8.04 hereof; (2) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof; (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's and the Guarantors' obligations in connection therewith; and (4) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03 Covenant Defeasance. 69 Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company and the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from each of their obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19 hereof and clause (4) of Section 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Notes will thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but will continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes will not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes and Subsidiary Guarantees, the Company and the Guarantors may omit to comply with and will have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply will not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes and Subsidiary Guarantees will be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(8) through 6.01(9) hereof will not constitute Events of Default. Section 8.04 Conditions to Legal or Covenant Defeasance. In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03 hereof: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium and Additional Interest, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (2) in the case of an election under Section 8.02 hereof, the Company has delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that: (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of an election under Section 8.03 hereof, the Company must deliver to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for 70 federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); (5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and (7) the Company must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes will be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium and Additional Interest, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company will pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Notwithstanding anything in this Article 8 to the contrary, the Trustee will deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06 Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium or Additional Interest, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium or Additional Interest, if any, or 71 interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) will be discharged from such trust; and the Holder of such Note will thereafter be permitted to look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, will thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which will not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 8.07 Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and the Guarantor's obligations under this Indenture and the Notes and the Subsidiary Guarantees will be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium or Additional Interest, if any, or interest on any Note following the reinstatement of its obligations, the Company will be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Subsidiary Guarantees or the Notes without the consent of any Holder of a Note: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (3) to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes by a successor to the Company pursuant to Article 5 or Article 12 hereof; (4) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; (5) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (6) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof; or 72 (7) to allow any Guarantor to execute a supplemental indenture and/or a Subsidiary Guarantee with respect to the Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee will join with the Company and the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee will not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.02 With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including, without limitation, Section 3.09, 4.10 and 4.15 hereof), the Subsidiary Guarantees and the Notes with the consent of the Holders of at least a majority in principal amount of the Notes (including, without limitation, Additional Notes, if any) then outstanding voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium or Additional Interest, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee will join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but will not be obligated to, enter into such amended or supplemental Indenture. It is not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it is sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company will mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): 73 (1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof; (3) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (4) waive a Default or Event of Default in the payment of principal of or premium or Additional Interest, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (5) make any Note payable in money other than that stated in the Notes; (6) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium or Additional Interest, if any, on the Notes; (7) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions; or (8) waive a redemption payment with respect to any Note other than a payment required by Sections 3.09, 4.10 and 4.15 hereof (9) release any Guarantor from any of its obligations under its Subsidiary Guarantee or this Indenture, except in accordance with the terms of this Indenture. In addition, any amendment to, or waiver of, the provisions of this Indenture relating to subordination that adversely affects the rights of the Holders of Notes will require the consent of the Holders of at least 75% in aggregate principal amount of Notes then outstanding. Section 9.03 Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes will be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04 Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05 Notation on or Exchange of Notes. 74 The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note will not affect the validity and effect of such amendment, supplement or waiver. Section 9.06 Trustee to Sign Amendments, etc. The Trustee will sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee will be entitled to receive and (subject to Section 7.01 hereof) will be fully protected in relying upon, in addition to the documents required by Section 13.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental Indenture is authorized or permitted by this Indenture. ARTICLE 10. SUBORDINATION Section 10.01 Agreement to Subordinate. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. Section 10.02 Certain Definitions. "Designated Senior Debt" means: (1) any Indebtedness outstanding under the Credit Facilities; and (2) after payment in full of all Obligations under the Credit Facilities, any other Senior Debt permitted under this Indenture the principal amount of which is $25.0 million or more and that has been designated by the Company as "Designated Senior Debt." "Permitted Junior Securities" means: (1) Equity Interests in the Company or any Guarantor; or (2) debt securities that are subordinated to all Senior Debt and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes and the Subsidiary Guarantees are subordinated to Senior Debt under this Indenture. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. 75 "Senior Debt" means: (1) all Indebtedness of the Company or any Guarantor outstanding under Credit Facilities and all Hedging Obligations with respect thereto; (2) any other Indebtedness of the Company or any Guarantor permitted to be incurred under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes or any Subsidiary Guarantee, and (3) all Obligations with respect to the items listed in the preceding clauses (1) and (2). Notwithstanding anything to the contrary in the preceding, Senior Debt will not include: (1) any liability for federal, state, local or other taxes owed or owing by the Company; (2) any Indebtedness of the Company or any of its Subsidiaries to the Company or any of its Affiliates; (3) any trade payables; or (4) the portion of any Indebtedness that is incurred in violation of this Indenture. Section 10.03 Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshaling of the Company's assets and liabilities: (1) holders of Senior Debt will be entitled to receive payment in full in cash of all Obligations due in respect of such Senior Debt (including interest after the commencement of any bankruptcy proceeding at the rate specified in the applicable Senior Debt) before the Holders of Notes will be entitled to receive any payment with respect to the Notes (except that Holders of Notes may receive and retain Permitted Junior Securities and payments made from any defeasance trust created pursuant to Section 8.01 hereof); and (2) until all Obligations with respect to Senior Debt (as provided in clause (1) above) are paid in full in cash, any distribution to which Holders would be entitled but for this Article 10 will be made to holders of Senior Debt (except that Holders of Notes may receive and retain Permitted Junior Securities and payments made from any defeasance trust created pursuant to Section 8.01 hereof), as their interests may appear. Section 10.04 Default on Designated Senior Debt. (a) The Company may not make any payment or distribution to the Trustee or any Holder in respect of Obligations with respect to the Notes and may not acquire from the Trustee or any Holder any Notes for cash or property (other than Permitted Junior Securities and payments made from any defeasance trust created pursuant to Section 8.01 hereof) until all principal and other Obligations with respect to the Senior Debt have been paid in full in cash if: 76 (1) payment default on Designated Senior Debt occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Designated Senior Debt; or (2) any other default occurs and is continuing on any series of Designated Senior Debt that permits holders of that series of Designated Senior Debt to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company of the holders of any Designated Senior Debt. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice will be effective for purposes of this Section unless and until (A) at least 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (B) all scheduled payments of principal, premium and Additional Interest, if any, and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee may be, or may be made, the basis for a subsequent Payment Blockage Notice unless such default has have been waived for a period of not less than 90 days. (b) The Company may and will resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: (1) in the case of a payment default, upon the date upon which such default is cured or waived, or (2) in the case of a nonpayment default, upon the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated, if this Article 10 otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. Section 10.05 Acceleration of Notes. If payment of the Notes is accelerated because of an Event of Default, the Company will promptly notify holders of Senior Debt of the acceleration. Section 10.06 When Distribution Must Be Paid Over. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes (other than Permitted Junior Securities and payments made from any defeasance trust created pursuant to Section 8.01 hereof) at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.04 hereof, such payment will be held by the Trustee or such Holder, in trust for the benefit of, and will be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the agreement, indenture or other document (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. 77 With respect to the holders of Senior Debt, the Trustee undertakes to perform only those obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt will be read into this Indenture against the Trustee. The Trustee will not be deemed to owe any fiduciary duty to the holders of Senior Debt, and will not be liable to any such holders if the Trustee pays over or distributes to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt are then entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 10.07 Notice by Company. The Company will promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice will not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. Section 10.08 Subrogation. After all Senior Debt is paid in full in cash and until the Notes are paid in full in cash, Holders of Notes will be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of Senior Debt that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. Section 10.09 Relative Rights. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture will: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of, premium and interest and Additional Interest, if any, on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of, premium or interest or Additional Interest, if any, on a Note on the due date, the failure is still a Default or Event of Default. Section 10.10 Subordination May Not Be Impaired by Company. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes may be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. 78 Section 10.11 Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes will be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. Section 10.12 Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee will not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee has received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 will impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 10.13 Authorization to Effect Subordination. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representatives are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. Section 10.14 Amendments. The provisions of this Article 10 may not be amended or modified without the written consent of the holders of all Senior Debt. In addition, any amendment to, or waiver of, the provisions of this Article 10 that adversely affects the rights of the Holders of the Notes will require the consent of the Holders of at least 75% in aggregate principal amount of Notes then outstanding. ARTICLE 11. NOTE GUARANTEES Section 11.01 Guarantee. 79 (a) Subject to this Article 11, each of the Guarantors (other than the Quebec Guarantor) hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (1) the principal of, premium and Additional Interest, if any, and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (2) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors will be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. (b) Subject to this Article 11, the Quebec Guarantor hereby unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the Subsidiary Guarantee of the New Brunswick Guarantor set forth in clause (a) of this Section 11.01 or the obligations of the Company or the New Brunswick Guarantor hereunder or thereunder, the prompt payment and performance when due of all obligations of the New Brunswick Guarantor under such Subsidiary Guarantee. Failing payment or performance when due of any obligation so guaranteed, the Quebec Guarantor will be obligated to pay or perform the same immediately. The Quebec Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. (c) The Guarantors hereby agree that their obligations hereunder are unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Subsidiary Guarantee will not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. (d) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, will be reinstated in full force and effect. (e) Each Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (1) the maturity of the obligations guaranteed hereby may be 80 accelerated as provided in Article 6 hereof for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (2) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) will forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee. The Guarantors will have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Subsidiary Guarantee. Section 11.02 Limitation on Guarantor Liability. Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Subsidiary Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor will be limited to such maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. Section 11.03 Execution and Delivery of Subsidiary Guarantee. To evidence its Subsidiary Guarantee set forth in Section 11.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form attached as Exhibit E hereto (or in the case of the Quebec Guarantor, in the form of Exhibit E1 hereto) will be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture will be executed on behalf of such Guarantor by one of its Officers. Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in Section 11.01 will remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. If an Officer whose signature is on this Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee will be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, will constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Guarantors. In the event that the Company creates or acquires any Domestic Subsidiary after the date of this Indenture, if required by Section 4.18 hereof, the Company will cause such Domestic Subsidiary to comply with the provisions of Section 4.18 hereof and this Article 11, to the extent applicable. Section 11.04 Guarantors May Consolidate, etc., on Certain Terms. Except as otherwise provided in Section 11.05, no Guarantor may sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person, other than the Company or another Guarantor, unless: 81 (1) immediately after giving effect to such transaction, no Default or Event of Default exists; and (2) either: (a) subject to Section 11.05 hereof, the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger unconditionally assumes all the obligations of that Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, this Indenture and the Subsidiary Guarantee on the terms set forth herein or therein; or (b) the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation, Section 4.10 hereof. In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person will succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued will in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. Except as set forth in Articles 4 and 5 hereof, and notwithstanding clauses (a) and (b) above, nothing contained in this Indenture or in any of the Notes will prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or will prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. Section 11.05 Releases Following Sale of Assets. In the event of any sale or other disposition of all or substantially all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all to the Capital Stock of any Guarantor, in each case to a Person that is not (either before or after giving effect to such transactions) a Subsidiary of the Company, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition, merger or consolidation was made by the Company in accordance with the provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee will execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee. Any Guarantor not released from its obligations under its Subsidiary Guarantee will remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11. 82 Section 11.06 Subordination of Subsidiary Guarantee. The Obligations of each Guarantor under its Subsidiary Guarantee pursuant to this Article 11 will be junior and subordinated to the Senior Debt of such Guarantor on the same basis as the Notes are junior and subordinated to Senior Debt of the Company. For the purposes of the foregoing sentence, the Trustee and the Holders will have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 10 hereof. Section 11.07 Release Following Designation as an Unrestricted Subsidiary. In the event the Company designates any Guarantor as an Unrestricted Subsidiary in accordance with Section 4.19, the Obligations of such Guarantor under its Subsidiary Guarantee pursuant to this Article 11 shall be released. ARTICLE 12. SATISFACTION AND DISCHARGE Section 12.01 Satisfaction and Discharge. This Indenture will be discharged and will cease to be of further effect as to all Notes issued hereunder, when: (1) either: (a) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year either upon Stated Maturity or by virtue of earlier redemption under arrangements reasonably satisfactory to the Trustee in accordance with the terms of this Indenture and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not previously delivered to the Trustee for cancellation for principal, premium and Additional Interest, if any, and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default has occurred and is continuing on the date of such deposit or will occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound; (3) the Company or any Guarantor has paid or caused to be paid all other sums payable by it under this Indenture; and 83 (4) the Company has delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section, the provisions of Section 12.02 and Section 8.06 will survive. In addition, nothing in this Section 12.01 will be deemed to discharge those provisions of Section 7.07 hereof, that, by their terms, survive the satisfaction and discharge of this Indenture. Section 12.02 Application of Trust Money. Subject to the provisions of Section 8.06, all money deposited with the Trustee pursuant to Section 12.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 12.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's and any Guarantor's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.01; provided that if the Company has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent. ARTICLE 13. MISCELLANEOUS Section 13.01 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA (S)318(c), the imposed duties will control. Section 13.02 Notices. Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: 84 If to the Company and/or any Guarantor: ICON Health & Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 Telecopier No.: (435) 750 3679 Attention: Brad Bearnson, Esq. With a copy to: Hutchins, Wheeler & Dittmar, A Professional Corporation 101 Federal Street Boston, Massachusetts 02110 Telecopier No.: (617) 951 1295 Attention: Charles W. Robins, Esq. If to the Trustee: The Bank of New York Corporate Trust Department 101 Barclay Street, Floor 21W New York, New York 10286 Telecopier No.: (212) 896 7298/7299 The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder will be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication will also be so mailed to any Person described in TIA ss. 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it will not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it will mail a copy to the Trustee and each Agent at the same time. Section 13.03 Communication by Holders of Notes with Other Holders of Notes. 85 Holders may communicate pursuant to TIA (S) 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). Section 13.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 13.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 13.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. Section 13.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA (S) 314(a)(4)) must comply with the provisions of TIA (S) 314(e) and must include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 13.06 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 13.07 No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will have any liability for any obligations of the Company or the Guarantors under the Notes, this Indenture, the Subsidiary Guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws. 86 Section 13.08 Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 13.09 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 13.10 Successors. All agreements of the Company in this Indenture and the Notes will bind its successors. All agreements of the Trustee in this Indenture will bind its successors. All agreements of each Guarantor in this Indenture will bind its successors, except as otherwise provided in Section 11.05. Section 13.11 Severability. In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby. Section 13.12 Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy will be an original, but all of them together represent the same agreement. Section 13.13 Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and will in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 87 SIGNATURES Dated as of April 9, 2002 ICON HEALTH & FITNESS COMPANY, INC. By: /s/ Brad H. Bearnson ------------------------ Name: Brad H. Bearnson Title: Sec. JUMPKING, INC. By: /s/ Brad H. Bearnson ------------------------ Name: Brad H. Bearnson Title: Sec. UNIVERSAL TECHNICAL SERVICES By: /s/ Brad H. Bearnson ------------------------ Name: Brad H. Bearnson Title: Sec. ICON INTERNATIONAL HOLDINGS, INC. By: /s/ Brad H. Bearnson ------------------------ Name: Brad H. Bearnson Title: Sec. ICON IP, Inc. By: /s/ Brad H. Bearnson ------------------------ Name: Brad H. Bearnson Title: Sec. FREE MOTION FITNESS, INC. By: /s/ Brad H. Bearnson ------------------------ Name: Brad H. Bearnson Title: Sec. NORDICTRACK, INC. By: /s/ Brad H. Bearnson ------------------------ Name: Brad H. Bearnson Title: Sec. 510152 N.B. LTD. By: /s/ Brad H. Bearnson ------------------------ Name: Brad H. Bearnson Title: Sec. ICON DU CANADA INC. By: /s/ Brad H. Bearnson ------------------------ Name: Brad H. Bearnson Title: Sec. THE BANK OF NEW YORK By: /s/ Michael Pitfick ------------------------ Name: Michael Pitfick Title: Assistant Vice President Schedule I SCHEDULE OF GUARANTORS The following schedule lists each Guarantor under this Indenture as of the date of this Indenture: Jumpking, Inc., a Utah corporation Universal Technical Services, a Utah corporation ICON International Holdings, Inc., a Delaware corporation ICON IP, Inc., a Delaware corporation Free Motion Fitness, a Utah corporation NordicTrack, Inc., a Utah corporation 510152 N.B. Ltd., a New Brunswick corporation ICON du Canada Inc., a Quebec corporation I-1 EXHIBIT A1 [Face of Note] ================================================================================ CUSIP/CINS ____________ 11.25% [Series A] [Series B] Senior Subordinated Notes due 2012 No. ___ $____________ ICON HEALTH & FITNESS, INC. promises to pay to CEDE & CO. ---------- or registered assigns, the principal sum of ___________________________________________________________ Dollars on _____________, 20___. Interest Payment Dates: ____________ and ____________ Record Dates: ____________ and ____________ Dated: _______________, 2002 ICON HEALTH & FITNESS, INC. By: ____________________________ Name: Title: By: ____________________________ Name: Title: (SEAL) This is one of the Notes referred to in the within-mentioned Indenture: THE BANK OF NEW YORK, as Trustee By: ________________________________ Authorized Signatory ================================================================================ A1-1 [Back of Note] 11.25% [Series A] [Series B] Senior Subordinated Notes due 2012 [Insert the Global Note Legend, if applicable pursuant to the provisions of the Indenture] [Insert the Private Placement Legend, if applicable pursuant to the provisions of the Indenture] Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. (1) Interest. ICON Health & Fitness, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 11.25% per annum from April 9, 2002 until maturity and shall pay the Additional Interest, if any, payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Additional Interest, if any, semi-annually in arrears on January 1 and July 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be July 1, 2002. The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest, if any, (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. (2) Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Additional Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the December 15 or June 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Additional Interest, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Additional Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Additional Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. (3) Paying Agent and Registrar. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. A1-2 (4) Indenture. The Company issued the Notes under an Indenture dated as of April 9, 2002 (the "Indenture") among the Company, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. (5) Optional Redemption. (a) At any time prior to April 1, 2005, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture at a redemption price of 111.25% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest to the redemption date, with the net cash proceeds of one or more Equity Offerings, provided that: (b) at least 65% of the aggregate principal amount of Notes issued under the Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and (c) the redemption occurs within 90 days of the date of the closing of such Equity Offering. (d) Except pursuant to the preceding paragraph, the Notes may not be redeemed at the option of the Company prior to April 1, 2007. (e) After April 1, 2007, the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, and Additional Interest, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below: Year Percentage ---- ---------- 2007 ................................................... 105.6 2008 ................................................... 103.7 2009 ................................................... 101.8 2010 and thereafter .................................... 100.000% (6) Mandatory Redemption. The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. (7) Repurchase at Option of Holder. (a) If there is a Change of Control, the Company will be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Additional Interest thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any A1-3 Change of Control, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5 million, the Company will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes and other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Additional Interest thereon, if any, to the date fixed for the closing of such offer and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. (8) Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. (9) Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. (10) Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. (11) Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for A1-4 uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture, or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Subsidiary Guarantee with respect to the Notes. (12) Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest or Additional Interest on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company to comply with Section 4.07, 4.15 or 5.01 of the Indenture; (iv) failure by the Company for 30 days after notice to comply with Sections 4.09 or 4.10 of the Indenture; (v) failure by the Company for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding voting as a single class to comply with certain other agreements in the Indenture, the Notes; (vi) default under certain other agreements relating to Indebtedness of the Company which default (x) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default, or (y) results in the acceleration of such Indebtedness prior to its express maturity; (vii) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (viii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries; and (ix) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. (13) Subordination. Payment of principal, interest and premium and Additional Interest, if any, on the Notes is subordinated to the prior payment of Senior Debt on the terms provided in the Indenture. A1-5 (14) Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. (15) No Recourse Against Others. A director, officer, employee, incorporator or stockholder, of the Company or any of the Guarantors, as such, will not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. (16) Authentication. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. (17) Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). (18) Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the A/B Exchange Registration Rights Agreement dated as of April 9, 2002, among the Company, the Guarantors and the other parties named on the signature pages thereof (the "Registration Rights Agreement"). (19) CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. (20) THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THIS NOTE AND THE SUBSIDIARY GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: ICON Health & Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 Attention: Brad Bearnson, Esq. A1-6 EXHIBIT A1 Assignment Form To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to: __________________________________ (Insert assignee's legal name) ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _______________ Your Signature: ________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A1-1 EXHIBIT A1 Option of Holder to Elect Purchase If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: --- Section 4.10 --- Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $________________ Date: _______________ Your Signature:____________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.:____________________ Signature Guarantee*: ______________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A1-1 EXHIBIT A1 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE* The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount at maturity of this Amount of decrease Amount of increase in Global Note Signature of in Principal Amount Principal Amount following such authorized signatory at maturity of at maturity of decrease of Trustee or Date of Exchange this Global Note this Global Note (or increase) Custodian ---------------- ---------------- ---------------- ------------- ---------
* This schedule should be included only if the Note is issued in global form. A1-1 EXHIBIT A2 [Face of Regulation S Temporary Global Note] ================================================================================ CUSIP/CINS __________ 11.25% [Series A] [Series B] Senior Subordinated Notes due 2012 No. ___ $__________ ICON HEALTH & FITNESS, INC. promises to pay to CEDE & CO. ---------- or registered assigns, the principal sum of ___________________________________________________________ Dollars on _______________, 20___. Interest Payment Dates: ____________ and ____________ Record Dates: ____________ and ____________ Dated: _______________, 2002 ICON HEALTH & FITNESS, INC. By: ______________________________ Name: Title: By: ______________________________ Name: Title: (SEAL) This is one of the Notes referred to in the within-mentioned Indenture: THE BANK OF NEW YORK, as Trustee By: _______________________________ Authorized Signatory ================================================================================ A2-1 [Back of Regulation S Temporary Global Note] 11.25% [Series A] [Series B] Senior Subordinated Notes due 2012 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF ICON HEALTH & FITNESS, INC. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) A2-2 PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. (1) Interest. ICON Health & Fitness, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 11.25% per annum from April 9, 2002 until maturity and shall pay the Additional Interest, if any, payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Additional Interest, if any, semi-annually in arrears on July 1 and January 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be July 1, 2002. The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest, if any, (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture. (2) Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Additional Interest, if any, to the Persons who are registered Holders of Notes at the close of business on December 15 or June 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, interest and Additional Interest, if any, at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Additional Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Additional Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. A2-3 (3) Paying Agent and Registrar. Initially, The Bank of New York,the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. (4) Indenture. The Company issued the Notes under an Indenture dated as of April 9, 2002 (the "Indenture") among the Company, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. (5) Optional Redemption. (a) At any time prior to April 1, 2005, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture at a redemption price of 111.25% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest to the redemption date, with the net cash proceeds of one or more Equity Offerings, provided that: (b) at least 65% of the aggregate principal amount of Notes issued under the Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and (c) the redemption occurs within 90 days of the date of the closing of such Equity Offering. (d) Except pursuant to the preceding paragraph, the Notes may not be redeemed at the option of the Company prior to April 1, 2007. (e) After April 1, 2007, the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, and Additional Interest, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below: Year Percentage ---- ---------- 2007 .............................................. 105.6% 2008 .............................................. 103.7% 2009 .............................................. 101.8% 2010 and thereafter ............................... 100.000% (6) Mandatory Redemption. The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. (7) Repurchase At Option of Holder A2-4 (a) If there is a Change of Control, the Company will be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Additional Interest, if any, thereon, if any, to the date of purchase ( the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5 million, the Company will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes and other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Additional Interest thereon, if any, to the date fixed for the closing of such offer and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. (8) Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. (9) Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. This Regulation S Temporary Global Note is exchangeable in whole or in part for one or more Global Notes only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Note for one or more Global Notes, the Trustee shall cancel this Regulation S Temporary Global Note. A2-5 (10) Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. (11) Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes voting as a single class, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture , or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Subsidiary Guarantee with respect to the Notes. (12) Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest or Additional Interest on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company to comply with Section 4.07, 4.15 or 5.01 of the Indenture; (iv) failure by the Company for 30 days after notice to comply with Sections 4.09 or 4.10 of the Indenture; (v) failure by the Company for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding voting as a single class to comply with certain other agreements in the Indenture, the Notes; (vi) default under certain other agreements relating to Indebtedness of the Company which default (x) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default, or (y) results in the acceleration of such Indebtedness prior to its express maturity; (vii) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (viii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries; and (ix) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of A2-6 Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. (13) SUBORDINATION. Payment of principal, interest and premium and Additional Interest, if any, on the Notes is subordinated to the prior payment of Senior Debt on the terms provided in the Indenture. (14) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. (15) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company or any of the Guarantors, as such, will not have any liability for any obligations of the Company or such Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. (16) AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. (17) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). (18) ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the A/B Exchange Registration Rights Agreement dated as of April 9, 2002, among the Company, the Guarantors and the other parties named on the signature pages thereof (the "Registration Rights Agreement"). (19) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. (20) THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THIS NOTE AND THE SUBSIDIARY GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. A2-7 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: ICON Health & Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 Attention: Brad A. Bearnson, Esq. A2-8 Assignment Form To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to: __________________________________ (Insert assignee's legal name) ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _______________ Your Signature: _______________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A2-1 Option of Holder to Elect Purchase If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: Section 4.10 Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $_________________ Date: _______________ Your Signature: _________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.: _________________ Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A2-1 SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or of other Restricted Global Notes for an interest in this Regulation S Temporary Global Note, have been made:
Principal Amount at maturity of this Amount of decrease Amount of increase in Global Note Signature of in Principal Amount Principal Amount following such authorized signatory at maturity of at maturity of decrease of Trustee or Date of Exchange this Global Note this Global Note (or increase) Custodian ---------------- ---------------- ---------------- ------------- ---------
A2-1 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER ICON Health & Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 [Registrar address block] Re: 11.25% Senior Subordinated Notes due 2012 Reference is hereby made to the Indenture, dated as of April 9, 2002 (the "Indenture"), among ICON Health & Fitness, Inc., as issuer (the "Company"), the Guarantors named on the signature pages thereto and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [_] Check if Transferee will take delivery of a beneficial interest --------------------------------------------------------------- in the 144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer - ------------------------------------------------------------------ is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [_] Check if Transferee will take delivery of a beneficial interest --------------------------------------------------------------- in the Temporary Regulation S Global Note, the Regulation S Global Note or a - ---------------------------------------------------------------------------- Definitive Note pursuant to Regulation S. The Transfer is being effected - ---------------------------------------- pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchasers). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred B-1 beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [_] Check and complete if Transferee will take delivery of a -------------------------------------------------------- beneficial interest in the IAI Global Note or a Definitive Note pursuant to any - ------------------------------------------------------------------------------- provision of the Securities Act other than Rule 144A or Regulation S. The - -------------------------------------------------------------------- Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) such Transfer is being effected to the Company or a subsidiary thereof; or (c) such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. 4. [_] Check if Transferee will take delivery of a beneficial interest --------------------------------------------------------------- in an Unrestricted Global Note or of an Unrestricted Definitive Note. - -------------------------------------------------------------------- (a) [_] Check if Transfer is pursuant to Rule 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private B-2 Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [_] Check if Transfer is Pursuant to Regulation S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [_] Check if Transfer is Pursuant to Other Exemption. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. _____________________________________ [Insert Name of Transferor] By:__________________________________ Name: Title: Dated: ____________________ B-3 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [_] a beneficial interest in the: (i) [_] 144A Global Note (CUSIP _________), or (ii) [_] Regulation S Global Note (CUSIP _________), or (iii) [_] IAI Global Note (CUSIP _________); or (b) [_] a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [_] a beneficial interest in the: (i) [_] 144A Global Note (CUSIP _________), or (ii) [_] Regulation S Global Note (CUSIP _________), or (iii) [_] IAI Global Note (CUSIP _________); or (iv) [_] Unrestricted Global Note (CUSIP _________); or (b) [_] a Restricted Definitive Note; or (c) [_] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. B-1 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE ICON Health & Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 [Registrar address block] Re: 11.25% Senior Subordinated Notes due 2012 (CUSIP [44929HAE8] [U44931AA8]) Reference is hereby made to the Indenture, dated as of April 9, 2002 (the "Indenture"), among ICON Health & Fitness, Inc., as issuer (the "Company"), the Guarantors named on the signature pages thereto and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. Exchange of Restricted Definitive Notes or Beneficial Interests --------------------------------------------------------------- in a Restricted Global Note for Unrestricted Definitive Notes or Beneficial - --------------------------------------------------------------------------- Interests in an Unrestricted Global Note - ---------------------------------------- (a) [_] Check if Exchange is from beneficial interest in a Restricted Global Note to beneficial interest in an Unrestricted Global Note. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [_] Check if Exchange is from beneficial interest in a Restricted Global Note to Unrestricted Definitive Note. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) [_] Check if Exchange is from Restricted Definitive Note to beneficial interest in an Unrestricted Global Note. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in C-1 compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [_] Check if Exchange is from Restricted Definitive Note to Unrestricted Definitive Note. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. Exchange of Restricted Definitive Notes or Beneficial Interests --------------------------------------------------------------- in Restricted Global Notes for Restricted Definitive Notes or Beneficial - ------------------------------------------------------------------------ Interests in Restricted Global Notes - ------------------------------------ (a) [_] Check if Exchange is from beneficial interest in a Restricted Global Note to Restricted Definitive Note. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [_] Check if Exchange is from Restricted Definitive Note to beneficial interest in a Restricted Global Note. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] [_] 144A Global Note, [_] Regulation S Global Note, [_] IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ___________________________________ [Insert Name of Transferor] By:________________________________ Name: Title: C-2 Dated: ______________________ C-3 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR ICON Health & Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 [Registrar address block] Re: 11.25% Senior Subordinated Notes due 2012 Reference is hereby made to the Indenture, dated as of April 9, 2002 (the "Indenture"), among ICON Health & Fitness, Inc., as issuer (the "Company"), the guarantors named on the signature pages thereto and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [_] a beneficial interest in a Global Note, or (b) [_] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. D-1 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. ________________________________________ [Insert Name of Accredited Investor] By:_____________________________________ Name: Title: Dated: _______________________ D-1 EXHIBIT E FORM OF NOTATION OF GUARANTEE For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture dated as of April 9, 2002 (the "Indenture") among ICON Health & Fitness, Inc., (the "Company"), the Guarantors listed on Schedule I thereto and The Bank of New York, as trustee (the "Trustee"), (a) the due and punctual payment of the principal of, premium and Additional Interest, if any, and interest on the Notes (as defined in the Indenture), whether at maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal of and interest on the Notes, if any, if lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the Indebtedness evidenced by this Subsidiary Guarantee shall cease to be so subordinated and subject in right of payment upon any defeasance of this Note in accordance with the provisions of the Indenture. [Name of Guarantor(s)] By:___________________________________________ Name: Title: E-1 EXHIBIT E1 FORM OF NOTATION OF GUARANTEE (QUEBEC GUARANTOR) For value received, the Quebec Guarantor (which term includes any successor Person under the Indenture) has unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture dated as of April 9, 2002 (the "Indenture") among ICON Health & Fitness, Inc. (the "Company"), the Guarantors (including the Quebec Guarantor) listed on Schedule I thereto and The Bank of New York, as trustee (the "Trustee") the prompt payment and performance when due of all obligations of the New Brunswick Guarantor under the Subsidiary Guarantee of the New Brunswick Guarantor set forth in Section 11.01(a) of the Indenture. The obligations of the Quebec Guarantor to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee of the Quebec Guarantor and pursuant to the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee of the Quebec Guarantor. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the Indebtedness evidenced by this Subsidiary Guarantee shall cease to be so subordinated and subject in right of payment upon any defeasance of this Note in accordance with the provisions of this Indenture. ICON du Canada Inc. By: _______________________________ Name: Title: E1-1 EXHIBIT F FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS Supplemental Indenture (this "Supplemental Indenture"), dated as of ________________, 200__, among __________________ (the "Guaranteeing Subsidiary"), a subsidiary of ICON Health & Fitness, Inc. (or its permitted successor), a Delaware corporation (the "Company"), the Company, the other Guarantors (as defined in the Indenture referred to herein) and The Bank of New York, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of April 9, 2002 providing for the issuance of an aggregate principal amount of up to $155,000,000 of 11.25% Senior Subordinated Notes due 2012 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Subsidiary Guarantee"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as follows: (a) Along with all Guarantors named in the Indenture, to jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the principal of, and premium and Additional Interest, if any, and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. F-1 EXHIBIT F (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. (c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture, and the Guaranteeing Subsidiary accepts all obligations of a Guarantor under the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. (g) As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Subsidiary Guarantee. (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Subsidiary Guarantee. (i) Pursuant to Section 11.02 of the Indenture, after giving effect to any maximum amount and all other contingent and fixed liabilities that are relevant under any applicable Bankruptcy or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under Article 11 of the Indenture, this new Subsidiary Guarantee shall be limited to the maximum amount permissible such that the obligations of such Guarantor under this Subsidiary Guarantee will not constitute a fraudulent transfer or conveyance. 3. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Subsidiary Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. F-2 EXHIBIT F 4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms. (a) The Guaranteeing Subsidiary may not sell or otherwise dispose of all substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person, other than the Company or another Guarantor unless: (i) immediately after giving effect to such transaction, no Default or Event of Default exists; and (ii) either (A) subject to Sections 11.04 and 11.05 of the Indenture, the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger unconditionally assumes all the obligations of that Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Subsidiary Guarantee on the terms set forth herein or therein; or (B) the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture, including without limitation, Section 4.10 thereof. (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guarantor, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable under the Indenture which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Articles 4 and 5 and Section 11.05 of Article 11 of the Indenture, and notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. 5. Releases. (a) In the event of any sale or other disposition of all or substantially all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, in each case to a Person that is not (either before or after giving effect to such transaction) a Restricted Subsidiary of the Company, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any F-3 EXHIBIT F obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture, including without limitation Section 4.10 of the Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of the Indenture, including without limitation Section 4.10 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee. (b) Any Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in Article 11 of the Indenture. 6. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. 7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 8. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. F-4 EXHIBIT F IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: _______________, 20___ [Guaranteeing Subsidiary] By: _______________________________ Name: Title: ICON HEALTH & FITNESS, INC. By: _______________________________ Name: Title: [Existing Guarantors] By: _______________________________ Name: Title: THE BANK OF NEW YORK, as Trustee By: _______________________________ Name: Title: F-5 EX-10.1 4 dex101.txt EXHIBIT 10.1 - LEASE AGREEMENT DTD 01/29/90 Exhibit 10.1 LEASE AGREEMENT THIS LEASE, dated January 29, 1990, is made by and between The Prudential Insurance Company of America, a New Jersey corporation (herein called "Lessor"), and Unit Distribution of Utah, Inc., a Utah corporation (herein called "Lessee"). W I T N E S S E T H: 1. Lease of Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in 1051 South Industrial Parkway, Clearfield, Utah 84015, and legally described on Exhibit A attached hereto and made a part hereof, together with all improvements and appurtenances belonging to or in any way pertaining to said property and non-exclusive use and benefit of all guaranties, warranties, licenses and other rights which affect the Premises (such as real estate, improvements and appurtenances hereinafter sometimes referred to as the "Premises," and the building located thereon is hereafter sometimes referred to as the "Building"). 2. Term. 2.1 Initial Term. The term of this Lease for which the Premises are hereby demised shall commence on January 29, 1990, and end on December 31, 2003, unless sooner terminated as provided herein. 2.2 Option to Renew. Provided this Lease is in full force and effect and provided further that Lessee is not then in default under this Lease, the Lessor hereby grants to Lessee the option to extend the term of this Lease for an additional three (3)-year period (the "Option Period") commencing on the day following the end of the initial Lease term on the same terms and conditions set forth in this Lease except as set forth in the following sentence. Subject to adjustment as provided in Section 3.2 below. Subject to adjustment as provided in Section 3.2 below, the Basic Rent during the extension period shall equal the lesser of the prevailing market rate on the day after the date the initial Lease term ends or the Basic Rent at the commencement of this Lease increased by five (5) percent per annum. In no event, however, shall the rent during the Option Period be less than the existing rental rate immediately prior to the commencement of such Option Period. Lessee shall give Lessor not less than nine (9) months prior written notice of the exercise of the foregoing option, time being of the essence. If not so exercised, Lessee's option under this paragraph shall be null and void. For a period of fifteen (15) days after Lessee gives notice of its election to exercise its option, Lessee and Lessor shall attempt to agree on the prevailing market rate. If the parties are unable to agree on such rate within such fifteen (15) day period, Lessor and Lessee shall within fifteen (15) days thereafter agree on an independent appraiser, who shall be a member of a nationally recognized appraisal firm, to determine the prevailing market rate. On the date the appraiser is appointed, each party shall simultaneously submit to the appraiser its proposed prevailing market rate, and the appraiser shall within thirty (30) days of his appointment determine whether Lessor's or Lessee's proposed rate is closer to the actual prevailing market rate. The proposed rate which the appraiser determines is closer to the prevailing market rate shall then be the rental rate during the Option Period. In no event shall the appraiser have the right to compromise between the proposed rates or choose some other rate. The appraiser may examine the Premises and any other information which the appraiser deems applicable to the determination of the prevailing market rate, and the parties may submit any additional information which is applicable to the determination. If the parties hereto cannot agree on the appraiser within fifteen (15) days, either party may thereafter apply to the American Arbitration Association for the appointment of the appraiser. The decision of the appraiser shall be final and binding upon the parties hereto, except that Lessee may revoke its election to exercise its option by notice to Lessor within thirty (30) days of the decision by the appraiser if Lessee disagrees with the decision of the appraiser, in which case Lessee's option shall be null and void. All costs and expenses of the appraiser shall be paid by the losing party in the appraisal. 3. Rent. 3.1 Basic Rent. Lessee shall pay annually to Lessor as rent for the Premises hereof EIGHT HUNDRED EIGHTY-FIVE THOUSAND SIX HUNDRED DOLLARS ($885,600.00) in equal monthly installments of SEVENTY-THREE THOUSAND EIGHT HUNDRED DOLLARS ($73,800.00) in advance, on the first day of each calendar month (the "Basic Rent"). Basic Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Basic Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. Basic Rent shall be payable without deduction or offset except as set forth in Section 5.1 below. 3.2 CPI Adjustment. Commencing June 1, 1990, and on each annual anniversary date thereafter (each such date being referred to herein as an "Adjustment Date"), the Basic Rent for the original term of this Lease shall be increased by the percentage increase in the "Revised Consumer Price Index for all Urban Consumers - U.S. City Average (1982-1984 = 100)" published by the Bureau of Labor Statistics of the United States Department of Labor (the "CPI") for the twelve-month period immediately preceding such Adjustment Date. Notwithstanding the foregoing, in no event shall the Basic Rent during the original term of this Lease increase on any Adjustment Date by more than four (4) percent of the Basic Rent payable immediately prior to such Adjustment Date. The Basic Rent for any Option Period shall be adjusted on the first year anniversary of the commencement of the Option Period and on each annual anniversary date thereafter (each such date being referred to herein as an "Option Period Adjustment Date") by the lesser of four (4) percent or the percentage increase in the CPI for the twelve-month period immediately preceding such Option Period Adjustment Date. The Basic Rent payable hereunder shall never be less than the Basic Rent set forth in Section 3.1 as a result of decreases in the Consumer Price Index. If on any Adjustment Date or any Option Period Adjustment Date, the change in the CPI is not available, Lessee shall continue to pay rent at the existing rate until such change is available, and shall pay Lessor any additional amounts due on the first rental payment date after such changes become available. 2 3.3 Interest on Late Payments. If any Basic Rent to Lessor due hereunder is not paid within two (2) business days of the due date, Lessee shall pay interest to Lessor on such rent at a rate of three (3) percent over the base rate on corporate loans at large U.S. money center commercial banks, as most recently published by the Wall Street Journal, Midwest Edition, from time to time (the "Default Rate"). 3.4 Additional Rent. Except as set forth herein, the, intention of this Lease is that it is a "triple net" lease and that the rent payable hereunder shall be absolutely net to Lessor; and, except as set forth herein, Lessee shall pay when due hereunder all insurance, taxes, utility costs and maintenance expenses accrued during the Lease term (hereinafter called "additional rent"). 4. Use of Premises, etc. 4.1 Use. Lessee covenants and agrees that the Premises are to be used and occupied by Lessee for the purpose of warehousing and offices or any other use not inconsistent with such uses. Except as may be otherwise set forth in Section 4.5 below regarding environmental matters, Lessee shall not use nor permit any sublessee or occupant to use the Premises for any unlawful purpose, violate any applicable zoning or building regulations or restrictions, suffer or permit any condition which may make void or voidable any insurance then in force with respect to the Premises or render unobtainable any coverages required hereunder or materially increase any insurance after the end of the Lease term (except due solely to vacation by Lessee) or otherwise suffer or permit any condition to occur which will injure the reputation of the Premises or which would create offensive or noxious odors, gases, noise or smoke or constitute a nuisance. Lessee shall not use or permit the use of the Premises in any way that will create waste. 4.2 Compliance with Law. Except as may be otherwise set forth in Section 4.5 below regarding environmental matters, Lessee shall at all times during the term hereof, at Lessee's expense, promptly comply and cause all sublessees and occupants to comply with all statutes, ordinances, rules, regulations, orders, and requirements of public authorities in effect on the commencement of this Lease, including any extension thereof, applicable to or regulating Lessee's use of the Premises (as opposed to those applicable to or regulating the Premises itself which shall be governed by Section 5.1 below). Lessee, at its sole cost and expense, after notice to Lessor, may contest, by appropriate proceedings prosecuted diligently and in good faith, the validity, or applicability of any law or requirement of any public authority, provided that (a) Lessor shall not be subject to criminal penalty or to prosecution for a crime, or any other fine or charge, nor shall the Premises or any part thereof or the Building, or any part thereof, be subject to being condemned or vacated, nor shall the Premises or Building, or any part thereof, be subjected to any lien or encumbrance in excess of $25,000.00 (which amount shall be increased each January lst by the increase in the CPI over the preceding year), by reason of non-compliance or otherwise by reason of such contest unless adequate security is given as set forth below; (b) before the commencement of such contest, if such contest may result in a lien or other encumbrance in excess of $25,000.00 (which amount shall be increased each January 1st by the increase in the CPI over the preceding year), Lessee shall furnish to Lessor a cash deposit or other security in amount, form and substance satisfactory to Lessor and shall indemnify Lessor against the cost of such contest and against all liability for damages, interest, penalties and 3 expenses (including reasonable attorneys' fees and expenses), resulting from or incurred in connection with such contest or non-compliance during such contest; (c) such non-compliance or contest shall not constitute or result in any violation of any mortgage of the Lessor's interest in the Premises, or if any such mortgage shall permit such noncompliance or contest on condition of the taking of action or furnishing of security by Lessor, such action shall be taken and such security shall be furnished at the expense of Lessee; (d) such non-compliance or contest shall not prevent Lessee from obtaining any and all permits and licenses necessary in connection with the operation of the Building; and (e) Lessee shall keep Lessor advised as to the status of such proceedings. Without limiting the application of the above, Lessor shall be deemed subject to prosecution for a crime if Lessor, or any officer, director, partner, shareholder or employee of Lessor, as an individual, is charged with a crime of any kind or degree whatsoever, whether by service of a summons or otherwise, unless such charge is withdrawn before Lessor or such officer, director, partner, shareholder or employee of Lessor (as the case may be) is required to plead or answer thereto. 4.3 Acceptance of Premises. Lessee hereby accepts the Premises subject to all currently applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises and subject to all easements and other exceptions to title existing as of the date of the commencement of this Lease and accepts this Lease subject thereto and to all matters disclosed thereby. Lessee, or an affiliate of Lessee, was the previous owner of the Premises and is familiar with the Premises; and, therefore, Lessee accepts the Premises "as is," i.e., in its current condition with no representations or warranties. 4.4 Utilities. Lessor does not guarantee that any utility services will be available to the Premises, and no interruption in utility service will cause an abatement in the rent due hereunder. No interruption in utility service will be deemed a constructive eviction of Lessee or impose any liability on Lessor except for interruption of utility service caused by actions of Lessor. 4.5 Compliance with Environmental Laws. Subject to the provisions set forth below, including, without limitation, Section 4.5(i) below, Lessee covenants and agrees to be responsible for damage to the Premises resulting from violations of Environmental Laws (as defined below) or any other violation of this Section 4.5 to the extent resulting from Lessee's actions or the actions of Lessee's sublessees or occupants of the Premises during the term of this Lease. (In no event, however, shall Lessee be responsible to Lessor for environmental conditions caused by parties other than Lessee or Lessee's sublessees, occupants, agents, contractors, employees or invitees, nor shall Lessee be obligated to Lessor to improve, clean up or remediate the Premises to a lesser level of contamination than existed on the Premises at the commencement of this Lease.) In this context throughout the term of the Lease, Lessee, at its sole cost, shall perform and abide by the following obligations: (a) Lessee's activities shall comply, and Lessee shall cause any activities by any sublessee or occupant to comply, at all times during the term of the Lease, with all federal, state, local or other governmental body's environmental or pollution-related laws, statutes, rules, regulations, ordinances or orders (including judicial interpretations thereof) (hereinafter 4 "Environmental Laws"), including, without limitation, all such Environmental Laws concerning the discovery, discharge, release, or cleanup of any "Hazardous Substance" or "Toxic Substance" for which the Lessee is in any way responsible under the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq. ("CERCLA"), the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1802, the Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq. ("RCRA"), the Toxic Substance Control Act of 1976, as amended, 15 U.S.C. (S) 2601 et seq., and so-called Superfund or Superlien law, or any similar federal, state or local law. (b) Lessee shall obtain, or cause any sublessee or occupant to obtain, all necessary permits, licenses, certifications and other necessary authorizations (hereinafter "Permits") required by any federal, state, local or other governmental body's Environmental Laws in connection with Lessee's or any sublessee's or occupant's activities. Lessee shall comply at all times with the terms and conditions of such Permits. Lessee shall not use the Premises, or request a permit to use the Premises, as a treatment, storage or disposal facility under RCRA or any similar federal, state or local Environmental Law, without the prior written consent of Lessor (except, subject to the provisions in Paragraph (c) immediately below, that the Premises may be used as a storage facility to the extent such activity is ancillary to Lessee's business). Lessee shall not install any underground storage tanks at the Premises without the prior written consent of Lessor, and if such consent is granted, Lessee shall be fully responsible for compliance with all technical and financial responsibility requirements under any Environmental Law. (c) If Lessor determines that any activity on the Premises presents a risk of serious environmental harm to the Premises which would require substantial cleanup or remediation expenses, Lessor shall provide notice to Lessee of such determination and the details thereof. Lessee shall have thirty (30) days from receipt of this notice to provide written notice to Lessor of its decision to either terminate the activity or provide to Lessor the guarantee of GATX Corporation for the cost of cleanup of any environmental damage caused by the specified activity. Lessee shall have sixty (60) days from the date of its notice to Lessor to comply with Lessee's decision in the notice to Lessor. (d) For purposes of this Lease, the term "Hazardous Substances" shall mean the following: (i) any "hazardous substance" defined as such in (or for purposes of) CERCLA, as may be amended from time to time, or any so-called "superfund" or "superlien" law, including the judicial interpretation thereof; (ii) any "pollutant or contaminant" as defined in 42 U.S.C.A. (S) 9601(33); (iii) any material defined as "hazardous waste" pursuant to 40 C.F.R. Part 260; (iv) any petroleum or petroleum products, including crude oil or any fraction thereof; (v) natural gas, natural gas liquids, liquified natural gas, or synthetic gas usable for fuel; (vi) any "hazardous chemical" as defined pursuant to 29 C.F.R. Part 1910; and (vii) any other substance, regardless of physical form, that is subject to any other law or other present or future requirement of any governmental authority regulating, relating to, or imposing obligations, liability, or standards of conduct concerning the protection of the environment, human health, plant life, animal life, natural resources, or property from the presence in the environment of hazardous substances, from whatever source. 5 (e) During the term of this Lease, Lessee shall use its best efforts not to cause or permit to exist, as a result of an intentional or unintentional action or omission on its part, or on the part of any sublessee or other user or occupant of the Premises, a releasing, spilling, leaking, pumping, emitting, pouring, emptying or dumping (hereinafter "Release") of any Hazardous Substance into the environment, including, without limitation, any surface or subsurface waters (including groundwater), ambient air, or onto any land surface or subsurface strata. Lessee shall give immediate oral and written notice of any Releases of Hazardous Substances to Lessor which release also requires notification to any governmental agency, detailing all relevant facts and circumstances. All Releases of Hazardous Substances during the term of this Lease by Lessee or any sublessee or other user or occupant of the Premises will be promptly cleaned up or remedied to the satisfaction of the federal, state, or local regulatory agency or official having jurisdiction, and all costs and expenses associated with such cleanup or remediation shall be borne solely by the Lessee. (f) Lessee shall at all times keep the Premises free of any lien or encumbrance against the Premises arising out of any environmental law, statute, ordinance, regulation, rules, judgments or orders (hereinafter "Environmental Lien") and resulting from any activity of Lessee or Lessee's sublessees or occupants of the Premises. In the event that an Environmental Lien caused by Lessee or Lessee's sublessees or occupants of the Premises is filed against the Premises, within thirty (30) days from the date that Lessee is given notice that the Environmental Lien has been filed against the Premises, or within such shorter period of time in the event that the governmental authority has commenced steps to cause the Premises to be sold pursuant to the lien, then Lessee shall either (i) pay the claim and remove the lien from the Premises, or (ii) furnish (a) a bond satisfactory to Lessor in the amount of the claim out of which the lien arises, (b) a cash deposit in the amount of the claim out of which the lien arises, or (c) other security satisfactory to Lessor in an amount sufficient to discharge the claim out of which the lien arises. If any Environmental Lien is filed against the Premises which is not caused by Lessee or Lessee's sublessees or occupants of the Premises, Lessee shall promptly notify Lessor upon Lessee's obtaining knowledge of such lien. (g) Lessee shall promptly provide to Lessor true and complete copies of any and all submissions, filings, applications, claims, citations, notices and orders made by and between the Lessee and the United States Environmental Protection Agency, the United States Occupational Safety and Health Administration, or any other federal, state or local authority pursuant to any Environmental Laws or any laws relating to occupational safety and health. Upon Lessor's written request, Lessee shall also promptly provide to Lessor all other documents, reports, directions and correspondence made by and between the Lessee and the United States Environmental Protection Agency, the United States Occupational Safety and Health Administration, or any other federal, state or local authority pursuant to any Environmental Laws or any laws relating to occupational safety and health, true and complete copies of any environmental audits, sampling plans, sampling results, remedial investigations, feasibility studies, or any other reports or findings dealing with the Lessee's compliance with any Environmental Laws, or with any Releases of Hazardous Substances on the Premises. 6 (h) The failure of Lessee to comply with any of the provisions of this Lease relating to environmental matters which is not cured within the applicable grace period set forth in Section 11 shall constitute a default by Lessee under Section 11 of this Lease, entitling Lessor to all of the rights and remedies provided therefor. (i) Notwithstanding anything to the contrary in this Lease, in no event shall Lessee be obligated to Lessor to comply with Environmental Laws except as expressly set forth in this Section 4.5. Moreover, in the event Lessee is required to cleanup or remediate any Release of Hazardous Substance pursuant to this Section 4.5, such cleanup or remediation need only be performed to a level needed to comply with the Environmental Laws in effect on the date the Release occurred; but Lessee shall not be responsible to Lessor with respect to any Release for violations of Environmental Laws which are enacted after the date the Release occurs. (j) Lessee hereby agrees to defend, indemnify and hold Lessor and its successors and assigns harmless from and against any and all claims, proceedings under CERCLA, RCRA, or any other so-called "Superfund" or "Superlien" law, law suits, administrative proceedings, liabilities, losses, demands, fines, penalties, judgments, orders, notice letters, damages (including consequential damages), costs and expenses, foreseen or unforeseen (including, without limitation, cleanup costs and reasonable attorneys' fees, engineers' fees and consultants' fees arising by reason of any of the aforesaid or an action against the Lessor under this indemnity), arising from, out of or by reason of any breach of this Section occurring during the term of this Lease. This indemnification and the terms and provisions of this Section 4.5 shall survive the expiration or sooner termination of this Lease. (k) All reviews and approvals by Lessor pursuant to this Section 4.5 are for Lessor's benefit, and in no event shall Lessor have any liability to Lessee for errors or omissions in connection with Lessor's review or approval of any documents or other matters submitted by Lessee to Lessor for review or approval. 5. Maintenance, Repairs and Alterations. 5.1 Lessee's Obligations. (a) Lessee covenants throughout the term of the Lease, at Lessee's sole cost and expense (except as set forth below), to (a) except as otherwise specifically set forth in Section 4.5 above regarding environmental matters, maintain the Premises, including any parking areas which constitute a part of the Premises, in compliance with building, zoning, fire codes, and with all other applicable laws, orders, ordinances, rules, regulations, requirements of all federal, state and municipal governments or appropriate bodies, departments, commissions and boards thereof currently in effect or hereafter in effect, subject to Lessee's right to contest such matters in accordance with the provisions of Section 4.2 above; (b) take good care of the Premises, including the buildings and improvements now or at any time erected thereon, the mechanical systems (including, without limitation, HVAC system, electrical system, overhead doors, the grounds and all parking areas), equipment, fixtures, motors and machinery thereof, fences and vaults, if any, and to keep the Premises in the same order and condition as they are as of the date hereof, subject to ordinary wear and tear; (c) make, within a reasonable time, all 7 reasonably necessary repairs, interior and exterior, structural and nonstructural, ordinary as well as extraordinary, foreseen as well as unforeseen, including repairs necessitated by the acts of sublessees or customers of Lessee; (d) comply with all covenants and restrictions applicable to the Premises; (e) maintain all off-site facilities, the upkeep of which is the obligation of the owner of the Premises; and (f) Lessee shall replace the roof of the Premises no later than December 31, 1996 subject to provisions regarding amortization of Approved Capital Expenditures set forth in Section 5.1(b) below. (b) If any Approved Capital Expenditures (as defined below) are required during the Lease term because of Lessee's obligations set forth in (a) through (e) above, the Approved Capital Expenditure will be amortized over the useful life thereof. The useful life shall be determined in accordance with generally accepted accounting principles ("GAAP"), with Lessee paying for the portion of such Approved Capital Expenditure which will be amortized over the Lease term and Lessor paying for the portion of such Approved Capital Expenditure which will not be amortized during the Lease term. (If this Lease gives Lessee an option to extend the Lease term and Lessee exercises such option, Lessee shall reimburse Lessor as additional rent hereunder on the first day of each lease year during such extension period for the portion of the Approved Capital Expenditure allocable to such year which has been paid by Lessor and amortized as set forth in the preceding sentence.) Lessee and Lessor shall each pay their proportionate share of the Approved Capital Expenditure directly to the contractor making such repair or improvement when payment is due under the contractor's invoice. Payments of such proportionate share by Lessee shall be deemed additional rent hereunder. If either party does not pay its share of the Approved Capital Expenditure when due (for purposes of this Section 4.2, the "defaulting party"), the other party (for purposes of this Section 4.2, the "paying party") may pay the defaulting party's share of the Approved Capital Expenditure. In such case, the defaulting party shall pay to the paying party on demand the amount the paying party has paid on behalf of the defaulting party plus interest at the Default Rate from the date paid by the paying party to the date reimbursed by the defaulting party. If Lessor fails to pay its share of any Approved Capital Expenditure when due hereunder and Lessee pays such share, Lessee shall be entitled to offset such amount against the Basic Rent due hereunder. For purposes of this Lease, "Capital Expenditures" shall mean expenditures for repairs or improvements costing in excess of $50,000 (which amount shall be increased each January lst by the increase in the CPI over the preceding year) which are capitalized in accordance with GAAP); and "Approved Capital Expenditure" shall mean any Capital Expenditure approved by Lessor or the third-party architect in accordance with the procedures set forth below in this Section 5.1 or reasonable Capital Expenditures incurred in the event of an emergency. Lessor and Lessee shall meet annually to review the condition of the Premises and to determine whether any Capital Expenditures will be needed within the following year and the reasonable cost of such Capital Expenditures. Lessor or Lessee may also notify each other during the year if either one believes a Capital Expenditure is necessary which was not addressed during the annual meeting, except in the case of an emergency (in which case the Capital Expenditure may be made without approval, but Lessee shall notify Lessor thereof as soon as reasonably possible after incurring the same). Lessor shall not unreasonably withhold its approval of any Capital Expenditure or the cost thereof. If the cost of the Capital Expenditure will exceed the amount approved by Lessor by more than fifty percent (50%) in the case of Capital Expenditures of less than $100,000 or twenty-five percent (25%) in 8 the case of Capital Expenditures costing $100,000 or more, Lessee shall obtain Lessor's approval of the increased cost, which approval shall not be unreasonably withheld. If Lessor and Lessee disagree on (i) whether an expenditure is a Capital Expenditure, (ii) whether a Capital Expenditure is needed, (iii) the reasonable cost of the Capital Expenditure, or (iv) on the useful life of the Capital Expenditure, they shall agree, in the case of (ii) and (iii) above, upon a qualified architect skilled in the area of required expertise, and, in the case of (i) and (iv) above, an accountant from a nationally recognized accounting firm. Such architect or accountant shall make the decision within thirty (30) days, which decision shall be final and binding on the parties hereto. If the parties hereto cannot agree on a qualified architect or accountant within thirty (30) days, either party may apply to the American Arbitration Association for the appointment of such architect or accountant. Notwithstanding the provisions set forth above, Lessor and Lessee hereby agree and stipulate that the useful life for any Capital Expenditure for a roof replacement, in whole or in part, shall be 15 years. For any Capital Expenditures, Lessor shall have the right to approve all plans and specifications, any contractors, architects and engineers, any architectural and engineering contracts, any general contracts (including, if it is an Approved Capital Expenditure, the pricing thereunder), all insurance policies and coverages relating to such work, and all governmental permits, licenses and approvals, which approval by Lessor shall not be unreasonably withheld, and shall be given or withheld in the time periods and in accordance with the procedures set forth in Section 5.4(a). Notwithstanding the foregoing, Lessor's review of the plans and specifications, contracts, insurance, governmental licenses, permits and approvals, and contractors, architects and engineers are only for Lessor's benefit, and Lessor assumes no liability for any errors or omissions in connection with its review and approval thereof. 5.2 Surrender. On the last day of the term or extended term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as when received (with all repairs, if any, completed which were required to be completed under that certain Purchase and Sale Agreement, which is being entered into concurrently herewith by Lessor, GATX Corporation and Unit Development Corporation and any repairs necessitated by the acts of sublessees or customers of Lessee), broom clean, except for ordinary wear and tear, alterations which Lessee is permitted under this Lease, environmental matters to the extent Lessee is not responsible therefor pursuant to Section 4.5 above, and, to the extent Lessee is not required to repair hereunder, damage by fire or other casualty. Lessee shall repair any damage to the Premises occasioned by the removal of Lessee's trade fixtures, furnishings and equipment, which repair shall include, but not be limited to, the patching and filling of holes and repair of any structural damage. 5.3 Lessor's Rights. If Lessee fails to perform Lessee's obligations under this Section 5, Lessor may at its option (but shall not be required to) enter upon the Premises, after ten (10) days' prior written notice to Lessee (except for cases of emergency or imminent threat of damage to person or property where such notice will not be required) and put the same in good order, condition and repair, which shall include the right to cause the Premises to comply with all requirements set forth in Paragraph 5.1 hereinabove, and the cost thereof shall become due and payable to Lessor together with Lessee's next rental installment; provided, however, if Lessee commences to perform such obligations within such ten (10) day period and diligently pursues 9 such performance thereafter and completes the same within a reasonable time, subject to force majeure (defined for purposes of this Lease as events outside the reasonable control of Lessee), Lessor shall not have any right to perform such obligations. 5.4 Alterations. (a) Lessee shall not, without Lessor's prior written consent, make any structural alterations to the Premises or any alterations costing in excess of $100,000 (which amount shall be increased each January l/st/ by the increase in the CPI over the preceding year); provided, however, such consent shall not be unreasonably withheld unless such alterations adversely affect the Building's mechanical systems or affect the structural walls, roofs or other load-bearing supports on the Premises. Without limiting the foregoing, the erecting of inside partitions, walls, offices and mounting of trade fixtures is considered nonstructural and therefore does not require Lessor's approval so long as these alterations do not exceed $100,000 per alteration (which amount shall be increased each January 1st by the increase in the CPI over the preceding year). Should Lessee make any alterations requiring Lessor's approval without approval having been given, Lessor may require Lessee to remove any or all of the same upon demand. If Lessee desires to make any alterations requiring Lessor's approval, Lessee shall so notify Lessor and submit to Lessor plans and specifications for such alterations and reasonable evidence of the availability of funds to pay for such alterations. Lessor shall have twenty (20) days to respond to such submissions; and if Lessor fails to respond to such submissions within such twenty (20) day period, they shall be deemed approved, provided that Lessor's reasonable request for more information shall not be deemed a failure to respond. Upon Lessor's approval of the plans and specifications, Lessee will obtain workmen's compensation and other insurance (including, without limitation, builder's risk insurance) necessary in connection with such work, in amounts reasonably satisfactory to Lessor, and all necessary governmental licenses, permits and approvals, and Lessee shall provide Lessor with evidence of such before the work commences. Lessor shall also have the right to reasonably approve the contractor for any alteration which requires Lessor's consent. Notwithstanding the foregoing, Lessor's review of the plans and specifications, insurance, governmental licenses, permits and approvals are only for Lessor's benefit, and Lessor assumes no liability for any errors or omissions of Lessor in connection with any such review and approval. All alterations shall be done in a workmanlike manner using materials comparable in quality to those found on the Premises and shall comply with all applicable governmental laws, ordinances, regulations and terms and conditions of all licenses and permits for such work. (b) Lessee has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Lessee, operation of law or otherwise, to attach to or be placed upon Lessor's title or interest in the Building or Premises, and any and all liens and encumbrances created by Lessee shall attach to Lessee's interest only. Except as set forth below, Lessee covenants and agrees not to suffer or permit any lien of mechanics, materialmen, laborers or any similar lien to be placed against the Building or the Premises with respect to work or services claimed to have been performed for, or materials claimed to have been furnished to, Lessee or to the Premises by contractors retained by Lessee, or any sublessee or occupant of the Premises; and in case of any such lien attaching, or claim 10 thereof being asserted, Lessee covenants and agrees within thirty (30) days of learning thereof to cause it to be released and removed of record, if it is possible to do so without satisfying the lien. In the event such lien cannot be released and removed through appropriate proceedings within such thirty (30) day period, Lessee shall cause such lien to be bonded or insured over by a title insurer or surety reasonably satisfactory to Lessor, or provide Lessor with a letter of credit, certificate of deposit or other comparable security in the amount of 125% of the amount of such lien (provided, however, that Lessee shall not be required to post such bond or other security for liens of less than $25,000.00 [which amount shall be increased each January l/st/ by the increase in the CPI over the preceding year] in amount). Lessee thereafter shall be entitled to contest such lien as long as Lessee shall contest such lien diligently by appropriate proceedings (provided such contest shall not cause any sale, foreclosure or forfeiture of the Premises by reason of such nonpayment) and cause the same to be removed or discharged prior to entry of any order foreclosing the same. In the event that any such lien is not so released and removed, bonded over or secured against, or in the event Lessee shall fail to contest such lien as required by the preceding sentence, Lessor may, upon notice to Lessee, take all action necessary to release and remove such lien and avail itself of any security therefor provided by Lessee (without any duty to investigate the validity thereof), and Lessee shall promptly upon notice reimburse Lessor for all sums, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred by Lessor (and not covered by insurance, bond or other security provided by Lessee) in connection with the release and removal of such lien. (c) Lessee shall be required to remove all alterations which Lessee has constructed during the Lease term which cost in excess of $25,000 to remove at the time the alteration is to be removed (which amount shall be increased each January l/st/ after the date hereof by the increase in the CPI over the preceding year). Notwithstanding the preceding sentence, prior to making any alterations Lessee shall have the right to request that Lessor decide whether Lessee shall be required to remove such alterations at the end of the Lease term; and Lessee will not be required to remove such alterations unless Lessor notifies Lessee, at the time Lessee makes such request, that Lessee will be required to remove the alteration at the end of the Lease term. All other alterations made under this Lease and not removed by Lessee shall become the property of Lessor and shall remain upon and be surrendered with the Premises at the expiration of the term of this Lease unless Lessee shall elect to remove any such alterations and restore the Premises to its condition prior to the making of such alterations, provided, however, that Lessee may not remove any structural alterations, or alterations required to keep the Premises in compliance with applicable laws without the Lessor's prior written consent in its sole discretion. 5.5 Rail Spur Agreements. Lessee covenants to maintain, comply with and renew, when necessary, any rail spur agreements with respect to the Premises, provided that if Lessee desires to cancel any such agreement, Lessee may do so upon thirty (30) days notice to Lessor if (i) the cost of maintaining such agreement goes up by 100% or more from the date hereof, (ii) Lessee is not then using the rail spur, and (iii) Lessee is not required to have rail service available to the Premises under any sublease in effect with respect to the Premises, unless Lessor elects within such thirty (30) day period to pay all charges accruing under such agreement after such thirty (30) day period. If Lessee at any time thereafter desires to use such rail service, Lessee 11 shall so notify Lessor in writing, and Lessee shall thereupon resume responsibility for maintaining, complying with and renewing such agreements (subject to the foregoing provisions of this Section 5.5). In addition, Lessee shall pay Lessor fifty percent (50%) of all charges incurred by Lessor pursuant to the preceding sentence from the date of Lessor's assumption of such agreements through the date of Lessee's notice. 6. Insurance; Indemnity. 6.1 Insurance. Lessee shall obtain and pay for all insurance required hereunder, subject to being commercially available. 6.2 Liability Insurance. Lessee shall obtain and keep in force during the term of this Lease a policy of commercial general liability insurance, including contractual liability insurance, insuring Lessee against liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in an amount of not less than $1,000,000 for injury to or death of one person in any one accident or occurrence and in an amount of not less than $5,000,000 for injury to or death of more than one person in any one accident or occurrence. Such insurance shall further insure Lessee against liability for property damage of at least $5,000,000 per accident or occurrence, or such insurance can be obtained with a combined single limit per occurrence, subject to being commercially available, of $10,000,000 per location without reduction for events at other locations. All such insurance policies may provide for commercially reasonable deductibles, which, as long as such insurance is part of the GATX Corporation insurance program (with GATX Corporation being responsible for payment of such deductibles) may be up to $2,000,000. Such insurance policies shall name Lessor and Lessor's mortgagee as additional insured's and shall contain a clause in favor of Lessor and Lessor's mortgagee stating that the policy not be cancelled without thirty (30) days prior notice to Lessor. The insurance limits set forth herein shall be adjusted from time to time in accordance with the limits customarily maintained in the industry for similar properties in similar locations; provided such insurance limits shall never be less than those set forth herein. If Lessee shall fail to procure and maintain said insurance, Lessor may, but shall not be required to, procure and maintain the same upon notice to Lessee, but at the expense of Lessee, which expense shall be paid upon demand. 6.3 Property Insurance. Lessee shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Building, excluding footings, foundations and excavations, if any, in an amount, or with an agreed amount clause, sufficient to prevent Lessee or Lessor from becoming co-insurers under provisions of applicable policies of insurance, but in no event less than 80% (subject to periodic review and reasonable approval by Lessor) of the full replacement value thereof, but excluding foundations, against all perils included within the classification of "all risk coverage" or special coverage. All such insurance policies may provide for commercially reasonable deductibles which, as long as such insurance is part of the GATX Corporation insurance program (with GATX Corporation being responsible for payment of such deductibles), may be up to $500,000. If a specified perils policy applies, then the policy or policies of insurance maintained shall include or a separate policy shall provide "difference in conditions" through the endorsement or the separate policy; 12 provided, however, Lessee shall not be required to obtain earthquake insurance in amounts in excess of those maintained in the industry on similar properties in similar locations. Lessee shall also obtain boiler and machinery insurance if applicable. All of the foregoing insurance shall contain a standard Mortgagee's or Lessor's interest clause in favor of Lessor and Lessor's mortgagee. Said insurance shall provide for payment of losses thereunder to the Lessee and the Lessor (and, if requested by Lessor in writing, to the holder of a first mortgage or deed of trust on the Premises, as a trustee holding said funds on behalf of Lessor, to be used in discharge of Lessee's obligations hereunder), as their respective interests may appear. Lessee shall have the right to adjust all losses unless this Lease is terminated pursuant to Section 7.1 below, in which case Lessor shall have the right to adjust all losses. Any insurance proceeds payable to Lessee under the policies of insurance required under this Paragraph 6.3 in amounts of $100,000 or less (or $5,000,000 or less if an affiliate of GATX Corporation is the Lessee and if GATX agrees in writing [the form and content of which must be reasonably satisfactory to Lessor] that such proceeds will be applied in the manner required by this Lease) (which amount shall be increased each January 1st by an increase in the CPI over the preceding year), shall be paid to Lessee and applied by Lessee to pay the costs of repair and restoration in accordance with this Section 6, and any balance held upon completion of the repairs as provided for in this Section 6 shall be the sole property of Lessee. Any insurance proceeds payable to Lessee under the policies of insurance required under this Paragraph 6.3 in excess of $100,000 (or $5,000,000 if an affiliate of GATX Corporation is the Lessee) (which amount shall be increased each January l/st/ by an increase in the CPI over the preceding year), shall be held by the first mortgagee as set forth above or by an insurance trustee mutually agreed upon by Lessee and Lessor, who shall apply such funds to restoration in accordance with procedures customarily used for construction loans. Any insurance payments hereunder which are to be payable to Lessee shall be assigned and endorsed over to Lessee if paid to Lessor. The insurance policy or policies obtained hereunder shall provide that they may not be cancelled without thirty (30) days prior notice to Lessor. If Lessee shall fail to procure and maintain any such insurance, Lessor may, but shall not be required to, upon notice to Lessee, procure and maintain the same at the expense of Lessee. 6.4 Insurance Policies. Insurance required hereunder shall be in companies or Groups rated B+-XII or better in "Best's Insurance Reports Property-Casualty" or any other company reasonably acceptable to Lessor. Lessee shall deliver to Lessor certificates evidencing the existence and amounts of such insurance and shall deliver to Lessee copies of the portions of such policies applicable to the Premises certified as true and correct by the Lessee. No such policy shall be cancellable or subject to other material modification (defined as increase in the deductible, reduction in limits or additional exclusions) except after thirty (30) days' prior written notice to Lessor. Lessee shall, prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof, or in the event Lessee fails to do so, Lessor may order, upon notice to Lessee, such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee upon demand. 6.5 Waiver of Subrogation. Lessee shall, in obtaining any policies of insurance required hereunder covering damage to the Premises, obtain policies including a waiver of the insurer's rights of subrogation against Lessor, if the same are obtainable. 13 6.6 Indemnity. Except as may be otherwise set forth in Section 4.5 above, Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Premises, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises, and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any negligence of the Lessee, or any of Lessee's agents or contractors, or arising from any action, damage or injury, however occurring, on the Premises, or and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense with counsel reasonably approved by Lessor. Notwithstanding the foregoing, Lessee shall not be obligated to indemnify and hold Lessor harmless to the extent any claims arise out of Lessor's own negligence or willful misconduct. Lessor agrees to indemnify, defend and hold harmless Lessee against any claims or costs, including reasonable attorney's fees, arising from Lessor's negligence or willful misconduct during the term of this Lease or from such acts or conduct of any employee, agent or contractor of Lessor; provided, however, Lessor's negligence and willful misconduct shall not include negligence or misconduct imputed to Lessor on account of any condition in or about the Premises unless caused by the affirmative act of Lessor or its employees or its agents (which for purposes hereof shall not include Lessee). 6.7 Self-Insurance. Subject to the approval of Lessor, which shall not be unreasonably withheld, Lessee may elect not to obtain such insurance but instead self-insure for up to $10,000,000 as part of GATX Corporation's corporate insurance program as long as Lessee is an affiliate of GATX Corporation. In the event Lessee elects to self-insure, Lessee shall deliver to Lessor a certificate certifying that Lessee is part of GATX Corporation's self-insurance program. In connection with such approval by Lessor, Lessee shall deliver to Lessor such information regarding such self-insurance program as Lessor may reasonably require to evaluate such program. 7. Damage or Destruction. 7.1 Damage During Term. Except as set forth below, if the Premises are damaged during the term of this Lease, Lessee shall, at Lessee's expense, repair such damage as soon as reasonably possible, subject to delays due to force majeure, and this Lease shall continue in full force and effect. Subject to Section 6, any insurance proceeds received or to be received by Lessor or any mortgagee named as loss payee shall be made available to Lessee to effect such repair. Before any repair or restoration costing more than $100,000 (which amount shall be increased each January l/st/ by the increase in the CPI over the preceding year) is made, Lessee shall provide Lessor with information showing that the insurance proceeds, together with other funds available to Lessee, are adequate for the repair or restoration and that it is feasible to rebuild the Premises. In no event shall the rent due hereunder abate as a result of any such damage unless this Lease is terminated as set forth below. Notwithstanding the foregoing, if the Building and other improvements on the Premises are substantially destroyed during the last two 14 years of the Lease term (or during the last two years of any Option Period if Lessee has exercised any renewal option herein), Lessee shall have the option, exercisable by written notice given by Lessee within sixty (60) days of such destruction, to terminate this Lease, effective as of the date of destruction, without rebuilding the Premises by (i) assigning to Lessor all of its right, title and interest in any insurance proceeds on the Premises and (ii) paying to Lessor any coinsurance amounts and deductibles applicable thereto at the time the insurance proceeds are so paid. In addition, if the Building and other improvements on the Premises are substantially destroyed before the last two years of the Lease term (or the last two years of any Option Period if Lessee has exercised any renewal option herein), Lessee shall have the option, exercisable by written notice given by Lessee within sixty (60) days of such destruction, to (a) not rebuild the Premises and to place the insurance proceeds (together with an amount equal to all co-insurance and deductibles under the applicable policies) in escrow pursuant to an escrow agreement and with an escrow agent reasonably satisfactory to Lessor and Lessee, and (b) continue to pay the Basic Rent and additional rent to the Lessor until the end of the term of the Lease. Any interest earned on the insurance proceeds placed in escrow shall be payable to Lessee. Lessee shall have the right to decide how the funds held in escrow are invested, provided Lessor shall have the right to approve any investments which approval shall not be unreasonably withheld; provided, however, if Lessee elects to invest the funds in securities backed by the United States government or in investment grade debt obligations, no such approval shall be required. At the end of the Lease term all such insurance proceeds shall be payable to Lessor. If Lessee chooses not to rebuild within such sixty (60)-day period, Lessor and Lessee shall both have the right, at any time before one year prior to the expiration of the Lease, to choose to use the insurance proceeds put in escrow to rebuild the Premises. If Lessee so chooses to rebuild, Lessee shall give written notice thereof to Lessor; and (subject to the requirements of this Lease regarding restoration by Lessee and payment and application of insurance proceeds) Lessee shall be entitled to use the amounts so deposited in escrow for such rebuilding. If Lessor so chooses to rebuild the Premises at any time, (i) this Lease shall terminate (except as to the obligation of Lessee to pay Basic Rent and additional rent provided immediately below), effective as of the date of the exercise of Lessor's option to rebuild the Premises, (ii) Lessee shall assign to Lessor all of its right, title and interest in any insurance proceeds, and (iii) Lessee shall also pay to Lessor Basic Rent and additional rent (provided such additional rent shall not exceed that customarily paid in the past under the terms of this Lease) for a period of one year from the date of the exercise of Lessor's option to rebuild the Premises and terminate this Lease. 7.2 Termination -- Advance Payments. Upon termination of this Lease pursuant to this Section 7, an equitable adjustment shall be made concerning any advance payments made by Lessee to Lessor or on Lessor's behalf pursuant to Section 8. 8. Real Property Taxes. 8.1 Payment of Taxes. Lessee shall pay all real property taxes which are due and payable (or are assessed during the Lease term and payable within a period of two years after the end of the Lease term) with respect to the Premises during the term of this Lease; provided, however, Lessee shall not be required to pay any special assessments which are assessed, but not payable, during the term of this Lease. All such payments shall be made prior to the delinquency 15 date of such payment, provided, however, that if, by law, any such tax is payable, or may at the option of the taxpayer be paid, in installments (whether or not interest shall accrue on the unpaid balance of such tax), Lessee shall pay the same together with any accrued interest on the unpaid balance of such tax in installments as the same respectively become due and before any fine, penalty, interest or cost may be added thereto for the non-payment of any such installment and interest. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes paid or to be paid by Lessee shall cover any period of time after the expiration of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the year during which the term of this Lease shall be in effect, and Lessor shall pay or reimburse Lessee, as the case may be, to the extent required. With respect to any real property tax for public improvements or benefits which by law is payable, or at the option of the taxpayer may be paid in installments, Lessee shall pay those installments which become due and payable during the term of this Lease, provided the taxes shall be equitably prorated as provided above. If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the same, in which case Lessee shall repay such amount to Lessor with Lessee's next rent installment. 8.2 Definition of "Real Property" Tax. As used herein, the term "real property taxes" shall include any form of assessment, levy, surcharge, penalty or tax imposed by any authority having the direct or indirect power to tax, including any city, county, state or federal governmental, or any school, agricultural, lighting, drainage, industrial waste treatment or other improvement district thereof, as against the Premises. Nothing in this Lease shall require Lessee to pay franchise, estate, inheritance, succession, capital levy or transfer tax of Lessor, or any income, excess profits or revenue tax or any other tax, assessments, charge or levy upon the rent payable by Lessee under this Lease, except that Lessee shall pay any such tax which is, in whole or in part, in substitution for any other real property tax. If any such substitute real property tax shall be imposed on a graduated scale, Lessee shall be liable for only such substitute real property tax as would be payable if the rent payable under this Lease were the only income subject thereto and the Premises and Lessor's interest under this Lease were the only property of Lessor subject thereto. 8.3 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against, levied or payable during the Lease term upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises. 8.4 Lessee's Right to Contest Real Property Taxes. All other provisions of this Lease to the contrary notwithstanding, Lessee shall not be required to pay, discharge or remove any real property taxes or real property tax liens so long as Lessee shall in good faith and with due diligence contest the same or the validity thereof by appropriate legal proceedings, provided that: (a) Lessee shall first make all contested payments, under protest if it desires, unless such proceedings shall suspend the collection thereof; (b) neither the Premises, the Building, nor any part thereof or interest therein are at any time in any danger of being sold, forfeited, lost or interfered with; and (c) pending any such legal proceedings, Lessee shall deposit with Lessor cash or other security reasonably satisfactory to Lessor in an amount equal to not less than 125% of the amount of the real property taxes or real property tax liens so contested if the taxes or lien 16 equal or exceed $25,000 (which amount shall be increased each January 1st by the increase in the CPI over the preceding year). Lessee will consult with Lessor in connection with any such contest. Lessor shall not be required to join in any such proceeding unless it shall be necessary for it to do so in order to properly prosecute such proceeding and Lessor shall have been fully indemnified against all costs and expenses in connection therewith, nor shall Lessor be subjected to any liability for the payment of any costs or expenses in connection with any proceeding brought by Lessee, and Lessee shall indemnify and save harmless Lessor from any such costs or expenses (including, without limitation, reasonable attorneys' fees and expenses). In the event that Lessee at any time institutes suit to recover any real property taxes paid by Lessee under protest in Lessor's name, and provided all of the requirements of this section are met, Lessee shall have the right, at its sole expense, to institute and prosecute such suit or suits in Lessor's name, in which event Lessee covenants and agrees to indemnify Lessor and save it harmless from and against all costs, charges or liabilities in connection with any such suit, including, without limitation, reasonable attorneys' fees and expenses. All funds recovered as a result of any such suit shall belong to Lessee. Pending the diligent prosecution of any such legal proceedings, Lessor shall not have the right to pay, remove or discharge the real property taxes or real property tax liens so contested; provided, however, that if Lessee fails to prosecute such contest with due diligence, or if a default has occurred under this Lease, or if, at the conclusion of such contest, Lessee fails to pay the real property taxes, Lessor may pay any item for which Lessor would be entitled to make advances under Section 8.1 hereof. Upon the termination of such legal proceedings, Lessee shall pay all amounts necessary for the removal and discharge of said real property taxes, if any, then payable and the interest and penalties in connection therewith, and the charges accruing in such legal proceedings. If Lessee is unsuccessful in such legal proceedings, it shall promptly comply, at its sole cost and expense, with any final decision rendered in connection with such proceeding, and Lessor may, upon the final disposition of such contest, apply the money deposited as security pursuant to subsection (c) of this section in satisfying the requirements of any such adverse decision. Notwithstanding the foregoing, Lessee shall not be entitled to contest any real property taxes or real property tax liens, without Lessor's prior written consent, which is not to be unreasonably withheld, if the determination in any such contest will be binding upon Lessor upon expiration of the term of this Lease. Lessor shall have the right to participate, at its sole election and cost, in any proceedings which would be binding on Lessor. 8.5 Proration. Nine months prior to the termination of this Lease, Lessee shall make a deposit with Lessor for any real property tax assessed against the Premises during the term of this Lease which is the responsibility of Lessee hereunder and that is not due and payable prior to the end of the term. The amount of the deposit shall equal the real estate tax discounted at the base rate on corporate loans at large U.S. money center commercial banks, as most recently published by the Wall Street Journal, Midwest Edition, from the date of deposit to the last due date of each installment of the real estate tax. If the amount of tax is not known at the time the Lease terminates, the amount of deposit shall be equal to the most recent ascertainable tax times 105% per year from the year of the most recent ascertainable tax to the year for which such amounts are being deposited. Such tax shall then be reprorated when the actual amount of the tax becomes known. Lessee shall be given a credit for the full pre-discounted amount deposited with Lessor when the taxes are paid or re-prorated. 17 9. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises during the term of this Lease, together with any taxes thereon. 10. Assignment and Sublettting. 10.1 Lessor's Consent Required. Except as set forth below, Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, or otherwise transfer or encumber all or any part of Lessee's interest in this Lease or in the Premises, without Lessor's prior written consent. Any attempted assignment, transfer, mortgage or encumbrance without such consent shall be void, and shall constitute a breach of this Lease. 10.2 Lessee Affiliate. Notwithstanding the provisions of Paragraph 10.1 hereof, but subject to the provisions of the following sentence, Lessee may assign this Lease without Lessor's consent, to Associated Unit Companies, Inc. ("Associated") or any corporation controlled by Associated, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires substantially all the assets of Lessee as a going concern, provided said assignee assumes, in full, the obligations of Lessee under this Lease. Notwithstanding the foregoing, (i) Lessee shall not become a subsidiary of GATX Corporation or any other entity controlling, controlled by or under common control with GATX Corporation, directly or indirectly, other than Associated (or a wholly-owned subsidiary, either directly or through any number of parent-subsidiary affiliations, of Associated), nor (ii) shall Lessee transfer or permit to be transferred the interests or operations, including assets used therein, of Lessee in the Premises to GATX Corporation or any entity controlling, controlled by or under common control with GATX Corporation other than Associated (or a wholly-owned subsidiary, either directly or through any number of parent-subsidiary affiliations, of Associated) (unless the entity acquiring the assets, interests, operations of Lessee shall join in the guaranty of this Lease given by Associated to Lessor at the time this Lease was executed). 10.3 Subleases. Notwithstanding the provisions of Paragraph 10.1, Lessee may sublease the Premises or any part thereof without Lessor's consent provided that the terms of such subleases will not result in the violation of any terms of this Lease and no subleases shall be entered into which extend beyond the term of this Lease. 10.4 Trade Fixtures. Notwithstanding the provisions of Paragraph 10.1, Lessor and Lessee acknowledge that Lessor has no interest in Lessee's trade fixtures, and therefore Lessee may install and remove these fixtures at any time, subject to Paragraph 5.2, and Lessee may mortgage or transfer these trade fixtures without Lessor's consent. For purposes of this Lease, trade fixtures shall mean any items attached to the Premises which are not integral to the operation of the Building which are used for serving Lessee's sublessees or customers in the conduct of the business being carried on at the Premises, including, but not limited to, racks, conveyors and cranes (excluding overhead cranes, which shall be considered the property of Lessor and not trade fixtures). In no event shall any item which is required to keep the Premises in compliance with any law be considered a trade fixture. If Lessor and Lessee cannot agree upon whether any item is a trade fixture hereunder, either party may apply to the American 18 Arbitration Association for the appointment of an impartial third party to arbitrate the dispute. All costs and expenses of the arbitration shall be paid by the losing party in such arbitration. Lessor shall not be obligated to join in any severance agreements or to subject its interest in the Premises to any liens relating to any trade fixture. 10.5 No Release Of Lessee. Regardless of Lessor's consent, no subletting or assignment shall release Lessee or alter the liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed to be a waiver by Lessor of any provision hereof. Consent to one assignment shall not be deemed consent to any subsequent assignment. 10.6 Subrogation. Upon default of Lessee, which default is not cured within the applicable grace period, Lessor shall become subrogated to the rights of Lessee against any sublessees or assignees of Lessee's interest hereunder. 11. Defaults; Remedies. 11.1 Defaults. The occurrence of any one or more of the following events shall constitute a default hereunder by Lessee: (a) The failure by Lessee to make any payment of Basic Rent required to be made by Lessee hereunder, as and when due, and such failure shall continue for a period of three (3) business days after written notice thereof by Lessor to Lessee; (b) The failure by Lessee to make any payment of additional rent required to be made by Lessee hereunder, as and when due, and such failure shall continue for ten (10) days after written notice thereof by Lessor to Lessee; (c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraphs (a) and (b) above, and such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee has commenced such cure within said thirty day period and thereafter diligently pursues such cure to completion and cures the default within six (6) months of written notice from Lessor of the default unless such cure cannot be accomplished within six (6) months because of a third party, in which case, such default shall be cured (i) within one (1) year after written notice from Lessor if the delay is due to a third party which is not a governmental entity or (ii) prior to the expiration of the Lease term if the delay is due to a governmental entity; (d) (i) The making by Lessee of any general assignment or general arrangement for the benefit of creditors; (ii) the filing by or against Lessee of a petition to have Lessee adjudged a bankrupt or a petition for reorganization or arrangement under any bankruptcy, insolvency or other laws relating to the readjustment of indebtedness generally (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) 19 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within sixty (60) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within sixty (60) days; (e) Any default by any lessee, including any successor or assignee, under any other lease listed on Exhibit B which is not cured within the applicable grace period therein. 11.2 Remedies. In the event of any such default by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have under the laws of the state where the Premises is located by reason of such default, terminate this Lease or terminate Lessee's right to possession of the Premises without terminating this Lease; and in either case Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (a) all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; reasonable expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any reasonable real estate commission actually paid; and the value of the rent and all other sums provided herein to be paid by Lessee to or for the benefit of Lessor or the Premises for the remainder of the Lease term, less the fair rental value of the Premises (including any other sums which would be paid for the benefit of the Premises as part of such fair rental value) for said period, discounted to present value at the rate of ten percent (10%) per annum, or (b) hold Lessee liable for rent and all other charges required to be paid by Lessee up to the time of such termination of Lessee's right to possession under this Lease, or of recovery of possession of the Premises by Lessor, as the case may be, and thereafter, Lessee agrees to pay the amount of rent reserved herein and all other charges required to be paid by Lessee, less the net avails of reletting, if any, and the same shall be due and payable by Lessee to Lessor on the days when payment of such amounts would be payable under this Lease. If Lessor elects to pursue its remedies under subparagraph (b) above, then upon the Lessor's recovering possession of the Premises, Lessor shall use reasonable diligence to relet the Premises or such part or parts thereof as may be practicable, for the account of the Lessee or otherwise, and receive and collect the rents therefor, applying the same first to the payment of such reasonable expenses as Lessor may have incurred in recovering possession of the Premises, including reasonable attorneys' fees, and in putting the same into good order or condition for preparing or altering the same for re-rental (including costs and expenses for subdividing space by demising walls or otherwise, or leasing to multiple tenants or users), and all other reasonable expense, commissions, and charges paid, assumed, or incurred by Lessor in or about reletting the Premises, and then to the fulfillment of the covenants of Lessee hereunder. Any such reletting herein provided for may be for the remainder of the term of this Lease as originally granted or for a longer or shorter period. 11.3 Lessor's Right to Payment. Wherever this Lease requires that Lessee make payments for the benefit of Lessor or the Premises, Lessor shall have the right after a default by Lessee which is not cured within the applicable grace period, to make such payment upon prior written notice to Lessee. The amount so paid by Lessor shall become immediately due and 20 payable from Lessee to Lessor, and Lessee shall pay Lessor interest on such amounts paid by Lessor at the rate set forth in Section 3.3 above. 11.4 Escrow for Taxes and Insurance. Upon the occurrence of any default by Lessee which is not cured within the applicable grace period, Lessor may require Lessee to make payments on a monthly basis of the sums required to be paid under the Lease by Lessee for real estate taxes and insurance premiums. 12. Condemnation. If the Premises or any area comprising part of the Premises are taken under the power of eminent domain, or sold to a governmental body under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If the portion of the Premises taken under the power of eminent domain is such that the remaining portion of the Premises can be economically used for its intended purposes, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion that any Building floor area taken bears to the total floor area of the Building, and shall be equitably reduced in the event of a reduction of land areas not covered by the Building; provided, however, that there shall be no abatement in rent if the condemnation award is sufficient to restore the Premises completely and is made available to Lessee for such restoration. Notwithstanding the foregoing, if less than five percent (5%) of the land area of the Premises, not including the Building or any parking, is taken by condemnation, and the remaining portion of the Premises can be economically used for its intended purposes, there shall be no rent reduction. If there is a temporary taking of the Premises, or-a portion thereof, Lessee shall not be entitled to any rent abatement, but shall be entitled to any award from the condemning authority payable for any period falling within the Lease term. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property or for moving expenses. Lessee shall be entitled to make a separate claim for business interruption provided any award therefor does not reduce the Lessor's award, but Lessor agrees not to make a claim for business interruption. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall make available to Lessee any severance damages received by Lessor in connection with such condemnation so that Lessee may repair any damage to the Premises caused by such condemnation. The cost of such repair, to the extent it exceeds such severance damages, shall be amortized over the useful life of the repair, with Lessee paying for the portion of such cost which will be amortized over the Lease term and Lessor paying for the portion of such cost which will not be amortized during the Lease term except that if the cost of repair exceeds such severance damages either party can terminate this Lease. 13. Holding Over. If Lessee remains in possession of the Premises after expiration of the term hereof, Lessee shall be a tenant-at-will and shall pay Lessor rent at the rate of 125% of the rental rate in effect at the end of the Lease term; provided, however, nothing herein shall be 21 deemed to give Lessee a right to remain in possession of the Premises after the expiration of the Lease term. 14. Broker's Fee. Lessor and Lessee both represent and warrant they have dealt with no broker with regard to this transaction, and agree to indemnify and hold each other harmless from any brokerage claims, demands or suits that might arise out of any facts constituting a breach of such representation and warranty. 15. General Provisions. 15.1 Estoppel Certificate. (a) Either party shall at any time upon not less than twenty-one (21) days' prior written notice from the other party execute, acknowledge and deliver to the other party a statement in writing in the form attached hereto as Exhibits C and D respectively, (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, (ii) acknowledging that there are not, to such party's knowledge, any uncured defaults on the part of the other party hereunder, or specifying such defaults if any are claimed, and (iii) certifying to such other matters as may be reasonably requested by the other party. Any such statement may be conclusively relied upon by any prospective party having an interest in the Premises. (b) Either party's failure to deliver such statement within such time shall be conclusive upon such party (i) that this Lease is in full force and effect, without modification except as may be represented by the other party, and (ii) that there are no uncured defaults in the other party's performance. 15.2 Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 15.3 Incorporation Of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior Agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. 15.4 Notices. Notices shall be either (i) personally delivered (including delivery by Federal Express or other reputable courier service) to the offices set forth below, in which case they shall be deemed delivered on the date of delivery to said offices; (ii) sent by Western Union telegram, in which case they shall be deemed delivered on the date Western Union delivers its telephonic communication; (iii) sent by telecopy, in which case they shall be deemed delivered on the date receipt of the same is confirmed by the receiving party; or (iv) sent by certified mail, return receipt requested, in which case they shall be deemed delivered on the date shown on the receipt unless delivery is refused or delayed by the addressee, in which event they shall be deemed delivered two (2) days after the date of deposit in the U.S. mail. For purposes of Notices, the addresses of the parties shall, until changed as herein provided, be given as follows: 22 To Lessor: The Prudential Insurance Company of America c/o The Prudential Realty Group 751 Broad Street 4 Prudential Plaza Newark, New Jersey 07102-3777 Attention: Stephen Parker With a copy to: Sonnenschein Carlin Nath & Rosenthal 8000 Sears Tower Chicago, Illinois 60606 Attention: Mark F. Mehlman, Esq. Scott A. Lindquist, Esq. To Lessee: Associated Unit Companies, Inc. 1800 Gulf Life Tower Jacksonville, Florida 32207 Attention: President With a copy to: GATX Corporation 120 South Riverside Plaza Chicago, Illinois 60606 Attention: General Counsel The parties hereto and their respective successors, legal representatives and assigns shall have the right to specify as its address any other address by giving at least ten (10) days' written notice to the other party. 15.5 Waivers. No waiver by Lessor of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to or approval of any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act of Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach or the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 15.6 Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, whenever possible, be cumulative with all other remedies at law or in equity. 23 15.7 Binding Effect; Choice Of Law. Subject to any provisions hereof restricting assignment by Lessee, this Lease shall bind the parties, their successors and assigns. This Lease shall be governed by the laws of the state where the Premises are located. 15.8 Subordination. (a) This Lease, at Lessor's option, shall be subordinate to any mortgage or deed of trust now or hereafter placed upon the Premises and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof, provided the holder of such mortgage or deed of trust agrees that Lessee's right to quiet possession of the Premises shall not be disturbed so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease. Lessor agrees to deliver to Lessee, concurrently with the execution of any mortgage or deed of trust which is prior to this Lease; (i) a non-disturbance agreement of the mortgagee or trustee, in form reasonably requested by the mortgagee or trustee, assuring the Lessee's quiet enjoyment of the Premises so long as Lessee is not in default, and (ii) the Agreement of the mortgagee or trustee permitting the use of insurance and condemnation proceeds as provided for herein. If any mortgagee or trustee shall elect to have this Lease prior to the lien of its mortgage or deed of trust, and shall give written notice thereof to Lessee, this Lease shall be deemed prior to such mortgage or deed of trust, whether this Lease is dated prior or subsequent to the date of said mortgage or deed of trust or the date of recording thereof. Lessee shall attorn, as lessee under this Lease, to the purchaser at any foreclosure sale or to the mortgagee, if the mortgagee becomes owner of the fee estate, and this Lease shall continue in force and effect as a direct Lease between Lessee and purchaser or mortgagee. (b) Subject to the provisions of Paragraph 15.8(a) hereof, Lessee agrees to execute any documents reasonably required to effectuate such subordination or to make this Lease prior to the lien of any mortgage or deed of trust, as the case may be. 15.9 Lessor's Access. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times upon reasonable notice for the purpose of inspecting the same (provided no notice shall be required in the event of an emergency), and showing the same to prospective purchasers or lenders provided they do not disturb the conduct of Lessee's business. Lessor shall indemnify and hold Lessee harmless from all claims and liabilities resulting from Lessor's acts and omissions in connection with such entry. Lessor may, with Lessee's permission, place on or about the Premises any ordinary "For Sale" signs and Lessor may without Lessee's permission, at any time during the last one hundred twenty (120) days of the term hereof, place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Lessee. Lessor shall also have the right to enter the Premises at any time to cure any defaults hereunder by Lessee which Lessor is permitted at that time to cure. Lessor shall use reasonable efforts to keep confidential any information regarding Lessee's operations which Lessor learns while on the Premises. 24 15.10 Corporate Authority. Lessor and Lessee each represent and warrant to the other that it is duly authorized to execute and deliver this Lease and that this Lease is binding upon it in accordance with its terms. 15.11 Consents. Whenever in this Lease the consent of one party is required to an act of the other party such consent may be withheld in such party's sole discretion unless this Lease requires that such consent not be unreasonably withheld. A failure by any party to respond to a request for consent within thirty (30) days of notice shall be deemed consent by such party. 15.12 Quiet Possession. Lessor covenants and agrees that upon Lessee's paying the rent reserved hereunder and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall not be disturbed in its possession of the Premises by any act of Lessor, its agents, employees, lessees and contractors, so long as Lessee timely performs its obligations under this Lease. 15.13 Captions. Section and paragraph captions are not a part hereof. 15.14 Time of Essence. Time is of the essence of this Lease, and all provisions herein specifying time periods shall be strictly construed. 15.15 Relocation. For a period of one year after expiration of the primary term of this Lease and only so long as the initial Lessor (or another "institutional" purchaser which is not in the business of developing or operating warehouses, but for this purpose ownership of warehouses operated by others shall not be deemed "operating" warehouses) owns the Premises, Lessee shall not transfer any of Lessee's business being conducted on the Premises at the termination of the primary term of this Lease to any warehouse developed by Lessee or its affiliates that is within a ten (10) mile radius of the Premises (a "Lessee Warehouse") unless the Premises are no longer suitable for the business being conducted thereon. If Lessee determines that the Premises are no longer suitable for the business being conducted thereon, Lessee shall deliver to Lessor an affidavit executed by an officer of GATX Corporation on behalf of such corporation certifying that the Premises are no longer suitable for the business being conducted thereon and setting forth the reasons why. Upon receipt of such affidavit Lessor shall have the right to make the Premises suitable to Lessee, if possible, at Lessor's sole cost and expense, within the time reasonably required by Lessee. If Lessor is able to make the Premises suitable for Lessee within the time reasonably required by Lessee, Lessee shall not be permitted to transfer the business to a Lessee Warehouse unless Lessee agrees to extend the Lease term for one (1) additional year after the expiration of the primary term of this Lease. Such extension shall be at the rate for Basic Rent in effect for the period immediately prior to such extension adjusted in the manner provided in Section 3.2 for adjustments during the primary term of this Lease. Lessee shall be under no obligation to use or occupy the Premises during such extension period provided it pays all Basic Rent and additional rent due hereunder, and this Lease shall terminate at the end of such one (1) year period without any further restrictions pursuant to this Section 15.15. In no event shall the provisions of this Section 15.15 apply if Lessee has exercised any option to renew the term of this Lease. 25 15.16 No Personal Liability of Lessor. Any liability of Lessor under this Lease shall be limited to its interest in the Premises, and in no event shall any personal liability be asserted against Lessor in connection with this Lease. Notwithstanding the foregoing, Lessor shall remain personally liable for any obligations to make contributions for Capital Expenditures as set forth under this Lease and for claims and liabilities to third parties resulting from Lessor's acts and omissions in connection with Lessor's entry onto the Premises. 15.17 Meaning of "Lessor." The term "Lessor" as used in this Lease, means only the lessor from time to time, and upon transferring its interest in the Premises, such transferring lessor shall be relieved from any further obligation or liability accruing after the transfer of its interest, so long as the successor lessor agrees to be bound by all of the transferring lessor's obligations under this Lease. 26 IN WITNESS WHEREOF, the parti6s hereto have executed this Lease on the date first above written. Lessor THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ATTEST: /s/ ILLEGIBLE By: /s/ ILLEGIBLE --------------------------- ----------------------------- Secretary Title: Vice President Lessee UNIT DISTRIBUTION OF UTAH, INC., a Utah corporation ATTEST: By: /s/ ILLEGIBLE ----------------------------- Title: Vice President /s/ ILLEGIBLE --------------------------- Secretary 27 EXHIBIT A PARCEL A: A part of Section 12, Township 4 North, Range 2 West, Salt Lake Base and Meridian, U.S. Survey: Beginning at a point on the Easterly right-of-way of the Denver and Rio Grande Western Railroad Company at a point North 89(degree) 48' 24" West 797.03 feet along the Quarter Section Line from the center of said Section 12, running thence North 34(degree) 41'43" West along said Easterly right-of-way line parallel with an 33.0 feet distant Northeasterly measured at right angle from the centerline of the main track of said railroad company as now constructed and operated, a distance of 1588.60 feet to the Southwest corner of the property conveyed to Clearfield City Corporation in Book 518 on Page 736-7 of Official Records; thence along the South line of said property, North 55(degree) 18' 17" East 954.03 feet to a point 8.5 feet Northeasterly from the centerline of lead tract A-28; thence five courses parallel and 8.5 feet Northeasterly along said track as follows: South 16(degree) 24' 40" East 50.54 feet; along the arc of a 5712.65 foot radius curve to the left 67.44 feet (Long Chord bears South 16(degree) 44' 57" East 67.44 feet); South 17(degree) 05' 15" East 432.22 feet; along the arc of a 450.78 foot radius curve to the left 138.44 feet (Long Chord bears South 25(degree) 53' 07" East 137.89 feet) and South 34(degree) 41' East 263.66 feet; thence South 79(degree) 41' East 59.39 feet; thence South 33(degree) 05' 24" East 359.15 feet; thence South 35(degree) 56' 10" East 457.12 feet; thence South 10(degree) 19' West 59.39 feet to a point 8.5 feet Northeasterly of said track; thence South 34(degree) 41' East 51.96 feet parallel and 8.5 feet Northeasterly of said track; thence South 55(degree) 18'17" West a distance of 765.92 feet (765.28 feet to close) to a point on the Easterly right-of-way line of the Denver and Rio Grande Railroad Company; thence North 34(degree) 41' 43" West along said line 287.43 feet to the point of beginning. EXCEPTING THEREFROM the following described property: BEGINNING at a point South 89(degree) 48' 25" East 359.04 feet and South 0(degree) 10' 55" West 497.05 feet to the Easterly line of the D & R G `Railroad right-of-way and South 34(degree) 41' 43" East 1023.0 feet along said right-of-way, and North 55(degree) 18' 17" East 41.0 feet from the Northwest corner of Section 12, Township 4 North, Range 2 West, Salt Lake Meridian, in the City of Clearfield, and running thence South 34(degree) 41' 43" East 281.0 feet; thence North 55(degree) 18' 17" East 99.25 feet to an existing fence; thence Northeasterly 399 feet, more or less, along said fence to a point North 55(degree) 18' 17" East 340.95 feet from the point of beginning; thence South 55(degree) 18' 17" West 340.95 feet to the point of beginning. PARCEL B: A parcel of land situated in Section 12, Township 4 North, Range 2 West, Salt Lake Base and Meridian, in Clearfield City, Davis County, Utah, more particularly described as follows: BEGINNING at a point an the Northeasterly right-of-way line of the Denver & Rio Grande Western Railroad Company, at a point 797.03 feet North 89(degree) 48' 24" West, along the Quarter Section line and 287.41 feet South 34(degree) 41' 43" East from the center of said Section 12, said point being the most Southerly corner of that certain parcel of land heretofore conveyed by National Distribution Systems to Freeport Industrial Center by Special Warranty Deed dated July 29, 1975, recorded on the records of Davis County, October 25, 1979, Book 798, Page 372, thence along the Southerly line of said conveyed parcel, North 55(degree) 18' 17" East, a distance of 434.80 feet; thence South 34(degree) 46' 20" East, along the Northeasterly line of an existing building a distance of 885.50 feet; thence South 55(degree) 22'12" West, a distance of 436.18 feet, to a point on the Northeasterly right-of-way line of said Denver & Rio Grande Western Railroad Company; thence North 34(degree) 41'00" West, a distance of 885.00 feet to the point of beginning. PARCEL C: A part of Section 12, Township 4 North, Range 2 West, Salt Lake Base and Meridian, U.S. Survey: Beginning at a point 797.03 feet North 89(degree) 48' 24" West along the Quarter Section line; 287.41 feet South 34(degree) 41' 43" East; and 434.80 feet North 55(degree) 18' 17" East from the Center of said Section 12; running thence North 55(degree) 18' 17" East 330.48 feet to the Westerly line of the Oregon Short Line Railroad property; thence two (2) courses along said Westerly line as follows: South 34(degree) 41' East 530.71 feet and South 29(degree) 57' East 406.02 feet to the Northeast corner of the Americold Corporation Property; thence South 55(degree) 22' 12" West 731.78 feet along the Northerly line of said property to the Easterly line of the Denver and Rio Grande Western Railroad property; thence North 34(degree) 41' West 49.50 feet along said Easterly line; thence North 55(degree) 22' 12" East 436.18 feet to the Easterly edge of an existing building extended; thence North 34(degree) 46' 20" West 885.50 feet along said building and building extended to the point of beginning. PARCEL D. TOGETHER WITH a 60 foot right-of-way, the West line of which is described as follows: (right-of-way Easement "A"). BEGINNING at a point South 89(degree) 48' 25" East 359.04 feet and South 0(degree) 10' 55" West 33.00 feet from the Northwest corner of Section 12, Township 4 North, Range 2 West, Salt Lake Base and Meridian, and running thence South 0(degree) 10' 55" West 464.05 feet; thence South 34(degree) 41' 43" East 1023.00 feet to the Northwest corner of said property, said 60 foot right-of-way being contiguous with the public right-of-way of 700 South Street. 29 Exhibit B Leases 1. That certain lease dated as of January. 29, 1990 between The Prudential Insurance Company of America, as lessor, and Unit Distribution of California, Inc., as lessee, for the property located at 5600 East Francis Street, Ontario, California 91746. 2. That certain lease dated as of January 29, 1990 between The Prudential Insurance Company of America, as lessor, and Unit Distribution of California, Inc., as lessee, for the property located at 5590 East Francis Street, Ontario, California 91746. 3. That certain lease dated as of January 29, 1990 between The Prudential Insurance Company of America, as lessor, and Unit Distribution of Utah, Inc., as lessee, for the property located at Freeport Industrial Center, 1201 South Industrial Parkway, Clearfield, Utah 84015. 4. That certain lease dated as of January 29, 1990 between The Prudential Insurance Company of America, as lessor, and Unit Distribution of Utah, Inc., as lessee, for the property located at Freeport Industrial Center, 1051 South Industrial Parkway, Clearfield, Utah 84015. EXHIBIT C FORM OF LESSEE'S ESTOPPEL CERTIFICATE/1/ Lessor [Lessor's Mortgagee ________________________________ _______________________________ ________________________________ _______________________________ Attention: _____________________ Attention: ____________________] Re: Lease dated ________________, 1990 (the "Lease"), by and between __________________________ ("Lessee"), as lessee, and ___________________________ ("Lessor"), as lessor. Ladies and Gentlemen: With respect to the Lease, Lessee does hereby certify to Lessor, [________________ ("Lessor's Mortgagee") or _____________________________ ("Lessor's Purchaser"), and its [their respective) successors and assigns, the matters set forth herein. We understand that in Section 15.1 of the Lease, Lessor has required a certification from us in the form set forth herein. (we have been informed that Lessor will be assigning all of its right, title and interest in and to the Lease to Lessor's Mortgagee/Lessor's Purchaser. We understand that as a condition precedent to (Lessor's Mortgagee disbursing a loan to Lessor/Lessor's Purchaser acquiring the Premises), Lessor's Mortgagee/Lessor's Purchaser has required a certification from us in the form set forth herein.] Accordingly, in consideration of the matters herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, we hereby certify as follows: 1. The Lessee is the lessee under that certain Lease dated __________, 1990 by and between Lessee and Lessor, covering those premises demised under the Lease (the "Premises"), consisting of certain real property and appurtenances thereto, together with a building (the "Building") located at [ADDRESS], [CITY], [STATE], [ZIP CODE]. __________________________ /1/ All references in brackets (e.g., references to the Lessor's Mortgagee, or to the Lessor's Purchaser, etc.) are for inclusion where the estoppel certificate will be used to induce Lessor's Mortgagee to fund a loan, or to induce Lessor's Purchaser to consummate a sale. [GRAPHIC OMITTED] 32 EX-10.2 5 dex102.txt EXHIBIT 10.2 - SUBLEASE DTD 07/06/94 Exhibit 10.2 SUBLEASE This Sublease made on the 6th day of July, 1994, by and between UNIT DISTRIBUTION OF UTAH, INC., a Utah Corporation ("Sublessor"), and PROFORM FITNESS PRODUCTS, INC., a Utah Corporation and WESLO, INC., a Utah Corporation (hereafter collectively "Sublessee"). RECITALS: A. Unit Distribution of Utah, Inc. is the Lessee from the Prudential insurance Company of America of Warehouse Premises located in Clearfield, Utah, and desires to sublease said Premises to ProForm. Fitness Products, Inc. and Weslo, Inc. under certain terms and conditions as set forth herein. B. ProForm Fitness Products, Inc. and Weslo, Inc. desire to sublease a portion of said Premises from Unit Distribution of Utah, Inc. C. A copy of the Lease Agreement between the Prudential Insurance Company of America and Unit Distribution of Utah, Inc. has been received and reviewed by all parties and is attached as Exhibit "A". NOW, THEREFORE, in consideration of the covenants and promises hereinafter set forth, and other good and valuable consideration, the receipt sufficiency of which is hereby acknowledged, the parties agree as follows: 1. PARTIES. This Sublease is made between Unit Distribution of Utah, Inc., a Utah Corporation, and ProForm, Fitness Products, Inc., a Utah Corporation, and Weslo, Inc., a Utah Corporation. 2. MASTER LEASE. Sublessor is the Lessee under a written lease (hereafter "Master Lease,,) attached and incorporated as Exhibit "A", dated January 29, 1990, wherein the Prudential Insurance Company of America, a New Jersey Corporation ("Lessor"), leased to Sublessor the real property located in Clearfield, Weber County, Utah, described as that certain real property situated at 1051 South Industrial Parkway, consisting of a warehouse building containing approximately 615,000 square feet, together with all improvements and appurtenances belonging to said property (hereafter "Master Premises"). 3. PREMISES. Sublessor hereby subleases to Sublessee a portion of the Premises located at 1051 South Industrial Parkway, Clearfield, Weber County, Utah, which is approximately 325,325 square feet of warehouse space located at the southerly end of the building on the Master Premises and approximately 3,750 square feet of office space in the Building (approximately the northwest one-fourth of the office space) of the Master Premises, plus the exclusive use of a portion of the parking facilities adjacent to the north end of the building. The warehouse space, office space and parking facilities subleased by Sublessee are shown and outlined in red on Exhibit "B" attached and incorporated and are referenced collectively as "Premises". The Premises include exclusive use of 30 parking stalls as shown on Exhibit B, with reasonable access to the same (hereafter "Parking"). All space as shown on Exhibit "B" will be made available to Sublessee as agreed. In addition Sublessee is granted a non-exclusive easement for parking, loading and unloading of tractor/trailers and use by other shipping vehicles and containers on the west side of the Building, i.e., north of the storage pond and between the Building and the road hereafter "Trailer Parking"). Sublessee will be responsible for 54.20% of the maintenance costs of the Trailer Parking area during the Sublease term. The Premises also include reasonable and adequate rights of ingress and egress and for utility service from the Premises to a publicly dedicated road and public utilities. 4. WARRIANTIES BY SUBLESSOR. Sublessor warrants and represents to Sublessee as follows: (a) As of the date hereof, the Master Lease has not been amended or modified. (b) As of the date of this Sublease that the Master Lease is in full force and effect in accordance with its terms and that Sublessor is not now and at this time knows of no events which will cause it to be in default or breach of any of the provisions of the Master Lease. (c) Sublessor has no knowledge of any claim by Lessor that Sublessor is in default or breach of any of the provisions of the Master Lease. (d) Sublessor has the right to enter into this Sublease Agreement with Sublessee, without the prior written consent of Lessor. (e) Sublessor will defend the Sublessee's right to possession of the Premises against any and all claims and causes of action, except any arising through the fault or neglect of Sublessee. (f) Sublessor shall timely perform all acts required of it under the Master Lease with Lessor in regard to payment of rent, notices, accounting, making reports and otherwise so as to maintain the Master Lease with Lessor in full force and effect and avoid any default thereunder. 5. TERM AND RENEWAL. Providing this Sublease is fully executed by both parties no later than July 8, 1994, the term of this Sublease shall commence on July 21, 1994 ("Commencement Date"). This Sublease shall terminate" on June 30, 1999 ("Termination Date"), unless otherwise sooner terminated in accordance with the provisions of this Sublease, or unless extended as herein provided. Sublessor hereby grants to Sublessee a right to renew the Sublease until December 31, 2003, provided Sublessee is not in default, has fully performed all its -2- obligations stated herein at the time for such renewal, and provided Sublessee gives written notice to Sublessor at least three (3) months prior to June 30, 1999. Upon Sublessee's written notice to Sublessor, this Sublease shall be extended for the period July 1, 1999, through, and including, December 31, 2003 ("Option Period"). The rental rate during said Option Period shall be as follows: Commencing July 1, 1999, through the next adjustment date as established in Section 7.1 below, the minimum rent shall remain the same as that paid for the previous month. During the term of the Option Period, the minimum rent shall be increased on the first day of the next month after the adjustment date by the percentage increase in the CPI for the twelve (12) month period immediately preceding said adjustment date. However, notwithstanding the foregoing, in no event shall the minimum rent during this Option Period increase on any adjustment date by more than three percent (3%) of the minimum rent payable immediately prior to such adjustment date. 6. POSSESSION. Sublessor and Sublessee agree that possession of the Premises shall be delivered to the Sublessee as follows: a. July 21, 1994 75,000 sq. ft., 3,750 sq. ft. of Office Space, and all Parking b. August 5, 1994 An additional 75,000 sq. ft. c. August 20, 1994 An additional 75,000 sq. ft. d. September 4, 1994 100,325 sq. ft. and all remainder of the Premises TOTAL 329,075 sq. ft. =============== The selection of the area to which possession is given to Sublessee shall be as reasonably selected by Sublessor and approved by Sublessee and shall be contiguous to that of which Sublessee is already in possession. Sublessor has been advised by Sublessee that it is a material term of this Sublease that possession be delivered in a timely manner. 7. RENT. 7.1 Minimum Rent. Sublessee shall pay to Sublessor as a minimum rent, without deduction, setoff, notice, or demand, at 1301 Gulf Life Drive, Suite 1800, Jacksonville, Florida 32207, or at such other place as Sublessor shall designate from time to time by notice to Sublessee, the sum of Sixty-Five Thousand Sixty-Five Dollars ($65,065.00) per month, in advance on the first day of each month of the term. If the Commencement Term begins or ends on a day other than the first or last day of a month, the rent for the partial month shall be prorated on a per diem basis. During the term of this Sublease, the minimum rent shall be increased on the annual anniversary date by the percentage increase in the CPI for the -3- twelve (12) month period immediately preceding said adjustment date. However, notwithstanding the foregoing, in no event shall the minimum rent during the term of this Sublease increase on any adjustment date by more than three percent (3%) of the minimum rent payable immediately prior to such adjustment date. Since possession of the Premises shall be given to Sublessee on an incremental basis, as set forth in Section 6 above, the prorated rent shall be the square footage of which Sublessee is in possession divided by 329,075 multiplied by $65,065.00 (rate of $.20 per square foot per month). There shall be no adjustments for the Trailer Parking or Parking. 7.2 Taxes and Insurance Costs. Sublessee shall pay to Sublessor as additional rent .5351 percent (53.51%) of the taxes and insurance as required by the Master Lease on the Master Premises, prorated `as of the Commencement Date and/or the Termination Date, whichever the case may be, to cover only the period of time within the year or policy period during which the term of this Lease shall be in effect. The insurance shall name Sublessee as an additional insured and costs chargeable to Sublessee shall be reasonably apportioned based upon the square footage of the Premises, but in no event shall such costs chargeable to Sublessee be greater than that which Sublessee can obtain directly for comparable coverage from an insurance carrier with a rating as good or better than that coverage through which Sublessor insures as shown by "Best' s Insurance Reports Property - Casualty". Sublessor shall provide Sublessee with a copy of the insurance policies with the insurance coverages as required by this Sublease and by the Master Lease and agrees to keep the same in full force and effect with a thirty (30) day notice to Sublessee prior to cancellation" provision in each such policy. 7.3. Operating Costs. Except as specifically otherwise provided in this Sublease, if the Master Lease requires Sublessor to pay to Lessor all or a portion of the expenses of operating, maintaining, repairing, or replacing the building and/or project, or the components thereof, of which the Premises are a part ("Operating Costs"), including, but not limited to taxes, utilities, insurance, exterior and interior maintenance, and common area maintenance, the Sublessee shall pay to Sublessor as additional rent .5351 percent (53.51%) of the amounts payable by Sublessor for Operating Costs incurred during the Term. Such additional rent shall be payable as and when Operating Costs are payable by Sublessor to Lessor. If the Master Lease provides for the payment by Sublessor of Operating Costs on the basis of an estimate thereof, then as and when adjustments between estimated and actual Operating Costs are made under the Master Lease, the obligations of Sublessor and Sublessee hereunder shall be adjusted in a like manner; and if any such adjustment shall occur after the expiration or earlier termination of the Term, then the obligations of Sublessor and Sublessee under this Subsection 7.3 shall survive such expiration or termination. Sublessor shall, upon request by Sublessee, furnish Sublessee with copies of all statements submitted by Lessor of actual or estimated Operating Costs during the Term. -4- 8. UTILITY COSTS. In the office space (3,750 square feet an the Premises out of 15,000 square feet of office space in the Master Premises), charges for gas, electrical and other utilities that are not separately metered shall be paid on a pro rata basis, i.e., twenty-five percent (25%) to Sublessee and seventy-five percent (75%) to Sublessor. in the warehouse space (325,325 square feet on the Premises out of 600,000 square feet of warehouse space in the Master Premises), charges for gas and other utilities that are not separately metered shall be paid on a pro rata basis, i.e., fifty-four and two tenths percent (54.2%) to Sublessee and forty-five and eight tenths percent (45.8%) to Sublessor. Electric usage shall be separately metered for the warehouse space. 9. OTHER OPERATING/MAINTENANCE COSTS AND FUNCTIONS. (a) Sublessor shall be granted access to the Premises on a reasonable basis to take appropriate action to maintain Sublessor's food grade status. Such access shall be no more frequently than once weekly, shall be scheduled so as to not interfere with Sublessor's business /warehouse operations, and shall be at Sublessor's sole expense. Sublessor warrants that such actions by Sublessor shall have no effect on Sublessee's business operations, employees, products or other property, nor shall such access by Sublessor cause Sublessee any increase in its costs of doing business. (b) Sublessee, at its expense, shall provide its own security and janitorial services to the Premises and shall maintain the same in a manner consistent with that as evidenced by the Sublessor. Sublessor, at its expense, shall provide its own security and janitorial services for the balance of the Master Premises. (c) Sublessor shall provide and pay for all roof and structural repair, replacement and maintenance, subject to the provisions of Section 9 (e) below. Sublessor agrees to commence with the replacement of the roof on the Master Premises by no later than September 30, 1994, and shall diligently proceed to complete the replacement in a timely manner. (d) At the commencement of this sublease, Sublessor shall make the necessary repairs to Sublessee's portion of the parking lot marked for Sublessee's exclusive use on Exhibit "B" of this Agreement. It shall be Sublessee's responsibility to maintain and/or repair this portion of the parking lot as needed during this Sublease term, or any extension thereof. Sublessor agrees to he responsible for the maintenance or repair of the main access road (Industrial Parkway). The drivelanes on the Master Premises used on a non-exclusive basis by both parties shall be maintained .5351 percent (53.51%) by Sublessee and .4649 percent (46.49%) by Sublessor. (e) Sublessor and Sublessee shall each be responsible for any damages caused to the Premises by its own negligence or due to the acts of their respective agents, employees, customers or invitees, respectively. (f) Except as specifically otherwise provided, Sublessee shall be responsible for all other operating, repair and maintenance expenses of the Premises and Sublessor shall be -5- responsible for all other operating, repair and maintenance expenses of the Master Premises (excluding the Premises). (g) Sublessor agrees that Sublessee shall incur no expenses for repair, maintenance or replacement of the mechanical systems (including without limitation, HVAC system, electrical system, overhead doors and plumbing system) for 30 days after the Commencement Date and Sublessor shall pay for the same, except as caused through acts of Sublessee as provided in Section 9.e., above. 10. ADVANCE RENT PAYMENT. As security for Sublessee's faithful performance of Sublessee's obligations hereunder, Sublessee shall, concurrent with the execution of this Sublease, deliver to Sublessor the sum of One Hundred Thirty Thousand One Hundred and Thirty Dollars ($130,130.00) ("Advance Rent"). Of the Advance Rent $65,065.00 shall be a prepayment of the first full month's rent after Sublessee has received possession of all the Premises, and the other $65,065.00 shall be security for Sublessee's performance of the terms of this Sublease. If during the first year of the Sublease term, Sublessee does not receive written notification from Sublessor that it has defaulted on any of its obligations, as set forth in this Sublease, then it may apply the $65,065.00 Advance Rent towards the fourteenth (14th) calendar month for which rent is due. In the event Sublessee does default on any of its obligations during the first year of the Sublease term, then Sublessee will be required to maintain the Advance Rent throughout the balance of the Sublease term. 11. DAMAGE AND DESTRUCTION. (a) Sublessee shall notify Sublessor in writing immediately upon the occurrence of any damage large enough to be subject to an insurance claim to the Premises. If the Premises shall be partially damaged by fire or any other casualty insured under Sublessor's insurance policy, Sublessor shall, upon receipt of the insurance proceeds, repair the Premises and until repair is complete the rent shall he abated proportionately as to that portion of the Premises rendered untenantable. Notwithstanding the foregoing, if: (a) the Premises by reason of such occurrence are rendered wholly untenantable for Sublessee's purposes, or (b) the Premises should be damaged as a result of a risk which is not covered by Sublessor's insurance, or (c) the Premises or the building of which it is a part, whether the Premises are damaged or not, should be damaged to the extent of forty percent (40%) or more of the then-monetary value, then and in any such events, Sublessor may either elect to repair the damage or may cancel this Sublease by notice of cancellation within thirty (30) days after such event and thereupon this Sublease shall expire, and Sublessee shall vacate and surrender the Premises to Sublessor within a reasonable time. Sublessee's liability for rent upon the termination of this Sublease shall cease as of the day following Sublessor's giving notice of cancellation. In the event Sublessor elects to repair any damage, any abatement of rent shall end five (5) days after notice by Sublessor to Sublessee that the Premises have been repaired. -6- (b) During the last year of the Lease, if the Premises is partially or totally destroyed by any cause whatsoever, and regardless of whether any insurance proceeds are available, this Sublease shall terminate as of the date the destruction occurred, at the election of either party, and Sublessee shall assign any insurance proceeds on the Premises to Sublessor. 12. HAZARDOUS MATERIALS. (a) As used in this Sublease, the term "Hazardous Material" means any flammable items, explosives, radioactive materials, hazardous or toxic substances, material or waste or related materials, including any substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials" or "toxic substances" now or subsequently regulated under any applicable Federal, State or local laws or regulation, including without limitation petroleum-based products, paints, solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other chemical products, asbestos, PCBs and similar compounds, and including any different products and materials which are subsequently found to have adverse effects on the environment or the health and safety of persons. Sublessee shall not cause or permit any Hazardous Material to be generated, produced, brought upon, used, stored, treated or disposed of in or about the Premises by Sublessee, its agents, employees, contractors, or invitees without prior written consent of Sublessor. Consent is hereby given to Sublessee's use of standard cleaning agents, labeling paints and inks used in the ordinary course of a warehouse business operation. Sublessee agrees to provide Sublessor concurrent with the execution of this Sublease a written list with the substance and approximate quantity to be stored at any time on the Premises. Sublessee is responsible for making any required modifications to meet current codes regarding storage of such substances. If storage of such substances causes Sublessor's insurance costs to increase, Sublessee shall be responsible for payment of the amount of such increased costs. (b) During the term hereof, Sublessee shall comply with the requirements of all applicable Federal, state and local environmental, health, safety and sanitation laws, ordinances, codes, rules and regulations and orders of any regulatory and administrative authority with respect to Sublessee's occupancy and actions of its employees, invitees, or agents. (c) During the term hereof, Sublessor shall comply with the requirements of all applicable Federal, state and local environmental, health, safety and sanitation laws, ordinances, codes, rules and regulations and orders of any regulatory and administrative authority with respect to Sublessor's occupancy and actions of its employees, invitees, or agents. (d) Sublessee agrees to indemnify, defend and hold harmless the Sublessor from and against all loss, liability, damage and expense, including costs associated with administrative and judicial proceedings, remediation to acceptable standards, and attorney's fees, ever suffered or incurred by Sublessor on account of Sublessee's occupancy and actions or non-actions of its employees, agents or invitees for (i) failure to comply with any environmental, health, safety or sanitation law, code, ordinance, rule or regulation or any interpretation or order of any regulatory or administrative authority with -7- respect thereto; (ii) release of hazardous materials or substances on, upon, in or from the premises; and (iii) all damages to natural resources or real property and/or harm or injury to persons resulting or alleged to have resulted from such failure to comply and/or release of hazardous material or substances. Sublessee shall not be responsible for any environmental conditions existing prior to its use or occupancy of the Premises or caused by other Tenants or Sublessor. As of the commencement date of this Sublease, Sublessor represents, or the best of its knowledge or belief, that there exists no environmental violation of any law or regulation on the Master Premises. (e) Sublessor agrees to indemnify, defend and hold harmless the Sublessee from and against all loss, liability, damage and expense, including costs associated with administrative and judicial proceedings, remediation to acceptable standards, and attorney's fees, ever suffered or incurred by Sublessee on account of Sublessor's business use, condition on, or substances maintained upon the Master Premises (excluding the Premises) and actions or non-actions of its employees, agents or invitees for (i) failure to comply with any environmental, health, safety or sanitation law, code, ordinance, rule or regulation or any interpretation or order of any regulatory or administrative authority with respect thereto; (ii) release of hazardous materials or substances on, upon in or from the premises; and (iii) all damages to natural resources or real property and/or harm or injury to persons resulting or alleged to have resulted from such failure to comply and/or release of hazardous material or substances. (f) The provisions of Sections 9a through 9e shall survive the termination of this Sublease for a period of three (3) years. 13. USE OF PREMISES. The Premises shall be used and occupied only for warehousing, assembly, offices, and for no other uses or purposes. 14. ASSIGNMENT AND SUBLETTING. (a) Sublessee shall not assign this Sublease, or further sublet all or any part of the Premises, without the prior written consent of Sublessor (and the consent of Lessor, if such is required under the terms of the Master Lease), which consent cannot be unreasonably refused, and which consent must be given in a timely manner. (b) Sublessee shall pay to Sublessor as Additional Rent under the Lease fifty percent (50%) of the Profit (defined below) on such transaction as and when received by Sublessee. The "Profit" means all amounts paid to Tenant for such assignment or sublease, including "buy-in" money and monthly rent in excess of the monthly rent payable under the Lease. Sublessee is entitled to recover such costs and expenses directly incurred by Sublessee in connection with the execution and performance of such sublease or assignment (for real estate broker's commissions and costs of renovation or construction of tenant improvements required under such assignment or sublease) before Sublessee is obligated to pay to Sublessor its share of any Profit. -8- 15. LANDLORD'S CONSENT. Sublessee's request for consent to any transfer shall set forth in writing the details of the proposed transfer, including the name, business and financial condition of the prospective transferee, financial details of the proposed transfer (e.g., the term of and the rent and security deposit payable under any proposed assignment or sublease), and any other information Sublessor deems relevant. 16. SUBLESSOR'S RIGHTS, DUTIES AND RESPONSIBILITIES. (a) Sublessor shall provide Sublessee with copies of any minutes/records of meetings with the Lessor, annual inspection reports or Approved Capital Expenditures, as provided in the Master Lease, and shall disclose any material defects or conditions for which the costs for remedy of the same are chargeable to Sublessee under this Sublease or which conditions will have a material adverse effect on Sublessee's use of the Premises. (b) Sublessor hereby irrevocably and unconditionally waives, releases and relinquishes any claim to a Landlord's" lien, against any property of Sublessee on the Premises, including but not limited to inventory and equipment. In connection with this, Sublessor agrees to execute such documents as may be reasonably required by Sublessee's lender. (c) Sublessor agrees, at its expense, to provide and install interior chain link fencing no less than 12 feet (12') in a secure height dividing the warehouse Premises from the Master Premises. The fencing shall be installed within fourteen (14) days after the date Sublessee is scheduled to receive possession of all the Premises. (d) Sublessor warrants the Railroad Spur Agreement is in full force and effect. Sublessee shall incur no costs for said Agreement unless it chooses to utilize railroad spur services. If Sublessee utilizes the railroad spur services, it will pay 53.51% of the cost thereafter incurred to maintain the Railroad Spur Agreement in full force and effect. Sublessor shall keep the Railroad Spur Agreement in full force and effect during the term of this Sublease. (e) On or before the date on which sublessee is delivered possession of all the Premises, Sublessor shall at its expense provide a separate electrical meter for the warehouse portion of the Premises. (f) Sublessor agrees to relocate the area currently housing its pesticides to a location contained entirely within Sublessor's premises and copies of Material Safety Data Sheets for all pesticides so stored will be supplied to Sublessee in a timely manner. 17. SUBLESSEE'S RIGHTS, DUTIES AND RESPONSIBILITIES. (a) Sublessee may display and/or erect reasonable signage on the Premises to protect its use and rights provided herein and for its reasonable business purposes. All signs must have Sublessor's prior written approval and must be in accordance with any applicable code. -9- (b) Sublessee shall not make any alterations to the Premises without the prior written consent of Sublessor, which may not be unreasonably withheld. (c) Section 15.15 of the Master Lease has no application to Sublessee and sublessor agrees that said section shall only apply to Sublessor and specifically releases Sublessee from application of said section. 18. ADDITIONAL SUBLESSOR WARRANTIES. (a) Sublessor agrees that so long as Sublessee fully complies with all of the terms, covenants and conditions herein contained on sublessee's part to be kept and performed, Sublessee shall and may peaceably and quietly have, hold and enjoy the Premises during the sublease term hereof without such possession being disturbed or interfered with by Sublessor or by any person claiming by, through or under, Sublessor. Sublessor further covenants and represents that Sublessor has full right, power and authority to make, execute and deliver the Sublease. (b) Sublessor has received no notice, nor to the best of its knowledge does Sublessor know of any pending or threatened legal actions regarding its occupancy of the Premises or Master Premises. (c) Sublessor has received no notice, nor to the best of its knowledge does Sublessor know of any fire, zoning, health, building code or other federal, state or local violation of law regarding the Premises or Master Premises. (d) Sublessor has no actual knowledge of the existence of Hazardous Materials (in excess of quantities otherwise permitted under Environmental Laws) on the Premises or Master Premises. Sublessor warrants the Premises to be free from any hazardous materials and in compliance with all environmental laws and regulations. Sublessor further warrants and agrees to use its best efforts to keep the Master Premises free from the same. 19. OTHER PROVISIONS OF SUBLEASE. Except as otherwise modified herein, all clearly applicable terms and conditions of the Master Lease are incorporated into and made a part of this Sublease as if Sublessor were the lessor thereunder, Sublessee the lessee thereunder, and the Premises the Master Premises. If any provisions of this Sublease conflict with provisions of the Master Lease, the provisions of this Sublease shall govern. The following terms and conditions of the Master Lease are modified as follows: Article 2.2., Option to Renew, deleted in its entirety. Article 5, Maintenance, Repairs and Alterations; modified as follows: Replace 5.1(c) with: Sublessor shall be responsible for roof and structural maintenance; however, Sublessee shall be responsible for the cost of any -10- roof or structural repairs necessitated by the acts of Sublessee, its employees, agents, customers or invitees. See Section 9(c) herein. 5.1(f) shall be deleted in its entirety. Article 5.4., Alterations; delete in its entirety. Replace with: Sublessee shall not make any alterations to the Premises without the prior written consent of Sublessor, which may be reasonably withheld. Article 10, Assignment and Subletting; replace 10.1, 10.2, 10.3 with Section 14 of this Sublease. Article 14, Broker's Fee; replaced by Section 23 of this Sublease. Article 15.4, Notices; replaced by Section 24 of this Sublease. 20. FIRST RIGHT OF REFUSAL Sublessor hereby grants Sublessee a first right of refusal on the Master Premises (excluding the Premises) at the time all or any portion of the Master Premises is offered for sublease. Sublessor shall give written notice to Sublessee as to the space availability. Sublessee shall have ten (10) days from the date of receipt thereof within which to advise Sublessor, in writing, of its desire to sublease the additional space, subject to the terms and conditions of this Sublease Agreement. The space must be taken by Sublessee, if it elects to sublease the space, coterminous with the balance of the Term and at the then current rate, subject to the annual CPI increases. This first right of refusal shall extend with and run with the Master Premises or any portion thereof. Any failure of Sublessee to exercise the first right of refusal shall not waive its right to exercise the same as to any subsequent lease or sublease of all or any portion of the Master Premises by Sublessor. As used in this paragraph 20, the word "Sublessor" includes its successors, assigns, sublessees and tenants. The words "lease", "sublease" or "rental" include any assignment of interest in all or any portion of the Master Premises or rights in the same. 21. PRE-POSSESSION INSPECTION. Prior to taking possession of the Premises the parties shall jointly conduct an inspection of the same and shall note existing problems, repair requirements and damages. Excepting those items attributable to normal wear and tear, a report of the inspection shall be signed and dated by the parties and attached as Exhibit "C" to this Sublease. In no event shall Sublessee become responsible for rectifying any problems, making any repairs or correcting any damages existing at the time that Sublessee took possession. 22. ATTORNEY'S FEES. -11- If Sublessor or Sublessee shall commence an action against the other arising out of or in connection with this Sublease, the prevailing party shall be entitled to recover its costs of suit and reasonable attorney's fees. 23. AGENCY DISCLOSURE. Sublessor and Sublessee each warrant that they have dealt with no other real estate broker in connection with this transaction except GATX Logistics Properties, Inc. and CB Commercial Real Estate Group, Inc. who represents Sublessor, and consolidated Realty Group who represents Sublessee. Each party to the Sublease agrees to indemnify, and hold harmless the other party from claims of any other broker making claims through that party. 24. NOTICES. All notices and demands which may or are to he required or permitted to be given by either party on the other hereunder shall be in writing. All notices and demands by the Sublessor to Sublessee shall be sent by United States Mail, postage prepaid, addressed to the Sublessee at the Premises, and to the address hereinbelow, or to such other places as Sublessee may from time to time designate in a notice to the Sublessor. All notices and demands by the Sublessee to Sublessor shall be sent by United States Mail, postage prepaid, addressed to the Sublessor at the address set forth herein, and to such other person or place as the Sublessor may from time to time designate in a notice to the Sublessee. To Sublessor: Unit Distribution of Utah, Inc. c/o GATX Logistics, Inc./1301 Gulf Life Drive, Suite 1800, Jacksonville, Florida 32207 Attn: Real Estate To sublessee: ProForm Fitness Products, Inc./1500 South 1000 West, Logan, Utah 84321-0270 Weslo, Inc./1500 South 1000 West, Logan, Utah 84321-0270 25. TIME. Time is of the essence of this Sublease. 26. REMEDIES. Each party may have such remedies upon breach of this Sublease as may be provided by statutory or common law. 27. TRAILER DROP LOT. Sublessor agrees to make available to Sublessee that unimproved portion of the site consisting of approximately 4 acres directly north of, and adjacent to, the paved parking lot adjoining the northerly most section of the warehouse building, for the purpose of creating a drop lot for its trailers. Sublessee shall be solely responsible for any and all -12- costs associated with the permits, improvements and maintenance expenses required for their specified use of this site, and must insure that it is in compliance with all applicable and governing codes and ordinances. Sublessee may request the use of this area at any time during the term of Sublease. The rental rate shall be $4,800.00 per acre, per year, and shall be calculated based upon the actual acreage required by Sublessee. UNIT DISTRIBUTION OF UTAH, INC. By: /s/ ILLEGIBLE ------------------------------------- Title: C.O.O. ---------------------------------- Date: 7-6-94 ----------------------------------- SUBLESSOR PROFORM FITNESS PRODUCTS, INC. By: /s/ S. Fred Beck ------------------------------------- Title: CFO ---------------------------------- Date: 7/5/94 ----------------------------------- WESLO, INC. By: /s/ S. Fred Beck ------------------------------------- Title: CFO ---------------------------------- Date: 7/5/94 ----------------------------------- SUBLESSEE -13- FIRST AMENDMENT TO SUBLEASE 1. Identification and Parties. This First Amendment to Sublease (this "Amendment") is made and entered into this 31st day of July, 1994, by and between UNIT DISTRIBUTION OF UTAH, INC., a Utah Corporation ("Sublessor") and PROFORM FITNESS PRODUCTS, INC. and WESLO, INC., both Utah Corporations (collectively "Sublessee"). 2. Recitals. 2.1. On or about July 6, 1994, Sublessor and Sublessee entered into that certain sublease whereby Sublessor subleased to Sublessee approximately 325,325 square foot of warehouse space and 3,750 square foot of office space contained within the 615,000 square foot warehouse building located at 1051 South Industrial Parkway in Clearfield, Utah. 2.2. It is the desire of the parties to amend the Sublease to change the amount of the minimum rent due for each full month during the initial 12-month period of the Sublease. The defined terms used herein shall have the same meaning assigned to them in the Sublease unless a definition appears herein. 3. Amendment. 3.1. The minimum rent figure shown in Section 7.1, "Minimum Rent", of the Sublease shall be changed from $65,065.00 to SIXTY FIVE THOUSAND EIGHT HUNDRED FIFTEEN AND N0/100 DOLLARS ($65,815.00). 3.1. Except as expressly modified herein, all of the terms and conditions of the Sublease, as amended, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this instrument on the year and date first above written. "SUBLESSOR" "SUBLESSEE" UNIT DISTRIBUTION OF UTAH, INC., A PROFORM FITNESS PRODUCTS, INC., a Utah Corporation Utah Corporation By: /s/ ILLEGIBLE By: /s/ S. Fred Beck ------------------------------- ------------------------------ Title: Chief Financial Officer Title: CFO ---------------------------- --------------------------- Date: 8/22/94 Date: 8/22/94 ----------------------------- ---------------------------- SECOND AMENDMENT TO SUBLEASE 1. Identification and Parties. This Second Amendment to Sublease (this "Amendment") is made and entered into this 28th day of April, 1995, by and between UNIT DISTRIBUTION OF UTAH, INC., a Utah Corporation ("Sublessor") and ICON HEALTH AND FITNESS,INC., formerly known as PRO-FORM FITNESS, INC. and WESLO, INC., both Utah Corporations (collectively, "Sublessee"). 2. Recitals. 2.1 On or about July 6, 1994, Sublessor and Sublessee entered into that certain Sublease whereby Sublessor subleased to Sublessee approximately 325,325 square feet of warehouse space and 3,750 square feet of office space contained within the 615,000 square foot warehouse building located at 1051 South Industrial Parkway in Clearfield, Utah. 2.2 On or about July 31, 1994, said Sublease was amended by the First Amendment to Sublease whereby the minimum rent due for each full month during the initial 12-month period was increased to $65,815.00. 2.3 It is the desire of the parties to now further amend the Sublease to reflect an increase in the amount of Subleased warehouse space and minimum monthly rend as follows: 3. Amendment 3.1 The warehouse square footage figure shown in Section 3. "Premises" of the Sublease shall be changed from 325,325 square feet to 328,650 square feet. 3.2 The minimum rent figure shown in Section 7.1 "Minimum Rent" of the Sublease, and which was changed pursuant to the First Amendment to Sublease, shall be increased from $65,815.00 to Sixty-six Thousand Four Hundred Eighty and 00/00 Dollars ($66,480.00). 3.3 Both of the Changes set forth in 3.1 and 3.2 above shall be deemed to have taken effect as of January 1, 1995. 3.4 Except as expressly modified herein, all of the terms and conditions of the Sublease, as amended, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this instrument on the year and date first written above. "SUBLESSOR" "SUBLESSEE" UNIT DISTRIBUTION OF UTAH, INC., A PROFORM FITNESS PRODUCTS, INC., a Utah Corporation Utah Corporation By: /s/ ILLEGIBLE By: /s/ S. Fred Beck ---------------------------------- ---------------------------------- Title: CFO Title: CFO ------------------------------- ------------------------------- Date: 4/28/95 Date: 4/18/95 -------------------------------- -------------------------------- -2- THIRD AMENDMENT TO SUBLEASE The Third Amendment to Sublease made this ____ day of________________, 1996, by and between UNIT DISTRIBUTION OF UTAH, INC., a Utah corporation ("Sublessor") and ICON HEALTH AND FITNESS, INC., formerly know as PRO-FORM FITNESS, INC., and WESLO, INC., both Utah corporations (collectively, "Sublessee"). RECITALS A. Sublessor and Sublessee entered into that certain Sublease dated July 6, 1994, for approximately 325,325 square feet of warehouse space and approximately 3,750 feet of office space in the Building consisting of approximately 615,000 square feet located at 1051 South Industrial Parkway, Clearfield, Weber County, Utah, together with the exclusive use of a portion of the parking facilities adjacent to the north end of the Building and other parking facilities and amenities as set forth therein. B. The Sublease was amended by First Amendment to Sublease dated July 31, 1994 (the First Amendment"), and the Second Amendment to Sublease dated April 28, 1995 (the "Second Amendment"), to increase the minimum rent required by Section 7.1 of the Sublease for the initial 12 month period of the Sublease to $66,480.00 and to enlarge the square footage of subleased warehouse space from 325,325 square feet to 328,650 square feet of warehouse space so that the total square footage of warehouse and office space leased to Sublessee under the Sublease is 332,400 square feet. The Sublease described in paragraph A above, as amended by the First Amendment and the Second Amendment, shall hereinafter be referred to as the "Sublease." C. Sublessor and Sublessee desire to amend the Sublease on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the covenants and promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. The Sublease is hereby amended to enlarge the Premises to include the additional 282,600 square feet of space in the Building located at 1051 South Industrial Parkway, Clearfield, Weber County, Utah, which was not heretofore included in the Premises, together with the exclusive right to use all of the parking facilities and amenities now serving the Building as identified on the Site Plan attached hereto as Exhibit "A." (the "Additional Space") As of the date of this Third Amendment, the portion of the Building not occupied by Sublessee is being used by Sublessor, but will be turned over incrementally to Sublessee in broom clean condition on the schedule set forth on Exhibit "B" attached hereto. Each incremental portion of the 282,600 square feet shall become a part of the Premises on the date upon which possession is delivered to Sublessee, and the term of the Sublease with respect to such Additional Space shall end on December 31, 2003, unless sooner terminated or further extended as provided herein. 2. Sublessee hereby exercises its option pursuant to Paragraph 5 of the Sublease to extend the term of the Sublease as amended for an additional term commencing on July 1, 1999, and ending on December 31, 2003. 3. Rent shall continue to be paid on the 332,400 square feet of warehouse and office space leased by Sublessee under the Sublease prior to this Third Amendment, at the minimum rent rate as set forth in paragraph 7.1 of the Sublease as amended by the First Amendment and the Second Amendment, subject to annual adjustment as set forth in the Sublease. With respect to the additional 282,600 square feet of Additional Space, commencing on May 1, 1996, Sublessee shall pay to Sublessor as a minimum rent for such Additional Space, without deduction or right of set off and without notice or demand, at the initial rate of $3.15 per square foot per annum, payable in equal monthly installments, in advance on the first date of each month during the term of the Sublease as amended hereby (except as otherwise provided in Exhibit "B" attached hereto). During the term of this Sublease, the minimum rent for the Additional Space shall be increased annually commencing on June 1, 1997, and continuing on June 1 of each successive year thereafter through the term of the Sublease as amended hereby, by the percentage increase in the CPI for the twelve (12) month period immediately preceding said adjustment date. However, notwithstanding the foregoing, in no event shall the minimum rent for the Additional Space during the term of this Sublease increase on any adjustment date by more than three percent (3%) of the minimum rent payable immediately prior to such adjustment date, with each installment of rent due under this Sublease. With each installment of rent or additional rent due under the Sublease, Sublessee shall pay to Sublessor all sales tax due upon such rental payment. -2- 4. Notwithstanding anything to the contrary set forth in paragraph 10 of the Sublease, Sublessor shall retain throughout the remainder of the term of the Sublease, as amended hereby, the $65,065.00 paid to Sublessor upon commencement of the term of the Sublease as security for Sublessee's performance of its obligations under the Sublease. 5. Paragraph 7.2 of the Sublease is hereby amended to delete ".5351 percent (53.51%)" as set forth in line 2 thereof and to substitute "100%" in its place. 6. Paragraph 7.3 of the Sublease is hereby amended to delete ".5351 percent (53.51%)" in line 10 thereof and substitute "100%" in its place. 7. Paragraph 16(d) of the Sublease is hereby amended to delete "53.51%" as set forth in line 5 thereof and to substitute "100%" in its place. 8. Paragraph 3 of the Sublease is hereby amended to delete "54.20%" as set forth in line 22 thereof and to substitute "100%" in its place. 9. Sublessee at its own expense, shall maintain in good condition and repair all portions of the parking area subject to exclusive use by Sublessee as shown on Exhibit "A" attached hereto, including 100% of the cost of the drive lanes on the Master Premises described in paragraph 9(d) of the Sublease. 10. Sublessee shall pay for all gas, electrical and other utilities furnished to the Premises. Effective upon June 1, 1996, Sublessee shall obtain all required utility services through accounts in its own name directly with the utility providers. 11. Provided (i) that Sublessee is not in default under the terms of the Sublease, (ii) that Sublessee has fully performed all of its obligations stated herein, and (iii) that the Master Lease is then in full force and effect, Sublessee shall have the option to extend the term of the Sublease as amended hereby, on the entire 615,000 square feet of the Premises for an additional three (3) year term commencing on January 1, 2004, and terminating on December 31, 2006, by giving written notice to Sublessor not later than January 1, 2003. Such extension shall be on the same terms and conditions as set forth herein except that minimum rent for the entire 615,000 square feet of the Premises for the first year of such extended term shall be the same minimum rent as was in effect for the Additional Space as of December 31, 2003. The minimum rent on the Premises shall be increased annually on January 1, 2005, and January 1, 2006, by the percentage increase in the CPI for the twelve (12) month period immediately preceding said -3- adjustment date. However, notwithstanding the foregoing, in no event shall the minimum rent during such extended term increase on any adjustment date by more than five percent (5%) of the minimum rent payable immediately prior to such adjustment date. 12. The Sublease is hereby amended to delete paragraph 27 thereof. 13. Sublessee acknowledges that the Master Landlord is responsible to coordinate the maintenance and repairs of the access road to the Building in which the Premises are located. Sublessor will use its best efforts to assist Sublessee in a non-monetary manner in addressing any maintenance or repair issues relating to the road with the Master Landlord. 14. Any terms of the Sublease not inconsistent with this Third Amendment are hereby ratified and confirmed and shall continue in full force and effect. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the day and year first above written. Signed, sealed and delivered UNIT DISTRIBUTION OF UTAH, INC., in the presence of: __________________________________ By:______________________________________ Print: ___________________________ Print:______________________________ Its: ___________________ President __________________________________ Print: ___________________________ (Corporate Seal) ICON HEALTH AND FITNESS, INC. __________________________________ By:______________________________________ Print: ___________________________ Print:______________________________ Its: ___________________ President __________________________________ Print: ___________________________ (Corporate Seal) -4- EXHIBIT "B" The Premises shall be incrementally enlarged by the addition to the Premises of 282,600 square feet of additional space on the following schedule: 1. Possession of an additional area consisting of approximately 100,000 square feet of space shall be delivered by Sublessor to Sublessee between April 15, 1996 and April 30, 1996. Rent shall commence to be paid on such additional space in advance on May 1, 1996, and continue to be paid on the first day of each consecutive month thereafter throughout the term of the Sublease. 2. Possession of an additional area consisting of approximately 112,600 square feet of space shall be delivered by Sublessor to Sublessee between May 1, 1996, and May 15, 1996. Rent shall commence to be paid on such additional space on May 15, 1996. Rent for the period from May 15, 1996, through May 31, 1996, shall be paid in arrears on June 1, 19096. All other rent for such additional space shall be paid monthly in advance commencing on June 1, 1996, and continue to be paid on the first day of each month thereafter throughout the term of this Sublease. 3. Possession of the remaining area consisting of approximately 60,000 square feet of warehouse and office space shall be delivered by Sublessor to Sublessee on or before August 1, 1996. Rent shall be payable on such additional area in advance commencing on August 1, 1996, and continuing on the first day of each month thereafter throughout the term of this Sublease. All space delivered by Sublessor to Sublessee under clauses 1., 2., and 3. above shall be contiguous to warehouse or office space already in Sublessee's possession. Notwithstanding anything to the contrary set forth in paragraphs 5, 6, 7, 8 or 9 of the Third Amendment, until such time as Sublessee is in possession of the entire 615,000 square feet of the Premises, Sublessee shall be required to pay only a pro rata share of the costs required by paragraphs 7.2, 7.3, 16(d), 3 of Sublease to be paid by Sublessee and a prorata share of the cost of maintenance of the parking area, equal to a fraction the numerator of which is the number of square feet of the Premises then in Sublessee's possession and the denominator of which is 615,000. -5- ADDENDUM "A" ICON SUBLEASE CPI INCREASE AND RENTAL ADJUSTMENT Increase @ 1.6843% - New rent $73,223.15 beginning Jue 1998 Months Adj. Monthly/Yearly Rent Monthly/Yearly Rent Paid Balance Due - ------ ------------------------ ------------------------ ----------- June 1998 thru May 1999 $73,223.15 - $878,677.80 $72,010.28 - $864,123.36 $14,554.44 ---------- Increase @ 1.9632% - New rent $74,660.67 beginning June 99 Month Adjusted Monthly Rent Monthly Rent Paid Balance Due - ----- --------------------- ----------------- ----------- June 1999 $74,660.67 72,010.28 $2,650.39 --------- Monthly rental for the extension term from September 1, 1999 through December 31, 1999, $76,900.49 (including the 1999 CPI increase). Month Adjusted Monthly Rent Monthly Paid Balance Due - ----- --------------------- ------------ ----------- September $76,900.49 $72,010.28 $4,890.21. ---------- Total Due GATX Logistics, Inc.: $14.554/44 June 1998-May 1999 $ 2,650.39 June 1999 -------------------- Total $17,204.83 for recapture of 1998/1999 CPI increase $ 4,890.21 underpaid from September ---------- $22,095.04 Total Due -6- FIFTH AMENDMENT TO SUBLEASE This FIFTH AMENDMENT TO SUBLEASE (the "Amendment") is entered into as of this 9/th/ day of September, 1999 by and between GATX LOGISTICS, INC., a Florida corporation ("Sublessor"), and ICON HEALTH AND FITNESS, INC., a Utah corporation (formerly known as Proform Fitness Products, Inc. and Weslo, Inc.) ("Sublessee"). Recitals A. Pursuant to that certain Sublease dated July 6, 1994, as amended on July 31, 1994, April 28, 1995, August 27, 1996 and June 28, 1999 (collectively, the "Sublease") by and between Sublessor's predecessor-in-interest (Unit Distribution of Utah, Inc.) and Sublessee (or its predecessor-in-interest), Sublessee subleased certain premises consisting of approximately 332,400 rentable square feet comprised of approximately 328,650 rentable square feet of warehouse space and approximately 3,750 square feet of office space in a building commonly known as 1051 South Industrial Parkway, Clearfield, Weber County, Utah (the "Subleased Premises"). B. Sublessor and Sublessee desire to amend the Sublease to, among other things, extend the term of the Sublease, all in accordance with the terms and conditions set forth below. C. All capitalized terms used herein not specifically defined shall have the meanings ascribed to such terms in the Sublease. The term "Sublease" where used in the Sublease shall hereinafter refer to the Sublease as amended by this Amendment. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sublessor and Sublessee hereby agree as follows: 1. Extension of Term. The term of the Sublease is hereby extended for a period of four (4) months from September 1, 1999 through December 31, 1999 (such period from September 1, 1999 through December 31, 1999 shall be referred to herein as the "Extension Term"). Sublessee agrees to vacate and surrender the Subleased Premises to Sublessor in good condition and repair on or before December 31, 1999. 2. Minimum Rent. The minimum rent payable by Sublessee to Sublessor for the Extension Term shall be Seventy Six Thousand Nine Hundred and 49/100 ($76,900.49) per month. Concurrently with the execution of this Amendment, Tenant shall pay the foregoing sum for the minimum rent payable for the month of September, 1999. Additionally, Sublessee shall pay to Sublessor Sublessee's proportionate share of taxes, insurance costs and operating costs within five (5) days of Sublessor's demand therefor. 3. Past Due Rent: Holdover: Effectiveness of this Amendment. Notwithstanding anything to the contrary contained in the Sublease or this Amendment, Sublessee hereby acknowledges and agrees that it has not made various payments of rent that were payable to Sublessor and are now past due in the aggregate sum of Twenty Two Thousand Ninety-Five and 04/100 Dollars ($22,095.04) (the "Past Due Amount"), and Sublessee hereby agrees that it shall pay the entire Past Due Amount, in addition to all other rental payable hereunder as set forth in Section 2 above, on or before September 15, 1999 (the "Outside Date"). Sublessee further agrees that notwithstanding anything to the contrary contained in the Sublease or herein, if Sublessee fails to pay the Past Due Amount to Sublessor in immediately available funds on or before the Outside Date, then, at Sublessor's sole election, the extension of the term set forth in Section 1 shall be null and void and of no force or effect and Sublessee shall be considered to have a subtenancy at sufferance which may be terminable by Sublessor at any time in its sole discretion subject to all the terms contained in the Sublease, except that the minimum rent payable hereunder shall be equal to 200% of the last applicable monthly minimum rent, which shall not be prorated for any partial month. Acceptance of such rent shall not constitute a waiver by Sublessor of any re-entry or any rights of Sublessor nor shall it be deemed an extension or renewal of the Sublease term without a written election thereof by Sublessor. In addition, Sublessee shall be liable for all damages incurred by Sublessor as a result of such holdover. 4. Sublessee's Acceptance of the Premises "As Is". Sublessee acknowledges that it has previously been occupying the Subleased Premises under the Sublease, and Sublessee agrees to continue to accept the Subleased Premises in its presently existing "as is" condition, without representation or warranty by Sublessor whatsoever. 5. Attorney's Fees. In the event either party shall commence an action to enforce any provision of this Amendment, the prevailing party in such action shall be entitled to receive from the other party, in addition to damages, equitable or other relief, and all costs and expenses incurred, including reasonable attorneys fees and court costs and fees incurred to enforce any judgement obtained. 6. Severability. This provision with respect to attorneys fees incurred to enforce a judgement shall be severable from all other provisions of this Amendment, shall survive any judgement, and shall not be deemed merged into the judgement. 7. Authority. Sublessee has full power and authority to enter this Amendment and the person signing on behalf of Sublessee has been fully authorized to do so by all necessary corporate action on the part of Sublessee. 8. Estoppel. Sublessee warrants, represents and certifies to Sublessor that as of the date of this Amendment: (a) Sublessor is not in default under the Sublease; and (b) Sublessee does not have any defenses or offsets to payment of rent and performance of its obligations under the Sublease as when same becomes due. 9. Sublease in Full Force. Except for those provisions which are inconsistent with this Amendment, all other terms, covenants and conditions of the Sublease shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, this Amendment is executed as of the date first written above. Sublessor Sublessee: GATX LOGISTICS, INC. ICON HEALTH AND FITNESS, INC. a Utah Corporation By: /s/ Michael J. Gardner By: /s/ Kent S. Lundgreen -------------------------------- ----------------------------- Name: Michael J. Gardner Name: Kent S. Lundgreen -------------------------- ---------------------- Title: Executive V.P. and C.O.O Title: Materials Manager ------------------------ ---------------------- Date: September 17, 1999 ------------------------ SIXTH AMENDMENT TO SUBLEASE This SIXTH AMENDMENT TO SUBLEASE (the "Amendment") is entered into as of this 1/st/ Day of December, 1999 by and between GATX LOGISTICS, INC., a Florida corporation ("Sublessor"), and ICON HEALTH AND FITNESS, INC., a Utah corporation (formerly known as Proform Fitness Products, Inc. and Weslo, Inc.) ("Sublessee"). Recitals A. Pursuant to that certain Sublease dated July 6, 1994, as amended on July 31, 1994, April 28, 1995, August 27, 1996, June 28, 1999 and September 9, 1999 (collectively, the "Sublease") by and between Sublessor's predecessor-in-interest (Unit Distribution of Utah, Inc.) and Sublessee (or its predecessor-in-interest), Sublessee subleased certain premises consisting of approximately 332,400 rentable square feet comprised of approximately 328,650 rentable square feet of warehouse space and approximately 3,750 square feet of office space in a building commonly known as 1051 South Industrial Parkway, Clearfield, Weber County, Utah (the "Subleased Premises"). B. Sublessor and Sublessee desire to amend the Sublease to, among other things, extend the term of the Sublease, all in accordance with the terms and conditions set forth below. C. All capitalized terms used herein not specifically defined shall have the meanings ascribed to such terms in the Sublease. The term "Sublease" where used in the Sublease shall hereinafter refer to the Sublease as amended by this Amendment. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sublessor and Sublessee hereby agree as follows: 1. Extension of Term. The term of the Sublease is hereby extended for a period of three (3) months from January 1, 2000 through March 31, 2000 (such period from January 1, 2000 through March 31, 2000 shall be referred to herein as the "Extension Term"). Sublease agrees to vacate and surrender the Subleased Premises to Sublessor in good condition and repair on or before March 31, 2000. 2. Minimum Rent. The minimum rent payable by Sublessee to Sublessor for the Extension Term shall be Seventy Six Thousand Nine Hundred and 49/100 Dollars ($76,900.49) per month. Additionally, Sublessee shall pay to Sublessor Sublessee's demand therefor. 3. Sublease's Acceptance of the Premises "As Is". Sublessee acknowledges that it has previously been occupying the Subleased Premises under the Sublease, and Sublessee agrees to continue to accept the Subleased Premises in its presently existing "as is" condition without representation or warranty by Sublessor whatsoever. 4. Attorney's Fees. In the event either party shall commence an action to enforce any provision of this Amendment, the prevailing party is such action shall be entitled to receive from the other party, in addition to damages, equitable or other relief, and all costs and expenses incurred, including reasonable attorneys fees and court costs and fees incurred to enforce any judgement obtained. 5. Severability. This provision with respect to attorneys fees incurred to enforce a judgement shall be severable from all other provisions of this Amendment, shall survive any judgement, and shall not be deemed merged into the judgement. 6. Authority. Sublessee has full power and authority to enter into this Amendment and the person signing on behalf of Sublessee has bee fully authorized to do so by all necessary corporate action on the part of Sublessee. 7. Estoppel. Sublessee warrants, represents and certifies to Sublessor that as of the date of this Amendment: (a) Sublessor is not in default under the Sublease; and (b) Sublessee does not have any defenses or offsets to payment of rent and performance of its obligations under the Sublease as and when same becomes due. 8. Sublease in Full Force. Except for those provisions which are inconsistent with this Amendment, all other terms, covenants and conditions of the Sublease shall remain unmodified and in full force and effect. IN WITNESS WHEROF, this Amendment is executed as of the date first written above. Sublessor Sublessee: GATX LOGISTICS, INC. ICON HEALTH AND FITNESS, INC. a Utah Corporation By: /s/ Michael J. Gardner By: /s/ Kent S. Lundgreen -------------------------------- ----------------------------- Name: Michael J. Gardner Name: Kent S. Lundgreen -------------------------- ---------------------- Title: Executive V.P. and C.O.O Title: Materials Manager ------------------------ ---------------------- Date: December 13, 1999 ------------------------ SEVENTH AMENDMENT TO SUBLEASE This SEVENTH AMENDMENT TO SUBLEASE (the "Amendment") is entered into as of this 31st day of March, 2000 by and between GATX LOGISTICS, INC., a Florida corporation ("Sublessor"), and ICON HEALTH AND FITNESS, INC., a Utah corporation (formerly known as Proform Fitness Products, Inc. and Weslo, Inc.) ("Sublessee"). Recitals A. Pursuant to that certain Sublease dated July 6, 1994, as amended on July 31, 1994, April 28, 1995, August 27, 1996, June 28, 1999, September 9, 1999 and December 1, 1999 (collectively, the "Sublease") by and between Sublessor's predecessor-in-interest (Unit Distribution of Utah, Inc.) and Sublessee (or its predecessor-in-interest), Sublessee subleased certain premises consisting of approximately 332,400 rentable square feet comprised of approximately 328,650 rentable square feet of warehouse space and approximately 3,750 square feet of office space, as forth on the attached Exhibit "A", in building commonly known as 1051 South Industrial Parkway, Clearfield, Weber County, Utah (the "Subleased Premises"). B. Sublessor and Sublessee desire to amend the Sublease to, among other things, extend the term of the Sublease, all in accordance with the terms and conditions set forth below. C. All capitalized terms used herein not specifically defined shall have the meanings ascribed to such terms in the Sublease. The term "Sublease" where used in the Sublease shall hereinafter refer to the Sublease as amended by this Amendment. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sublessor and Sublessee hereby agree as follows: 1. Extension of Term. The term of the Sublease is hereby extended for a period commencing April 1, 2000 through March 31, 2001 (such period from April 1, 2000 through March 31, 2001 shall be referred to herein as the "Extension Term"). Sublessee agrees to vacate and surrender the Subleased Premises to Sublessor in good condition and repair and in accordance with the terms of the Sublease, on or before March 31, 2001. 2. Minimum Rent. The minimum rent payable by Sublessee to Sublessor for the Extension Term shall be Seventy-Six Thousand Nine Hundred and 49/100 Dollars ($76,900.49) per month. In accordance with the terms of the Master Lease, Section 7.1 Minimum Rent, the Minimum Rent stated herein shall be subject to a CPI increase as set forth in the section referenced above. Additionally, Sublessee shall pay to Sublessor Sublease's proportionate share of property taxes, insurance costs and operating costs within five (5) days of Sublessor's demand therfor. 3. Expansion Space: Provided that Sublessee is not then in default of the Sublease and subject to space availability and Sublessor's sole discretion, Sublessor shall offer to Sublessee any additional vacant space contained within the remainder of the building in which the "Subleased Premises" are a part, under the same terms and conditions as set forth within the Sublease. Sublessor shall notify Sublessee in writing of the availability of such expansion space and Sublessee shall have five (5) days following receipt of notice to, in writing, accept or reject the offered space. 4. Sublessee's Acceptance of the Premises "As Is". Sublessee acknowledges that it has previously been occupying the Subleased Premises under the Sublease, and Sublessee agrees to continue to accept the Subleased Premises in its presently existing "as is" condition, without representation or warranty by Sublessor whatsoever. 5. Attorney's Fees. In the event either party shall commence an action to enforce any provision of this Amendment, the prevailing party in such action shall be entitled to receive from the other party, in addition to damages, equitable or other relief, and all costs and expenses incurred, including reasonable attorneys fees and court costs and fees incurred to enforce any judgement obtained. 6. Severability. This provision with respect to attorneys fees incurred to enforce a judgement shall be severable from all other provisions of this Amendment, shall survive any judgement, and shall not be deemed merged into the judgement. 7. Authority. Sublessee has full power and authority to enter into this Amendment and the person signing on behalf of Sublessee has been fully authorized to do so by all necessary corporated action on the part of Sublessee. 8. Estoppel. Sublessee warrants, represents and certifies to Sublessor that as of Sublease; and (b) Sublessee does not have any defenses or offsets to payment of rent and performance of its obligations under the Sublease as and when the date of this Amendment: (a) Sublessor is not in default under the same becomes due. 9. Sublease in Full Force. Except for those provisions which are inconsistent with this Amendment, all other terms, covenants and conditions of the Sublease shall remain unmodified and in full force and effect. IN WITNESS WHEROF, this Amendment is executed as of the date first written above. Sublessor Sublessee: GATX LOGISTICS, INC. ICON HEALTH AND FITNESS, INC. a Utah Corporation By: /s/ ILLEGIBLE By: /s/ Jon M. White -------------------------------- ----------------------------- Name: [ILLEGIBLE] Name: Jon M. White -------------------------- ---------------------- Title: [ILLEGIBLE] Title: SR. V.P. of Mfg. ------------------------ ---------------------- Date: [ILLEGIBLE] ------------------------ EIGHTH AMENDMENT TO SUBLEASE This EIGHTH AMENDMENT TO SUBLEASE (the "Amendment") is entered into as of the 1/st/ day of April, 2001 by and between APL LOGISTICS WAREHOUSE MANAGEMENT SERVICES, INC., a Florida corporation, fka GATX Logistics, Inc. ("Sublessor"), and ICON HEALTH AND FITNESS, INC., a Utah corporation (fka Proform Fitness Products, Inc. and Welso, Inc.) ("Sublessee"). Recitals A. Pursuant to that certain Sublease dated July 6, 1994 (the "Original Sublease"), as amended on July 31, 1994, April 28, 1995, August 27, 1996, June 28, 1999, September 9, 1999, December 1, 1999 and March 31, 2000 (collectively, the "Sublease") by and between Sublessor's predecessor-in-interest (Unit Distribution of Utah, Inc.) and Sublessee (or its predecessor-in-interest), Sublessee subleases from Sublessor certain premises consisting of approximately 332,400 rentable square feet comprised of approximately 328,650 rentable square feet of warehouse space and approximately 3,750 rentable square feet of office space in a building commonly known as 1051 South Industrial Parkway, Clearfield, Weber County, Utah, as depicted on Exhibit "A" attached hereto (the "Subleased Premises", or "Premises"). The Sublease is subject and subordinate to the master lease relating to the Subleased Premises under which Sublessor is the prime lessee (as the same may be amended and supplemented, the "Master Lease"). B. Sublessor and Sublessee desire to amend the Sublease to, among other things, (I) extend the term of the Sublease, and (ii) add to the Subleased Premises, on an incremental basis, the remainder of the Master Premises (defined in Section 2 of the Original Sublease and containing a total of 615,000 rentable square feet, which square footage includes 15,000 square feet of office space), which remainder contains an additional 282,600 rentable square feet contiguous to the Subleased Premises, all in accordance with the terms and conditions set forth below. C. All capitalized terms used herein not specifically defined shall have the meanings ascribed to such terms in the Sublease. The term "Sublease" where used in the Sublease shall hereafter refer to the Sublease as amended by this Amendment. Agreement NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sublessor and Sublessee hereby agree as follows: 1. Extension of Term. The term of the Sublease is hereby extended for a period of thirty-three (33) months, from April 1, 2001 (the "Renewal Commencement Date") through December 31, 2003 (the "Expiration Date"). Sublessee agrees to vacate and surrender the Subleased Premises (including the Must Take Space, as defined blow) to Sublessor in good condition and repair on or before the Expiration Date and otherwise in accordance with the terms of the Sublease. The period commencing on the Renewal Commencement Date and ending on the Expiration Date is referred to herein as the "Extended Term". 2. Must-Take Space. Sublessee hereby agrees to (a) add to the Subleased Premises, on the date that is thirty (30) days after the date of the mutual execution of this Amendment, approximately 50,000 additional rentable square feet of ware house space contiguous to the original Subleased Premises, as such space is designated by Sublessor (the "First Must Take Space"); (b) add to the Subleased Premises, on the date that is sixty (60) days after the date of the mutual execution of this Amendment, approximately 50,000 additional rentable square feet of warehouse space contiguous to the First Must Take Space, as such space is designated by Sublessor (the "Second Must Take Space"); and (c) add to the Subleased Premises, on the date that is six (6) months after the date of the mutual execution of this Amendment, the remainder of the Master Premises, containing approximately 182,600 additional rentable square feet of warehouse space contiguous to the Second Must Take Space (the "Third Must Take Space), as such space is designated by Sublessor. The square footages of the First Must Take Space, Second Must Take Space and Third Must Take Space set forth in this Section 2 are hereby stipulated by Sublessor and Sublessee to be true and correct. The effective date of Sublessee's lease of the First Must Take Space shall be the date that is thirty (30) days after the date of the mutual execution of this Amendment (the "First Must Take Commencement Date), the effective date of Sublessee's lease of the Second Must Take Space shall be the date that is sixty (60) days after the date of the mutual execution of this Amendment (the "Second Must Take Commencement Date") and the effective date of Sublessee's lease of the Third Must Take Space shall be the date that is six (6) months after the date of the mutual execution of this Amendment (the "Third Must Take Commencement Date"). Sublessee's lease of the First Must Take Space, Second Must Take Space and Third Must Take Space shall be on the same terms and conditions as affect the original Subleased Premises; provided, however, that (A) Sublessee's proportionate share of taxes, insurance, Operating Costs, and all other items for which Sublessee is responsible for its proportionate share under the Sublease shall be increased to take into account the additional number of rentable square feet of the First Must Take Space, Second Must Take Space and Third Must Take Space, as further set forth in Section 4 below, and (ii) the First Must Take Space, Second Must Take Space and Third Must Take Space shall be leased to Sublessee in their then current condition, subject to the improvements to be constructed pursuant to Section 6 below, without any representations or warranties. The term of Sublessee's lease for the First Must Take Space, Second Must Take Space and Third Must Take Space, and Sublessee's obligation to pay rent and all other charges with respect to the First Must Take Space, Second Must Take Space and Third Must Take Space shall commence upon the First Must Take Commencement Date, Second Must Take Commencement Date and Third Must Take Commencement Date respectively, and shall expire on the "Expiration Date". Sublessor shall not be liable to Sublessee or otherwise be in default hereunder in the event that Sublessor is unable to deliver the First Must Take Space, Second Must Take Space or Third Must Take Space to Sublessee on the projected delivery date thereof, and in the event Sublessor is unable to deliver the First Must Take Space, Second Must Take Space, or Third Must Take Space as applicable, on the projected date, then the First Must Take Commencement Date, Second Must Take Commencement Date and Third Must Take Commencement Date, as applicable, shall be the date that Sublessor delivers the First Must Take Space, Second Must Take Space or Third Must Take Space, as applicable, to Sublessee. Within ten (10) days after Sublessor's written request, if any, Sublessee shall execute a commencement date memorandum with respect to the Sublease, on Sublessor's then standard form (which forms hall be reasonably satisfactory to Sublessee), adding the First Must Take Space to the Subleased Premises upon the terms and conditions set forth in this Section 2; failure by Sublessee to timely execute such memorandum shall constitute a default under the Sublease. Within then (10) days after Sublessor's written request, if any, Sublessee shall execute a commencement date memorandum with respect to the Sublease, on Sublessor's then standard form (which form shall be reasonably satisfactory to Sublessee), adding to the Second Must Take Space to the Subleased Premises upon the terms and conditions set forth in this Section 2; failure by Sublessee to timely execute such memorandum shall constitute a default under the Sublease. Within ten (10) days after Sublessor's written request, if any, Sublessee shall execute a commencement date memorandum with respect to the Sublease, on Sublessor's then standard form (which form shall be reasonably satisfactory to Sublessee), adding the Second Must Take Space to the Subleased Premises upon the terms and conditions set forth in this Section 2; failure by Sublessee to timely execute such memorandum shall constitute a default under the Sublease. Within ten (10) days after Sublessor's written request, if any, Sublessee shall execute a commencement date memorandum with respect to the Sublease, on Sublessor's then standard form (which form shall be reasonably satisfactory to Sublessee), adding the Third Must Take Space to the Subleased Premises upon the terms and conditions set forth in this Section 2; failure by Sublessee to timely execute such memorandum shall constitute a default under the Sublease. The First Must Take Space, Second Must Take Space and Third Must Take Space are referred to collectively herein as the "Must Take Space". Notwithstanding that memorandums may not be executed in connection with the addition of the Must Take Space to the Subleased Premises, the First Must Take Space, Second Must Take Space and Third Must Take Space shall be deemed part of the "Subleased Premises" and "Premises" under the Sublease on the First Must Take Commencement Date, Second Must Take Commencement Date and Third Must Take Commencement Date, as applicable, upon and subject to the terms and conditions of this Amendment. 3. Minimum Rent. (a) Commencing on the Renewal Commencement Date, the minimum rent payable by Sublessee to Sublessor for the Subleased Premises shall equal Seventy-Nine Thousand Seven Hundred Seventy-Six and 00/100 Dollars ($79,776.00) per month (i.e., $0.24 per rentable square foot per month). Additionally, Sublessee shall continue to be required to pay to Sublessor Sublessee's proportionate share (as such proportionate share is modified in Section 4 below) of taxes, insurance costs and Operating Costs within five (5) days of Sublessor's demand therefor, as further set forth in the Sublease. (b) Commencing on the First Must Take Commencement Date, the minimum rent for the Subleased Premises shall be increased by an amount equal to Twelve Thousand and 00/100 Dollars ($12,000.00) per month (i.e., the square footage of the First Must Take Space, 50,000, multiplied by $0.24 per rentable square foot per month) (in addition to the minimum rent for the original Subleased Premises), thereby increasing the minimum rent payable by Sublessor to Sublessee for the Subleased Premises to equal Ninety-One Thousand Seven Hundred Seventy-Six and 00/100 Dollars ($91,776.00) per month. Such amount shall further increase as set forth below. Additionally, Sublessee shall continue to be required to pay to Sublessor Sublessee's proportionate share (as such proportionate share is modified in Section 4 below) of taxes, insurance costs and Operating Costs within five (5) days of Sublessor's demand therefor, as further set forth in the Sublease. (c) Commencing on the Second Must Take Commencement Date, the minimum rent for the Subleased Premises shall be increased by an amount equal to Twelve Thousand and 00/100 Dollars ($12,000.00) per month (i.e., the square footage of the First Must Take Space, 50,000, multiplied by $0.24 per rentable square foot per month) (in addition to the minimum rent for the original Subleased Premises and First Must Take Space), thereby increasing the minimum rent payable by Sublessor to Sublessee for the Subleased Premises to equal One Hundred Three Thousand Seven Hundred Seventy-Six and 00/100 Dollars ($103,776.00) per month. Such amount shall further increase as set forth below. Additionally, Sublessee shall continue to be required to pay to Sublessor Sublessee's proportionate share (as such proportionate share is modified in Section 4 below) of taxes, insurance costs and Operating Costs within five (5) days of Sublessor's demand therefor, as further set forth in the Sublease. (d) Commencing on the Third Must Take Commencement Date, the minimum rent for the Subleased Premises shall be increased by Forty-Three Thousand Eight Hundred Twenty-Four and 00/100 Dollars ($43,824.00) per month (i.e., the rentable square footage of the Third Must Take Space, 182,600, multiplied by $0.24 per rentable square foot per month) (in addition to the minimum rent for the original Subleased Premises, First Must Take Space and Second Must Take Space), thereby increasing the minimum rent payable by Sublessor to Sublessee for the Subleased Premises to equal One Hundred Forty-Seven Thousand Six Hundred and 00/100 Dollars ($147,600.00) per month. Additionally, Sublessee shall continue to be required to pay to the Sublessor Sublessee's proportionate shares (as such proportionate share is modified in Section 4 below) of taxes, insurance costs and Operating Costs within five (5) days of Sublessor's demand therefor, as further set forth in the Sublease. 4. Proportionate Share; Pass Throughs. (a) Sublessor and Sublessee acknowledge and agree that, notwithstanding anything to the contrary contained in the Sublease, (i) Sublessee's proportionate share of taxes, insurance, Operating Costs, and all other items for which Sublessee is responsible for its proportionate share under the Sublease, is currently equal to Fifty-Four and 05/100 Percent (54.05%), (ii) notwithstanding the foregoing, Sublessee's proportionate share of warehouse space (the "Warehouse Proportionate Share") is currently equal to Fifty-Four and 78/100 Percent (54.78%) (i.e., 328,650 rentable square feet of warehouse space in the Subleased Premises out of 600,000 rentable square feet of warehouse space in the Master Premises), and (iii) Sublessee's proportionate share of office space (the "Office Proportionate Share") is currently equal to Twenty-Five Percent (25%) (i.e., 3,750 rentable square feet of office space in the Subleased Premises out of 15,000 rentable square feet of warehouse space in the Master Premises), as set forth in the Sublease; accordingly, notwithstanding the foregoing, any amounts for which Sublessee is responsible under the Sublease that are calculated based upon the separate proportionate shares of the office space and warehouse space respectively (e.g., utilities that are not separately metered and amounts for maintenance of the Trailer Parking area, all as more particularly described in the Sublease) shall be calculated using such proportionate shares of the warehouse and office space, which shares shall increase in accordance with the provisions of subsections (b), (c) and (d) below. (b) Notwithstanding subsection (a) above, effective on the First Must Take Commencement Date, until the Second Must Take Commencement Date, (i) Sublessee's proportionate share of taxes, insurance, Operating Costs, and all other items for which Sublessee is responsible for its proportionate share under the Sublease, shall equal Sixty-Two and 18/100 Percent (62.18%), (ii) notwithstanding the foregoing, the Warehouse Proportionate Share shall be increased to equal Sixty-Three and 11/100 Percent (63.11%) (i.e., 378,650 rentable square feet of warehouse space in the Subleased Premises and First Must Take Space out of 600,000 rentable square feet of warehouse space in the Master Premises), and (iii) notwithstanding the foregoing, the Office Proportionate Share shall remain at Twenty-Five Percent (25%). (c) Notwithstanding subsections (a) and (b) above, effective on the Second Must Take Commencement Date, until the Third Must Take Commencement Date, (i) Sublessee's proportionate share of taxes, insurance, Operating Costs, and all other items for which Sublessee is responsible for its proportionate share under the Sublease, shall be increased to equal Seventy and 31/100 Percent (70.31%), (ii) notwithstanding the foregoing, the Warehouse Proportionate Share shall be increased to equal Seventy-One and 45/100 Percent (71.45%), and (iii) notwithstanding the foregoing, the Office Proportionate Share shall remain at Twenty Five and 00/100 Percent (25%). (d) Notwithstanding subsections (a), (b) and (c) above, effective on the Third Must Take Commencement Date, for the remainder of the term of Sublease, (i) Sublessee's proportionate share of taxes, insurance, Operating Costs, and all other items for which Sublessee is responsible for its proportionate share under the Sublease, shall be increased to equal One Hundred Percent (100%), (ii) notwithstanding the foregoing, the Warehouse Proportionate Share shall be increased to equal One Hundred Percent (100%), and (iii) notwithstanding the foregoing, the Office Proportionate Share shall be increased to equal One Hundred Percent (100%). (e) The last sentence of Section 9(b) of the Original Sublease is hereby deleted in its entirety and shall be of nor further force and effect. (f) Sublessor hereby agrees that, effective as of the First Must Take Commencement Date, the monthly amount charged to Sublessee for Sublessee's share of taxes, insurance, Operating Costs (other than utilities) and Sublessor's repair obligations under the Original Sublease shall not exceed a total of two and one-half cents ($0.025) per rentable square foot of the subleased Premises per monthly, calculated on a cumulative basis (the "Cap"). Nothing contained herein shall limit (i) the costs of utilities for which Sublessee is responsible under the Sublease (and notwithstanding anything to the contrary contained herein, Sublessee shall be liable for all utilities used relating to the Subleased Premises), or (ii) any other repair and/or maintenance obligations of Sublessee under the Sublease. 5. Letter of Credit. Concurrently with Sublessee's execution of this Amendment, Sublessee shall deliver to Sublessor and irrevocable standby letter of credit ("Letter of Credit") in the amount of One Hundred Forty-Seven Thousand Six Hundred and 00/100 Dollars ($147,600.00) (the " Commitment Fee Amount") which Letter of Credit shall (i) be issued by a financial institution reasonably acceptable to Sublessor, (ii) have a Standard and Poor's rating of "A-" or better, (iii) be acceptable in form and content to Sublessor, (iv) have an initial term of at least twelve (12) months, and be renewed at least thirty (30) days prior to expiration for additional period of twelve (12) months, and be renewed at least thirty (3) days prior to expiration for additional periods of twelve (12) months each until sixtieth (60/th/) day following the Expiration Date, (iv) show Sublessor as beneficiary and Sublessee as account party, (v) be in the form and content of Exhibit "C" attached hereto, and (vi) contain such additional terms and conditions as may be reasonably required by any lender of Sublessor, or by the issuing financial institution. The Letter of credit shall be held by Sublessor as security for the full and faithful performance by Sublessee of the terms, covenants and conditions of the Sublease. Sublessee shall pay all expenses, points and/or fees incurred by Sublessee in obtaining Letter of Credit. Without limiting the rights of Sublessor under the Sublease, and subject to Sublessor's rights in the immediately following sentence, if Sublessee breaches or defaults under any provisions of the Sublease, including but not limited to the payment of minimum rent or other amounts payable by Sublessee under the Sublease, and such breach or default continues beyond the expiration of any applicable notice and cure period specifically provided for in the Sublease for such breach or default, then Sublessor may draw on all or the portion of such Letter of Credit determined by Sublessor in its reasonable discretion to be necessary, and use, apply or retain such drawn funds for the payment of any rent other sums in default or to compensate Sublessor for any other loss or damage which Sublessor may suffer by reason Sublessee's default, to compensate Sublessor for any loss or damage which Sublessor may suffer thereby, to reimburse Sublessor for costs incurred in connection with the Sublease (including, without limitation, costs incurred to improve the Subleased Premises, any improvement costs and any brokerage commissions and attorneys' fees), or as prepaid rent to be applied against Sublessee's rent and other payment obligations. The proceeds received from any draw shall constitute Sublessor's property, and not Sublessee's property or the property of the bankruptcy estate of Sublessee. If Sublessee (i) breaches or defaults under any provision of the Sublease more than once n any twelve (12) monthly period, including but not limited to the payment of rent, or (ii) fails to renew the Letter of Credit at least thirty (30) days prior to its expiration, then Sublessor, in its sole and absolute discretion, shall be entitled to draw upon the entire Commitment Fee Amount. The use, application or retention of the Letter of Credit, or any portion thereof, shall not prevent Sublessor from exercising any other rights or remedies provided under the Sublease, and shall not operate as a limitation on any recovery to which Sublessor may otherwise be entitled. Any amount of the Letter of Credit which is drawn upon by Sublessor shall be used, applied or retained by Sublessor to apply in payment of rent or to cure any other default. If Sublessor so uses or applies all or any portion of said drawn Letter of Credit Sublessee shall within five (5) business days after written demand therefore replace the original Letter of Credit with a new Letter of Credit in the same amount as the Commitment Fee Amount as of the sate the Letter of Credit was drawn upon by Sublessor, and in substantially the same form as the original Letter of Credit. Sublessor shall not be required to keep said Letter of Credit or any drawn funds thereunder separate from its general accounts. If Sublessee performs all of Sublessee's obligations under the Sublease, then within sixty (60) days following the expiration of the term of the Sublease, and after Sublessee has vacated the Subleased Premises and surrendered the same to Sublessor in accordance with the terms and conditions of the Sublease, the Letter of Credit shall be returned to Sublessee. No trust relationship is created herein between Sublessor and Sublessee with respect to the Letter of Credit. Sublessee acknowledges that Sublessor has the right to sell, transfer or mortgage its interest in the Subleased Premises and in the Sublease and Sublessee agrees that in the event of any such sale, transfer or mortgage, Sublessor shall have the right to transfer or assign the Letter of Credit to the transferee or mortgagee, and in the event of any such transfer or mortgage (i) Sublessee shall look solely to such transferee or mortgagee for the return of the Letter of Credit and (ii) Sublessee shall pay all transfer fees or charges imposed by the issuing banks as a result of such transfer. Sublessor and Sublessee acknowledge and agree that in no event or circumstance shall the Letter of Credit or any renewal thereof or substitute therefor be deemed to be or treated or intended to serve as a "security deposit" within the meaning of applicable state law. The parties hereto (A) recite that the Letter of Credit is not intended to serve as a security deposit, and any and all other laws, rules and regulations applicable to security deposits in the commercial context ("Security Deposit Laws") shall have no applicable or relevance thereto and (B) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws. 6. Acceptance of Subleased Premises and Must Take Space; Improvements. (a) Sublessee hereby acknowledges that it has been in occupancy of the Subleased Premises, as described above. The Subleased Premises and Must Take Space shall be leased by Sublessor to Sublessee in their current condition, "With All Faults", "Without Any Representations or Warranties". Notwithstanding the foregoing, Sublessor shall, at it s sole cost and expense (subject to the Heater Reimbursement, as such terms defined below), using Sublessor's standard materials, specifications, guidelines and procedures, perform, or cause the lessor under the Master Lease to perform, the following work in the Subleased Premises (collectively, "Sublessor's Work"): (a) re-carpet the office portion of the Subleased Premises existing as of the date of this Amendment, using industrial grade carpet; (b) re-paint the painted walls in the office portion of the Subleased Premises existing as of the date of this Amendment; (c) install industrial grade ceiling tile, vinyl tile and vinyl base in the office portion of the Subleased Premises existing as of the date of this Amendment, in areas determined by Sublessor; (d) install and additional five (5) dock doors in the warehouse portion of the Subleased Premises, in areas to be mutually agreed upon by Sublessor and Sublessee; (e) cause the floors in the Must Take Space to be in reasonably good working order (taking into the age of the Must Take Space); and (f) perform the improvements and repairs set forth on Exhibit "B" attached hereto. Notwithstanding the foregoing, Sublessee shall reimburse to Sublessor, within five (5) days after demand by Sublessor (the "Heater Reimbursement"), all costs and expenses incurred by Sublessor in connection with any replacement of heaters in the Subleased Premises, up to a maximum of One Thousand Nine Hundred and 00/100 Dollars ($1,900.00) per heater. Additionally, Sublessor and Sublessee acknowledge and agree that: (i) Sublessor's Work may be performed while Sublessee is in occupancy of the Subleased Premises (including any portion of the Must Take Space), Sublessee hereby permitting access to the Subleased Premises to accomplish the same; (ii) Sublessee shall not (and shall direct its agents to not) interfere with Sublessor while Sublessor's Work is being performed; (iii) Sublessor shall use commercially reasonable efforts to not materially and unreasonably interfere with Sublessee's use of the Subleased Premises while Sublessor's Work is being performed, and (iv) Sublessee will not be entitled to any abatement of rent (however denominated) on account of the performance of Sublessor's Work while Sublessee is in occupancy of the Subleased Premises (including any portion of the Must Take Space), Sublessee hereby waiving any such rights. Notwithstanding the foregoing, Sublessor hereby agrees that it will not pass through to Sublessee the costs of the work described in this Section 6(a), subject, however, to the Heater Requirement. (b) Sublessor and Sublessee hereby agree that, subject to reimbursement by Sublessee (as described below), Sublessor shall repair and maintain the Concrete Dock Areas and Floors (as such terms are defined below), and Sublessee shall pay all costs incurred by Sublessor in connection therewith (subject to the Cap) together with the Sublessee's payments of monthly minimum rent. Sublessor and Sublessee acknowledge that concrete dock areas are currently located in the warehouse portion of the original Subleased Premises (the "Concrete Dock Areas"). Sublessors and Sublessee hereby agree that if repairs to the concrete floors in the Premises (the "Floors') or to the Concrete Dock Areas are required at any time during the term of the Sublease as a result of (A) the usage of the Concrete Dock Areas and/or Floors in a manner not recommended by the manual therefor, or in a manner exceeding the manufacturer's recommendations therefore, by Sublessee or its employees, agents, contractors, licensees and/or invitees, or (B) the negligence or willful acts of Sublessee or its employees, agents, contractors, licensee and/or invitees, then Sublessee shall, at its sole cost and expense, cause the Concrete Dock Areas and the Floors to be repaired, and such repairs shall be performed in accordance with the terms of Section 7 below, and shall accordingly be considered "Sublessee Repairs" (provided, however, that the Repair Date, as defined in Section 7, shall not be applicable to such repairs). (c) Sublessee hereby agrees and warrants that it has investigated and inspected the condition of the Subleased Premises and Must Take Space and the suitability of same for Sublessee's purposes, and Sublessee does hereby waive and disclaim any objection to, cause of action based upon, or claim that its obligations hereunder should be reduced or limited because of the condition of the Subleased Premises or the Must Take Space or the suitability of same for Sublessee's purposes. Sublessee acknowledges that neither Sublessor nor any agent nor any employee or Sublessor has made any representations or warranty with respect to the Subleased Premises or the Must Take Space or with respect to the suitability of the same for the conduct of Sublessee's business, and Sublessee expressly warrants and represents that Sublessee has relied solely on it sown investigation and inspection of the Subleased Premises and Must Take Space in its decision to enter into this Amendment and let the Subleased Premises and Must Take Space in their current condition. All representations and warranties contained in his section shall be subject tot he Sublessor's improvements listed above in paragraph 6(a), the Tenant's walk through inspection list detailed in Exhibit B attached hereto, and subject to defects in workmanship or materials utilized in such improvements performed by Sublessor, their agents, employees, or representatives. 7. Sublessee Repairs. Within sixty (60) days after the mutual execution and delivery of this Amendment (the "Repair Date"), Sublessee shall, at Sublessee's sole cost and expense, perform maintenance and repairs to the lighting fixtures in the subleased Premises, as set forth on Exhibit "B" attached hereto (collectively, the "Sublessee Repairs"). The Sublessee Repairs shall be subject to the terms of the Sublease, and shall be performed by Sublessee using materials and workmanship of similar quality tot hat already installed,, all in a manner reasonable satisfactory to Sublessor. Sublessor shall have the right, but not the obligation, to oversee and monitor the Sublessee Repairs. All items in connection with the Sublessee Repairs (including, without limitation, plans and specifications therefor) shall be subject to the prior written approval of Sublessor. In connection with the Sublessee Repairs, Sublessee shall not interfere with Sublessor's performance of the Sublessor's Work or with any other actives of Sublessor at the Master Premises. Any costs or expenses incurred by Sublessor in connection with the Sublessee Repairs shall be reimbursed by Sublessee within five (5) days after demand by Sublessor. Sublessee shall at its sole cost and expense obtain all necessary approvals and permits pertaining to the Sublessee Repairs. Sublessee shall perform the Sublessee Repairs in a good and workmanlike manner, in accordance with all applicable federal, state, county and municipal laws, rules and regulations, pursuant to a valid building permit, if applicable, and in conformance with Sublessor's construction rules and regulations. Sublessee hereby indemnifies, defends and agrees to hold Sublessor free and harmless from all liens and claims of lien, and all other liability, claims and demands arising out of any work done or material supplied to the Subleased Premises by or at the request of Sublessee in connection with the Sublessee Repairs. Sublessee shall at all time s keep the Subleased Premises and Master Premises free all liens. Sublessee shall provide Sublessor with evidence that Sublessee carries "builder's All Risk" insurance in an amount approved by Sublessor covering the performance of the Sublessee Repairs, and such other insurance as Sublessor may reasonable require, it being understood that all Sublessee Repairs shall be insured by Sublessee pursuant to the Sublease immediately upon completion thereof. In addition, Sublessor may, in its discretion, require Sublessee to obtain a lien and completion bond or some alternate form of security satisfactory to Sublessor in an amount sufficient to ensure the lien-free completion of the Sublessee Repairs and naming Sublessor as a co-obligee. 8. Attorney's Fees. In the event either party shall commence an action to enforce any provision of this Amendment, the prevailing party in such action shall be entitled to receive from the other party, in addition to damages, equitable or other relief, and all costs and expenses incurred, including reasonable attorneys fees and court costs and fees incurred to enforce any judgment obtained. 9. Severability. This provision with respect to attorneys fees incurred to enforce a judgment shall be severable from all other provisions of this Amendment, shall survive and judgment, and shall not be deemed merged into the judgment. 10. Authority. Sublessee has full power and authority to enter into this Amendment and the person signing on behalf of Sublessee has been fully authorized to do so by all necessary corporate action on part of Sublessee. 11. Estoppel. Sublessee warrants, represents and certifies to Sublessor that as of the date of this Amendment: (a) Sublessor is not in default under the Sublease; and (b) Sublessee does not have nay defenses or offsets to payment of rent and performance of its obligations under the Sublease as and when becomes due. 12. Square Footage. The square footages set forth in this Amendment (including, without limitation, those set forth in the Recitals to this Amendment) are hereby stipulated by Sublessor and Sublessee to be true and correct. 13. Landlord's Waiver. Within five (5) days after the mutual execution and delivery of this Amendment, provided that Sublessee is not in material breach or default under the Sublease, and, without limiting the foregoing, Sublessee has paid all amounts due and owing under the Sublease and has delivered the Letter of Credit to Sublessor pursuant to this Amendment, then Sublessor and Sublessee shall execute a "Landlord's Waiver" in the form and content attached hereto as Exhibit "D". 14. Sublease in Full Force. Except for those provisions which are inconsistent with this Amendment, all other terms, covenants and conditions of the Sublease shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, this Amendment is executed as of the date first written above. Sublessor: Sublessee: APL LOGISTICS WAREHOUSE ICON HEALTH AND FITNESS, INC., a MANAGEMENT SERVICES, INC., a Utah Corporation Florida corporation, fka GATX By: /s/ Jon M. White Logistics, Inc. --------------------------------- Name: Jon M. White ---------------------------- By: /s/ M. Gardner Title: Sr. V.P. of Mfg ------------------------------------ --------------------------- Name: M. Gardner ------------------------------ Title: COO ---------------------------- By: ________________________________ Name:___________________________ Title:__________________________ EXHIBIT "A" SUBLEASED PREMISES EXHIBIT "B" WORK Clearfield Distribution Center - Bldg #1 ICON Requested Improvements
Item # Description Reference - Landlord Repairs Cost of Work Respons. Party 1.1 Repair/correct areas along perimeter well where there Included below slight settling has occurred 1.2 Clean shop area walls and floor and paint surfaces, $ 3,820 APLL allowance value 1.3 Repair concrete slab stress cracking (ICON and ___________) $ 10,795 APLL ICON affected area approximately 8895 s.f. 1.4 Repair spelled and gouged areas at construction joints on $ 728 APLL concrete slab affected area approximately 110 s.f. 1.5 Retrofit of Interior rail to provide same elevation as pricing below N/A remaining Pricing separated for review as an alternate consideration 1.6 Repair unit heaters and or heat exchanger in warehouse $ 11,872 ICON/APLL area (53 each @ $224/each) 1.7-A Install dock doors at 4 existing oversized knock out locations Structural engineering costs and permits $ 3,193 Sawcutting and Install dock doors $ 19,062 Construct pit & furnish & install dock leveler $ 25,850 Furnish & Install vehicular restraint $ 15,930 None Electrical feeder to level and Vehicular restraint $ 1,711 Furnish & install dock seals $ 2,788 New electrical panel for door circuitry $ 634 ------------- Subtotal $ 70,178 Ten Imp Cost per each door $17,544 1.7-B Install dock doors at 6 new locations APLL Structural engineering costs and permits $ 6,293 Sawcutting & Install dock doors $ 38,125 $75,440 Construct Plt & furnish & install dock leveler $ 51,690 Furnish a Install vehicular restraint $ 33,860 Electrical feeder to level and vehicular restraint $ 3,512 Furnish & Install dock seals $ 5,591 M/L New electrical panel for door circuitry $ 1,270 ------------- Subtotal $ 140,380 Cost per each door including electric $17,544 $ 105,284 @ __ doors 1.8 Repair rain water gutters (completed in 2000 payment $ 1,575 APLL outstanding) 1.9 Repair exterior light fixture (completed in 2000 payment $ 3,918 APLL outstanding) 1.1 Replace, Where required, existing vertical caulk precast $ 2,000 APLL panel joints (recaulk all vertical joints $9713, where maximum required allow $2000) 1.11 Repair existing dock doors including material handling equipment Dock Door #19 - replace truck restraint & service leveler $ 4,388 APLL Dock Door #20 - replace with steel faced bumper & service leveler $ 448 " Dock Door #21 - replace truck restraint & repair pit welds $ 872 " Dock Door #22 - servicedock leveler $ 139 " Dock Door #23 - reweld pit frame, grout corner of frame with concrete re-anchor dock bumpers and dock leveler $ 338 Dock Door #24 - remove and replace dock leveler in new concrete pit replace truck restraint $ 7,616 " Dock Door #25 - replace with steel faced bumper & service $ " leveler $ 448 " Dock Door #26 - service dock leveler $ " Dock Door #27 - service dock leveler $ 134 Dock Door #28 - service dock leveler $ 134 $ 134 ------------- $ 14,426 APLL
Clearfield Distribution Center - Bldg #1 ICON Requested Improvements 1.12 Office Finishes - standard industrial grade finishes only Demolition of existing floor finishes and haul off $ 3,136 Repair existing drywall and paint $ 14,952 Carpet square replacement in computer room $ 3,906 Carpet replacement $ 17,117 Vinyl composition tile and vinyl base - replacement $ 8,502 Rubber flooring at entry $ 3,276 Paint - doors and casings throughout office area $ 4,301 Remove ceiling tile throughout offices and replace with new tile $ 13,256 Replace toilet petitions at tower office area $ 1,344 Repair and or finish existing drywall at tower office $ 560 Final clean up of all office areas $ 2,240 ----------- Subtotal $ 72,490 APLL 1.13 Recaulk exterior windows on south elevation of building $ 2,000 APLL (recaulk all exterior windows on south elevation of building $5600) maximum (recaulk where required south elevation of building allow $2000) 1.14 Repair roof leak over private office (Northeast corner of Bldg) $ 1,344 APLL 1.15 Asphalt overlays on driveway access and repair to truck court area see 1.17 below *74/26% Roadway overlay from City Road 700 South to and of Naptech property $ 22,899 Roadway overlay from Naptech property to ProLogic south property line $ 37,050 1.16 Asphalt patching and or repair in truck court area between Bldg 1& 2 Include below 1.17 Road Improvements associated with Building #1 $ 44,362 see 1.15 Demolition of truck court area serving Bldg #1. regrade to obtain approp. elevation at dock doors and install new concrete truck apron (Cost information to be finalized after completion of civil engineered survey and construction plan) Amort (a) Concrete demo $ 1,815 Amort (a) Asphalt grinding and reuse as asphalt base material $ 2,000 Amort (a) Fine grading all base areas for proper slope and gradiant and install 4' $ 20,045 asphalt section Amort (a) Install 8' x 3ft concrete water way, 3 (2x2) catch basins & 12 RCP tied $ 13,923 to existing storm drain system Amort (a) Install 8' reinforced concrete truck apron $ 42,500 Amort (a) Install 2' asphalt overlay in truck court $ 12,480 APLL Subtotal $ 137,125 1.18 Replace and/or repair, where required, overhead high bay $ 16,132 ICON/APLL lighting ballast and lamps (52 each $310/each)
ICON Health & Fitness, Inc. June 13, 2001 GATX WALK THROUGH INSPECTION * . Battery room add on floor . 2 Doors metal missing from door frame . Cinder black broken out around door frame * . Drain plugged up with dirt and acid drippings Truckers back office * . Forklift damage to all sheet rock around outside of office . Ink spillage and markings over power panel . All major seams in floor have wide cracks * . Major cracking through all warehoues on GATX's side (NOT MAJOR) . Southeast corner of GATX side: * 10' x 20' Floor needs to be cut out and replaced (located in 50,000 of adjacent to ICON) * 4' x 4' Floor needs to be cut out and replaced * . Many holes through warehouse need to be patched, 6" to 12" area's many other areas need repaching . Concern about all concrete "Age" . High volume usage forklift traffic (all 5000 lbs lifts) * . R-3 Fire Exit Door - water was running in when it was raining * . Northeast Bay Door - train access door, bottom 2 panels are bent over . R-4 Fire Exit Door - wall by inside door is cracked badly * . Train Access Bay Door - bottom 2 panels bowed out Dock #5 . #3 panel is bent . Outside dock curtain is broken . Cement all around is cracked * . Dock frame broken, needs welding * All items will be replaced or repaired as indicated. ALL OTHER ITEMS ARE NOTED AS THE CURRENT CONDITION OF THE PROPERTY UPON OCCUPANCY BY ICON. Dock #6 . Bottom 2 panels bowed out . Cement is broken and cracked all around . Outside dock curtain is broken Dock #7 . 3 bottom panels are bowed out Dock #8 . Cement is cracked all around * . Dock bumpers are broken . Heavy patching is needed around dock * Dock #9 Replace dock leveler from 20,000 lb. . Heavy metal patching has been done around dock * . Dock bumpers on both sides are broken will be replaced with dock levelers Dock #10 Replace dock leveler from 20,000 lb . Heavy patching has been done around dock . Cement settling around dock are "High and Low" * . Bumper pad left side will be replaced - included in costs of dock leveler Dock #11 . Bottom panel bowed out . Heavy metal patching has been done around dock * o Bumper pad's are both broken - replace Dock #12 * . Door latch is broken . Bottom panel is bowed out * . Bumper is broken and the cement is broken out on the right side Dock #13 . Ok inside * . Both bumpers broken, the cement is breaking away on the outside Dock #14 . Cement around the dock is broken * . Bumper guards are both broken Dock #15 . Dock plate, had had metal patching done * . Bumper guards are both broken . Electrical box is open, wires are exposed . Outside wall seems are cracked badly and crackle is coming out * . Rain gutter is bowed down and seams are leaking down the wall * . Needs down spout repaired or replaced . [ILLEGIBLE] Pedestrian walk 10' section settling Approximately 2" . 53' trailers landing pad indents into the asphalt Offices * . Sheet rock missing from ceiling by locker room, approximately 3 sheets * . Several roof leaks by restrooms and hallways . Looks like water is leaking between window panels through front office EXHIBIT "C" FORM OF LETTER OF CREDIT [ISSUING BANK] BENEFICIARY: APL LOGISTICS WAREHOUSE MANAGEMENT SERVICES, INC., a Florida corporation (fka GATX Logisictics, Inc.), and its successors and assigns CUSTOMER ICON HEALTH AND FITNESS, INC., a Utah corporation ("ICON") MAXIMUM AMOUNT ($147,600.00) (USD) DATE: ___________________________________ EXPIRY DATE: ___________________________________ LETTER OF CREDIT NO.: ___________________________________ TO: APL LOGISTICS WAREHOUSE MANAGEMENT SERVICES, INC., a Florida corporation, and its successors and assigns Ladies and Gentlemen: At the request of our customer, ICON, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, we hereby issue in favor of APL LOGISTICS WAREHOUSE MANAGEMENT SERVICES INC., a Florida corporation, and its successors and assigns (collectively, "APL), this irrevocable standby letter of credit (the "Letter of Credit") in the amount of One Hundred Forty-Seven Thousand Six Hundred and 00/100 Dollars ($147,600.00) (the "Commitment Fee Amount"). This Letter of Credit shall remain in effect up to and including [insert date which is one (1) year from date of issuance] (the "Expiry Date"). APL may draw against the Commitment Fee Amount under this Letter of Credit on demand and at sight, without any period of grace, by presenting to us at: ____________________________________________ ____________________________________________ ____________________________________________ in person, or by facsimile, on or before the Expiry Date, during the hours in which we are open for business, the following documents (the "Documents"). 1. APL's written demand for payment, signed by an individual purporting to be an officer or agent of APL, certifying that (a) ICON is in breach or default beyond the applicable notice and cure periods under the terms of that certain Sublease dated July 6, 1994 (as amended from time to time, the "Sublease"), or (b) there has been any filing of a voluntary petition by ICON (or involuntary petition by ICON's creditors) under the United States Bankruptcy Code, or (c) ICON has not timely renewed the Letter of Credit pursuant to the Sublease; 2. The original of this Letter of Credit; if by facsimile, the original shall follow via courier. Partial drawings shall be permitted. Forthwith upon receipt of the Documents, we shall pay to APL the indemnity amount, to a maximum amount of the Commitment Fee Amount, without inquiring whether APL has a right to such amount as between APL and our customer. This Letter of Credit shall be automatically extended for additional consecutive one (1) year periods unless at thirty (30) days prior to the then applicable Expiry Date we shall notify you in writing by registered or certified mail (return receipt requested) to the above address or to such other address provided to us in writing, that we elect not to renew this Letter of Credit for such additional year. Notwithstanding the foregoing, this Letter of Credit shall expire in full and final on the date that is sixty (60) days after the Expiration Date (as such term is defined in the Sublease) of the Sublease. This Letter of Credit is freely transferable in its entirety without consent or approval. In the event of such transfer, the transferees shall be deemed the beneficiaries hereunder in the full place and stead and with all rights hereunder of APL Except as otherwise expressly stated, this Letter of Credit is subject to the International Standby Practices (ISP98), International Chamber of Commerce Publication No. 590 (the "ISP98"). As to matters not covered by ISP98, this Letter of Credit shall be subject to and governed by the laws of the State of Utah. We hereby undertake to APL that drafts drawn and negotiated in compliance with the terms of this Letter of Credit shall meet with honor upon presentation to us. Very truly yours, [Name of Issuing Bank] EX-10.3 6 dex103.txt EXHIBIT 10.3 - LEASE DTD 06/29/98 EXHIBIT 10.3 DEFENSE DISTRIBUTION DEPOT OGDEN UTAH [TENANT'S TRADENAME] - LEASE OF BUILDING 365 (16-A) ICON HEALTH AND FITNESS, INCORPORATED DATED: 6/29/98 BETWEEN LANDLORD: OGDEN CITY, a Utah Municipal Corporation, acting as a Local Redevelopment Authority 2484 Washington Blvd., Suite 320 Ogden, UT 84401-2319 Attention: Michael D. Pavich, Director 801/629-8915 801/629-8917 - Fax TENANT: ICON HEALTH AND FITNESS, INCORPORATED 1500 South 1000 West Logan, Utah 84321 801/750-5000 801/753-0209 - Fax GUARANTORS: _________________________________________ _________________________________________ TABLE OF CONTENTS
ARTICLE I - SUMMARY OF CERTAIN LEASE PROVISIONS ...................................................... 2 ARTICLE 2 - DEMISE AND PREMISES ...................................................................... 4 2.1 Demise and Premises ............................................................................ 4 2.2 Use of Common Areas ............................................................................ 4 2.3 Improvements ................................................................................... 5 ARTICLE 3 - TERM AND COMMENCEMENT OF RENT AND OPTIONS ................................................ 5 ARTICLE 4 - RENT ..................................................................................... 5 4.1 Minimum Rent ................................................................................... 5 4.2 Triple Net Lease ............................................................................... 6 ARTICLE 5 - SECURITY DEPOSIT ......................................................................... 6 5.1 Security Deposit ............................................................................... 6 5.2 Transfer of Landlord's Interest ................................................................ 7 ARTICLE 6 - TAXES .................................................................................... 7 6.1 Real Property Taxes ............................................................................ 7 6.2 Personal Property Taxes ........................................................................ 7 6.3 New Taxes ...................................................................................... 7 ARTICLE 7 - USE ...................................................................................... 8 7.1 Use ............................................................................................ 8 7.2 Suitability .................................................................................... 8 7.3 Uses Prohibited ................................................................................ 9 7.4 Covenants to Operate ........................................................................... 10 7.5 Access to DDOU ................................................................................. 11 ARTICLE 8 - UTILITIES, SERVICES ...................................................................... 11 8.1 Landlord's Obligations ......................................................................... 11 8.2 Payment of Utility Services .................................................................... 11 8.3 Maintenance of Utility Services ................................................................ 11 8.4 Electrical Overload ............................................................................ 11 ARTICLE 9 - MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS; FIXTURES ............................. 11 9.1 Landlord's Obligations for Maintenance ......................................................... 11 9.2 Tenant's Obligations for Maintenance ........................................................... 13 9.3 Alterations .................................................................................... 14 ARTICLE 10 - ENTRY BY LANDLORD ....................................................................... 14 ARTICLE 11 - LIENS ................................................................................... 15 ARTICLE 12 - INDEMNITY ............................................................................... 16
TABLE OF CONTENTS - i 12.1 Assumption of Risks Release ........................................................................... 16 12.2 Tenant -Indemnification and Hold Harmless ............................................................. 16 12.3 Landlord - Indemnification and Hold Harmless .......................................................... 17 12.4 Time of Commencement .................................................................................. 17 ARTICLE 13 -INSURANCE ......................................................................................... 17 13.1 General Liability and Property Damage.................................................................. 17 13.2 Fire and Extended Coverage............................................................................. 17 13.2.1 Premises...................................................................................... 17 13.2.2 Fixtures...................................................................................... 18 13.2.3 Rent Loss Endorsement......................................................................... 18 13.3 Form of Policies....................................................................................... 18 13.4 Waiver of Subordination................................................................................ 19 ARTICLE 14 - DAMAGE OR DESTRUCTION ............................................................................ 19 14.1 Reconstruction of Damaged Premises .................................................................... 19 14.2 Partial Destruction of Building ....................................................................... 19 ARTICLE 15 - CONDEMNATION ..................................................................................... 20 ARTICLE 16 -ASSIGNMENT AND SUBLEASE ........................................................................... 21 16.1 By Tenant ............................................................................................. 21 16.2 Excess Rents .......................................................................................... 21 16.3 Sale of Interest in Tenant ............................................................................ 21 16.4 No Release ............................................................................................ 21 16.5 By Landlord ........................................................................................... 22 ARTICLE 17 - SUBORDINATION, QUIET ENJOYMENT, ATTORNMENT ....................................................... 22 17.1 Subordination ......................................................................................... 22 17.2 Subordination Agreements .............................................................................. 22 17.3 Quiet Enjoyment ....................................................................................... 23 17.4 Attornment ............................................................................................ 23 ARTICLE 18 - DEFAULT AND REMEDIES.............................................................................. 23 18.1 Default ............................................................................................... 23 18.2 Notice ................................................................................................ 24 18.3 Remedies .............................................................................................. 24 18.4 Special Damages ....................................................................................... 26 18.5 Late Charges .......................................................................................... 26 18.6 Default by Landlord ................................................................................... 26 18.7 Bankruptcy ............................................................................................ 26 18.7.1 Chapter 7 .................................................................................... 26 18.7.2 Chapter 11 ................................................................................... 27 18.7.3 Subsequent Petitions ......................................................................... 28 18.7.4 Adequate Assurances .......................................................................... 28 18.7.5 Use and Occupancy Charges .................................................................... 29 18.7.6 No Transfer Without Consent .................................................................. 29 ARTICLE 19 - NOTICES .......................................................................................... 29
TABLE OF CONTENTS - ii ARTICLE 20 - COMMON AREAS ................................................................................... 29 20.1 Availability ........................................................................................ 29 20.2 Definition .......................................................................................... 30 20.3 Landlord's Management and Control ................................................................... 30 20.4 Employee Parking .................................................................................... 31 ARTICLE 21 -SIGNS ........................................................................................... 31 ARTICLE 22 - GENERAL ........................................................................................ 31 22.1 Exclusives........................................................................................... 31 22.2 Tenant Offset and Estoppel Certificate............................................................... 32 22.3 Transfer of Landlord's Interest...................................................................... 32 22.4 Captions, Attachments: Defined Terms................................................................. 32 22.5 Entire Agreement..................................................................................... 33 22.6 Severability......................................................................................... 33 22.7 Costs of Suit........................................................................................ 34 22.8 Times; Joint and Several Liability; Guarantors....................................................... 34 22.9 Binding Effect: Choice of Law........................................................................ 34 22.10 Waive................................................................................................ 34 22.11 Surrender of Premises................................................................................ 34 22.12 Holding Over......................................................................................... 35 22.13 Force Majeure........................................................................................ 35 22.14 Interest on Past Due Obligations..................................................................... 35 22.15 Corporate Authority.................................................................................. 35 22.16 Provisions Re: Landlord's Lease...................................................................... 35 22.17 Warranties of Tenant................................................................................. 36 22.18 Commission Agreements................................................................................ 36 ARTICLE 23 - SPECIAL CONDITIONS AND AGREEMENTS............................................................... 36
TABLE OF CONTENTS - iii DEFENSE DISTRIBUTION DEPOT OGDEN UTAH LEASE AGREEMENT For and in consideration of the rental and of the covenants and agreements hereinafter set forth to be kept and performed by the Tenant, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises herein described for the term, at the rental, and subject to and upon all of the terms, covenants and agreements hereinafter set forth, which shall be a binding agreement as of the effective date. ARTICLE I - SUMMARY OF CERTAIN LEASE PROVISIONS 1.1 EFFECTIVE DATE: 6/29/98 1.2 LANDLORD: Ogden City, a Utah Municipal Corporation, acting as a Local Redevelopment Agency 1.3 TENANT: ICON Health and Fitness, Incorporated 1.4 GUARANTOR(s): ______________________________________ 1.5 TENANT'S TRADE NAME: ICON Health and Fitness, Incorporated 1.6 LEASE TERM: 1 years; 0 months, 4 extension options of 1 years each RENT/TERM COMMENCEMENT DATE: 6/29/98 1.7 RENEWAL OPTIONS: Four (4) - One (1) Year Options 1.8 MINIMUM RENT: year(s) 1 $469,608 annually; $39,134 monthly(l.80/sq.ft./year) 2 $469,608 annually; $39,134 monthly(l.80/sq.ft./year) 3 $469,608 annually; $39,134 monthly(1.80/sq.ft./year) 4 $469,608 annually; $39,134 monthly(1.80/sq.ft./year)
1.9 SECURITY DEPOSIT: $10,000 PREPAID RENT: $ 39,134 First month's rent due on 6/29, 1998, the Rent Commencement Date. 1.10 DESCRIPTION OF PREMISES: See Exhibit A. 1.11 TENANT'S EXPENSES: Among other provisions, refer to Article 6 - Taxes; Article 8 - Utilities; and Article 9 - Maintenance and Repairs. LEASE AGREEMENT - 2 1.12 USE OF PREMISES: Warehouse and distribution of fitness equipment. 1.13 ADDRESS FOR NOTICES:
To Landlord: To Tenant Ogden City, a Utah Municipal Corporation, ICON Health and Fitness, Incorporated acting as a Local Redevelopment Authority 1500 South 1000 West 2484 Washington Blvd., Suite 320 Logan, Utah 84321 Ogden, UT 84401-2319 Attention: Michael D. Pavich, Director Attention: Kent S. Lundgreen, Materials Manager To Landlord's Counsel: To Guarantors: Andrea W. Lockwood ________________________________ Assistant City Attorney ________________________________ 2484 Washington Blvd., Suite 320 ________________________________ Ogden, LIT 84401-2319
ADDENDUM - SPECIAL PROVISIONS: See Addendum attached at end of Lease EXHIBITS: The following exhibits are an integral part of this lease. Exhibit A - Description of the Leased Premises Exhibit B - Construction Provisions Exhibit C - Sign Standards Exhibit D - Estoppel Certificate Exhibit E - Guarantor's Obligations Exhibit F - Basic Rules and Regulations The foregoing is a summary only and reference should always be made to the full lease provisions. Each reference in this Lease to any of the summarized lease provisions contained in Article I shall be construed to incorporate all of the terms provided under each summarized lease provision and in case of any conflict with the balance of the Lease, the latter shall control. LEASE AGREEMENT - 3 ARTICLE 2 - DEMISE AND PREMISES 2.1 Demise and Premises. 2.1.1 Landlord hereby leases and lets to Tenant, and Tenant hereby rents from Landlord, upon and subject to the terms, conditions, covenants and provisions hereof, that certain parcel of land and the building or buildings located thereon (hereinafter the "Building") (hereinafter the land and Building may be collectively referred to as the "Leased Premises" or "Premises") within the Federal installation now known as Defense Distribution Depot Ogden, Utah ("DDOU") in Weber County, Utah, together with and subject to all conditions, restrictions, obligations, rights, privileges, easements and appurtenances thereto, including without limitation those created pursuant to the Department of the Army Interim Lease Under Base Realignment and Closure between the United States (hereinafter the "Government") and Landlord (the "Landlord's Lease"). A description of the Premises, along with a general site plan showing, among other things, the Premises and some of the principal improvements which comprise DDOU, is attached as Exhibit A. 2.1.2 Tenant acknowledges that the site plan shown on Exhibit A is tentative and that Landlord may change the shape, size, location, number and extent of the improvements shown thereon and eliminate or add any improvements to any portion of DDOU. Landlord reserves the absolute right to effect such other tenancies in DDOU as Landlord in the exercise of its sole business judgment shall determine to best promote the interest of DDOU. Tenant does not rely on the fact nor does Landlord represent that any specific tenant or number of tenants shall during the term of this Lease occupy any space in DDOU. 2.1.3 Tenant acknowledges that Landlord is negotiating with the Government to obtain fee title to DDOU. If Landlord becomes the owner of DDOU, Landlord shall have the absolute right to subdivide the property comprising DDOU, including the right to subdivide such property in such a manner that affects the description of Tenant's Premises; provided that no change will be made without consent of Tenant which: a. Affects the footprint of the Building (or any material part thereof) located on the Premises; or b. Eliminates or significantly affects approved access to the Premises or approved parking on the Premises; or c. Affects any improvements installed or constructed by Tenant. 2.2 Use of Common Areas. As more fully set forth in Article 20, the use and occupancy by the Tenant of the Leased Premises shall include the use in common, with others entitled thereto, of the common areas, as may be designated from time to time by the Landlord, subject, however, to the terms and conditions of this Agreement and to reasonable rules and regulations for the use thereof as prescribed from time to time by the Landlord. Tenant and its LEASE AGREEMENT - 4 employees shall park their cars only in areas specifically designated from time to time by Landlord for that purpose. 2.3 Improvements. The obligations of Landlord, if any, and Tenant to perform the work and supply material and labor to prepare the Premises for occupancy are set forth in detail on Exhibit B. Landlord and Tenant shall expend all funds, and do all acts required of them in Exhibit B and shall have the work performed promptly and diligently in a first-class workmanlike manner. ARTICLE 3 - TERM AND COMMENCEMENT OF RENT AND OPTIONS 3.1 This Lease shall be effective and shall be a binding and enforceable agreement upon the date of its execution and each of the parties shall have all rights and remedies at law for any breach or anticipatory breach hereof. The initial term of this Lease shall be for One (1) years as specified in Article 1.6 (the "Term"). The initial One (1) year term and each extension term shall terminate one (1) day prior to the day of the year which is the day of the year of termination and expiration of the Landlord's ground lease. The day of the year when Landlord's Lease terminates is August 27. The Term, and Tenant's obligation to pay rent, shall commence on the date specified in Article 1.6 (the "Commencement of Rent"). 3.2 In the event that the Commencement of Rent does not occur on the first day of the month, then Tenant shall pay rent for the fractional month on a per diem basis (calculated on the basis of a thirty (30) day month) until the first day of the following month; and thereafter the Minimum Rent shall be paid in advance in equal monthly installments on the first day of each and every month. 3.3 If a right to renew is granted in 1.8 above and providing Tenant is not in default, Tenant may extend the term of this Lease for up to Four (4) consecutive option terms of One (1) years each on the same terms and conditions, except length of term and the rental terms, as the initial term as provided in 1.8 above. Such right of extension may be exercised by Tenant giving written notice to Landlord to extend such term at least six (6) months prior to the August 27 termination date; provided that if the year of termination is in the year 2002, 2007, 2012 or 2017, as applicable, Tenant shall provide at least two hundred (200) days prior written notice of such election to renew. 3.4 Unless Tenant has timely notified Landlord of its election to renew the Lease, Landlord may choose not to extend its Landlord's Lease for a corresponding option term. Tenant acknowledges that Landlord must exercise its option to extend its Landlord's Lease at least six (6) months prior to the expiration (August 27) of the Landlord's Lease Term or Option Term then in effect. ARTICLE 4 - RENT 4.1 Minimum Rent. Tenant shall pay without deduction or offset of any kind, except such specific offsets, if any, as may be expressly agreed to in the Addendum to this Lease, to LEASE AGREEMENT - 5 Landlord as Minimum Rent for the Premises during the Term the amount specified in Article 1.8. Such Minimum Rent shall be payable in equal monthly installments during the Term with such amounts to be paid in advance on the first day of each calendar month from the Commencement of Rent and thereafter throughout the term of the Lease including any renewal periods, if any. All rent to be paid by Tenant to Landlord shall be in lawful money of the United States of America and shall be paid without prior notice or demand, and at such place or places as may be designated from time to time by Landlord. 4.2 Triple Net Lease. This Lease is a triple net lease and in addition to the rent, due hereunder, Tenant shall be responsible for all insurance, taxes, and maintenance expenses (except for maintenance expenses specifically excluded pursuant to Section 9.1) as hereinafter in this Lease more particularly described, it being generally understood and agreed that Landlord shall not be responsible for any costs or expenses in connection with the Premises during the term of this Lease and shall be entitled to a net return of the rental herein specified undiminished by the cost of insurance, taxes and assessments described in Article 6 or water, electrical, gas, sewer or other utility charges or levies or any kind or nature whatsoever, and operation, repair, upkeep, renewal, improvement, alteration or reconstruction of the building and/or appurtenances thereto, now or at any time hereafter, during the term of this Lease or any renewal or extension hereof, except where otherwise specifically provided to the contrary herein. ARTICLE 5 - SECURITY DEPOSIT 5.1 Security Deposit. The Landlord acknowledges receipt of the amount set forth in Article 1.9 which it is to retain as security for the faithful performance of all the covenants, conditions and agreements of this Lease, but in no event shall the Landlord be obliged to apply the same upon rents or other charges in arrears or upon damages for the Tenant's failure to perform the said covenants, conditions and agreements; the Landlord may so apply the Security Deposit, at its option; and the Landlord's right to the possession of the Premises for non-payment of rents or for other reasons shall not in any event be affected by reason of the fact that the Landlord holds this Security Deposit. The Security Deposit, if not applied toward the payment of rents in arrears or toward the payment of damages suffered by the Landlord by reason of the Tenants breach of the covenants, conditions and agreements of this Lease, is to be returned to Tenant without interest when this Lease is terminated, according to these terms, and in no event is the Security Deposit to be returned until Tenant has vacate the Premises and delivered possession to the Landlord. In the event that the Landlord repossesses the Premises because of the Tenant's default or because of the Tenant's failure to carry out the covenants, conditions and agreements of this Lease, Landlord may apply the Security Deposit toward damages as may be suffered or shall accrue thereafter by reason of the Tenant's default or breach. In the event of bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of Rents and other charges due Landlord for the earliest possible periods prior to the filing of such proceedings. The Landlord shall not be obliged to keep the Security Deposit as a separate fund, but may mix the same with its own funds. LEASE AGREEMENT - 6 5.2 Transfer of Landlord's Interest. Landlord may deliver the Security Deposit, subject to the terms of this Lease, to the purchaser or assignee of Landlord's interest in the Premises and thereupon Landlord shall be discharged from any further liability with respect to the Security Deposit. This Section 5.2 shall also apply to any subsequent transfers of Landlord's interest in the Premises. ARTICLE 6 - TAXES 6.1 Real Property Taxes. In addition to the rents provided for in Article 4 above, and commencing with the term of this Lease, Tenant agrees to pay all taxes (including any privilege tax imposed under (S)59-4-101, Utah Code Ann., and other fees or charges hereinafter defined as New Taxes) and assessments, whether general or special, levied and assessed for any year within the Lease Term upon the Premises and the underlying realty. With respect to any assessments which may be levied against or upon the Premises or which under the laws then in force may be evidenced by improvement or other bonds, or may be paid in annual installments, only the amount of such annual installment (with appropriate proration for any partial year) and statutory interest shall be included within the computation of the annual estimate of taxes and assessments levied against the Premises. Taxes for the first and last year of the term hereof shall be prorated between the Landlord and Tenant as of the commencement and expiration of the term. 6.2 Personal Property Taxes. Tenant shall pay, before delinquency, all taxes, assessments, license fees and public charges levied, assessed or imposed upon or measured by the value of its business operation, including but not limited to the furniture, fixtures, leasehold improvements, equipment and other property of Tenant at any time situated on or installed in the Premises by Tenant. If any time during the term of this Lease any of the foregoing are assessed as a part of the real property of which the Premises are a part, Tenant shall pay to Landlord upon demand the amount of such additional taxes as may be levied against said real property of which the Premises are a part. Upon such payment, Landlord shall pay such amounts to the entity responsible for collection of such taxes. For the purpose of determining said amount, figures supplied by the County Assessor as to the amount so assessed shall be conclusive. 6.3 New Taxes. In addition to rent and other charges to be paid by Tenant hereunder, Tenant shall reimburse to Landlord, within thirty (30) days of the mailing of notice of a demand therefor, any and all new taxes and assessments payable by Landlord (other than net income, estate and inheritance taxes) whether or not now customary or within the contemplation of the parties hereto: 6.3.1 upon, allocable to, or measured by the area of the Premises or on the rent payable hereunder, including without limitation, any gross rental income tax or excise tax levied by the State, any political subdivision thereof, City or Federal Government with respect to the receipt of such rent, or LEASE AGREEMENT - 7 6.3.2 upon or with respect to the possession, leasing, operations, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof, or 6.3.3 upon this transaction or any documents to which Tenant is a party creating or transferring an interest or an estate in the Premises; or 6.3.4 any fees or charges levied against Landlord or the Premises by or on behalf of any governmental (either public or quasi-public) entity for services rendered by or on behalf of any governmental (public or quasi-public) entity, including those established in place of property taxes, whether called "fees" or otherwise, including but not limited to, the Premises' prorated share of any Municipal Improvement District assessments. ARTICLE 7 - USE 7.1 Use. Tenant shall use the Premises solely for the purposes outlined under Article 1.12 and under the trade name, if any, as specified in Article 1.5. The Tenant shall not use or permit the Premises to be used for any other purpose or under any other trade name whatsoever without the prior written consent of the Landlord. Without limiting the generality of the foregoing, Landlord may withhold its consent if the intended use: 7.1.1 would violate or conflict with the DDOU Reuse Plan, as adopted by the Ogden City Council; or 7.1.2 would be inconsistent with the existing or desired tenant mix within DCOU; or 7.1.3 would place an unreasonable burden upon the common areas, such as increased parking and traffic, and/or would be unreasonably burdensome on other properties located within DDOU; or 7.1.4 would be in violation of the use restrictions set forth in this Lease or in the Landlord's Lease; or 7.1.5 would interfere with or adversely affect the Government in or about the property. The foregoing is not intended as an exclusive list of reasons authorizing the Landlord to withhold its consent in the exercise of its reasonable business judgment. 7.2 Suitability. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises or with respect to the suitability of the Premises or DDOU for the conduct of Tenant's business, nor has Landlord agreed to undertake any modification, alteration or improvement to the Premises except as specifically provided in this Lease. Tenant shall inspect the Premises prior to taking possession LEASE AGREEMENT - 8 and shall give Landlord written notice specifying in reasonable detail the respects in which the Premises are not in satisfactory condition. The taking by Tenant of possession of the Promises shall conclusively establish that the Premises were at such time in satisfactory condition. 7.3 Uses Prohibited. 7.3.1 Tenant further covenants and agrees that it will not use or suffer or permit any person or persons to use the Premises or any part thereof for any use prohibited by the Landlord's Lease, or restrictions contained in leases of other existing tenants of DDOU, including without limitation, restrictions upon the sale of drugs, sexual paraphernalia, alcoholic beverages, pornographic literature and tapes; or for conducting therein a theater, bowling alley, skating rink, bawdy house, nightclub, bar, tavern, adult bookstore, automotive repair, dance hall, pool hall, game parlor, massage parlor, car wash, renting, leasing or sale of motor vehicles or trailers, gambling, liquor store, second-hand store, auction, distress or fire sale or bankruptcy or going-out-of business sale, or for any use or purpose in violation of the laws of the United States of America or the City, County, and/or State in which the Premises is located, or the ordinances, regulations and requirements of such governmental (public or quasi-public entities) or other lawful authorities, and that during said term the Premises, and every part thereof, shall be kept by the Tenant in a clean and wholesome condition, free of any objectionable noises, odors or nuisances, and that all health, safety, and policy regulations shall, in all respects and at all times, be fully complied with by the Tenant. Notwithstanding the restriction on second-hand stores, or distress sales, Tenant may conduct incidental sales of seconds or refurbished warehouse inventories of exercise equipment, in conjunction with the main warehousing function. 7.3.2 Tenant may not display or sell merchandise or allow carts, portable signs, devices or any other objects to be stored or to remain outside the defined exterior walls and permanent doorways of the building constructed on the Premises. Tenant further agrees not to install any exterior lighting, shades or awnings, amplifiers or similar devices or use in or about the Premises any advertising medium or promotional materials or facilities which may be distributed, heard or seen outside the Premises, such as flyers, flashing lights, searchlights, loudspeakers, phonographs or radio broadcasts or make any changes to the front and/or facade of the Building without Landlord's prior written consent. Tenant shall not conduct or permit to be conducted any sale by auction in, upon or from the Premises, whether said auction be voluntary, involuntary, pursuant to any assignment for the payment of creditors or pursuant to any bankruptcy or other insolvency proceeding. 7.3.3 Tenant shall not do or permit anything to be done in or about the Premises nor bring or keep anything therein which will in any way increase the existing rate or affect any fire or other insurance upon the Premises or any building of which the Premises may be a part, or DDOU, or any of its contents (unless Landlord has consented in writing to such use and Tenant pays any increased premium as a result of such use or acts), or cause a cancellation of any insurance policy covering the Premises or any building of which the Premises may be a part, or DDOU, or any of its contents, nor shall Tenant sell or permit to be kept, used or sold in or about said Premises any articles which may be prohibited by an extended coverage policy of fire and other casualty insurance. LEASE AGREEMENT - 9 7.3.4 Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of the Government or of other tenants or occupants in DDOU, create undue noise and disruption, or injure or annoy them or use or allow the Premises to be used for unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. 7.3.5 Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in anyway conflict with any law, statute, ordinance or governmental rule or regulation or requirement of duly constituted public authorities now in force or which may hereafter be enacted or promulgated. Tenant shall at its sole cost and expense promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force and with the requirements of any board of fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Premises, excluding structural changes not relating to or affecting the condition, use or occupancy of the Premises, or not related or afforded by Tenant's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of the fact as between Landlord and Tenant. 7.3.6 Any provision in the foregoing notwithstanding Tenant shall have no right to rely upon the restrictions provided herein and Landlord, at its sole discretion except as limited in the Landlord's Lease, may modify, and approve any uses and activities of DDOU set forth in Section 7.3. Any such consent given with respect to another tenant or use shall not be deemed to be a waiver of such requirement with regard to Tenant hereunder except with Landlord's express written approval. 7.3.7 Landlord represents and warrants to Tenant that the Landlord's Lease and current zoning of the Premises allow the operation of a warehousing, distributing, and manufacturing of fitness and related equipment on the Premises. 7.4 Covenants to Operate. 7.4.1 Tenant covenants and agrees that, continuously and uninterruptedly from and after the commencement of the term of this Lease, it will operate and conduct within the Premises, during customary operating hours as established from time to time, the business which it is permitted to operate and conduct under the provisions hereof, except while the Premises are untenantable by reason of fire or other casualty. 7.4.2 Tenant shall refrain from dumping, disposal, reduction, incineration or other burning of trash, refuse or garbage of any kind in or about the Premises. Tenant shall store all trash and garbage within the Premises or at a location designated by Landlord in covered metal containers so located as not to be visible to customers or business invitees in DDOU. LEASE AGREEMENT - 10 Tenant shall also arrange for and bear the expense of the prompt and regular removal of such trash and garbage from the Premises. 7.4.3 Tenant shall complete, or cause to be completed, all deliveries, loading, unloading and services at locations approved by Landlord, during times designated by Landlord, and in a manner that will not interfere with Landlord, other tenants, or employees or customers of Landlord or other tenants, or activities for damages resulting from roof leakage unless Landlord after written notice from Tenant fails to use reasonable diligence in attempting to identify sources of such leakage and to reasonably implement repairs. LEASE AGREEMENT - 11 [NO INFORMATION FOR PAGE] LEASE AGREEMENT - 12 9.2 Tenant's Obligations for Maintenance. 9.2.1 Except as provided in Section 9.1, Tenant agrees at all times, from and after delivery of possession of the Premises to the Tenant, and at its own cost and expense, to maintain, repair and/or replace in good and tenantable condition the Premises and the Building including, but without limitation, the exterior and interior portion of all doors, door checks, windows, plate glass, all plumbing and sewage facilities within the Building, including free flow to the main sewer line, fixtures, heating and air conditioning system and equipment, and electrical wiring and equipment and interior walls, floors, ceilings and insulation. Tenant shall keep and maintain the Premises in a clean, sanitary and safe condition in accordance with applicable laws and in accordance with all directions, rules and regulations of the health officer, fire marshall, insurance underwriter or rating bureau designated by Landlord, building inspector, or other proper officials of the governmental agencies having jurisdiction, at the sole cost and expense of Tenant; and Tenant shall comply with all requirements of law, ordinance and otherwise, affecting the Premises. Tenant shall decorate and paint, in a manner satisfactory to Landlord, as necessary to maintain at all times a clean and sightly appearance. 9.2.2 The Tenant further covenants and agrees that if Tenant refuses or neglects to make repairs and/or maintain the Premises, or any part or component thereof, in a manner reasonably satisfactory to Landlord then Landlord may (but is not obligated to) go upon the Premises and make any necessary repairs or maintenance to the Premises or any part or component thereof and perform any work therein including that which may be necessary to comply with any laws, ordinances, rules or regulations of any public authority or of the City Planning Commission or of any similar body, or that the Landlord may deem necessary to prevent waste or deterioration in connection with the Premises if the Tenant does not make or cause such repairs to be made or performed or cause such work to be performed promptly after receipt of written demand from the Landlord. Nothing herein contained shall imply any duty on the part of the Landlord to do any such work which under any provision of this Lease the Tenant may be required to do, nor shall it constitute a waiver of Tenant's default in failing to do the same. No exercise by the Landlord of any rights herein reserved shall entitle the Tenant to any damage for an injury or inconvenience occasioned thereby nor to any abatement of rent. In the event Landlord makes or causes any such repairs to be made or performed, as provided herein, Tenant shall pay the cost thereof to Landlord, forthwith, as additional rent upon receipt of a bill therefor, and such cost shall include interest at the rate provided for on Past Due Obligations as provided in Section 22.14 from the date of completion of the repairs or earlier payment by Landlord for services or costs associated therewith. 9.2.3 Upon the expiration or earlier termination of this Lease, Tenant shall surrender the Premises in broom clean condition and otherwise in good condition, ordinary wear and tear and damage by fire, earthquake, act of God or the elements alone excepted, and shall promptly remove or cause to be removed at Tenant's expense from the Premises and the Building any signs, notices and displays placed by Tenant. Tenant agrees to repair any damage to the Premises or DDOU caused by or in connection with the removal of any articles of personal LEASE AGREEMENT - 13 property, business or trade fixtures, machinery, equipment, cabinetwork, signs, furniture, moveable partitions or permanent improvements or additions, including without limitation thereto, repairing the floor and patching and painting the walls where required by Landlord to Landlord's reasonable satisfaction, all at Tenants sole cost and expense. In repairing such damage, Tenant shall only be obligated to restore the Premises to its state of condition existing at the commencement of this Lease, normal wear and tear excepted. Tenant shall indemnify the Landlord against any loss or liability resulting from the delay by Tenant in so surrendering the Premises, including without limitation, any claims made by any succeeding tenant founded on such delay. 9.3 Alterations. 9.3.1 Tenant shall not make any substantial or structural alterations or additions to the Premises nor make any contract therefor without first procuring the written consent of both the Landlord and, if applicable, the District Engineer and the said officer (Commander, DDOU, and/or its successor entity or the officer having immediate jurisdiction over the Leased Premises) pursuant to the provisions of the Landlord's Lease. 9.3.2 All work with respect to any alterations, additions and changes must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Premises shall at all times be a complete unit except during the period of work. 9.3.3 Any such changes, alterations and improvements shall be performed and done strictly in accordance with the laws and ordinances relating thereto. In performing the work of any such alterations, additions or changes or of any construction, Tenant shall have the work performed in such a manner as not to be a nuisance to Landlord or any other tenant or the Government and shall not obstruct the access to DDOU or the premises of any other tenant in DDOU. 9.3.4 Before commencing any such construction in or about the Premises, Tenant shall notify Landlord in writing of the expected date of commencement thereof. Landlord shall have the right at any time and from time to time to post and maintain on the Premises such notices as Landlord deems necessary to protect the Premises and Landlord from mechanics' liens, materialmen's liens, or any other liens. ARTICLE 10 - ENTRY BY LANDLORD 10.1 Landlord and the authorized representatives of Landlord may enter the Premises during normal business hours and upon twenty-four (24) hours prior notice for the purposes of exhibiting the same to prospective purchasers or other interested parties. 10.2 Tenant acknowledges that under Section 17 of the Landlord's Lease the right is reserved to the Government, its officers, agents and employees to enter upon the Premises at any time and for any purpose necessary or convenient in connection with Government purposes; to make inspections, to make any other use of the lands (DDOU) as may be necessary in connection LEASE AGREEMENT - 14 with Government purposes, and Tenant shall have no claim for damages against either Landlord or the Government or any officer, agent or employee of Landlord or the Government on account thereof. 10.3 Landlord and its agents shall have reasonable access to the Premises during normal business hours for the purpose of examining the same to ascertain if they are in good repair, and at its option to make reasonable repairs, but only after notice and failure to cure by Tenant, which Landlord may be authorized to make hereunder and Tenant hereby grants to Landlord such licenses and easements as necessary or expedient to effectuate the foregoing. Tenant hereby further grants to Landlord such licenses or easements in and over the Premises or any portion thereof as shall be reasonably required for the installation or maintenance of mains, conduits, pipes or other facilities to serve DDOU or any part thereof, provided, however, that Landlord shall pay for any alteration required on the Premises as a result of any such exercise, occupancy under or enjoyment of any such license or easement and shall not unduly disrupt Tenant's business. ARTICLE 11 - LIENS 11.1 Tenant agrees it will pay or cause to be paid all costs for work done by it on the Premises, and Tenant will keep the Premises free and clear of all mechanics' liens on account of work done by Tenant or persons claiming under Tenant. Tenant agrees to and shall indemnify and save Landlord and the Government free and harmless against claims, liability, loss, damage, costs, attorneys' fees, and all other expenses on account of claims of lien or materialmen or others for work performed or materials or supplies furnished to Tenant or persons claiming under Tenant. It is hereby acknowledged and understood that no lien may be placed against property owned by the Government or against property or property interests owned by the Ogden City, so long as Ogden City, acting as a Local Redevelopment Authority, is the Landlord. If there is such a lien, and it arises due to the acts, omissions or neglect of the Tenant, the Tenant has responsibility to clear the title. 11.2 If Tenant shall desire to contest any claim of lien, it shall furnish Landlord adequate security for the value or in the amount of one hundred fifty percent (150%) the claim, plus estimated costs and interests, or a bond or responsible corporate surety in such amount conditioned on the discharge of the lien. If a final judgment establishing the validity or existence of lien for any amount is entered, Tenant shall pay and satisfy the same at once. 11.3 If Tenant shall be in default in paying any charge for which a mechanics' lien claim and suit to foreclose the lien have been filed, and shall not have given Landlord security to protect the property and Landlord against such claim of lien, Landlord may (but shall not be so required to) pay the claim and any costs. The amount so paid, together with reasonable attorneys' fees incurred in connection therewith, shall be immediately due and owing from Tenant to Landlord, and Tenant agrees to and shall pay the same with interest at the rate provided for on Past Due Obligations as provided in Section 22.14 from the dates of Landlord's payments. LEASE AGREEMENT - 15 11.4 Should any claims of lien be filed against the Premises or any action affecting the title to the Premises be commenced, the party receiving notice of such lien or action shall forthwith give the other party written notice thereof. 11.5 Landlord and its representative shall have the right to go upon and inspect the Premises, including the Building, at all reasonable times, and shall have the right to post and keep posted thereon notice which Landlord may deem to be proper for the protection of Landlord's interest in the Premises. Tenant shall, before the commencement of any work which might result in any such lien, give to Landlord written notice of its intention to do so in sufficient time to enable Landlord to file and record such notices. ARTICLE 12 - INDEMNITY 12.1 Assumption of Risks Release. Tenant and all those claiming through or under Tenant shall store their property in and shall occupy and use the Premises and the common areas solely at their own risk. Tenant and all those claiming through or under Tenant hereby release Landlord, and as respective officers, employees and agents, from all claims of every kind, including loss of life, personal or bodily injury, damage to merchandise, equipment, fixture or other property, or damage to business (including business interruption) arising, directly or indirectly, out of or from or on account of such occupancy and use or resulting from any present or future conditions or state of repair thereof, except to the extent such claims are directly caused by the negligence of Landlord (or its respective officers, employees or agents). Landlord, and its respective officers, employees and agents, shall not be responsible or liable for damages to Tenant, or to those claiming through or under Tenant for any loss of life, bodily or personal injury, or damage to property or business that may be occasioned by or through the acts, omissions or negligence of any other person including, without limitation, other tenants, occupants or customers of any portion of DDOU. Moreover, except to the extent directly caused by the negligence of Landlord (or its respective officers, employees or agents), Landlord shall not be responsible or liable for damages at any fine for loss of life, or injury or damage to any person or to any property or to the business of Tenant, or those claiming through or under Tenant, caused by or resulting from (i) the bursting, release, breaking, leaking, overflowing or backing up of utility lines or any sprinkler system; (ii) water, steam, gas, sewage, snow or ice in any part of DDOU; (iii) acts of God or the elements; or (iv) any defect or negligence in the construction, operation or use of any buildings or improvements in DDOU, including the Premises, or any of the pipes, sprinklers, wires, plumbing, air conditioning, lighting, or any other equipment, fixtures, machinery, appliances or apparatus therein. 12.2 Tenant -Indemnification and Hold Harmless. Except to the extent directly caused by the negligence of Landlord (and its respective officers, employees and agents), Tenant hereby agrees to defend, pay, indemnify and hold Landlord (and its respective officers, employees and agents) and the Government harmless from and against any and all claims, demands, fines, suits, actions, proceedings, orders, decrees, judgments and liabilities of every kind, and all reasonable expenses incurred in investigating and resisting the same (including reasonable attorneys' fees), resulting from or in connection with loss of life, bodily or personal injury or property damage (i) arising out of or on account of any occurrence in or on the LEASE AGREEMENT - 16 Premises, including, specifically without limitation, arising out of the bursting, release, breaking, leaking, overflowing or backing up of utility lines or any sprinkler system within the Premises, or (ii) occasioned wholly or in part through the use and occupancy of the Premises or any improvements therein or appurtenances thereto, or (iii) occasioned wholly or in part by any act or omission or negligence of Tenant or any assignee, subtenant, concessionaire, licensee, invitee, or customer of Tenant, or their respective employees, agents or contractors in the Premises or in the doorways thereof or on the sidewalks adjacent thereto or in other areas of DDOU, including the common areas and those portions thereof owned, leased, subleased or controlled by others. 12.3 Landlord - Indemnification and Hold Harmless. To the extent directly caused by the negligence of Landlord (and its respective officers, employees and agents), Landlord hereby agrees to defend, pay, indemnify and hold Tenant (and its respective officers, employees and agents) harmless from and against any and all claims, demands, fines, suits, actions, proceedings, orders, decrees, judgments and liabilities of every kind, and all reasonable expenses incurred in investigating and resisting the same (including reasonable attorneys' fees), resulting from or in connection with loss of life, bodily or personal injury or property damage (i) occasioned wholly or in part through the use and occupancy of the Premises or any improvements therein or appurtenances thereto by Landlord (and its respective officers, employees or agents), or (ii) occasioned by any act or omission or negligence of Landlord, or its respective employees, agents or contractors in the Premises or in the doorways thereof or on the sidewalks adjacent thereto or in other areas of DDOU, including the common areas and those portions thereof owned, leased, subleased or controlled by Landlord. 12.4 Time of Commencement. The parties expressly acknowledge that all of the foregoing provisions of this Article 12 shall apply and become effective from and after the date Tenant first enters upon DDOU for any purpose related to this Lease. ARTICLE 13 -INSURANCE 13.1 General Liability and Property Damage. Tenant shall at all times during the term of this Lease and at its own cost and expense procure and continue in force workmen's compensation insurance, and comprehensive general liability insurance adequate to protect Landlord and naming Landlord as an additional insured in the liability contract against liability for injury or death of any person in connection with the construction of the improvements, use, operation or condition of the Premises (and related sidewalks, loading docks and other appurtenances). Such insurance at all times shall be in an amount of not less than Two Million Dollars ($2,000,000.00) combined single limit for bodily injury and property damage. The limits of such insurance shall not limit the liability of Tenant. 13.2 Fire and Extended Coverage. 13.2.1 Premises. Tenant shall procure and maintain at its cost and expense during the term of this Lease, Fire, Windstorm and Extended Coverage Insurance together with an endorsement for Difference In Conditions (with additional perils to be covered at Landlord's option) on the Premises in amounts not less than one hundred percent (100%) of the insurable LEASE AGREEMENT - 17 value of the Building and related improvements above foundations, naming the Landlord and, at Landlord's election, its Lender as additional insured therein. If Tenant's operation is the type that could lead to environmental cleanup as established by the Landlord and the Government, Tenant will procure and maintain hazardous waste insurance in an amount judged by the Landlord to be sufficient according to the risk of the operation. Landlord's reasonable estimate of the insurable value shall be binding on Tenant for the purposes of establishing the amount of insurance coverage due hereunder. 13.2.2 Fixtures. Tenant shall at all times during the term hereof, and at its cost and expense, (i) maintain in effect policies of insurance covering its fixtures and equipment, and leasehold improvements located on the Premises, in an amount not less than one hundred percent (100%) of their full replacement cost from time to time during the term of this Lease, providing protection against any peril included within the classification Fire and Extended Coverage, together with insurance against sprinkler damage, vandalism and malicious mischief and (ii) be responsible for the maintenance, repair, and replacement of the plate glass on the Premises but shall have the option either to insure the risk or to self insure and (iii) procure and maintain in full force and effect boiler and machinery insurance on all air conditioning equipment, boilers, and other pressure vessels and systems, whether fired or unfired, located in or serving the Premises; and if the said objects and the damage that may be caused by them or result from them are not covered by Tenant's Extended Coverage Insurance, then such insurance shall be in amount not less than One Hundred Thousand Dollars ($100,000.00). The proceeds of such insurance shall be used to repair or replace the fixtures, equipment and glass so covered. 13.2.3 Rent Loss Endorsement. Landlord may require that the above described policies of insurance shall be written with rent loss endorsements in favor of Landlord and business interruption endorsements in favor of Tenant to cover a period not less than twelve (12) months in amounts sufficient to pay Tenant's obligations hereunder including, without limitation, the Minimum Rent, real property taxes on the Premises, insurance premiums and utility costs excluding only Tenant's and/or Landlord's avoided costs. 13.3 Form of Policies. All insurance required to be carried by Tenant hereunder shall be with companies rated A+ IX or better in "Best's Insurance Guide" or accepted by the U.S. Department of Housing and Urban Development, and shall be on forms and with loss payable clauses satisfactory to Landlord naming Landlord, Landlord's mortgagee or other specified lender, and any other persons, firms or corporations designated by Landlord as additional insureds as their interests may appear, and copies of policies of such insurance or certificates issued by the insurance company evidencing the existence and amounts of such insurance shall be delivered to Landlord by Tenant at least fifteen (15) days prior to Tenant occupying the Premises. If the Premises are part of a larger property, said insurance shall have a Landlord's Protective Liability endorsement attached thereto. All such policies shall be written as primary policies, not contributing with and not in excess of coverage which Landlord may carry. No such policies shall be cancelable (or coverage reduced), except after thirty (30) days written notice to Landlord. Tenant shall, at least thirty (30) days prior to the expiration of such policies, furnish Landlord with renewals or "binders" thereof or, if after written notice and demand Tenant shall fail to provide such insurance, then Landlord may order such insurance and charge the cost LEASE AGREEMENT - 18 thereof to Tenant, which amount shall be payable by Tenant upon demand and shall bear interest at the rate provided for Past Due Obligations as provided in Section 22.14, from the date of payment by Landlord. Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by Tenant provided such blanket policies expressly afford coverage to the Premises and to the Landlord as required by this Lease and contains the other requirements set forth herein. 13.4 Waiver of Subordination. Landlord and Tenant each hereby waive any and all rights of recovery against such other party and the officers, employees, agents and representatives of such other party for loss of or damage to such waiving party of its property or the property of others covered under the form of fire insurance policy with all permissible extensions and endorsements covering additional perils or under any other policy of insurance carded by such waiving party in lieu thereof. Tenant shall obtain and furnish evidence to Landlord of the waiver by Tenant's workmen's compensation carrier and other carriers of any right of subrogation against Landlord. ARTICLE 14 - DAMAGE OR DESTRUCTION 14.1 Reconstruction of Damaged Premises. In the event the Premises shall be partially or totally destroyed by fire or other casualty insurable under full standard extended coverage insurance, so as to become partially or totally untenantable, the same shall be repaired as speedily as possible at the expense of Landlord, unless Landlord shall not elect to rebuild as hereinafter provided, and a just and proportionate part of the Minimum Rent shall be abated until ten (10) days after notice from the Landlord to Tenant that the Premises have been substantially so repaired. The obligation of the Landlord hereunder shall be limited to the Building and in addition, the Tenant's permanent improvements as certified by Tenant at commencement of the rental term, but excluding Tenants trade fixtures, inventory and personal property. In no case will Landlord's reconstruction obligation include murals, works of art, or abnormal decorative treatments of Tenants Premises. In case Tenant has failed to pay to Landlord Tenant's share of fire or other casualty insurance premiums, Landlord's obligations will be limited to reconstruction of such "Landlord's Work". Similarly, if Landlord is not responsible to maintain fire or casualty insurance as to Tenant's "permanent improvements", Landlord shall have no reconstruction obligation thereunto relating; in which case, Tenant shall be responsible to "reconstruct" as aforementioned. 14.2 Partial Destruction of Building. If more than fifty percent (50%) of the gross leasable areas on the ground floor of the Building shall be destroyed by fire, or other casualty, then Landlord may, if it so elects, rebuild or put Building in good condition and fit for occupancy within a reasonable time after such destruction or damage, or may give notice in writing terminating this Lease. If Landlord elects to repair or rebuild the Building, it shall within ninety (90) days after the occurrence of such damage or destruction, give Tenant thereof notice of its intention to repair, as herein provided, then proceed with reasonable speed to repair. In case Landlord elects to rebuild or repair as herein provided, then the obligation of Landlord hereunder shall be limited to the basic Building and in addition the Tenant's permanent improvements as certified by Tenant at commencement of rental term, but excluding Tenant's trade fixtures, LEASE AGREEMENT - 19 inventory and personal property. In no case will Landlord's reconstruction obligation include murals, works of art, or abnormal decorative treatments of Tenant's premises. In case Tenant has failed to pay to Landlord Tenant's share of fire or other casualty insurance premiums, Landlord's obligation will be limited to reconstruction of such "Landlord's Work". Similarly, if Landlord is not responsible to maintain fire or casualty insurance as to Tenants "permanent improvements", Landlord shall have no reconstruction obligation thereunto relating; in which case Tenant shall be responsible to "reconstruct" as aforementioned. Notwithstanding the foregoing, if less then fifty percent (50%) but more than twenty-five percent (25%) of such gross leasable areas of the Building shall be damaged or destroyed by fire or other casualty during the last three (3) years of the Lease Term hereof, then Landlord, at its option, shall have the right to terminate this Lease by giving written notice to Tenant of its election to so terminate, such notice to be given within ninety (90) days of the occurrence of such damage or destruction. ARTICLE 15 - CONDEMNATION 15.1 In the event that part of the Premises shall be taken or condemned pursuant to applicable law such that: (a) The part so taken includes the Building (or any material part thereof located on the Premises, or (b) The part so taken eliminates or significantly affects access to any public street or highway and other alternative access to the Premises is not available in DDOU, or (c) The total Promises are taken. Then and in any of these events, the Tenant shall have the option to terminate this Lease by written notice to Landlord as herein provided within thirty (30) days from the date of the physical taking. 15.2 In the event of a taking where the Tenant elects not to terminate or where the Tenant has no right of termination, the Minimum Rent shall be thereafter reduced based upon the value of the land of the Premises immediately before the taking compared to the value of said land after the taking and thereafter each respective party shall promptly restore the Premises, parking area or access thereto, to the extent and as the case may be. 15.3 In any event both parties shall have the right to pursue a condemnation award and shall cooperate with each other to do so with the Tenant being entitled to any award for lost business, moving expenses and the taking of the improvements on the Premises and the value of its leasehold estate and the Landlord being entitled to all other amounts awarded, including, but not limited to loss of rent and the amounts awarded for residual land value after the Tenant's leasehold estate value. LEASE AGREEMENT - 20 ARTICLE 16 -ASSIGNMENT AND SUBLEASE 16.1 By Tenant. Tenant shall not voluntarily or by operation of any law, assign, license, transfer, mortgage or otherwise encumber all or any part of Tenant's interest in this Lease (except that Landlord will not unreasonably withhold its consent to Tenant financing with a first leasehold mortgage which encumbers only Tenant's merchandise, personal property, equipment and removable trade fixtures) or in the Premises, and shall not sublet or license all or any part of the Premises without the prior written consent of both Landlord and the Government in each instance, and any such transfer, mortgage, encumbrance or subletting without such consent shall be wholly void. Without in any way limiting Landlord's right to refuse to give reasonable consent, Landlord reserves the right to refuse to give such consent for any of the reasons set forth in Section 7.1 hereof or if in Landlord's sole discretion and opinion the quality of DDOU or the business conducted an the Premises is or maybe in anyway adversely affected during the term of the Lease or if the financial worth of the proposed new tenant is less than that of the Tenant executing this Lease. Without limiting the generality of the foregoing, the Landlord may also withhold its consent if any proposed assignee or transferee is not able to demonstrate credit worthiness satisfactory to Landlord, whose proposed use is different than specified herein, is not compatible with Landlord's desired tenant mix, who lacks comparable management ability, expertise, and experience, or whose inventory or business operation is not otherwise of comparable quality. 16.2 Excess Rents. In the event that Landlord and the Government consent to the assignment or sublet of the Premises, Landlord shall be entitled to forty percent (40%) of the payment (as additional rent hereunder) of the excess rental payable by the assignee or subtenant over the rent payable by Tenant under the Lease; or, if the entire premises area to be assigned or sublet, at the election of Landlord the Lease may be terminated in which event the assignee or subtenant will attorn to Landlord. 16.3 Sale of Interest in Tenant. Tenant may, without Landlord's consent, transfer the ownership among the existing shareholders or owners of Tenant. Any sale by Tenant of an interest in excess of 50% of Tenant's capital stock or assets to any third party who is not an existing shareholder or owner of Tenant, shall be regarded as an assignment hereunder, requiring the prior written consent of Landlord and the Government, which consent of the Landlord shall not be unreasonably withheld, conditioned, or delayed. Notwithstanding the foregoing, any issuance of tenant capital stock in connection with a public offering or other recapitalization shall be deemed preapproved and shall not require the prior written consent of Landlord and the Government. 16.4 No Release. No subletting or assignment, even with the consent of Landlord, shall relieve Tenant of its obligations hereunder, including those to pay the rents and monetary charges hereunder, and perform all of the other obligations to be performed by Tenant hereunder, unless the lease is terminated by Landlord as provided in 16.2 above, or unless a novation is expressly approved in writing by Landlord. Any sublet of the Premises shall be subordinate to the terms of this Lease and any sublease of the Premises, or any portion thereof, shall specify that such sublease shall terminate upon the termination of this Lease for whatever reason or at the LEASE AGREEMENT - 21 sole election of Landlord, shall remain in full force and effect and Landlord, after the termination of this Lease shall be entitled to receive all rents payable pursuant to such sublease. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any assignment, subletting or other transfer. Consent to one assignment, subletting or other transfer shall not be deemed to constitute consent to any subsequent assignment, subletting or other transfer. In the event that Landlord shall consent to a sublease or assignment hereunder, Tenant shall pay Landlord's reasonable fees and costs incurred in connection with the processing of documents necessary to the giving of such consent and/or affecting such assignment or sublease, and shall provide Landlord with sixty (60) days prior written notice of any request for consent. 16.5 By Landlord. Landlord shall have the right to sell, assign, transfer, convey or mortgage its interest in this Lease and in and to the Premises, provided, however, that any such sale, assignment, transfer, conveyance or mortgage shall not result in the disruption of Tenants quiet enjoyment of the Premises and any such sale, assignment, transfer, conveyance or mortgage shall be subject to the terms of this Lease. ARTICLE 17 - SUBORDINATION, QUIET ENJOYMENT, ATTORNMENT 17.1 Subordination. This Lease, at Landlord's option, shall be subject and subordinate to all ground or underlying leases or subleases which now exist or may hereafter be executed affecting the Building or the land or both (the Premises) and to the lien of any mortgages or deeds of trust in any amount or amounts whatsoever now or hereafter placed on or against the land or improvements or either thereof by Landlord, or on or against Landlord's interest or estate therein, or on or against any ground or underlying lease or sublease without the necessity of the execution and delivery of any further instruments on the part of Tenant to effectuate such subordination; provided however, that so long as Tenant complies with the obligations imposed upon Tenant in this Lease, neither Tenant nor its successors and assigns (if approved by Landlord and, if applicable, the Government) shall be disturbed or molested in its possession of the Premises. If any mortgagee, trustee or ground lessor shall elect to have this Lease be prior to the lien of its mortgage, deed or trust or ground lease, and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease is dated prior to, or subsequent to the date of said mortgage, deed of trust, or ground lease or the date of the recording thereof. 17.2 Subordination Agreements. Tenant hereby acknowledges that this Lease is subject to the approval of the Government pursuant to the provisions of the Landlord' Lease. Tenant further covenants and agrees to execute and deliver upon demand without charge therefor, such further instruments evidencing the subordination of this Lease to ground or underlying leases and to the lien of any such mortgage or deeds of trust as may be required by Landlord or prospective purchasers or mortgagees of the Premises, provided such instruments contain customary non-disturbance provisions so long as Tenant is performing all obligations of Tenant under this Lease. Landlord agrees that any trust deed or any indebtedness or mortgage of Landlord, shall contain apt provisions under the terms of which the existence of this Lease shall be recognized, and wherein it shall be provided that so long as Tenant complies with the LEASE AGREEMENT - 22 obligations imposed upon Tenant in this Lease, neither Tenant nor its approved successors and assigns shall be disturbed or molested in its possession of the property covered by this Lease and the full enjoyment of this Lease for the term and renewals or extensions hereof. This provision shall be binding upon trustees in deeds of trust, mortgagees in mortgages and receivers thereunder and purchasers at any sale pursuant thereto. 17.3 Quiet Enjoyment. Landlord covenants that there are no liens upon its estate other than (a) the effect of covenants, conditions, restrictions, easements, rights and rights-of-way of record or unrecorded easements and rights-of-way established by the Government which are attached as an addendum to this Lease if applicable to Tenant's property or use thereof.) (b) the effect of any local or state zoning laws; (c) general and special taxes no delinquent; and (d) other liens, claims and encumbrances which will not affect the Tenant's quiet enjoyment of the Premises. Landlord agrees that Tenant, upon paying the rent and other monetary sums due under this Lease and performing the covenants and conditions of this Lease, may quietly have, hold and enjoy the Premises during the term hereof or any extension thereof; subject, however, to the provisions of the hereinbefore referred to, Landlord's Lease, and the mortgages, or deeds of trust, if any, and subject to provisions of this Lease requiring Landlord's prior approval to any assignment, sublease, or other use or occupancy of the Premises. Tenant agrees that as to its leasehold estate it, and all persons in possession or holding under it, will conform to and will not violate the terms of the Landlord's Lease. 17.4 Attornment. In the event any proceedings are brought for default under ground or any underlying lease or in the event of foreclosure, receivership or in the exercise of the power of sale under any mortgage or deed of trust made by Landlord covering the Premises, Tenant shall attorn to the receiver or any purchaser upon any such foreclosure or rate and recognize such receiver or purchaser as the Landlord under this Lease, provided said purchaser expressly agrees in writing to accept Tenant and to be bound by the terms of this Lease. ARTICLE 18 - DEFAULT AND REMEDIES 18.1 Default. The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: 18.1.1 Any failure by Tenant to pay Rent or any other monetary sums required to be paid hereunder, where such failure continues for ten (10) days after written notice by Landlord to Tenant; 18.1.2 The failure to occupy or the abandonment or vacation of the Premises by Tenant; 18.1.3 The repudiation of this Lease by Tenant, any action by Tenant which renders performance by Tenant of its obligations under this Lease impossible, or any action by Tenant which demonstrates an intent by Tenant not to perform an obligation under this Lease or not to continue with the performance of obligations under this Lease. LEASE AGREEMENT - 23 18.1.4 A failure by Tenant to observe and perform any other provision of this Lease to be observed or performed by Tenant, where such failure continues for thirty (30) days after written notice thereof by Landlord to Tenant; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within said thirty (30) day period, Tenant shall not be deemed to be in default if Tenant shall within such period commence such cure and thereafter diligently prosecute the same to completion; 18.1.5 The making by Tenant of any general assignment or general arrangement for the benefit of creditors, the filing by or against Tenant of a petition for relief under, including a petition for reorganization or arrangement under, any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days), the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets or of Tenant's interest in this Lease where possession is not restored to Tenant within thirty (30) days thereof, the attachment, execution or other judicial seizure of substantially all of Tenants assets located at the Premises or of Tenant's interest in this Lease where such seizure is not discharged within thirty (30) days thereof, or an admission by Tenant in writing of a failure, or an inability to pay its debts generally as they become due. 18.2 Notice. If Landlord shall send more than one (1) notice of default for any event of default, then Tenant shall pay Landlord the sum of One Hundred Fifty Dollars ($150.00) in addition to any other obligations hereunder for the cost of sending each Notice of Default. 18.3 Remedies. In the event of any such material default or breach by Tenant and after the notice and applicable grace period, if any, provided above, Landlord may at any time thereafter, without limiting Landlord in the exercise of any right of remedy at law or in equity which Landlord may have be reason of such default or breach: 18.3.1 Maintain this Lease in full force and effect and recover the Rent and other monetary charges as they become due without terminating Tenant's right to possession irrespective of whether Tenant shall have abandoned the Premises. In the event Landlord elects not to terminate this Lease by judicial process, Landlord shall nevertheless have the right to attempt to re-let the Premises at such rent and upon such conditions and for such a term, and to do all acts necessary to maintain or preserve the Premises as Landlord deems reasonable and necessary without being deemed to have elected to terminate the Lease, including removal of all persons and property from the Premises. Tenant's property may be removed and stored in a public warehouse or elsewhere at the cost of an for the account of Tenant, and if Tenant does not pay for storage, then sold at public action and the proceeds of such sale shall first be applied to payment of the expenses of such sale, second to amounts due Landlord and the balance, if any, to Tenant. In the event any re-letting occurs, Tenant's right to possession of the Premises under this Lease shall terminate automatically upon the new Tenant taking possession of the Premises, but Tenant shall nevertheless be responsible for damages, more particularly described in Sections 18.3.2 through 18.3.5. Notwithstanding that Landlord fails to elect to terminate the Lease initially, Landlord may, at any time during the term of this Lease, elect to terminate this Lease by judicial process by virtue of such previous, unpaid default of Tenant. LEASE AGREEMENT - 24 18.3.2 Terminate the Lease and Tenant's right to possession through applicable judicial process and upon issuance of an order of eviction Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord shall be entitled to recover from Tenant in any such judicial process all damages as determined by the court to be incurred by Landlord by reasons of Tenants default including, without limitation thereto, the following: 18.3.2.1 the worth at the time of award of any unpaid Rent which had been earned at the time of such termination; plus 18.3.2.2 the worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that could have been reasonably avoided; plus 18.3.2.3 the amount by which the unpaid Rent for the balance of the term after the time of award exceeds the amount of such rental loss that could be reasonably avoided; plus 18.3.2.4 any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenants failure to perform his obligation under this Lease or which in the ordinary course of events would be likely to result therefrom including costs and expense incurred by Landlord in making the Premises ready for a new tenant; plus 18.3.2.5 at Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law of the State of Utah. Upon any such re-entry, Landlord shall have the right to make any reasonable repairs, alterations or modifications to the Premises, which Landlord, in its sole discretion, deems reasonable and necessary. As used in 18.3.2.1 above, the "worth at the time of award" is computed by allowing interest at the rate provided for on Past Due Obligations as provided in Section 22.14 from the date of default The term "Rent," as used in this section, shall be deemed to be and to mean the rent to be paid pursuant to Article 4 and all other monetary sums required to be paid by Tenant pursuant to the terms of this Lease. Without limiting Landlord's discretion as to re-letting the Premises, the parties understand and agree that Landlord shall not be obligated to mitigate rental loss by re-letting the Premises following a default by Tenant so long as Landlord has other similar vacant space in DDOU or to a new tenant whose use of the Premises would not be consistent with existing or desired tenant mix within DDOU, would violate the terms of the Landlord's Lease, or would place an undue burden on the common areas and facilities within DDOU. Notwithstanding that Landlord fails to elect to terminate the Lease initially, Landlord may terminate this Lease at any time during the term of this Lease by virtue of such previous uncured default by Tenant. 18.3.3 Tenant's lender has previously placed liens upon certain personal property belonging to the Tenant that will be stored on the Leased Premises. Tenant's lender has required landlord lien waivers from all landlords from whom Tenant leases facilities. A copy of this landlord's lien waiver is attached as Exhibit G. Landlord agrees to execute a landlord's lien waiver in substantially the same form as that contained on Exhibit G. LEASE AGREEMENT - 25 18.4 Special Damages. In addition to the damages for breach of this Lease described in Section 18.3, Tenant agrees that Landlord shall be entitled to receive from Tenant any and all costs in connection with Tenant's default hereunder, including without limitation, administrative costs of Landlord associated with Tenants default, costs of repairing and/or remodeling the Premises for new tenants and leasing commissions for any leasing agent engaged to re-let the Premises. 18.5 Late Charges. Tenant hereby acknowledges that late payment by Tenant to Landlord of Rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which are now and will be extremely difficult to ascertain other than such charges and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of Rent or any other sums due from Tenant shall not be received by Landlord or Landlord's designee within ten (10) days after such amount shall be due, Tenant shall pay to Landlord a late charge equal to ten percent (10%) of the amount(s) past due and additionally all such installments of Rent or other sums due shall bear interest at the rate provided for on Past Due Obligations as provided in Section 22.14 from the date the same became due and payable. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, except to the amounts so paid, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. 18.6 Default by Landlord. Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event later than thirty (30) days after written notice by Tenant to Landlord and to the holder of any mortgage or deed of trust covering the Premises furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty-day period and thereafter diligently prosecutes the same to completion; provided further, that in the event that Landlord has defaulted in the payment(s) of a monetary obligation and Tenant has advanced monies to pay such obligation, Landlord shall pay Tenant interest on such monies advanced at a rate provided for on Past Due Obligations as provided in Section 22.14 from the date the money was advanced by Tenant. 18.7 Bankruptcy 18.7.1 Chapter 7. In the event that Tenant shall become a debtor in a case filed under Chapter 7 of the Bankruptcy Code, and Tenants trustee or Tenant shall elect to assume this Lease for the purpose of assigning the same or otherwise, such election and assignment may be made only if the provisions of Sections 18.7.2,18.7.4 and 18.7.5 are satisfied. If Tenant or Tenants trustee shall fail to elect to assume this Lease within sixty (60) days after the filing of such petition or such additional time as provided by the court within such 60-day period, this LEASE AGREEMENT - 26 Lease shall be deemed to have been rejected. Immediately thereupon Landlord shall be entitled to possession of the Premises without further obligation to Tenant or Tenant's trustee and this Lease, upon the election of Landlord, shall terminate, but Landlord's right to be compensated for damages (including, without limitation, damages pursuant to this Article 18) in any such proceeding shall survive whether or not the Lease is terminated. 18.7.2 Chapter 11. In the event that Tenant shall become a debtor in a case filed under Chapter 11 of the Bankruptcy Code, or in a case filed under Chapter 7 of this Bankruptcy Code which is converted to Chapter 11, Tenants trustee or Tenant, as debtor-in-possession, must elect to assume this Lease within sixty (60) days from the date of the filing of the petition under Chapter 11 or conversion thereto, or Tenant's trustee or the debtor-in-possession shall be deemed to have rejected the Lease. Immediately thereupon Landlord shall be entitled to possession of the Premises without further obligation to Tenant or Tenant's trustee and this Lease, upon the election of Landlord, shall terminate but Landlord's right to be compensated for damages (including, without limitation, damages pursuant to this Article 18) in any such proceeding shall survive whether or not the Lease is terminated. 18.7.2.1 In the event that Tenant, Tenant's trustee or the debtor-in-possession has failed to perform all of Tenant's obligations under this Lease within the time periods (excluding grace periods) required for such performance, no election by Tenant's trustee or the debtor-in-possession to assume this Lease, whether under Chapter 7 or Chapter 11, shall be permitted or effective unless each of the following conditions has been satisfied: 18.7.2.2 Tenants trustee or the debtor-in-possession has cured all defaults under the Lease, or has provided Landlord with Assurance (as defined below) that it will cure all defaults susceptible of being cured by the payment of money within ten (10) days from the date of such assumption and that it will cure all other defaults under this Lease which are susceptible of being cured by the performance of any act promptly after the date of such assumption. 18.7.2.3 Tenant's trustee or the debtor-in-possession has compensated, or has provided Landlord with Assurance that within ten (10) days from the date of such assumption that it will compensate Landlord for any actual pecuniary loss incurred by Landlord arising from the default of Tenant, Tenants trustee, or the debtor-in-possession indicated in any statement of actual pecuniary loss sent by Landlord to Tenant's trustee or the debtor-in-possession. 18.7.2.4 Tenant's trustee or the debtor-in-possession has provided Landlord with Assurance of the future performance of each of the obligations under this Lease by Tenant, Tenant's trustee or the debtor-in-possession, and if Tenant's trustee or the debtor-in-possession has provided such Assurance, Tenant's trustee or the debtor-in-possession shall also deposit with Landlord, as security for the timely payment of Rent hereunder, an amount equal to six (6) monthly installment payments of the Minimum Rent, which shall be applied to the last installments of Minimum Rent that shall become due under this Lease, provided all the terms and provisions of this Lease shall have been complied with. The obligations imposed upon Tenant's LEASE AGREEMENT - 27 trustee or the debtor-in-possession by this paragraph shall continue with respect to such parties, Tenant or to any assignee of this Lease during or after the completion of bankruptcy proceedings. 18.7.2.5 Such assumption will not breach or cause a default under any provision of any other lease, mortgage, financing arrangement or other agreement by which Landlord is bound relating to the Premises. 18.7.2.6 For purposes of this Section 18.7, Landlord and Tenant acknowledge that "Assurance" shall mean no less than: (i) Tenants trustee or the debtor-in-possession has and will continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure Landlord that sufficient funds will be available to fulfill the obligations of Tenant under this Lease; (ii) there shall have been deposited with Landlord, or the Bankruptcy Court shall have entered an order segregating sufficient cash payable to Landlord, and/or Tenants trustee or debtor-in-possession shall have to Landlord granted a valid and perfected first lien and security interest and/or mortgage in property of Tenant, Tenants trustee or the debtor-in-possession, acceptable as to value and kind to Landlord, sufficient to secure to Landlord the obligations of Tenant; and (iii) Tenants trustee or the debtor-in-possession has sufficient funds available to cure the defaults under this Lease, monetary and/or non-monetary, as provided and within the time periods set forth above. 18.7.3 Subsequent Petitions. In the event that this Lease is assumed in accordance with Section 18.7.2, and thereafter Tenant is liquidated or files or has filed against it a subsequent petition under Chapter 7 or Chapter 11 of the Bankruptcy Code, Landlord may, at its option, terminate this Lease and all rights of Tenant hereunder, by giving Tenant notice of its election to so terminate within thirty (30) days after the occurrence of either of such events. 18.7.4 Adequate Assurances. If Tenants trustee or the debtor-in-possession has assumed the Lease pursuant to the terms and provisions of Sections 18.7.1, 18,7.2, and 18.7.3 for the purposes of assigning (or elects thereafter to assign) this Lease, this Lease may be so assigned only if the proposed assignee has provided adequate assurance of future performance of all of the terms, covenants and conditions of this Lease to be performed by Tenant. Landlord shall be entitled to receive all cash proceeds of such assignment. As used herein, "adequate assurance of future performance" shall mean that all such requirements as set forth in Section 365 of the Title 11, U.S. Code (as may be amended) are met, and further mean that no less than each of the following conditions has been satisfied: 18.7.4.1 The proposed assignee has furnished Landlord with either (i) a current financial statement audited by a certified public accountant indicating a net worth and working capital in amounts which Landlord reasonably determines to be sufficient to assure the future performance by such assignee of Tenant's obligations under this Lease, or (ii) a guarantee or guarantees, in form and substance satisfactory to Landlord, from one or more persons with a net worth which Landlord reasonably determines to be sufficient to secure the Tenant's obligations hereunder, and information with respect to the proposed assignee's management ability, expertise and experience in Tenant's business and Landlord has reasonably determined LEASE AGREEMENT - 28 that the proposed Assignee has the management expertise and experience to operate the business conducted on the Premises. 18.7.4.2 Landlord has obtained all consents or waivers from others required under any lease, mortgage financing arrangements or other agreement by which Landlord is bound to permit Landlord to consent to such assignment without violating the terms of any such agreement. 18.7.4.3 The proposed assignment will not release or impair any guaranty of the obligations of Tenant (including the proposed assignee) under this Lease. 18.7.5 Use and Occupancy Charges. When, pursuant to the Bankruptcy Code, Tenant's trustee or the debtor-in-possession shall be obliged to pay reasonable use and occupancy charges for the use of the Premises, such charges shall not be less than the Minimum Rent and other charges due hereunder. No acceptance by Landlord of said use and occupancy charges, or of rent hereunder shall constitute a waiver of any of the provisions of this Section 18.7 or any of the Landlord's rights thereunder. 18.7.6 No Transfer Without Consent. Neither the whole nor any portion of Tenant's interest in this Lease or its estate in the Premises shall pass to any trustee, receiver, assignee for the benefit of creditors, or any other person or entity, or otherwise by operation of law under the laws of any state having jurisdiction of the person or property of Tenant unless the requirement and conditions of this Section 18.7 are fully met or unless Landlord and the Government shall have otherwise consented to such transfer in writing. No acceptance by Landlord of installment payments of Rent or any other payments from any such trustee, receiver, assignee, person or other entity shall be deemed to constitute such consent by Landlord nor shall it be deemed a waiver of Landlord's rights under this Section 18.7 including the right to terminate this Lease for any transfer of Tenants interest under this Lease without such consent. ARTICLE 19 - NOTICES All notices or demands of any kind required or desired to be given by or to Landlord, Tenant or Guarantors hereunder shall be in writing and shall be deemed delivered forty-eight (48) hours after depositing the notice or demand in the United States mail, certified or registered, postage prepaid, addressed to the Landlord, Tenant, or the Guarantors respectively at the address set forth in Article 1.13 of this Lease. ARTICLE 20 - COMMON AREAS 20.1 Availability. Landlord may make available during the term of this Lease, on such portion of DDOU as Landlord shall from time to time designate or relocate such automobile parking and common areas, if any (jointly referred to as "common areas," as that term is hereinafter defined), as Landlord may from time to time deem appropriate. If so designated, Tenant shall have the non-exclusive right during the term of this Lease to use the common areas for itself, its employees, agents, customers, invitees and licensees. LEASE AGREEMENT - 29 20.2 Definition. The term "common areas" generally means the portions of DDOU which have at the time in question been designated and improved for common use by or for the benefit of more than one tenant of DDOU, including and if applicable, the land and facilities utilized for or as parking areas and access and perimeter roads, but excluding any portion of DDOU so included within the common areas when designated by Landlord for a non-common use. 20.3 Landlord's Management and Control. All common areas, including those located on the Premises, shall be subject to the exclusive control and management of Landlord or such other persons or nominees as Landlord may have delegated or assigned to exercise such management or control, in whole or in part, in Landlord's place and stead, and Landlord and Landlord's nominees and assignees shall have the right to establish, modify, amend and enforce reasonable rules and regulations with respect to the common areas. Tenant agrees to abide by and conform with such rules and regulations, to cause its employees and agents so to abide and conform, and to use its best efforts to cause its customers, invitees and licensees to so abide and conform. It shall be the duty of the Tenant to keep all of said areas free and clear of any obstructions created or permitted by Tenant or resulting from Tenants operation and in no event shall Tenant have the right to sell or solicit in any manner in any of the common areas. 20.3.1 Landlord shall have the right to close, if necessary, all or any portion of the common areas to such extent as may, in the opinion of Landlord's counsel, be legally necessary to prevent a dedication thereof or the accrual of any rights of any person or of the public therein; to use portions of the common areas while engaged in making additional improvements or repairs or alterations to DDOU, and to do and perform such other acts in, to, and with respect to, the common areas as in the use of good business judgment Landlord shall determine to be appropriate for DDOU. 20.3.2 Landlord shall have the right to increase or reduce the common areas, to rearrange the parking spaces and improvements on the common areas, and to make such changes therein and thereto from time to time which, in its opinion, are deemed to be desirable and for the best interests of all persons using said common area, provided, however, access to the Premises are not materially and adversely affected and the improvements on the specific parcel on which the Premises are located are not materially changed. 20.3.3 The Landlord shall have the right to establish, and from time to time change, alter and amend, and to enforce against the Tenant and the other users of said common areas such reasonable rules and regulations as may be deemed necessary or advisable for the proper and efficient operation and maintenance of said common areas. The rules and regulations may include, without limitation, the hours during which the common areas shall be open for use. Landlord may, if, in its opinion, the same be advisable, establish a system or systems of validation or other type operation, including a system of charges against non-validated parking checks of users, and the Tenant agrees to conform to and abide by all such rules and regulations in its use and the use of its customers and patrons with respect to said common areas; provided, however, that all such rules and regulations and such types of operation or validation of parking LEASE AGREEMENT - 30 checks and other matters affecting the customers and patrons of the Tenant shall apply equally and without discrimination to all persons entitled to the use of said common areas. 20.3.4 Any reference in this Section 20.3 to Landlord shall be deemed to include the Government. 20.4 Employee Parking. Tenant shall cause its employees to park in areas that do not interfere with parking for customers and/or suppliers to other property owners or tenants in DDOU. Tenant and its employees shall park their cars only on the Premises, or in those portions of the parking areas, if any, designated for the purpose by Landlord. If Tenant or its employees fail to park their cars in designated parking areas, then Landlord may charge Tenant Twenty-Five Dollars ($25.00) per day for each day or partial day per car parked in any areas other than those designated, plus any costs involved in towing such cars away, unless arrangements approved by Landlord have been made to tow such cars away at the employee's expense. ARTICLE 21 -SIGNS 21.1 Tenant may provide a suitable exterior signboard, sign or signs of such size, design and character, and in such location as Landlord shall approve in writing, such Landlord approval not to be unreasonably withheld. Tenant hereby expressly covenants and agrees that such signage shall, unless otherwise expressly permitted in writing by Landlord, also comply with all laws, rules, regulations and zoning ordinances and requirements. Attached as Exhibit C are Landlord's standard sign criteria which Tenant shall generally follow as to sign types, color, materials and type of construction. Tenant agrees to indemnify and hold Landlord harmless from any liability or damage arising or resulting from the use of or erection of any such sign(s). In the event of violation of any ordinance applicable to any signs so erected or constructed, Tenant agrees to forthwith correct such violation and comply with any such ordinances. 21.2 If Tenant shall erect, install or maintain any signs, lights, or other forms of inscription of advertising, display, or illuminating device outside, in or upon the Premises in violation of this Article, or the standards set forth on Exhibit C and shall not immediately upon notice from Landlord cause the same to be removed or discontinued, Landlord, in addition to any other rights or remedies to which it may be entitled hereunder or as a matter of law or in equity, may enter upon the Premises, without thereby causing an eviction of Tenant from said Premises or interference with Tenants right of quiet use and enjoyment thereof, and cause said sign, lights, or other form of inscription or advertising or display device to be removed or discontinued, and the costs of such removal or discontinuance shall be paid by Tenant, as additional Rent, on the first day of the month following said removal or discontinuance and if not so paid, such sums shall bear interest at the rate provided for on Past Due Obligations as provided in section 22.14 from the due date. ARTICLE 22 - GENERAL 22.1 Exclusives. It is herewith agreed that this Lease contains no restrictive covenants or exclusives in favor of Tenant. LEASE AGREEMENT - 31 22.2 Tenant Offset and Estoppel Certificate. 22.2.1 Tenant shall, at any time within ten (10) days after written notice from Landlord, execute, acknowledge and deliver to Landlord a statement in writing in the form attached as Exhibit E or such similar or modified form as Landlord shall reasonably request (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if they are claimed. Any such statement may be conclusively relied upon by any prospective purchaser, lender or other encumbrancer of the Premises. Landlord shall, at any time within ten (10) days after written notice from Tenant, provide a certificate containing such similar information as Tenant may reasonably request. 22.2.2 Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than an amount equal to one month's rent has been paid in advance. 22.2.3 If Landlord, after acquiring said property from the Government, desires to sell, finance, or refinance the Premises, DDOU or any part thereof, Tenant hereby agrees to deliver to any purchaser or lender designated by Landlord such financial statements of Tenant as may be reasonably required by such purchaser or lender. All such financial statements shall be received by Landlord in confidence and shall be used only for the purpose herein set forth. 22.3 Transfer of Landlord's Interest. In the event of a sale or conveyance by Landlord or Landlord's interest in DDOU and/or the Premises, other than a transfer for security purposes only, Landlord shall be relieved from and after the date specified in any such notice of transfer of all obligations and liabilities accruing thereafter on the part of the Landlord, provided that any funds in the hands of Landlord at the time of transfer in which Tenant has an interest, shall be delivered to the successor of Landlord. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee provided all Landlord's obligations hereunder are assumed in writing by the transferee. Upon the sale of the Premises, Tenant, upon notice of any such transfer, shall change the name insured under the insurance policies described in Article 13 to the new Landlord. 22.4 Captions, Attachments: Defined Terms. 22.4.1 The captions of the sections of this Lease are for convenience only and shall not be deemed to be relevant in resolving any question of interpretation or construction of any section of this Lease. LEASE AGREEMENT - 32 22.4.2 Exhibits attached hereto and addenda and schedules are deemed by attachment and/or reference to constitute part of this Lease and are incorporated herein as an integral part of this Lease. 22.4.3 The words "Landlord," "Tenant" and "Guarantor," as used herein, shall include the plural as well as the singular. Words used in neuter gender include the masculine and the feminine. Words used in the masculine or feminine gender include the neuter. If there be more than one Landlord, Tenant or Guarantor, the obligations hereunder imposed upon Landlord, Tenant or Guarantor shall be joint and several; as to a Tenant or Guarantor which consists of husband and wife, the obligations shall extend individually to their sole and separate property as well as community property. The term "Landlord" shall mean only the owner or owners at the time in question of the fee title or a lessee's interest in a superior lease of the Premises. The obligations contained in this Lease to be performed by Landlord shall be binding on Landlord's successors and assigns only during their respective periods of ownership. 22.5 Entire Agreement. This instrument, along with any exhibits and attachments hereto, constitutes the entire agreement between Landlord and Tenant relative to the Premises and there are no oral agreements or representations between the parties hereto affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements or representations and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. There are no other representations or warranties between the parties or the parties and their agents or representatives and all reliance with respect to representations is solely upon the representations and agreements contained in this document. This agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. 22.6 Severability. If any term or provision of this Lease shall, to any extent be determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforceable to the fullest extent permitted by low; and it is the intention of the parties hereto that if any provision of this Lease is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall have the meaning which renders it valid. LEASE AGREEMENT - 33 22.7 Costs of Suit 22.7.1 If Tenant or Landlord shall bring any action for relief against the other, declaratory or otherwise, arising out of this Lease, including any suit by Landlord for the recovery of rent or possession of the Premises, the losing party shall pay the successful party a reasonable sum for attorneys' fees which shall be deemed to have accrued on the commencement of such action and shall be paid whether or not such action is prosecuted to judgment. 22.7.2 Should Landlord, without fault on Landlord's part, be made a party to any litigation instituted by Tenant or by any third party against Tenant, or by or against any person holding under or using the Premises, by license of Tenant, or for the foreclosure of any lien for labor or materials furnished to or for Tenant or any such other person or otherwise arising out of or resulting from any act or transaction of Tenant or of any such other person, Tenant covenants to save and hold Landlord harmless from any judgment rendered against Landlord or the Premises or any part hereof, and all costs and expenses, including reasonable attorneys' fees incurred by Landlord in or in connection with such litigation. 22.8 Times; Joint and Several Liability; Guarantors. Time is of the essence of this Lease and each and every provision hereof. All the terms, covenants and conditions contained in this Lease to be performed by either party, if such party shall consist of more than one person or organization, shall be deemed to be joint and several, and all rights and remedies of the parties shall be cumulative and non-exclusive of any other remedy at law or in equity. Any Guarantors, if any, executing this Lease covenant and agree that they bind themselves by their signatures hereon as principals with joint and several liability and not as sureties all as more particularly provided on Exhibit E. 22.9 Binding Effect: Choice of Law. The parties hereto agree that all the provisions hereof are to be construed as both covenants and conditions as though the words importing such covenants and conditions were used in each separate paragraph hereof. Subject to any provisions hereof restricting assignment or subletting by Tenant and subject to section 22.3, all of the provisions hereof shall bind and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. This Lease shall be governed by the laws of the State of Utah as an agreement to be performed in Utah and as an agreement between domiciliaries of said state. 22.10 Waiver. No covenant, term or condition or the breach thereof shall be deemed waived, except by written consent of the party against whom the waiver is claimed, and any waiver of the breach of any covenant term or condition shall not be deemed to be a waiver of any other covenant, term or condition herein. Acceptance by Landlord of any performance by Tenant after the time the same shall have become due shall not constitute a waiver by Landlord of the breach or default of any such covenant, term or condition unless otherwise expressly agreed to by Landlord in writing. 22.11 Surrender of Premises. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at the option of LEASE AGREEMENT - 34 Landlord terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to it of any or all such subleases or subtenancies. 22.12 Holding Over. This Lease shall terminate and shall become null and void without further notice upon the expiration of the term herein specified, and any holding over by Tenant after such expiration shall not constitute a renewal hereof or give Tenant any rights under this Lease. If Tenant shall hold over for any period after the expiration of said term, Landlord may, at its option, exercised by written notice to Tenant, treat Tenant as a Tenant from month to month commencing on the first day following the expiration of this Lease, subject to the terms and conditions herein contained except that the Minimum Rent, which shall be payable in advance monthly, shall be one hundred fifty percent (150%) of the Minimum Rent applicable at the date of expiration. If Tenant fails to surrender the Leased Premises upon the expiration of this Lease, Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claims made by any succeeding tenant founded on or resulting from such failure to surrender. 22.13 Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, shall excuse the performance by such party for a period equal to any such prevention, delay or stoppage except the obligations imposed with regard to Rent and other charges to be paid to Tenant pursuant to this Lease. 22.14 Interest on Past Due Obligations. Except as otherwise expressly herein provided, any amounts due to Landlord not paid when due shall bear interest at the rate which is greater of (a) three (3) points over the prime rate of interest at First Security Bank, (or such other state or federal chartered bank doing business in Utah as may be specified in a written notice to Tenant hereafter) or (b) eighteen percent (18%) an a per annum basis from the due date; provided, however, that notwithstanding the foregoing, such interest shall not, in any event, exceed the highest rate permitted by applicable law. Payment of interest shall not excuse or cure any default by Tenant under this Lease, except to the extent of amounts paid by Tenant and accepted by Landlord. 22.15 Corporate Authority. If Tenant and/or Guarantor is a corporation, each individual executing this Lease and/or the guaranty attached as Exhibit E on behalf of said corporation represents and warrant that he is duly authorized to execute and deliver this Lease and/or guaranty on behalf of said corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the Bylaws of said corporation, and that this Lease and/or guaranty is binding upon said corporation in accordance with its terms. 22.16 Provisions Re: Landlord's Lease. Tenant acknowledges and agrees that this Lease is subject to the conditions and term of the Department of the Army Interim Lease Under Base Realignment and Closure between the Secretary of the Army and Landlord (the "Landlord's Lease") and that, in case of any conflict between the instruments, the Landlord's Lease will LEASE AGREEMENT - 35 control. Upon request of the Landlord herein, Tenant will cause the fee owner of the real property (the "United States") to be designated as an additional insured under the policies of insurance carded by Tenant pursuant to the provisions hereof. In each instance wherein Tenant under the provisions of this lease holds Landlord harmless, or waives claims or rights of subrogation against Landlord such provisions shall also be deemed applicable to and in favor of the Government in like manner as applicable to Landlord herein. Tenant agrees not to knowingly violate, cause to be violated or cause Landlord to be in violation of Landlord's obligations to the Government and consistent with quiet enjoyment of the Premises under this lease, should such ground lease be prematurely terminated Tenant will acknowledge and accept the Government as Landlord under this Lease. In the event Landlord shall acquire fee title to the real property upon which the Premises are located, this Lease shall continue in effect as a sublease and the leasehold estate of Landlord under such ground lease shall not merge with fee title, but shall continue in effect unless Landlord by recorded document elects to terminate said ground lease. Should Landlord acquire fee title to the real property upon which the Premises are located and elect by instrument recorded to terminate such ground lease, this Lease shall then continue in full force and effect as a direct Lease (as distinguished from a sublease) between Landlord and Tenant. 22.17 Warranties of Tenant. Tenant warrants and represents to Landlord, for the express benefit of Landlord, that (a) Tenant has undertaken, to the extent it deems necessary for its purposes, an independent evaluation of the risks inherent in the execution of this Lease and the operation of the Leased Premises for the use permitted hereby, and that, based upon said independent evaluation, Tenant has elected to enter into this Lease and accept the Premises. 22.18 Commission Agreements. Each party represents to the other that no brokers have been involved in this transaction. If any claims for brokerage or leasing commissions are ever made against Landlord or Tenant in connection with this transaction, each such claim shall be handled and paid by the parties whose actions or commitments form the basis of such claim. ARTICLE 23 - SPECIAL CONDITIONS AND AGREEMENTS The special conditions and/or agreements, if any, with respect to this Lease shall be as set forth in the Addendum. 22.18 Commission Agreements. Each party represents to the other that no brokers have been involved in this transaction. If any claims for brokerage or leasing commissions are ever made against Landlord or Tenant in connection with this transaction, each such claim shall be handled and paid by the parties whose actions or commitments form the basis of such claim. ARTICLE 23 - SPECIAL CONDITIONS AND AGREEMENTS The special conditions and/or agreements, if any, with respect to this Lease shall be set forth in the Addendum. LEASE AGREEMENT - 36 IN WITNESS WHEREOF, Landlord, Tenant and Guarantors, if any, have executed this Lease to be effective the date and year first above written. LANDLORD: OGDEN CITY, a Utah Municipal Corporation, acting as a Local Redevelopment Authority By: /s/ Glann J. Mecham ------------------------------ Glenn J. Mecham, Mayor ATTEST: /s/ ILLEGIBLE - ---------------------------- CITY RECORDER APPROVED AS TO FORM: /s/ ILLEGIBLE - ---------------------------- CITY ATTORNEY ICON Health and Fitness, Incorporated By: /s/ Fred Beck --------------------------------------- Fred Beck, Chief Financial Officer GUARANTORS: __________________________________________ __________________________________________ STATE OF UTAH ) ) SS. COUNTY OF WEBER ) LEASE AGREEMENT - 37 The foregoing instrument was acknowledged before me this 9th day of July , 1998, by GLENN J. MECHAM, the Major of Ogden City, a Utah Municipal Corporation. /s/ DeAnn Wallwork ------------------------------------------ NOTARY PUBLIC STATE OF UTAH ) ------ ) SS COUNTY OF CACHE ) ------- The foregoing instrument was acknowledged before me this 29 day of June, 1998, by Fred Beck, the Chief Financial Officer of the ICON Health and Fitness Corporation. /s/ Denise Lott ------------------------------------------ NOTARY PUBLIC LEASE AGREEMENT - 38 ADDENDUM Special Provisions Per Article 23 23.1 Environmental Protection. 23.1.1 Incorporation of Environmental Provisions of Landlord's Lease. Tenant and Landlord each acknowledge and agree to abide by and comply with the environmental provisions set forth in Sections 26 through 30 of the Landlord's Lease, as follows: 26. ENVIRONMENTAL PROTECTION a. The Lessee will use all reasonable means available to protect the environment and natural resources, and where damage nonetheless occurs from activities of the Lessee, the Lessee shall be liable to restore the damaged resources. The Lessee shall not discharge waste or effluent from the Leased Premises in such a manner that the discharge will contaminate streams or other bodies of water or otherwise become a public nuisance. b. The Lessee shall be responsible for obtaining and paying for any environmental or other permits required for its operations under the Lease, independent of any existing permits. c. The Governments rights under this Lease specifically include the right for Government officials to inspect, upon reasonable notice, the Leased Premises for compliance, with environmental, safety, and occupational health laws and regulations, whether or not the Government is responsible for enforcing them. Such inspections are without prejudice to the right of duly constituted enforcement officials to make such inspections. The Government normally will give the Lessee twenty-four (24) hours prior notice of its intention to enter the Leased Premises unless it determines the entry is required for safety, environmental, operations, or security purposes. The Lessee shall have no claim on account of any entries against the United States or any officer, agent, employee, or contractor thereof. d. The Government acknowledges that DDOU has been identified as a National Priorities List Site under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980, as amended. The Lessee acknowledges that the Government has provided it with a copy of the DDOU Federal Facility Agreement Under CERCLA Section 120 (FFA) entered into by the United States Environmental Protection Agency Region VIII, the Utah Department of Health, and the Defense Logistics Agency, and effective on November 30, 1989, and will provide the Lessee with a copy of any amendments thereto. The Lessee agrees that should any conflict arise between the terms of the FFA, as it presently exists or may be amended, and the provisions of this Lease, LEASE AGREEMENT - 39 the terms of the FFA will take precedence. The Lessee further agrees that notwithstanding any other provision of the Lease, the Government assumes no liability to the Lessee should implementation of the FFA interfere with the Lessee's use of the Leased Premises. The Lessee shall have no claim on account of any such interference against the United States or any officer, agent, employee or contractor thereof, other than for abatement of rent. e. The Secretary, Defense Logistics Agency, EPA, and UDEQ, their officers, agents, employees, contractors and subcontractors have the right, upon reasonable notice to the Lessee, and to parties in possession, to enter upon the Leased Premises for purposes consistent with the applicable provisions of the FFA, and for the following purposes: (1) to conduct investigations and surveys, including, where necessary, drilling, soil and water sampling, test pitting, soil boring tests and other activities related to the DDOU Installation Restoration Program (IRP), FFA or Interagency Agreement (IAG): (2) to inspect field activities of the Army and its employees, agents, contractors and subcontractors in implementing that DDOU IRP, FFA or IAG; (3) to conduct any test or survey required by EPA or UDEQ relating to the implementation of the FFA or environmental conditions at the Leased Premises, or to verify any data submitted to the EPA or the UDEQ by the Army relating to such conditions; (4) to construct, operate, maintain or undertake any other response or remedial action as required or necessary under the IRP, FFA, or IAG, including, but not limited to, monitoring wells, soil removal, pumping wells and treatment facilities; and (5) to conduct Environmental Compliance Assessment System Surveys (ECAS). f. The Lessee shall comply with the provisions of any health or safety plan in effect under the IRP or the FFA during the course of the above described response or remedial actions. Any inspection, survey, investigation, or other response or remedial action will, to the extent practicable, be coordinated with representatives designated by the Lessee. The Lessee shall have no claim on account of such entries against the United States or any officer, agent, employee, contractor, or subcontractor thereof. In addition, the Lessee shall comply with all applicable Federal, state and local occupational safety and health regulations. LEASE AGREEMENT - 40 g. The Lessee shall strictly comply with the hazardous waste permit requirements under the Resource Conservation and Recovery Act (RCRA), or its Utah equivalent and any other applicable laws, rules or regulations. Except as specifically authorized by the Government in writing, the Lessee must provide, at its own expense, hazardous waste management facilities, including storage, treatment or disposal facilities, complying with all applicable laws and regulations. Government hazardous waste management facilities will not be available to the Lessee. Any violation of the requirements of this Condition shall be deemed a material breach of this Lease. h. Department of Defense (DOD) Component accumulation points for hazardous and other wastes will not be used by the Lessee. The Lessee will not permit its hazardous waste to be commingled with hazardous waste of the DOD Component. i. The Lessee shall prepare and maintain a Government-approved plan for responding to hazardous waste, fuel and other chemical spills prior to commencement of operations on the Leased Premises. Such plan shall be independent of DDOU and shall not rely an use of installation personnel or equipment should the Government provide any personnel or equipment, whether for initial fire response and/or spill containment, or otherwise on the request of the Lessee or because the Lessee was not, in the opinion of the Said Officer, conducting timely cleanup actions, the Lessee agrees to reimburse the Government for its costs. The plan may be developed in phases as sublease activities are identified. Sublessees shall provide to the Lessee a plan to cover their activities and portion of the Leased Premises prior to commencement of operations on the subleased portion, which will be incorporated by the Lessee into the overall plan. j. The Lessee shall not construct or make or permit its sublessees or assigns to construct or make any alterations, additions, or improvements to, or installations upon or otherwise modify or alter the Leased Premises in anyway which may adversely affect the environment program, environmental cleanup, human health, the environment, cultural and historic resources, or endangered or threatened species without the prior written consent of the Government. Such consent may include a requirement to provide the Government with a performance and payment bond satisfactory to it in all respects and other requirements deemed necessary to protect the interests of the Government for construction or alterations, additions, modifications, improvements, or installations in the proximity of operable units that are part of a National Priorities List (NPL) site, such consent may include a requirement for written approval by the Secretary's Remedial Project Manager. Except as such written approval shall expressly provide otherwise, all such approved alterations, additions, modifications, improvements, and installations shall become Government property when annexed to the Leased Premises. LEASE AGREEMENT - 41 k. The Lessee shall not conduct or permit its sublessees to conduct any subsurface excavation, digging, drilling, or other disturbance of the surface without the prior written approval of the Government. l. The Lessee shall not use the Leased Premises for the storage or disposal of non-Department of Defense owned hazardous or toxic materials, as defined in 10 U.S.C. (S) 2692, unless authorized under 10 U.S.C. (S) 2692 and approved by the Government. m. Access to the polychlorinated Biphenyls (PCB) vaults and transformers are restricted except to authorized and qualified utility purveyors. n. The Government may impose any additional environmental protection conditions and restrictions during the term of this Lease that it deems necessary by providing written notice of such restrictions to the Lessee. 27. HAZARDOUS SUBSTANCES NOTICE To the extent such information is available on the basis of a complete search of Army files, notice regarding hazardous substances stored for one year or more, known to have been released, or disposed of on the Leased Premises is provided in Exhibit G, attached hereto. The Lessee should consult the Condition Survey and the EBB for more detailed information. 28. LEAD-BASED PAINT WARNING a. The Leased Premises do not contain residential dwellings and are not being leased for residential purposes. The Lessee is notified that the Leased Premises contains buildings built prior to 1978 that contain lead-based paint. Such property may present exposure to lead from lead-based paint that may place young children at risk of developing lead poisoning. Lead poisoning in young children may produce permanent neurological damage, including learning disabilities, reduced intelligence quotient, behavioral problems and impair memory. A risk assessment is recommended prior to execution of this Lease. b. Available information concerning known lead-based paint and/or lead-based paint hazards, the location of lead-based paint and/or lead-based paint hazards, and the condition of painted surfaces is contained in the EBS, which has been provided to the Lessee. Additionally, the Lessee has been provided with a copy of the federally-approved pamphlet on lead poisoning prevention. The Lessee hereby acknowledges receipt of all the information described in this subparagraph. LEASE AGREEMENT - 42 c. The Lessee acknowledges that it has been provided an opportunity to conduct a risk assessment or inspection for the presence of lead-based paint and/or lead-based paint hazards prior to execution of this Lease. d. The Lessee shall not permit use of any buildings or structures on the Leased Premises for residential habitation without first obtaining the written consent of the Army. As a condition of its consent, the Army may require the Lessee to (i) inspect for the presence of lead-based paint and/or lead-based paint hazards; (ii) abate and eliminate lead-based paint hazards by treating any defective lead-based paint surface in accordance with all applicable laws and regulations; and (iii) comply with the notice and disclosure requirements under applicable Federal and state law. The Lessee agrees to be responsible for any future remediation of lead-based paint found to be necessary on the Leased Premises. 29. ASBESTOS a. The Lessee is hereby informed and does acknowledge that friable and non-friable asbestos or asbestos-containing materials (ACM) has been found on the Leased Premises, as described in the Final Environmental Baseline Survey and CERFA Letter Report. The ACM on the Leased Premises does not currently pose a threat to human health or the environment. All friable asbestos that posed a risk to human health has either been removed or encapsulated. b. Unprotected or unregulated exposures to asbestos have been associated with asbestos-related diseases. Both the Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA) regulate asbestos because of the potential hazards associated with exposure to airborne asbestos fibers. Both OSHA and EPA have determined that such exposure increases the risk of asbestos -related diseases, which include certain cancers and which can result in disability or death. c. The Lessee acknowledges that it has inspected the Leased Premises as to its asbestos content and condition and any hazardous or environmental conditions relating thereto, as part of the Condition Survey, described in the Condition on CONDITION OF THE PREMISES. The Lessee shall be deemed to have relied solely on its own judgment in assessing the overall condition of all or any portion of the property, including, without limitation, any asbestos hazards or concerns. d. As stated in the Condition on CONDITION OF THE LEASED PREMISES, and specifically with regard to ACM, no warranties, either express or implied, are given with regard to the condition of the property, including, without limitation, whether the Leased Premises does or does not contain asbestos or is or is not safe for a particular purpose. The failure of the Lessee to Inspect, or to be fully informed as to the condition of all or any portion of the property LEASE AGREEMENT - 43 offered, will not constitute grounds for any claim or demand against the United States. e. In addition to the general indemnity contained in the Condition on HOLD HARMLESS AND INDEMNITY, with regard specifically to ACM, the United States assumes no responsibility for remediation of asbestos and no liability for damages for personal injury, illness, disability, or death to the Lessee's successors, assigns, employees, invitees, or any other person subject to Lessee's control or direction or to any other person, including members of the general public, arising from or incident the purchase, transportation, removal, handling, use, disposition, or other activity causing or leading to contact of any kind whatsoever with asbestos on the Leased Premises, whether the Lessee has properly warned or failed to properly warn the individual(s) injured. f. The Lessee further agrees that in its use and occupancy of the Leased Premises it will comply with all federal, state, and local laws relating to asbestos. The Lessee agrees to be responsible for any future remediation of asbestos found to be necessary on the Leased Premises. 30. OTHER ENVIRONMENTAL RESTRICTIONS a. The Lessee must obtain approval in writing from the DDOU pest management coordinator or Said Officer before any pesticides or herbicides are applied to the Leased Premises. Only U.S. Environmental Protection Agency approval pesticides or herbicides will be authorized, and application must be in accordance with the manufacturer's instructions. Empty containers or unused pesticides or herbicides must be disposed of off the installation in accordance with EPA disposal standards. b. The Lessee and/or authorized sublessees shall not use the facilities for residential uses and/or non-residential uses commonly used by children under seven years of age. 23.1.2 Landlord's Representation. Landlord, to the best of Landlord's knowledge, and other than as disclosed to Tenant in the form of the Condition Survey prepared by the Government, which Condition Survey the Tenant acknowledges receiving, represents that no toxic or hazardous substances as defined by any applicable federal or state law has been discharged, stored, disposed of or allowed to escape on the Premises, that no underground storage tanks are located on or in the Premises, or were located on the Premises and subsequently removed or filled and that the Premises are in compliance with all applicable federal, state and local statutes, laws and regulations regarding toxic or hazardous substances. LEASE AGREEMENT - 44 23.2 Lease-Offsets. 23.2.1 During the first term of the Lease, the actual cost of work done by Tenant that is determined by the Landlord to be necessary to establish Tenant's business on the Leased Premises may be allowed as an offset to rent, subject to the approval of the Landlord and the Government. 23.2.2 In order to receive such rental offset, Tenant shall submit to Landlord a request for lease offset, including a complete description of work to be accomplished, design drawings if construction is involved, a detailed cost estimate of the work to be completed or the actual cost if already completed, and any other data as may be requested by the Landlord or the Government, acting through the District Engineer. In no event shall an offset be approved which does not qualify under Landlord's lease for use of rental payments. 23.2.3 An approved offset shall be prorated in equal monthly installments over the remainder of the first term. If the actual cost for the work is less than the approved estimates, adjustment will be made to the prorated amount. If approval is based on estimated costs, the actual amount of the offset shall not exceed the estimated cost without prior approval of the Landlord and the Government. 23.2.4 Within thirty (30) days after completion of any work approved for rental offset, Tenant shall provide Landlord with substantiation of the actual costs incurred in completing the work. Any approved offset may be terminated by Landlord for failure to provide such substantiation or for failure to complete such improvements within the time frames as indicated in Exhibit B. 23.3 Right of First Refusal. The Landlord is not the present owner and has applied to acquire the property from the United States through an economic development conveyance. If Landlord gains fee title, Landlord covenants and agrees that in the event Landlord shall at any time during the term of the Lease, as the same is extended from time to time, and so long as Tenant is not in default of this Lease, intend to or desire to sell Landlord's leasehold estate in the Premises, or if Landlord shall receive a bona fide offer to purchase the Premises, then Landlord shall first notify Tenant of its desire and intent to sell or of the receipt of notice from Landlord, to elect to purchase the estate in the Premises and all of Landlord's fight, title and interest therein for such price and upon such stated terms and conditions. Tenant's right of first refusal as herein contained shall remain in force and be binding upon any subsequent owner or owners of the demised Premises to the same extent as if said subsequent owner or owners were the Tenant named herein. Notwithstanding the foregoing, Tenant's right of first refusal shall not apply to any sale of the Premises as part of the sale of some or all of the entire DDOU, even though such sale includes the Premises, and it shall only apply to a sale solely of Landlord's interest in the demised Premises. In the event that Landlord shall provide notice to Tenant of its desire and intent to sell and/or of the receipt of an offer which it is willing to accept and if Tenant shall decline such offer, then this right of first refusal shall be extinguished and shall be of no further force or effect. This Right of First Refusal does not obligate the Government. LEASE AGREEMENT - 45 23.4 Lease Renewal. Notwithstanding the provisions of 3.3, the right of extension for the second term may be exercised by Tenant giving written notice to Landlord to extend such term at least thirty (30) days prior to the August 27, 1998, termination date. 23.5 Termination Provision. The Tenant shall have the right to terminate this Lease upon providing to Landlord a written notice of termination sixty (60) days in advance. 23.6 Miscellaneous Clarifications. 23.6.1 Where the term "Building" is used in this Lease, it shall refer to the warehouse building located on the Premises. 23.6.2 It is understood that Tenant may operate its business on a 24 hours per day, 7 days a week basis. 23.6.3 Notwithstanding anything herein to the contrary, Lessee agrees to be responsible for any future remediation required as a result of Lessee's bringing hazardous materials onto the Premises, or as a result of any Lessee-initiated disturbance of previously encapsulated or protected hazardous materials on the Premises. Lessee shall not be responsible for future remediation of hazardous materials that existed on the Premises prior to Lessee's possession thereof. LEASE AGREEMENT - 46 EXHIBIT A DDOU LEASE AGREEMENT DESCRIPTION OF LEASED PREMISES 1. Building 365 (16-A) and all property associated with it (see attached map). 238 South Clark Ave. Ogden, UT 84407 together with the yard areas between the Building and the adjacent streets, including all sidewalks, landscaped areas, open space areas and designated parking lots to be used by Tenant LEASE AGREEMENT - 47 [GRAPHIC OMITTED] LEASE AGREEMENT - 48 EXHIBIT B DDOU LEASE AGREEMENT CONSTRUCTION PROVISIONS 1. Improvements. 1.1 Construction and Construction Costs. Tenant covenants and agrees to construct (with a contractor accepted by Landlord in writing, which acceptance shall not be unreasonably withheld) and in a good and workmanlike manner, certain agreed upon improvements to the Building on the Premises according to the Plans and Specifications referred to subsequently herein (which certain agreed improvements to be constructed on and to become a part of the Premises shall be referred to herein as the "Improvements"). Tenant's construction activities will not interfere unreasonably with the use of DDOU by other tenants, employees, customers or invitees thereof or with other construction activities with DDOU. The staging area for Tenants construction shall be only on the Premises unless Landlord shall designate in writing other areas as additional staging areas. Personnel working on the construction of any improvements on the Premises shall park only on the Premises or in those locations designated by Landlord when a particular phase of construction makes padding on the Premises impractical or dangerous. The cost of the Improvements, which shall be paid by Tenant, shall include all costs and expenses associated with the construction of the Improvements within the Premises including, without limitation, materials, labor and other hard construction costs, site preparation, pad compaction, utility charges, meter fees, connection fees, fire service fees, building permit fees, all other fees, permits, licenses and approvals associated with the construction within the Premises, architectural and engineering fees, power from transformer to Building, professional fees, and all other costs and expenses incurred by Tenant in connection with the construction within the Premises. Tenant accepts the Premises "as is" based on its own inspections. 2. Construction Timetable/Procedures. 2.1 Plans and Specifications. Tenant shall provide to Landlord, for Landlord's approval, a complete set of plans and specifications for the Improvements to be constructed within the Premises by Tenant, including site and landscape plans and building elevations. The plans and specifications shall be consistent with the schematic site plans and architectural elevations of Tenant's building as submitted to the appropriate approval authorities for required consents and permits ("Approvals"). Government approval of construction is required by Landlord's Lease. Landlord shall approve or request modifications to the Plans and Specifications within ten (10) days of receipt of approval from the Government's District Engineer of same. If Landlord is requesting modification, such notice shall include a detailed explanation of the requested reasonable changes. After all of the plans and specifications are approved, such final plans and specifications (the "Plans and Specifications") shall be incorporated by reference as a part of this Lease without attachment. The approved Plans and LEASE AGREEMENT - 49 Specifications shall be initiated by both Landlord and Tenant. The Plans and Specifications shall not be modified, by change order or otherwise, without Landlord's written consent. Construction of the Improvements by Tenant or Tenant's contractor shall start within sixty (60) days after Landlord approves Tenant's Plans and Specifications. 2.2 Government Approvals. Tenant shall obtain all necessary governmental approvals, including building permits, for the construction of the improvements. Landlord shall have the right to review and approve all such governmental approvals. Tenant shall pay all permits and approval fees associated with the Building. LEASE AGREEMENT - 50 EXHIBIT C DDOU LEASE AGREEMENT GENERAL SIGN STANDARDS These criteria have been established for the mutual benefit of all tenants. Conformance will be strictly enforced and any installed nonconforming or unapproved signs must be removed or brought into conformance at the expense of Tenant. This criteria may be modified only with Landlord's written approval in Landlord's sole discretion. Pursuant to the Landlord's Lease Tenant shall not construct or place any structure, improvement or advertising sign on the Premises without prior written approval of the District Engineer. A. GENERAL REQUIREMENTS: 1. Tenant shall submit or cause to be submitted to the Landlord for approval before fabrication at least three copies (at least one to contain color copy) of detailed drawings indicating the location on the Tenants space and the layout design and color of the proposed signs, including all lettering and/or graphics. 2. All permits for Tenants signs and their installation shall be obtained by the Tenant or the Tenants' representative and shall conform to all local building and electrical codes. 3. All signs shall be constructed and installed at Tenant's expense. 4. No billboards or outdoor advertising is permitted. B. LOCATION OF SIGNS: Only one exterior sign per Tenant space shall be permitted, unless otherwise approved with the prior written consent of Landlord. Such sign shall 1. Be place only on or along one facade of the main building on the Premises; 2. Be parallel to the applicable building facade; and 3. Be in such location only as Landlord shall approve in writing at its sole discretion. C. DESIGN REQUIREMENTS: The design of all signs, including style, placement and height of letterings, size, color, and materials, method and amount of illumination shall be subject to the approval of Landlord. General design guidelines are as follows (and may be supplemented in the future by further guidelines): 1. Signs should be either free-standing or wall-mounted. All free-standing signs should be monument style with concealed support (no poles), and should have associated LEASE AGREEMENT - 51 landscaping. All-mounted and free-standing identification signs should be an extension of the architectural style of buildings. 2. Wall-mounted signs should extend no more than 16' beyond the face of the building or above the parapet or eaves of the buildings. 3. Total size of the sign used for business identification shall be limited to 25 square feet or one square foot for each lineal foot of the street frontage of the building, whichever is larger. A company logo (not to exceed 16 square feet in area) may be allowed in addition to the business identification signage. 4. The amount of sign-face covered with letters should not exceed 30%. 5. If illumination is provided, it should be constant rather than animated or flashing. 6. No exposed lamps, tubing, animated, flashing, audible signs, exposed raceways, crossovers, conduit or brackets will be permitted. All cabinets, conductor, transformers and other equipment shall be concealed. D. CONSTRUCTION REQUIREMENTS: 1. Exterior facade signs, bolts, fastenings, and clips shall be enameled iron with enamel finish, stainless steel, aluminum, brass or bronze or other rust-free metal. No black iron materials of any type will be permitted. 2. Exterior facade signs, which are exposed to the weather, shall be spaced off the wall a minimum of one-quarter inch (1/4") to permit proper dirt and water drainage away from the building unless otherwise directed by Landlord. 3. Location of all openings for conduit in sign panels on building walls shall be indicated by the sign contractor on drawings submitted to Landlord. All penetrations of the building structure required for sign installation shall be neatly sealed in a watertight conditions. No labels will be permitted on the exposed surface of signs except those required by local ordinance which shall be applied in an inconspicuous location. LEASE AGREEMENT - 52 EXHIBIT D DDOU LEASE AGREEMENT ESTOPPEL CERTIFICATES TENANT OFFSET AND ESTOPPEL CERTIFICATE TO: __________________ __________________ __________________ RE: Lease dated _________ 199_, by and between Ogden City, a Utah Municipal Corporation, acting as a Local Redevelopment Authority, as Landlord and ___________, as Tenant, on Premises located in the Defense Distribution Depot, Ogden, Utah. Gentlemen: The undersigned tenant (the `Tenant") and landlord (the "Landlord") certify and represent unto the addressee hereof (hereinafter referred to as the "Purchaser" or "Lender"), its attorneys and representatives, with respect to the above-described lease, a true and correct copy of which is attached as Exhibit A hereto, (the "Lease") as follows: 1. All space covered by the Lease has been furnished to the satisfaction of Tenant, all conditions required under the Lease have been met, and there is no default by Landlord or Tenant and Tenant has accepted and taken possession of the premises covered by the Lease. 2. The Lease is for a total term of ___________ (_) years, __________(_) months commencing , 199_, has not been modified, altered or amended on any respect and contains the entire agreement between Landlord and Tenant except as follows: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (list amendments and modifications other than those, if any, attached to and forming a part of the attached Lease as well as any verbal agreements; or write "None"). 3. As of the date hereof, the Minimum Rent under the Lease is $ ________ monthly. 4. No rent has been paid by Tenant in advance under the Lease except for $ __________, which amount represents rent for the period beginning __________, 19_ and ending ____________, 19 and Tenant has no charge or claim of offset under said Lease or otherwise, against rents or other amounts due or to become due thereunder. No "discounts", "free rent" or "discounted rent" have been agreed to or are in effect except for LEASE AGREEMENT - 53 5. A Security Deposit of $____________ has been made and is currently being held by Landlord. 6. Tenant has no claim against Landlord for any deposit or prepaid rent except as provided in Paragraphs 4 and 5 above. 7. The Landlord has satisfied all commitments, arrangements or understandings made to induce Tenant to enter into the Lease, and Landlord is not in any respect in default in the performance of the terms and provisions of the Lease, nor is there now any fact or condition which, with notice or lapse of time or both, would become such a default. 8. Tenant is not in any respect in default under the terms and provisions of the Lease (nor is there now any fact or condition which, with notice or lapse of time or both, would become such a default) and has not assigned, transferred or hypothecated its interest under the Lease, except as follows: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 9. Except as expressly provided in the Lease or in any amendment or supplement to the Lease, Tenant: (i) does not have any right to renew or extend the term of the Lease, (ii) does not have any option or preferential right to purchase all or any part of the Premises or all or any part of the building or premises of which the Premises are a part, and (iii) does not have any right, title, or interest with respect to the Premises other than as Tenant under the Lease. There are no understandings, contracts, agreements, subleases, assignments, or commitments of any kind whatsoever with respect to the Lease of the Premises covered thereby except as expressly provided in the Lease or in any amendment of supplement to the Lease set forth in Paragraph 2 above, copies of which are attached hereto. 10. The Lease is in full force and effect and Tenant has no defenses, setoffs, or counterclaims against Landlord arising out of the Lease or in any way relating thereto or arising out of any other transaction between Tenant and Landlord. 11. The Tenant has not received any notice, directly or indirectly, of a prior assignment hypothecation or pledge by Landlord of the rents or the Lease to a person or entity. 12. The current address to which all notices to Tenant as required under the Lease should be sent is: LEASE AGREEMENT - 54 13. Addressee's rights hereunder shall inure to its successors and assigns. 14. Tenant acknowledges that Addressee is acquiring ownership of the Premises. Tenant agrees that upon Addressee acquiring ownership, Tenant will attorn and does attorn and agrees to recognize and does recognize Addressee as Landlord on the condition that Addressee agrees to recognize the Lease referred to in this document as long as Tenant is not in default thereunder, provided, however, that Addressee shall have no liability or responsibility under or pursuant to the terms of the Lease for any cause of action or matter not disclosed herein or that accrues after Addressee ceases to own a fee interest in the property covered by the Lease. 15. The Tenant agrees to execute reasonable modifications to the Lease and such documents as Addressee may request for the purpose of subordinating the Lease to any mortgage or deed of trust to be placed upon the property by Addressee from time to time and any estoppel certificates requested by Addressee from time to time in connection with the sale or encumbrance of the Premises. 16. Tenant makes this certificate with the understanding that the Addressee is contemplating acquiring the Premises, and that if Addressee acquires the Premises, it will do so in material reliance on this certificate and Tenant agrees that the certifications and representations made herein shall survive such acquisition. Executed on the ________ day of ____________________, 199_. TENANT: LANDLORD: ________________________________ OGDEN CITY, a Utah Municipal Corporation, acting as a Local Redevelopment Authority By:_____________________________ By:______________________________ Its:____________________________ Its:_____________________________ LEASE AGREEMENT - 55 EXHIBIT E DDOU LEASE AGREEMENT GUARANTOR'S OBLIGATIONS LEASE AGREEMENT - 56 GUARANTY To induce Ogden City, a Utah Municipal Corporation, acting as a Local Redevelopment Authority, to enter into that certain Lease Agreement dated the _ day of ________, 1998 by and between Ogden City, as Landlord, and ___________ as Tenant (the "Lease"), ____________ (whether individually or collectively "Guarantor") agrees with Landlord as follows: 1 . Guaranty of Payment. The Guarantor hereby absolutely and unconditionally guarantees to Landlord the due and punctual payment of all rent and all other sums when and as the same shall become due and payable under the Lease. This guaranty is an absolute, unconditional, continuing guaranty of payment and not of collectibility, and is in no way conditioned or contingent upon any matter or occurrence whatsoever, including any attempt to collect the obligations from Tenant, from any other person, firm or corporation obligated with respect thereto, or of any other guarantor thereof. If Tenant fails to pay punctually any rent or other sum due under the Lease when and as the same becomes due and payable, the Guarantor shall, upon notice of such failure, immediately pay the same to Landlord. 2. Guaranty of Performance. The Guarantor hereby absolutely and unconditionally guarantees to Landlord that Tenant will duly and punctually perform and comply with all terms or obligations to be performed or complied with by Tenant under the Lease and any other agreements entered into subsequent thereto relating to Tenant's obligations under the Lease. If Tenant fails to perform or comply with any such term or obligation, the Guarantor shall, upon notes of such failure, forthwith perform or comply with such term or obligation or cause the same forthwith to be performed or complied with. 3. Costs and Expenses. The Guarantor shall pay all costs and expenses incurred by or on behalf of Landlord (including without limitation attorneys' fees and expenses) in enforcing either the obligations of the Guarantor under this agreement or the obligations of Tenant with respect to the Lease. 4. Subsequent Occurrences. The obligation of the Guarantor under this agreement shall remain in full force and effect without regard to and shall not be affected or impaired in any respect by any amendment, modification, or termination of the Lease; any exercise, nonexercise, waiver, release or cancellation by Landlord of any right, remedy, power or privilege under or related to the Lease; any consent, extension, indulgence or other action, inaction or omission under or related to the Lease; any insolvency, bankruptcy, liquidation, reorganization, arrangement dissolution or other proceeding involving or affecting Tenant or any other Guarantor, any consent to assignment or subletting of the Tenant's interest under the Lease; or any other cause or circumstance whatsoever which would or might in any manner or to any extent vary the risk of the Guarantor or which would or might otherwise operate as a discharge of the Guarantor as a matter of law, whether or not the Guarantor has notice or knowledge of any of the foregoing. 5. Waive. The Guarantor unconditionally waives; (a) notice of any of the matters referred to in paragraph 4 hereof, (b) all notices that may be required by statute, rule or law, or LEASE AGREEMENT - 57 otherwise to preserve any rights of Landlord against Tenant, the Guarantor or any other party obligated in connection with the Lease, including without limitation presentment to, demand of payment from, and protest to, Tenant the Guarantor or any such other party; (c) any right to the enforcement, assertion, exercise or nonexercise by Tenant of any right, power or remedy conferred in the Lease or any other instrument whatsoever, (d) any right of subrogation by virtue of payment made hereunder, and (e) notice of acceptance of this guaranty. 6. Miscellaneous. This writing is intended by Guarantor and Landlord as the final expression of their agreement of guaranty and is intended as a complete and exclusive statement of the terms of their agreement. Neither this agreement nor any term hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. This agreement is delivered in the State of Utah and shall be governed by and construed with the laws of the State of Utah. The Guarantor hereby consents to the jurisdiction of Utah courts over all matters relating to this agreement. The obligations and liabilities of the Guarantor hereunder shall be joint and several. DATED this _ day of ____________________, 1998. GUARANTOR: STATE OF UTAH ) ) COUNTY OF ___________ ) The foregoing instrument was acknowledged before me this ____ day of ______________ , 1998 by ______________. (Name) _______________________________ NOTARY PUBLIC LEASE AGREEMENT - 58 EXHIBIT F BASIC RULES AND REGULATIONS At all times during the lease term, Tenant will comply with the following rules and regulations at its sole cost and expense: 1. Tenant will maintain the Premises in clean, neat sanitary and orderly condition. 2. Tenant will comply with all of the rules and regulations of the American Insurance Association, the state Insurance Bureau and any similar bodies. Tenant will not commit any action or permit any condition to be continued on the Premises which might increase the existing rate of any insurance policy held by Landlord. Tenant will not do or keep anything that will cause cancellation of (or be prohibited by) Landlord's insurance policies. 3. Tenant will refrain from burning waste materials of any kind or otherwise creating noxious odors. All odor and moisture producing areas must be adequately exhausted, so that odors and moisture do not travel beyond the Premises. Exhaust and make-up air systems will be subject to Landlord's inspection. Tenant will be responsible for the utilities and other costs of all exhaust air and special cooling and heating systems (such as refrigeration, walk-in coolers, make-up air and other equipment serving Tenants special needs). 4. Tenant will maintain adequately-sized grease interceptors on sinks, dishwashers, drains or plumbing units as required by applicable building codes. Tenant will be responsible for disposing of all waste products and other matter so as to avoid any clogging or interference with DDOU utility systems. 5. Tenant will store all trash and garbage within the Premises in containers acceptable to Landlord so located as not to be visible to customers and business Invitees in the Building and to avoid any health or fire hazard, and arrange for their prompt and regular removal during hours to be specified by Landlord. 6. Tenant will refrain from doing anything on or about the Premises that will cause an overload. If Landlord believes there is an overload, Landlord may select a qualified electrician whose opinion will control regarding any overload of electrical circuits or a qualified engineer or architect whose opinion will control regarding floor overloads or other stresses. Tenant will promptly comply with any actions recommended by the electrician, engineer or architect. 7. Tenant shall not place any sign, awning, canopy, marquee, advertising matter, decoration, lettering or other thing of any kind on any window or exterior door or wall, without the prior written consent of Landlord and the District Engineer. 8. Tenant shall have the right, at its expense, to maintain advertising matter appropriate to the conduct of Tenant's business within the boundaries of the Premises subject to LEASE AGREEMENT - 59 the approval of the District Engineer. However, Tenant shall immediately remove any sign, advertisement, decoration, lettering or notice placed on or viewed within the Premises which Landlord deems objectionable or offensive, and if Tenant fails or refuses to do so, Landlord will enter the Premises and remove the same at Tenant's expense. In this connection, Tenant acknowledges that the premises is a part of DDOU and maintenance of uniformity, propriety and the aesthetic values are essential to the successful operation of both Landlord's and Tenant's businesses. 9. Tenant shall not use any advertising or promotional medium which can be heard or experienced outside the Premises, including (without limitation) flashing lights, loud speakers, phonographs, radios and/or televisions. No leaflets, handbills or other advertising material will be placed on cars in the parking area or distributed outside the Premises. 10. Without the written consent of Landlord, Tenant shall not permit any sale by auction to be conducted on or about the Premises, whether voluntary, involuntary or pursuant to any assignment for the benefit of creditors, or pursuant to any bankruptcy or other insolvency proceeding. No fire, bankruptcy, lost lease and/or going-out-of-business sale shall be conducted. 11. Any Building employee to whom premises is entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's agent. Landlord shall not be liable for any damage to any property entrusted by employees of the Building, for the loss or damage to any premises of Tenant by theft or otherwise. 12. Tenant will refrain from keeping, displaying, advertising or selling any merchandise outside the boundaries of the Premises, or on any portion of any sidewalks, walkways or other portion of the Building and adjacent premises, except as specifically approved in writing by Landlord. LEASE AGREEMENT - 60 EXHIBIT "G" LANDLORD'S WAIVER NAME OF OWNER OF REAL PROPERTY: Ogden City, a Utah Municipal ("Landlord") Corporation, acting as a Local Redevelopment Authority ADDRESS OF REAL PROPERTY: Defense Distribution Depot Building #365 (16-A) Ogden, Utah (the "Premises") This Landlord's Waiver is made as of the date on the signature page hereof. Landlord is the owner of the Premises and has entered into that certain Lease, dated January 1, 1998 by and between Landlord and ICON HEALTH & FITNESS, INC., a Delaware corporation as Tenant (together with its successors and assigns, whether by operation of law or otherwise the "Company") (the "Lease"), under which the Company has acquired a leasehold interest in all or a portion of the Premises. General Electrical Capital Corporation, individually and as agent ("Agent") for other lenders ("Lenders"), has entered into certain financing transactions with the Company. Pursuant to that certain Security Agreement entered into in connection therewith (as amended or modified, the "Security Agreement") by and among the Company, Guarantors, and Agent, on behalf of itself and Lenders, the Company has granted to Agent, for the benefit of itself and Lenders, a security interest in the personal property of the Company, consisting of, all accounts, chattel paper, contracts, deposit accounts, documents, general intangibles, instruments, inventory, equipment, machinery, other personal property of any kind, money, cash or cash equivalent and proceeds and products, which are now or in the future may become located at the Premises (the "Collateral"). As an inducement for Agent and Lenders to enter into such financing transactions, in consideration of the Company's entering into its leases, agreements and arrangements with Landlord and for other good and valuable consideration, the receipt and sufficiency of which Landlord hereby acknowledges, Landlord hereby agrees as follows: 1. The Lease is valid and is in full force and effect and has not been assigned, modified, supplemented or amended in any way. 2. To the best of Landlord's knowledge, neither Landlord nor the Company is in default under the terms of the Lease and the Lease expires on December 31, 1998. 3. The Collateral may be stored, placed, kept, utilized and/or installed at the Premises and shall not be deemed a fixture or part of the real estate but shall at all times be considered personal property, whether or not any of the Collateral becomes so related to the real estate that an interest therein arises under real estate law. 4. Until such time as all of the obligations of the Company to Agent and Lenders are indefeasibly paid in full, Landlord disclaims any interest in the Collateral, confirms that it has no lien or security interest therein, and agrees not to levy upon any of the Collateral or to assert any claim against the Collateral for any reason. 5. Agent, on behalf of itself and Lenders, shall have access to and may enter upon the Premises at any time from time to time to inspect, liquidate or remove the Collateral. Neither Agent nor Lenders shall be liable for any diminution in value of the Premises caused by the absence of the Collateral actually removed or by any necessity of replacing the Collateral. 6. Landlord agrees to provide Agent with written notice of any termination of the Lease. Landlord will permit Agent to remain on the Premises for a period of up to sixty (60) days following receipt by Agent of written notice from Landlord that Landlord has terminated the Lease, subject, however, to the payment to Landlord by Agent, on behalf of itself and Lenders, of the rent and other monetary amounts due under the Lease for the actual period of occupancy by Agent, prorated on a per diem basis determined on a thirty (30) day month. Agent's right to occupy the Premises under the preceding sentence shall be extended for any time period Agent is prohibited from selling the Collateral due to the imposition of the automatic stay by the filing of bankruptcy proceedings by or against the Company, so long as Agent remits to Landlord the rents and other monetary amounts due under the Lease for such additional period of time as provided in the previous sentence (without giving effect to any rent acceleration clause, if any, contained in the Lease). Notwithstanding any of the provisions of this Landlord's Waiver, neither Agent nor any Lender shall be under any obligation to make any payment or cure any default by the Company under the Lease. 7. This Landlord's Waiver shall inure to the benefit of Agent and Lenders, their respective successors and assigns, and shall be binding upon Landlord, mortgagees of the Premises and the successors and assigns of Landlord and such mortgagees. 8. Landlord agrees to disclose this Landlord's Waiver to any purchaser or successor to Landlord's interest in the Premises. 9. All notices to Agent hereunder shall be in writing, sent by certified mail, and shall be addressed to Agent at the following address: GENERAL ELECTRIC CAPITAL CORPORATION 105 West Madison, Suite 1600 Chicago, Illinois 60602 Attention: ICON Account Manager Telecopier No. (312) 419-5977 Telephone No. (312) 419-0985 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Landlord's Waiver as of this __ day __________, 1998. LANDLORD: --------- OGDEN CITY, a Utah Municipal Corporation, acting as a Local Redevelopment Authority By:_______________________________ Name:_____________________________ Title:____________________________ TENANT: ICON HEALTH & FITNESS, INC., a Delaware Corporation By: /s/ Fred Beck ------------------------------- Name:_____________________________ Title:____________________________ cc: General Electric Capital Corporation 105 West Madison, Suite 1600 Chicago, Illinois 60602 Attn: ICON Account Manager AMENDMENT TO LEASE AGREEMENT THIS AMENDMENT TO LEASE AGREEMENT (this "Addendum") is entered into effective as of this 25 day September, 1998, by and between OGDEN CITY, a Municipal Corporation, acting as a Local Redevelopment Authority ("Landlord") and ICON HEALTH AND FINESS, INCORPORATED, a Delaware Corporation ("Tenant"). WHEREAS, the parties have entered into a Sublease Agreement dated June 29, 1998, (the "Sublease") pertaining to Building 365 (16B) and associated real property located at the site known as the "Defense Distribution Depot" in Ogden, Utah, such buildings and real property being more particularly described in the Sublease; WHEREAS, the parties wish to amend the Sublease in certain respects, on the terms and conditions described herein. IT IS THEREFORE agreed as follows: 1. The term "Building" and "Leased Premises" are hereby amended to refer to and include Bay 3 of Building 357 (Building 15A) (the "Additional Space") during the Lease Term set forth in Section 2 below. 2. Notwithstanding the provisions of the Sublease, the initial Lease Term for the Additional Space shall commence on 25 September, 1998 and end on December 31, 1998, with 2 renewal options of 6 months each, subject to termination of the Landlord's Lease. Renewal notices must be given in writing by Tenant at least 60 days prior to the expiration of each Lease Term. 3. The Minimum Rent applicable to the Additional Space shall be $6,522 monthly (43,482 sq. ft. @ .15/sq.ft/month). First months rent and rent for any days in September 1998 ($217.40 per day) will be due upon signing. Rent inflation rate shall be two per cent (2%) exercised at the second renewal option. 4. Tenant shall not be entitled to offset against Minimum Rent for improvements to the Additional Space absent a separate written agreement authorizing such offset. 5. Except where such terms or conditions are clearly inapplicable, all other terms and conditions of the Sublease remain unmodified, and all such terms and conditions shall apply to the lease of the Additional Space hereunder. IN WITNESS WHEREOF, Landlord and Tenant have executed this Addendum to be effective the date and year first above written. Dated this 24th day of November ,1998 ---- ---------- LANDLORD: OGDEN CITY, a Utah Municipal Corporation, acting as a Local Redevelopment Authority By: /s/ Glenn J. Mecham ------------------------ Glenn J. Mecham, Mayor ATTEST: /s/ ILLEGIBLE - ------------------------ CITY RECORDER APPROVED AS TO FORM: CITY ATTORNEY TENANT: ICON HEALTH AND FITNESS INCORPORATED By: /s/ Fred Beck ------------------------------------ Fred Beck, Chief Financial Officer STATE OF UTAH ) ) SS COUNTY OF WEBER ) The foregoing instrument was acknowledged before me this 24th day of November, 1998, by GLENN J. MECHAM, the Mayor of Ogden City, a Utah Municipal Corporation. /s/ DeAnn Wallwork --------------------------- NOTARY PUBLIC My Commission Expires: 3/14/02 --------- in: Ogden, Utah ------------------- STATE OF Utah ) -------------- ) SS COUNTY OF Cache ) ------------- The foregoing instrument was acknowledged before me 13th day November, 1998 by Fred Beck, the Chief Financial Officer of the ICON Health and Fitness Incorporated. /s/ Denise Lott --------------------------- NOTARY PUBLIC My Commission Expires: 1/26/99 ------------- in: Logan, Ut ----------------------- AMENDMENT TO LEASE AGREEMENT THIS AMENDMENT TO LEASE AGREEMENT (this "Addendum") is entered into effective as of 9th day July, 1998, by and between OGDEN CITY, a Municipal Corporation, acting as a Local Redevelopment Authority ("Landlord") and ICON HEALTH AND FINESS, INCORPORATED, a Delaware Corporation ("Tenant"). WHEREAS, the parties have entered into a Sublease Agreement dated June 29, 1998, (the "Sublease") pertaining to Building 365 (16B) and associated real property located at the site known as the "Defense Distribution Depot" in Ogden, Utah, such buildings and real property being more particularly described in the Sublease; WHEREAS, the parties wish to amend the Sublease in certain respects, on the terms and conditions described herein. IT IS THEREFORE agreed as follows: 1. The term "Building" and "Leased Premises" are hereby amended to refer to and include Bay 3 of Building 357 (Building 15A) (the "Additional Space") during the Lease Term set forth in Section 2 below. 2. Notwithstanding the provisions of the Sublease, the initial Lease Term for the Additional Space shall commence on 30 June, 1998 and end on December 31, 1999, with month-to-month thereafter, subject to termination of the Landlord's Lease. Renewal notices must be given in writing by Tenant at least 60 days prior to the expiration of each Lease Term. 3. The Minimum Rent applicable to the Additional Space shall be $6,522 monthly (43,482 sq. ft. @ .15/sq.ft/month). First months rent and rent for any days in June 1999 ($217.40 per day) will be due upon signing. Rent inflation rate shall be two per cent (2%) exercised at the second renewal option. 4. Tenant shall not be entitled to offset against Minimum Rent for improvements to the Additional Space absent a separate written agreement authorizing such offset. 5. Except where such terms or conditions are clearly inapplicable, all other terms and conditions of the Sublease remain unmodified, and all such terms and conditions shall apply to the lease of the Additional Space hereunder. IN WITNESS WHEREOF, Landlord and Tenant have executed this Addendum to be effective the date and year first above written. Dated this 9th day July, 1998 ----- ------ LANDLORD: OGDEN CITY, a Utah Municipal Corporation, acting as a Local Redevelopment Authority By: /s/ Glann J. Mecham ------------------------------------- Glenn J. Mecham, Mayor ATTEST: /s/ ILLEGIBLE - ---------------------------- CITY RECORDER APPROVED AS TO FORM: /s/ ILLEGIBLE - ---------------------------- CITY ATTORNEY TENANT: ICON HEALTH AND FITNESS INCORPORATED By: /s/ Fred Beck ------------------------------------- Fred Beck, Chief Financial Officer STATE OF UTAH ) ) SS COUNTY OF WEBER ) The foregoing instrument was acknowledged before me 9th day July 1998, by GLENN J. MECHAM, the Mayor of Ogden City, a Utah Municipal Corporation. /s/ DeAnn Wallwork --------------------------- NOTARY PUBLIC My Commission Expires: 3/14/02 ---------- in: Ogden, Ut --------------- STATE OF __________ ) ) SS COUNTY OF _________ ) The foregoing instrument was acknowledged before me 30th day of June, 1998 by Fred Beck, the Chief Financial Officer of the ICON Health and Fitness Incorporated. /s/ Mary Lynn Hathaway --------------------------- NOTARY PUBLIC My Commission Expires: ____________ in: _______________ AMENDMENT TO LEASE AGREEMENT THIS AMENDMENT TO LEASE AGREEMENT (this "Addendum") is entered into effective as of this 1 day August, 1998, by and between OGDEN CITY, a Municipal Corporation, acting as a Local Redevelopment Authority ("Landlord") and ICON HEALTH AND FINESS, INCORPORATED, a Delaware Corporation ("Tenant"). WHEREAS, the parties have entered into a Sublease Agreement dated November 19, 1998, (the "Sublease") pertaining to Building 365 (16A) and associated real property located at the site known as the "Defense Distribution Depot" in Ogden, Utah, such buildings and real property being more particularly described in the Sublease; WHEREAS, the parties wish to amend the Sublease in certain respects, on the terms and conditions described herein. IT IS THEREFORE agreed as follows: 1. The agreement is amended to replace Exhibit "A" with the Exhibit "A" attached to this amendment and by this reference incorporated herein. 2. Notwithstanding the provisions of the Sublease, the initial Lease Term for the Additional Space shall commence on 1 August, 1999 and end on December 31, 1999. This Lease Amendment is a month to month lease for the Additional Space, whereby Icon Health and Fitness, at its option, may provide thirty (30) days written notification of intent to cancel this Lease Amendment anytime during the term. Upon expiration of the initial term, renewal options shall be governed as per Sections 1.7 and 3.3 of the Sublease. 3. The Minimum Rent applicable to the Additional Space shall be $6,522 monthly (43,482 sq. ft. @ .15/sq.ft/month). First months rent will be due upon signing. The daily rate for the Additional Space is $217.40 per day. 4. Tenant shall not be entitled to offset against Minimum Rent for improvements to the Additional Space absent a separate written agreement authorizing such offset. 5. Except where such terms or conditions are clearly inapplicable, all other terms and conditions of the Sublease remain unmodified, and all such terms and conditions shall apply to the lease of the Additional Space hereunder. IN WITNESS WHEREOF, Landlord and Tenant have executed this Addendum to be effective the date and year first above written. Dated this 18th day of October ,1999 ------ ----------- LANDLORD: OGDEN CITY, a Utah Municipal Corporation, acting as a Local Redevelopment Authority By: /s/ Glenn J. Mecham -------------------------------- Glenn J. Mecham, Mayor ATTEST: /s/ ILLEGIBLE - ------------------------------------ CITY RECORDER APPROVED AS TO FORM: /s/ ILLEGIBLE - ------------------------------------ CITY ATTORNEY TENANT: ICON HEALTH AND FITNESS INCORPORATED By: /s/ ILLEGIBLE --------------------------- STATE OF UTAH ) ) SS COUNTY OF WEBER ) The foregoing instrument was acknowledged before me 18th day October ,1998, by GLENN J. MECHAM, the Mayor of Ogden City, a Utah Municipal Corporation. /s/ DeAnn Wallwork --------------------------- NOTARY PUBLIC My Commission Expires: 3/14/02 ------------- in: Ogden, Ut -------------- STATE OF UTAH ) --------- ) SS COUNTY OF CACHE ) ------ The foregoing instrument was acknowledged before me 22nd day of September, 1998 by KENT LUNDGREEN , the MATERIALS MANAGER , of the Icon Health and Fitness. ICON Health and Fitness Incorporated. /s/ Kimberly Langley --------------------------- NOTARY PUBLIC My Commission Expires:______________ Residing at Newton, Utah in:________________ EXHIBIT A DDOU LEASE AMENDMENT DESCRIPTION OF LEASED PREMISES 1. Building 365 (16A), and all associated property (see attached map) and Bay 6 of Building 357 (Building 15A) (the "Additional Space") during the Lease Term set forth in Section 2 of the amendment. - -------------------------------------------------------------------------------- together with the yard areas between the Building and the adjacent streets, including all sidewalks, landscaped areas, open space and designated parking lots to be used by Tenant. EXHIBIT A TO LEASE AMENDMENT - PAGE 1 [GRAPHIC OMITTED] EXHIBIT A TO LEASE AMENDMENT - PAGE 1 EX-10.4 7 dex104.txt EXHIBIT 10.4 - LEASE AGREEMENT-PANATTONI/HILLWOOD Exhibit 10.4 LEASE AGREEMENT (Build-to-Suit Facility) - 2000 ARTICLE ONE. BASIC TERMS. This Article One contains the Basic Terms of this Lease between the Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the Lease referred to in this Article One explain and define the Basic Terms and are to be read in conjunction with the Basic Terms. Section 1.01. Date of Lease: Section 1.02. Landlord : Panattoni/Hillwood Development Company, LLC, a Texas limited liability company Address of Landlord: 5310 Harvest Hill Road, Suite 180 Dallas, Texas 75230 Section 1.03. Tenant (include legal entity): ICON Health and Fitness, Inc., a Delaware corporation Address of Tenant: - Attn: Jace Jergensen ICON Health & Fitness. Inc. 4010 Distribution Drive, Suite 200 Garland, Texas 75041 and Attn: Brad H. Bearnson ICON Health & Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 Section 1.04. Property: The Property is Landlord's real property development known as Skyline Building III (the "Building"), Skyline Business Park, located on approximately 18.86 acres, Mesquite, Texas, and described or depicted in Exhibit "A" (the "Project"). The Project includes the land, the approximately 400,000 square foot Building and all other improvements to be located on the land, and the common areas described in Paragraph 4.05(a). It is understood and agreed that Tenant will have the right to require Landlord to reduce the area of the Building to either 300,000 square feet or 350,000 square feet, by giving written notice thereof within fifteen (15)days after the date hereof. If Tenant so exercises such right, the Base Rent payable under Section 1.11(A) under this Lease will be recalculated on the following basis and other amounts payable by Tenant under this Lease will be appropriately adjusted and the parties will execute an amendment to this Lease reflecting such changes: Tenant JJ Landlord JH 1 Years 300,000 sf 350,000 sf ----- ---------- ---------- 1-5 $4.18 $3.96 6-10 $4.81 $4.55 Section 1.05. Lease Term: One Hundred Twenty (120) months beginning on November 15, 2000, or such other date as is specified in this Lease. Section 1.06. Permitted Uses (See Article Five): receiving, storing, shipping and selling products, materials and merchandise made and/or distributed by Tenant, and for such other lawful purposes, including assembly and manufacturing in conformance with the applicable zoning. Section 1.07. Tenant's Guarantor: None Section 1.08. Brokers (See Article fourteen) (if none, so state): Landlord's Broker: None Tenant's Broker: Leon Brothers (Al Leon) Section 1.09. Parking. A minimum of one parking space will be provided for every 1,000 square feet of Building area. Section 1.10. Initial Security Deposit (See Section 3.02): $144,333.33 Section 1.11. Rent and Other Charges Payable by Tenant: (a) BASE RENT: One Hundred Fifteen Thousand Dollars ($115,000.00) for the first sixty (60) months of the Lease Term; One Hundred Thirty-Two Thousand Three Hundred Thirty-Three and 33/100 Dollars ($132,333.33) for the remainder of the initial Lease Term. (b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section 4.02); (ii) Utilities (See Section 4.03), (iii) Insurance Premiums (See Section 4.04); (iv) Common Area Expenses (See Section 4.05). Section 1.12. Landlord's Share of Profit on Assignment or Sublease: (See Section 9.05): Fifty percent (50%) of the profit (the "Landlord's Share"). Section 1.13. Exhibits: The following exhibits are attached to and made a part of this Lease: Exhibit "A" - Description of Land; Exhibit "B" - Building Expansion; Exhibit "C" - Exclusions from Common Area Costs; Exhibit "D" - Tenant Signage; Exhibit "E" - Site Plan and Building Specifications; Exhibit "F" Landlord Waiver and Consent; Exhibit "G" - Expansion Land. Tenant JJ Landlord JH 2 Section 1.14. Interior Architectural: Tenant will use RGA Architects or such other architect as may be mutually agreed upon by both parties (the "Architect") to complete the architectural work for the tenant improvements, including the design of all interior improvements ("Leasehold Improvements") desired by Tenant over and above those included in the Building Improvements being furnished by Landlord pursuant to Section 6.02(a), and preparation of final interior construction drawings ("Leasehold Improvement Plans") for the Leasehold Improvements. Section 1.15. Leasehold Improvement Allowance: When the Leasehold Improvement Plans have been approved by Landlord and Tenant pursuant to Section 6.02(c), Landlord agrees to bid the portions of the Leasehold Improvements subject to the hereinafter specified allowances to at least three (3) subcontractors (at least one of which shall be designated by Tenant) and select the lowest qualified bid while receiving Tenant's input on the decision. There will be no construction management fee charged to Tenant by Landlord. The costs of the Leasehold Improvements, and including without limitation all architectural and engineering fees required to complete the Leasehold Improvement Plans, is referred to as the "Work Costs". Landlord will be responsible for and will pay for the entire Work Cost, except that with respect to the following items, Tenant will be solely responsible for all costs, including associated architectural and engineering fees, in excess of the indicated allowance: (a) office area - $542,500 (b) showroom area - $90,000 (c) electrical distribution - $100,000 (d) compressed air - $10,000 (a) cranes/structural support - $10,000 (f) exterior signage per Section 5.04 - $5,000 With respect to each such item, Tenant will be solely responsible for all Work Costs in excess of the indicated allowance, such excess cost being referred to as "Tenant's Cost"; provided that Tenant has the option to allocate up to 50% of the allowance for any particular allowance item to one or more of the other allowance items. Tenant will pay to Landlord on a monthly basis , the amount of Tenant's Cost actually invoiced to Tenant. Tenant's monthly payment to Landlord will be due within 10 days of receiving a written invoice with backup documentation from Landlord. The amount of Tenant's monthly payment will be equal to Tenant's pro rata share of the cost of the total Work Costs invoiced for that month. If the aggregate allowance applied against total Work Costs for all such allowance items in accordance with the foregoing is less than $757,500.00, Tenant will receive a Base Rent reduction for the initial Lease Term calculated at the rate of $0.02 per square foot per annum for each $100,000.00 of savings, or a proportionate part of $0.02 for fractional part of $100,000.00 of savings (e.g., $50,000 savings produces reduction of $0.01 per square foot per annum; $150,000.00 produces a reduction of $0.03 per square foot per annum). ARTICLE TWO. LEASE TERM. Tenant JJ Landlord JH 3 Section 2.01. Lease of Property for Lease Term. Landlord leases the Property from Landlord to Tenant and Tenant leases the Property from Landlord for the Lease Term. The Lease Term is for the period stated in Section 1.05 above and shall begin and end on the dates specified in Section 1.05 above, unless the beginning or end of the Lease Term is changed under any provision of this Lease. The "Commencement Date" shall be the date specified in Section 1.05 above for the beginning of the Lease Term, unless advanced or delayed under any provision of this Lease. Section 2.02. Delay in Commencement. Landlord shall not be liable to Tenant if Landlord does not deliver possession of the Property to Tenant on the Commencement Date. Landlord's non-delivery of the Property to Tenant on that date shall not affect this Lease or the obligations of Tenant under this Lease except that the Commencement Date shall be delayed until Landlord delivers possession of the Property to Tenant and the Lease Term shall be extended for a period equal to the delay in delivery of possession of the Property to Tenant, plus the number of days necessary to end the Lease Term on the last day of a month. Notwithstanding the foregoing, if the Property is not delivered to Tenant with the Project substantially completed by March 31, 2001 (as such date may be extended due to Tenant Delay or Force Majeure), Tenant shall have the option to terminate this Lease by giving Landlord written notice thereof at any time prior to such substantial completion and delivery to Tenant. Upon any such termination, Tenant will have no further obligation to Landlord under this Lease. Section 2.03. Early Occupancy. Subject to applicable governmental requirements, Landlord will make the Property and the Improvements constructed thereon available to Tenant for the purpose of installing warehouse racks and other equipment thirty days prior to Landlord's receipt of a certificate of occupancy for the Property, provided Tenant does not delay completion of the Improvements. If Tenant occupies the Property prior to the Commencement Date, Tenant's occupancy of the Property shall be subject to all of the provisions of this Lease, except that Tenant will not be required to pay Base Rent or other charges specified in this Lease for the early occupancy period. Early occupancy of the Property shall not advance the expiration date of this Lease. Section 2.04. Renewal Option. Provided that Tenant is not in material default of any of the terms, covenants and conditions hereof beyond the expiration of applicable notice and cure periods set forth herein, Tenant will have the right and option to extend the original term of this Lease for two (2) further terms of sixty (60) months each. Such extension(s) of the original term shall be on the same terms, covenants and conditions as provided for in the original term except for this Section 2.04 and except that the rental rate specified in Section 1.11 of this Lease during each extended term shall be at the fair market rental in effect at the beginning of the extended term on equivalent properties, of equivalent size, in equivalent areas in Dallas County, Texas ("Fair Market Rent"). Tenant will deliver written notice to Landlord of Tenant's intent to exercise a renewal option granted herein not more than twelve (12) months nor less than nine (9) months prior to the expiration of the original term of this Lease or the first extended term, as the case may be. In the event Tenant fails to deliver such written notice within the time period set forth above, Tenant's right to extend the term hereunder shall expire and be of no further force Tenant JJ Landlord JH 4 and effect. Failure to exercise the first renewal option shall render the second renewal option null and void. If Tenant exercises an option in accordance with the foregoing, the parties will have until the date that is six (6) months prior to the date that the original term or the first extension term, as the case may be, will expire in order to agree on Base Rent during the extension term. If the parties agree on the Base Rent for the extension term during that period, they shall immediately execute an amendment to this Lease stating the Base Rent. If the parties are unable to agree on Base Rent for the extended term during that period, then the Base Rent for the extension period will be established by appraisal and will be 100% of Fair Market Rental as determined by the appraisal. Landlord and Tenant shall each appoint one appraiser at least five (5) months prior to the expiration of the original term or first extension term, as the case may be; provided, however, that if either party fails to designate an appraiser within the time period specified, then the appraiser who is designated shall conclusively determine the Fair Market Rental. If two (2) appraisers are designated, then they shall submit within thirty (30) days after the second thereof has been designated their appraisals of the Fair Market Rental. Each appraiser shall prepare a written appraisal report that shall conform with the standard of professional practice of the American Institute of Real Estate Appraisers. Landlord and Tenant intend that the "Fair Market Rental" shall be deemed to be the rent per square foot of rentable area of industrial/office space that is then being charged for similar space located in buildings in the area of the Building that are comparable in quality and offer similar amenities to the Building and involving leases with similar terms and conditions (including, but not limited to, free rent, brokerage commissions, and all other monetary and nonmonetary concessions), and involving the use of the premises for the permitted uses hereunder, but shall not include value added by alterations and/or improvements made by Tenant, at Tenant's expense. The industrial office spaces used for comparison shall be comparable in size, quality and design to the Property, and such industrial office spaces used for comparison shall be comparable to the Property with respect to their location within such buildings, the quality and quantity of tenant improvements installed at each landlord's expense, the services provided by each landlord to such tenant, and the financial strength of Tenant. Should the two appraisers be unable to agree within said thirty (30) days, the two appraisers shall each submit an independent written appraisal and together they shall designate one additional person as appraiser within five (5) days following the expiration of said 30-day period; provided, however, that if the difference between the two appraisals is five percent (5%) or less of the lowest appraisal, then an additional appraiser shall not be designated and the Fair Market Rental shall equal the average of the two appraisals that are submitted. The third appraiser shall submit an independent written appraisal within thirty (30) days following his or her appointment. If the two appraisers cannot agree upon a third appraiser, then either party hereunder may request that a judge of a Dallas State District Court appoint such third appraiser. The Fair Market Rental shall be equal to the average of the two written appraisals which are closest, and the third appraisal shall be disregarded. Each party shall bear the cost of the appraiser appointed by it and the parties shall share equally in the cost of the third appraiser. No person shall be appointed or designated an appraiser unless he or she is an independent appraiser who is a currently certified member of the American Institute of Real Estate Appraisers (with Tenant JJ Landlord JH 5 MAI designation) and unless he or she has at least five (5) years experience as an appraiser in Dallas County. The third appraiser shall not have ever been employed (full-time or part-time or on a consulting basis) by Landlord or Tenant. In the event that the Fair Market Rental is not established before the commencement of the extended term, Tenant shall continue to pay the Base Rent in effect at the end of the original term or first extension term, as the case may be, and when the Fair Market Rental has been established, the new Base Rent shall be retroactively effective as of the beginning of the extended term and Tenant shall pay Landlord any deficiency within thirty (30) days after the establishment of the new Base Rent. Section 2.05. Building Expansion. Tenant will have the right to require Landlord to expand the Building upon the terms and conditions set forth on Exhibit "B" attached hereto and made a part hereof for all purposes. Section 2.06. Holding Over. Tenant shall vacate the Property upon the expiration or earlier termination of this Lease. Tenant shall reimburse Landlord for and indemnify Landlord against all damages which Landlord incurs from Tenant's delay in vacating the Property. If Tenant does not vacate the Property upon the expiration or earlier termination of the Lease and Landlord thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall be a "month to month" tenancy, subject to all of the terms of this Lease applicable to a month-to-month tenancy, except that the Base Rent then in effect shall be increased by fifty percent (50%). ARTICLE THREE: BASE RENT. Section 3.01. Time and Manner of Payment. On the first day of the second month of the Lease Term and each month thereafter, Tenant shall pay Landlord the Base Rent, in advance, without offset, deduction or prior demand. The Base Rent shall be payable at Landlord's address or at such other place as Landlord may designate in writing, Section 3.02. Security Deposit. Upon the execution of this Lease, and as the Security Deposit under this Lease, Tenant shall deliver to Landlord an executed original irrevocable standby letter of credit ("L.C.") in the amount of $144,333.33, in favor of Landlord, such L.C. to have a term commencing on the execution of this Lease and ending no less than twelve (12) months from the date of execution of this Lease (subject to the L.C. extension requirement hereinafter specified). The L.C. may be drawn upon and used upon each occurrence of any event of default which remains uncured after applicable notice and cure periods; Landlord may use all or part of the L.C. to pay past due rent or other payments due Landlord under this Lease, or to cure any other defaults of Tenant under this Lease without prejudice to any other remedy provided herein or provided by law. Such L.C. shall be issued in a form and by a National Banking Association or other financial institution (located within the continental United States of America, and if not located in Dallas, Texas, must either agree in the L.C. to accept presentation of required material for drawing purposes by Federal Express or other overnight courier, or have a correspondent bank in Dallas, Texas at which the L.C. may be presented for payment(s)) (hereinafter the "Issuer"), acceptable to Landlord. With respect to any default occurring during the term of the Lease, which remains uncured following applicable notice and cure periods, Tenant JJ Landlord JH 6 Landlord shall have the right to proceed against the total L.C. at the sole discretion of Landlord regarding items and the amounts to be drawn upon relating to any default by Tenant; provided, however, that any drawn amounts not properly applied by Landlord in accordance with this Section 3.02 shall be deposited and maintained by Landlord in a separate bank account on account of Tenant's Security Deposit obligations hereunder. If Landlord uses any part of the L.C., Deposit, Tenant shall restore the L.C. to its full amount within ten (10) days after Landlord's written request. Tenant's failure to do so shall be a material default under this Lease. No interest shall be paid on any portion of the L.C. converted to cash pursuant to the provisions hereof. In the event of the sale of the Property, Landlord will have the obligation to transfer the Security Deposit, both the L.C. and any cash proceeds thereof, to the vendee, provided such vendee agrees in a writing delivered to Tenant to accept and hold the same in compliance with the terms hereof, in accordance with Section 11. The L.C. shall contain the following terms and conditions: 1. The L.C. shall be deemed to be automatically extended without amendment from year to year, with renewal occurring annually, from the date of its issuance or any future expiration date unless at least 30 days prior to any future expiration date the bank notifies Landlord, in writing, by certified mail, return receipt requested, that the issuer intends not to renew the L.C. for an additional year. 2. In the event the L.C. is not extended at least 30 days prior to its then stated expiration date and will therefore expire by its terms and the Lease, including any or all extensions or renewals, has not expired, then (unless Tenant has, prior to drafting by Landlord, deposited with Landlord cash or a substitute L.C. in the amount of the Security Deposit) Landlord shall be allowed to draft upon issuer for the full amount of the L.C., subject to the terms and provisions hereinabove set forth. 3. The L.C. shall be subject to the "Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500. 4. The amount of the L.C. shall be payable at sight to Landlord within three (3) business days of presentation of the sight draft, in whole or partial drawings; upon presentation to the issuer of the following documents: a. Landlord's written demand for payment making reference to the date and number of the L.C.; b. Landlord's signed certificate that the amount drawn is required to satisfy an event of default which has remained uncured beyond applicable notice and grace periods, as set forth in the Lease, or that Tenant has failed to deposit cash or a substitute L.C. as required under subsection 2 above; and c. The original L.C. for endorsement of the amount paid and if the draft is for the full amount the L.C. is to be surrendered to the issuer. Tenant JJ Landlord JH 7 5. The issuer shall not modify the L.C. without prior written consent of the Landlord. An extension of the L.C. shall not be deemed a modification under the above provisions. 6. Landlord shall have the right to assign and transfer its right and interests in the L.C. only to a purchaser of the Project; provided such purchaser issues a written receipt therefor delivered to Tenant. Section 3.03. Termination; Advance Payments. Upon termination of this Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation) or any other termination not resulting from Tenant's default, and after Tenant has vacated the Property in the manner required by this Lease, Landlord shall refund or credit to Tenant (or Tenants successor) the unused portion of the Security Deposit, any advance rent or other advance payments made by Tenant to Landlord, and any amounts paid for real property taxes and other reserves which apply to any time periods after termination of the Lease. ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT. Section 4.01. Additional Rent. All charges payable by Tenant other than Base Rent are called "Additional Rent." Unless this Lease provides otherwise, Tenant shall pay all Additional Rent then due with the next monthly installment of Base Rent. The term "rent" shall mean Base Rent and Additional Rent. Section 4.02. Property Taxes. (a) Real Property Taxes. Tenant shall pay all real property taxes on the Property (including without limitation any fees, taxes or assessments against, or as a result of, any tenant improvements installed on the Property by or for the benefit of Tenant) during the Lease Term. Such payment shall be made at least ten (10) days prior to the delinquency date of the taxes. Within such ten (10)-day period, Tenant shall furnish Landlord with satisfactory evidence that the real property taxes have been paid. Landlord shall reimburse Tenant for any real property taxes paid by Tenant covering any period of time prior to or after the Lease Term. If Tenant fails to pay the real property taxes when due, Landlord may pay the taxes and Tenant shall reimburse Landlord for the amount of such tax payment as Additional Rent. It is understood that Tenant is applying for tax abatement from the appropriate governmental authorities. Landlord agrees to reasonably cooperate at no cost to Landlord. (b) Definition of "Real Property Tax." "Real Property Tax" means: (i) any fee, license fee, license tax, business license fee, commercial rental tax, levy charge, assessment, penalty or tax imposed by any taxing authority against the Property; (ii) any tax on the Landlord's right to receive, or the receipt of, rent or income from the Property or against Landlord's business of leasing the Property; (iii) any tax or charge for fire protection, streets, sidewalks, road maintenance, refuse or other services provided to the Property by any governmental agency; (iv) any tax imposed upon this transaction or based upon a re-assessment of the Property due to a change of ownership, as defined by applicable law, or other transfer of all or part of Landlord's interest in the Property; (v) any assessments levied with respect to the Property by a property owner's association or otherwise under any applicable restrictive Tenant JJ Landlord JH 8 covenants of record, and (vi) and any charge or fee replacing any tax previously included within the definition of real property tax. "Real property tax" does not, however, include Landlord's federal or state income, franchise, inheritance or estate taxes. (c) Joint Assessment. If the Property is not separately assessed, Landlord shall reasonably determine Tenant's share of the real property tax payable by Tenant under Paragraph 4.02(a) from the assessor's worksheets or other reasonably available information. Tenant shall pay such share to Landlord within fifteen (15) days after receipt of Landlord's written statement. (d) Personal Property Taxes. (i) Tenant shall pay all taxes charged against trade fixtures, furnishings, equipment or any other personal property belonging to Tenant. Tenant shall try to have personal property taxed separately from the Property. (ii) If any of Tenant's personal property is taxed with the Property, Tenant shall pay Landlord the taxes for the personal property within fifteen (15) days after Tenant receives a written statement from Landlord for such personal property taxes. Section 4.03. Utilities. Tenant shall pay, directly to the appropriate supplier, the cost of all natural gas, heat, light, power, sewer service, telephone, water, refuse disposal and other utilities and services supplied to the Property. Section 4.04. Insurance Policies. (a) Liability Insurance. During the Lease Term, Tenant shall maintain a policy of commercial general liability insurance (sometimes known as broad form comprehensive general liability insurance) insuring Tenant against liability for bodily injury, property damage (including loss of use of property) and personal injury arising out of the operation, use or occupancy of the Property. Tenant shall name Landlord as an additional insured under such policy. The initial amount of such insurance shall be ONE MILLION DOLLARS ($1,000,000.00) per occurrence and shall be subject to reasonable periodic increase based upon inflation, increased liability awards, recommendation of Landlord's professional insurance advisers and other relevant factors. The liability insurance obtained by Tenant under this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii) contain cross-liability endorsements; and (iii) insure Landlord against Tenant's performance under Section 5.05, if the matters giving rise to the indemnity under Section 5.05 result from the negligence of Tenant. The amount and coverage of such insurance shall not limit Tenant's liability nor relieve Tenant of any other obligations under this Lease. Landlord may also obtain comprehensive public liability insurance in an amount and with coverage determined by Landlord insuring Landlord against liability arising out of ownership, operation, use or occupancy of the Property. The policy obtained by Landlord shall not be contributory and shall not provide primary insurance. (b) Property and Rental Income Insurance. During the Lease Term, Landlord shall maintain policies of insurance covering loss of or damage to the Property in the full amount Tenant JJ Landlord JH 9 of its replacement value. Such policy shall contain an Inflation Guard Endorsement and shall provide protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, special extended perils (all risk), sprinkler leakage and any other perils which Landlord deems reasonably necessary. Landlord shall have the right to obtain flood and earthquake insurance if required by any lender holding a security interest in the Property. Landlord shall not obtain insurance for Tenant's fixtures or equipment or building improvements installed by Tenant on the Property. During the Lease Term, Landlord shall also maintain a rental income insurance policy, with loss payable to Landlord, in an amount equal to one (1) year's Base Rent, plus estimated real property taxes and insurance premiums. Tenant shall be liable for the payment of any deductible amount under Landlord's or Tenant's insurance policies maintained pursuant to this Section 4.04, in an amount not to exceed TWENTY THOUSAND DOLLARS ($20,000.00). Tenant shall not do or permit anything to be done which invalidates any such insurance policies. (c) Payment of Premiums. Subject to Section 4.08, Tenant shall pay all premiums for the insurance policies described in Paragraphs 4.04(a) and (b) (whether obtained by Landlord or Tenant) within fifteen (15) days after Tenant's receipt of a copy of the premium statement or other evidence of the amount due. If insurance policies maintained by Landlord cover improvements on real property other than the Property, Landlord shall deliver to Tenant a statement of the premium applicable to the Property showing in reasonable detail how Tenant's share of the premium was computed. If the Lease Term expires before the expiration of an insurance policy maintained by Landlord, Tenant shall be liable for Tenant's prorated share of the insurance premiums. Before the Commencement Date, Tenant shall deliver to Landlord a copy of any policy of insurance which Tenant is required to maintain under this Section 4.04. At least thirty (30) days prior to the expiration of any such policy, Tenant shall deliver to Landlord a renewal of such policy. As an alternative to providing a policy of insurance, Tenant shall have the right to provide Landlord a certificate of insurance, executed by an authorized officer of the insurance company, showing that the insurance which Tenant is required to maintain under this Section 4.04 is in full force and effect and containing such other information which Landlord reasonably requires. (d) General Insurance Provisions. (i) Any insurance which Tenant is required to maintain under this Lease shall include a provision which requires the insurance carrier to give Landlord not less than thirty (30) days' written notice prior to any cancellation or modification of such coverage. (ii) If Tenant fails to deliver a policy, certificate or renewal to Landlord required under this Lease within the prescribed time period or if any such policy is canceled or modified during the Lease Term without Landlord's consent, and if Tenant does not cure such failure within ten (10) days after written notice thereof from Landlord, Landlord may obtain such insurance, in which case Tenant shall reimburse Landlord for the cost of such insurance within fifteen (15) days after receipt of a statement that indicates the cost of such insurance. Tenant JJ Landlord JH 10 (iii) Tenant shall maintain all insurance required under this Lease with companies holding a "General Policy Rating" of A-8 or better, as set forth in the most current issue of "Best Key Rating Guide". Landlord and Tenant acknowledge the insurance markets are rapidly changing and that insurance in the form and amounts described in this Section 4.04 may not be available in the future. Tenant acknowledges that the insurance described in this Section 4.04 is for the primary benefit of Landlord. If at any time during the Lease Term, Tenant is unable to maintain the insurance required under the Lease, Tenant shall nevertheless maintain insurance coverage which is customary and commercially reasonable in the insurance industry for Tenant's type of business, as that coverage may change from time to time. Landlord makes no representation as to the adequacy of such insurance to protect Landlord's or Tenant's interests. Therefore, Tenant shall obtain any such additional property or liability insurance which Tenant deems necessary to protect Landlord and Tenant. (iv) Unless prohibited under any applicable insurance policies maintained, Landlord and Tenant each hereby waive any and all rights of recovery against the other, or against the officers, employees, agents or representatives of the other, for loss of or damage to its property or the property of others under its control, if such loss or damage is covered by any insurance policy in force (whether or not described in this Lease) at the time of such loss or damage. Upon obtaining the required policies of insurance, Landlord and Tenant shall give notice to the insurance carriers of this mutual waiver of subrogation. Section 4.05. Common Areas. Use, Maintenance and Costs. (a) Common Areas. As used in this Lease, "Common Areas" shall mean all parking areas, driveways, sidewalks, loading areas, access roads, alleys, corridors, landscaping and planted areas, and grounds surrounding the Building, as shown on the site plan referenced in Section 6.02(a) . (b) Use of Common Areas. Tenant shall have the exclusive right to use the Common Areas for the purposes intended, subject to such reasonable rules and regulations as Landlord may establish from time to time and to Landlord's rights to enter upon the Property in accordance with the terms and provisions of this Lease and for the performance of Landlord's duties under this Lease. Tenant shall abide by such rules and regulations and shall use its best effort to cause others who use the Common Areas with Tenant's express or implied permission to abide by Landlord's rules and regulations. (c) Maintenance of Common Areas. Landlord shall maintain the Common Areas in good order, condition and repair, in Landlord's reasonable discretion, as a first-class industrial/commercial real property development. Tenant shall pay all costs incurred by Landlord for the operation and maintenance of the Common Areas in accordance with the provisions of Section 4.08. Common Area costs include, but are not limited to, costs and expenses for the following: gardening and landscaping; utilities, water and sewage charges; maintenance of signs (other than tenants' signs); maintenance of the exterior of the Building (including painting); premiums for liability, property damage, fire and other types of casualty Tenant JJ Landlord JH 11 insurance on the Common Areas and all Common Area improvements; all property taxes and assessments levied on or attributable to the Common Areas and all Common Area improvements; all personal Property taxes levied on or attributable to personal property used in connection with the Common Areas; straight-line depreciation on personal property owned by Landlord which is consumed in the operation or maintenance of the Common Areas; rental or lease payments paid by Landlord for rented or leased personal property used in the operation or maintenance of the Common Areas; fees for required licenses and permits; repairing, resurfacing, repaving, maintaining, painting, lighting, cleaning, refuse removal, security and similar items and any other maintenance, repair or replacement items normally associated with the foregoing.; and reserves for roof replacement and exterior painting and other appropriate reserves. Landlord may cause any or all of such services to be provided by third parties and the cost of such services shall be included in Common Area Costs. Common Area costs shall not include (i) depreciation of real property which forms part of the Common Area, or (ii) those costs set forth on Exhibit "C" attached hereto. Section 4.06. Late Charges. Tenant's failure to pay rent promptly may cause Landlord to incur unanticipated costs. The exact amount of such costs are impractical or extremely difficult to ascertain. Such costs may include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by any ground lease, mortgage or trust deed encumbering the Property. Therefore, if Landlord does not receive any rent payment within ten (10) days after it becomes due, Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount. The parties agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of such late payment. Notwithstanding the foregoing, Landlord will waive the late charge two times during each calendar year, on a non-cumulative basis. Section 4.07. Interest on Past Due Obligations. Any amount owed by Tenant to Landlord which is not paid when due shall bear interest at the rate of fifteen percent (15%) per annum from the due date of such amount. However, interest shall not be payable on late charges to be paid by Tenant under this Lease. The payment of interest on such amounts shall not excuse or cure any default by Tenant under this Lease. If the interest rate specified in this Lease is higher than the rate permitted by law, the interest rate is hereby decreased to the maximum legal interest rate permitted by law. Notwithstanding the foregoing, Landlord will waive the interest charge two times during each calendar year, on a non-cumulative basis. Section 4.08. Impounds for Insurance Premiums, Real Property Taxes and Common Area Costs. Notwithstanding anything in this Lease to the contrary, Tenant agrees to pay as Additional Rent (1) all real property taxes as defined in Section 4.02, (2) any utilities for the Common Areas not separately metered to Tenant, (3) the cost of insurance policies under Section 4.04, and (4) Landlord's costs incurred pursuant to Section 4.05(c) (such costs and expenses being referred to herein as "common area expenses"). During each month of the Term of this Lease, on the same day that Base Rent is due hereunder, Tenant will escrow with Landlord an amount equal to one-twelfth (1/12th) of the annual cost of such items, as reasonably estimated by Landlord. Tenant authorizes Landlord to use the funds deposited with Landlord under this Section 4.08 to pay such costs. The initial monthly escrows set forth below are based Tenant JJ Landlord JH 12 upon the estimated amounts for the first year of the Lease Term, and will be increased or decreased annually to reflect the projected actual costs of all such items. If Tenant's total escrow payments are less than the actual cost of all such items, Tenant will pay the difference to Landlord within thirty (30) days after demand. If the total escrow payments of Tenant are more than the actual amount of all such items, Landlord will retain such excess and credit it against Tenant's next annual escrow payments, or at Tenant's option refund such excess to Tenant. The amount of the initial estimated monthly escrow payments are as follows: (a) Real Estate Taxes as set forth in Section 4.02 .................... $ 23,000.00 (b) Insurance as set forth in Section 4.04 ............................ $ 1,000.00 (c) Common area expenses as set forth in Section 4.05(c) .............. $ 5,333.33 ----------- (Includes management fee under Section 4.09) Total initial estimated monthly escrow ............................ $ 29,333.33
Section 4.09. Management Fees. Tenant shall reimburse Landlord monthly for management fees incurred by Landlord in connection with the Property in the amount of two percent (2%) of the monthly rent for each month of the Lease Term. Section 4.10. Audit. Within nine (9) months of the end of any calendar year, Tenant shall be entitled to inspect the invoices and statements relating to Landlord's cost of operating and maintaining common areas or common facilities, at Landlord's office or at the office of Landlord's managing agent, upon prior reasonable notice and during Landlord's normal business hours. Tenant may also request that Landlord furnish copies of invoices and statements related to Landlord's costs of operating and maintaining common areas or common facilities. Any information provided to Tenant by virtue of this Section 4.10 and the results of any audit performed by Tenant shall be kept by Tenant in confidence and not revealed to any third party (other than to its attorneys and accountants) except as may be required by law or by order of a court of competent jurisdiction. If Tenant's audit reflects any discrepancy in the amounts reported by Landlord, Landlord and Tenant shall promptly make any necessary adjustments. If Tenant's audit reflects that Landlord has misstated the actual amounts by more than ten percent (10%), Landlord shall reimburse Tenant for the reasonable cost of the audit, up to $1,500.00. ARTICLE FIVE: USE OF PROPERTY. Section 5.01. Permitted Uses. Tenant may use the Property only for the Permitted Uses set forth in Section 1.06 above. Section 5.02. Manner of Use. Tenant shall not cause or permit the Property to be used in any way which constitutes a violation of any law, ordinance, or governmental regulation or order, or which constitutes a nuisance or waste. Landlord shall obtain and pay for all permits, including a Certificate of Occupancy, required for Tenant's occupancy of the Property and shall promptly take all actions necessary to comply with all applicable statutes, ordinances, rules, regulations, orders and requirements regulating the use by Tenant of the Property as of the Commencement Date, including the Occupational Safety and Health Act and the Americans With Disabilities Act and Texas Accessibility statutes. Tenant JJ Landlord JH 13 Section 5.03. Hazardous Materials. As used in this Lease, the term "Hazardous Material" means any flammable items, explosives, radioactive materials, hazardous or toxic substances, material or waste or related materials, including any substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials" or "toxic substances" now or subsequently regulated under any applicable federal, state or local laws or regulations, including, without limitation petroleum-based products, paints, solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other chemical products, asbestos, PCBs and similar compounds, and including any different products and materials which are subsequently found to have adverse effects on the environment or the health and safety of persons. Tenant shall not cause or permit any Hazardous Material to be generated, produced, brought upon, used, stored, treated or disposed of in or about the Property by Tenant, its agents, employees, contractors, sublessees without the prior written consent of Landlord. Landlord shall be entitled to take into account such other factors or facts as Landlord may reasonably determine to be relevant in determining whether to grant or withhold consent to Tenant's proposed activity with respect to Hazardous Material. In no event, however, shall Landlord be required to consent to the installation or use of any storage tanks on the Property. Section 5.04. Signs and Auctions. Subject to applicable governmental requirements and restrictions and written approval of Landlord, not to be unreasonably withheld, delayed or conditioned, Tenant will have the right, at Tenant's sole cost and expense, subject to the allowance specified in Section 1.15, to place signage on the Building facia. Tenant may install signs as shown on Exhibit "D" attached hereto. Section 5.05. Indemnity. Tenant shall indemnify Landlord against and hold Landlord harmless from any and all costs, claims or liability arising from: (a) Tenant's use of the Property; (b) the conduct of Tenant's business or anything else done or permitted by Tenant to be done in or about the Property, including any contamination of the Property or any other property resulting from the presence or use of Hazardous Material caused or permitted by Tenant; (c) any breach or default in the performance of Tenant's obligations under this Lease; (d) any misrepresentation or breach of warranty by Tenant under this Lease; or (e) other acts or omissions of Tenant. Tenant shall defend Landlord against any such cost, claim or liability at Tenant's expense with counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any legal fees or costs incurred by Landlord in connection with any such claim. As a material part of the consideration to Landlord, Tenant assumes all risk of damage to property or injury to persons in or about the Property arising from any cause, and Tenant hereby waives all claims in respect thereof against Landlord, except for any claim arising out of Landlord's negligence or willful misconduct. As used in this Section, the term "Tenant" shall include Tenant's employees, agents, contractors and invitees, if applicable. Section 5.06. Landlord's Access. Landlord or its agents may enter the Property during regular business hours with an escort provided by Tenant, to show the Property to potential buyers, investors or tenants or other parties (provided, that Landlord may not directly or indirectly bring any of Tenant's business competitors into the Property); to do any other act or to inspect and conduct tests in order to monitor Tenant's compliance with all applicable environmental laws and all laws governing the presence and use of Hazardous Material; or for Tenant JJ Landlord JH 14 any other purpose Landlord deems necessary. Landlord shall give Tenant prior notice of such entry, except in the case of an emergency. During the last twelve months of the Lease Term, as the Lease Term may be extended, Landlord may place customary "For Sale" or "For Lease" signs on the Property. Section 5.07. Quiet Possession. If Tenant pays the rent and complies with all other terms of this Lease, Tenant may occupy and enjoy the Property for the full Lease Term, subject to the provisions of this Lease. ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS Section 6.01. Existing. Subject to Landlord's obligations with respect to construction of the Building and the Leasehold Improvements (hereinafter defined) pursuant to Section 6.02, Tenant accepts the Property in its condition as of the execution of the Lease, subject to all recorded matters, laws, ordinances, and governmental regulations and orders. Except as expressly provided herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation as to the condition of the Property or the suitability of the Property for Tenant's intended use. Tenant represents and warrants that Tenant has made its own inspection of and inquiry regarding the condition of the Property and is not relying on any representations of Landlord or any Broker with respect thereto. If Landlord or Landlord's Broker has provided a Property Information Sheet or other Disclosure Statement regarding the Property, a copy is attached as an exhibit to the Lease. Section 6.02. Construction of Improvements. (a) Landlord agrees at Landlord's sole cost and expense, to construct the approximately 400,000 square foot Building and associated improvements (collectively, the "Building Improvements") on the Land in accordance with the site plan and building specifications attached hereto as Exhibit "E" (collectively the "Building Plans"). Landlord covenants that on the Commencement Date the Building Improvements will comply with (i) City of Mesquite Fire and Building Codes, (ii) State of Texas Accessibility Standards, (iii) Americans with Disability Act legislation, and (iv) be of quality similar to other Class A office/warehouse buildings in the Mesquite, Texas, area. (b) Promptly after mutual approval of the Leasehold Improvement Plans, Landlord will apply for a building permit for the Building Improvements, enter into a construction agreement with its general contractor and commence construction of the Building Improvements upon issuance of the building permit. (c) Tenant will cause the Architect to prepare and submit to Landlord within sixty (60) days after the date hereof, a set of plans and specifications and/or construction drawings (collectively, the "Leasehold Improvement Plans") for Landlord's use in constructing the Leasehold Improvements. Landlord shall have ten (10) days after receipt to approve the Leasehold Improvement Plans or to give reasonable comments to Tenant. If Landlord makes such comments, Tenant shall have five (5) days to revise the Leasehold Improvement Plans and Tenant JJ Landlord JH 15 resubmit them to Landlord. Landlord shall have five (5) days after receipt of the resubmitted Leasehold Improvement Plans to approve the Leasehold Improvement Plans. After Landlord and Tenant have approved the Leasehold Improvement Plans, any subsequent changes to the Leasehold Improvement Plans requested by Tenant shall be at Tenant's sole cost and expense and subject to Landlord's written approval, such approval not to be unreasonably withheld, delayed or conditioned. The parties will cooperate with all due diligence to cause the Leasehold Improvement Plans to be completed and mutually approved on or before August 15, 2000. Such plans must comply with (i) City of Mesquite Fire and Building Codes, (ii) State of Texas Accessibility Standards, (iii) Americans with Disability Act legislation, and (iv) be of quality similar to other Class A office/warehouse buildings in the Mesquite, Texas, area. (d) Promptly after mutual approval of the Leasehold Improvement Plans, Landlord will apply for a building permit for the Leasehold Improvements, enter into a construction agreement with a subcontractor (the "Interior Contractor") in accordance with Section 1.15, and commence construction of the Leasehold Improvements upon issuance of the building permit therefor. (e) The Leasehold Improvements and the Building Improvements are herein jointly referred to as the "Improvements". Landlord will use reasonable diligence to substantially complete the Improvements by November 15, 2000 (exclusive of landscaping, which may be completed thereafter as weather allows). Any increased costs resulting from any "fast-tracking" will be paid by Landlord. Notwithstanding anything in this Lease to the contrary, the Commencement Date will be the date upon which Landlord has notified Tenant in writing that the Improvements have been substantially completed by Landlord in accordance with the provisions of this Lease and a temporary certificate of occupancy has been issued. As used herein, the term "substantial completion" of the Improvements will mean that, in the reasonable opinion of Landlord's architect, such improvements have been completed in accordance with the Building Plans and the Leasehold Improvement Plans, subject only to completion of minor punch list items, and a temporary certificate of occupancy is issued for the Property by the appropriate governmental authority. Landlord agrees to deliver a final certificate of occupancy to Tenant promptly after substantial completion of the Improvements. As soon as the Improvements have been substantially completed, Landlord will notify Tenant in writing. Within ten (10) days thereafter, Tenant will submit to Landlord in writing a punch list of items needing completion or correction. Landlord will use its best efforts to complete such items within thirty (30) days after the receipt of such notice. If Tenant, its employees, agents or contractors cause construction to be delayed, the Commencement Date will be the date that, in the opinion of Landlord's architect, substantial completion would have occurred if such delays ("Tenant Delays") had not taken place. Tenant Delays include, but are not limited to, delays resulting from any of the following: (i) Failure of Tenant or its architects, engineers, space planners or others employed by Tenant to timely comply with the schedule for preparation of the Leasehold Improvement Plans; Tenant JJ Landlord JH 16 (ii) If Tenant makes changes either before or during construction of the Improvements if the changes result in the Improvements being substantially completed later than they would have been substantially completed absent such changes; and (iii) Landlord's inability to obtain a building permit, certificate of occupancy or other required governmental approval, inspection, license or certificate or any necessary approval of any architectural control committee or other association required under covenants, conditions or restrictions applicable to the Building, and such Inability is due to Tenant's failure to cooperate in the approval process (including Tenant's failure to agree in a timely manner to make changes to the Building Plans and/or the Leasehold Improvement Plans, if and as required by such authorities). (f) Subject to Section 6.02(g) below, if the Improvements have not been substantially completed by December 15, 2000, Landlord will not be in default. However, for the period of any delay between December 15, 2000, and the date upon which the improvements are substantially completed (the "Delay Period"), Landlord will provide Tenant with two (2) days of Base Rent abatement for each day of the Delay Period. (g) Landlord's agreement to provide Base Rent abatement pursuant to Section 6.02(f) is subject to the following conditions: (i) This Lease is fully executed by Tenant and delivered to Landlord by May 31, 2000 (it being understood and agreed that the aforesaid December 15, 2000 date will be extended by the amount of any delay between May 31, 2000 and the date of such execution and delivery by Tenant); (ii) Tenant approves the Leasehold Improvement Plans in form ready for submittal to the City of Mesquite by August 15, 2000 (it being understood and agreed that the aforesaid December 15, 2000 date will be extended by the amount of any delay between August 15, 2000 and the date of such approval by Tenant); and (iii) Landlord will manage the construction of the Leasehold Improvement, which will include entering into an AIA contract with the Interior Contractor for construction of the Leasehold Improvements. (h) Notwithstanding anything in this Lease to the contrary, all dates and time periods for Landlord's performance under this Section 6.02 will be subject to extension for the period of any Tenant Delays and delays of the type specified in Section 13.12. (i) All Improvements will be owned by Landlord and will remain on the Land at the expiration or early termination of this Lease. Section 6.03. Exemption of Landlord from Liability. Landlord shall not be liable for any damage or injury to the person, business (or any loss of income therefrom), goods, wares. Tenant JJ Landlord JH 17 merchandise or other property of Tenant. Tenant's employees, invitees, customers or any other person in or about the Property, whether such damage or injury is caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures or any other cause; (c) conditions arising in or about the Property or upon other portions of the Project, or from other sources or places; or (d) any act or omission of any other tenant of the Project. Landlord shall not be liable for any such damage or injury even though the cause of or the means of repairing such damage or injury are not accessible to Tenant. The provisions of this Section 6.02 shall not, however, exempt Landlord from liability for Landlord's gross negligence or willful misconduct. Section 6.04. Landlord's Obligations. Except as provided in Article Seven (Damage or Destruction) and Article Eight (Condemnation), Landlord shall be responsible for the structural soundness of the Building including replacement of the roof as well as repair to the foundation and exterior walls. However, Landlord shall not be obligated to maintain or repair windows, doors, plate glass or the interior surfaces of exterior walls. Tenant will immediately give Landlord written notice of defect or need for repairs required per the terms of this Lease, after which Landlord will repair same or cure such defect within thirty (30) days after receiving written notice from Tenant unless such cure cannot reasonably be accomplished within such thirty (30) days, in which case Landlord will have such additional time as is reasonably necessary to accomplish such cure provided Landlord promptly commences and diligently prosecutes such cure to completion. Landlord's liability with respect to any defects, repairs, replacements and maintenance for which Landlord is responsible hereunder will be limited to the cost of such repairs or maintenance or the curing of such defects. Tenant waives the benefit of any statute in effect now or in the future which might give Tenant the right to make repairs at Landlord's expense or to terminate this Lease due to Landlord's failure to keep the Property in good order, condition and repair. Section 6.05. Tenant's Obligations. (a) Except as provided in Section 6.04, Article Seven (Damage Destruction) and Article Eight (Condemnation), and except for Landlord's express obligations under the Lease and for normal wear and tear, Tenant shall keep all portions of the Property (including, nonstructural, interior, systems and equipment) in good order, condition and repair (including interior repainting and refinishing, as needed). If any portion of the Property or any system or equipment in the Property which Tenant is obligated to repair cannot be fully repaired or restored, Tenant shall promptly replace such portion of the Property or system or equipment or equipment in the Property. Tenant shall maintain a preventive maintenance contract providing for the regular inspection and maintenance of the heating and air conditioning system by a licensed heating and air conditioning contractor. If any part of the Property is damaged by any act or omission of Tenant, Tenant shall pay Landlord the cost (net of any insurance recovery by Landlord) of repairing or replacing such damaged property, whether or not Landlord would otherwise be obligated to pay the cost of maintaining or repairing such property. It is the intention of Landlord and Tenant that at all times Tenant shall maintain the portions of the Property which Tenant is obligated to maintain in an attractive, first class and fully operative Tenant JJ Landlord JH 18 condition, normal wear and tear, obligations which are the express responsibility of Landlord, fire, casualty and condemnation excepted. From time to time upon written request of Tenant, Landlord will furnish Tenant a written list of maintenance and repair contractors approved by Landlord for the performance of HVAC, plumbing, electrical, and mechanical (including overhead doors) work in the Property. If Tenant has difficulty in obtaining response/service from any such contractors, Tenant may so advise Landlord, and Landlord will promptly assist Tenant in attempting to cause such contractors to diligently respond and perform by direct telephone contact and other reasonable means typically employed by Landlord to obtain appropriate service from its contractors. Further, within 30 days following the Commencement Date, Landlord will advise Tenant of the cost and specifications of any available extended or "full-service" HVAC warranties for Tenant's consideration. (b) Tenant shall fulfill all of Tenant's obligations under this Section 6.05, at Tenant's sole expense. If Tenant fails to maintain, repair or replace the Property as required by this Section 6.05, Landlord may, upon ten (10) days' prior notice to Tenant (except that no notice shall be required in the case of an emergency), enter the Property and perform such maintenance or repair (including replacement, as needed) on behalf of the Tenant. In such case, Tenant shall reimburse Landlord for all costs incurred in performing such maintenance or repair immediately upon demand. (c) Landlord agrees that if a defect in materials or workmanship in the initial construction of the Building or the Leasehold improvements ("Defect") is discovered by Tenant on or prior to the first anniversary of the date of substantial completion of the Leasehold Improvements ("First Anniversary"), Tenant shall give Landlord written notice thereof ("Defect Notice") on or prior to the First Anniversary (time being of the essence with respect thereto). If Landlord receives a Defect Notice prior to the First Anniversary, Landlord shall, at its sole expense, cause such Defect to be repaired or remedied. Notwithstanding the foregoing, nothing contained in this Section 6.05(c) shall (i) require Landlord to repair or remedy any Defect to the extent such repair or remediation is necessitated due to the negligence, or intentional acts or omissions of, or misuse of the item requiring such repair or remediation by, Tenant or its employees, agents, contractors or invitees; (ii) require Landlord to repair or remedy any Defect if the coverage afforded by any warranty or maintenance/service contract relating to the item in question has been impaired or invalidated by Tenant or its employees, agents, contractors or invitees; (iii) require Landlord to repair or remedy any Defect with respect to which a Defect Notice is not received by Landlord on or prior to the First Anniversary; (iv) give Tenant any defense to the payment when due of, or the right to offset any amounts against, Base Rent, Additional Rent or other amounts due from Tenant to Landlord hereunder; or (v) be enforceable against any mortgagee of Landlord who succeeds to the interest of Landlord in the Property as a result of foreclosure of any mortgage or deed of trust affecting the Property (or as a result of a conveyance in lieu of foreclosure). Landlord may satisfy its obligations under this Section 6.05(c) by electing to proceed under any manufacturers' and construction warranties provided to Landlord in connection with the construction of the Leasehold Improvements and/or under the maintenance/service contracts required to be carried by Tenant under Section 6.05(a) hereof and Tenant hereby agrees to cooperate with Landlord in securing the performance by any Tenant JJ Landlord JH 19 manufacturer, contractor or contractor of the work required to be performed by it under any such maintenance/service contractor of the work required to be performed by it under any such maintenance/service contract. Section 6.06. Alterations, Additions, and Improvements. (a) Tenant shall not make any alterations additions, additions or improvements to the Property (other than the Leasehold Improvements to be constructed in accordance with the terms and conditions set forth in Section 6.02(c)) without the prior written consent of Landlord (which consent shall not be unreasonably withheld, delayed or conditioned as to interior, non-structural alterations); provided, however, Tenant may, without Landlord's consent, make alterations which are nonstructural in character and the cost of which does not exceed $100,000 during any calendar year of the Term of the Lease ("Permitted Non-Structural Alterations"). Tenant, at its own cost and expense, may erect such shelves, bins, machinery and trade fixtures as it desires. Notwithstanding the foregoing, the installation of such shelves, bins, machinery, trade fixtures and all alterations, additions and improvements, including without limitation Permitted Non-Structural Alterations, shall be subject to the conditions that: (i) such items do not alter the basic character of the Property; (ii) such items do not overload or damage the Property; (iii) such items may be removed without injury to the Property; and (iv) the construction, erection or installation thereof complies with all applicable governmental laws, ordinances, regulations and with Landlord's specifications and requirements. All alterations, additions, improvements and partitions erected by Tenant shall be and remain the property of Tenant during the Term of this Lease. All shelves, bins, machinery and trade fixtures installed by Tenant (other than the Leasehold Improvements to be constructed in accordance with the terms and conditions set forth on Exhibit "C") shall be removed on or before the earlier to occur of the date of termination of this Lease or vacating of the Property by Tenant, at which time Tenant shall restore the Property to the condition as existed upon completion of the initial Leasehold Improvements, reasonable wear and tear excepted. All alterations, installations, removals and restoration shall be performed in a good and workmanlike manner so as not to damage or alter the primary structure or structural qualities of the Building and other improvements situated on the Property. Notwithstanding anything to the contrary contained herein, but subject to the provisions of Section 6.06(b), it is agreed that the use of and access to the roof of the Building is expressly reserved to Landlord and is expressly denied to Tenant (except in order to permit Tenant to discharge its obligations to repair, maintain and service the HVAC unit situated on the roof of the Building or to comply with Tenant's other obligations under this Lease). Subject to Section 6.06(b), Tenant shall not penetrate the roof of the Building in any manner, nor install or construct any alterations, additions or improvements thereon, nor otherwise use or occupy the roof at any time during the Term hereof (except such use and occupation of the roof as is necessary in order to permit Tenant to comply with the provisions of this Lease). (b) Tenant shall have the right to install satellite and/or microwave antenna on the roof of the Building and elsewhere in the Building for the reception and transmission of electromagnetic signals. Tenant shall be responsible at Tenant's sole cost and expense for the cost of installation and maintenance of such equipment. Landlord shall have the right to approve the location, method of installation, size and shielding requirements, such approval not to be Tenant JJ Landlord JH 20 unreasonably withheld, delayed or conditioned; provided that any roof penetrations shall be performed by Landlord's roofing contractor, at Tenant's expense, in such manner as not to adversely affect the roof guarantee. Such installation and use shall be subject to all required government approvals and shall not interfere with Building systems. (c) Tenant shall pay when due all claims for labor and material furnished to the Property. Tenant shall give Landlord at least twenty (20) days' prior written notice of the commencement of any work on the Property, regardless of whether Landlord's consent to such work is required. Landlord may elect to record and post notices of non-responsibility on the Property. Section 6.07. Condition upon Termination. Upon the termination of the Lease, Tenant shall surrender the Property to Landlord, broom clean and in the same condition as received except for ordinary wear and tear which Tenant was not otherwise obligated to remedy under any provision of this Lease. However, Tenant shall not be obligated to repair any damage which Landlord is required to repair under Article Seven (Damage or Destruction). In addition, Landlord may require Tenant to remove any alterations, additions or improvements (whether or not made with Landlord's consent), prior to the expiration of the Lease and to restore the Property to its prior condition, all at Tenant's expense; provided that Landlord must advise Tenant in writing at the time Landlord approves any such alterations if Landlord's approval is conditioned upon Tenant's removal of such alterations upon the expiration or earlier termination of this Lease; otherwise, Tenant will not be required to remove such alterations. With respect to alterations that do not require Landlord's approval, unless Tenant obtains Landlord's waiver of the removal and restoration requirement prior to commencing construction, Landlord will have the right to require Tenant to remove the alterations and restore as aforesaid. All alterations, additions and improvements which Landlord has not required Tenant to remove shall become Landlord's property and shall be surrendered to Landlord upon the expiration or earlier termination of the Lease, except that Tenant may remove any of Tenant's machinery or equipment which can be removed without material damage to the Property. Tenant shall repair, at Tenant's expense, any damage to the Property caused by the removal of any such machinery or equipment. In no event, however, shall Tenant remove any of the following materials or equipment (which shall be deemed Landlord's property) without Landlord's prior written consent; any power wiring or power panels; lighting or lighting fixtures; wall coverings; drapes, blinds or other window coverings; carpets or other floor coverings; heaters, air conditioners or any other heating or air conditioning equipment; fencing or security gates; or other similar building operating equipment and decorations. ARTICLE SEVEN: DAMAGE OR DESTRUCTION Section 7.01. Partial Damage to Property. (a) Tenant shall notify Landlord in writing immediately upon the occurrence of any damage to the Property. If in the opinion of Landlord's architect or engineer the damage can be repaired or restored within six (6) months and if the proceeds received by Landlord from the insurance policies described in Paragraph 4.04(b) are sufficient to pay for the necessary repairs, Tenant JJ Landlord JH 21 this Lease shall remain in effect and Landlord shall repair the damage as soon as reasonably possible. Landlord may elect (but is not required) to repair any damage to Tenant's fixtures, equipment, or improvements. (b) If the insurance proceeds received by Landlord are not sufficient to pay the entire cost of repair, or if the cause of the damage is not covered by the insurance policies which Landlord maintains under Paragraph 4.04(b), or if in the opinion of Landlord's architect or engineer the damage cannot be repaired or restored within six (6) months, Landlord may elect either to (i) repair the damage as soon as reasonably possible, in which case this Lease shall remain in full force and effect, or (ii) terminate this Lease as of the date the damage occurred. Landlord shall notify Tenant within thirty (30) days after receipt of notice of the occurrence of the damage whether Landlord elects to repair the damage or terminate the Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord the "deductible amount" (if any), but not to exceed $20,000,00, under Landlord's insurance policies. If Landlord elects to terminate the Lease, Tenant may elect to continue this Lease in full force and effect, in which case Tenant shall repair any damage to the Property and any building in which the Property is located. Tenant shall pay the cost of such repairs, except that upon satisfactory completion of such repairs, Landlord shall deliver to Tenant any insurance proceeds received by Landlord for the damage repaired by Tenant. Tenant shall give Landlord written notice of such election within ten (10) days after receiving Landlord's termination notice. Notwithstanding anything herein to the contrary, if Landlord elects to repair the damage in accordance with the provisions hereof, and if the damage is not repaired or restored within six (6) months after the date of the casualty, then Tenant may terminate this Lease by giving Landlord written notice thereof at any time prior to completion of Landlord's repair and restoration obligations hereunder. (c) If the damage to the Property occurs during the last six (6) months of the Lease Term and such damage will require more then thirty (30) days to repair, either Landlord or Tenant may elect to terminate this Lease as of the date the damage occurred, regardless of the sufficiency of any insurance proceeds. The party electing to terminate this Lease shall give written notification to the other party of such election within thirty (30) days after Tenant's notice to Landlord of the occurrence of the damage. Section 7.02. Substantial or Total Destruction. If the Property is substantially or totally destroyed by any cause whatsoever (i.e., the damage to the Property is greater than partial damage as described in Section 7.01), and regardless of whether Landlord receives any insurance proceeds, this Lease shall terminate as of the date the destruction occurred. Notwithstanding the preceding sentence, if the Property can be rebuilt within six (6) months after the date of destruction, Landlord may elect to rebuild the Property at Landlord's own expense, in which case this Lease shall remain in full force and effect. Landlord shall notify Tenant of such election within thirty (30) days after Tenant's notice of the occurrence of total or substantial destruction. If Landlord so elects, Landlord shall rebuild the Property at Landlord's sole expense, except that if the destruction was caused by an act or omission of Tenant, Tenant shall pay Landlord the difference between the actual cost of rebuilding and any insurance proceeds received by Landlord. Tenant JJ Landlord JH 22 Section 7.03. Temporary Reduction of Rent. If the Property is destroyed or damaged and Landlord or Tenant repairs or restores the Property pursuant to the provisions of this Article Seven, any rent payable during the period of such damage, repair and/or restoration shall be reduced according to the degree, if any, to which Tenant's use of the Property is impaired. However, the reduction shall not exceed the sum of one year's payment of Base Rent, insurance premiums and real property taxes. Except for such possible reduction in Base Rent, insurance premiums and real property taxes, Tenant shall not be entitled to any compensation, reduction, or reimbursement from Landlord as a result of any damage, destruction, repair, or restoration of or to the Property, Section 7.04. Waiver. Tenant waives the protection of any statute, code or judicial decision which grants a tenant the right to terminate a lease in the event of the substantial or total destruction of the leased property. Tenant agrees that the provisions of Section 7.02 above shall govern the rights and obligations of Landlord and Tenant in the event of any substantial or total destruction to the Property. ARTICLE EIGHT: CONDEMNATION If all or any portion of the Property is taken under the power of eminent domain or sold under the threat of that power (all of which are called "Condemnation"), this Lease shall terminate as to the part taken or sold on the date the condemning authority takes title or possession, whichever occurs first. If (i) more than ten percent (10%) of the floor area of the Building is taken, or (ii) parking is reduced below code requirements and is not replaced by Landlord with reasonably suitable replacement parking within sixty (60) days thereafter, or (iii) access to public roads is taken and not replaced by Landlord with reasonably suitable replacement access within sixty (60) days thereafter, and if in the case of (i), (ii) or (iii), whichever is applicable, the Permitted Uses of the Building by Tenant is materially and adversely interfered with, then either Landlord or Tenant may terminate this Lease as of the date the condemning authority takes title or possession, by delivering written notice to the other within ten (10) days after receipt of written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority takes title or possession). If neither Landlord nor Tenant terminates this Lease, this Lease shall remain in effect as to the portion of the Property not taken, except that the Base Rent and Additional Rent shall be reduced in proportion to the reduction in the floor area of the Building. Any Condemnation award or payment shall be distributed in the following order: (a) first, to any ground lessor, mortgagee or beneficiary under a deed of trust encumbering the Property, the amount of its interest in the Property; (b) second, to Tenant, only the amount of any award specifically designated for loss of or damage to Tenant's trade fixtures or removable personal property; and (c) third, to Landlord, the remainder of such award, whether as compensation for reduction in the value of the leasehold, the taking of the fee, or otherwise. If this Lease is not terminated, Landlord shall repair any damage to the Property caused by the Condemnation, except that Landlord shall not be obligated to repair any damage for which Tenant has been reimbursed by the condemning authority. If the severance damages received by Landlord are not sufficient to pay for such repair, Landlord shall have the right to either terminate this Lease or make such repair (provided the repair can be completed within six months) at Landlord's expense. Tenant JJ Landlord JH 23 ARTICLE NINE: ASSIGNMENT AND SUBLETTING Section 9.01. Landlord's Consent Required. No portion of the Property or of Tenant's interest in this Lease may be acquired by any other person or entity, whether by sale, assignment, mortgage, sublease, transfer, operation of law, or act of Tenant, without Landlord's prior written consent, except as provided in Section 9.02 below. Landlord has the right to grantor withhold its consent as provided in Section 9.05 below. Any attempted transfer without consent shall be void and shall constitute a non-curable breach of this Lease. If Tenant is a partnership, any cumulative transfer of more than twenty percent (20%) of the partnership interests shall require Landlord's consent. Section 9.02. Tenant Affiliate. Tenant may assign this Lease or sublease the Property, without Landlord's consent, to any corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from the merger of or consolidation with Tenant ("Tenant's Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all of Tenant's obligations under this Lease. Section 9.03. No Release of Tenant. No transfer permitted by this Article Nine, whether with or without Landlord's consent, shall release Tenant or change Tenant's primary liability to pay the rent and to perform all other obligations of Tenant under this Lease. Landlord's acceptance of rent from any other person is not a waiver of any provision of this Article Nine. Consent to one transfer is not a consent to any subsequent transfer. If Tenant's transferee defaults under this Lease, Landlord may proceed directly against Tenant without pursuing remedies against the transferee. Landlord may consent to subsequent assignments or modifications of this Lease by Tenant's transferee, without notifying Tenant or obtaining its consent. Such action shall not relieve Tenant's liability under this Lease. Section 9.04. Offer to Terminate. If Tenant desires to assign the Lease or sublease the Property, Tenant shall have the right to offer, in writing, to terminate the Lease as of a date specified in the offer. If Landlord elects in writing to accept the offer to terminate within twenty (20) days after notice of the offer, the Lease shall terminate as of the date specified and all the terms and provisions of the Lease governing termination shall apply. If Landlord does not so elect, the Lease shall continue in effect until otherwise terminated and the provisions of Section 9.05 with respect to any proposed transfer shall continue to apply. Section 9.05. Landlord's Consent. (a) Tenant's request for consent to any transfer described in Section 9.01 shall set forth in writing the details of the proposed transfer, including the name, business and financial condition of the prospective transferee, financial details of the proposed transfer (e.g., the term of and the rent and security deposit payable under any proposed assignment or sublease), and any other information Landlord deems relevant. Landlord shall have the right to withhold consent, if reasonable, or to grant consent, based on the following factors: (i) the business of the proposed assignee or subtenant and the proposed use of the Property: (ii) the net worth and financial reputation of the proposed assignee or subtenant: (iii) Tenant's compliance with all of its obligations under the Lease: and (iv) such other factors as Landlord may reasonably deem Tenant JJ Landlord JH 24 relevant. If Landlord objects to a proposed assignment solely because of the net worth and/or financial reputation of the proposed assignee, Tenant may nonetheless sublease (but not assign), all or a portion of the Property to the proposed transferee, but only on the other terms of the proposed transfer. (b) If Tenant assigns or subleases, the following shall apply: (i) Tenant shall pay to Landlord as Additional Rent under the Lease the Landlord's Share (stated in Section 1.12) of the Profit (defined below) on such transaction as and when received by Tenant, unless Landlord gives written notice to Tenant and the assignee or subtenant that Landlord's Share shall be paid by the assignee or subtenant to Landlord directly. The "Profit" means (A) all amounts paid to Tenant for such assignment or sublease, including "key" money, monthly rent in excess of the monthly rent payable under the Lease, and all fees and other consideration paid for the assignment or sublease, including fees under any collateral agreements, less (B) costs and expenses directly incurred by Tenant in connection with the execution and performance of such assignment or sublease for real estate broker's commissions and costs of renovation or construction of tenant improvements required under such assignment of sublease. Tenant is entitled to recover such cost and expenses before Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in the case of a sublease of less than all the Property is the rent allocable to the subleased space as a percentage on a square footage basis. (ii) Tenant shall provide Landlord a written statement certifying all amounts to be paid from any assignment or sublease of the Property within thirty (30) days after the transaction documentation is signed, and Landlord may inspect Tenant's books and records to verify the accuracy of such statement. On written request, Tenant shall promptly furnish to Landlord copies of all the transaction documentation, all of which shall be certified by Tenant to be complete, true and correct. Landlord's receipt of Landlord's Share shall not be consent to any further assignment or subletting. The breach of Tenant's obligation under this Paragraph 9.05(b) shall be a material default of the Lease. Section 9.06. No Merger. No merger shall result from Tenant's sublease of the Property under this Article Nine, Tenant's surrender of this Lease or the termination of this Lease in any other manner. In any such event, Landlord may terminate any or all subtenancies or succeed to the interest of Tenant as sublandlord under any or all subtenancies. Section 9.07. Security Interest. Tenant may grant a security interest and/or lien in Tenant's trade fixtures, equipment, furnishings and personal property installed by Tenant in the Property. Tenant JJ Landlord JH 25 ARTICLE TEN: DEFAULTS; REMEDIES Section 10.01. Covenants and Conditions. Tenant's performance of each of Tenant's obligations under this Lease is a condition as well as a covenant. Tenants right to continue in possession of the Property is conditioned upon such performance. Time is of the essence in the performance of all covenants and conditions. Section 10.02. Defaults. Tenant shall be in material default under this Lease: (a) If Tenant abandons the Property for greater than 6 months without giving Landlord at least fifteen (15) days advance written notice; (b) If Tenant fails to pay rent or any other charge within ten (10) days after written notice from Landlord that same is due; (c) If Tenant fails to perform any of Tenants non-monetary obligations under this Lease for a period of thirty (30) days after written notice from Landlord; provided that if more than thirty (30) days are required to complete such performance, Tenant shall not be in default if Tenant commences such performance within the thirty (30)-day period and thereafter diligently pursues its completion. However, Landlord shall not be required to give such notice if Tenant's failure to perform constitutes a non-curable breach of this Lease. The notice required by this Paragraph is intended to satisfy any and all notice requirements imposed by law on Landlord and is not in addition to any such requirement. (d) (i) If Tenant makes a general assignment or general arrangement for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for reorganization or rearrangement is filed by or against Tenant and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed to take possession of substantially all of Tenant's assets located at the Property or of Tenant's interest in this Lease and possession is not restored to Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets located at the Property or of Tenant's interest in this Lease is subjected to attachment, execution or other judicial seizure which is not discharged within thirty (30) days. If a court of competent jurisdiction determines that any of the acts described in this subparagraph (d) is not a default under this Lease, and a trustee is appointed to take possession (or if Tenant remains a debtor in possession) and such trustee or Tenant transfers Tenant's interest hereunder, then Landlord shall receive, as Additional Rent, the excess, if any, of the rent (or any other consideration) paid in connection with such assignment or sublease over the rent payable by Tenant under this Lease. (e) If any guarantor of the Lease revokes or otherwise terminates, or purports to revoke or otherwise terminate, any guaranty of all or any portion of Tenant's obligations under the Lease. Unless otherwise expressly provided, no guaranty of the Lease is revocable. Section 10.03. Remedies. On the occurrence of any material default by Tenant, Landlord may, at anytime thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have: Tenant JJ Landlord JH 26 (a) Terminate Tenant's right to possession of the Property by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Property to Landlord. In such event, Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including (i) the worth at the time of the award of the unpaid Base Rent, Additional Rent and other charges which Landlord had earned at the time of the termination: (ii) the worth at the time of the award of the amount by which the unpaid Base Rent, Additional Rent and other charges which Landlord would have earned after termination until the time of the award exceeds the amount of such rental loss that Tenant proves Landlord could have reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid Base Rent, and other charges which Tenant would have paid for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves Landlord could have reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under the Lease or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, any costs or expenses Landlord incurs in maintaining or preserving the Property after such default, the cost of recovering possession of the Property, expenses of reletting, including necessary renovation or alteration of the Property, Landlord's reasonable attorneys' fee incurred in connection therewith, and any real estate commission paid or payable. As used in subparts (i) and (ii) above, the "worth at the time of the award" is computed by discounting to present value unpaid amounts at the rate of fifteen percent (15%) per annum, or such lesser amount as may then be the maximum lawful rate. As used in subpart (iii) above, the "worth at the time of the award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). If Tenant has abandoned the Property, Landlord shall have the option of (i) retaking possession of the Property and recovering from Tenant the amount specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph 10.03(b); (b) Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant has abandoned the Property. In such event, Landlord shall be entitled to enforce all of Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due; (c) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state in which the Property is located. Section 10.04. Repayment of "Free" Rent. If this Lease provides for a postponement of any monthly rental payments, a period of "free" rent or other rent concession, such postponed rent or "free" rent is called the "Abated Rent". Tenant shall be credited with having paid all of the Abated Rent on the expiration of the Lease Term only if Tenant has fully, faithfully, and punctually performed all of Tenant's obligations hereunder, including the payment of all rent (other than the Abated Rent) and all other monetary obligations and the surrender of the Property in the physical condition required by this Lease. Tenant acknowledges that its right to receive credit for the Abated Rent is absolutely conditioned upon Tenant's full, faithful and punctual performance of its obligations under this Lease. If Tenant defaults and does not cure within any applicable grace period, the Abated Rent shall immediately become due and payable in full and Tenant JJ Landlord JH 27 this Lease shall be enforced as if there were no such rent abatement or other rent concession. In such case, Abated Rent shall be calculated based on the full initial rent payable under this Lease. Section 10.05. Automatic Termination. Notwithstanding any other term or provision hereof to the contrary, the Lease shall terminate on the occurrence of any act which affirms the Landlord's intention to terminate the Lease as provided in Section 10.03 hereof, including the filing of an unlawful detainer action against Tenant. On such termination, Landlord's damages for default shall include all costs and fees, including reasonable attorneys' fees that Landlord incurs in connection with the filing, commencement, pursuing and/or defending of any action in any bankruptcy court or other court with respect to the Lease; the obtaining of relief from any stay in bankruptcy restraining any action to evict Tenant; or the pursuing of any action with respect to Landlord's right to possession of the Property. All such damages suffered (apart from Base Rent and other rent payable hereunder) shall constitute pecuniary damages which must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any successor to Tenant in any bankruptcy or other proceeding. Section 10.06. Cumulative Remedies. Landlord's exercise of any right or remedy shall not prevent it from exercising any other right or remedy. ARTICLE ELEVEN. PROTECTION OF LENDERS. Section 11.01. Subordination. Landlord shall have the right to subordinate this Lease to any ground lease, deed of trust or mortgage encumbering the Property, any advances made on the security thereof and any renewals, modifications, consolidations, replacements or extensions thereof, whenever made or recorded. Tenant shall cooperate with Landlord and any lender which is acquiring a security interest in the Property or the Lease. Tenant shall execute such further documents and assurances as such lender may require, provided that Tenant's obligations under this Lease shall not be increased in any way (the performance of minor ministerial acts shall not be deemed to increase Tenant's obligations), and Tenant shall not be deprived of its rights under this Lease. Tenant's right to quiet possession of the Property during the Lease Term shall not be disturbed if Tenant pays the rent and performs all of Tenant's obligations under this Lease and is not otherwise in default. If any ground lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of its ground lease, deed of trust or mortgage and gives written notice thereof to Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or mortgage whether this Lease is dated prior or subsequent to the date of said ground lease, deed of trust or mortgage or the date of recording thereof. Section 11.02. Attornment. If Landlord's interest in the Property is acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or purchaser at a foreclosure sale, Tenant shall attorn to the transferee or successor to Landlord's interest in the Property and recognize such transferee or successor as Landlord under this Lease. Tenant waives the protection of any statute or rule of law which gives or purports to give Tenant any right to terminate this Lease or surrender possession of the Property upon the transfer of Landlord's interest. Tenant JJ Landlord JH 28 Section 11.03. Signing of Documents. Tenant shall sign and deliver any instrument or documents necessary or appropriate to evidence any such attornment or subordination or agreement to do so. If Tenant fails to do so within ten (10) days after written request, Tenant hereby makes, constitutes and irrevocably appoints Landlord, or any transferee or successor of Landlord, the attorney-in-fact of Tenant to execute and deliver any such instrument or document. Section 11.04. Estoppel Certificates. (a) Upon Landlord's written request, Tenant shall execute, acknowledge and deliver to Landlord a written statement certifying: (i) that none of the terms or provisions of this Lease have been changed (or if they have been changed, stating how they have been changed); (ii) that this Lease has not been cancelled or terminated; (iii) the last date of payment of the Base Rent and other charges and the time period covered by such payment; (iv) that Landlord is not in default under this Lease (or, if Landlord is claimed to be in default, stating why); and (v) such other representations or information with respect to Tenant or the Lease as Landlord may reasonably request or which any prospective purchaser or encumbrance of the Property may require. Tenant shall deliver such statement to Landlord within ten (10) business days after Landlord's request. Landlord may give any such statement by Tenant to any prospective purchaser or encumbrance of the Property. Such purchaser or encumbrancer may rely conclusively upon such statement as true and correct. (b) If Tenant does not deliver such statement to Landlord within such ten (10) business day period, Landlord, and any prospective purchaser or encumbrancer, may conclusively presume and rely upon the following facts: (i) that the terms and provisions of this Lease have not been changed except as otherwise represented by Landlord; (ii) that this Lease has not been canceled or terminated except as otherwise represented by Landlord; (iii) that not more than one month's Base Rent or other charges have been paid in advance; and (iv) that Landlord is not in default under the Lease. In such event, Tenant shall be estopped from denying the truth of such facts. Section 11.06. Tenant's Financial Condition. Within ten (10) days after written request from Landlord, but not more often than once per calendar year, Tenant shall deliver to Landlord such then existing financial statements as Landlord reasonably requires to verify the net worth of Tenant or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall deliver to any lender designated by Landlord any financial statements reasonably required by such lender to facilitate the financing or refinancing of the Property. Tenant represents and warrants to Landlord that each such financial statement is a true and accurate statement as of the date of such statement. All financial statements shall be confidential and shall be used only for the purposes set forth in this Lease. Landlord shall execute, and cause any lender, prospective purchaser or other person or entity to which Landlord discloses any such financial statement in accordance with the provisions hereof to execute, a non-disclosure statement in form reasonably acceptable to Tenant, Landlord and any such parties if requested by Landlord. ARTICLE TWELVE: LEGAL COSTS Tenant JJ Landlord JH 29 Section 12.01. Legal Proceedings. If Tenant or Landlord shall be in breach or default under this Lease, such party (the "Defaulting Party") shall reimburse the other party (the "Nondefaulting Party") upon demand for any costs or expenses that the Nondefaulting Party incurs in connection with any breach or default of the Defaulting Party under this Lease, whether or not suit is commenced or judgment entered. Such costs shall include legal fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise. Furthermore, if any action for breach of or to enforce the provisions of this Lease Is commenced, the court in such action shall award to the party in whose favor a judgment is entered, a reasonable sum as attorneys'fees and costs. The losing party in such action shall pay such attorneys' fees and costs. Tenant shall also indemnify Landlord against and hold Landlord harmless from all costs, expenses, demands and liability Landlord may incur if Landlord becomes or is made a party to any claim or action (a) instituted by Tenant against any third party, or by any third party against Tenant, or by or against any person holding any interest under or using the Property by license of or agreement with Tenant; (b) for foreclosure of any lien for labor or material furnished to or for Tenant or such other person; (c) otherwise arising out of or resulting from any act or transaction of Tenant or such other person; or (d) necessary to protect Landlord's Interest under this Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the United States Code, as amended. Tenant shall defend Landlord against any such claim or action at Tenant's expense with counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant shall reimburse landlord for any legal fees or costs Landlord incurs in any such claim or action. Section 12.02. Landlord's Consent. Tenant shall pay Landlord's reasonable attorneys'fees incurred in connection with Tenant's request for Landlord's consent under Article Nine (Assignment and Subletting), or In connection with any other act which Tenant proposes to do and which requires Landlord's consent. ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS Section 13.01. Non-Discrimination. Tenant promises, and it is a condition to the continuance of this Lease, that there will be no discrimination against, or segregation of, any person or group of persons on the basis of race, color, sex, creed, national origin or ancestry in the leasing, subleasing, transferring, occupancy, tenure or use of the Property or any portion thereof. Section 13.02. Landlord's Liability; Certain Duties. (a) As used in this Lease, the term "Landlord" means only the current owner or owners of the fee title to the Property or the leasehold estate under a ground lease of the Property at the time in question. Each Landlord is obligated to perform the obligations of Landlord under this Lease only during the time such Landlord owns such interest or title. Any Landlord who transfers its title or interest is relieved of all liability with respect to the obligations of Landlord under this Lease to be performed on or after the date of transfer. However, each Landlord shall deliver to its transferee all funds that Tenant previously paid if such funds have not yet been applied under the terms of this Lease. Tenant JJ Landlord JH 30 (b) Tenant shall give written notice of any failure by Landlord to perform any of its obligations under this Lease to Landlord and to any ground lessor, mortgagee or beneficiary under any deed of trust encumbering the Property whose name and address have been furnished to Tenant in writing. Landlord shall not be in default under this Lease unless Landlord (or such ground lessor, mortgagee or beneficiary) fails to cure such non-performance within thirty (30) days after receipt of Tenant's notice, However, if such nonperformance reasonably requires more than thirty (30) days to cure, Landlord shall not be in default if such cure is commenced within such thirty (30) day period and thereafter diligently pursued to completion. (c) Notwithstanding any term or provision herein to the contrary, the liability of Landlord for the performance of its duties and obligations under this Lease is limited to Landlord's interest in the Property, and neither the Landlord nor its partners, shareholders, officers or other principals shall have any personal liability under this Lease. Section 13.03. Severability. A determination by a court of competent jurisdiction that any provision of this Lease or any part thereof is illegal or unenforceable shall not cancel or invalidate the remainder of such provision or this Lease, which shall remain in full force and effect. Section 13.04. Interpretation. The captions of the Articles or Sections of this Lease are to assist the parties in reading this Lease and are not a part of the terms or provisions of this Lease. Whenever required by the context of this Lease, the singular shall include the plural and the plural shall include the singular. The masculine, feminine and neuter genders shall each include the other. In any provision relating to the conduct, acts or omissions of Tenant, the term "Tenant" shall include Tenant's agents. employees. contractors, invitees, successors or others using the Property with Tenant's expressed or implied permission. Section 13.05. Incorporation of Prior Agreements; Modifications. This Lease is the only agreement between the parties pertaining to the lease of the Property and no other agreements are effective. All amendments to this Lease shall be in writing and signed by all parties. Any other attempted amendment shall be void. Section 13.06. Notices. All notices required or permitted under this Lease shall be in writing and shall be personally delivered or sent by certified mail, return receipt requested, postage prepaid. Notices to Tenant shall be delivered to the address specified in Section 1.03 above. Notices to Landlord shall be delivered to the address specified in Section 1.02 above. All notices shall be effective upon delivery. Either party may change its notice address upon written notice to the other party, Section 13.07. Waivers. All waivers must be in writing and signed by the waiving party. Landlord's failure to enforce any provision of this Lease or its acceptance of rent shall not be a waiver and shall not prevent Landlord from enforcing that provision or any other provision of this Lease in the future. No statement on a payment check from Tenant or in a letter accompanying a payment check shall be binding on Landlord. Landlord may, with or without notice to Tenant. negotiate such check without being bound to the conditions of such statement. Tenant JJ Landlord JH 31 Section 13.08. No Recordation. Tenant shall not record this Lease without prior written consent from Landlord. However, either Landlord or Tenant may require that a "Short Form" memorandum of this Lease executed by both parties be recorded. The party requiring such recording shall pay all transfer taxes and recording fees. Section 13.09. Binding Effect; Choice of Law. This Lease binds any party who legally acquires any rights or interest in this Lease from Landlord or Tenant. However, Landlord shall have no obligation to Tenant's successor unless the rights or interests of Tenant's successor are acquired in accordance with the terms of this Lease. The laws of the state in which the Property is located shall govern this Lease. Section 13.10. Corporate Authority; Partnership Authority. If Tenant is a corporation, each person signing this Lease on behalf of Tenant represents and warrants that he has full authority to do so and that this Lease binds the corporation. Within ten (10) days after this Lease is signed, Tenant shall deliver to Landlord a certified copy of a resolution of Tenant's Board of Directors authorizing the execution of this Lease or other evidence of such authority reasonably acceptable to Landlord. If Tenant is a partnership, each person or entity signing this Lease for Tenant represents and warrants that he or it is a general partner of the partnership, that he or it has full authority to sign for the partnership and that this Lease binds the partnership and all general partners of the partnership. Tenant shall give written notice to Landlord of any general partners withdrawal or addition. Within ten (10) days after this Lease is signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement of partnership or certificate of limited partnership. Section 13.11. Joint and Several Liability. All parties signing this Lease as Tenant shall be jointly and severally liable for all obligations of Tenant. Section 13.12. Force Majeure. If Landlord cannot perform any of its obligations due to events beyond Landlord's control, the time provided for performing such obligations shall be extended by a period of time equal to the duration of such events. Events beyond Landlord's control include, but are not limited to, acts of God, war, civil commotion, labor disputes, strikes, fire, flood or other casualty, government regulation or restriction and weather conditions. Section 13.13. Execution of Lease. This Lease may be executed in counterparts and, when all counterpart documents are executed, the counterparts shall constitute a single binding instrument. Landlord's delivery of this Lease to Tenant shall not be deemed to be an offer to lease and shall not be binding upon either party until executed and delivered by both parties. Section 13.14. Survival. All representations and warranties of Landlord and Tenant shall survive the termination of this Lease. Section 13.15. Landlord's Lien. Landlord agrees from time to time upon reasonable advance written request of Tenant, to subordinate any and all contractual or statutory landlord's liens in Tenant's property in favor of lender(s) furnishing financing for Tenant's business by execution of Landlord's Waiver and Consent in the form attached hereto as Exhibit "F" or other document reasonably acceptable to Landlord and such lender(s). Tenant JJ Landlord JH 32 Section 13.16. Tenant shall have right to choose utilities suppliers for the Project. ARTICLE FOURTEEN: BROKERS Section 14.01. Broker's Fee. When this Lease is signed by and delivered to both Landlord and Tenant, Landlord shall pay a real estate commission to Tenant's Broker named in Section 1.08 above, as provided in the written agreement between Landlord and Tenant's Broker. Nothing contained in this Lease shall impose any obligation on Landlord to pay a commission or fee to any party other than Tenant's Broker. Section 14.02. Agency Disclosure; No Other Brokers. Landlord and Tenant each warrant that they have dealt with no other real estate broker(s) in connection with this transaction except: Leon Brothers, who represents Tenant. Landlord and Tenant have signed this Lease at the place and on the dates specified adjacent to their signatures below and have initialed all exhibits which are attached to or incorporated by reference in this Lease. "LANDLORD" Signed on June 9, 2000 PANATTONI/HILLWOOD at 5310 Harvest Hill Road, #180, DEVELOPMENT COMPANY, LLC, Dallas, Texas a Texas limited liability company By: /s/ Dewitt J. Hicks III ------------------------------------ Name: Dewitt J. Hicks III ---------------------------------- Title: Principal --------------------------------- "TENANT" Signed on June 6, 2000 ICON HEALTH AND FITNESS, INC., at 4010 Distribution Drive a Delaware corporation Garland, TX By: /s/ Jace Jergensen ------------------------------------ Name: Jace Jergensen ---------------------------------- Title: Vice President/General Manager --------------------------------- Tenant JJ Landlord JH 33 Exhibit A [Property Description] PROPOSED BLOCK 2, LOT 4 BEING a tract of land situated in the Daniel Turner Survey, Abstract No. 1462, in the City of Mesquite, Dallas County, Texas, and being a part of that tract of land described in deed to Petrus Investment, L.P., as recorded in Volume 98251, Page 9371, Deed Records, Dallas County, Texas, (DRDCT), and being more particularly described as follows: BEGINNING at a set 1/2-inch iron rod with a yellow plastic cap stamped "HALFF ASSOC. INC." (hereafter referred to as "with cap"), at the intersection of the westerly right-of-way line of Town East Boulevard (100 foot right-of-way) and the northerly right-of-way line of a Dallas Power and Light Company right-of-way, as recorded in Volume 5624, Page 250, DRDCT, (125 foot right-of-way); THENCE South 44 degrees 13minutes 32secondsWest, departing said westerly line and along said northerly line, a distance of 930.01 feet to a set 1/2-inch iron rod with cap for a corner; THENCE North 45 degrees 31 minutes 28 seconds West, departing said northerly line, a distance of 889.59 feet to a set 1/2-inch iron rod with cap for corner, THENCE North 44 degrees 16 minutes 17 seconds East, a distance of 930.01 feet to a set 1/2-inch iron rod with cap on the said westerly line of Town East Boulevard; THENCE South 45 degrees 31 minutes 28 seconds East, along said westerly line of said Town East Boulevard, a distance of 888.85 feet to the POINT OF BEGINNING AND CONTAINING 826,976 square feet or 18.98 acres of land, more or less. Tenant JJ Landlord JH 34 EXHIBIT "B" Building Expansion a. Exercise of Expansion Option. Provided that (i) no Event of Default then exists and (ii) there has been no material adverse change in Tenant's financial condition, comparing the time the Lease is executed and the time that Tenant exercises the expansion option, and Tenant is not in default under its covenants with its then current lenders, if any (which defaults have not been waived in writing by such lenders), Tenant shall have the one-time right to elect to expand the Premises by up to 200,000 square feet (but not less than 100,000 square feet). The term of the expansion option will be two (2) years commencing on the Commencement Date ("Initial Expansion Option Term"); provided that Tenant shall have the right to extend the Initial Expansion Option Term for an additional two (2) years by giving Landlord written notice thereof at least sixty (60) days prior to expiration of the Initial Expansion Option Term, time being of the essence. If Tenant exercises its right to extend the Initial Expansion Option Term, annual Base Rent shall automatically be increased by $0.10 per square foot for the entire two (2) years of the extended expansion option. This expansion right may be exercised by Tenant by delivering to Landlord written notice thereof (the "Expansion Notice") at any time during the Initial Expansion Option Tenn, as same may be extended as aforesaid, specifying the size of the expansion area (the "Expansion Space"). The Expansion Space will be constructed on the approximately 10.04 acre tract adjacent to the Project and in the configuration shown on Exhibit G attached to the Lease (the "Expansion Land"). b. Expansion Space Lease. After Tenant has delivered the Expansion Notice as provided above, Tenant and Landlord shall execute a new lease for the Expansion Space (the "Expansion Space Lease") on substantially the same terms and conditions as this Lease, but with a 10-year term (beginning on substantial completion of the Expansion Space improvements) and an annual base rent rate (1) for the first five years of the Expansion Space Lease term, equal to (A) the Total Expansion Costs (defined below), multiplied by (B) the sum of (i) a mortgage constant rate equal to the 20-Yeat Mortgage Money Rate (defined below) at the time in question, plus (ii) 250 basis points (plus a $0.10 structural reserve); and (2) for the final five years of the Expansion Space Lease term, equal to 115% of the base rent for the first five years of the Expansion Space Lease term. For example, if Tenant elects to do a 200,000 square foot expansion and the 20-Year Mortgage Money Rate is 9% and the Total Expansion Cost for the Expansion Space is $2,000,000, then the annual Base Rent for the Expansion Space during the first five years of the Expansion Space lease term would be $250,000 [calculated as follows: $2,000,000 x (.09 +.025) = $230,000; plus $20,000 structural reserve]; and $287,500 for the final five years of the Expansion Space Lease term. At the time of execution of the Expansion Space Lease, Landlord and Tenant shall execute an amendment to this Lease extending the initial Term for a period such that it is coterminous with the lease term of the Tenant JJ Landlord JH 35 Expansion Space Lease, in which case, (A) the commencement date of the first five-year extension under Section 2,04 of the Lease shall begin upon the expiration of the initial Term of the Lease (as extended in accordance with this sentence) and (B) the Base Rent payable for the Premises during each Lease Year (defined below) of the extended portion of the initial Term shall be equal to the product of the previous Lease Year's Base Rent and 1.03, as determined at the beginning of each such Lease Year. The term "20-year Mortgage Money Rate" shall mean the mortgage constant (i.e., the amount of annual debt service, expressed as a percentage of the loan amount, that is necessary to pay interest and the entire principal over the amortization period) at the time such determination is being made associated with mortgage loans made available by the the following institutional lenders for permanent loans for properties similar to the Premises, with an amortization schedule of 20 years: Metropolitan Life Insurance Company; Prudential Life Insurance Company; and The Principal Financial Group. If, however, any of such institutional lenders are not providing permanent financing for properties similar to the Premises, then Landlord may substitute another institutional lender in its/their place. Tenant may select the day on which the mortgage constant shall be determined within 30 days after Landlord notifies Tenant that the selection should be made (the "Selection Period") . Within five days after the end of the Selection Period, Tenant shall notify Landlord of Tenant's selected day. If Tenant does not notify Landlord as provided in the preceding sentence, then the mortgage constant shall be determined as of the day on which landlord receives the Expansion Notice. "Lease Year" means each 12-month period during the term of the Expansion Space Lease. c. Expansion Space Improvements. Within 30 days after the Expansion Space Lease is executed, Landlord will prepare and submit to Tenant for its review preliminary plans and outline specifications (the "Expansion Outline Specifications") for the construction of the shell of the Expansion Space (the "Expansion Shell") and the interior improvements of the Expansion Space (the "Expansion Interior") (which must be acceptable to Landlord and Tenant and provide for improvements that can be constructed for a Total Expansion Cost of not more than $32 per square foot). Tenant shall notify Landlord whether it approves of the submitted Expansion Outline Specifications within 14 days after Landlord's submission thereof. If Tenant disapproves of the Expansion Outline Specifications, then Tenant shall give Landlord notice thereof specifying in detail the reasons for such disapproval, in which case Landlord shall amend the submitted Expansion Outline Specifications and redeliver to Tenant for its approval within 10 days after receiving Tenant's notice disapproving the submitted Expansions Outline Specifications. This process shall be repeated until the Expansion Outline Specifications have been finally approved. Within 15 days after Landlord and Tenant have approved the Expansion Outline Specifications, Landlord shall submit to Tenant a written preliminary estimate of the Total Expansion Costs (which shall be based in part upon the lowest qualified estimates among those obtained by Landlord from at least four contractors for the cost of constructing the Expansion Space in accordance with the Expansion Outline Specifications). Tenant shall either approve or disapprove of such preliminary estimate Tenant JJ Landlord JH 36 within ten days after Tenant's receipt thereof. If Tenant disapproves the estimate, then Tenant shall notify Landlord of the reasons for such disapproval, in which case Landlord shall attempt to address Tenant's reasons for disapproval and resubmit the preliminary estimate to Tenant within 10 days after landlord's receipt of Tenant's disapproval. This process shall be repeated until Tenant has approved the preliminary estimate. Upon receipt of Tenant's approval of the preliminary estimate, Landlord shall proceed to prepare detailed plans and specifications for the Expansion Space (the "Expansion Plans and Specifications") including, without limitation, working drawings, construction drawings, electrical, plumbing and mechanical drawings necessary to construct the Expansion Shell and the Expansion Interior. After Landlord and Tenant have approved the Expansion Plans and Specifications, if Landlord believes that the actual cost to complete the Expansion Space will exceed the preliminary estimates by more than 10%, Landlord shall submit to Tenant Landlord's written estimate of the cost of constructing such improvements in accordance with the completed Expansion Plans and Specifications. Upon receipt of Tenant's approval of any such revised estimate, Landlord shall proceed to construct the improvements in accordance with the approved Expansion Plans and Specifications. "Total Expansion Costs" shall mean all soft and hard costs incurred in connection with the design and construction of the improvements for the Expansion Space, including, without limitation, all architecture, engineering, contractors, market leasing (not to exceed 2.25% of the anticipated base rent due for the Expansion Space for the fifth term of the lease thereof), brokerage and legal fees and expenses (however, Total Expansion costs shall not include-any-development fee or any brokerage commissions other than the market leasing fee described above), any interest expense, tax and insurance payments incurred during such construction process, any loan or mortgage fees, value of the Expansion Land (currently agreed to be $1.50 per square foot, which shall increase at the rate of 5% per year), and any other costs, fees or expenses incurred with the construction of the Expansion Space. However, Total Expansion Costs relating to the design and construction of the Expansion Space shall not exceed 110% of the hard and soft costs for the design and construction of the Expansion Space improvements that were approved by Tenant, unless such costs were caused by changes in Law occurring after Tenant's approval of such costs or Force Majeure Events. If Tenant elects to expand hereunder for less than 200,000 square feet, Landlord will have the right to construct up to the full 200,000 square feet, in which case the Total Expansion Costs attributable to the Expansion Shell and the Expansion Land will be prorated between the Expansion Space and the balance of the actual square footage of the constructed expansion building based upon their respective square footages. d. Rescission of Expansion Election. Landlord and Tenant shall negotiate in good faith to reach mutual agreement on all matters for which this Exhibit B requires the approval of Landlord and Tenant, including the Expansion Outline Specifications, the Total Expansion Costs and the Expansion Plans and Specifications. If the Total Expansion Costs and the Expansion Plans and Specifications have not been finally approved by Landlord and Tenant within 90 days after Tenant's delivery to Landlord of an Expansion Notice, then, notwithstanding any other provision herein, Tenant shall have the right to rescind such election upon written notice to Landlord delivered at any time before the Tenant JJ Landlord JH 37 earlier of the date Landlord and Tenant have finally approved the Total Expansion Costs and the Plans and Specifications or 120 days after the Expansion Notice was delivered to Landlord, in which case Tenant shall reimburse landlord for all reasonable costs incurred by Landlord prior to the date Tenant delivers such rescission notice (which costs shall include an administration charge of $5,000 to cover Landlord's overhead costs in connection therewith). Such reimbursement shall be due within 30 days after Landlord delivers to Tenant an invoice therefor. If Tenant does not rescind its expansion option, Landlord will diligently commence the construction of the Expansion Space and will thereafter diligently and continuously pursue the completion of the Expansion Space. e. Right of First Offer. If Tenant does not exercise its expansion option during the Initial Expansion Option Term, as same may be extended as aforesaid, Landlord or its successors and assigns with respect to the Expansion Land shall have the right to construct a building (the "New Building") on the Expansion Land at such time and of such size, up to 200,000 square feet, as Landlord or its successors or assigns may determine in its or their sole discretion. Provided that if (i) no Event of Default then exists, (ii) there has been no material adverse change in Tenant's financial condition, comparing the time the Lease is executed and the time that Tenant exercises the expansion option, (iii) Tenant is not in default under its covenants with its then current lenders, if any (which defaults have not been waived in writing by such lenders), and (iv) the New Building is not constructed for occupancy solely by the then owner of the Expansion Land, Landlord agrees prior to entering into the first lease for space in any such New Building to give Tenant written notice specifying the terms upon which Landlord will be offering to lease space in the New Building to third parties. Such notice may be given prior to commencement of construction of the New Building. Tenant will have a period of five (5) business days after receipt of such notice within within which to give Landlord written notice of Tenant's election to lease all or any part of the New Building which is not to be occupied by the then owner of the Expansion Land, upon the same terms and provisions specified in Landlord's notice, provided that if Tenant does not elect to take the entire portion of the New Building that is available for lease to third parties, any remaining space available for lease to third parties must be of a size and configuration acceptable to Landlord from a marketing standpoint in Landlord's discretion. If Tenant so elects to accept the offer, Tenant will have a period of ten (10) additional calendar days following receipt from Landlord of a form of Lease including the business points relating to such space, and otherwise substantially incorporating the other provisions of this Lease generally applicable separately from said business points. In the event of failure of Tenant to se exercise the right to lease the subject space hereunder or to so execute a new lease on such terms as aforesaid, Tenant will have no further rights to lease the space pursuant to this paragraph e. At the time that Tenant leases any space in the New Building, Landlord and Tenant shall execute an amendment to this Lease extending the initial Term for a period such that it is coterminous with the lease term of the space in the New Building, in which case, (A) the commencement date of the first five-year extension under Section 2.04 of the Lease shall begin upon the expiration of the initial Term of the Lease (as extended in accordance with this sentence) and (B) the Base Rent payable for the Premises during each Lease Year (defined below) Tenant JJ Landlord JH 38 of the extended portion of the initial Term shall be equal to the product of the previous Lease Year's Base Rent and 1.03, as determined at the beginning of each such Lease Year f. It is understood and agreed that Landlord is the current owner of the Expansion Land and that if Landlord transfers this Lease to a third party, Landlord agrees that as a condition to being released from Landlord's obligations under this Lease, that Landlord will grant to such third party the right to purchase the Expansion Land at a net price to Landlord equal to the land value specified in paragraph c. above (as increased as therein provided) if Tenant exercises its expansion option under paragraph a above. Such option may be exercised by giving Landlord (or the then owner of the Expansion Land) written notice thereof (the "Exercise Notice") within thirty (30) days after the first to occur of (i) mutual agreement under paragraph d above, or (ii) expiration of the 120-day period specified in paragraph d., without Tenant having exercised its recession right, and with closing to occur within fifteen (15) days after receipt of the Exercise Notice. If Tenant does not exercise its expansion option under paragraph a, the right of first offer set forth in paragraph e. above will be applicable to the Expansion Land and binding upon Landlord and Landlord's successors and assigns with respect to the Expansion Land. Landlord agrees to cause any transferee of the Expansion Land to assume the obligations of Landlord under such right of first offer in writing for the benefit of Tenant. Tenant JJ Landlord JH 39 EXHIBIT "C" EXCLUSIONS FROM COMMON AREA COSTS Notwithstanding any provision contained herein to the contrary "common area expenses" for purposes hereof shall not include, and in no event shall Tenant be required to pay or reimburse Landlord for: the any costs incurred by Landlord prior to the date upon which Landlord delivers possession of the Property to Tenant in the condition required by this Lease; any costs incurred by Landlord in connection with the acquisition of the Property or the initial construction of the Improvements, or the correction of any defects therein; depreciation (except as provided in Section 4.05(c)); interest and/or principal payments on debts of Landlord; repairs or other work occasioned by fire, windstorm or other casualty, or the exercise of the right of eminent domain; lease commissions; overhead and profit increment paid to subsidiaries or other affiliates of Landlord for services to the extent that the costs of such services exceed the competitive cost for such services rendered by persons or entities of similar skill, competence and experience; cost of electricity and other utilities for tenanted areas and areas intended for tenancy or capable of being tenanted in the Property or the Project; salaries of employees whose rank is above the grade of building manager (to the extent an employee's time is devoted to activities at other locations or buildings, only an equitable proration of such salary, based upon the actual time spent at the Property, shall be included within common area expenses) all items(including repairs) and services paid for by insurance proceeds; costs incurred in connection with the sale, financing, refinancing, mortgaging or sale of the Property, including brokerage commissions; attorney's and accountant's fees, closing costs; title insurance premiums, transfer taxes and interest charges; costs, fines, interest, penalties, legal fees or costs of litigation incurred due to the late payment of taxes, utility bills and other costs incurred by Landlord's failure to make such payments when due; costs associated with correcting any violation of law, or making renovations or alterations to the Property required in order to cause same to be in compliance with any applicable law; ground rent; rental or lease charges on any equipment or property the acquisition of which would normally be capitalized under generally accepted accounting principals; political or charitable contributions; expenses for repairs, replacements or improvements arising from the initial construction of the improvements to the extent such expenses result from deficiencies in design or workmanship (except conditions resulting from ordinary wear and tear); costs arising out of the gross negligence of Landlord or its agents or of any tenant, vendor, contractor, or providers of materials or services selected, hired or engaged by Landlord or its agents; entertainment or travel expenses of Landlord, its employees, agents, partners and affiliates; or reserves of any kind, Including without limitation, replacement reserves and reserves for bad debts or lost rent or any similar charge not involving the payment of money to third parties. No expenses will be included in common area expenses that are otherwise payable by Tenant or other specific tenants of the Project separate from common area expenses, so that there will be no duplication of the same charges by billing the same charge to Tenant or other specific tenants separate from common area expenses and also including the same charges in common area expenses. Expenses Tenant JJ Landlord JH 40 that are designated as capital expenditures by generally accepted accounting procedures ("GAAP") shall be included in common area expenses, provided that if any such expenditure is more than Five Thousand Dollars ($5,000.00), such amount will be amortized over the useful life, as determined by GAAP, of such capital expenditure, and such amortization will be included in common area expenses for each year of such useful life failing within the Term of this Lease (to the extent that the useful life of a capital expenditure exceeds the expiration of the Term, Tenant will have no obligation to pay Landlord such amount following such expiration) Tenant JJ Landlord JH 41 EXHIBIT "D" Proposed Signage [GRAPHIC OMITTED] Tenant JJ Landlord JH 42 EXHIBIT "E" BUILDING SPECIFICATIONS ICON HEALTH H AND FITNESS GENERAL DESCRIPTION Land Area: Approximately 18.98 acres Building Type: Concrete tilt-up. Building Size: 400,000 square feet Building Dimensions: 500 X 800 Office Area: Landlord's proposal includes a $35 per square foot allowance for design and construction of 15,500 square feet of office area. Showroom Area: Landlord's proposal includes a $30 per square foot allowance for design and construction of 3,000 square feet of showroom area. Showroom to include 2 floor drains and a hose bib for use in spa displays. Sewing Room: 60,000 square feet. Landlord will provide metal halide fighting providing an average of 50 foot candies as measured horizontally 3' above the floor, with a minimum of 25 foot candles as measured vertically. Landlord will provide 150 Tons of HVAC distributed along with R-19 insulation at the roof deck. Also, this area will be demised separately with 1-hr sheetrock demising wall to deck which will be insulated, taped, and painted white on the inside of the sewing room. Also, landlord will provide a 12' by 12' automated, overhead door leading into the sewing room from the warehouse and a 40' by 80' chain fink storage area within the sewing area. The height of the fence will be 10' and it will have a chain link roof which shall fully enclose the area. Clear Height: Operating clear height of 30', excluding: fight fixtures and heaters. Bay Sizes: Sixteen (16) bays at 50' each for the 800' length and two staging bays (2) bays at approximately 52' each and eight (9) bays at 44' each for the 500' depth. Tenant JJ Landlord JH 43 Roof: 4 ply built-up Skylights: None Landscaping: A $100,000 allowance will be provided for all installation and design of plant materials and irrigation. Parking: One space for every 1,000 square feet will be provided. Outdoor Storage Area: Two areas of approximately 40,000 s.f. each, with 8' tall chain link fencing with vinyl privacy slats. Each area to be served by two gates each. Each area to have a gravel surface. SITE WORK On-site Storm Drain System: Engineered to assure rapid collection and disposal into the municipal storm sewer. Domestic Water And Sewer: Extend Sanitary Sewer and Domestic Water Connections for office into the first bay at the north end of the building. Paving: Car Operations: Concrete, per soils engineer recommendations, but no less than 5". Truck Operations: Concrete, per soils engineer recommendations, but no less than 6". Curbs and Striping: Fully striped parking lot per code. CONCRETE Walls: Reinforced concrete, 4,000 psi. Interior: Smooth troweled finish with pick points covered. Exterior: Smooth surface finish with accent paint stripes. Floor Slab: 6" and 7 1/2" reinforced concrete, 4,000 psi when cured, saw cut at perpendicular angles no greater than 16'-8" on center. Slab will be laser screened, with a minimum floor flatness to meet or exceed a flatness of Ff35 and a minimum floor levelness to meet or exceed a levelness of F125. Construction joints will have 24" smooth dowels, 24" on center. Truck Docks: Concrete will extend 130' from the building and be 3,000 psi, reinforced, 6" thick. All concrete paving shall have expansion Tenant JJ Landlord JH 44 joints as drawn by architect, or engineer, and will have saw cut control joints at maximum spacing of 15' on center each way. All joints will be sealed with hot rubberized asphalt joint sealer. All exterior paving will be poured directly on prepared subgrade with bank sand leveling cushion. SMOKE EVACUATION Smoke Evacuation: Smoke evacuation system per code. DOORS & HARDWARE Exterior: Roll Up Doors: Twenty (20) 9' x 10', sectional metal doors, 48" high, vertically lifted, manually operated. Drive In Door: Two (2) 12' x 14' sectional metal, chain hoist vertically lifted drive-in doors will be provided. Man Doors: 3' x 6'8" metal doors with poured in place metal frames, commercial grade hardware, including lever handles inside, automatic closures and exterior lock guard. The number of man doors will be per code. Dock Equipment: Landlord will provide the following dock equipment: Ten (10) Dock levelers by Rite Hite, or approved equal - 25,000 lbs. Capacity and ten (10) dock lights which can be shared between two doors. FINISHES Paint: All metal surfaces with the exception of the roof and interior steel will receive one factory coat of oil-based primer and two coats of oil-based finish paint. Exterior concrete walls and trim will receive one coat of seal primer and one finished coat. All wall striping shall receive two finish coats. Demising Wall: None other than the walls constructed to separate the sewing room area from the office area and warehouse area. Floor: Floor slab to be sealed with two coats of Sonneborne Lapidolith FIRE SPRINKLERS Tenant JJ Landlord JH 45 Warehouse Area: An ESFR system, including pump room if required, will be installed per code. The sprinkler control room will be fully enclosed with CMU block. Office: Fire protection for the office will be per code. HVAC Warehouse: Cambridge space heaters will be provided, complete with unit mounted thermostats to protect the EFSR sprinkler system by maintaining a minimum temperature of 45 degrees. In addition, exhaust fans will be provided per code. Quantity of fans and air changes per applicable mechanical and fire code, but in no event shall the air changes be less than 3 per hour. Office: The entire office space will be air conditioned per code requirements. Welding Area: Landlord will provide 15 tons of HVAC for the welding area. ELECTRICAL Service: 4,500 amp, 480 volt, 3 phase service, main panel housing, conduit, and pad only. Utility company to set transformer and complete hookup. Electrical Distribution: A $100,000 allowance will be provided for distribution of power to equipment. Warehouse Lighting: Warehouse Lighting shall be sufficient to average 25 foot candles in the warehouse 30" AFF based on an unoccupied facility. Fixtures to be 400 watt metal halide high bay fixtures. Outside Lighting: Outside lighting shall consist of 400 watt metal halide wall packs on all sides of the building at a density of one per 150 linear feet. Landlord shall add 2 pole lights at the entrance to the building. Telephone: Main telephone terminal installed in the electrical room. Extend 1 ea 4" conduit with pull string from the property line into the electrical room. Mount one sheet 4'x8' plywood on electrical room wall above conduit stub-up. Emergency Power: Provided by Tenant Wiring: All wiring and bus duct to be copper Exterior Transformer: Provided by TU Electric Tenant JJ Landlord JH 46 Power Source: TU Electric ADA COMPLIANCE This facility will comply with all ADA regulations upon the time of completion. TESTING Landlord will engage a third party independent testing laboratory to provide construction materials testing. MISCELLANEOUS Roof drainage shall be provided by means of exterior downspouts. A $10,000 allowance will be provided for the installation of compressed air lines. An allowance of $10,000 will be provided for two (2) 2-ton overhead cranes. EXCLUSIONS Joint sealant at the floor slab. Tenant JJ Landlord JH 47 EXHIBIT "F" LANDLORD'S WAIVER AND CONSENT THIS LANDLORD'S WAIVER AND CONSENT ("Waiver and Consent") is made and entered into as of this _____ day of ________________ by and between _____________________, a ____________________ ("Landlord"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation, as agent ("Agent") for the lenders (collectively, "Lenders") from time to time party to the Credit Agreement described below. A. Landlord is the owner of the real property commonly known as ________________________ (the "Premises"). B. Landlord has entered into that certain Lease Agreement (together with all amendments and modifications thereto and waivers thereof, the "Lease") with ICON Health & Fitness, Inc., a Delaware corporation ("Company"), with respect to the Premises. C. Agent and Lenders have entered into a Credit Agreement with Company, and to secure the obligations arising under such Credit Agreement, Company has granted to Agent, for its own benefit and the ratable benefit of Lenders, a security interest in and lien upon certain assets of Company, including all of Company's goods, inventory, machinery, equipment, and furniture and trade fixtures (such as equipment bolted to floors), installed by Company, together with all additions, substitutions, replacements and improvements to, and proceeds of, the foregoing, but excluding building fixtures (such as plumbing, lighting and HVAC systems) (collectively, the "Collateral"). NOW, THEREFORE, in consideration of any financial accommodations extended by Lenders to Company at any time, and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Landlord acknowledges that (a) the Lease is in full force and effect and (b) Landlord is not aware of any existing default under the Lease. 2. Landlord will use its best efforts to provide Agent with written notice of any default by Company under the Lease (a "Default Notice"). Agent shall have 15 days following receipt of such Default Notice to cure such default, but neither Agent not any Lender shall be under any obligation to cure any default by Company under the Lease. No action by Agent or any Lender pursuant to this Waiver and Consent shall be deemed to be an assumption by Agent or Lenders of any obligation under the Lease, and, except as provided in paragraphs 6, 7 and 8 below, Agent shall not have any obligation to Landlord. 3. Landlord acknowledges the validity of Agent's lien on the Collateral and, until such time as the obligations of Company to Lenders are indefeasibly paid in full, Landlord agrees to subordinate any interest in the Collateral Landlord may have and agrees not to distrain Tenant JJ Landlord JH or levy upon any Collateral or to assert any landlord lien, right of distraint or other claim against the Collateral for any reason. 4. Landlord agrees that the Collateral consisting of trade fixtures installed by Company, such as equipment bolted to the floor shall not be deemed a fixture or part of the real estate but shall at all times be considered personal property. 5. Prior to a termination of the Lease, Agent or its representatives or invitees may enter upon the Premises at any time without any interference by Landlord to inspect or remove any or all of the Collateral, including, without limitation, by [public auction or] private sale pursuant to the provisions of paragraph 7 below. 6. Upon written request made by Agent prior to expiration of the term of the Lease or within fourteen (14) days after Agent's receipt of notice of termination of the Lease (failing which, Agent's rights of permitted occupancy during the Disposition Period shall be waiver), Landlord will permit Agent and its representatives and invitees to occupy and remain on the Premises; provided that (a) such period of occupation (the "Disposition Period") shall not exceed up to 90 days following receipt by Agent of a notice of Lease termination from Landlord or, if the Lease has expired by its own terms (absent a default thereunder), up to 30 days following Agent's receipt of written notice of such expiration, (b) for the actual period of occupancy by Agent, Agent will pay to Landlord the basic rent due under the Lease pro-rated on a per diem basis determined on a 30-day month, and shall provide and retain liability and property insurance coverage, electricity and heat to the extent required by the Lease, and (c) such amounts paid by Agent to Landlord shall exclude any rent adjustments, indemnity payments or similar amounts for which the Company remains liable under the Lease for default, holdover status or other similar charges. If any injunction or stay is issued that prohibits Agent from removing the Collateral, the commencement of the Disposition Period will be deferred until such injunction or stay is lifted or removed. Agent's written request must state the exact duration of Agent's desired Disposition Period, and Agent shall be obligated to pay basic rent for such entire period, which rental amount shall accompany Agent's written request. 7. During any Disposition Period, (a) Agent and its representatives and invitees may inspect, repossess, remove and otherwise deal with the Collateral, and Agent may advertise and conduct private sales of the Collateral at the Premises, in each case without interference by Landlord or liability of Agent or any Lender to Landlord, and (b) Agent shall make the Premises available for inspection by Landlord and prospective tenants and shall cooperate in Landlord's reasonable efforts to re-lease the Premises. If Agent conducts a private sale of the Collateral at the Premises, Agent shall use reasonable efforts to notify Landlord first and to hold such motion or sale in a manner which would not unduly disrupt Landlord's or any other tenant's use of the Premises. 8. Agent shall promptly repair, at Agent's expense, or reimburse Landlord for any physical damage to the Premises actually caused by the conduct of such [auction or] sale and any removal of Collateral by or through Agent (ordinary wear and tear excluded). Neither Agent nor any Lender shall not be liable for any diminution in value of the Premises caused by the Tenant JJ Landlord JH absence of Collateral removed, and neither Agent nor any Lender shall have any duty or obligation to remove or dispose of any Collateral or any other property left on the Premises by Company. Agent shall indemnify and hold harmless from and against any claims, loss, cost, expense or damage asserted by Tenant or any third party arising out of any act of omission of Agent in connection with the exercise by Agent of its rights under this Waiver and Consent, including, without limitation, reasonable attorneys' fees. 9. All notices hereunder shall be in writing, sent by certified mail, return receipt requested or by telecopy, to the respective parties and the addresses set forth on the signature page or at such other address as the receiving party shall designate in writing. 10. This Waiver and Consent may be executed in any number of several counterparts, shall be governed and controlled by, and interpreted under, the laws of the State of Illinois, and shall inure to the benefit of Agent and its successors and assigns and shall be binding upon Landlord and its successors and assigns (including any transferees of the Premises) and upon Agent, its successors and assigns. IN WITNESS WHEREOF, this Landlord's Waiver and Consent is entered into as of the date first set forth above. "LANDLORD" ______________________________________ PANATTONI/HILLWOOD ______________________________________ ______________________________________ ______________________________________ Attention: ___________________________ By: _________________________________ Telephone: ___________________________ Title: ______________________________ Facsimile: ___________________________ "AGENT" GENERAL ELECTRIC CAPITAL GENERAL ELECTRIC CAPITAL CORPORATION CORPORATION 10 South LaSalle Street, Suite 2700 Chicago, Illinois 60603 Attention: ___________________________ By: _________________________________ Telephone: ___________________________ Title: ______________________________ Facsimile: ___________________________ Its: Duly Authorized Signatory Tenant JJ Landlord JH EXHIBIT "G" EXPANSION LAND PROPOSED BLOCK 2, LOT 3 BEING a tract of land situated in the Daniel Turner Survey, Abstract No. 1462, in the City of Mesquite, Dallas County, Texas, and being a part of that tract of land described in deed to Petrus Investment, L.P., as recorded in Volume 98251, Page 9371, Deed Records, Dallas County, Texas, (DRDCT), and being more particularly described as follows: COMMENCING at a set 1/2-inch iron rod with a yellow plastic cap stamped "HALFF ASSOC. INC." (hereafter referred to as "with cap"), at the intersection of the westerly right-of-way line of Town East Boulevard (100 foot right-of-way) and the northerly right-of-way line of a Dallas Power and Light Company right-of-way, as recorded in Volume 5624, Page 250, DRDCT, (125 foot right-of-way); THENCE South 44 degrees 13 minutes 32 seconds West, departing said westerly line and along said northerly line, a distance of 930.01 feet to the POINT OF BEGINNING; THENCE South 44 degrees 13 minutes 32 seconds West continuing along said northerly line, a distance of 489.81 feet to a point at the intersection of said northerly line with the easterly right-of-way line of Chase Road (50 foot right-of-way); THENCE North 45 degrees 45 minutes 33 seconds West, departing said northerly line and along said easterly line, a distance of 889.98 feet to a point for corner on the north line of said Petrus Investment tract; THENCE North 44 degrees 16 minutes 17 seconds East, departing said easterly line and along the north line of said Petrus Investment tract, a distance of 493.45 feet to a point for corner; THENCE South 45 degrees 31 minutes 28 seconds East, departing said north line, a distance of 889.59 feet to the POINT OF BEGINNING AND CONTAINING 437,446 SQUARE FEET OR 10.04 ACRES OF LAND, MORE OR LESS. Tenant JJ Landlord JH [STRASBURGER & PRICE, L.L.P. LETTERHEAD] June 1, 2000 VIA FAX Charles Tuttle 5968 West Northwest Hwy. Suite 1532 Dallas, TX 75225 RE: Lease by and between ICON Health & Fitness, Inc., as Tenant and Panattoni/Hillwood Development Company, L.L.C., as Landlord Dear Charles: Under section 5.03 of the Lease, the Landlord has the right to approve. any hazardous materials used on the property. The following is a list of materials currently used by ICON in its manufacturing activities which may require Landlord's approval. 3M Scotch grip plastic adhesive Deloaxed Hyddraparafine Distillate Oil Enamel paint Acetylene Bottles Autofroth Isocyanate Argon/CO2 bottles Autofroth Resin Oxygen Bottles Chemical Starter Kits For Spas Propane Tanks for Forklifts Chlorine Light Machine Oil Silk Screen Inks Miscellaneous Spray Paints Toluene Hydraulic Fluid Carbon Dioxide Storage Tanks - 12,000 LB. Fiberglassing (future potential material) capacity Argon Storage Tank - 118,000 Lb. capacity Paint for powdercoat process #5 Spray Adhesive Plastics for processes like injection, blow, vacuum, thermal, roto, etc. molding
As part of this there are a couple of storage tanks that will need to be installed on the property and these are listed. The Landlord also has a right to approve these storage tanks. As part of the Lease, we need Landlord's approval of these materials and the two storage tanks pursuant to the terms of section 5.03. If you would have the Landlord sign below and send a copy of this back to me and to Colin Rushalko, I would appreciate it. Tenant JJ Landlord JH Very truly yours, /s/ ILLEGIBLE APPROVED: Partattoni/Hillwood Development Company, L.L.C., a Texas limited liability company By:______________________________ Its:_____________________________ cc: Colin S. Rushalko Director of ICON Health & Fitness, Weider Division Tenant JJ Landlord JH AMENDMENT NO. 1 TO LEASE AGREEMENT (Build-to-Suit Facility) - 2000 This Amendment No. 1 to Lease Agreement by and between Panattoni/Hillwood Development Company, LLC, as Landlord, and ICON Health and Fitness, Inc., as Tenant is entered into as of June 9, 2000. For and in consideration of Ten Dollars and other good and valuable consideration, Landlord and Tenant hereby amend and modify the Lease Agreement (Build-to-Suit Facility) - 2000 (the "Lease") by and between Landlord and Tenant which Lease is dated as of June __, 2000. Landlord and Tenant add Article Fifteen to the Lease, which Article Fifteen states as follows: "ARTICLE FIFTEEN LEASE RESTRICTIONS During the Term of this Lease, Landlord agrees not to lease any space or grant other rights in the Expansion Land to the following entities: Cap Barbell, Keys Fitness, Bollinger, Hedstrom, Jump Sport, Life Fitness, Sport Works, Precor, Impex, and Schwinn, and such entities corporate successors." Except as modified above, the Lease is in full force and effect without change or amendment. "LANDLORD" PANATTONI/HILLWOOD DEVELOPMENT COMPANY, LLC, a Texas limited liability company By: /s/ Dewitt J. Hicks III ------------------------------- Name: DEWITT J. HICKS III ----------------------------- Its: Principal ------------------------------ Date: 6/28/00 ----------------------------- "TENANT" ICON HEALTH AND FITNESS, INC., a Delaware corporation By: /s/ Jace Jergensen ------------------------------ Name: Jace Jergensen ---------------------------- Its: VP/GM ----------------------------- Date: 6/26/00 ---------------------------- Tenant JJ Landlord JH EX-10.5 8 dex105.txt EXHIBIT 10.5 - LEASE AGREEMENT DTD 03/30/00 Exhibit 10.5 LEASE AGREEMENT BY AND BETWEEN INTERNATIONAL CENTER I, LLC, AS LANDLORD AND ICON HEALTH AND FITNESS, INC., AS TENANT March 30, 2000 LEASE AGREEMENT THIS LEASE AGREEMENT ("LEASE") is made and entered into as of the 30th day of March, 2000, between INTERNATIONAL CENTER I, LLC, a South Carolina limited liability company, hereinafter called "Landlord," and ICON HEALTH AND FITNESS, INC., a Delaware corporation, hereinafter called "Tenant." WITNESSETH: In consideration of the covenants and agreements of the respective parties herein contained, the parties hereto do hereby agree as follows: Article 1. The Demised Premises Section 1.01. Lease of Premises. Landlord does hereby demise and lease and let unto Tenant and Tenant hereby leases and hires from Landlord the real property (the "Land"), more fully described in Exhibit A attached hereto and incorporated herein by reference, together with the buildings, fixtures and other improvements (the "Building") more fully described in the site plan and plans and specifications (collectively, with all approved modifications thereof, the "Plans") attached hereto as Exhibit B and incorporated herein by reference, to have and to hold the Land, the Building, all other improvements constructed on the Land, and all easements, rights and privileges appurtenant thereto, unto Tenant and its permitted successors and assigns, for a term commencing on the date provided herein and expiring on the termination of this Lease (the Land and the Building, and all easements, rights and privileges appurtenant thereto, being collectively referred to hereinafter as the "Premises"). Article 2. Construction of Infrastructure and Building Section 2.01. Infrastructure. Landlord shall be responsible for clearing, grading, drainage, and filling the Premises, installation of driveways and parking areas, including pavement, spaces and lighting, installation of landscaping and irrigation equipment, and all utility installations, including water and sewerage facilities, gas and electrical service as specified in the Plans or as otherwise agreed upon in writing by Landlord and Tenant (collectively, the "Infrastructure"). Landlord shall deliver the Premises with the Infrastructure installed and operational, in compliance with applicable laws and with all tap fees, hook-in fees, impact fees or other connection fees paid. The responsibility of Landlord for utility installations shall in no event be construed to make Landlord liable for any interruption or failure in the supply of any utilities to the Premises; provided, however, notwithstanding anything contained herein to the contrary, if there is an interruption or failure of the utility services provided to the Premises which is caused by Landlord or any defects in construction of the Premises, and such interruption or failure interferes with Tenant's use of the Premises: (i) Tenant shall be entitled to receive a proportionate abatement of rental until same has been corrected, and (ii) if same continues for a period in excess of thirty (30) days after written notice from Tenant to Landlord, Tenant shall be entitled to terminate this Lease by written notice thereof unless such corrective work has been started by Landlord or is planned to be commenced with correction to be completed as soon as possible thereafter. Section 2.02. Building. i. Landlord shall be responsible for having the Building constructed on the Land substantially in accordance with the Plans. No deviations may be made from the Plans at Tenant's request without Landlord's prior written approval, which approval shall not be unreasonably withheld, conditioned or delayed. Landlord acknowledges and agrees that Tenant shall be entitled to cause the Plans to be modified based upon Tenant's space plan and use requirements. In the event that Tenant requests any deviations from the Plans, Landlord shall cause its architect to revise the Plans and Landlord shall submit the revised Plans to Tenant for review and approval within five (5) days after receipt of Tenant's request therefor. The submission and approval process shall be repeated until such time as Tenant has approved the revised Plans. In the event that Landlord and Tenant cannot agree on the final Plans within five (5) days after the date hereof, Tenant shall be entitled to terminate this Lease by delivering written notice thereof to Landlord. In the event any such deviation which increases the overall cost of construction of the Building in excess of Three Hundred Fifty Thousand and 00/100 Dollars ($350,000.00) (the "Allowance"), Tenant shall pay all such increases in costs (such increases being referred to as "Cost Overruns") in accordance with the terms hereof. Landlord shall make, at its sole cost and expense, any deviations from the Plans which are (a) required or desirable in order to comply with then-applicable or proposed building codes, laws, regulations or ordinances or (b) necessary, desirable or appropriate in light of geographic and/or geologic conditions and/or then-current standards in the construction or architecture industries. ii. Tenant and its representatives shall review the Plans and determine the adequacy, sufficiency, safety, and utility of the Building and design thereof, if the Building is built substantially in accordance therewith. iii. Provided Landlord and Tenant have both signed off on all construction plans (including changes requested by Tenant) no later than March 31, 2000, Landlord agrees to use its best efforts to tender the Building to Tenant in accordance with Section 2.05 on or before June 1, 2000 (the "Scheduled Commencement Date"), subject to Force Majeure and temporary condemnation. Notwithstanding anything contained herein to the contrary, if Landlord fails to deliver the Premises to Tenant in the condition required by this Lease on or prior to the Scheduled Completion Date, Tenant shall be entitled to receive two (2) days abatement of rental for each day thereafter until Landlord has so delivered the Premises to Tenant, and if Landlord fails to so deliver the Premises to Tenant on or prior to the date which is thirty (30) days after the Scheduled Completion Date, Tenant shall be entitled to terminate this Lease upon written notice thereof to Landlord at any time before the Premises have been so delivered to Tenant. In addition, Landlord shall be responsible for any holdover rent or additional moving expenses incurred by Tenant as a result of Landlord's failure to deliver the Premises to Tenant on or prior to the Scheduled Completion Date. iv. Landlord represents and warrants that Building will be erected in a good and workmanlike manner, in compliance with all applicable laws, including, without limitation, the Americans with Disabilities Act, and substantially in accordance with the Plans. 2 v. During construction of the Building, Tenant's representatives and engineers shall have the right to inspect the construction of the Infrastructure and Building upon reasonable prior notice to Landlord at a time agreed upon by Landlord and Tenant for the purpose of determining that the work has been completed in accordance with the Plans. In addition, Tenant shall be entitled to enter the Premises following the execution hereof for purposes of installing its furniture, fixtures and improvements and storing its merchandise on the same terms and conditions set forth in this Lease, except that Tenant shall have no obligation to pay rent prior to the Commencement Date. Tenant's employees, workers or contractors shall work in harmony and not unreasonably interfere with Landlord's workers or contractors or other tenants and their workers or contractors, nor shall Tenant's activities jeopardize the issuance of a certificate of occupancy or other license or permit for the Premises. Section 2.03. Certain Costs and Expenses. A. Should Tenant request changes to the Plans and/or the Building as constructed, Tenant hereby agrees to pay: (i) any Cost Overruns arising in connection therewith. Tenant shall pay all such Cost Overruns on the date the Premises are delivered to Tenant in the condition required by this Lease; and (ii) Rent commencing on the Scheduled Commencement Date, provided such requested changes to the Plans and/or the Building have caused a delay of the completion of the Building not caused by Landlord's delay. Section 2.04. Warranties. Upon completion of the Building, Tenant shall receive a copy of all written warranties covering the Building and Infrastructure. In the event of a defect in the Building or Infrastructure or in the event of any breach of a guarantee or warranty given by or on behalf of the contractor or its subcontractors to Landlord, Landlord and Tenant agree to cooperate to the extent practicable to have all such defects or breaches remedied by the contractor or the appropriate third party. This cooperation shall not relieve Landlord of its duty and obligation to have the Building and Infrastructure constructed in a good and workmanlike manner, or release Landlord from any of its obligations under this Lease. Section 2.05. Completion. Landlord shall be deemed to have tendered the Premises to Tenant and the Lease shall be deemed to have commenced (the "Commencement Date") when Landlord delivers the Premises in the condition required by this Lease, with the Building and Infrastructure substantially completed, subject only to minor punch list items as described below, and all keys or other means of access thereto, to Tenant, along with a written statement that the Building and Infrastructure are substantially completed in accordance with the Plans and, if required by law, a certificate of occupancy and any other permits required for Tenant to lawfully occupy the Premises issued and in full force and effect. Upon delivery of the Premises to Tenant, Tenant shall have thirty (30) days from the date of delivery to inspect the Premises and to provide Landlord with a written list of what respects, if any, the Premises have not been substantially completed in accordance with the Plans (the "Tenant's List"). All items included in Tenant's List, which Landlord agrees in its reasonable judgment have not been substantially completed in accordance with the Plans, shall be completed by Landlord in accordance with the Plans within thirty (30) days after receipt of Tenant's List, subject to Force Majeure and temporary condemnation. Landlord's completion of the items on Tenant's List must not 3 unreasonably interfere with Tenant's use and enjoyment of the Premises. Landlord may, at its option, retain for itself one or more duplicates of keys to the Building and/or other means of access thereto. Article 3. Term; Renewal, Rent; Holding Over; Net Lease Section 3.01. Term. The term of this Lease shall be for a period of five (5) years and four (4) months commencing on the Commencement Date, and ending five (5) years and four (4) months thereafter, plus the part of a month, if any, from the Commencement Date through the last day of the month immediately prior to the first full calendar month in the term of this Lease. As used herein, the phrase "the term of this Lease," or any similar phrase, shall mean the term of five (5) years and four (4) months, although such term may be terminated by Landlord and Tenant earlier as provided hereunder. Section 3.02. Renewal. Tenant shall have the right to renew the term of this Lease for two (2) five (5)-year renewal periods upon the following terms and conditions: (a) Tenant shall provide Landlord with one hundred eighty (180) days prior written notice of its intention to renew the Lease; (b) no Event of Default shall exist at the commencement of the renewal term; and (c) such renewal shall be upon the same terms, covenants and conditions as provided in this Lease, except that the amount of Rent for the renewal term shall be as enumerated below: ---------------------------------------------------------------------- Year Rate Year Rate ------------------------------- ------------------------------- 6 $4.04 11 $4.35 ------------------------------- ------------------------------- 7 $4.10 12 $4.42 ------------------------------- ------------------------------- 8 $4.16 13 $4.48 ------------------------------- ------------------------------- 9 $4.22 14 $4.55 ------------------------------ ------------------------------- 10 $4.29 15 $4.62 ---------------------------------------------------------------------- Section 3.03. Rent. i. Commencing on the Commencement Date (or the Scheduled Commencement Date if delays by Tenant have delayed the Commencement Date), as rental for the Premises, Tenant agrees to pay to Landlord, for the account of Landlord, without offset or abatement, the base rental as set forth below (the "Rent"): Rental Rate: -------------------------------- Year Rate -------------------------------- 4 Months $0 -------------------------------- 1 $3.75 -------------------------------- 2 $3.81 -------------------------------- 3 $3.86 -------------------------------- 4 $3.02 -------------------------------- 5 $3.98 -------------------------------- 4 ii. Tenant has deposited with Landlord, upon delivery of this Lease, an amount equal to One Hundred Eighty-Seven Thousand Five Hundred and 00/100 Dollars ($187,500.00) (the "Security Deposit"), to be retained by Landlord for the initial term of the Lease. Upon the occurrence of an Event of Default, as described in Article 18, Landlord shall be entitled to retain the Security Deposit, and Tenant will not be given any credit towards Rent yet to come due and owing. Specifically, Tenant and Landlord acknowledge and agree that upon an Event of Default, if any, Landlord may utilize the proceeds of the Security Deposit as an offset to a portion of the damages suffered by Landlord, and no portion of the proceeds of the Security Deposit will be deemed to be prepaid Rent. Notwithstanding the foregoing to the contrary, at the end of the third year of this Lease, provided there is not an existing or prior Event of Default, or the occurrence or existence of an event or condition which, upon the giving of notice or the passage of time, or both, would constitute an Event of Default, the Security Deposit shall be returned to the Tenant. The Security Deposit shall be held by Landlord in an interest -bearing account. Should the Security Deposit be returned to Tenant at the end of the third year of the Lease as provided herein, the interest shall be paid one-half to the Landlord and one-half to the Tenant. iii. For the period commencing on the Commencement Date, Tenant also agrees to pay Landlord additional sums, charges, amounts or payments to be paid by Tenant to Landlord in accordance with the provisions of this Lease, whether or not such sums, charges, amounts or payments are referred to as additional rent (the "Additional Rent"). iv. All monthly rental installments shall be paid in advance on the first day of the month, without demand or notice (except if notice is required pursuant to the terms of this Lease), in lawful money of the United States of America, to Landlord at the address set out for notices in Section 26.01 hereof, or at such place as Landlord may from time to time designate. In the event Tenant shall fail to pay the Rent or Additional Rent within ten (10) days after written notice thereof is delivered to Tenant, a late charge at a rate of 18 per annum or (1.5% per month) (the "Default Rate") shall accrue from the due date of such Rent or Additional Rent until paid, and the same shall be treated as Additional Rent. Section 3.04. Holding Over. A. Should Tenant provide to Landlord six (6) months prior written notice of its intention to hold over, Tenant shall be entitled to remain in possession of the Premises for a period of sixty (60) days following the end of the term of this Lease, or any renewal thereof, on the same terms and conditions as are set forth in this Lease and without liability to Landlord for any damages, consequential or otherwise, resulting from such holdover. Tenant hereby agrees that if it fails to surrender the Premises at the end of said sixty (60)-day period, or earlier termination as provided in this Lease, Tenant shall be liable to Landlord for any and all actual damages which Landlord shall suffer by reason thereof, and Tenant shall indemnify Landlord against all claims and demands made by any succeeding tenants against Landlord, founded upon delay by Landlord in delivering possession of the Premises to any such succeeding tenant caused by Tenant's holding over beyond such sixty (60)-day period. 5 B. If Tenant shall be in possession of the Premises after the sixty (60)-day period following termination of this Lease, in the absence of any agreement extending the term hereof, or Landlord's demand to Tenant to sooner vacate the Premises, the tenancy under this Lease shall become one from month to month terminable by either party on thirty (30) days prior written notice, at a monthly Rent equal to one hundred fifty percent (150%) of the monthly installment of Rent payable during the last month of the term. Tenant shall also pay all other charges payable under the terms of this Lease, prorated for the period during which Tenant remains in possession. Such tenancy shall also be subject to all other conditions, provisions and obligations of this Lease. Section 3.05. Net Lease. This Lease shall be deemed and construed to be a "net lease," and Tenant shall pay to Landlord the Rent, Additional Rent, and other payments under this Lease free of any charges, assessments or deductions of any kind and without abatement, deduction or set-off except as otherwise expressly provided in this Lease. Tenant shall be responsible for timely payment of all costs, expenses and obligations of every kind whatsoever, relating in any way to the Premises and the Building, including, but not limited to, taxes and assessments, insurance, utilities, security, maintenance and repair, except as otherwise provided herein. Tenant will deliver to Landlord proof of timely payment of all costs and expenses relating to taxes and assessments and insurance, and upon the reasonable request of Landlord, Tenant will deliver to Landlord proof of timely payment of all other costs and expenses covered in this Section 3.05. Article 4. Taxes Section 4.01. Payment of Taxes. i. During the term of this Lease, and beginning on the Commencement Date, Tenant agrees to pay when due all real estate taxes, ad valorem taxes and assessments and general and special assessments which are assessed against Landlord, payable with respect to the Premises. Tenant shall be liable for all ad valorem property taxes assessed on all its personal property, including, without limitation, its inventory, furniture, machinery, equipment and fixtures. Tenant shall promptly deliver to Landlord proof of timely payment of all taxes and assessments. Landlord shall promptly notify Tenant of any increase or proposed increase in real estate taxes and assessments of which Landlord has knowledge. Tenant shall have the right to contest, at Tenant's sole cost and expense, by appropriate legal proceedings, the amount and validity of any tax, assessment or charge which it is required to pay under the terms of this Lease. Landlord agrees that whenever Landlord's cooperation is required in any of the proceedings brought by Tenant as aforesaid, Landlord will reasonably cooperate therein, with all costs and expenses of Landlord resulting from such cooperation to be paid by Tenant. ii. It is understood that Tenant shall pay only its pro rata share of taxes which become due and payable during the years in which the obligation to pay commences and ceases, such pro rata share to be determined on the basis of the number of months of the then current tax year for which Tenant is to pay Rent shall bear to the entire number of months in any such tax 6 year. Landlord shall pay prior to delinquency all taxes and assessments applicable to the Premises for periods prior to and after the term of this Lease. iii. Upon failure by Tenant to pay any such taxes or assessments following the expiration of ten (10) days following written notice thereof from Landlord, Landlord may pay such taxes or assessment, and Tenant shall be required, in addition to reimbursement of any such taxes, to pay any portion of the penalty attributable to any such taxes or assessments plus interest at the Default Rate from the date such taxes or assessments were due. Taxes so paid by Landlord shall be treated as Additional Rent hereunder. Article 5. Use Section 5.01. Permitted Use. Tenant shall only use the Premises for storage, distribution, sales, and warehousing, and office uses related thereto. Landlord represents and warrants to Tenant that the Premises may be used for such purpose under applicable law affecting the Premises. If the Premises may not be used for such purpose, in addition to other remedies, Tenant shall be entitled to terminate this Lease. Subject to the provisions of Section 9.01 below, Tenant shall in its use of the Premises comply with all applicable governmental laws, rules, regulations, orders and ordinances and all reasonable recommendations of Landlord's fire rating organization now or hereafter in effect, including, without limitation, the applicable provisions of the Americans with Disabilities Act and all Environmental Laws (as defined in Section 19.01). Article 6. Repair and Maintenance Section 6.01. Repair and Maintenance of Building by Tenant. Subject to Landlord's obligations under Section 6.02 below, Tenant shall, throughout the term of this Lease, at its own expense, keep the Premises as now or hereafter constituted clean and in good order and repair, reasonable wear and tear, casualty, condemnation and damage which is the responsibility of Landlord excepted, and, except as otherwise provided herein, in compliance with all governmental laws, rules, regulations, orders and ordinances exercising jurisdiction thereover and in compliance with the provisions of this Lease. Tenant shall make all repairs, replacements and renewals to the Premises, required in connection with any damage or injury to all or any part of the Premises caused by Tenant or Tenant's agents, employees, invitees, licensees or visitors. All repairs, replacements and renewals shall be at least equal in quality, workmanship and class to that originally existing in the Premises. Section 6.02. Repair and Maintenance of Building by Landlord. i. Landlord shall deliver the Premises to Tenant in good operating condition and repair, including, without limitation, any and all electrical, plumbing, heating, ventilating, air conditioning and other mechanical installations components, roof, foundations, floors, walls, interior and exterior doors, parking and landscaped areas, and all other components of the Premises, and shall promptly repair and replace any defects therein arising during the twelve (12) month period following the Commencement Date. 7 ii. During the entire term of the Lease, Landlord covenants and agrees, at its expense, without reimbursement or contribution by Tenant, to keep, maintain and replace, if necessary, (a) the structural systems, including, without limitation, the roof, roof membrane, roof covering (including interior ceiling if damaged by leakage), load-bearing walls, floor slabs, masonry walls and foundations, (b) the exterior paint, (c) the utility Lines and connections to the Premises, and (d) the sprinkler mains, if any, in good condition and repair. Landlord also agrees to make any replacements required with respect to the heating, ventilating and air conditioning systems serving the Premises; provided, however, Tenant agrees, at Tenant expense, to maintain, at all times during the term of this Lease and any renewals thereof, a service and maintenance contract thereon. iii. If Landlord fails to commence within ten (10) days or complete any maintenance, repairs or replacements which are the responsibility of Landlord hereunder within thirty (30) days; after Landlord has received written notice from Tenant (except in the event of an emergency, in which event, no notice shall be required), then Tenant may complete such repairs itself and bill Landlord (with all invoices) in writing for the cost thereof, and Landlord shall reimburse Tenant such cost within thirty (30) days after receipt of such bill (with all invoices). Article 7. Alterations to Building, Mechanic's Liens Section 7.01. Alterations to Building. i. Tenant shall not make any structural alterations, additions or improvements to the Premises, whether to the exterior or the interior, without first submitting plans and specifications to Landlord and receipt of Landlord's written approval of such plans and specifications, which approval shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Landlord's consent shall not be required for non-structural alterations, replacements, additions or improvements which are estimated to cost less than $5,000.00. Tenant, in its construction of any such alterations, additions or improvements, shall comply with the approved plans and specifications and the laws, rules, regulations and building codes promulgated by governmental bodies having jurisdiction. Tenant covenants that all construction on the Premises shall be performed in a good and workmanlike manner and shall at all times be subject to inspection by and approved by Landlord. Any alterations, additions, or improvements to the Premises shall become the property of Landlord. The alterations, additions, or improvements to the Premises made by Tenant during initial upfit shall not be required to be removed by Tenant; however, later alterations, additions or improvements installed within the Premises by Tenant shall be removed by Tenant, and any damage from their removal shall be repaired by Tenant. ii. Tenant covenants that any alterations, additions or improvements on the Premises shall be covered by a broad form of commercial general and contractual liability insurance and builder's risk insurance, covering damage or destruction by fire or other casualty, and full extended coverage including vandalism and malicious mischief in such amounts as Landlord shall reasonably require. Tenant also covenants to maintain insurance against claims under workers' compensation, to the extent required by law. 8 Section 7.02. Mechanic's Liens. Tenant shall not suffer or permit any mechanic's or other lien to be filed against the Premises by reason of work labor, services or materials supplied or claimed to have been supplied to Tenant or anyone holding any interest in the Premises or any part thereof through or under Tenant. If such mechanic's or other lien shall at any time be filed against the Premises, Tenant shall forthwith cause the same to be discharged of record by payment, deposit, bond, order of court of competent jurisdiction, or otherwise. If Tenant shall fail to cause such lien to be so discharged within thirty (30) days after written notice thereof, then Landlord may, but is not obligated to, discharge the same by paying the amount claimed to be due, or by procuring the discharge of such lien by deposit or bonding proceedings, and in any such event, Landlord shall be entitled, if Landlord so elects, to compel the prosecution of any action for foreclosure of such lien by the lienor and payment of the amount of the judgment in favor of the lienor with interest, costs and allowances. Nothing in this Lease shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishing of any materials for any specific improvement or alteration to or repair of the Premises or any part thereof, nor as giving Tenant a right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any mechanic's lien against Landlord's interest in the Premises. Article 8. Subordination and Nondisturbance; Estoppel Certificates; Right of Tenant to Grant Security Interest; Title to Land; Waiver of Landlord's Lien Section 8.01. Subordination and Nondisturbance. i. This Lease, and all rights of Tenant hereunder are and shall be subject and subordinate in all respects to any mortgage, deed of trust or other security instrument constituting a mortgage lien upon the Land, whether the same shall be in existence on the date hereof or created hereafter. Any such mortgage, deed of trust or other security instrument being referred to herein as a "Mortgage" and the party or parties having the benefit of the same. Tenant shall execute such further assurances thereof as shall be requisite or as may be requested from time to time by Landlord or a Mortgagee. ii. Notwithstanding any other provisions of this Lease to the contrary, no subordination of this Lease and no obligation of Tenant to attorn shall be effective unless the Mortgagee delivers to Tenant a binding written nondisturbance agreement enforceable by and for the benefit of Tenant under applicable law, that this Lease and Tenant's rights hereunder shall continue undisturbed while Tenant is not in default under this Lease beyond the expiration of applicable curative periods. iii. Any Mortgagees shall each enter into a nondisturbance agreement in favor of Tenant, providing that (i) in the event the Landlord should fail to make any payment pertaining to such Mortgage or defaults under any other items of such Mortgage, the Mortgagee shall notify Tenant in writing specifying the nature of such defaulting obligation(s), and Tenant shall have the right, but is under no duty or obligation, to the extent such default can be cured, to remedy 9 such default within ten (10) days of the receipt by Tenant of such written notice; and (ii) in the event its Mortgage shall be foreclosed and provided that Tenant is not then in default hereunder beyond the expiration of applicable curative periods, the rights of Tenant hereunder will expressly survive and this Lease shall not terminate on account thereof so long as Tenant continues to pay the Rent and Additional Rent, and otherwise performs and observes all of the terms, covenants, conditions and provisions of this Lease. Section 8.02. Estoppel Certificates. Either party may request at any time, and from time to time, upon not less than ten (10) days prior notice to the other party, that the other party execute, acknowledge and deliver to the requesting party a statement in writing addressed to the requesting party, or such other party as is designated by the requesting party, certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), stating the dates to which the rent has been paid, and stating whether or not, to the best knowledge of the signer of such certificate, there exists any default in the performance of any covenant, agreement, term, provisions or condition contained in this Lease, and, if so, specifying each such default of which the signer may have knowledge. Section 8.03. Right of Tenant to Grant Security Interest. Landlord acknowledges that Tenant has the absolute right to grant security interests in or remove all of Tenant's goods, inventory, raw materials and other personal property from the Premises at any time during this Lease. It is understood and acknowledged that Tenant shall not grant a leasehold mortgage in this Lease without the prior written consent of Landlord, which shall not be unreasonably withheld. Tenant shall have the right to collaterally assign the Lease to financial institutions reasonably acceptable to Landlord in a collateral assignment in form and substance reasonably satisfactory to Landlord, and a security interest in its personal property located within the Premises for the benefit of financial institutions providing purchase money financing or any refinancing thereof for Tenant to finance the purchase of its equipment and other personal property installed within the Premises. No leasehold mortgage of Tenant shall extend to or affect Landlord's fee simple title in the Land. Should Tenant grant security interests in its goods, inventory, raw materials or other personal property or grant a leasehold interest in the Premises (with Landlord's consent), Landlord agrees to waive and release any statutory, constitutional and/or contractual lien for rents against the assets or property of Tenant. Landlord agrees to execute and deliver to Tenant within ten (10) days following request therefor such reasonable waivers and confirmations as Tenant may request to evidence such waiver and release. Section 8.04. Title to Land. Landlord represents and warrants that on the date of this Lease, it will own good, fee simple marketable title to the Premises subject to easements, conditions, restrictions, limitations and liens, of record, provided that none of such easements, conditions, restrictions, limitations or liens shall materially interfere with the permitted uses of the Premises. Article 9. Compliance with Laws 10 Section 9.01. Compliance with Laws and Governmental Regulations. Landlord represents, warrants and agrees that the Premises shall be delivered by Landlord to Tenant in compliance with all governmental laws, ordinances and regulations, including, without limitation, the Americans with Disabilities Act and, to its knowledge, based on that certain Phase I Environmental Assessment prepared by S&ME, dated February 2, 1998, applicable environmental laws, with no hazardous materials or other environmental contaminants located therein or thereon. Tenant shall promptly, at its sole cost and expense, at all times during the term of this Lease, comply with (a) any and all federal, state and local governmental laws, rules, regulations, ordinances, requirements and similar provisions having the force and effect of law (collectively "laws"), and the orders, rules and regulations of the National Board of Fire Underwriters which has jurisdiction or any other body hereafter constituted exercising similar functions, which are or would be applicable to the business being conducted in the Premises; and (b) the reasonable requirements of all policies of public liability, fire, and all other policies of insurance at any time in force with respect to the Premises as required pursuant to this Lease; provided, however, notwithstanding the foregoing, Tenant shall not be required to make any alterations or additions to the Premises (as originally constructed pursuant to the original plans and specifications) which may be required pursuant to such laws, orders, rules, regulations or requirements, it being agreed and understood that in the event any such law, order, rule, regulation or requirement requires that alterations or additions be made to the Premises, same shall be completed by Landlord (as to the Premises as originally constructed pursuant to the original plans and specifications) and by Tenant (for those parts of the Premises altered by Tenant), as applicable. Article 10. Indemnification Section 10.01. Indemnification Obligation. i. Tenant agrees to defend, indemnify and save harmless Landlord from and against all liabilities, damages, costs, expenses (including reasonable attorneys' fees and expenses), causes of action, suits, claims, demands or judgments (collectively, "Liabilities") of any nature whatsoever which may be imposed upon or incurred by or asserted against Landlord (i) arising from or out of the use or occupancy of the Premises by Tenant or any occupant of the Premises, or of its or their agents, contractors, servants, employees, invitees, licensees or trespassers; (ii) arising from any breach or default on part of Tenant in the performance of any of its covenants or agreements under this Lease; (iii) arising from any act, omission, or negligence of Tenant, or any occupant of the Premises, or its or their agents, contractors, servants, employees, invitees, licensees or trespassers; or (iv) arising from any accident, injury to or illness or death of any person, or any damage to property occurring on the Premises during the term of this Lease, except to the extent that any such accident, injury or damage is attributable to the negligent acts of Landlord. ii. Landlord agrees to defend, indemnify and save harmless Tenant from and against all Liabilities of any nature whatsoever which may be imposed upon or incurred by or asserted against Tenant (i) arising from any breach or default on part of Landlord in the performance of 11 any of its covenants or agreements under this Lease; or (ii) arising from any act, omission, or negligence of Landlord, or its agents, contractors, servants, employees, invitees, or licensees. iii. The indemnity obligations in this Section 10.01 shall survive the expiration or sooner termination of this Lease. Article 11. Insurance Section 11.01. Tenant's Insurance. i. At all times after the execution hereof, Tenant shall keep the Building insured for the mutual benefit of Landlord and Tenant against: (1) Loss or damage by fire, earthquake and such other risks as may be included in the standard form of extended coverage insurance from time to time available, in amounts sufficient to prevent Landlord or Tenant from becoming a co-insurer within the terms of the applicable policies and, in any event, in an amount not less than the then full insurable value (as defined in Section 11.01(iii) of the Building; (2) War risks, when and to the extent that such insurance is generally obtainable from the United States of America or any agency thereof, and riots and civil commotion in an amount sufficient to prevent Landlord or Tenant from becoming a co-insurer within the terms of the applicable policy, and, in any event, in an amount not less than the then full insurable value of the Building; (3) Loss or damage from leakage of sprinkler systems, gas lines, water lines, sewer lines, and/or other plumbing systems, now or afterwards installed in the Premises, in such amount as Landlord may require; (4) Loss or damage by explosion of high pressure steam boilers, air conditioning equipment, pressure vessels, motors, gas lines or similar apparatus, now or afterwards installed in the Premises, in such limits with respect to any one accident as may be required by Landlord from time to time; (5) Loss or damage by flood, if the Building is at any time determined to be located in a flood hazard area; (6) Business interruption insurance covering at least a twelve (12) month period; and (7) Such other hazards and in such amounts as Landlord may reasonably require. ii. In addition to the foregoing, at all times after the execution hereof, Tenant shall maintain insurance for the benefit of Tenant against loss or damage from the perils provided by an All Risk or Special Form coverage, in an amount not less than the then full insurable value (as defined in Section 11.0l.iii) of Tenant's personal property and the alterations, additions and improvements installed within the Building by Tenant, including the initial improvements to the Premises installed by Landlord; 12 iii. For all purposes of this lease, "full insurable value" means the actual replacement cost of the property so insured without physical depreciation. "Full insurable value" shall be determined at the request of Landlord by one of the insurers or by an architect, appraiser or appraisal company, selected and paid by Tenant and reasonably acceptable to Landlord, but such determination shall not be required to be made more frequently than once every twenty-four (24) months at Tenant's expense. Section 11.02. Policy Requirements. A. At all times Landlord and Tenant shall each also maintain insurance for the mutual benefit of Landlord and Tenant against claims for bodily injury and property damage, under a policy of comprehensive general public liability insurance, with limits not less than (i) Three Million Dollars ($3,000,000.00) in respect of any occurrence for bodily injury and (ii) One Million Dollars ($1,000,000.00) in respect of property damage. B. All insurance required to be maintained by Landlord and Tenant under this Lease shall be effected under valid enforceable policies issued by insurers of recognized responsibility, licensed to do business in the State of South Carolina, having an A rating or better in "Best's Insurance." Prior to the Commencement Date, duplicate originals of the policies procured by each party pursuant to these provisions (or certificates thereof) shall be delivered to the other party. At least thirty (30) days prior to the expiration date of any policy, the original renewal policy (or certificates thereof) for such insurance, together with satisfactory evidence of payment of the premium thereon, shall be delivered by each party to the other party. All policies shall contain agreements by the insurers that (1) with respect to property insurance, any loss shall be payable to Landlord or any Mortgagee and Tenant or Tenant's lender, as appropriate, notwithstanding any act or negligence of Tenant or Landlord which might otherwise result in forfeiture of such insurance; (2) such policies shall not be canceled except upon thirty (30) days' prior written notice to each named insured and loss payee; (3) the coverage afforded by the policies shall not be affected by the performance of any work in or about the Premises; and (4) Tenant, Landlord and any Mortgagee, as appropriate, shall be named as additional insured under the liability insurance policies as respects their Tenant/Landlord relationship. Tenant shall be entitled to satisfy its insurance obligations hereunder with "blanket" policies of insurance covering the Premises and other properties. Section 11.03. Waiver of Right of Recovery. Neither Landlord nor Tenant shall be liable to the other party or to any insurance company (by way of subrogation or otherwise) insuring the other party for any loss or damage to any building, structure or other tangible property or liability for personal injury or losses under workmen's compensation laws and benefits (provided such claim is actually paid by such insurer), even though such loss or damage might have been occasioned by the negligence of such party, its agents or employees. However, if by reason of the foregoing waiver, either party shall be unable to obtain any such insurance, such waiver shall be deemed not to have been made by such party. Section 11.04. Tenant's Failure to Comply. If Tenant fails to comply with the foregoing requirements relating to insurance, Landlord may obtain such insurance, and Tenant shall pay to 13 Landlord immediately upon demand the premium cost thereof. Such payment of insurance by Landlord shall be Additional Rent hereunder. Section 11.05. Landlord's Insurance Obligation. Landlord shall be responsible for maintaining builder's risk insurance on the Building during the initial construction of the Building. Article 12. Damage and Destruction Section 12.01. Damage and Destruction of Premises. In case of any material damage to or destruction of any portion of the Premises, Tenant shall give prompt written notice thereof to Landlord. If the Premises should be totally destroyed by fire or other casualty, or if the Premises should be so damaged that rebuilding cannot reasonably be completed within one hundred eighty (180) days after the date of written notification by Tenant to Landlord of the destruction, Tenant shall be entitled to terminate this Lease and the rent shall be abated for the unexpired portion of the Lease, effective as of the date of the written notification thereof. If any portion of the Premises shall be partially damaged by fire or other casualty and this Lease is not terminated by Tenant pursuant to the preceding provisions of this Lease then Landlord shall proceed promptly and with due diligence to repair and restore the damaged portion to substantially the same condition and quality as prior to such damage, provided that if such damage or destruction shall occur during the last twelve (12) months of the term of this Lease, unless Tenant shall have properly exercised its right to renew under Section 3.02 or its right to purchase the Premises under Section 25.01, Landlord shall have the right to terminate this Lease by giving Tenant notice of its election to do so within sixty (60) days after the date of such damage or destruction, and upon the giving of such notice, this Lease shall terminate and neither party shall have any further rights or obligations under this Lease, except that Landlord shall have the right to all insurance proceeds on the Building. If the Premises are rebuilt or replaced and are untenantable in whole or in part following the damage, the rent and all other sums payable by Tenant under this Lease during the period for which the Premises are untenantable shall be abated in proportion to that part of the Premises that is unfit for use in Tenant's business. The abatement shall consider the nature and extent of interference to Tenant's ability to conduct business in the Premises and the need for access and essential services. The abatement shall continue from the date the damage occurred until ten (10) business days after Landlord completes the repairs and restorations and notice to Tenant that the repairs and restoration are completed, or until Tenant again uses the Premises or the part rendered unusable, whichever is first. If Landlord fails to restore the Premises within one hundred eighty (180) days after such damage occurs, Tenant shall be entitled to terminate this Lease by delivering written notice thereof to Landlord. Tenant shall make the insurance proceeds available to Landlord for such repairs and restorations. Article 13. Condemnation Section 13.01. Taking. In the event that at any time during the term of this Lease, title to the whole or materially all of the Premises shall be taken by the exercise of the right of condemnation or eminent domain, Tenant shall be required to yield possession of the Premises to the condemning authority, this Lease terminate on the date of such taking, and the Rent to be 14 paid by the Tenant shall be apportioned and paid to the date of such taking. In the event of any such condemnation, this Lease and the rights and obligations of this parties hereunder shall cease as to the date of such taking. In the event a portion of the Premises shall be taken by right of condemnation or eminent domain or by purchase in lieu thereof and such partial taking materially interferes with Tenant's ability to continue its business operations in substantially the same manner and space, this Lease shall terminate on the date of such taking. If there is a partial taking and this Lease is not terminated as provided above, Landlord shall, at Landlord's sole risk and expense, restore and reconstruct the Building and other Improvements on the Premises to substantially the same condition as existed prior to the taking. If there is a partial taking and this Lease continues, then the Lease shall end as to the part taken and the rent payable under this Lease during the expired portion of the term shall abate in proportion to the part of the Premises taken. Section 13.02. Awards. All compensation awarded for any taking of the Premises or any interest therein shall belong to and be the property of Landlord. Tenant hereby assigns to Landlord all rights with respect thereto; provided, however, that nothing contained herein shall prevent Tenant, at its sole cost and expense, from applying separately for reimbursement of any condemnation proceeding (if permitted by law) for any damages payable for movable trade fixtures and leasehold improvements paid for and installed by Tenant and for Tenant's loss of business, and for Tenant's relocation costs. Article 14. Signs Section 14.01. Erection and Removal of Signs. Tenant may place, at its sole cost and expense, suitable signs on the Premises for the purpose of indicating the nature and name of the business carried on by Tenant in the Premises; provided, however, that such signs are in compliance with any laws, rules, regulations, protective covenants, or ordinances governing such signs. At the termination of this Lease, Tenant shall remove, at its sole cost and expense, all signs, and shall repair any damage caused by the erection or removal of such signs. Article 15. Quiet Enjoyment Section 15.01. Tenant's Right to Quiet Enjoyment. If and so long as Tenant pays the Rent and Additional Rent and performs and observes the covenants and provisions hereof, (a) Tenant shall quietly enjoy the Premises, subject, however, to the terms of this Lease and (b) Landlord will warrant and defend Tenant in the enjoyment and peaceful possession of the Premises throughout the term of this Lease. Article 16. Right of Entry Section 16.01. Right of Entry by Landlord. Tenant at any time during the term of this Lease shall permit inspection of the Premises during reasonable business hours and upon reasonable advance notice by Landlord or Landlord's agent for any purpose Landlord deems appropriate. Article 17. Assignment and Subletting 15 Section 17.01. Assignment and Subletting by Tenant. Tenant shall not sublet the Premises nor any part thereof, nor assign, or otherwise dispose of this Lease or any interest therein, or any part thereof, without Landlord's prior written consent in each of the foregoing cases, which consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Tenant may assign this Lease or sublet the Premises or any portion thereof, without Landlord's consent, to any entity that controls, is controlled by or is under common control with Tenant, or to any entity resulting from merger or consolidation with and into Tenant or a sale of all or substantially all of the assets of Tenant. Landlord acknowledges and agrees that the transfer of ownership interests in Tenant will not constitute an assignment or sublease for purposes hereof provided that such new owner's financial responsibility meets or exceeds the criteria Landlord used to select Tenant. In addition, during the initial term of this Lease, Tenant shall be entitled to sublet up to fifty percent (50%) of the Premises without Landlord's consent. Tenant shall be entitled to retain all excess rental and other compensation in connection with any such assignment or subletting. Consent by Landlord to any assignment or subletting shall not constitute a waiver of the requirement for such consent to any subsequent assignment or subletting, nor shall such consent be deemed to release Tenant from liability under this Lease except to the extent such consent specifically provides in writing. Tenant shall pay to Landlord, as Additional Rent, the sum of Five Hundred Dollars ($500.00) to cover Landlord's administrative costs, overhead and counsel fees, plus all out-of-pocket expense, in connection with any assignment or subletting for which consent by Landlord is required. Article 18. Default Provisions Section 18.01. Event of Default. Any one or more of the following events shall constitute an "Event of Default" by tenant: i. The failure by Tenant to pay Rent, Additional Rent or any other amount due hereunder within ten (10) days after written notice thereof from Landlord that the same is due hereunder; or ii. Default by Tenant in the performance or observance of any other term, covenant or condition to be performed or observed by Tenant under this Lease, which default is not cured within thirty (30) days after the giving of written notice thereof by Landlord; provided, however, in the case of a default which cannot with reasonable diligence be remedied by Tenant within a period of thirty (30) days, no Event of Default shall occur so long as Tenant commenced to remedy such Event of Default within such thirty (30) day period and thereafter in the reasonable discretion of Landlord, is diligently pursuing curing the same; provided, further, if Tenant shall default in the performance of any covenant or agreement of this Lease four (4) or more times in any twelve (12) month period, that notwithstanding such defaults have each been cured by Tenant, any further similar default shall be deemed an Event of Default without the ability for cure; or iii. The adjudication of Tenant as bankrupt or insolvent, the making by Tenant of a general assignment for the benefit of creditors, the taking by Tenant of the benefit of any insolvency act or law, or the appointment of a receiver or a trustee for Tenant which is not 16 vacated, dismissed, withdrawn or otherwise terminated within sixty (60) days from the date of such adjudication, assignment, taking or appointment, as applicable; or iv. The subjection of the Premises to any voluntary or involuntary lien, security interest or other encumbrance which is (i) attributable to any act or omission by or on behalf of Tenant and (ii) is enforceable by third parties and same is not discharged by Tenant in accordance with the terms of Section 7.02 hereof (the foregoing shall not apply to a leasehold mortgage described in Section 8.03 hereof); v. The vacating or abandonment by Tenant at any time during the term of this Lease, or the closing or failure to operate in, the Premises in accordance with the permitted uses for a period of ninety (90) continuous days or more; or vi. The occurrence of any other event described as constituting an "Event of Default" or default elsewhere in this Lease. Section 18.02. Remedies. Upon the occurrence and during the continuance of an Event of Default Landlord, without notice to Tenant in any instance may: A. Have the immediate right of reentry and may remove all persons and property from the Premises by summary proceedings or otherwise. B. In addition, in the event of any Event of Default (whether or not Landlord shall elect to re-enter or to take possession pursuant to legal proceedings or pursuant to any notice provided for by law), Landlord shall have the right, at Landlord's option, (1) to terminate this Lease by giving notice of such election to Tenant. The term hereof shall cease and expire on the date set forth in said notice as if that date were the expiration originally set forth herein, or (2) to relet the Premises or any part(s) thereof for such term or terms (which may extend beyond the term of this Lease) and at such rental(s) and upon such other terms and conditions as Landlord in Landlord's sole discretion may deem advisable. Landlord shall have the right from time to time to make such alterations and repairs as may be reasonably necessary in order to relet the Premises. Upon each such reletting all rentals received by the Landlord from such reletting shall be applied first to the payment of any costs and expenses of such reletting, including, without limitation, reasonable attorneys' fees and of the cost of restoring the Premises to the condition required by this Lease and specifically including costs of brokerage commissions, advertising and alterations but specifically excluding remodeling; second, to the payment of Rent and Additional Rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future Rent and Additional Rent and other payments required to be made by Tenant hereunder as the same may become due and payable hereunder, with the right reserved to Landlord to bring such additional proceeding(s) for the recovery of any deficits remaining unpaid without being obliged to await the end of the term for a final determination of Tenant' s account, and the commencement or maintenance of any one or more actions for farther accruals pursuant to the provisions of this Section 18.02. Notwithstanding any 17 such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach, or C. Exercise any other remedies provided in this Lease, or D. Exercise any other legal or equitable right or remedy which it may have. Notwithstanding anything contained herein to the contrary, following an Event of Default by Tenant hereunder, Landlord shall use good faith, reasonable efforts to relet the Premises and thus mitigate its damages. Any costs and expenses incurred by Landlord (including, without limitation, court costs and reasonable attorneys' fees and expenses) in enforcing any of its rights or remedies under this Lease shall be deemed to be Additional Rent and shall be repaid to Landlord by Tenant upon demand. Tenant waives the service of notice of Landlord's intention to reenter as provided for in any statute or to institute legal proceedings to that end, and also waives any and all right of redemption in case Tenant shall be dispossessed by a judgment or by order of any court or judge. LANDLORD AND TENANT EACH WAIVES ANY AND ALL RIGHTS TO A TRIAL BY A JMY IF SUNWARY PROCEEDINGS SHALL BE INSTITUTED BY LANDLORD. The terms "enter," "reenter," "entry," or "reentry," as used in this lease are not restricted to their technical legal meanings. Section 18.03. Landlord Default and Tenant Remedies. In the event that Landlord fails to comply with any obligation of Landlord contained in the Lease and such failure continues uncured for a period in excess of thirty (30) days following written notice thereof from Tenant, in addition to other remedies permitted at law or in equity, Tenant shall be entitled, at any time before the default is cured: (a) as expressly enumerated in this Lease, to take such action as may be required to have been taken by Landlord under the Lease, in which event Landlord agrees to pay to Tenant within thirty (30) days of written demand all costs and expenses incurred by Tenant in connection therewith, failing which Tenant shall be entitled to pursue the recoupment of such amounts in a court of competent jurisdiction. 18 Article 19. Environmental Provisions Section 19.01. Environmental Covenants and Agreements. Tenant covenants and agrees that Tenant shall not cause or permit any waste, damage or injury to the Premises and shall at all times comply in all respects with all applicable federal, state and local environmental, health and safety statutes and regulations, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation and Recovery Act ("RCRA"), the Superfund Amendments and Reauthorization Act of 1988 ("SARA"), the Federal Clean Water Act (33 U.S.C. 1341) and the Federal Water Pollution Control Act Amendments of 1972 (33 U.S.C. 1344) (collectively, the "Environmental Laws"). Tenant covenants and agrees that Tenant will promptly provide Landlord with copies of any environmental audits or surveys it conducts or causes to be conducted prior to the commencement of this Lease and during the term of this Lease. Tenant further covenants and agrees that Tenant will not suffer or permit to exist on the Premises any underground storage tanks or surface impoundments for oil or any other toxic or hazardous substances except in accordance with applicable federal, state and local laws, rules and regulations. Section 19.02. Environmental Complaints. If Tenant receives any notice of a happening of or upon (i) the air, (ii) soils or any improvements located thereon, (iii) surface water or ground water or (iv) the sewer, septic system or waste treatment, storage or disposal system servicing the Premises of any toxic or hazardous substances or waste (intended hereby and hereafter to include any and all such material listed in any federal, state or local law, code and ordinance and all rules and regulations promulgated thereunder as hazardous or potentially hazardous (any of which is hereafter referred to as a "Hazardous Discharge"), or any complaint, order, directive, claim, citation or notice by any governmental authority or any other person or entity with respect to (a) air emissions, (b) spills, releases or discharges to soils or any improvements located thereon, surface water, ground water or sewer system, septic system or waste treatment, storage or disposal systems servicing the Premises, (c) noise emission, (d) solid or liquid waste disposal, (e) the use, generation, storage, transportation, or disposal of oil or toxic or hazardous substances or waste or (f) any other environmental, health or safety matters affecting Tenant, the Premises, any improvements located thereon or the business therein or thereon conducted (any of which is hereafter referred to as an "Environmental Complaint"), then Tenant shall give immediate oral and written notice of the same to Landlord, detailing all relevant facts and circumstances. Section 19.03. Landlords Right. Landlord shall have the option, but not the obligation, to enter onto the Premises upon reasonable notice to Tenant and take any action it deems necessary or advisable to clean up, remove, resolve, contest or minimize the impact of or otherwise deal with any Hazardous Discharge or Environmental Complaint upon Landlord's receipt of any notice from any person or entity asserting the happening of a Hazardous Discharge or Environmental Complaint on or pertaining to the Premises. Landlord shall have the option to exercise its rights in the immediately preceding sentence upon providing Tenant with notice that Landlord intends to exercise such rights and giving Tenant a reasonable opportunity to clean up, remove, resolve or minimize the impact of or otherwise deal with any such Hazardous Discharge or Environmental Complaint. All costs and expenses incurred by Landlord in the exercise of any 19 such rights shall be deemed to be Additional Rent hereunder and shall be payable to Landlord upon demand. Section 19.04. Environmental Representation & Warranty. To Landlord's knowledge, based on that certain Phase I Environmental Assessment prepared by S&ME, dated February 2, 1998, Landlord represents and warrants to Tenant that the Premises are in compliance with all applicable Environmental Laws and that there has been no Environmental Complaint or Hazardous Discharge on the Premises as of the date of execution of this Lease. Notwithstanding anything contained herein to the contrary, Landlord shall, within thirty (30) days following notice from Tenant cause to be remediated, cleaned-up and corrected in accordance with all applicable laws, any Environmental Complaint, Hazardous Discharge or violation of applicable Environmental Laws occurring prior to Tenant's occupancy of the Premises or caused by any party other than Tenant. Article 20. Surrender of Premises Section 20.01. Surrender of Premises by Tenant. Upon termination of this Lease, Tenant shall surrender possession of the Premises to Landlord in good order and repair, reasonable wear and tear, casualty, condemnation and damage which is the responsibility of Landlord excepted, free and clear of any liens, encumbrances or security interests. Upon termination of this Lease, Tenant shall also deliver to Landlord promptly all leases, lease files, plans, records, registers, and all other papers and documents which may be necessary or appropriate for the proper operation and management of the Premises. Tenant shall have the right to remove all furniture, fixtures, goods and production and other equipment and other personal property owned by Tenant by the end of the term of the Lease to the extent that such items may be removed without causing damage to the Building or the remaining furniture, fixtures or equipment, if any, or if damage would be caused thereby, Tenant shall have the right to remove such items provided Tenant gives Landlord adequate assurances and repairs such damaged areas to the same condition in a manner reasonably satisfactory to Landlord. Tenant shall deliver to Landlord all keys and other means of access to the Premises. Article 21. Force Majeure Section 21.01. Definition of Force Majeure. In the event the Landlord or Tenant shall be delayed or hindered in or prevented from the performance of any act (other than either party's monetary obligations), by reason of acts of God, droughts, lightning, storms, floods, strikes, lockouts, unavailability of materials, failure of power, restrictive governmental laws or regulations, riots, insurrections, war, mobilization or military consumption on a large scale, requisitions, confiscation, commandeering of property; fuel restrictions, general shortages of transport, labor, goods or energy, or other reason beyond its reasonable control, then performance of such act shall be excused for the period of the delay and the period for the performance of such act shall be extended for a period equivalent to the actual period of such delay but the affected party shall be diligent in attempting to remove such cause or cause for the delay. Notwithstanding the foregoing, lack of funds shall not be deemed to be a cause beyond the reasonable control of either party. 20 Article 22. Commissions Section 22.01. Brokerage Commissions or Finder's Fees. Landlord and Tenant each acknowledge that no real estate broker, other than Jackson & Cooksey, Inc. and The Beach Co., is involved with respect to this Lease or the negotiations thereof. Landlord shall be responsible for the payment of a real estate commissions payable to Jackson & Cooksey, Inc. and The Beach Co. pursuant to a separate agreement. Each party agrees to indemnify the other against and hold the other harmless from, and against, any other claims for brokerage commissions or finder's fees, including, without limitation, the cost of attorneys' fees and expenses in connection therewith. Article 23. Memorandum of Lease Section 23.01. Contents of Memorandum of Lease. This Lease shall not be recorded. The parties hereby agree that upon the request of either party, each will execute and acknowledge a mutually agreeable form of a memorandum of this Lease for recordation in the public records. Recording, filing and like charges and any stamps, charge for recording, transfer or other tax shall be paid by Tenant. In the event of termination of this Lease, within thirty (30) days after written request from Landlord, Tenant agrees to execute, acknowledge and deliver to Landlord an agreement removing such memorandum of lease from record. If Tenant fails to execute such agreement within any such thirty (30) day period or fails to notify Landlord within any such thirty (30) day period of its reasons for refusing to execute such agreement, Landlord is hereby authorized to execute and record such agreement removing the memorandum of lease from record. These provisions shall survive any termination of this Lease. Article 24. Landlord's Right to Perform Tenant's Covenants Section 24.01. Performance of Tenant's Covenants by Landlord. i. If Tenant at any time fails after the expiration of applicable notice and cure periods (1) to pay any taxes or assessments in accordance with the provisions in this Lease, (2) to take out, pay for, maintain, or deliver any of the insurance policies provided in this Lease, (3) to cause any lien of the character referred to in Section 7.02 not to be discharged, as provided, (4) to cure any Event of Default referred to in this Lease, then Landlord may, but shall not be obligated to, and without further notice or demand upon Tenant and without waiving or releasing Tenant from any obligations of Tenant contained in this Lease, (a) pay any such taxes or assessments, (b) take out, pay for and maintain any of the insurance policies provided for in this Lease, (c) discharge any lien of the character referred to in Section 7.02 or (4) cure any such Event of Default. ii. All sums paid by Landlord pursuant to this Section 24.01 and all necessary incidental costs and expenses (including reasonable attorneys' fees and expenses) paid or incurred by Landlord in connection therewith, together with interest thereon from the date of making that expenditure by Landlord at the Default Rate, shall be payable by Tenant to Landlord within ten (10) days after demand therefor accompanied by evidence reasonably establishing that the expenditure has been made. 21 iii. All sums which may become payable to Landlord by Tenant pursuant to this Section 24.01 and all other charges and expenses of whatsoever nature which Tenant is required to pay pursuant to this Lease, exclusive of Rent, shall be deemed Additional Rent. Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the nonpayment of any such sums by Tenant as in the case of default by Tenant in the payment of Rent. Article 25. Protective Covenants Section 25.01. Premises Subject to Protective Covenants. The Premises are subject to the Declaration of Protective Covenants, Conditions and Restrictions for Charleston Regional Business Center dated December 30, 1998 and recorded December 31, 1998 in Book 1364, at Page 001 in the Register of Deeds for Berkeley County, South Carolina, as amended. The Premises are also subject to the Declaration of Restrictive Covenants dated April 12, 1996 and recorded April 15, 1996, in Book 840, Page 345 in the Office of the Register of Deeds for Berkeley County for Berkeley County. Tenant acknowledges that it has received copies of both of the Protective Covenants. The Premises are also subject to the permitted encumbrances (the "Permitted Encumbrances") enumerated on Exhibit C attached hereto and made a part hereof. Article 26. Miscellaneous Provisions Section 26.01. Notices. All notices under this Lease shall be in writing and shall be deemed given if delivered personally or by overnight courier or if sent by confirmed facsimile transmitted during the regular business hours of the recipient, or when mailed, postage prepaid, by registered or certified mail, return receipt requested, addressed to the parties at their addresses as set forth below (or at such other address as a party may from time to time designate by written notice given in accordance with this Section 26.01): TO TENANT: ICON Health and Fitness, Inc. 1000 Charleston Regional Parkway Charleston, South Carolina 29492 Attention: Ron Jones WITH A COPY TO: ICON Health and Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 Attention: Legal Department TO LANDLORD: International Center I, LLC c/o The Beach Co. 22 211 King Street, Suite 300 Charleston, South Carolina 29401 Attn: John C. Darby, President Telecopy No.: (843) 722-6449 WITH A COPY TO: The Beach Co. 211 King Street, Suite 300 Charleston, South Carolina 29401 Attn: Property Manager Telecopy No.: (843) 722-6449 WITH A COPY TO: M. Jeffrey Vinzani, Esquire Nexsen Pruet Jacobs Pollard & Robinson, LLP 200 Meeting Street, Suite 301 Charleston, South Carolina 29401 Telecopy No.: (843) 720-1777 If requested by Landlord in writing (which request shall specify an address to which notices shall be given) any such notice to Landlord shall also be given contemporaneously to a Mortgagee in the manner herein specified. Section 26.02. No Joint Venture. It is the intention of the parties hereto to create the relationship of Landlord and Tenant, and no other relationship whatsoever, and unless expressly otherwise provided herein, nothing herein shall be construed to make the parties hereto liable for any of the debts, liabilities or obligations of the other party. Nothing herein contained shall be deemed or construed as creating the relationship of principal and agent of a partnership or joint venture between Landlord and Tenant. Section 26.03. Governing Law. This Lease and the rights and obligations of the parties hereunder shall be construed and interpreted under the laws of the State of South Carolina. Section 26.04. Severability. If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. Section 26.05. No Waiver. Failure on the part of either party to complain of any action or non-action on the part of the other party, no matter how long the same may continue shall never be deemed to be a waiver by either party of any of its rights hereunder. No waiver at any time of any of the provisions hereof by either party shall be construed as a waiver of any of the 23 other provisions hereunder and a waiver at any time of any of the provisions hereof shall not be construed as a waiver at any subsequent time of the same provisions. Section 26.06. Counterparts. This Lease may be executed in several counterparts, each of which shall be deemed an original, and such counterparts shall constitute but one and the same instrument. Section 26.07. Captions and Headings. The Table of Contents and Article, Section and Exhibit headings are for convenience of reference only and in no way shall be used to construe or modify the provisions of this Lease. Section 26.08. Successors and Assigns. The terms, covenants and conditions hereof shall inure to the benefit of and shall be binding upon Landlord and Landlord's successors and assigns and the terms, covenants and conditions hereof shall inure to the benefit of and shall be binding upon Tenant and Tenant's permitted successors and assigns. Section 26.09. Cumulative Remedies. The specified remedies to which Landlord or Tenant may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which the party may be lawfully entitled in case of any breach or threatened breach by the other party of any provision of this Lease. The failure of a party to insist in any one or more cases upon the strict performance of any of the covenants of this Lease or to exercise any option in this Lease shall not be construed as a waiver or a relinquishment for the future of such covenant or option. A receipt by Landlord of the Rent or Additional Rent shall not be deemed a waiver of any other breach of any covenant of this Lease, and no waiver by either party of any provision of this Lease shall be deemed to have been made unless in writing and signed by such party. In addition to the other remedies provided in this Lease, either party shall be entitled to the restraint by injunction of the violation, or attempted or threatened violation, of any of the covenants, conditions or provisions of this Lease. Section 26.10. Limitation on Liability. Neither Landlord nor any of its directors, officers or beneficiaries, shall have (in such capacity) any personal liability in connection with the performance or failure of any of Landlord's covenants, conditions, or agreements under this Lease; and Tenant agrees to look solely to Landlord's income, insurance proceeds and interest in the Premises and in this Lease for the recovery of any damages sustained by reason of such performance or failure to perform. Section 26.11. Time is of the Essence. The parties agree that time is of the essence to this Lease. Section 26.12. No Modification. This writing is intended by the parties as a final expression of their agreement and as a complete and exclusive statement of the terms thereof, all negotiations, consideration and representations between the parties having been incorporated herein. No course of prior dealings between the parties or their officers, employees, agents or affiliates shall be relevant or admissible to supplement, explain or vary any of the terms of this Lease. Acceptance of, or acquiescence in, a course of performance rendered under this or any prior agreement between the parties or their affiliates shall not be relevant or admissible to 24 determine the meaning of any of the terms of this Lease. No representations, understandings or agreements have been made or relied upon in the making of this Lease other than those specifically set forth herein. This Lease can be modified only by a writing signed by the party against whom the modification is enforceable. Section 26.13. Representations, Warranties and Covenants. Tenant hereby represents, warrants and covenants that: Tenant is a duly constituted corporation qualified to do business in the State of South Carolina; all Tenant's franchises and corporate taxes have been paid to date, if applicable; all future forms, reports, fees and other documents necessary for Tenant to comply with applicable laws will be filed by Tenant when due; and the persons executing this Lease are duly authorized by the board of directors of such corporation to execute and deliver this Lease on behalf of Tenant. Landlord hereby represents, warrants and covenants that: Landlord is a duly constituted limited liability company qualified to do business in the State of South Carolina; all Landlord's franchises and corporate taxes have been paid to date, if applicable; all future forms, reports, fees and other documents necessary for Landlord to comply with applicable laws will be filed by Landlord when due; and the persons executing this Lease are duly authorized by the board of directors of such corporation to execute and deliver this Lease on behalf of Landlord. IN WITNESS WHEREOF, the parties hereto have duly executed this Lease under seal as of the day and year first above written. In the Presence of. Landlord: /s/ ILLEGIBLE INTERNATIONAL CENTER I, LLC - --------------------------- /s/ ILLEGIBLE By: Beach International Center I, LLC - --------------------------- Its Member By: The Beach Co., Its Manager By: /s/ ILLEGIBLE ------------------------------------- Name: [ILLEGIBLE] ------------------------------------ Title: Executive Vice President ----------------------------------- By: /s/ Dana R. Mager ------------------------------------- Name: Dana R. Mager ------------------------------------- Title: Secretary ---------------------------------- Tenant: /s/ ILLEGIBLE ICON HEALTH AND FITNESS, INC. - --------------------------- /s/ ILLEGIBLE By: /s/ Jace Jergensen - --------------------------- ---------------------------------------- Name: Jace Jergensen -------------------------------------- Title: Vice President/General Manager --------------------------------------- 25 TABLE OF CONTENTS
Page Article 1. The Demised Premises ............................................................................... 1 Section 1.01. Lease of Premises ............................................................................ 1 Article 2. Construction of Infrastructure and Building ........................................................ 1 Section 2.01. Infrastructure ............................................................................... 1 Section 2.02. Building ..................................................................................... 2 Section 2.03. Certain Costs and Expenses. .................................................................. 3 Section 2.04. Warranties ................................................................................... 3 Section 2.05. Completion ................................................................................... 3 Article 3. Term; Renewal, Rent; Holding Over; Net Lease ....................................................... 4 Section 3.01. Term ......................................................................................... 4 Section 3.02. Renewal ...................................................................................... 4 Section 3.03. Rent. ........................................................................................ 4 Section 3.04. Holding Over. ................................................................................ 5 Section 3.05. Net Lease .................................................................................... 6 Article 4. Taxes .............................................................................................. 6 Section 4.01. Payment of Taxes. ............................................................................ 6 Article 5. Use ................................................................................................ 7 Section 5.01. Permitted Use ................................................................................ 7 Article 6. Repair and Maintenance ............................................................................. 7 Section 6.01. Repair and Maintenance of Building by Tenant ................................................. 7 Section 6.02. Repair and Maintenance of Building by Landlord. .............................................. 7 Article 7. Alterations to Building, Mechanic's Liens .......................................................... 8 Section 7.01. Alterations to Building. ..................................................................... 8 Section 7.02. Mechanic's Liens ............................................................................. 9 Article 8. Subordination and Nondisturbance; Estoppel Certificates; Right of Tenant to Grant Security Interest; Title to Land; Waiver of Landlord's Lien ............................................................ 9 Section 8.01. Subordination and Nondisturbance. ............................................................ 9 Section 8.02. Estoppel Certificates ........................................................................ 10 Section 8.03. Right of Tenant to Grant Security Interest. .................................................. 10 Section 8.04. Title to Land ................................................................................ 10 Article 9. Compliance with Laws ............................................................................... 10 Section 9.01. Compliance with Laws and Governmental Regulations ............................................ 11 Article 10. Indemnification .................................................................................. 11
Section 10.01. Indemnification Obligation. ............................................................. 11 Article 11. Insurance .................................................................................... 12 Section 11.01. Tenant's Insurance. ..................................................................... 12 S ection 11.02. Policy Requirements. .................................................................... 13 Section 11.03. Waiver of Right of Recovery ............................................................. 13 Section 11.04. Tenant's Failure to Comply .............................................................. 13 Section 11.05. Landlord's Insurance Obligation ......................................................... 14 Article 12. Damage and Destruction ....................................................................... 14 Section 12.01. Damage and Destruction of Premises ...................................................... 14 Article 13. Condemnation ................................................................................. 14 Section 13.01. Taking .................................................................................. 14 Section 13.02. Awards .................................................................................. 15 Article 14. Signs ........................................................................................ 15 Section 14.01. Erection and Removal of Signs ........................................................... 15 Article 15. Quiet Enjoyment .............................................................................. 15 Section 15.01. Tenant's Right to Quiet Enjoyment ....................................................... 15 Article 16. Right of Entry ............................................................................... 15 Section 16.01. Right of Entry by Landlord .............................................................. 15 Article 17. Assignment and Subletting .................................................................... 15 Section 17.01. Assignment and Subletting by Tenant ..................................................... 16 Article 18. Default Provisions ........................................................................... 16 Section 18.01. Event of Default ........................................................................ 16 Section 18.02. Remedies ................................................................................ 17 Section 18.03. Landlord Default and Tenant Remedies .................................................... 18 Article 19. Environmental Provisions ..................................................................... 19 Section 19.01. Environmental Covenants and Agreements .................................................. 19 Section 19.02. Environmental Complaints ................................................................ 19 Section 19.03. Landlords Right ......................................................................... 19 Section 19.04. Environmental Representation & Warranty ................................................. 20 Article 20. Surrender of Premises ........................................................................ 20 Section 20.01. Surrender of Premises by Tenant ......................................................... 20 Article 21. Force Majeure ................................................................................ 20 Section 21.01. Definition of Force Majeure ............................................................. 20 Article 22. Commissions .................................................................................. 21 Section 22.01. Brokerage Commissions or Finder's Fees .................................................. 21 Article 23. Memorandum of Lease .......................................................................... 21
Section 23.01. Contents of Memorandum of Lease ......................................................... 21 Article 24. Landlord's Right to Perform Tenant's Covenants ............................................... 21 Section 24.01. Performance of Tenant's Covenants by Landlord. .......................................... 21 Article 25. Protective Covenants ......................................................................... 22 Section 25.01. Premises Subject to Protective Covenants ................................................ 22 Article 26. Miscellaneous Provisions ..................................................................... 22 Section 26.01. Notices ................................................................................. 22 Section 26.02. No Joint Venture ........................................................................ 23 Section 26.03. Governing Law ........................................................................... 23 Section 26.04. Severability ............................................................................ 23 Section 26.05. No Waiver ............................................................................... 23 Section 26.06. Counterparts ............................................................................ 24 Section 26.07. Captions and Headings ................................................................... 24 Section 26.08. Successors and Assigns .................................................................. 24 Section 26.09. Cumulative Remedies ..................................................................... 24 Section 26.10. Limitation on Liability ................................................................. 24 Section 26.11. Time is of the Essence .................................................................. 24 Section 26.12. No Modification ......................................................................... 24 Section 26.13. Representations, Warranties and Covenants ............................................... 25
Exhibit A Legal Description of the Premises Exhibit A-1 Site Plan Exhibit B Plans and Specifications Exhibit C Permitted Encumbrances EXHIBIT A Legal Description of the Premises All that lot piece, parcel or tract of land situate, lying and being in the City of Charleston, County of Berkeley, State of South Carolina, being shown and designated as "TRACT 1" on a plat entitled "SUBDIVISION PLAT OF 297.91 ACRES TO CREATE TRACT 1 & RESIDUAL CHARLESTON REGIONAL BUSINESS CENTER OWNED BY: CHARLESTON REGIONAL BUSINESS CENTER, LLC" dated June 24, 1999, and recorded September 1, 1999, in Plat Cabinet O, Page 107A in the Office of the Register of Deeds for Berkeley County, reference to which is craved for a more complete description. EXHIBIT A-1 [GRAPHIC OMITTED] EXHIBIT B-1 Office Detail Floor Plan 1 1. General Requirements - Permits - Move In - clean up - Dumpster. 2. Doors - 3'- 0" x 6' - 8" 3. Finishes - Drywall 5/8 on 25 Ga. Metal studs as shown 4. Ceiling - 2 x 4 Lay-In @ 9' - 0" 5. Carport - 26oz - Direct glue down - Offices; VCT in Restroom - Break Room & Computer Room. 6. Paint - Flat off white - through out - with exception of Semi-gloss in restrooms 7. HVAC (1) 5 ton split system 8. Electrical (23) outlet; (15) prismatic 2 x 4 light fixtures Warehouse Office Floor Plan 2 1. General Requirements - See #1 2. Doors 3' - 0" x 6' x 8" 3. Finishes - Partitions 5/8 drywall on 25 Ga. Metal studs - as shown 4. Ceiling - 2 x 4 Lay In @ 9' - 0" 5. VCT @ Traffic Office & Break Room. Seal expose Concrete @ UPS Office. 6. Paint - flat off white through out. 7. HVAC (1) 3 1/2 ton split system. 8. Electrical (12) outlets (7) Lay In 9. 2 x 4 prismatic light fixtures Warranty Return Floor Plan 3 1. General Requirements - See 91 2. Doors - 3' - 0" x 6' - 8" 3. Finishes - partition 5/8 drywall on 25 Ga. Metal studs - as shown. 4. Ceiling 2 x 4 Lay In @ 9' - 0" 5. VCT - Office & Rest Room 6. Paint - Flat off white in Office and semi-gloss in Rest Room 7. HVAC (1) 1 V2Ton Split System. 8. Electrical - (6) outlets (3) prismatic 2 x 4 Lay in Light Fixtures. Warehouse Toilet Plan 4 1. General Requirements - See #1 2. Doors - 3' - 0" x 6' - 8" 3. Finishes - partition 5/8" water resistance - drywall on 25 Ga. Metal studs - as shown. 4. Ceiling - 2 x 4 Lay In @ 9'- 0" 5. Flooring - VCT 6. Paint - Gloss - Off White 7. HVAC (1) 2 1/1 Ton Split System 8. Electrical (4) 2 x 4 Lay In Prismatic light fixtures EXHIBIT B-2 [GRAPHIC OMITTED] EXHIBIT B-3 [GRAPHIC OMITTED] EXHIBIT B-4 [GRAPHIC OMITTED] EXHIBIT B-5 [GRAPHIC OMITTED] EXHIBIT C (Permitted Encumbrances) 1. Taxes for the year 2000, a lien not yet due and payable, and all subsequent years. 2. Any lien, or right to a lien, for labor, services, or material heretofore or hereafter furnished. 3. Interests created by, or limitations on use imposed by, the Federal Coastal Zone Management Act or other federal law, or by SC Code, Chapter 39, Title 48, as amended, or any regulations promulgated pursuant to said state or federal laws. 4. Easement from Harry E Guggenheim to South Carolina Electric and Gas Company dated December 11, 1969, and recorded December 22, 1969, in Book C-92, Page 210 in the Office of the Clerk of Court for Berkeley County. 5. Declaration of Restrictive Covenants declared by Jack Primus Partners, L.P., a Delaware limited partnership, and Harper Partners, a New York partnership, dated April 12, 1996, and recorded April 15, 1996, in Book 840, Page 345 in the Office of the Register of Deeds for Berkeley County. 6. Declaration of Protective Covenants Conditions and Restrictions for Charleston Regional Business Center recorded December 31, 1998, in Book 1521, Page 47, as amended by First Amendment dated April 30, 1999, and recorded in Book 1624, Page 235 in the Office of the Register of Deeds for Berkeley County. 7. Declaration of Restrictive Covenants by Charleston Regional Business Center, LLC, dated November 19, 1998, and recorded in Book 1521, Page 42 in the Office of the Register of Deeds for Berkeley County. (Applies only to the area shown as "Wetlands Buffer" on the Plat.) 8. Easement from H.F. Guggenheim to South Carolina Power Company dated January 7, 1948, and recorded in Book 25, Page 338 in the Office of the Clerk of Court for Berkeley County. 9. Federal Fish and Wildlife Permit No. PRT 804465 dated October 24, 1995. 10. Title to that portion of the insured premises lying below the mean high water mark of abutting tidal waters. 11. Matters of survey subsequent to plat prepared by Thomas & Hutton Engineering Co. dated June 24, 1999, and recorded September 1, 1999, in Plat Cabinet O, Page 107A in the Office of the Register of Deeds for Berkeley County. 12. 15' of a 30' Drainage Easement and Wetlands Buffer as shown on plat prepared by Thomas & Hutton Engineering, Inc., dated June 24, 1999. 13. Mortgage from International Center 1, LLC, to Bank of America, N.A., dated September 9, 1999, and recorded September 23, 1999, in Book 1748, Page 127 in the Office of the Register of Deeds for Berkeley County. 14. Assignment of Contracts from International Center 1, LLC, to Bank of America, N.A., dated September 9, 1999, and recorded September 23, 1999, in Book 1748, Page 166 in the Office of the Register of Deeds for Berkeley County. 15. Assignment of Leases from International Center I, LLC, to Bank of America, N.A., dated September 9, 1999, and recorded September 23, 1999, in Book 1748, Page 158 in the Office of the Register of Deeds for Berkeley County. 16. Assignment of Rights Under Declaration from International Center I, LLC, to Bank of America, N.A., dated September 9, 1999, and recorded September 23, 1999, in Book 1748, Page 176 in the Office of the Register of Deeds for Berkeley County. 17. UCC-1 from International Center I, LLC, to Bank of America, N.A., filed on September 23, 1999, at No. 45-528 in the Office of the Register of Deeds for Berkeley County. 18. UCC-1 from International Center I, LLC, to Bank of America, N.A., filed at No. 990924-144315A in the Office of the Secretary of State for South Carolina. TENANT'S ESTOPPEL CERTIFICATE Bank of America, N.A. 200 Meeting Street, Suite 104 Charleston, South Carolina 29401 Attention: Loan Administration Section Real Estate Bank Location Code SC1300-01-03 Re: Lease ("Lease") dated March 30, 2000 between International Center, I, LLC ("Landlord") and ICON Health and Fitness, Inc. ("Tenant") Ladies and Gentlemen: The undersigned, as Tenant, hereby confirms the following: (1) That it is scheduled to accept possession of the premises demised pursuant to the terms of the Lease. (2) That the improvements and space required to be furnished according to the Lease have not been completed. (3) That the demised premises, including all improvements, appurtenances, common areas and parking as constructed, will satisfy the requirements of said Lease, but the demised premises are not open for the use by Tenant, its customers, employees and invitees. (4) The lease provides for a minimum annual rental of not less than $750,000.00 payable in monthly installments of $62,500.00 during the initial lease year. Tenant has no present knowledge of any off-sets or credits against rentals nor have rentals been prepaid except as provided by the Lease terms. (5) That Landlord has complied with all requirements of the Lease. (6) That said Lease is in full force and effect and that Tenant has no present knowledge of any default which presently exists or any condition which with passage of time or giving of notice would become a default under the terms of the Lease. (7) Rental payments under the Lease will commence on October 1, 2000 (the "Commencement Date"). (8) The term of the Lease begins on the Commencement Date and ends five (5) years and four (4) months thereafter, with Tenant having the option to renew said Lease for two (2) successive periods of five (5) years each. (9) That said Lease is the only Lease between the Landlord and undersigned affecting said premises and has not been assigned, modified, supplemented, amended, or changed in any way, except as follows: N/A. (10) That Tenant has no notice of a prior sale, transfer, assignment, hypothecation or pledge of said Lease or of the rents secured therein, except to Bank of America, N.A. (11) That as of the date hereof, Tenant is not the subject of any bankruptcy, reorganization, or insolvency proceeding. (12) Anything in the Lease to the contrary notwithstanding, Tenant agrees that it will not terminate the Lease or withhold any rents due thereunder because of Landlord's default in the performance thereof until Tenant has first given written notice to Landlord specifying the nature of any such default by the Landlord and allowing the Landlord the right to cure such default as provided under Section 18.02 of the Lease. (13) That Tenant is aware that Bank of America, N.A. has made a mortgage loan to Landlord, and that Landlord has assigned the Lease to Bank of America, N.A. as additional security. ICON HEALTH AND FITNESS, INC., a Delaware corporation By: /s/ Jace Jergernsen ------------------------------------- Name: Jace Jergensen ----------------------------------- Title: Vice President/General Manager ---------------------------------- SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT This SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this "Agreement") dated March 30, 2000 is made by and among ICON HEALTH AND FITNESS, INC., a Delaware corporation ("Tenant"), INTERNATIONAL CENTER I, LLC, a South Carolina limited liability company ("Landlord"), and BANK OF AMERICA, N.A., a national banking association ("Mortgagee"). WHEREAS, Mortgagee is the owner of a promissory note (herein, as it may have been or may be from time to time renewed, extended, amended, supplemented, or restated, called the "Note") dated September 9, 1999, executed by Landlord payable to the order of Mortgagee, in the principal face amount of $5,700,000.00, bearing interest and payable as therein provided, secured by, among other things, a Mortgage and Security Agreement (herein, as it may have been or may be from time to time renewed, extended, amended or supplemented, called the "Mortgage"), recorded or to be recorded in the land records of Berkeley County, South Carolina, covering, among other property, the land (the "Land") described in Exhibit A which is attached hereto and incorporated herein by reference, and the improvements ("Improvements") thereon (such Land and Improvements being herein together called the "Property"); WHEREAS, Tenant is the tenant under a lease from Landlord dated March 30, 2000 (herein, as it may from time to time be renewed, extended, amended or supplemented, called the "Lease"), covering a portion of the Property (said portion being herein referred to as the "Premises"); and WHEREAS, the term "Landlord" as used herein means the present landlord under the Lease or, if the landlord's interest is transferred in any manner, the successor(s) or assign(s) occupying the position of landlord under the Lease at the time in question. NOW, THEREFORE, in consideration of the mutual agreements herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Subordination. Tenant agrees and covenants that the Lease and the rights of Tenant thereunder, all of Tenant's right, title and interest in and to the property covered by the Lease, and any lease thereafter executed by Tenant covering any part of the Property, are and shall be subject, subordinate and inferior to (a) the Mortgage and the rights of Mortgagee thereunder, and all right, title and interest of Mortgagee in the Property, and (b) all other security documents now or hereafter securing payment of any indebtedness of the Landlord (or any prior landlord) to Mortgagee which cover or affect the Property (the "Security Documents"). This Agreement is not intended and shall not be construed to subordinate the Lease to any mortgage, deed of trust or other security document other than those referred to in the preceding sentence, securing the indebtedness to Mortgagee. 2. Non-Disturbance. Mortgagee agrees that so long as the Lease is in full force and effect and Tenant is not in default in the payment of rent, additional rent or other payments or in the performance of any of the other terms, covenants or conditions of the Lease on Tenant's part to be performed (beyond the period, if any, specified in the Lease within which Tenant may cure such default). (a) Tenant's possession of the Premises under the Lease shall not be disturbed or interfered with by Mortgagee in the exercise of any of its rights under the Mortgage, including any foreclosure or conveyance in lieu of foreclosure; and (b) Mortgagee will not join Tenant as a party defendant for the purpose of terminating Tenant's interest and estate under the Lease in any proceeding for foreclosure of the Mortgage. 3. Attornment. (a) Tenant covenants and agrees that in the event of foreclosure of the Mortgage, whether by power of sale or by court action, or upon a transfer of the Property by conveyance in lieu of foreclosure (the purchaser at foreclosure or the transferee in lieu of foreclosure, including Mortgagee if it is such purchaser or transferee, being herein called "New Owner"), Tenant shall attorn to the New Owner as Tenant's new landlord, and agrees that the Lease shall continue in full force and effect as a direct lease between Tenant and New Owner upon all of the terms, covenants, conditions and agreements set forth in the Lease and this Agreement, except for provisions which are impossible for New Owner to perform; provided, however, that in no event shall the New Owner be: (i) liable for any act, omission, default, misrepresentation, or breach of warranty, of any previous landlord (including Landlord) or obligations accruing prior to New Owner's actual ownership of the Property; (ii) subject to any offset, defense, claim or counterclaim which Tenant might be entitled to assert against any previous landlord (including Landlord); (iii) bound by any payment of rent, additional rent or other payments, made by Tenant to any previous landlord (including Landlord) for more than one (1) month in advance; (iv) bound by any amendment, or modification of the Lease hereafter made, or consent, or acquiescence by any previous landlord (including Landlord) under the Lease to any assignment or sublease hereafter granted, without the written consent of Mortgagee; or (v) liable for any deposit that Tenant may have given to any previous landlord (including Landlord) which has not, as such, been transferred to New Owner. (b) The provisions of this Agreement regarding attornment by Tenant shall be self-operative and effective without the necessity of execution of any new lease or other document on the part of any party hereto or the respective heirs, legal representatives, successors or assigns of any such party. Tenant agrees, however, to execute and deliver upon the request of New Owner, any instrument or certificate which in the reasonable judgment of New Owner may be necessary or appropriate to evidence such attornment, including a new lease of the Premises on the same terms and conditions as the Lease for the unexpired term of the Lease. 4. Estoppel Certificate. Tenant agrees to execute and deliver from time to time, upon the request of Landlord or of any holder(s) of any of the indebtedness or obligations secured by the Mortgage, a certificate regarding the status of the Lease, consisting of statements, if true (or if not, specifying why not), (a) that the Lease is in full force and effect, (b) the date through which rentals have been paid, (c) the date of the commencement of the term of the Lease, (d) the nature of any amendments or modifications of the Lease, (e) to the best of Tenant's knowledge no default, or state of facts which with the passage of time or notice (or both) would constitute a default, exists under the Lease, (f) to the best of Tenant's knowledge, no setoffs, recoupments, estoppels, claims or counterclaims exist against Landlord, and (g) such other matters as may be reasonably requested. 5. Acknowledgment and Agreed by Tenant. Tenant acknowledges and agrees as follows: (a) Tenant acknowledges that Landlord will execute and deliver to Mortgagee in connection with the financing of the Property that certain Assignment of Leases dated September 9, 1999. Tenant hereby expressly consents to such assignment and agrees that such assignment shall, in all respects, be superior to any interest Tenant has in the Lease of the Property, subject to the provisions of this Agreement. Tenant will not amend, alter or waive any provision of, or consent to the amendment, alteration or waiver of any provision of the Lease without the prior written consent of Mortgagee. Tenant shall not prepay any rents or other sums due under the lease for more than one (1) month in advance of the due date therefor. Tenant acknowledges that Mortgagee will rely upon this instrument in connection with such financing. (b) Mortgagee, in making any disbursements to Landlord, is under no obligation or duty to oversee or direct the application of the proceeds of such disbursements, and such proceeds may be used by Landlord for purposes other than improvement of the Property. (c) From and after the date hereof, in the event of any act or omission by Landlord which would give Tenant the right, either immediately or after the lapse of time, to terminate the Lease or to claim a partial or total eviction, Tenant will not exercise any such right (i) until it has given written notice of such act or omission to the Mortgagee; and (ii) until the same period of time as is given to Landlord under the Lease to cure such act or omission shall have elapsed following such giving of notice to Mortgagee and following the time when Mortgagee shall have become entitled under the Mortgage to remedy the same, but in any event 30 days after receipt of such notice or such longer period of time as may be necessary to cure or remedy such default, act, or omission including such period of time necessary to obtain possession of the Property and thereafter cure such default, act, or omission, during which period of time Mortgagee shall be permitted to cure or remedy such default, act or omission; provided, however, that Mortgagee shall have no duty or obligation to cure or remedy any breach or default. It is specifically agreed that Tenant shall not, as to Mortgagee, require cure of any such default which is personal to Landlord, and therefore not susceptible to cure by Mortgagee. (d) In the event that Mortgagee notifies Tenant of a default under the Mortgage, Note, or Security Documents and demands that Tenant pay its rent and all other sums due under the Lease directly to Mortgagee, Tenant shall honor such demand and pay the full amount of its rent and all other sums due under the Lease directly to Mortgagee, without offset, or as otherwise required pursuant to such notice beginning with the payment next due after such notice of default, without inquiry as to whether a default actually exists under the Mortgage, Security Documents or otherwise in connection with the Note, and notwithstanding any contrary instructions of or demands from Landlord. (e) Tenant shall send a copy of any notice or statement under the Lease to Mortgagee at the same time such notice or statement is sent to Landlord if such notice or statement has a material impact on the economic terms operating covenants or duration of the Lease. (f) Tenant has no right or option of any nature whatsoever, whether pursuant to the Lease or otherwise, to purchase the Premises or the Property, or any portion thereof or any interest therein, and to the extent that Tenant has had, or hereafter acquires, any such right or option, same is hereby acknowledged to be subject and subordinate to the Mortgage and is hereby waived and released as against Mortgagee and New Owner. (g) This Agreement satisfies any condition or requirement in the Lease relating to the granting of a non-disturbance agreement and Tenant waives any requirement to the contrary in the Lease. (h) Mortgagee and any New Owner shall have no liability to Tenant or any other party for any conflict between the provisions of the Lease and the provisions of any other lease affecting the Property, including, but not limited to, any provisions relating to exclusive or non-conforming uses or rights, renewal options and options to expand, and in the event of such a conflict, Tenant shall have no right to cancel the Lease or take any other remedial action against Mortgagee or New Owner, or against any other party for which Mortgagee or any New Owner would be liable. (i) Mortgagee and any New Owner shall have no obligation nor incur any liability with respect to the erection or completion of the improvements in which the Premises are located or for completion of the Premises or any improvements for Tenant's use and occupancy, either at the commencement of the term of the Lease or upon any renewal or extension thereof or upon the addition of additional space, pursuant to any expansion rights contained in the Lease. (j) Mortgagee and any New Owner shall have no obligation nor incur any liability with respect to any warranties of any nature whatsoever, whether pursuant to the Lease or otherwise, including, without limitation, any warranties respecting use, compliance with zoning, Landlord's title, Landlord's authority, habitability, fitness for purpose or possession. (k) In the event that Mortgagee or any New Owner shall acquire title to the Premises or the Property, Mortgagee or such New Owner shall have no obligation, nor incur any liability, beyond Mortgagee's or New Owner's then equity interest, if any, in the Property or the Premises, and Tenant shall look exclusively to such equity interest of Mortgagee or New Owner, if any, for the payment and discharge of any obligations imposed upon Mortgagee or New Owner hereunder or under the Lease or for recovery of any judgment from Mortgagee, or New Owner, and in no event shall Mortgagee, New Owner, nor any of their respective officers, directors, shareholders, agents, representatives, servants, employees or partners ever be personally liable for such judgment. (l) Tenant has never permitted, and will not permit, the generation, treatment, storage or disposal of any hazardous substance as defined under federal, state, or local law, on the Premises or Property except for such substances of a type and only in a quantity normally used in connection with the occupancy or operation of buildings (such as non-flammable cleaning fluids and supplies normally used in the day to day operation of first class establishments similar to the Improvements), which substances are being held, stored, and used in strict compliance with federal, state, and local laws. Tenant shall be solely responsible for and shall reimburse and indemnify Landlord, New Owner or Mortgagee, as applicable, for any loss, liability, claim or expense, including without limitation, cleanup and all other expenses, including, without limitation, legal fees that Landlord, New Owner or Mortgagee, as applicable, may incur by reason of Tenant's violation of the requirements of this Paragraph 5(l). 6. Acknowledgment and Agreement by Landlord. Landlord, as landlord under the Lease and grantor under the Mortgage, acknowledges and agrees for itself and its heirs, representatives, successors and assigns, that: (a) this Agreement does not constitute a waiver by Mortgagee of any of its rights under the Mortgage, Note, or Security Documents, or in any way release Landlord from its obligations to comply with the terms, provisions, conditions, covenants, agreements and clauses of the Mortgage, Note, or Security Documents; (b) the provisions of the Mortgage, Note, or Security Documents remain in full force and effect and must be complied with by Landlord, and (c) Tenant is hereby authorized to pay its rent and all other sums due under the Lease directly to Mortgagee upon receipt of a notice as set forth in paragraph 5(d) above from Mortgagee and that Tenant is not obligated to inquire as to whether a default actually exists under the Mortgage, Security Documents or otherwise in connection with the Note. Landlord hereby releases and discharges Tenant of any from any liability to Landlord resulting from Tenant's payment to Mortgagee in accordance with this Agreement. Landlord represents and warrants to Mortgagee that a true and complete copy of the Lease has been delivered by Landlord to Mortgagee. 7. Lease Status. Landlord and Tenant certify to Mortgagee that neither Landlord nor Tenant has knowledge of any default on the part of the other under the Lease, that the Lease is bona fide and contains all of the agreements of the parties thereto with respect to the letting of the Premises and that all of the agreements and provisions therein contained are in full force and effect. 8. Notices. All notices, requests, consents, demands and other communications required or which any party desires to give hereunder shall be in writing and shall be deemed sufficiently given or furnished if delivered by personal delivery, by telegram, telex, or facsimile, by expedited delivery service with proof of delivery, or by registered or certified United States mail, postage prepaid, at the addresses specified at the end of this Agreement (unless changed by similar notice in writing given by the particular party whose address is to be changed). Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of delivery service or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of telegram, telex or facsimile, upon receipt. Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt. This Paragraph 8 shall not be construed in any way to affect or impair any waiver of notice or demand provided in this Agreement or in the Lease or in any document evidencing, securing or pertaining to the loan evidenced by the Note or to require giving of notice or demand to or upon any person in any situation or for any reason. 9. Miscellaneous. (a) This Agreement supersedes any inconsistent provision of the Lease. (b) Nothing contained in this Agreement shall be construed to derogate from or in any way impair, or affect the lien, security interest or provisions of the Mortgage, Note, or Security Documents. (c) This Agreement shall inure to the benefit of the parties hereto, their respective successors and permitted assigns, and any New Owner, and its heirs, personal representatives, successors and assigns; provided, however, that in the event of the assignment or transfer of the interest of Mortgagee, all obligations and liabilities of the assigning Mortgagee under this Agreement shall terminate, and thereupon all such obligations and liabilities shall be the responsibility of the party to whom Mortgagee's interest is assigned or transferred; and provided further that the interest of Tenant under this Agreement may not be assigned or transferred without the prior written consent of Mortgagee. (d) THIS AGREEMENT AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION SHALL BE GOVERNED BY THE LAWS OF THE STATE OF SOUTH CAROLINA AND APPLICABLE UNITED STATES FEDERAL LAW EXCEPT ONLY TO THE EXTENT, IF ANY, THAT THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED NECESSARILY CONTROL. (e) The words "herein", "hereof", "hereunder" and other similar compounds of the word "here" as used in this Agreement refer to this entire Agreement and not to any particular section or provision. (f) This Agreement may not be modified orally or in any manner other than by an agreement in writing signed by the parties hereto or their respective successors in interest. (g) If any provision of the Agreement shall be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not apply to or affect any other provision hereof, but this Agreement shall be construed as if such invalidity, illegibility, or unenforceability did not exist. [SIGNATURES APPEAR ON THE FOLLOWING THREE (3) PAGES] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and sealed as of the date first above written. WITNESS: MORTGAGEE: BANK OF AMERICA, N.A., a (SEAL) national banking association /s/ ILLEGIBLE By: /s/ Sue T. Mahood - --------------------------- --------------------------------- Name: Sue Mahood ------------------------------- /s/ ILLEGIBLE Title: Vice President - --------------------------- ------------------------------ ADDRESS OF MORTGAGEE: Bank of America, N.A. 200 Meeting Street, Suite 104 Charleston, South Carolina 29401 Attention: Loan Administration Section Real Estate Bank Location Code SC1300-01-03 WITNESS: TENANT: ICON HEALTH AND FITNESS, INC., a Delaware corporation (SEAL) /s/ ILLEGIBLE By: /s/ Jace Jergensen - ----------------------------------- ---------------------------------- Name: Jace Jergensen --------------------------------- /s/ ILLEGIBLE Title: Vice President/General Manager - ----------------------------------- -------------------------------- ADDRESS OF TENANT: ICON Health and Fitness, Inc. - ----------------------------------- 100 Charleston Regional Parkway - ----------------------------------- Charleston, South Carolina 29492 - ----------------------------------- Attn: Ron Jones - ----------------------------------- WITNESS: LANDLORD: INTERNATIONAL CENTER 1, LLC, a South Carolina limited liability company (SEAL) By: Beach International Center 1, LLC, its Member By: The Beach Co., its Manager /s/ ILLEGIBLE By: /s/ ILLEGIBLE - ----------------------------------- ------------------------------------ Name: [ILLEGIBLE] ---------------------------------- /s/ ILLEGIBLE Title: Executive Vice President - ----------------------------------- --------------------------------- ADDRESS OF LANDLORD: International Center 1, LLC By: /s/ Dana R. Mager ------------------------------------ c/o The Beach Co. Name: Dana R. Mager ---------------------------------- 211 King Street, Suite 300 Title: Secretary --------------------------------- Charleston, SC 29401 Attn: John C. Darby, President
STATE OF SOUTH CAROLINA ) ) ACKNOWLEDGMENT COUNTYOF CHARLESTON ) The foregoing instrument was acknowledged before me this 20 day of April, 00 by Bank of America, N.A., a national banking association, by Sue Mahood, its V.P. /s/ ILLEGIBLE (SEAL) - ----------------------------- NOTARY PUBLIC FOR SOUTH CAROLINA My Commission expires: 9/23/06 ---------- STATE OF TEXAS ) ) ACKNOWLEDGMENT COUNTYOF DALLAS ) The foregoing instrument was acknowledged before me this 4 day of April, 00 by ICON HEALTH AND FITNESS, INC., a Delaware corporation, by Jace Jergensen, its V.P. Gen. Manager. /s/ ILLEGIBLE (SEAL) - ----------------------------- NOTARY PUBLIC FOR TEXAS My Commission expires: 10/26/2000 ---------- STATE OF SOUTH CAROLINA ) ) ACKNOWLEDGMENT COUNTYOF CHARLESTON ) The foregoing instrument was acknowledged before me this 30 day of March, 2000 by INTERNATIONAL CENTER 1, LLC, a South Carolina limited liability company, by Beach International Center I, LLC, its Member, by The Beach Co., its Manager, by /s/ ILLEGIBLE, its Executive Vice President and Dana R. Mager, its Secretary. /s/ ILLEGIBLE (SEAL) - ----------------------------------- NOTARY PUBLIC FOR SOUTH CAROLINA My Commission expires: Feb. 1, 2005 ------------ EX-10.6 9 dex106.txt EXHIBIT 10.6 - LEASE DTD 03/01/97 Exhibit 10.6 AEROTERM A,B,C Mirabel THIS AGREEMENT OF LEASE made as of the 1st day of March, 1997. BETWEEN: AEROTERM DE MONTREAL, INC., a company incorporated under the laws of Canada, (hereinafter called the "Lessor"), OF THE FIRST PART AND: ICON OF CANADA INC., a company incorporated under the laws of Quebec, (hereinafter called the "Lessee"), OF THE SECOND PART ARTICLE I RECITALS WHEREAS the Lessor has obtained a lease from Aeroports do Montreal (hereinafter referred to as the "Head Lease") with respect to a certain parcel of land (the "Land") situated in the Montreal International Airport (Mirabel) at Mirabel, Province of Quebec. Canada; WHEREAS the Lessor has acquired buildings and improvements situated on the Land comprising approximately 642,000 square feet and containing approximately 500,000 square feet of net rentable floor space, known as buildings "A", "B", and "C" (together defined as the "Building") (hereinafter the said Land and Building collectively referred to as the "Property") designed for the use of air cargo operations and related activities and services shown on Schedule "A"; THE PARTIES HAVE AGREED AS FOLLOWS: 2 ARTICLE 2 LEASE & PREMISES 2.1 The Lessee shall lease a portion of the building known as Building "A" containing a rentable area (the Rentable Area as hereinafter defined in Article 4.6) of approximately two hundred and three thousand (203,000) square feet of warehouse space as outlined in red and including approximately three thousand (3,500) square feet of office space on two levels as outlined in blue ("Premises") the whole as shown on Schedule "B" attached hereto; The Premises shall be delivered in phases. Beginning March 1, 1997, Lessee shall lease a minimum of forty six thousand (46,000) square feet (outlined in green) and shall lease spaces becoming vacant between March 1, 1997 and July 1, 1997, after notice of availability ("Notice") of space from Lessor. If Lessee does not want to take over the vacant spaces immediately Lessee shall notify Lessor in writing within three (3) working days of the date of Notice of availability of space from Lessor. If Lessee does not respond to the Notice within three working days, the space will be considered to be leased to Lessee seven working days after Notice. The entire Premises will be available to Lessee no later than July 7, 1997. 2.2 The Lessor hereby leases the Premises as is to the Lessee together with the use in common with others of all common areas on the Building. ARTICLE 3 TERM 3.1 The present lease is granted for a term (hereinafter called the "Term") of three (3) years and four (4) months commencing on the 1st day of March, 1997 and ending on the last day of June, 2000. 3.2 The present Lease shall terminate ipso facto and without notice or demand on the date stated in Article 3.1 of this Lease and any continued occupation of the Premises by Lessee shall not have the effect of extending the period or of renewing the present Lease for any period of time, the whole notwithstanding any provisions of law and Lessee shall be presumed to occupy the Premises against the will of Lessor who shall thereupon be entitled to make use of any and all remedies by law providing for the expulsion of Lessee and for damages, provided, however, that Lessor shall have the right at its option in the event of such continued occupation by Lessee to give to Lessee at any time a written notice that Lessee may continue to occupy the Premises under a tenancy from month to month in consideration of a minimum rent equal to that provided in Article 4 Initials: ______/______/__________ Lessor/Lessee/Indemnifer 3 hereof plus one hundred percent (100%) thereof, payable monthly and in advance and otherwise under the same terms and conditions as are herein set forth. ARTICLE 4 RENT 4.1 Any amount and any obligation as is not expressly declared herein to be that of Lessor shall be deemed to be the obligation of Lessee to be performed by and at the expense of Lessee. 4.2 The Lessee shall pay to Lessor the following annual rent plus applicable sales taxes, throughout the term of the Lease, payable in lawful money of Canada, in advance in equal, consecutive, monthly installments on the first (1st) day of each calendar month: 4.2.1 Minimum Rent An amount of three dollars and sixty cents ($3.60) per square foot of Rentable Area per annum for the period commencing on March 1, 1997 through June 30, 1999. Between March 1, 1997 and June 30, 1997, the monthly rent shall be adjusted to reflect the space leased by the Lessee with a minimum of thirteen thousand eight hundred dollars ($13,800.00). Rent shall be charged for the new spaces being leased seven (7) days after Notice of availability from Lessor. Beginning July 1, 1997, the monthly Rent shall be sixty thousand nine hundred dollars (60,900.00) through June 30, 1999. Between July 1, 1999 and June 30, 2000 the minimum rent shall be three dollars and seventy one cents ($3.71) per square foot of Rentable Area per annum paid in equal monthly installments of sixty two thousand seven hundred and sixty dollars and eighty three cents ($62,760.83). 4.2.1A Rental Credit For the month of March, 1997, Lessee shall receive a rental credit equivalent to the monthly rent for the forty six thousand (46,000) square feet to a maximum of thirteen thousand eight hundred dollars ($13,800.00). For the month of July, 1997, Lessee shall receive a rental credit equivalent to the monthly rent for one hundred fifty seven thousand (157,000) square feet, to a maximum of forty seven thousand one hundred dollars ($47,100.00). 4.2.2 Additional Rent Initials: ______/______/__________ Lessor/Lessee/Indemnifer 4 The Lessee's Proportionate Share of the Operating and Maintenance Costs (as these terms are hereinafter defined, calculated and adjusted) are included in the Minimum Rent. 4.3 Should the Term of the Lease take effect on any day other than the first day of a month shall be the monthly rent multiplied by the days in the month in which the Lessee is in occupancy and divided by the number of days in the month. This amount is due and payable on the first day of the Term of the Lease. 4.4 The term "Operating and Maintenance Costs" shall include the cost of: 4.4.1 The Basic Land Rent and Aerial right, the Airport Maintenance Charge for the Land and the Airport Maintenance Charge for Aerial Right imposed to Lessor pursuant to the terms of the Head Lease; 4.4.2 all real estate, municipal and school taxes imposed on the Property, including the Municipal Surtax, together with any capital taxes of the Lessor which the Lessor may reasonably attribute to the Property; 4.4.3 the cost of exterior ground maintenance, including snow removal; 4.4.4 insurance premiums on policies obtained by the Lessor in regard to the Property and the revenues derived therefrom; 4.4.5 the cost of preventative maintenance only on the heating and HVAC units in the Premises. 4.4.6 the cost of water, electricity and natural gas for lighting and heating the Premises and air conditioning and ventilating the offices. 4.5 Should the Lessee install any Lessee Improvements or operate or maintain offices within the warehouse space of the Premises, then the Lessor reserves the right to charge to the Lessee any additional expenses incurred in the operation and maintenance of the Property as a result of such improvements or use. The normal occupation and utilization of the offices defined in Article 2.1 and the use (as defined in Article 12.1) of the warehouse space require no such in extra charges. 4.6 The term "Proportionate Share" shall mean that faction of the Operating and Maintenance Costs of which the numerator is the number of square rentable feet of the Premises and the denominator is the number of Net Rentable Area of the Building. "Rentable Area", in relation to the Premises, means the area of the Premises calculated in the case of floor space situate in the warehouse areas, from Initials: ______/______/__________ Lessor/Lessee/Indemnifer 5 the exterior face of exterior walls and from the centre line of all partitions dividing the Premises from adjoining premises; and in the case of floor space situate in the office areas, from the centre line of exterior walls and of all partitions dividing the Premises from adjoining premises, and from the corridor face of partitions dividing rentable premises from corridors; provided that if any portion of exterior walls is recessed from the overall exterior line of the Building, the last mentioned line shall be deemed to be the line of the exterior face of the exterior wall; and provided further that there shall be no deduction made for any column, duct, pipe, facility, installation or other recess or obstructions (whether of a similar or dissimilar kind) within or intruding within the aforesaid perimeter of such space; and provided further that the certificate of the Lessor's Architect or Professional Engineer as to calculation of that space to which the term is applied shall be conclusive; ARTICLE 5 OBLIGATIONS OF THE LESSEE The Lessee hereby agrees to promptly fulfill the following obligations: 5.1 Lessee shall pay the rent and all other sums provided for herein without demand, set-off, compensation or deduction whatsoever. 5.2 Lessee will be responsible for waste removal. 5.3 Lessee shall maintain the Premises as a careful owner would and shall be responsible for and pay the cost of all repairs of every nature and kind to the Premises arising out of the occupation and usage of Lessee, other than repairs which would constitute a major structural repairs to the Building unless due to the gross negligence of Lessee. The Lessor may enter and view the state of maintenance and repair of the Premises. Should Lessor deem it necessary to undertake any repairs or to do anything which is required to be undertaken or done by Lessee under the Lease, then the Lessee shall pay to Lessor as a fee for supervision or carrying out of Lessee's obligations, an amount as additional rent equal to fifteen percent (15%) of the cost of the obligation, repairs, work, carried out by or under supervision of Lessor, which amount shall be in addition to the cost of such obligation or work and shall be collectible by Lessor as if it were rentals in arrears. 5.4 Lessee shall pay all business and other taxes (including taxes related to or resulting from improvements made by the Lessee), charges, rates, duties Initials: ______/______/__________ Lessor/Lessee/Indemnifer 6 and assessments levied in respect of the Lessee's maintenance and occupancy of the Premises or in respect of the personal property or business of the Lessee on the Premises as and when the same become due. Nevertheless, the Lessee may appeal such taxes, charges, rates, duties and assessments to the proper authorities. ARTICLE 6 DEFAULT BY LESSEE 6.1 In addition to any other right or remedy available to it, the Lessor shall have the same rights and remedies in respect of default of any payment of any amount to be paid by the Lessee to the Lessor under the terms of this Lease as the Lessor would have in the case or default in payment of rent, notwithstanding that such payment may not be described as a payment of rent. 6.2 Each of the following events (hereinafter called an "Event of Default") shall be a default hereunder by Lessee and a breach of this Lease: 6.2.1 if Lessee shall violate any covenant or agreement providing for the payment of rent, including Minimum Rent or Additional Rent; 6.2.2 if Lessee shall assign, transfer, encumber, sublet or permit the use of the Premises by others except in a manner herein permitted; 6.2.3 if Lessee becomes insolvent or shall be adjudicated a bankrupt or make a general assignment for the benefit of creditors or take or attempt to take the benefit of any insolvency or bankruptcy legislation, or if any order shall be made for the winding-up of Lessee or other termination of the corporate existence of Lessee; 6.2.4 if a receiver or trustee shall be appointed for the property of Lessee or any part thereof; 6.2.5 if any execution be issued pursuant to a judgment rendered against Lessee; 6.2.6 save where otherwise permitted hereunder if any person other than Lessee has or exercises the right to manage or control the Premises, any part thereof, or any of the business carried on therein other than subject to the direct and full supervision and control of Lessee; Initials: ______/______/__________ Lessor/Lessee/Indemnifer 7 6.2.7 if Lessee shall be in default in fulfilling any of the other covenants and condition of this Lease and such default shall continue for 15 days after written notice thereof from Lessor to Lessee. 6.3 During the continuance of any such Event of Default, Lessor may, at its option, terminate this Lease by giving to Lessee a written notice of its intention, and the term hereof shall expire at noon upon the fifteenth day following the date upon which such notice is given as fully and completely as if that day were the date fixed for the expiration of the term without the necessity of further notice or legal process whatsoever provided always, however, that Lessee shall remain liable to pay all amounts and damages then due or to become due, including the liquidated damages as hereinafter provided. Lessee upon such a termination of this Lease shall thereupon quit and surrender the Premises to Lessor or if not yet in possession shall no longer have any right to possession of the Premises. Lessor, its agent and servants, may immediately, or at any time thereafter, re-enter the Premises and dispossess Lessee, and remove any and all persons and any or all property therefrom, either by summary dispossession proceedings or by any suitable action or proceeding at law, or by force or otherwise, without being liable to prosecution or damages therefor. In any such Event of Default, save in Event of Default 6.2.3, 6.2.4 and 6.2.6 hereof, the Lessee shall be entitled to remedy the Event of Default after the Lessor has given its termination notice, provided that it remedies the Event of Default within the fifteen day period set forth in the preceding paragraph. Lessee specifically acknowledges that without prejudice to any other right or remedy, Lessor may, after the giving of the notice herein above referred to, cease to furnish any services hereunder and without limiting the foregoing may terminate or interrupt electrical service to the Premises. 6.4 In any of the foregoing cases Lessee shall pay any and all monies payable under this Lease up to an including the day of such termination or re-entry whichever shall be the later. In addition there shall immediately become due an payable in one lump sum as liquidated damages and not a penalty the aggregate rental for a period of eight (8) months being the estimated time required for re-leasing the Premises or, if less than eight (8) months remain of the term hereof, the aggregate of rental for the unexpired portion of the term. Initials: ______/______/__________ Lessor/Lessee/Indemnifer 8 6.5 The exercise by Lessor of any right it may have hereunder or by law shall not preclude the exercise by Lessor of any other right it may have hereunder or by law. 6.6 Lessee shall pay interest compounded monthly on all rents and or amounts collectible as rent under the terms of this Lease not paid when due at a rate per annum of five (5) percentage points above the prime lending rate at the principal branch of Lessor's bank on the due dates of such rents or amounts. ARTICLE 7 INTENTIONALLY DELETED ARTICLE 8 DAMAGE OR DESTRUCTION OF PREMISES 8.1 In the event that the Premises or the Building shall be destroyed or damaged by fire or other casualty, then: 8.1.1 irrespective of whether the Premises or access thereto are affected if the Property or any part or parts thereof shall at any time during the Term or any renewal thereof be so badly damaged or destroyed by reason of any cause that in the opinion of the Lessor's architect (to be given within thirty (30) days from said damage or destruction) the Building cannot be repaired or rebuilt within one hundred and eighty (180) days from the date on which construction can be commenced, then this Lease may be terminated and ended by the Lessor or Lessee by notice in writing to the other party mailed within thirty (30) days after the giving of the opinion of the Lessor's architect as aforesaid; provided, however, that, in the event of notice of termination given by the Lessor or the Lessee pursuant to this clause, the Lessee shall deliver up possession of the Premises sixty (60) days after the notice of termination and the rent and any other payments for which the Lessee is liable under this Lease shall be apportioned and paid to the date of such termination and provided further that, if the Premises or access thereto shall also have been damaged to the extent of rendering the same useless for the purpose for which they were leased, then rent and any other payments for which the Lessee is liable under this Lease shall be apportioned to the date of such damage or destruction. Initials: ______/______/__________ Lessor/Lessee/Indemnifer 9 8.1.2 if the Premises or access thereto shall, at any time during the Term hereby created or any renewal thereof, be so badly damaged or destroyed by reason of any cause that, in the opinion of the Lessor's architect (to be given within thirty (30) days from said damage or destruction) cannot be repaired or rebuilt within one hundred and eighty (180) days from the date on which construction can be commenced, then this lease may be determined and ended by either party by a notice in writing to the other mailed within thirty (30) days after the giving of the opinion of the Lessor's architect as aforesaid; provided, however, that, in the event notice of termination is given pursuant to this clause, the rent and any other payments for which the Lessee is liable under this Lease shall be apportioned and paid to the date of such damage or destruction and the Lessee shall deliver up possession of the Premises to the Lessor sixty (60) days after the notice of termination. 8.1.3 if damage or destruction is, in the opinion of the Lessor's architect (to be given within thirty (30) days from said damage or destruction) capable of being repaired or rebuilt within one hundred and eighty (180) days from the date on which construction can be commenced, then the Lessor shall commence such repair and rebuilding as soon as practicable and proceed with reasonable promptness to complete the said repair and rebuilding. Notwithstanding anything to the contrary, it is understood that if damage or destruction is not insurable under fire and all risks coverage, then Lessor shall have the option, at its sole discretion, to commence such repair and rebuilding as soon as practicable and proceed with reasonable promptness to complete the said repair and rebuilding or to terminate and end this Lease by a notice in writing to the Lessee mailed within thirty (30) days after the giving of the opinion of the Lessor's architect as aforesaid; provided, however, that , in the event notice of termination is given pursuant to this clause, the rent and any other payments for which the Lessee is liable under this Lease shall be apportioned and paid to the date of such damage or destruction and the Lessee shall deliver up possession of the Premises to the lessor sixty (60) days after the notice of termination. 8.1.4 if the Premises or access thereto shall at any time during the Term or any renewal thereof be damaged or destroyed as to render the Premises or access thereto wholly or partially unfit for occupancy, the rent and any other payments for which the Lessee is liable Initials: ______/______/__________ Lessor/Lessee/Indemnifer 10 under this Lease or a proportion thereof, according to the nature and extent of the damage or destruction, shall abate until the Premises shall have been rebuilt or made fit for the purposes of the Lessee. 8.2 If any damage or destruction by fire or other cause to the Building or Premises, whether partial or not, is due to the fault or neglect of Lessee, its officers, agents, employees, servants, visitors or licensees, without prejudice to any other rights and remedies of Lessor: 8.2.1 Lessee shall be liable for all costs and damages; 8.2.2 the damages may be repaired by Lessor at Lessee's expense; 8.2.3 Lessee shall forfeit its right to terminate this Lease as provided in Article 8.1.1 or 8.1.2; 8.2.4 Lessee shall forfeit any abatement of rent provided in this Article 8 and rent shall not abate. ARTICLE 9 SUBLET AND ASSIGNMENT 9.1 Except as provided in Article 9.3, the Lessee shall not assign the Lease or sublet the Premises in whole or in part without the prior written authorization of the Lessor. Notwithstanding such assignment or subletting, the Lessee shall remain solidarily responsible with the sublessee or assignee. 9.2 Lessor shall have a period of thirty (30) days upon notice from the Lessee in which to either i) accept or refuse the proposed sublet or assignment, or ii) to terminate this Lease on the later of the date of assignment set forth in the notice or thirty (30) days from said notice. 9.3 Lessee may assign this Lease in whole or in part or any subsidiary or affiliate within the meaning of the Canada Business Corporations Act or amalgamate with any other person, but such assignment shall not affect the guarantee of Icon Health & Fitness Inc. hereunder. ARTICLE 10 ALTERATIONS, REPAIRS, CHANGES, ADDITIONS, IMPROVEMENTS Initials: ______/______/__________ Lessor/Lessee/Indemnifer 11 10.1 Without the prior written consent of the Lessor which will not be unreasonably withheld: 10.1.1 the Lessee will not make any alterations, repairs, additions, changes or improvements (collectively the "Improvements") or permit the same to be made in or to the Premises; 10.1.2 The Lessee will not deface or mark any part of the Premises and will not permit any hole to be drilled or made or nails, screws, hooks or spikes to be driven into the interior walls, doors, floors or stone or brick work or other exterior facing material of the Premises, or any appurtenances thereto; Any Improvements made to the Premises by the Lessee at any time during the currency of this Lease, shall be at the sole risk, cost and expense of the Lessee and made to the satisfaction of the Lessor, and the Lessee shall bear all operating costs in respect of any such Improvement so made. The Lessor shall be entitled to impose as a condition of its consent to the Improvements the requirement that the specifications of such Improvements shall be in accordance with the Lessor's general standard in the Building, and at the Lessor's option that the work be done by the Lessor at the cost of the Lessee be it understood that said cost (taking into account the 15% administrative and supervisory fee) shall be reasonably competitive. Lessee shall, in such a case, pay to Lessor, as an administrative and supervisory fee in respect of any and all Improvements made to the Premises, an amount as additional rent equal to the fifteen percent (15%) of the cost of such work. 10.2 At the expiration or earlier termination of this Lease for whatever reason or upon Lessee vacating the Premises with the permission of Lessor prior to the expiration hereof, Lessee shall, as required by Lessor, remove all, or certain specified Improvements including, without limitation, all alterations and/or Improvements installed by Lessee in the Premises or installed by Lessor in the Premises or installed by Lessor in the Premises for Lessee (excluding the work, alterations and improvements described in Article 28.1), pursuant to the terms of this Lease or pursuant to the terms of any prior lease by Lessee of the Premises and regardless of whether Lessor or Lessee is or was responsible for the cost thereof. Lessee shall thereupon become obligated to restore the Premises to their original condition, (save for such alterations and/or Improvements as Lessor permits to remain). Should Lessee not be required to remove any of such Initials: ______/______/__________ Lessor/Lessee/Indemnifer 12 alterations and/or Improvements, they shall, in the case of alterations, remain in the Premises as the property of Lessor and in the case of all other Improvements ipso facto upon the happening of an Event of Default as defined in Article 6 hereof or upon the expiration or earlier termination of this Lease for any other reason, be deemed to have become the property of Lessor without any compensation being paid therefor. 10.3 The Lessee shall promptly pay all charges incurred by the Lessee for any work, materials or services that may be done, supplied or performed in respect of the Premises and shall forthwith discharge any hypothec registered against the Premises and keep the Property free from hypothecs. Should the Lessee fail to comply with this paragraph, the Lessor may, but, shall be under no obligation to pay into Court the amount required to obtain a discharge of any such hypothec in the name of the Lessee and any amount so paid together with all costs in respect of such proceedings shall be forthwith due and payable by the Lessee to the Lessor as additional rent. ARTICLE 11 SIGNAGE 11.1 The Lessee may construct, erect, place, install or display on or in the Property or on the Premises only those posters, advertising signs or displays for which the consent in writing of the Lessor has been obtained. The number, location, color, size, style, character and materials of the said poster, signs and displays shall be such as the Lessor shall determine and shall be in accordance with all applicable by-law requirements. Lessee shall be responsible for any and all damages incurred by the removal of such signage and shall restore that portion of the Building to its original condition, save normal wear and tear. The cost of constructing, erecting and maintaining such signs shall be the sole responsibility of the Lessee. ARTICLE 12 USE 12.1 The Lessee undertakes and agrees to occupy and use the Premises for storage and warehousing of non-perishable light finished goods only in conformity with the location, design and structure thereof, or any applicable law, by-law, ordinance or regulation, good morals and public order or in any manner as to not cause any annoyance or disturbance to Initials: ______/______/__________ Lessor/Lessee/Indemnifer 13 any neighboring lessees. No manufacturing will be allowed in the Premises. The Lessee shall accede to and abide by Federal, Provincial and/or Municipal or Local Environmental Protection Statutes, Regulations, and By-Laws. ARTICLE 13 NON-RESPONSIBILITY OF LESSOR 13.1 There shall be no abatement form or reduction of the rent due hereunder nor shall Lessee be entitled to damages, costs, losses or disbursements from Lessor regardless of the cause or reason therefor (except where such cause or reason is Lessor's direct gross fault or negligence). Neither shall there be any claim of any nature whatsoever by Lessee against Lessor, nor any abatement nor reduction of rent, nor recovery by Lessee from Lessor on account of partial or total failure of, damage caused by, lessening of supply of, or stoppage of, heat, air-conditioning, electric light, power, water, plumbing, sewerage, elevators, or any other service, nor on account of any damage or annoyance occasioned by water, snow, or ice being upon or coming through the roof, skylight, trapdoors, windows, or otherwise, or by any defect or break in any pipes, tanks, fixtures, or otherwise whereby steam, water, snow, smoke or gas, leak, issue or flow into the Premises, nor on account of any damage or annoyance occasioned by the condition or arrangements or any electric or other wiring, nor on account of any damage or annoyance arising from any acts, omissions, or negligence or environmental contamination of co-lessees or other occupants of the Building, or of owners or occupants of adjacent or contiguous property, nor on account, directly or indirectly, of the making of "grosses reparations", alterations, repairs, improvements, or structural changes to the Building, or any thing or service therein or thereon or contiguous thereto provided the same shall be made with reasonable expedition. Without restricting the foregoing, Lessor shall not be liable for any other damage to or loss, theft, or destruction of property, or death of, or injury to, persons at any time in or on the Premises or in or about the Building, however occurring. Notwithstanding the foregoing, liability of Lessor shall under no circumstances extend to any property other than normal fixtures and furniture which term, without limiting its normal meaning, shall not include securities, specie, papers, typewriters, electrical computers, or other machines or other similar items. Initials: ______/______/__________ Lessor/Lessee/Indemnifer 14 13.2 Lessor shall not be liable for any damages suffered by Lessee should any delay in the completion of the Premises in any way delay or inconvenience the occupation thereof or the enjoyment of the Building or accessories or services. 13.3 Lessee covenants and agrees that it will protect, save and keep Lessor harmless and indemnified against any penalty or damage or charge imposed for any violation of any laws or ordinances occasioned by Lessee or those connected with Lessee, and that it will protect, indemnify, save and keep harmless Lessor against any and all damage or expense arising out of any accident or other occurrence on or about the Premises causing injury to any person or property (except to the extent Lessor may be otherwise liable therefor), and against any and all damage or expense arising out of any failure of Lessee in any respect to comply with and perform all the requirements and provisions of this Lease. ARTICLE 14 DAMAGES TO AIRPORT AND PROPERTY 14.1 If at any time during the Term any damage or injury should be occasioned to any works or property of Her Majesty the Queen or the airport authority on the Montreal International Airport (Mirabel) or to any works or property of the Lessor in the Building other than the Premises by reason of or on account of the operations of the Lessee, or any action taken or things done or maintained by virtue thereof, then and in every such case, the Lessee shall, immediately upon written notice thereof from the Lessor, repair, rebuild and restore the same or the Lessor or the airport authorities may, at its or his option, repair such damage or injury, in which case the Lessee shall, upon demand forthwith, repay and reimburse the Lessor, the airport authorities or Her Majesty the Queen, as the case may be, for all reasonable costs and expenses connected therewith. 14.2 The sewage facilities of Her Majesty the Queen or of the airport authority servicing the Property shall not be sued for any other purposes than that for which they were constructed and no sweeping, garbage, rubbish, rages, ashes, grease or other like substance shall be allowed to enter the said facilities and the Lessee shall indemnify and reimburse the Lessor forthwith upon receipt of accounts therefor for any cost or expenses incurred by the Lessor pursuant to the Head Lease for the repair and cleaning of any blockage of the said sewage facilities by the Lessee and the officers, servants, agents and customers of the Lessee. Initials: ______/______/__________ Lessor/Lessee/Indemnifer 15 ARTICLE 15 LESSEE CARE AND RESPONSIBILITY 15.1 Lessee will, at its own expense, maintain the Premises in a clean and sanitary condition at all times in accordance with a first class building and in accordance with municipal by-laws. The Lessee shall use the common areas as if it were a careful and prudent owner. 15.2 Lessee shall place all garbage and rubbish in suitable containers at such location either within or without the Premises as shall be indicated by Lessor and Lessor shall remove all such garbage and rubbish at Lessee's expense. ARTICLE 16 ENVIRONMENTAL RESPONSIBILITY 16.1. Without limiting the generality of Article 13.1, the Lessee agrees as follows: 16.1.1 During the term of the Lease, the Lessee shall comply with any applicable federal, provincial, municipal or local laws, regulations, orders or approvals of all governmental authorities relating to environmental matters. 16.1.2 No hazardous or toxic materials, substances, pollutants, contaminants or wastes shall be released into the environment, or deposited, discharged, placed or disposed of at, on or near the Premises as a result of the use of the Premises or the Building by the Lessee. 16.1.3 The Lessee will indemnify and hold the Lessor harmless from and against any and all actions, losses, liabilities, damages claims, obligations, debts, costs and expenses (including solicitors' fees), known or unknown, contingent or absolute, arising out of or resulting from such environmental release or discharge or with respect to any breach of any covenant set out herein, which indemnity will survive the expiry or other termination of this Lease. 16.2 The Lessor will indemnify and hold the Lessee harmless from and against any and all actions, losses, liabilities, damages, claims, obligations, debts, Initials: ______/______/__________ Lessor/Lessee/Indemnifer 16 costs and expenses (including solicitors' fees), known or unknown, contingent or absolute, arising out of or resulting from any environmental release or discharge by Lessor. ARTICLE 17 COMPLIANCE WITH LAW 17.1 The Lessee will comply with all provisions of law relating to the use and occupation of the Premises and such use shall be in conformity with all the requirements of the zoning and building by-laws of the Municipality in which the Building is situated and with all other municipal and governmental regulations which may affect the Premises. Furthermore, Lessee shall comply with all police, fire, sanitary, traffic control and other regulations imposed by airport, municipal, provincial or federal authorities or made by fire insurance underwriters and shall observe and obey all municipaland other governmental regulations and other requirements governing the conduct of any business carried on within the Premises and shall save the Lessor harmless from any damages, charges, actions or costs for non-compliance with or violation of any of the said laws and requirements or for any liability for costs or for damage or injury or any person or property resulting therefrom during the Term. ARTICLE 18 ACCESS 18.1 The airport authority, its servants or agents and Lessor, its servants and agents have full and free access to the Premises for inspection purposes during normal business hours and to nay and every part of the Premises. 18.2 Lessor shall request from Aeroports de Montreal the right to access through gate Charlie with proper identification to permit drive-in access for trucks through the first door at the back of the facility (between column line 13 and 14). In the event that access through gate Charlie cannot be granted, Lessor shall install a drive-in door at the side of Building. ARTICLE 19 HEAD LEASE 19.1 The Lessee is cognizant of the terms and conditions of the Head Lease, and hereby covenants and agrees that its use and occupancy of the Initials: ______/______/__________ Lessor/Lessee/Indemnifer 17 Premises hereunder shall be subject to all the provisions of the Head Lease and that, subject to all the terms of this Lease, it will not do or omit to do or permit to be done or omitted to be done any act or thing over which the Lessee has control if such act, thing or omission would constitute a breach of any covenant in the Head Lease on the part of the Lessor to be performed and observed; if for any reason, the Head Lease shall at any time be terminated, the Lessee shall not have or make any claim or demand in respect thereof against the Lessor, except to the extent that the Lessee shall establish that such termination shall have arisen by reason of the default of the Lessor under the provisions of the Head Lease. 19.2 The Lessor herein shall do its utmost to ensure, by the institution of legal proceedings if and whenever required, that the Head Lease shall remain in full force and effect and that the Lessor thereunder shall fulfill all of its obligations with a view that the rights of the Lessee herein be adequately protected. 19.3 The Lessor shall not require the consent of the Lessee to amend the Head Lease, the Lessee waiving hereby any right it may have to give any such consent or consents, provided that such amendment does not impose any increased obligation o0n the Lessee or diminish any of his rights. 19.4 The Lessee covenants and agrees that the provisions of Clause 43 of the Head Lease are hereby incorporated into this Lease. ARTICLE 20 PARKING 20.1 The Lessee agrees that it shall not nor shall its employees, servants and agents, park any vehicles around or adjacent to the Property whether in roadways, customer parking areas, or otherwise, except for those areas specifically designated, namely, in front of the Premises on the south side of Cargo road A-4, and the Lessee will strictly enforce this covenant insofar as its own employees, servants and agents are concerned. Provided that the minimum parking requirements established by any governmental authority having jurisdiction over the Property are respected and that there are sufficient parking spaces in the customer parking area for the actual need for customer parking, the Lessor shall be entitled to rent any of such excess parking spaces to anyone (including the lessees of the Property and their employees, servants and agents) at a rate to be set by the Lessor. Initials: ______/______/__________ Lessor/Lessee/Indemnifer 18 ARTICLE 21 RELOCATION 21.1 In the event that a court decision or other action delays the transfer of international flights from Mirabel to Dorval, Lessor shall have the right to relocate temporarily a portion or all of the Premises leased to Lessee to reasonably comparable premises in buildings at the Montreal International Airport (Dorval) or other comparable facilities in the Mirabel area. If Premises are relocated, the minimum Rent for the relocation term shall be calculated on the basis of two dollars ($2.00) per square foot per annum. ARTICLE 22 RIGHT OF ENTRY 22.1 Lessor may, from time to time and at all reasonable times, enter the Premises for the purpose of making any repairs, alterations and reconstructions to the facilities and services in the Property or for any purpose which it may deem necessary. During the last six (6) months of the Term of the Lease, Lessee shall allow such person or persons, as may be desirous of leasing the Premises to visit the same on business days. ARTICLE 23 INSURANCE REQUIREMENS 23.1 Lessee shall not do or commit any act upon the Premises or bring into or keep upon the Premises any article which will affect the fire risk or increase the rate of fire insurance or other insurance on the Building. Should the rate of any type of insurance on the Building be increased by reason of any violation of this Lease by Lessee, Lessor, in addition to all other remedies, may pay the amount of such increase, and the amount so paid shall become due and payable immediately by Lessee and collectible as Additional Rent. Should any insurance policy on the Building be canceled by the insurer by reason of the use and occupation of the Premises or any part thereof by Lessee or by any permitted assignee, sub-Lessee, concessionaire or licensee of Lessee, or by anyone permitted by Lessee to be upon the Premises, Lessor may at its option terminate the lease by leaving at the Initials: ______/______/__________ Lessor/Lessee/Indemnifer 19 Premises a notice in writing of its intention so to do and thereupon rent and other payments for which Lessee is liable hereunder shall be apportioned and paid in full to the effective date of termination under such notice and Lessee shall forthwith deliver up vacant possession of the Premises to Lessor and/or Lessor may at its option and at the expense of Lessee enter upon the Premises and rectify the situation causing such cancellation. 23.2 Lessee shall take out and keep in force during the Term of this Lease property damage and Comprehensive General Liability Insurance including Tenant Legal Liability in amounts and with policies in form satisfactory from time to time to Lessor and with insurers acceptable to Lessor. Comprehensive General Liability Insurance including Tenant Legal Liability coverage shall in no event to be for less than five million dollars ($5,000,000.00) and include Lessor as additional insured and contain a Cross Liability Clause and Severability of Interest Clause. The Lessee shall also insure his own equipment, furniture, stock in trade, Alterations and Improvements on an All Risks basis with a limit representing full replacement cost and add Lessor as additional insured. The policy shall also contain a waiver of subrogation in favor of Lessor and a loss payable clause in favor of the Lessor as its interest may appear. Copies of each insurance policy shall forthwith upon execution be delivered to Lessor. The cost of premium for each and every such policy shall be paid by Lessee or sub-lessee, as the case may be. Lessee shall obtain from the insurers under such policies undertakings to notify Lessor in writing at least ten (10) days prior to any cancellation thereof. 23.3 Lessee agrees that if Lessee fails to take out or to keep in force such insurance Lessor will have the right to do so and to pay the premium therefor and in such event Lessee shall repay to Lessor the amount paid as premium, which repayment shall be collectible as Additional Rent payable on the first day of the next month following the said payments by Lessor. 23.4 Lessor shall, at all times during the term of this Lease, maintain in full force and effect and pay all premiums for public liability and general hazard insurance with a reputable insurance company or companies covering the Property and all of Lessor's improvements thereon (but not covering Lessee's personal property, inventory, improvements or fixtures. The policy shall also contain a waiver of subrogation in favor of Lessee. The general liability limits of said policy or policies shall not be less than $1,000,000.00 per person and per occurrence. ARTICLE 24 Initials: ______/______/__________ Lessor/Lessee/Indemnifer 20 RULES AND REGULATIONS 24.1 The Lessee and its employees, servants and agents will, at all times during the Term of the Lese, observe and conform to such reasonable rules and regulations as shall be made by the Lessor from time to time, including the rules and regulations set forth in Schedule "C" hereto and of which the Lessee shall be notified, such rules and regulations being deemed to be incorporated in and form part of these presents. ARTICLE 25 OBLIGATIONS OF LESSOR 25.1 Lessor shall accomplish the following obligation: 25.1.1 Lessor shall supply the plant and equipment necessary to heat, and ventilate the Property and it shall operate, subject as herein provided and except during the making of necessary repairs, the said plant and equipment so that, to the extent feasible, the Property may be kept at a reasonable temperature and humidity comparative to the prevailing outside conditions. 25.1.2 Lessor shall keep all common areas in the Building and the Lands, including the paved areas in a net, clean and tidy condition at all times, and properly lit by electricity, except for the paved area. It shall also clean all driveways, and side walks and the paved areas and keep the same reasonably free from ice, snow, refuse and the like. ARTICLE 26 NOTICES 26.1 Any notice, demand or request or contemplated by any provision of this Lease to be given or made shall be given in writing and mailed by prepaid registered mail addressed, in the case of the Lessor, or: AEROTERM DE MONTREAL, INC. 751 Stuart Graham North Suite 124 Dorval, Quebec H4Y 1E7 Initials: ______/______/__________ Lessor/Lessee/Indemnifer 21 and in the case of the Lessee, to: ICON of Canada Inc. 900 de l'Industrie St-Jerome, Quebec J7Y4B8 and: Brad Bearnson ICON HEALTH & FITNESS INC. 1500S, 1000 W. Logan, Utah USA 94321 with a copy to the Premises. Any such notice, demand or request shall be conclusively deemed to have been given or made on the third business day following that on which such notice, demand or request is mailed. Either party may, at any time, give notice in writing to the other of any change of address of the party giving such notice, and from and after the giving of such notice, the address therein specified shall be deemed to be the address of such party for the giving of notice hereunder. The word "Notice" in this paragraph shall be deemed to include any request, statement or other writing in this Lease provided or permitted to be given by the Lessor to the Lessee or by the Lessee to the Lessor. ARTICLE 27 CONSTRUCTION 27.1 The Lessor shall have the right from time to time to alter the Property or to alter the Building without the advice or consent of the Lessee, provided that the alteration does not materially interfere with the operations of the Lessee. ARTICLE 28 IMPROVEMENTS 28.1 The Lessor, at its own expense, will perform the following work in the Premises all in accordance with building standards. Install demising wall of cinder blocks up to fifteen (15) feet and fence above to the underside of Initials: ______/______/__________ Lessor/Lessee/Indemnifer 22 the joists. Remove block walls and warehouse offices between column lines 17 and 33 at the warehouse level. The four block walls on column lines 17, 25, 29 and 33 and offices on column line 33 will remain. An opening and door similar to the one on line 33 will be installed on the wall on line 17. Before March 1, 1997, paint walls and replace carpet with vinyl flooring in the existing offices, located to the east (left on plan) of column line 33. Before July 1, 1997, paint walls and replace carpet with vinyl flooring in the existing offices, located to the west of column 33. ARTICLE 29 OPTION TO EXPAND 29.1 Upon confirmation of availability of space by Lessor, Lessee shall have the right to lease additional warehouse space ("Expanded Space") in Building "C" on the same terms and conditions save and except for the term which shall be on a month-to-month basis and Lessor and Lessee shall have the right to cancel that lease for the Expanded Space with sixty (60) days prior written notice. ARTICLE 30 SUCCESSORS AND ASSIGNS 30.1 The present Lease and everything contained herein shall inure to the benefit of and be binding upon the successors and assigns, as the case may be, of each of the parties hereto, subject to the granting of consent by the Lessor as provided herein to any sublease or assignment by the Lessee. ARTICLE 31 ENTIRE AGEEMENT 31.1 The Lessor and the Lessee acknowledge that this Lease and its Schedules constitute the entire agreement between them with respect to the subject matter hereof, and they shall supersede all previous negotiations, representations and documents relating to the conclusion of the present Lease. ARTICLE 32 GOVERNING LAW Initials: ______/______/__________ Lessor/Lessee/Indemnifer 23 32.1 This Lease is governed by and shall be construed in accordance with the law in force in the province of Quebec. ARTICLE 33 PREAMBLE AND SCHEDULES 33.1 The parties agree that the preamble and the provisions set forth in the Schedules "A", "B" and "C" annexed hereto, as the case may be, shall form an integral part of the Lease as if therein recited at length. ARTICLE 34 PUBLICATION OF LEASE 34.1 Lessee shall be permitted at its own cost to publish a short form of this Lease, upon obtaining Lessor's prior written consent as to the form and content thereof. ARTICLE 35 LANGUAGE 35.1 The parties declare that the present Agreement has been prepared in the English language at their request. Les parties declarent que le present contrat a ete redige en langue anglaise a leur demande. GUARANTEE To these present intervenes, ICON HEALTH & FITNESS, INC., a corporation duly constituted under the laws of Delaware, having its head office at _____________________, hereby represented by _________________, its ____________________, being duly authorized in virtue of ___________ _____________ (hereinafter the "Indemnifier") which acknowledges to have taken cognizance of the terms and conditions of this Lease and hereby: 1. Unconditionally guaranties to the Lessor the prompt and complete performance by the Lessee of each and every obligation, duty and responsibility provided for in the Lease as if the Indemnifier was a party to the Lease in the place and stead of the Lessee and further agrees that it is solidarily bound with the Lessee for the performance of said obligation, duty and responsibility; Initials: ______/______/__________ Lessor/Lessee/Indemnifer 24 2. Agrees that upon an Event of Default under the Lease, the Lessor may proceed against the Indemnifier as if it was the Lessee without waiving any of its rights against the Lessee and without any requirement that the Lessor shall first have proceeded against the Lessee or had recourse to or exhausted any of its remedies against the Lessee or any security, guarantee or other indemnity or covenant or any other recourse or remedy of the Lessor in respect of such default by the Lessee; 3. Agrees the obligations of the Indemnifier hereunder shall not be released, discharged or affected by the bankruptcy or insolvency of the Lessee or any disclaimer by any trustee in bankruptcy of the Lessee or by the Lessee ceasing to exist (whether by winding-up, forfeiture, cancellation or surrender of the charter, or any under circumstance) or by any event terminating the Lease; 4. Agrees and declares that the Lessor and the Lessee have the right to change, alter and vary the Lease and/or the terms or conditions thereof and that the Lessor may in its discretion at any time grant any extension of time on any liability of the Lessee to the Lessor without notice to the Indemnifier; 5. Agrees and declares that the Indemnifier shall not be discharged or released from any liability hereunder nor shall such liability be in any way affected by such security, or extension of time as aforesaid, or by any dealing or forbearance which may take place between the Lessor and the Lessee; 6. Agrees that this guarantee is irrevocable and cannot be withdrawn or terminated by the Indemnifier for any reason and shall survive and continue to bind the Indemnifier notwithstanding the earlier termination of the Lease; 7. Agrees that this guarantee is not attached to the fact that the Indemnifier is the parent company of the Lessee; 8. Agrees that this guarantee shall be binding upon the Indemnifier and its successors and assigns and shall inure to the benefit of the Lessor and its successors and assigns; 9. Agrees that any notice, request or acceptance which may be required to be permitted to be delivered or served upon the Indemnifier shall be sufficiently given to or served upon it if in writing and delivered by fax, registered mail or messenger at the following address: Initials: ______/______/__________ Lessor/Lessee/Indemnifer 25 TO: ICON HEALTH & FITNESS, INC. 1500 S. 1000W. Logan, Utah USA 94321 Attention: Mr. Brad Bearnson 10. Declares that the Indemnifier has caused all necessary corporate action to be taken by the directors of the Indemnifier to authorize the execution and delivery of the present guarantee to the Lessor; 11. Agrees that this guarantee shall be interpreted in accordance with the laws of the Province of Quebec. IN WITNESS WHEREOF, Lessor, Lessee and Indemnifier have duly executed and signed these presents. AEROTERM MONTREAL, INC. _________________________________ Per:________________________________ Witness Lessor _________________________________ ____________________________________ Witness Title Initials: ______/______/__________ Lessor/Lessee/Indemnifer 26 ICON OF CANADA INC. /s/ ILLEGIBLE Per: /s/ ILLEGIBLE ---------------------------- ---------------------------- Witness Lessee /s/ ILLEGIBLE PRESIDENT ---------------------------- -------------------------------- Witness Title ICON HEALTH & FITNESS, INC. ____________________________ Per:__________________________________ Witness Indemnifier ____________________________ ______________________________________ Witness Title Initials: ______/______/__________ Lessor/Lessee/Indemnifer 27 SCHEDULE "A" [GRAPHIC OMITTED] Initials: ______/______/__________ Lessor/Lessee/Indemnifer 28 SCHEDULE "B" [GRAPHIC OMITTED] Initials: ______/______/__________ Lessor/Lessee/Indemnifer 29 SCHEDULE "C" SCHEDULE OF RULES AND REGULATIONS FORMING PART OF THE WITHIN LEASE. 1. The roadways, parking lots, sidewalks, entrances, loading docks, stairways and corridors of the AIR CARGO FACILITY shall not be obstructed by any Lessees or used by them for any other purpose that for ingress and egress to and from their respective offices, and no Lessee shall place or allow to be placed in the hallways, corridors or stairways any waste paper, dust, garbage, refuse or any thing whatever that shall tend to make them appear unclean, untidy or filthy. 2. The floors and windows that reflect or admit light into passageways or into any place in the said building shall not be covered or obstructed by any of the Lessees and no awnings shall be put over any window; the water closets and other water apparatus shall not be used for any purpose other than those for which they were constructed and no sweepings, rubbish, rags, ashes or other substance shall be thrown therein, and any damage resulting to them for misuse shall be borne by the Lessee by whom or by whose employee the damage was caused. 3. If in contravention to a provision of the within Lease, any sign, advertisement or notices shall be inscribed, painted, or affixed by the LESSEE on or to any part of the said building whatever, then the LESSOR shall be at liberty to enter on the said premises and pull down and take away such sign, advertisement or notice, and the expense thereof shall be payable by the LESSEE. 4. No safes, machinery, equipment, heavy merchandise or anything liable to injure or destroy any part of the building shall be taken into it without the consent of the LESSOR in writing, and the LESSOR shall in all cases retain the power to limit the weight and indicate the place where such safe or the like is to stand and the cost of repairing any and all damage done to the building by taking in or putting out such safe or the like or during the time it is in or on the premises, shall be paid for on demand by the Lessee who so causes it. No Lessee shall load for any floor beyond its reasonable weight carrying capacity as set forth in the municipal or other codes applicable to the building. 5. Nothing shall be thrown by the Lessees, their clerks or servants out of the windows or doors or down the passages of the building. Initials: ______/______/__________ Lessor/Lessee/Indemnifer 30 6. No animals except such as are cargo in transit shall be kept in or about the premises. 7. If the LESSEE desires telegraph or telephone, call bell or other private signal connections, the LESSOR reserves the right to direct the electricians or other workmen as to where and how the wires are to be introduced, and without such directions no boring or cutting for wires shall take place. No other wires of any kind shall be introduced without the written consent of the LESSOR. 8. Lessees and their employees shall not make or commit any improper noise in the building or in any way interfere with or annoy other Lessees or those having business with them. The LESSOR'S decision as to what constitutes improper noise, interference or annoyance shall be final and binding on the parties. 9. All Lessees must observe strict care not to allow their windows to remain open so as to admit rain or snow, or so as to interfere with the heating, air conditioning or ventilation of the buildings. The Lessees neglecting this rule will be responsible for any injury caused to the property of other Lessees or to the property of the LESSOR of such carelessness. The LESSEE, when closing offices for business, day or evening, shall close all windows and lock all doors. 10. The LESSEE agrees not to place any additional locks upon any doors of the DEMISED PREMISES and not to permit any duplicate keys to be made thereof; but to use only additional keys obtained form the LESSOR, at the expense of the LESSEE, and to surrender to the LESSOR on the termination of the Lease all keys of the said premises. Initials: ______/______/__________ Lessor/Lessee/Indemnifer 31 LEASE AMENDMENT AGREEMENT DATED MARCH , 2000 BETWEEN: AEROPORTS DE MONTREAL, a corporation duly incorporated under the laws of Canada, having its head office at 1100 Rene-Levesque Boulevard West, Suite 2100, Montreal, Quebec, H3B 4X8, herein acting and represented by __________________ its __________________ and ___________________ its_________, duly authorized pursuant to Article 25 of the General By-Laws of the corporation adopted on the 30/th/ day of November 1989 a certified copy whereof remaining annexed to this agreement, (hereinafter called the "Lessor") AND: ICON OF CANADA INC., a corporation duly incorporated under the laws of Quebec, having its head office at ______________ ________________, herein acting and represented by _________ __________ its _____________________ and ___________________ _______ its _________________, duly authorized pursuant to a resolution of its Board of Directors adopted on ____________ a certified copy whereof remaining annexed to this agreement, (hereinafter called the "Lessee") THE PARITES HAVE DECLARED AS FOLLOWS: WHEREAS, AEROTERM DE MONTREAL (hereinafter "Aeroterm") entered into a lease agreement with the Lessee executed under private signature on March 1st, 1997, with respect to the Premises (as defined under the Original Lease) located in Building "A" at the Montreal International Airport - Mirabel (the "Original Lease"); WHEREAS, Aeroterm has surrendered Building "A" and assigned all its rights, title and interest in the Original Lease to the Lessor as assignee pursuant to a Deed of Amendment of the Head Lease (as defined under the Original Lease) executed before Mr. Kevin Leonard, Notary on December 21, 1998 with effect as of September 15, 1997; WHEREAS the Lessor is, in consequence to the above, the owner of Building "A" and the Lessor under the Original Lease; THE PARTIES HEREBY AGREE AS FOLLOWS: Initials: ______/______/___________ Lessor/Lessee/Indemnifier 32 ARTICLE 1 GENERAL 1.1 In this Lease Amendment Agreement, unless hereinafter modified or unless there is something in the subject matter or context inconsistent with the Original Lease, expressions, phrases and words used herein shall have the same meaning as corresponding expressions, phrases and words defined in the Original Lease. 1.2 Except as otherwise provided for hereinafter, all terms and conditions of the Original Lease remain unmodified, the parties hereby ratifying and confirming the provisions of the Original Lease. 1.3 The parties hereto agree that the recitals herein above and Schedule "B-1" attached hereto shall form part of this Lease Amendment Agreement. ARTICLE 2 AMENDMENTS The Original Lease is hereby amended effective June 30th, 2000, as follows: 2.1 Recitals The second recital of Article 1 of the Original Lease is hereby deleted. 2.2 Definition of the Word "Building" The Original Lease is hereby amended: . by inserting the first line of the first paragraph of Article 2.1 after the words "Building "A"" the words "located at the Montreal International Airport - Mirabel (herein defined as the "Building")"; and . by replacing the last portion of the first paragraph reading: "approximately two hundred and three thousand (203,000) square feet of warehouse space as outlined in red and including approximately three thousand five hundred (3,500) square feet of office space on two levels as outlined in blue ("Premises") the whole as shown on Schedule "B" attached hereto" Initials: ______/______/___________ Lessor/Lessee/Indemnifier 33 by the following: "two hundred three thousand eight hundred sixty-six square feet (203,866 sq. ft.) of warehouse space as outlined in blue (which includes one thousand two hundred two square feet (1,202 sq. ft.) of office space on the second level as outlined in red) and an additional area of one thousand four hundred forty-two square feet (1,442 sq. ft.) of office space on the second level also outlined in red (all these areas herein collectively referred to as the "Premises") the whole as shown on Schedule "B-1" attached hereto." Consequently, the word "Building" used in the Original Lease and in this Lease Amended Agreement shall only refer to Building "A". 2.3 Term The Original Lease is hereby amended by extending the Term for an additional period of three (3) years ending on June 30th, 2003. 2.4 Minimum Rent Beginning July 1st, 2000 and through June 30th, 2003 the Minimum Rent payable by the Lessee shall be FIVE DOLLARS AND FIFTY CENTS per square foot ($5.50/sq.ft.) of Rentable Area per annum being an annual Minimum Rent of ONE MILLION ONE HUNDRED TWENTY-ONE THOUSAND TWO HUNDRED SIXTY-THREE DOLLARS ($1,121,263.00) payable in advance in equal consecutive monthly installments of NINETY-THREE THOUSAND FOUR HUNDRED THIRTY-EIGHT DOLLARS AND FIFTY-EIGHT CENTS ($93,438.58) on the 1st day of each calendar month. The Lessee shall not be required to pay any amount of Minimum Rent to the Lessor during the Term for the additional office space of 1,442 square feet. 2.5 Continuous Operations The Original Lease is hereby amended by adding the following Article 5.5: Initials: ______/______/___________ Lessor/Lessee/Indemnifier "5.5 The Lessee shall be open for business throughout the entire Term. It shall conduct its business and provide the required services continuously, actively and diligently, in the entire surface of the Premises." 2.6 Re-Leasing of the Premises The Original Lease is hereby amended by adding the following Article 6.7: "6.7 Subject to the Landlord Agreement to be entered between the Lessor, the Lessee and General Electric Capital Corporation with respect to the Premises, if the Lessor does not exercise its option to resiliate the present Lease in accordance with the present Article, it shall have the option, without the need to send a further notice to the Lessee and without effecting a resiliation, as mandatary of the Lessee, to take possession of the Premises and all property found therein and to sublease all or part of the Premises, as well as the improvements, furniture and accessories found therein, under such terms and conditions as the Lessor shall deem appropriate. The Lessee hereby provides an irrevocable mandate to the Lessor to carry out the foregoing. In such case, the Lessee shall continue to be liable for the performance of all its obligations hereunder, including the payment of the Minimum Rent and Additional Rent and other amounts payable pursuant hereto. The Lessor shall be entitled to apply all the obligations of the Lessee to the new sublessee and to collect and receive the Minimum Rent and additional Rent and all other amounts payable by the sublessee, and apply them to any amount owing to the Lessor by the Lessee from time to time. Any shortfall shall be paid by the Lessee to the Lessor upon demand by the latter. 2.7 Relocation The Original Lease is hereby amended by deleting Article 21. 2.8 Notices The Original Lease is hereby amended by deleting the name and address of Aeroterm de Montreal inc. and replacing same by the following: CORPORATE SECRETARY Initials: ______/______/___________ Lessor/Lessee/Indemnifier 35 AEROPORTS DE MONTREAL 1100 Rene-Levesque Boulevard West Suite 2100 Montreal, Quebec H3B 4X8" Fax: (514) 394-7356 2.9 Option to Expand The Original Lease is hereby amended by deleting Article 29. 2.10 Schedule "B" The Original Lease is hereby amended by deleting Schedule "B" and replacing same by Schedule "B-1" attached hereto. ARTICLE 3 ACKNOWLEDGMENTS 3.1 Rental Credits The Lessee acknowledges to have received all rental credits mentioned in Article 4.2.1A of the Original Lease, whereof quit. 3.2 Lessor's Work The Lessee hereby acknowledges that the Lessor has completed to Lessee's satisfaction the Lessor's work described in Article 28.1 of the Original Lease, whereof quit. ARTICLE 4 LANGUAGE The parties declare that this Lease Amendment Agreement has been prepared in English Language at their request. Les parties declarent que le present contrat a ete redige en langue anglaise a leur demand. GUARANTEE Initials: ______/______/___________ Lessor/Lessee/Indemnifier 36 To these presents intervenes, ICON HEALTH & FITNESS INC., a corporation duly constituted under the laws of Delaware, having its head office at _______________ U.S.A., hereby represented by _______________, its _______________, being duly authorized in virtue of a resolution of its Board of Directors adopted on _______________ (hereinafter the "Indemnifier") which acknowledges to have taken cognizance of the terms and conditions of this Lease Amendment Agreement and hereby: 1. Unconditionally guaranties to the Lessor the prompt and complete performance by the Lessee of each and every obligation, duty and responsibility provided for in the Original Lease as amended by this Lease Amendment Agreement as if the Indemnified was a party to the Original Lease and the Lease Amendment Agreement in the place and stead of the Lessee and further agrees that it is solidarily bound with the Lessee for the performance of said obligation, duty and responsibility; 2. Agrees that upon an Event of Default under the Original Lease as amended by this Lease Amendment Agreement, the Lessor may proceed against the Indemnifier as if it was the Lessee without waiving any of its rights against the Lessee and without any requirement that the Lessor shall first have proceeded against the Lessee or had recourse to or exhausted any of its remedies against the Lessee or any security, guarantee or other indemnity or convenant or any other recourse or remedy of the Lessor in respect of such default by the Lessee; 3. Agrees the obligations of the Indemnifier hereunder shall not be released, discharged or affected by the bankruptcy or insolvency of the Lessee or any disclaimer by any trustee in bankruptcy of the Lessee or by the Lessee ceasing to exist (whether by winding-up, forfeiture, cancellation or surrender of the charter, or any under circumstance) or by any event terminating the Original Lease as amended by this Lease Amendment Agreement; 4. Agrees and declares that the Lessor and the Lessee have the right to change, alter and vary the Original Lease as amended by this Lease Amendment and/or the terms or conditions thereof and that the Lessor may in its discretion at any time grant any extension of time on any liability of the Lessee to the Lessor without notice to the Indemnifier; Initials: ______/______/___________ Lessor/Lessee/Indemnifier 37 5. Agrees and declares that the Indemnifier shall not be discharged or released from any liability hereunder nor shall such liability be in any way affected by such security, or extension of time as aforesaid, or by any dealing or forbearance which may take place between the Lessor and the Lessee; 6. Agrees that this guarantee is irrevocable and cannot be withdrawn or terminated by the Indemnifier for any reason and shall survive and continue to bind the Indemnifier notwithstanding the earlier termination of the Original Leases amended by this Lease Amendment Agreement. 7. Agrees that this guarantee is not attached to the fact that the Indemnifier is the parent company of the Lessee; 8. Agrees that this guarantee shall be binding upon the Indemnifier and its successors and assigns and shall inure to the benefit of the lessor and its successors and assigns; 9. Agrees that any notice, request or acceptance which may be required to permitted to be delivered or served upon the Indemnifier shall be sufficiently given to or served upon it if in writing and delivered by fax, registered mail or messenger at the following address: ICON HEALTH & FITNESS INC. 1500 S. 1000 W. Logan, Utah USA 84321 Attention:________________ 10. Declares that the Indemnifier has caused all necessary corporate action to be taken by the directors of the Indemnifier to authorize the execution and delivery of the present guarantee to the Lessor; 11. Agrees that this guarantee shall be interpreted in accordance with the laws of the Province of Quebec. IN WITNESS WHEREOF, Lessor, Lessee and Indemnifier have duly executed and signed these presents. Initials: ______/______/___________ Lessor/Lessee/Indemnifier 38 AEROPORTS DE MONTREAL ____________________________ per:_________________________________ Witness (print name) ____________________________ per:_________________________________ Witness (print name) ICON OF CANADA INC. per: /s/ ILLEGIBLE ____________________________ --------------------------------- Witness (print name) President ____________________________ Witness (print name) ICON HEALTH & FITNESS INC. per: /s/ ILLEGIBLE ____________________________ --------------------------------- Witness (print name) ____________________________ Witness (print name) Initials: ______/______/___________ Lessor/Lessee/Indemnifier EX-10.7 10 dex107.txt EXHIBIT 10.7 - LEASE DTD 10/01/94 Exhibit 10.7 Building M-11 - 50,400 s.f. Term: 10/01/94 - 09/30/99 Option 10/01/99 - 09/30/04 PROFORM FITNESS PRODUCTS, INC. 1500 South 1000 West Logan, Utah 84321 LEASE AGREEMENT (Real Property) THIS LEASE AGREEMENT (hereinafter "Agreement") , is made and entered into this 1st day of October, 1994 , by and between FREEPORT CENTER ASSOCIATES (hereinafter referred to as "Landlord") and PROFORM FITNESS PRODUCTS, INC., a Utah corporation, (hereinafter referred to as "Tenant"). RECITALS: A. Landlord is the owner of the certain real property more fully described on Exhibit "A", attached hereto and by this reference incorporated herewith. B. Tenant is a Utah corporation engaged in the manufacture and sale of exercise equipment. C. Tenant is in need to suitable space within which he may conduct some portion of its operations. D. Landlord and Tenant have communicated to one another the above-described circumstances and their respective desires to lease the real property described on Exhibit "A" hereto, and have heretofore negotiated the terms of this Agreement and desire to memorialize the terms thereof by this instrument. NOW, THEREFORE, in consideration of the above premises, the covenants and promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Landlord and Tenant hereby agree as follows: ARTICLE I - LEASE 1.01. Lease of Property. In consideration of the rents, covenants and agreements hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby hires from Landlord, the real property described on Exhibit "A" hereto, located in Davis county, Utah, together with -1- all improvements and fixtures presently associated therewith, all of which is referred to hereinafter as the "Subject Property". 1.02. Term. The term of this Lease shall be for a total period of Five Years ( 60 ) months, commencing on the date of this Agreement and ending Sept. 30, 1999, and on a month to month basis for up to eight additional months plus any additional periods that the Tenant may so elect pursuant to Paragraph 1.03, below. Should Tenant holdover the demised premises or any part thereof after the expiration of the term of this Lease, unless otherwise agreed in writing, such holding over shall constitute a tenancy from month-to-month only, and Tenant shall pay a sun equal to one and one-half (1 1/2) times the monthly rental provided herein, payable monthly in advance, but otherwise on the same terms and conditions as herein provided, except as to any provisions hereof relating to renewals of extensions. 1.03 Additional Periods. Provided that Tenant is not in default of the terms of this Lease at the time of notification or the effective date of the extended term of this Agreement, Tenant shall have the option to renew and extend this Agreement for one (1) additional five (51) year period, upon the terms and conditions stated herein, upon giving Landlord written notice of such intent to renew no later than sixty (60) days prior to the expiration of the term of this Agreement. The monthly rent for the one five-year option period to be: Oct. 1, 1999 - Sept. 30, 2004 $ 17,500 month 1.04 Lease Payments. Tenant agrees to pay without offset or deduction, and Landlord agrees to accept, the following amounts as the Lease payments for the Subject Property: A. Fixed Rents. As and for the monthly fixed rental for the Subject Property, Tenant agrees to pay the following rate per square foot per month: Rent Per Square Aggregate Total --------------- --------- ----- Building - SQ. Ft. Foot Per Month Monthly Rent Rent - ------------------- -------------- ------------ ---- Bldg. M-11 .30 $15,120 $907,200 50,400 sq. ft. 375 (parking area paved) ------- $15,495 $929,700 B. Time and Method. The lease payments for each month during the lease period of this Agreement shall be payable in advance on the first day of each month during the term of this Agreement and shall be made payable to the Landlord at his below listed address, or such other address as may be later designated in writing, by the Landlord. 1.05 Security Deposit. -2- A. Amount. The Tenant will deposit with the Landlord a security deposit of none for the Subject Property which will be held by Landlord according to this Section 1.05. B. Non-Payment. The above deposit shall be held by the Landlord (without liability for interest) as security for the faithful performance by the Tenant, of all of the terms, conditions and covenants of this Agreement, which are to be kept and performed by the Tenant during the term hereof. If at any time during the term of this Agreement, which are to be kept and performed by the Tenant during the term hereof. If at any time during the term of this Agreement, any of the lease payments herein reserved shall be overdue and unpaid, or any other sun payable by Tenant to Landlord hereunder shall be overdue and unpaid, then Landlord may, at its option (but Landlord shall not be required to) , appropriate and apply any portion of said deposit to the payment of any such overdue lease payments or other sums. ARTICLE II - RIGHTS AND DUTIES OF TENANT 2.01. Use of Subject Property. Tenant shall use the Subject Property for the purpose of conducting and carrying on the design, manufacture and sale of exercise and fitness equipment, and engaging in activities allied or related thereto and for no other purpose without the written consent of Landlord. Tenant shall not utilize the Subject Property for any unlawful purpose or activity. Tenant represents it will not produce, store or use any hazardous or toxic waste or substance, PCB, dioxin or asbestos on the Subject Property. 2.02. Improvements by Tenant. The Tenant shall not make any alterations or improvements in or to the Subject property without the prior consent of the Landlord. All alterations and improvements made shall be at the Tenant's expense, and ail such alterations and improvements made or added to the Subject Property, may be removed by Tenant so long as the Tenant repairs any damages to the Subject Property occasioned by such removal or such removal does not result in any damage to the Subject Property; provided, however, that at the time of Landlord's consent, Landlord shall specify whether the alterations and/or improvements must be or may be removed by Tenant at the end of the lease term. 2.03. Miscellaneous Expenses. Tenant agrees, at its own expense, to pay all cleaning and janitor costs relative to the Subject Property; to provide its own insurance on improvements and personal property installed or placed by Tenant in or on the Subject Property; to pay all costs and expenses of every nature in connection with Tenant's business activities on the Subject Property, including but not limited to all utility, garbage collection and other charges incurred by Tenant. In addition, Tenant at its own expense, shall pay all property taxes, and fire insurance related to Tenant's personal property and improvements and fixtures installed by Tenant. See Rider 1, Rider 2, Rider 3. 2.04. Insurance. Tenant shall, at all times during the term of this Agreement, maintain in full force and effect, and pay all premiums for, public liability and general hazard insurance with a reputable insurance company or companies acceptable to Landlord covering Tenant's personal property, inventory, improvements and fixtures (but not covering the Subject Property). The general liability limits of said policy or policies shall not be less than $1,000,000.00 per -3- person and per occurrence. Tenant shall, upon request, furnish to Landlord a copy of each policy, and each such policy shall provide that it may not be canceled without prior written notice to Landlord. Landlord and Tenant waive and relinquish any right or claim, including rights of subrogation, against one another that may arise out of any fire or other hazard occurring upon or to the Subject Property or any property (real or personal) of either party located in or upon the Subject Property. See Rider 4. 2.05. Repair and Maintenance. Tenant shall at all times during the term hereof, and any extensions thereof, keep the Subject Property in sightly condition, and in good repair, and shall not permit the accumulation of any rubbish on the Subject Property. The word "repair" as used in this paragraph shall include any repairs, replacements, changes and/or additions to the Subject Property which may be required by Tenant's use and occupancy thereof, and shall include scheduled servicing and maintenance of all heating and air conditioning equipment and snow removal. In addition to maintaining the Subject Property the Tenant shall keep it free from all liens, encumbrances and security interest, not sell, misuse, conceal, or in any way dispose of it or permit it to be used unlawfully or for hire or contrary to the provisions of any insurance coverage; and not permit it to become a fixture or an accession to other goods. The provisions of this paragraph shall not apply to repairs or reconstruction in the event of damage by fire, casualty or other destruction, or in the event of eminent domain, which shall be the responsibility of Landlord. See Rider 5. 2.06. Liens and Encumbrances. Tenant agrees that it shall not take any actions, nor make any representations in connection with the Subject Property, nor Tenant's business activities on the Subject Property, which shall have the affect of, or result in the attachment of any lien or other encumbrance to the Subject Property or other-wise to interfere with Landlord's title to the underlying real property. Tenant agrees to repay Landlord the cost to remove any lien with 181 annual interest on any cost to Landlord. ARTICLE III - RIGHT AND DUTIES OF LANDLORD 3.01. Assignment and Subletting. Tenant will not assign this Agreement in whole or in part, nor sublet all or any part of the Subject Property, without the prior written consent of Landlord in each instance, which consent shall not be unreasonably with-held. The consent by Landlord to any assignment or subletting shall not constitute a waiver of the necessity for such consent to a-ny subsequent assignment or subletting. If this Agreement be assigned, or if the Subject Property, or any part thereof, be sublet or occupied by anybody other than Tenant, Landlord may collect rent from the assignee, subtenant or occupant, and apply the net amount collected to the rent herein reserved; but no such assignment, subletting, occupancy or collection shall be deemed a waiver of this covenant, or the -acceptance of the assignment, subtenant or occupant as tenant or a release of Tenant from the further performance by Tenant of its covenants and agreement specified herein. Notwithstanding any assignment or sublease, Tenant shall remain fully liable on this Agreement and shall not be released from performing any of the terms, conditions and covenants of this Agreement without the express written consent of Landlord. -4- 3.02. Entry by Landlord. Landlord or its agents shall have the right to enter and inspect the Subject Property upon notice to Tenant and at reasonable times and in such manner so as not to interfere with Tenant's business, to examine the Subject Property and to show the Subject Property to prospective purchasers or lessees of the Subject Property and to make repairs, alterations, improvements or additions as Landlord may deem necessary or desirable. in the case of emergency, if Tenant or Tenant's agent shall not be personally present to open and permit an entry into the Subject Property at any time when, Landlord or Landlord's agent may enter the same by a master key or may forcibly enter the same without in any manner affecting the obligations and covenants of this Agreement, any damage caused to property by Landlord would be repaired by the Landlord at its cost. Nothing herein contained, however, shall be deemed or construed to impose upon Landlord any obligations, responsibility or liability whatsoever for the care, maintenance or repair of the Subject Property, or any part thereof, except as otherwise herein specifically provided. 3.03. Quiet Enjoyment. Landlord warrants and represents that it shall place and maintain Tenant in the peaceful and undisturbed possession of the Subject Property throughout the entire term of this Agreement (including any extensions thereof) so long as Tenant pays the lease payments and performs all of its covenants as specified herein. This Agreement shall be subject and subordinate to the lien of any mortgage or mortgages or trust deed or deeds which may be placed upon the Subject Property or the underlying real property, by Landlord, and Tenant covenants that it will execute and deliver to Landlord or to the nominee of Landlord proper subordination agreements to this effect at a time upon the request of Landlord and without payment being made therefore. Landlord agrees not to create any lien or encumbrance on the Subject Property which shall adversely affect Tenant's right or interest in this Agreement or in the Subject Property, and to defend and indemnify Tenant against all damage or expense suffered by Tenant as a result of the creation or enforcement of any such lien or encumbrance. Any mortgage or deed of trust executed by Landlord upon the Subject Property shall be upon the condition that the mortgages or Trust Deed upon foreclosure or exercise of power of sale shall be subject to this Agreement and Landlord's rights hereunder as provided by law. In the event of any failure of Landlord to abide by the provisions hereof, or in the event of any default of Landlord in performance of its obligations to the holder of an encumbrance on the Subject Property, Tenant may at its election cure any default under any such mortgage or deed of trust but shall not be obligated to do so, and Tenant may deduct the cost of curing such default from the lease payments thereafter to be paid pursuant to this Agreement, and Tenant shall thereupon be subrogated to the rights of the holder of such mortgage or deed of trust against Landlord. 3.04. Waiver of Landlord's Lien. Landlord hereby expressly waives and relinquishes any and all rights it may have or may hereafter acquire in and to a Landlord's or other lien upon any of the inventory, fixtures, furnishings, equipment or improvements of the Tenant that may from time to time be located in or upon the Subject Property, in this regard, Landlord acknowledges that Tenant may from time to time grant various lenders a security interest in and to Tenant's inventory, furnishings, fixtures, equipment and other improvements that may be located upon the Subject Property for the purpose of securing certain indebtedness essential in the operation of Tenant's business. Accordingly, Landlord shall not now or hereafter claim any lien or other right in and to any of Tenant's inventory, equipment, furnishings, fixtures or -5- improvements. Further, Landlord agrees to execute such landlord waivers as may from time to time be required by Tenant's lenders, so long as such landlord waivers are not inconsistent with the terms of this Agreement. 3.05. Insurance. Landlord shall, at all times during the term of this Agreement, maintain in full force and effect: and pay all premiums for public liability and general hazard insurance with a reputable insurance company or companies acceptable to Tenant covering the Subject Property and all of Landlord's improvements thereon (but not covering Tenant's personal property, inventory, improvements or fixtures). The general liability limits of said policy or policies shall not be less than $1,000,000.00 per person and per occurrence. Landlord and Tenant waive and relinquish any right or claim, including rights of subrogation, against one another that may arise out of any fire or other hazard occurring upon or to the Subject Property or any property (real or personal) of either party located in or upon the Subject Property. 3.06 Destruction of the Subject Property. In the event of a partial destruction of the Subject Property during the term of this Agreement, or any extension thereof, from any insured cause, Landlord shall forthwith repair the same, provided such repairs can be made within ninety (90) days under the laws and regulations of state, federal, county or municipal authorities; but such partial destruction shall, in no way, annul or void this Agreement, except that the lease payments reserved to be paid hereunder shall be equitably adjusted according to the amount and value of the undamaged space. If such repairs cannot be made within ninety (90) days, this Agreement may be terminated at the option of either party. ARTICLE IV - EMINENT DOMAIN 4.01. Total Taking. If the whole of the Subject Property hereby demised shall be taken or condemned by any competent authority for any public use or purpose or if so much thereof shall be taken so that Tenant would be unable to continue normal business operations, then the Lease term hereby granted shall cease on the day prior to the vesting of title in such authority and lease payments hereunder shall be paid and adjusted as of that date; any prepaid rental shall be prorated as of the date of such termination. 4.02. Partial Undertaking. if a portion of the Subject Property shall be taken and, as a result thereof, there shall be such a major change in the character of the Subject Property as to prevent Tenant from using the same in substantially the same manner as theretofore used, then and in that event Tenant, upon fifteen (15) days notice to Landlord, may either cancel and terminate this Agreement as of the date when that part of the Subject Property so taken shall be required for such public purpose, or said Tenant way continue to occupy the remaining portion. In the event Tenant shall remain in possession and occupancy of the remaining portion of the Subject Property, all the terms and conditions of this Agreement shall remain in full force and effect with respect to such remaining portion, except that the lease payments reserved to be paid hereunder shall be equitably adjusted according to the a-mount and value of such remaining space; and provided, further, that Landlord shall, at Landlord's own expense, promptly and with all reasonable diligence, do such work as to make a complete architectural unit of the remainder of the Subject Property and this Agreement shall continue for the balance of its term, subject to -6- the terms and conditions herein stated. The portion, if any, of the award or compensation paid on account of such taking to which Tenant is entitled pursuant to the provisions of paragraph C hereof shall be made available to and used by Tenant to pay for the cost or repairing, restoring or constructing said buildings and improvements. If any part of Tenant's portion of the award of compensation shall not be required to pay for the cost of such work, such portion shall, except for the rights of any first mortgagee, be divided equally between Tenant and Landlord. ARTICLE V - EVENTS OF DEFAULT; REMEDIES 5.01. Default by Tenant. Upon the occurrence of any of the following events Landlord shall have the remedies set forth in Section 5.02. A. Tenant fails to pay any rental or any other sum due hereunder within ten (10) days after the same shall be due. B. Tenant fails to perform any other term, condition, or covenant to be performed by it pursuant to this Agreement within thirty (30) days after the written notice of such default shall have been given to Tenant by Landlord. C. Tenant or its agents shall falsify any report required to be furnished to Landlord. D. Tenant of this Agreement shall become bankrupt or insolvent or file any debtor proceedings or have taken against such party in any court pursuant to state or federal statute, a petition in bankruptcy or insolvency, reorganization, or appointment of a receiver or trustee; and such proceeding shall not be dismissed, discontinued or vacated within thirty (30) days from the filing or appointment, or Tenant petitions for or enters into an arrangement; or suffers this Lease to be taken under writ of restitution. E. The doing, or permitting to be done, by Tenant of any act which creates a mechanic's lien or claim against the land or building of which the Subject Property are a part if not released or otherwise provided for by indemnification satisfactory to Landlord within thirty (30) days thereafter; and 5.02. Remedies. Upon the occurrence of the events set forth in Section 5.01, Landlord shall have the option to take any or all of the following actions, without further notice Or demand of any kind to Tenant or any other person: A. Immediately re-enter and remove all persons and property from the Subject Property, storing said property in a public place, warehouse, or elsewhere at the cost of, and for the account of, Tenant, all without service of notice or resort to legal process and without being deemed guilty of or liable in trespass. No such re-entry or taking possession of the Subject Property by Landlord shall be construed as an election on its part to terminate this Agreement unless a written notice of such intention is given by Landlord to Tenant. No such action by Landlord shall be considered or construed to be a forcible entry. -7- B. Should Landlord re-enter, as provided above, or should it take possession pursuant to legal proceedings or pursuant to any notice provided for by law, and whether or not it terminates this Agreement, it may make such alterations and repairs as may be necessary in order to relet the subject Property, and relet the same or any part for such term or terms (which may be for a term extending beyond the term of this Agreement) and at such rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable. Upon each such reletting all rentals received by the Landlord from such reletting shall be applied, first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs and expenses of such reletting, including brokerage fees and attorney's fees and costs of any alterations and repairs; third, to the payment of rent due and unpaid, and the residue, if any, shall be held by Landlord and applied in payment of future rents as the same may become due and payable. If such rentals received from such reletting during any month be less than that to be paid during such month by Tenant, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No such re-entry and reletting of the Subject Property by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant pursuant to subsection c., above. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Agreement for such previous breach. The remedies given to Landlord in this Section 5.02 shall be in addition and supplemental to all other rights or remedies which Landlord may have under laws then in force. C. Collect by suit or otherwise each installment or rent or other sum as it becomes due hereunder, or enforce, by suit or otherwise, any other term or provision on the part of Tenant required to be kept or performed. D. Terminate this Agreement by ten (10) days written notice to Tenant. In the event of such termination, Tenant agrees to immediately surrender possession of the Subject Property. Should Landlord terminate this Lease, it way recover from Tenant all damages it may incur by reason of Tenant's breach, including the cost of recovering the Subject Property, reasonable attorney's fees, and the worth at the time of such termination of the excess, if any, of the amount of rent and charges equivalent to rent reserved in this Agreement for the remainder of the stated term over the then-reasonable rental value of the Subject Property for the remainder of the stated term, all of which amounts shall be immediately due and payable from Tenant to Landlord. ARTICLE VI - MISCELLANEOUS 6.01. Waiver. The waiver by Landlord of any breach of any term, covenants or condition herein contained shall not be deemed to be a waiver of such term, condition or covenant, or any subsequent breach of the same, or any other term, covenant or condition herein contained. The subsequent acceptance of lease payments hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Agreement, other than the failure of Tenant to pay the particular lease payment so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such lease payment. No covenant, term or condition of this Lease shall be deemed to have been waived by Landlord unless such waiver be in writing by Landlord. -8- 6.02. Entire Agreement. This Agreement contains the entire Agreement between the parties, and no representations, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein shall be of any force and effect. 6.03. Force Majeure. In the event that either party hereto shall be delayed or hindered in, or prevented from, the performance of any act required hereunder, by reason of strikes, lockouts, labor trouble, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrections, war, natural disaster, or other reason of a like nature, not the fault of the party delayed in performing work or doing acts required under the term of this Agreement, then performance of such act shall be excused for the period of the delay, and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. The provisions of this paragraph shall not operate to excuse Lessee from payment of any lease payment, additional lease payment or other payments required by the terms of this Agreement. 6.04. Delivery of Subject Property. Tenant agrees to deliver LIP the Subject Property to Landlord at the expiration of this Agreement in as good a condition as when the same was entered into by Tenant, reasonable wear and tear excepted. 6.05. Default. If either party defaults in any of the Covenants or agreements contained herein, the defaulting party shall pay all Costs and expenses, including a reasonable attorney's fee, incurred by the other party in enforcing its rights arising under this Agreement. 6.06. Notices. Any notices sent to the parties may be sent to them at the following addresses by certified or registered mail: Landlord, Freeport Center Associates P.O. Box 132S Clearfield, Utah 84016 Tenant: ProForm Fitness Products, Inc. Attn: Chief Financial Officer 1500 South 1000 West Logan, Utah 84321 6.07. Headings and Paragraph Numbers. Headings and paragraph numbers have been inserted solely for convenience and reference and shall not be construed to effect the meaning, construction of effect of this Agreement. 6.08. Invalid Provision. If any provisions of this Agreement shall be determined to be void or unenforceable, such determination `shall not effect the validity of any remaining portion of this Agreement, and any remaining portion shall remain in full force and effect as if this Agreement had been executed with the invalid portion eliminated. -9- 6.09. Binding. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their heirs, agents, successors-in- interest, assigns and transferees. 6.10. Governing Law. The terms and conditions of this Agreement shall be governed according to the laws of the State Of Utah. 6.11. Authority of Signatories. Each person executing this Agreement individually and personally represents and warrants that he is duly authorized to execute and deliver the same on behalf 6f the entity for which he is signing (whether it be a corporation, general or limited partnership, or otherwise), and that this Agreement is binding upon said entity in accordance with its terms. See Rider 7. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first hereinabove written. LANDLORD: FREEPORT CENTER ASSOCIATES By /s/ ILLEGIBLE ------------------------------------- Its [ILLEGIBLE] ---------------------------------- TENANT: PROFORM FITNESS PRODUCTS, INC. By /s/ S. Fred Beck ------------------------------------- Its _________________________________ -10- EXHIBIT "A" - PREMISES 50,400 square feet of floor space, more or less, in Building Number M-11 together with the underlying and immediately adjacent land and such use of the surrounding walls and roof as may be necessary for use of the space for the purposes herein set out, such land and building being more completely delineated on a map entitled "General Plan, Conditions as of June 1988" attached hereto as Exhibit "B", and made a part hereof, and the location of such floor space within such building being more completely delineated on a drawing entitled Building M-11, attached hereto as Exhibit "C" and made a part hereof. Together with the necessary rights of ingress and egress and the right to use in common with other, all of the roadways serving the above described buildings to the extent necessary to enable the Tenant to utilize the property for the purposes herein set forth. -11- EXHIBIT "B" [GRAPHIC OMITTED] -12- EXHIBIT "C" [GRAPHIC OMITTED] -13- Rider 1 PAYMENT OF CERTAIN INCREASES IN PROPERTY TAXES, UTILITIES AND INSURANCE: PAYMENT OF TAXES AND UTILITIES: Tenant shall pay its pro rata share of all property increases tax (on land and improvements) over and above the 1994 base year taxes, and all charges for public utilities including water and sewer used on the leased premises. Landlord shall pay the 1994 taxes (1994 Base Year Tax) for the term of this lease or extensions. Tenant shall be required to pay the increase, if any, over the 1994 Tax Base amount. Landlord will provide Tenant with a complete computation of property taxes including a pro ration by the Davis County Assessor and assessments on the premises and within thirty (30) days thereafter Tenant will pay to Landlord such amount as is due! to the taxing authorities for the premises. Provided, however, that Tenant shall not be required to pay Landlord until fifteen (15) days from the date which taxes are due, that date being November 30, of each year. Real property taxes include all assessments and other governmental levies, ordinary and extraordinary, foreseen and unforeseen, which are assessed or imposed upon the premises or become payable during the term of this Lease. Landlord warrants that as of the date this Lease is executed there are no special assessments taxed or imposed against the premises. All amounts payable by Tenant under the provisions of this Paragraph shall be prorated during the first and last years of this Lease on the basis of a 360-day year, 30 days allocated to each month. The Tenant shall also have the right at its own cost and expense, and for its sole benefit, to initiate and prosecute any proceedings permitted by law for the purpose of obtaining an abatement of or otherwise contesting the validity or amount of taxes assessed to or levied upon the demised premises and required to be paid by the Tenant and to defend any claims for lien that may be asserted against Landlord's estate, and, if required by law, the Tenant may take such action in the name of the Landlord who shall cooperate with the Tenant to such extent as the Tenant may reasonably require, to the end that such proceedings may be brought to a successful conclusion; provided, however, that the Tenant shall fully indemnify and save the landlord harmless for all loss, cost, damage and expense incurred by or to incurred or suffered by the Landlord in the premised arising out of such tax protest. PAYMENT OF INSURANCE Tenant shall also pay to Landlord any amount by which the property insurance premiums allocable to the demised premises for any year during the term of this Lease exceed the annual premium of $270.56 presently paid by Landlord for the demised premises prior to Tenant's occupancy. In determining whether increased premiums are allocable to the demised premises, any schedules `or rating procedures, as well as general rate increases, as determined by the Organization issuing the insurance shall be conclusive evidence of the several items and charges which make up the insurance rates and premiums on the demised premises. Landlord will provid6 Tenant with a complete computation of the premium increase on the demised premises and within thirty (30) days thereafter Tenant will pay Landlord the insurance premium increase as set forth in the computation. -14- C. If this Lease is terminated at other than the end of a calendar year, all amounts payable by Tenant to Landlord under the provisions of this paragraph shall be prorated an the basis of a 360-day year, 30 days allocated to each month. Rider 2 CONDITION OF THE PREMISES: Tenant has inspected the demised premises including all equipment which is a part thereof and accepts the premises in the condition they are in at the time of the commencement of the term of this Lease without any representation express or implied on the part of Landlord or its agents as to the condition of the premises, or suitability of the premises for Tenant's use. Rider 3 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS: Tenant shall, at Tenant's own expense, comply with all laws, ordinances, regulations or orders of any federal, state, country, municipal or other public authority affecting the Tenant's use of the premises promptly correcting any non-compliance upon discovery thereof and Landlord hereby consents to any action reasonably taken by Tenant to correct such non-compliance. Tenant will not commit any waste on the premises nor permit any obnoxious odors or noise to emanate from the premises, nor shall it knowingly use or permit the use of the premises in violation of any present or future law, rule or regulation of the United States or of the State of Utah, or in violation of any country or municipal ordinance or regulation applicable thereto. Rider 4 INDEMNIFICATION: Tenant shall pay and shall indemnify and hold harmless from and against any and all liabilities, fines, losses, damages, costs (including attorney's fees and expenses) causes of action, claims or judgments of any nature whatsoever, unless due to the negligence or willful misconduct of Landlord or its principals, employees or agents, in connections with any and all of the following: (a) any injury to, or the death of, any person on the premises or upon adjoining streets or walks, or in any way related to Tenant's use or occupancy of the premises: (b) any theft of or damage to or destruction of goods, wares, merchandise and all other property of Tenant or others located on the premises or arising from Tenant's use of the premises; (c) any negligent, careless or willful act of Tenant or any of its agents, Contractors, servants, employees, assigns or subtenants, licensees or invitees, if any; (d) any violation by Tenant of any covenant, restriction, agreement or condition of this Lease; violation by Tenant of any contract or agreement to which Tenant is a party relating to Tenant's -15- use of the premises, or violation by Tenant of any restriction, law, ordinance or regulation affecting the premises of any part thereof including the occupancy of use thereof. Each of these indemnifications shall survive the expiration of termination of this Lease. Rider 5 AUTOMATIC SPRINKLER SYSTEM: Landlord agrees to maintain the Automatic Sprinkler System to conform with the requirements of the Utah Fire Rating Bureau for grading the building as any Automatic Sprinklered Building. Tenant agrees to repair any damage to this system arising out of its occupancy, and to hold Landlord free and harmless from damage to or destruction of any and all property resulting from leakage of said Automatic Sprinkler System, during the term of this Lease or any extension thereof, or any holdover occupancy. GLASS: Tenant agrees to immediately replace all glass broken or damaged during the term of this Lease with glass of the same quality as that broken or damaged. LIGHTS ON EXTERIOR OR BUILDING: Tenant shall burn the lights affixed to the exterior of any building it occupies from one (1) hour after sunset to one (1) hour before sunrise nightly. Rider 6 Tenant and Landlord hereby mutually release and waive their entire right of recovery against the other party for any and all loss or damage to the improvements, all personal property of Tenant, and any installation, betterments or improvements added to the building by Tenant, where such loss is occasioned, caused or incurred by, or results from fire, windstorm, hail, explosion, riot attending strike, civil commotion, aircraft, vehicles, smoke and vandalism and all other perils which are insurable against, whether said loss occurred or was caused by the negligence of the Tenant or Landlord, their agents, servants, employees, sublessees or concessionaires, or otherwise. Landlord and Tenant each further warrant that insurance companies insuring Landlord or Tenant shall have no rights against the other, whether by assignments, subrogation or otherwise. Willful misconduct of a criminal nature lawfully attributable to either party shall to the extent that said conduct contributes to loss or damage not be excused under this Paragraph. Rider 7 LIMITATION OF LANDLORD'S LIABILITY: The obligations of Landlord under this Lease do not constitute personal obligations of the individual partners of Landlord and Tenant shall look solely to the real estate that is the subject of this Lease and to no other assets of the Landlord for satisfaction of any liability in respect of this Lease and will not seek recourse against the individual partners of Landlord or any of their personal assets for such satisfaction. SUBORDINATION OF LEASE TO MORTGAGES ON THE DEMISED PREMISES: This Lease shall be subject and subordinate to any mortgage (or trust deed) now existing or hereafter placed on the demised premises given to secure a loan made by a lender to Landlord, and to any renewals, replacements, extensions or consolidations thereof, which shall contain a provision that, so long as -16- Tenant shall not be in default in the performance of its obligations under this Lease in such manner and after such notice as would entitle Landlord to terminate this lease, the holder of such mortgage shall not disturb the possession of Tenant or terminate this Lease. -17- Building M-11 Amendment Term: 11/01/95 - 9/30/99 Month to Month Thereafter AMENDMENT TO LEASE This Amendment to lease is made and entered into this 12th day of October, 1995 by and between FREEPORT CENTER ASSOCIATES, hereinafter called "Landlord" and ICON HEALTH & FITNESS, hereinafter called "Tenant." W I T N E S S E T H In consideration of the covenants and agreements of the respective parties herein contained, the parties hereto do hereby agree as follows: BACKGROUND INFORMATION WHEREAS, Landlord and Tenant have executed a Lease dated Oct. 1, 1994 affecting certain real property in the City of Clearfield, County of Davis, State of Utah, known as Building M-11 and WHEREAS, Tenant desires to have certain improvements and modifications made to the demised premises by Landlord, and Landlord is willing to contact for construction of certain improvements and modifications. Tenant agrees to repay Landlord for the contracted improvements in the form of higher rental payments over a 47 month term commencing November 1, 1995 and ending September 30, 1999. THEREFORE, for valuable consideration, the receipt of which is acknowledged by both parties, the parties hereto agree that the above described lease is amended as follows: A. A new Paragraph 1.04 B entitled ADDITIONAL RENT FOR 1995 IMPROVEMENTS is added to the existing Paragraph 1.04 of the Lease to read in its entirety as follows: -18- 1.04.B. ADDITIONAL RENT FOR 1995 IMPROVEMENTS: Tenant also agrees to pay as ADDITIONAL RENT to Landlord at the office of Landlord, Clearfield, Utah, or at such other place as Landlord may from time to time designate over the term of the Lease as ADDITIONAL RENT of $505 per month calculated as follows: Paving North End of Building M-11 Cost: $24,734 Less: Landlord's Participation 6,956 ------- Cost to be Amortized $17,778 AMORTIZATION: Principle Amount $17,778 Term: 47 months (11/01/95 - 9/30/99) Interest Rate 9.5% Monthly Payment $ 455 B. A new Exhibit "E" shall be added to the Lease. Said Exhibit "E" consists of a proposal from Jack B. Parson Companies and is a proposal/contract and description of the work to be performed. Except for the foregoing, all the terms and conditions of the existing lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this instrument to be executed the day and year first above written. TENANT: LANDLORD: ICON HEALTH & FITNESS FREEPORT CENTER ASSOCIATES By /s/ ILLEGIBLE By /s/ ILLEGIBLE ---------------------------------- -------------------------------- Its Sr. V.P. of Mfg. Its [ILLEGIBLE] --------------------------------- -------------------------------- -19- EXHIBIT "E" July 15, 1994 Freeport Center Attn: Steve Barrett P.O. Box 1325 Clearfield, UT 84016 RE: Building M-11 East/Parking Area Dear Steve: Big-D Construction proposes to furnish all material, labor, equipment, and supervision necessary to complete the following: . Finish grade area east of Building M-11 (Approximately 380' x 150') . Curb wall around landscape area . Install 6" engineered fill and compact . Install 3" asphalt . Stripe lot with 154 stalls TOTAL BID AMOUNT: $60, 500.00 ----------- Alternate #1 Provide Items 1, 2, and 3 only from above scope of work TOTAL $24,225.00 I appreciate the opportunity to work with you. Please feel free to give me a call if I can be of any further assistance. if you agree with the above scope of work, please sign and return for contractor's signature. The original copy will then be sent back to you. FREEPORT CENTER BIG-D CONSTRUCTION Owner Contractor By: __________________________ By: __________________________ Signature Signature Mark Wayment, Project Manager _______________________________ ------------------------------- Printed Name & Title Printed Name & Title -20- July 15, 1994 Freeport Center Attn: Steve Barrett P.O. Box 1325 Clearfield, UT 84016 RE: Building M-11 East Dear Steve: Big-D Construction proposes to furnish all material, labor, equipment, and supervision necessary to complete the following: . Provide civil, architectural, and structural drawings for project . Site demolition includes all sawcutting of concrete, asphalt and curb and gutter . Install storm drain system as per civil drawings . Relocate fire hydrant to accommodate new truck ramp . Pour foundation around existing tank pad to new size of 25' x 65' and new dock floor to foundation where needed . Pour retaining walls on each side of new truck ramp . Install slot drain at bottom of truck ramp . Pour 6" reinforced concrete ramp . Repair curb & gutter to accommodate new layout . Repair landscaping . Install steel canopy 25' x 65' x 16' high with lighting . Demo door openings and structurally support to accommodate new 12' x 11' rollup doors (two each) . Provide and install four each dock levelors . Site safety and cleanup TOTAL BID AMOUNT: $167,312.00 ----------- I appreciate the opportunity to work with you. Please feel free to give me a call if I can be of any further assistance. -21- if you agree with the above scope of work, please sign and return for contractor's signature. The original copy will then be sent back to you. FREEPORT CENTER BIG-D CONSTRUCTION Owner Contractor By: __________________________ By: ____________________________ Signature Signature Mark Wayment, Project Manager _______________________________ --------------------------------- Printed Name & Title Printed Name & Title -22- ESTIMATE SUMMARY
Bid Sheet M-11 Freeport Ctr. 0 Sq. Ft. Big-D Const. Dock Mod. Prepared Mark Wayment - -------------------------------------------------------------------------------------------------- TRADE QUANTITY MAT. LABOR EQUIP. SUB TOTAL ================================================================================================== General Conditions 321 3720 3440 160 $ 7,641 Permits & Fees 0 186 0 2480 $ 2,666 Arch. Fees 0 0 0 2240 $ 2,240 Civil Eng. & Layout 0 273 0 2682 $ 2,955 Site Demo 85 628 703 3255 $ 4,671 Storm Drain 0 0 0 7210 $ 7,210 Fire Hydrant 0 0 0 4488 $ 4,488 Sawcut & Demo @ Dock 85 1342 1160 6480 $ 9,067 Excavation 426 Yds. 115 1013 322 0 $ 1,450 Foundation 130' 399 891 162 0 $ 1,452 Backfill 91 Yds. 35 263 114 0 $ 412 Dock Floor Patches 382 406 851 0 $ 1,639 Retaining Wall 184' 572 974 864 0 $ 2,410 Slot Drain 65' 2044 1135 322 0 $ 3,501 Concrete Ramp 6000' 11333 3792 1080 0 $ 16,205 Waterway R/R 175' 312 1146 680 255 $ 2,393 Curb & Gutter 0 0 0 1860 $ 1,860 Landscaping 0 0 0 3740 $ 3,740 Steel Canopy 2080' 12748 5291 3417 0 $ 21,456 Struct. Steel Jamb 4 Ea. 3520 1940 380 0 $ 5,840 Sawcut Door Op. 4 Ea. 0 382 185 2880 $ 3,447 Sawcut Levelor P 4 Ea. 0 486 316 912 $ 1,714 Bollards 8 Ea. 480 402 144 0 $ 1,026 Asphalt Patch 0 0 0 1735 $ 1,735 Painting 0 0 0 1936 $ 1,936 O.H. Doors 2 Ea. 0 0 0 5432 $ 5,432 Dock Levelors 4 Ea. 0 526 112 9264 $ 9,902 Canopy Elect. 0 0 0 3360 $ 3,360 Cleanup 160 418 224 240 $ 1,042 - -------------------------------------------------------------------------------------------------- Subtotal 32,591 25,214 14,476 60,609 $132,890 Bond (From Table) 0.00% $ 0 Sales Tax 6.25% $ 2,037 Labor Burden 38.00% $ 9,581 -------- Total Direct Costs $144,508 Overhead & Profit 15.78% $ 22,803 0 0.00% $ 0 -------- TOTAL $167,312
-23- July 15, 1994 Freeport Center Attn: Steve Barrett P.O. Box 1325 Clearfield, UT 84016 RE: Building M-11 East/Interior Work Dear Steve: Big-D Construction proposes to furnish all material, labor, equipment, and supervision necessary to complete the following: . Demo Mezzanine pit and red iron . Infill Mezzanine floor flush with existing . 6" stud framing wall on west side of Mezzanine and drywall to finish . Remove brick pavers and trough drains and pour concrete flush with existing . Demo H.V.A.C. ducting in cooler room to ceiling height or approximately 10' and cap as needed . Move and modify steel stairs as needed to install on east side of Mezzanine . Site Safety and cleanup TOTAL BID AMOUNT: $18,741.00 ---------- I appreciate the opportunity to work with you. Please feel free to give me a call if I can be of any further assistance. if you agree with the above scope of work, please sign and return for contractor's signature. The original copy will then be sent back to you. FREEPORT CENTER BIG-D CONSTRUCTION Owner Contractor By: __________________________ By: ___________________________ Signature Signature _______________________________ Mark Wayment, Project Manager -------------------------------- Printed Name & Title Printed Name & Title -24- ESTIMATE SUMMARY
Bid Sheet M-11 Freeport Ctr. 0 Sq. Ft. Interior Work Prepared By: Big-D Const. - ---------------------------------------------------------------------------------------------- TRADE QUANTITY MAT. LABOR EQUIP. SUB TOTAL ============================================================================================== General Conditions 45 826 362 0 $ 1,233 Demo Mezz. Pit 0 601 318 0 $ 919 Infill Mezz. Pit 300 813 524 0 $ 1,637 Mezz. Flooring 425 744 315 0 $ 1,484 Mezz. Wall 210 341 105 0 $ 656 Demo Elev Shaft 15 593 162 0 $ 770 Railings 1154 605 213 0 $ 1,972 Demo & Concrete Paver Area 1536 1131 1372 0 $ 4,039 Demo H.V.A.C. Duct 0 506 123 0 $ 629 Move & Modif. Stairs 113 428 72 0 $ 613 Misc. Patch/Repairs 85 243 60 0 $ 388 Site Cleanup & Safety 30 206 110 132 $ 478 - ---------------------------------------------------------------------------------------------- Subtotal 3,868 6,211 3,374 132 $13,585 Bond (From Table) 0.00% $ 0 Sales Tax 6.25% $ 242 Labor Burden 38.00% $ 2,360 ------- Total Direct Costs $16,187 Overhead & Profit 15.78% $ 2,554 0 0.00% $ 0 ------- TOTAL $18,741
-25- [Freeport Center Associates Header] August 8, 1994 VIA FAX - (801) 753-0209 John White Pro-Form Re: Incremental Increase for Paved Parking Lot Dear Jon: I think it would be prudent to pave the new parking lot, install curb and gutter and do some modest landscaping along the west edge of the lot. The incremental cost to do this is $36,275. I propose to split the cost equally with Pro-Form for this increased expense. Pro-Form's share, amortized over the 60 month lease term is $375 per month. If you are in agreement, I would amend the lease to indicate this change. Sincerely, FREEPORT CENTER ASSOCIATES /s/ Stephen L. Barrett - --------------------------- Stephen L. Barrett Director Economic Development -26- [Jack B. Parson Header] PROPOSAL FREEPORT CENTER ASSOCIATES SUBMITTED TO: FREEPORT CENTER CLEARFIELD, UTAH 84015 PROJECT: ATTN: NORM LOCATION DESCRIPTION JOB SPECIFICATION AND PRICE (If unit prices are quoted, units will be measured on completion and ________ at these rates) NORTH END BUILDING M-11 1. Excavate as required to subgrade elevation 2. Furnish, place and compact an eight inch crushed gravel base 3. Furnish, place and compact a three inch asphalt mat Area Approx: 21,322 SF Unit Price of: $1.16 per SF Approx. Total: $24,734.00 EXHIBIT "E" We hereby propose to furnish labor and materials - complete in accordance with the above specifications, for the sum of SAME AS ABOVE dollars ($______________), payment to be made as follows: Net due in 30 days following date of Invoice. Including monthly payments equal to the evaluation of work performed in any preceding month. INTEREST at the rate of _______% per month will be charged on all past due accounts. This is an ANNUAL PERCENTAGE RATE OF -27- 18%. Purchaser ______________________________________ becomes necessary to place account for collection. All work to be completed in a workmanlike manner according to standard practices. Any ___________ or deviation from above specifies _____ invoke in extra cost, will be executed on ________ written orders and will become an extra charge over and above the estimated. THIS QUOTATION IS SUBJECT TO ALL THE TERMS AND CONDITIONS LISTED ON THE REVERSE SIDE HEREOF, WHICH TERMS AND CONDITIONS ARE INCORPORATED HEREIN BY REFERENCE. JACK B. PARSON COMPANIES THE UNDERSIGNED HEREBY ACCEPTS THIS PROPOSAL INCLUDING ALL TERMS AND CONDITIONS THEREOF By: /s/ ILLEGIBLE ---------------------------- ACCEPTED BY: __________________________ Dated: OCT. 11, 1995 -------------------------- TITLE: ________________________________ FOR: __________________________________ DATE: _________________________________ -28- EX-10.8 11 dex108.txt EXHIBIT 10.8 - DEED OF LEASE DTD 01/26/01 Exhibit 10.8 DEED OF LEASE BETWEEN INDOME 43 INC. AND ICON OF CANADA INC. 2 TABLE OF CONTENTS
Description Page Number - ----------- ----------- 1. Description and Lease of Premise........................... 1 2. Term of Lease.............................................. 1 3. Use of Premises............................................ 2 4. Net Rent................................................... 2 5. Rent on Net Return Basis................................... 2 6. Proportionate Expense Rental............................... 2 a) Taxes................................................. 2 b) Insurance............................................. 3 c) Other Expenses........................................ 3 7 Lessee's Contribution...................................... 4 8. Taxes, Assessments, Etc.................................... 4 9. Lessee's Insurance......................................... 5 10. Utilities and Heating...................................... 5 11. Maintenance and Repairs.................................... 5 12. Improvements and Alterations............................... 5 13. Inspection and Repair...................................... 6 14. Furnish Statement.......................................... 7 15. Failure of Lessee to Perform............................... 7 16. Default.................................................... 7 17. Liquidation Sales, Etc..................................... 8 18. Expiration of Lease........................................ 8 19. Signs...................................................... 9 20. Subletting By Lessee....................................... 9 21. Destruction of Premises.................................... 9 22. Compliance with Laws and Regulations....................... 10 23. Indemnifications........................................... 11 24. Assignment By Lessor....................................... 11 25. Floor Loading.............................................. 12 26. Condition of Leased Premises............................... 12 27. Occupancy.................................................. 12 28. Permits, Etc............................................... 12 29. Rules and Regulations...................................... 12 30. Access..................................................... 12 31. Access to Leased Premises.................................. 12 32. Inconvenience.............................................. 13 33. Expropriation.............................................. 13 34. Extensions and Location.................................... 13 35. Costs and Registration..................................... 14 36. Collection................................................. 14 37. Waiver..................................................... 14 38. Notices.................................................... 14 39. Descriptive Headings....................................... 15 40. Interpretation............................................. 15 41. Option to Cancel........................................... 15 42. Broker..................................................... 16 43. Intervention............................................... 16 44. Language................................................... 16
1 DEED OF LEASE BETWEEN: INDOME 43 INC., a body politic and corporate duly incorporated having it head office and principal place of business at 5165 Sherbrooke St. West, Montreal, Province of Quebec hereinacting through and represented by James Lyng, its Secretary, pursuant to a resolution of the Board of Directors dated November 1st, 2000, a certified copy of which remains annexed hereto. (hereinafter called the "LESSOR") AND: ICON OF CANADA INC. a body politic and corporate duly incorporated having its head office and principal place at 900 Boulevard de I'Industrie, St. Jerome, Quebec hereinacting through and represented by Mr. Richard Hebert, its president, pursuant to a resolution of the Board of Directors dated November 1st, 2000 a certified copy of which remains annexed hereto. hereinafter called the "LESSEE") 1. DESCRIPTION AND LEASE OF PREMISES. Lessor, in consideration of the rent, covenants and agreements hereinafter contained on the part of Lessee to be paid, kept and performed, hereby leases to Lessee and Lessee does hereby accept form Lessor those certain premises being the entire Building situated at 500 Lajeunesse West, St. Jerome, Quebec (the "Building) consisting of approximately 105,984 square feet and the land both of which are outlined in red on a plan annexed hereto as Schedule 1 hereof to form part hereof (hereinafter referred to as the "Leased Premises") erected upon those certain parcels of land (the "Land") known as parts of lots 488, 489, of the Cadastre of the Village of St. Jerome and of the cadastre of the Parish of St. Jerome, more specifically described in Schedule 2 attached hereto. 2. TERM OF LEASE The term of this Lease shall be for a period of five (5) years and shall commence on the 1st day of June, 2001 and terminate on the 31st day of May, 2006 unless sooner terminated under the provisions hereof. Should the Lessee continue to occupy the Leased Premises after the expiry of the Term without either a written agreement, or a validly exercised option r written extension, there shall be no tacit renewal and the Lessee shall pay the Lessor rent and other charges for the period of occupancy as set out in the Lease or renewal thereof, plus fifty percent (50%) thereof, without prejudice to such further damage claims as may be available to the Lessor against the Lessee. However, the Lessee is not to have the right to such occupancy beyond the expiry of the term. 3. USE OF PREMISES 2 Lessee covenants that the Leased Premises shall be used solely for the purpose of light manufacturing and warehousing of products manufactured by Lessee and offices related thereto. 4. NET RENT Lessee covenants and agrees to pay the Lessor in lawful money of Canada without deduction, abatement or set off, the sum of One Million Eight Hundred Fifty Four Thousand Seven Hundred and Twenty Dollars ($1,854,720) for the period June 1, 2001 to May 31, 2006, on a net, net basis payable in equal, consecutive, monthly installments each in advance on the first day of each month during the term hereof ($30,912.00 per month) (the "Base Rental"). The rent as herein provided shall be paid to Lessor and/or its nominee at the head office of the Lessor, situated at the address in the heading hereof or at such other place in Canada as shall be designated by Lessor in writing to Lessee. The Leased Premises shall be deemed to be composed of the square footage herein stipulated notwithstanding any possible calculation to the contrary. 5. RENT ON NET RETURN BASIS It is intended that the rent provided for in this Lease shall be an absolute net return to Lessor for the term of this Lease, regardless of the condition of the Leased Premises, free of any and all costs, expenses of any nature whatsoever save as herein provided, taxes and charges with respect to the Leased Premises, other than any income or profit taxes which may be levied against Lessor and any interest or amortization charges of Lessor in respect of mortgages or hypothecs. 6. PROPORTIONATE EXPENSE RENTAL Without limiting the obligations of the Lessee, the Lessee shall pay during the Term of this Lease, as additional rental to the Lessor, One Hundred Percent (100%) of the aggregate of the following (adjusted in the first and last year of the term) hereinafter referred to as the Lessee's ("Proportionate Share"). a) TAXES The Lessee shall pay, whether they be special or general, its Proportionate Share of all taxes, surtaxes, taxes on non-residential immoveables, property taxes, municipal taxes, school taxes, water and business taxes, rates including local improvement rates, charges, duties and assessments, which are now or which may ever be levied against the Building and Land or the revenues therefrom, against the Lessor for the Leased Premises and all equipment and facilities thereon or therein, and/or any property on or in the Building owned or brought thereon or therein by Lessor or Lessee, and any and every of its assignees or sublessees and its and their respective officers, agents, employees, servants, visitors or licensees and/or against Lessor or Lessee in respect thereof, whether such taxes, rates, duties or assessments are charged by a municipal, parliamentary, school, or any other body of competent jurisdiction as well as all reasonable expenses related to the contestation of any part of said charges and all other taxes no matter how issued in replacement of same. b) INSURANCE 3 The Lessee shall pay its Proportionate Share of all premiums with respect to insurance to be placed by Lessor and described as follows: i) Fire extended Coverage and Malicious Damage insurance for the full insurable value procurable at the time, of the Building, its improvements and equipment and in addition upon the full annual rental income thereof; ii) Broad Boiler and Unfired Pressure Vessels insurance, including Repair or Replacement and rental income coverages in an amount reasonably satisfactory to the Lessor. iii) Such other insurance as institutional lenders may require or as it may be or may become customary for owners of property to carry as respects loss of or damage to the Building and/or Leased Premises or liability arising therefrom. The aforesaid insurance premiums shall include an amount reasonably determined as being equivalent to a fair premium for the deductible portion of insurance policy in question, provided that the total sum payable by the Lessee shall not exceed the amount that would be payable by the Lessee shall not exceed the amount that would be payable by the Lessee if the insurance policy would not have any deductible portion. Lessee will pay the amount of any increase in insurance premiums on the whole of the building of which the Leased Premises form part if such increase is caused by lessee's operations in the Leased Premises. Lessee shall have the right should it so desire to insure the Leased Premises with respect to all of the aforegoing, naming the Lessor as the beneficiary pursuant to said insurance in force and content and amount with insurers acceptable to Lessor. c) OTHER EXPENSES The Lessee shall pay al costs related to the maintenance and repair and reasonable replacement of the Building, structural repairs and/or replacements to the Building excluded, same to be the Lessor's responsibility, total replacement of the roof of the Building shall be considered a structural repair and Lessee shall without limitation be responsible for repairs and maintenance to the washrooms, corridors, parking, driveways, heating and air-conditioning equipment and services and all other equipment, and all facilities and services available at the commencement of the term or added or provided at any time thereafter, (should such services, etc. be and to the extent that they are available). Lessee shall not be responsible for the repairing of the exterior of the Building (windows and doors excluded), the roof, concrete repair work with respect to the existing cracks in the concrete slabs. Lessee accepts the Building in said state with no obligations of Lessor to repair same. Lessor shall not be obligated to maintain, repair or replace the asphalt; however Lessor shall, within a delay of thirty (30) days of signature of this Lease, weather permitting, make repairs of a minor nature to the asphalt, which repairs will be limited to patching, as required. The Lessee shall not be responsible for repairs to the roof. The Lessee shall not be responsible for the repairs to the electrical transformer at the exterior of the Building. The Lessee shall not be responsible for the maintenance of the water pipes leading 4 up to the plant. Lessee shall be responsible for all repairs due to damages caused to the Building and property by the Lessee, or by anyone acting on behalf of the Lessee. This would include vandalism of any nature. The Lessee shall provide winter and summer exterior ground maintenance. 7. LESSEE'S CONTRIBUTION Notwithstanding anything to the contrary hereinabove contained, the Lessor may, instead of billing individually for taxes and other items to be paid by the Lessee, as hereinabove stipulated, estimate the amounts payable by the Lessee under the provisions of this Lease for such periods as the Lessor may determine (but not exceeding twelve months) the Lessee hereby agreeing to pay to the Lessor such amounts in monthly installments in advance during the said period together with the rental payments as hereinabove provided. Following the expiration of the period for which such estimated payments have been made, the Lessor shall deliver to the Lessee a statement of the actual costs payable pursuant to clause 6. If the amounts actually due by the Lessee for such period exceed the amount so collected by the Lessor, the Lessee shall pay same forthwith upon receipt of such statements, and if the amounts due by the Lessee for the said period are less than the amount actually collected by the Lessor, then the Lessor may remit same forthwith or credit same to the next ensuing payments becoming due by the Lessee to the Lessor. All sums due by the Lessee to the Lessor in virtue of this Lease, whether under this clause or otherwise, will be considered as rent for all legal purposes. 8. TAXES, ASSESSMENTS, ETC. Lessee will in each and every year during the Term of this Lease pay and discharge or cause to be paid and discharged, all license fees, public utility charges, water rates, sewer rates and other like fees, charges, rates and assessments that may be levied, charged, rated or assessed against the Leased Premises and/or all equipment and facilities thereon or therein, and/or any property on the Leased Premises owned or brought thereon by Lessor or Lessee, and any and every of its assignees or sublessees and its and their respective officers, agents, employees, servants, visitors or licensees and/or against Lessor or Lessee in respect thereof, and every tax and license fee in respect of any and every business carried on therein, or in respect of the occupancy of the Leased Premises by Lessee (and any and every of its assignees or sublessees) whether such license fee, charges, rates, assessments and taxes are charged by a municipal, parliamentary, school or any other body of competent jurisdiction, and all charges for public utilities including electric current, gas, water, steam or hot water used upon or in respect of the Leased Premises and for fitting, machines, apparatus, meters or other things leased in respect thereof, and for all work or services performed by any corporation or commission in connection with such utilities; and will indemnify, and keep indemnified Lessor from and against payment of all losses, costs, charges and expenses occasioned by or arising from any and every such license fee, charge, rate, assessment and tax. Lessee will furnish to Lessor within ten (10) days after the day on which the same become due and payable, receipts or other appropriate evidence as to the payment of each such tax, rate, charge, assessment, duty and license fee. 9. LESSEE'S INSURANCE 5 Lessee covenants that nothing will be done or omitted to be done whereby any policy shall be cancelled or the Leased Premises rendered uninsurable during the Term or any renewal thereof. The Lessee shall, at its expense, procure and maintain at all times during the continuance of this Lease such insurance as will protect the Lessee and the Lessor from any claim for personal injury including death, and for property damage in any way arising out of or attributable to the exercise by the Lessee, or others, of any of the privileges or rights herein granted. This insurance shall provided a combined minimum limit of $1,000,000 or such higher amount as Lessor may reasonably require for personal injury and property damage and shall extend to cover any liability assumed by the Lessee under this Lease. The Lessee shall forward to the Lessor the original of the insurance policy and evidence of renewal thereof during the continuance of this Lease. The Lessee hereby agrees and understands that the placing of such insurance shall in no way relieve the Lessee from any obligation assumed under this Lease, and that failure by the Lessee to remit to Lessor, within ten (10) days of demand proof of the above-mentioned coverage will entitle the Lessor to obtain said insurance and to charge Lessee for same. 10. UTILITIES AND HEATING The lessee shall pay for all electricity, water, heat, gas telephone, pest control, garbage removal and all public utilities with respect to the Leased Premises, and shall keep the Leased Premises suitable heated. 11. MAINTENANCE AND REPAIRS Subject to section 6.c) hereof and notwithstanding any provisions of articles 1854 and 1864 of the Civil Code of Quebec, the Lessee, at its own expense, shall operate maintain and keep the Leased Premises including all facilities, equipment and services, both inside and outside, as they would be kept by a careful owner and shall promptly make all needed repairs and replacements to the Leased Premises, which a careful owner would make, including, without limitations, the water, gas, drain and sewer connections, pipes and mains, electrical wiring, water closets, sinks and accessories thereof, and all equipment belonging to or connected with the Leased Premises or used in its operation. The Lessor may obtain of have the Lessee obtain and in either event the Lessee shall pay for such maintenance, repair and replacement services and/or insurance contracts as may be available from firms approved by the Lessor (such approval not to be unreasonably withheld), with respect to the maintenance, repair and replacement of the heating equipment, air-conditioning and sprinkler and alarm equipment, in the Leased Premises; the whole without prejudice to the other obligations of the Lessee with respect to such equipment. The Lessee shall forward to the Lessor copies of such contracts and evidence of renewals thereof during the continuance of this Lease. In the event any of said contracts apply to the entire Building, Lessee shall pay the Proportionate Share of the Lessee with respect to same. 12. IMPROVEMENTS AND ALTERATIONS Lessee shall have the right to make at its own expense, with the prior written consent of the Lessor, whose consent may not be unreasonably withheld, additions, 6 alterations and changes in and to the Leased Premises provided, however, that no such work shall be commenced except with the prior written consent of Lessor and except on compliance with the following conditions: a) Lessee shall furnish to Lessor plans and specifications showing in reasonably complete detail the work proposed to be carried out and the estimated cost thereof and Lessor shall approve or reject such plans and specifications within thirty (30) days after receipt of same. If such plans and specifications are approved, all work shall be carried out in compliance with the same. b) The value of the Leased Premises shall not, as a result of any work proposed to be carried out by Lessee, be less than the value of the Leased Premises before the commencement of such work and Lessor shall be the sole judge of such value. c) All work shall be carried out with reasonable dispatch and in good workmanlike manner and in compliance with all applicable permits, authorization and building and zoning by-laws and with all regulations and requirements of all competent authorities having jurisdiction over the Leased Premises. d) The Leased Premises shall at all times be free of all hypothecs or other encumbrances for work done, labor performed or materials furnish. Lessor may require Lessee to furnish security satisfactory to Lessor guaranteeing the completion of the work and the payment of the cost thereof free and clear of all hypothecs or other encumbrances, as well as for the replacement of the Leased Premises to their former state, as specified in Clause 21 below. e) Lessee shall maintain such general liability insurance for the protection of Lessor and Lessee as Lessor may require and shall produce evidence of such insurance to Lessor. f) All work, which is of permanent nature, when completed, shall be comprised in, and form part of the Leased Premises and shall be subject to all the provisions of this Lease and Lessee shall not have any right to claim compensation therefor and the same shall not be removed by Lessee on termination of this Lease, unless the parties have agreed otherwise in writing at the time of request for consent referred to in the first paragraph of the present section, in which case the Lessee shall comply and shall repair any damage related thereto or caused thereby. g) Should the Lessee, after having obtained written consent from the Lessor, effect changes in the partitions or otherwise modify the Leased Premises and accordingly had to relocate or modify the heating and, if applicable, the air-conditioning equipment, such changes and/or modifications would have to be effected at the sole cost and risk of the Lessee. 13. INSPECTION AND REPAIR Lessor and its agents shall have the right, at all reasonable times during the Term or any renewal thereof to enter the Leased Premises to examine the condition thereof and to ascertain whether Lessee is performing its obligations hereunder, and Lessee covenants to make any repair which Lessor deems necessary as a result of such 7 examination. If Lessee fails to make any such repairs within thirty (30) days after notice from Lessor requesting Lessee so to do, provided that such repairs may reasonably be made within the said period, Lessor may, without prejudice to any other rights or remedies it may have, make such repairs and charge the Lessee for same but Lessor shall have the right at any time to make any emergency repairs without notice to Lessee and charge the cost thereof to Lessee. Any cost chargeable to Lessee hereunder shall be payable forthwith on demand as additional rent. Lessor will be entitled to request from Lessee a deposit or acceptable bank guarantee equivalent to the value of said needed repairs until Lessee completes them. 14. FURNISH STATEMENT Lessee shall from time to time at the request of Lessor produce to Lessor satisfactory evidence of the due payment by Lessee of all payments required to be made by Lessee under this Lease. 15. FAILURE OF LESSEE TO PERFORM If Lessee fails to pay any taxes, rates, insurance premiums, charges or debts which it owes or has herein covenanted to pay or has undertaken to contract, Lessor may pay or contract the same and shall be entitled to charge the sums so paid or contracted to Lessee who shall pay them forthwith on demand, as additional rent and Lessor, in addition to any other rights, shall have the same remedies and may take the same steps for the recovery of rent in arrears under the terms of this Lease; all arrears of rent and any monies paid by Lessor or due by Lessee to Lessor under this Lease, shall bear interest at the rate of 24% per annum or two percent (2%) per month from the time such arrears become due until paid to Lessor. Lessor may demand such sums from Lessee even before payment. 16. DEFAULT Without prejudice to all of the rights and resources available to the Lessor, the following shall be considered special defaults under the terms of this Lease; a) in the event that the Lessee shall be in default under any provision of this Lease providing for the payment of rent or additional rent and such default shall continue after the due date; b) in the event that Lessee shall be adjudicated a bankrupt of make any general assignment for the benefit of creditors, or take, or attempt to take, the benefit of any insolvency or bankruptcy act, or if a petition in bankruptcy shall be granted against Lessee, or if a receiver or trustee be appointed for the property of Lessee, or any part thereof, or if any execution be issued pursuant to a judgement, rendered against Lessee or pursuant to this Lease, or if the estate of lessee hereunder be transferred or pass to or devolve upon any other person or corporation by operation of law; or if the Lessee abandons the Leased Premises of if they are vacant or unattended for more than ten (10) days, or occupied by persons other than the Lessee without Lessor's written consent; or c) in the event that Lessee shall be in default in observing any covenant herein contained and/or performing any of its obligations contained in this Lease (other than a default in the payment of rent or additional rent) and such 8 default shall continue for thirty (30) days after written notice specifying such default shall have been given to Lessee by Lessor. In the event of any special default under the terms of this Lease, the Lessor without prejudice to any other rights or remedies it may have hereunder or by law, shall have the right to resiliate this Lease forthwith upon written notice given to Lessee by Lessor and this notwithstanding any legislation to the contrary including without limitation Article 1863 of the Civil Code of Quebec. Lessee upon such a termination of this Lease shall thereupon quit and surrender the Leased Premises to Lessor and Lessor, its agents and servants, may immediately or at any time thereafter, re-enter the Leased Premises and dispossess Lessee, and remove any and all persons and any and all property therefrom and re-let the Lease Premises to whomsoever it may choose without further notice or demand being necessary. In case of any termination, or in case Lessee, in the absence of such termination shall be dispossessed by or at the instance of Lessor, in any lawful manner, whether by force or otherwise, rent for the then current month and for the three months next succeeding the date to such termination or dispossession shall immediately become due and payable (as accelerated rent) and this Lease shall immediately, at the option of the Lessor, become forfeited and terminated, and the Lessor may, without notice or any form of legal process, forthwith re-enter upon and take possession of the leased Premises and remove the Lessee's effects therefrom, the whole without prejudice to and under reserve of all of the rights and recourses of the Lessor to claim any and all losses and damages sustained by the Lessor by reason of and arising from any default of the Lessee. 17. LIQUIDATION SALES, ETC. The Lessee undertakes not to carry out a permit a bankruptcy or liquidation sale or sale of second hand goods, war surplus goods, insurance salvage stock or auction in or from the Leased Premises. The Lessee acknowledges that a violation of the present clause will cause irreparable injury to the Lessor and consents to the Lessor enforcing the present clause by way of provisional and interlocutory injunction, without prejudice to such other rights as the Lessor may have under the circumstances. 18. EXPIRATION OF LEASE ------------------- The Lessee shall at the expiration or sooner termination of the Term of this Lease peaceably surrender and yield up unto Lessor the Leased Premises unless agreed otherwise to the contrary in writing by the parties, together with all buildings, alterations, replacements, additions, erections, and improvements (leasehold or otherwise) including, but not limited to main electrical installations, offices, partitions, divisions, showrooms, air conditioning and heating equipment, paneling, built-in furniture, wall-to-wall carpets, attached carpets or other floor coverings, wiring, switches, meters, meter boxes and transformers, which at any time during the Term hereof shall be placed, made, installed, fixed or attached therein or thereon for permanence by the Lessee, in good repair and condition, subject to reasonable wear and tear only, and without any compensation whatsoever being allowed to the Lessee for same. Lessee shall not remove or alter any of the foregoing during the Term of the Lease or renewal or extension thereof, without the written consent of the Lessor. However, the Lessor shall have the right to require the Lessee, prior to or after the termination of the Lease or any renewal or extension thereof, to remove any or all of 9 the foregoing items, in which case the Lessee shall remove the items requested to be removed, repairing any damage related thereto or caused thereby, and to the extent required by the Lessor, the Lessee shall leave the Leased Premises in their original good and clean state and condition, subject to reasonable wear and tear. Notwithstanding anything herein, Lessee shall be entitled to remove all electrical installations which are auxiliary to its manufacturing equipment. Lessee shall in such case make the necessary repairs to the walls etc. to bring it back to its original state less normal wear and tear. 19. SIGNS Lessor shall have the right at all times during the Term of this Lease to place upon the Leased Premises a notice of reasonable dimensions and reasonably placed, so as not to interfere with the business of Lessee, stating that the Leased Premises are for sale and for twelve (12) months prior to the termination of this Lease, Lessor shall have the right to place upon the Leased Premises a similar notice that the Leased Premises are for rent and Lessee shall not remove such notice or knowingly permit same to be removed. Lessor shall have the right to exhibit the Leased Premises from time to time to any insurer, prospective Mortgagee, purchaser or lessee at all reasonable hours. Any exterior signs or any signs visible from the exterior will be subject to the Lessor's reasonable approval in writing and installation if approved will be at the sole expense of the Lessee. All such signs shall comply with the lawful requirements of municipal and government authorities. 20. SUBLETTING BY LESSEE Subject to the provisions hereinafter detailed, the Lessee shall have the right to sublet the whole or any part of the Leased Premises or assign its rights in the present Lease with consent of the Lessor which consent shall not be unreasonably withheld providing that the Leased Premises are utilized only for the purposes stipulated in Clause 3 hereof. Notwithstanding such subletting and assignment, the Lessee shall remain jointly and severally liable with such sublessee or assignee for the performance of all of the terms and conditions of the Lease. If the Lessee wishes to so sublet or assign, it must submit to the Lessor a copy of the offer to sublet or assign, together with a request for consent of the Lessor, and the Lessor shall have thirty (30) days form receipt thereof to advice the Lessee in writing that it consents to the sublease or assignment in question as sublessee at the same rental rate and other terms and conditions of this Lease or, at the Lessor's option, that it is canceling the Lease as of the effective commencement date of such offer to sublet or assign, or consent to the Sublease in question. However, should the Lessor not exercise its right to cancel this Lease, the Lessor shall not thereby be precluded from withholding its consent to the said sublet or assignment, provided said consent shall not be unreasonably withheld. 21. DESTRUCTION OF PREMISES Provided, and it is hereby expressly agreed that if and whenever during the Term or any renewal thereof, the Building or the Leased Premises shall be destroyed or 10 damaged by fire, lightening or tempest, or any of the other perils insured against under the provisions of Clause 6 paragraph b, then and in every such event: a) If the damage or destruction is such that the Leased Premises, or the Building, is rendered wholly or partially unfit for occupancy or it is impossible or unsafe to use and occupy them or it, as the case may be, and if in either event the damage, in the opinion of Lessor, notice to be given to Lessee within thirty (30) days of the happening of such damage or destruction, the Leased Premises or Building cannot be repaired with reasonable diligence within one hundred and eighty (180) days from the happening of such damage or destruction, then either Lessor or Lessee may within five (5) days next succeeding the giving of the Lessor's opinion as aforesaid, terminate this Lease by giving to the other notice in writing of such termination, in which event this Lease and the Term shall cease and be at an end as of the date of such destruction or damage and the rent and all other payments for which Lessee is liable under the terms of this Lease shall be apportioned and paid in full to the date of such destruction or damage; in the event that neither Lessor or Lessee so terminate this Lease, the Lessor shall repair the Leased Premises or Building with all reasonable speed and the rent hereby reserved shall abate from the date of the happening of the damage until the damage shall be made good to the extent of enabling Lessee to use and occupy the Leased Premises. b) If the damage be such that the Leased Premises or the Building are wholly unfit for occupancy, or if it is impossible or unsafe to use or occupy the Leased Premises but if in either event the damage, in the opinion of Lessor, notice to be given to Lessee within thirty (30) days from the happening of such damage, the Leased Premises or Building can be repaired with reasonable diligence within one hundred and eighty (180) days of the happening of such damage, then the rent reserved shall abate from the date of the happening of such damage until the damage shall be made good to the extent of enabling Lessee to sue and occupy the Leased Premises and Lessor shall repair the damage with all reasonable speed. c) If, in the opinion of the Lessor, the damage can be made good, as aforesaid, within one hundred and eighty (180) days of the happening of such destruction or damage and the damage is such that the Leased Premises are capable of being partially used for the purposes for which they are hereby leased, then until such damage has been repaired the rent shall abate in the proportion that the part of the Leased Premises which is rendered unfit for occupancy bears to the whole of the leased Premises and Lessor shall repair the damage with all reasonable speed. Should any mortgage creditor who may have an interest in any insurance proceeds refuse to permit the use of such proceeds for the repair, replacement, rebuilding and/or restoration as hereinabove provided and for the payment of amounts expended for such purposes, then the Lessor's obligation to repair or rebuild as provided for hereinabove shall cease and shall be null and void and the Lease shall be cancelled effective as of the date of the damage, unless, the Lessor, at the Lessor's sole option, chooses to repair or rebuild. 22. COMPLIANCE WITH LAWS AND REGULATIONS 11 The Lessee shall, at its own expense, promptly comply with the requirements of every applicable statute, law and ordonnance and with every applicable regulation or order with respect to the removal of any encroachment placed by the Lessee, or to the condition, equipment, maintenance, or use or occupation of the leased Premises, including the making of any alteration, addition in or to any structure upon connected with or appurtenant to the Leased Premises, whether or not such alterations be structural or be required on account of any particular use to which the Lease Premises or part thereof may be put and whether or not such requirement, regulation or order be of a kind now existing or within the contemplation of the parties hereto; and shall comply with any applicable regulation, recommendation or order of the Canadian Fire Underwriters' Association, or any body having similar functions or of any liability or fire insurance company by which the Lessor and/or the Lessee may be insured. 23. INDEMNIFICATIONS Except if caused directly by the gross negligence of the Lessor, the Lessor shall not be liable nor responsible in any way for any injury of any nature whatsoever that may be suffered or sustained by the Lessee or any employee, agent or customer of the Lessee or any other person who may be upon the Leased Premises or for any loss of or damages to any property belonging to the Lessee or to its employees or to any other person while such property is on the Leased Premises and in particular (but without limiting the generality of the foregoing) the Lessor shall not be liable for any damage or damages of any nature whatsoever to any such property caused by the failure by reason of a breakdown or other cause, to supply adequate drainage, snow or ice removal, or by reason of the interruption of any public utility or service or in the event of steam, water, rain or snow which may leak into, issue, or flow from any part of the Building or from the water, steam, sprinkler, or drainage pipes or plumbing works of the same, or from any other place or quarter or for any damage caused by anything done or omitted by any lessee, but the Lessor shall use all reasonable diligence to remedy such condition, failure or interruption of service when not directly or indirectly attributable to the Lessee, after notice of same, when it is within its power and obligation so to do. Nor shall the Lessee be entitled to any abatement of rental in respect of any such condition, failure or interruption of service. The Lessee will indemnify and save harmless the Lessor from and against all fines, liability, damages, suits, claims, demands and actions of any kind or nature which the Lessor shall or may become liable for or suffer by reason of any breach, violation or non-performance by the Lessee of any covenant, term or provision hereof or by reason of any injury (including death resulting at any time therefrom) or damage to property occasioned to or suffered by any person or persons including the Lessor by reason of any such breach, violation or non-performance or of any wrongful act, neglect or default on the part of the Lessee or any of its employees, officers, agents, suppliers, or invitees. 24. ASSIGNMENT BY LESSOR Lessee hereby covenants and agrees to execute and deliver, at any time and from time to time upon the request of the Lessor at Lessor's expense, consent to and become a party to any instrument or instruments permitting a mortgage or hypothec to be placed on the Building or any part thereof of which the Leased Premises are a 12 part as security for any indebtedness covered by the said mortgage or hypothec and subordinating this Lease to the said mortgage or hypothec. 25. FLOOR LOADING Lessee shall not bring upon the Leased Premises or any part thereof any machinery, equipment, article or thing that by reason of its weight or size might damage the Leased Premises and will not at any time overload the floors of the Leased Premises and if any damage is caused to the Leased Premises by any machinery, equipment, article or thing or by overloading or by any act, neglect or misuse on the part of Lessee or any of its invitees, agents or employees or any person having business with Lessee, Lessee will forthwith pay to Lessor the cost of making good the same. 26. CONDITION OF LEASED PREMISES The Lessee represents that it has examined and viewed the Leased Premises and accepts same in their present condition. 27. OCCUPANCY If the Lessor is unable to give possession of the Leased Premises to the Lessee on the date of commencement of the Term by reason of the non-completion of construction, repairs, improvements, additions, or alterations to the Leased Premises, or the Building containing same, the Lease shall not be void or voidable nor shall the Lessor be liable for any loss or damage resulting therefrom. However, the rent payable hereunder shall abate until the Leased Premises are substantially completed. 28. PERMITS, ETC. The Lessee shall obtain all necessary permits and licences required for the occupancy any carrying on of its business, the Lessor making no warranties whatsoever regarding zoning, permits and licences which may be required by the Lessee. Should the Lessee fail to obtain any required permit and/or licence, it shall remain bound to perform its obligations under the present Lease. 29. RULES AND REGULATIONS The Lessor shall have the right to make reasonable rules and regulations as in its discretion may from time to time be needful for the safety, care, cleanliness and proper administration of the Building including the Leased Premises, and for the preservation of good order therein, and the same shall be observed and performed by the Lessee and by the clerks, servants, employees, agents, invitees and customers, of the Lessee, and all such rules and regulations now or hereafter to be established by the Lessor as herein provided shall form part of this Lease as though same had been set forth at length herein. 30. ACCESS The Lessor shall have the right of access to the Leased Premises to perform such work as it chooses to do upon the Leased Premises, the Lessee renouncing any claim to any indemnity or diminution of rent provided the same be carried out with reasonable diligence. 31. ACCESS TO LEASED PREMISES 13 a) The Lessee, it employees, agents, customers will have access to the Leased Premises at all times. b) Should the Lessee, its employees, agents and customers wish to use any land of the Lessor adjacent to the Leased Premises to enter or leave the Leased Premises, they undertake to use at their risk the way specifically designated for such purpose by the Lessor, and they may also use at their risk and in common with others, the parking and shipping areas designated by the Lessor, if provided. c) The Lessor reserves the right to change or relocate the said roadways, parking or shipping areas, at its convenience and in its sole discretion. d) The Lessee will not use the said roadways, parking or shipping areas for any other purpose except for parking in the spaces designated or as access to the Leased Premises or shipping areas as designated by Lessor. e) The Lessee, its employees, agents and customers may at their risk use, in common with others who will have obtained the permission of the Lessor all common corridors, stairways or vestibules of the Building providing access to the Leased Premises, if available, as well as all common parking and access roads to the Building. f) The Lessor will with reasonable diligence maintain all such common access roads, parking areas, shipping areas, corridors, stairways, vestibules, or other common areas giving access to the Leased Premises and the Lessee will pay to the Lessor all such maintenance costs as provided for in Section 6, paragraph c) hereof. 32. INCONVENIENCE The Lessee shall not hold the Lessor in any way responsible for any damages or annoyance which the Lessee may sustain through the fault of any lessee or lessees who occupy any leased premises adjacent to, near or above the Leased Premises, and not use the Leased Premises for any purpose, notwithstanding anything stated herein, which may cause noise, disturbance or noxious odour, to the discomfort of the other lessees and neighbours, and renounces to any claims it may have or acquire against the Lessor under Articles 1859 and 1861 of the Civil Code of Quebec. 33. EXPROPRIATION ------------- In the event that all or part of the Leased Premises are expropriated, which would prevent the use or occupation of the inside floor space of the Building (which forms the major part of the Leased Premises) in whole or in part, then he Lessee shall be entitled to a diminution of the rent payable hereunder during the period and for the area of eviction only. Such diminution of rent shall be reckoned from the date the Lessee is forced to vacate the said inside floor space and shall be calculated on a pro-rata basis, the whole without any other claims by the Lessee against the Lessor for any loss or damages occasioned by said eviction and/or loss of use. 34. EXTENSIONS AND LOCATION ----------------------- The Lessor shall have the right at its option and from time to time during the Term to make extensions and/or additions and/or to add one or more additional floors or storeys onto all or part of the Building comprising the Leased Premises. 14 [NO INFORMATION FOR PAGE] 15 the Leased Premises, or, provided that there are no strikes or interruptions in the postal service, when mailed by prepaid registered mail to Lessee at the address of the Leased Premises. Lessee elects domicile at the Leased Premises for the purpose of service of all notices, writs of summons or other legal documents in any suit of law, action or proceeding which Lessor may take under the Lease. Any notice or demand given by Lessee to Lessor shall be deemed to be duly given when served upon Lessor personally or, provided that there are no strikes or interruptions in the postal service, when mailed by prepaid registered mail to Lessor at the address designated by Lessor for purposes of payment of the rent hereunder. 39. DESCRIPTIVE HEADINGS. The descriptive headings of this Lease are inserted for convenience of reference only and in no way define, limit or enlarge the scope or meaning of this Lease or any provision thereof. 40 INTERPRETATION This Lease shall be construed and interpreted in accordance with the laws of the Province of Quebec. If for any reason whatsoever, any term, obligation or condition of this Lease or the application thereof to any person, firm or corporation or to any circumstances is to any extent held to be or is rendered invalid, unenforceable or illegal, then such term, obligation or condition shall be deemed to be independent of the remainder of this Lease and to be severable and divisible therefrom, and its invalidity, unenforceability or illegality shall not affect, impair or invalidate the remainder of this Lease or any part thereof and the remainder of this lease not affected, impaired or invalidated will continue to be applicable and enforceable to the fullest extent permitted by law against any person, firm or corporation and to any circumstances other than those as to which it has been held or rendered invalid, unenforceable or illegal; Words importing the singular number only shall include the plural and vice-versa and words importing the masculine gender shall include the feminine gender and words importing persons shall include firms and unless the contrary intention appears the words "Lessor" and "Lessee" whenever they appear in this Lease shall mean respectively "Lessor, its executors, administrators, successors and/or assigns" and "Lessee, its executors, administrators, successors and/or assigns" and if there is more than one Lessee or Lessor or the Lessee or Lessor is a female person or a corporation this Lease shall be read with all grammatical changes appropriate by reason thereof; and all covenants, liabilities and obligations shall be joint and several. 41. OPTION TO CANCEL The Lessee shall have a one-time option to cancel the Lease at the end of the third year of the Term, namely, May 31, 2004, provided written notice of its intention to cancel is given to Lessor twelve (12) months prior to the applicable cancellation date. Should the Lessee not exercise its right to cancel the Lease without the stipulated 16 delay (May 31, 2003) the Lease will automatically continue for the balance of the Lease term. 42. BROKER Lessee warrants that the present Lease was not negotiated through any broker or agent and undertakes to hold Lessor free and harmless from any commission claimed. 43. INTERVENTION And Hereto Intervened, Icon Health & Fitness Inc. (the "Surety") being Shareholder of and/or having business relations with the Lessee, having acquainted itself with the provisions of this Lease and being satisfied therewith, does hereby intervene and bind itself jointly and severally (solidarily) with the Lessee for the performance of all of the obligations of the Lessee in virtue of the present Lease, waving the benefit of division and discussion, and making the entire matter its personal affair. The Surety's responsibility hereunder shall remain in full force and effect in favour of the Lessor, its successors, purchasers or assigns in the event of the transfer, assignment or sale of the foregoing Lease or the property comprising the Leased Premises by agreement, by Court Judgement, or by operation of law, or in the event of the amaigamation or merger of the Lessor or the Lessee. Furthermore, such a suretyship shall in no way be terminated in the event of the insolvency or bankruptcy of the Lessee, the taking of possession of the Leased Premises by a Trustee or Receiver of the Lessee or of its assets or by the Lessor or any third party, the Surety's obligations applying with respect to the damages suffered by the Lessor or its successors, purchasers or assigns and any measures taken by the Lessor or its successors, purchasers or assigns to mitigate damages in the event of a default by the Lessee, shall in no way terminate this suretyship or prejudice any claim by the Lessor, its successors,, purchasers or assigns against the Surety under the present suretyship. Notwithstanding the provisions of article 1881 of the Civil Code of Quebec, the obligations of the Surety towards the Lessor, its successors, purchasers or assigns will extend to any renewal of the Lease. 44. LANGUAGE The parties and the Surety hereby confirm that they have requested that the present document be drafted in the English language. Les parties confirment par les presentes qu'ils ont demande que le present document soit redige dans la langue anglaise. IN WITNESS WHEREOF THE PARTIES HERETO AND THE SURETY HAVE SIGNED THE FOREGOING DEED OF LEASE AS FOLLOWS: 17 IN MONTREAL, PROVICE OF QUEBEC, THIS 26th DAY OF JANUARY 2001 INDOME 43 INC. Per: /s/ James Lyng ---------------------------- /s/ Andree Nelson LESSOR - --------------------------- President WITNESS 18 IN MONTREAL, PROVICE OF QUEBEC, THIS 26TH DAY OF JANUARY 2001 ICON OF CANADA INC. Per: /s/ M. Joseph Brough -------------------------- /s/ ILLEGIBLE LESSEE - -------------------------------- WITNESS IN __________________, ____________________ THIS _____ DAY OF ___________ 200_ ICON HEALTH & FITNESS INC. Per: /s/ M. Joseph Brough -------------------------- /s/ ILLEGIBLE Duly Authorized - -------------------------------- WITNESS 19 EXTRACT OF A MEETING OF THE BOARD OF DIRECTORS OF: INDOME 43 INC. EFFECTIVE DATE: NOVEMBER 1st, 2000 ON MOTION DULY MADE, SECONDED AND UNANIMOUSLY CARRIED, IT WAS RESOLVED: 1. THAT this Company enter into an Agreement of Lease with Icon of Canada Inc. concerning the premises situated at 500 Lajeunesse Blvd. West, St. Jerome, Quebec in accordance with the draft Agreement of Lease as submitted to the Meeting; 2. THAT Mr. James Lyng be authorized to sign the said Deed of Lease for and on behalf of the Company together with any and all other documents necessary to complete same as well as to make any and all changes, adjustments and additions that are in the interest of the Company. CERTIFIED A TRUE EXTRACT OF A MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY HELD ON THE 1st DAY OF NOVEMBER, 2000 /s/ James Lyng ------------------------------------- SECRETARY - JAMES LYNG 20 EXTRACT OF A MEETING OF THE BOARD OF DIRECTORS OF: ICON OF CANADA INC. EFFECTIVE DATE: NOVEMBER __, 2000 ON MOTION DULY MADE, SECONDED AND UNANIMOUSLY CARRIED, IT WAS RESOLVED: 3. THAT this Company enter into an Agreement of Lease with Indome 43 Inc. concerning the premises situated at 500 Lajeunesse Blvd. West, St. Jerome, Quebec in accordance with the draft Agreement of Lease as submitted to the Meeting; 4. THAT Mr. Richard Hebert be authorized to sign the said Deed of Lease for and on behalf of the Company together with any and all other documents necessary to complete same as well as to make any and all changes, adjustments and additions that are in the interest of the Company. CERTIFIED A TRUE EXTRACT OF A MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY HELD ON THE 1ST DAY OF NOVEMBER, 2000 /s/ ILLEGIBLE ------------------------------------- SECRETARY 21 EXTRACT OF A MEETING OF THE BOARD OF DIRECTORS OF: ICON HEALTH AND FITNESS INC. EFFECTIVE DATE: NOVEMBER __, 2000 ON MOTION DULY MADE, SECONDED AND UNANIMOUSLY CARRIED, IT WAS RESOLVED: 5. THAT this Company enter into an Agreement of Lease with INDOME 43 Inc. and Icon of Canada Inc. concerning the premises situated at 500 Lajeunesse Blvd. West, St Jerome, Quebec in accordance with the draft Agreement of Lease as submitted to the Meeting; 6. THAT ________________________________ be authorized to sign as Intervenant in the said Deed of lease for and on behalf of the Company together with any and all other documents necessary to complete same as well CERTIFIED A TRUE EXTRACT OF A MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY HELD ON THE ___ DAY OF NOVEMBER, 2000 _____________________________________ SECRETARY 22 [GRAPHIC OMITTED] EX-10.9 12 dex109.txt EXHIBIT 10.9 - PURCHASE AGREEMENT DTD 03/28/02 Exhibit 10.9 EXECUTION COPY $155,000,000 ICON HEALTH & FITNESS, INC. 11.25% Senior Subordinated Notes due 2012 PURCHASE AGREEMENT ------------------ March 28, 2002 CREDIT SUISSE FIRST BOSTON CORPORATION J. P. MORGAN SECURITIES INC. FLEET SECURITIES, INC. c/o Credit Suisse First Boston Corporation, As Representative of the Several Purchasers Eleven Madison Avenue, New York, New York 10010-3629 Dear Sirs: 1. Introductory. ICON Health & Fitness, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several initial purchasers named in Schedule A hereto (the "Initial Purchasers") $155,000,000 principal amount of its 11.25% Senior Subordinated Notes due 2012 (the "Offered Securities") to be issued under an indenture, dated as of April 9, 2002 (the "Indenture"), between the Company, the Guarantors (as defined below) and The Bank of New York, as Trustee on a private placement basis pursuant to an exemption under Section 4(2) of the United States Securities Act of 1933, as amended (the "Securities Act"). The Company's obligations under the Offered Securities, including the due and punctual payment of interest on the Offered Securities, shall be unconditionally guaranteed (the "Guarantee") by Jumpking, Inc., a Utah corporation ("Jumpking"), Universal Technical Services, a Utah corporation ("UTS"), ICON International Holdings, Inc., a Delaware corporation ("ICON International"), ICON IP, Inc., a Delaware corporation ("ICON IP"), Free Motion Fitness, Inc., a Utah corporation ("Free Motion"), NordicTrack, Inc., a Utah corporation ("NordicTrack"), 510152 N.B. Ltd., a New Brunswick corporation ("N.B. Ltd.") and ICON du Canada Inc., a Quebec corporation ("ICON Canada", whose Guarantee shall consist of the guarantee of the obligations of N.B. Ltd., which in turn will undertake, pursuant to its Guarantee, to guarantee the Company's obligations under the Offered Securities), and each of the Company's future domestic subsidiaries (each, a "Guarantor"; ICON International and ICON IP, together, 1 the "Delaware Guarantors"; Jumpking, UTS, Free Motion and NordicTrack, together, the "Utah Guarantors"; N.B. Ltd. and ICON Canada, together, the "Canadian Guarantors"; the Delaware Guarantors, the Utah Guarantors and the Canadian Guarantors, together, the "Guarantors"). As used herein, the term "Offered Securities" shall include the Guarantees thereof by the Guarantors, unless the context otherwise requires. Holders (including subsequent transferees) of the Offered Securities will have the registration rights set forth in the registration rights agreement (the "Registration Rights Agreement"), to be dated the Closing Date, in substantially the form of Exhibit I hereto, for so long as such Offered Securities constitute "Transfer Restricted Securities" (as defined in the Registration Rights Agreement). Pursuant to the Registration Rights Agreement, the Company and the Guarantors will agree to file with the Securities and Exchange Commission (the "Commission") under the circumstances set forth therein, (i) a registration statement under the Securities Act (the "Exchange Offer Registration Statement") relating to the Company's 11.25% Senior Subordinated Notes in a like aggregate principal amount as the Offered Securities originally issued under the Indenture, identical in all material respects to the Offered Securities and the Guarantees and registered under the Securities Act (the "Exchange Notes" and the "Exchange Guarantees," together, the "Exchange Securities") to be offered in exchange for the Offered Securities (such offer to exchange being referred to as the "Exchange Offer") and the Guarantees thereof and (ii) a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration Statement" and, together with the Exchange Offer Registration Statement, the "Registration Statements") relating to the resale by certain holders of the Offered Securities and to use its best efforts to cause such Registration Statements to be declared and remain effective and usable for the periods specified in the Registration Rights Agreement and to consummate the Exchange Offer. The Offered Securities and the Exchange Securities are referred to collectively as the "Securities." 2. Representations and Warranties of the Company. The Company and each of the Guarantors, jointly and severally, represents and warrants to, and agrees with, the Initial Purchasers that: (a) A preliminary offering circular and an offering circular relating to the Offered Securities to be offered by the Company and the Guarantors have been prepared by the Company and the Guarantors. Such preliminary offering circular (the "Preliminary Offering Circular") and offering circular (the "Offering Circular"), as supplemented as of the date of this Agreement, are hereinafter collectively referred to as the "Offering Document." On the date of this Agreement, the Offering Document does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Offering Document based upon written information furnished to the Company by any Initial Purchaser through Credit Suisse First Boston Corporation ("CSFBC") specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b) hereof. (b) No order or decree preventing the use of the Offering Document, or any order asserting that the transactions contemplated by this Agreement are subject to the 2 registration requirements of the Securities Act, has been issued and no proceeding for that purpose has commenced or is pending or, to the knowledge of the Company or any of the Guarantors, is contemplated. (c) The market-related and customer-related data and estimates included under the captions "Summary" and "Business" in the Offering Document are based on or derived from sources which the Company and each of the Guarantors believe to be reliable. (d) The Offered Securities have been duly and validly authorized by the Company and when duly executed by the Company in accordance with the terms of the Indenture and, assuming due authentication of the Offered Securities by the Trustee, upon delivery to the Initial Purchasers against payment therefor in accordance with the terms hereof, will have been validly issued and delivered, and will constitute valid and legally binding obligations of the Company entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms, subject to the qualification that the enforceability of the Company's obligations thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). The Offered Securities will conform to the description thereof in the Offering Document. (e) The Exchange Notes have been duly and validly authorized by the Company and if and when duly issued and authenticated in accordance with the terms of the Indenture and delivered in accordance with the Registration Rights Agreement, will constitute valid and legally binding obligations of the Company entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms, subject to the qualification that the enforceability of the Company's obligations thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). (f) The Guarantees have been duly and validly authorized by the Guarantors and when duly executed and delivered by the Guarantors in accordance with the terms of the Indenture and upon the due execution, authentication and delivery of the Offered Securities in accordance with the Indenture and the issuance of the Offered Securities in the sale to the Initial Purchasers contemplated by this Agreement, will constitute valid and legally binding obligations of the Guarantors, enforceable against the Guarantors in accordance with their terms, subject to the qualification that the enforceability of the Guarantors' obligations thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). The Guarantees will conform to the description thereof in the Offering Document. (g) The Exchange Guarantees have been duly and validly authorized by the Guarantors and if and when duly executed and delivered by the Guarantors in accordance 3 with the terms of the Indenture and upon the due execution and authentication of the Exchange Notes in accordance with the Indenture and the issuance and delivery of the Exchange Notes contemplated by the Registration Rights Agreement, will constitute valid and legally binding obligations of the Guarantors, entitled to the benefits of the Indenture, enforceable against the Guarantors in accordance with their terms, subject to the qualification that the enforceability of the Guarantors' obligations thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). (h) The Company and each of the Guarantors has been duly incorporated and is an existing corporation in good standing under the laws of the state or jurisdiction in which such corporation is organized, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and the Company and each of the Guarantors is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification; except to the extent that any failure to so qualify would not individually or in the aggregate have a material adverse effect on the condition (financial or other), business, properties or results of operations of the Company, each of the Guarantors and any of their respective subsidiaries, taken as a whole ("Material Adverse Effect"). (i) Each subsidiary of the Company and the Guarantors has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and each subsidiary of the Company and the Guarantors is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except to the extent that any failure to so qualify would not individually or in the aggregate have a Material Adverse Effect; all of the issued and outstanding capital stock of each subsidiary of the Company and the Guarantors has been duly authorized and validly issued and is fully paid and nonassessable; and, except as set forth in the Offering Document, the capital stock of each subsidiary owned by the Company and the Guarantors, directly or through subsidiaries, is owned free from liens, encumbrances and defects. (j) The entities listed on Schedule B hereto are the only subsidiaries, direct or indirect, of the Company. (k) The Indenture has been duly and validly authorized by the Company and the Guarantors, and upon its execution and delivery and, assuming due authorization, execution and delivery by the Trustee, will constitute the valid and legally binding agreement of the Company and the Guarantors, enforceable against the Company and the Guarantors in accordance with its terms, subject to the qualification that the enforceability of the Company's and the Guarantors' obligations thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, 4 and other laws relating to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). No qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "1939 Act") is required in connection with the offer and sale of the Offered Securities contemplated hereby. The Indenture will conform to the description thereof in the Offering Document. (l) On the Closing Date, the Indenture will conform in all material respects to the requirements of the 1939 Act and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder. (m) Except as disclosed in the Offering Document, there are no contracts, agreements or understandings between the Company or any of the Guarantors and any person that would give rise to a valid claim against the Company, any Guarantor or the Initial Purchasers for a brokerage commission, finder's fee or other like payment in connection with the Offered Securities. (n) The Company and each of the Guarantors have all requisite corporate power and authority to enter into the Registration Rights Agreement. The Registration Rights Agreement has been duly authorized by the Company and the Guarantors and, when executed by the Company and the Guarantors in accordance with the terms hereof and thereof, will be validly executed and delivered and (assuming the due execution and delivery thereof by you), will be the valid and legally binding obligation of the Company and the Guarantors in accordance with the terms thereof, enforceable against the Company and the Guarantors in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law), and, as to rights of indemnification and contribution, by federal or state securities laws and principles of public policy. (o) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement, the Indenture or the Registration Rights Agreement in connection with the issuance and sale of the Offered Securities by the Company or the Guarantors, except (i) for the order of the Commission declaring the Exchange Offer Registration Statement or the Shelf Registration Statement effective, (ii) as may be required under the 1939 Act and (iii) as may be required under the securities or blue sky laws of certain jurisdictions. (p) The execution, delivery and performance of the Indenture, this Agreement and the Registration Rights Agreement, and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company, any of the Guarantors or any of their respective subsidiaries or any of their properties, or any material agreement or instrument to which the Company, any of the Guarantors or any of their respective subsidiaries is a party or by 5 which the Company, any of the Guarantors or any of their respective subsidiaries is bound or to which any of the properties of the Company, any of the Guarantors or any of their respective subsidiaries is subject, or the charter or by-laws of the Company, any of the Guarantors or any of their respective subsidiaries, and the Company and each of the Guarantors has full corporate power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (q) This Agreement has been duly authorized, executed and delivered by the Company and each of the Guarantors. (r) Except as disclosed in the Offering Document, the Company, each of the Guarantors or any of their respective subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and except as disclosed in the Offering Document, the Company, each of the Guarantors or any of their respective subsidiaries hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them. (s) The Company, each of the Guarantors and any of their respective subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company, any of the Guarantors or any of their respective subsidiaries, would individually or in the aggregate have a Material Adverse Effect. (t) No labor dispute with the employees of the Company, any of the Guarantors or any of their respective subsidiaries exists or, to the knowledge of the Company or any of the Guarantors, is imminent that might have a Material Adverse Effect. (u) The Company, each of the Guarantors or any of their respective subsidiaries own or possess or have the right to use, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, licenses, confidential information and other intellectual property (collectively, "intellectual property rights") necessary to conduct the business now operated by them, or presently employed by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company, any of the Guarantors or any of their respective subsidiaries, would individually or in the aggregate have a Material Adverse Effect. (v) Except as disclosed in the Offering Document, neither the Company, any of the Guarantors nor any of their respective subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to 6 hazardous or toxic substances (collectively, "environmental laws"), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and neither the Company nor any of the Guarantors is aware of any pending investigation which might lead to such a claim. (w) Except as disclosed in the Offering Document, there are no pending actions, suits or proceedings against or, to the Company's knowledge, affecting the Company, any of the Guarantors, any of their respective subsidiaries or any of their respective properties that, if determined adversely to the Company, any of the Guarantors or any of their respective subsidiaries, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company or any of the Guarantors to perform their respective obligations under the Indenture, this Agreement or the Registration Rights Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and to the Company's or any of the Guarantor's knowledge no such actions, suits or proceedings are threatened or contemplated. (x) The financial statements included in the Offering Document present fairly the financial position of the Company and its consolidated subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis; and the assumptions used in preparing the pro forma financial statements included in the Offering Document provide a reasonable basis for presenting the significant effects directly attributable to the transactions or events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma columns therein reflect the proper application of those adjustments to the corresponding historical financial statement amounts. (y) Except as disclosed in the Offering Document, since the date of the latest audited financial statements included in the Offering Document, neither the Company, any Guarantor nor any of their respective subsidiaries has sustained 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 and there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company, any of the Guarantors or any of their respective subsidiaries, and, except as disclosed in or contemplated by the Offering Document, there has been no dividend or distribution of any kind declared, paid or made by the Company or any of the Guarantors on any class of its capital stock. (z) The Company is not an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the United States Investment Company Act of 1940, as amended and the rules and regulations of the Commission thereunder (the "Investment Company Act"); and the 7 Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Offering Document, will not be an "investment company" as defined in the Investment Company Act. (aa) No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Offered Securities are listed on any national securities exchange registered under Section 6 of the United States Securities Exchange Act of 1934 (the "Exchange Act") or quoted in a U.S. automated inter-dealer quotation system. (bb) The offer and sale of the Offered Securities by the Company to the Initial Purchasers in the manner contemplated by this Agreement will be exempt from the registration requirements of the Securities Act by reason of Section 4(2) thereof and Regulation S thereunder ("Regulation S"); and it is not necessary to qualify an indenture in respect of the Offered Securities under the Trust Indenture Act. (cc) Neither the Company, any of the Guarantors nor any of their respective affiliates, nor any person acting on its or their behalf (i) has, within the six-month period immediately prior to the date hereof, offered or sold in the United States or to any U.S. person (as such terms are defined in Regulation S) the Offered Securities or any security of the same class or series as the Offered Securities or (ii) has offered or will offer or sell the Offered Securities (A) in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or (B) with respect to any securities sold in reliance on Rule 903 of Regulation S, by means of any directed selling efforts within the meaning of Rule 902(c) of Regulation S. The Company, each of the Guarantors and any of their respective affiliates and any person acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S. The Company and each of the Guarantors has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for this Agreement. (dd) The Offering Document contains all the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Securities Act. (ee) There are no contracts, agreements or understandings between the Company or any Guarantor and any person (other than the Registration Rights Agreement and the registration rights agreement entered into by the Company in connection with the issuance of the Company's 12% Senior Subordinated Notes due 2005) granting such person the right to require the Company or such Guarantor to file a registration statement under the Securities Act with respect to any securities of the Company or such Guarantor owned or to be owned by such person or to require the Company or such Guarantor to include such securities with the Offered Securities and Guarantees registered pursuant to the Registration Rights Agreement or with any securities being registered pursuant to any other registration statement filed by the Company or any Guarantor under the Securities Act. (ff) The Company, each of the Guarantors and each of their respective subsidiaries carry, or are covered by, insurance in such amounts and covering such risks 8 as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar businesses in similar industries. (gg) No relationship, direct or indirect, required to be described under Item 404 of Regulation S-K, exists between or among the Company on the one hand, and the directors, officers or stockholders of the Company on the other hand, which is not described in the Offering Document. (hh) The Company is in compliance in all material respects with all presently applicable provisions of ERISA; no "reportable event" (as defined in ERISA), has occurred with respect to any "pension plan" (as defined in ERISA), for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (ii) The Company and each of the Guarantors have filed all federal, state and local income and franchise tax returns required to be filed through the date hereof and have paid all taxes due thereon, and no tax deficiency has been determined adversely to the Company, any of the Guarantors or any of their respective subsidiaries which has had (nor does the Company or any of the Guarantors have any knowledge of any tax deficiency which, if determined adversely to the Company, any of the Guarantors or any of their respective subsidiaries, might have) a Material Adverse Effect. (jj) Since the date as of which information is given in the Preliminary Offering Circular through the date hereof, and except as may otherwise be disclosed or contemplated in the Offering Document, neither the Company nor any of the Guarantors have (i) issued or granted any securities, (ii) incurred any liability or obligation, direct or contingent, other than liabilities and obligations which were incurred in the ordinary course of business, (iii) entered into any transaction not in the ordinary course of business or (iv) declared or paid any dividend on its capital stock. (kk) The Company and each of the Guarantors (i) make and keep books and records which are accurate in all material respects and (ii) maintain internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to their respective assets is permitted only in accordance with management's authorization and (D) the reported accountability for their respective assets is compared with existing assets at reasonable intervals. (ll) Neither the Company, the Guarantors nor any of their respective subsidiaries (i) is in violation of its respective charter or by-laws (ii) is in default in any material 9 respect, and no event has occurred which, with notice or lapse of time or both would constitute such a material default, in the due performance or observance of any obligation, agreement, covenant or condition contained in any material indenture, loan agreement, mortgage, deed of trust, lease or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject or (iii) is in violation in any material respect of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject or has failed to obtain any material license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business. (mm) Neither the Company nor any of the Guarantors nor any of their respective subsidiaries, nor, to the Company's or any Guarantor's knowledge, any director, officer, agent, employee or other person associated with or acting on behalf of the Company, any of the Guarantors or any of their respective subsidiaries, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (nn) None of the transactions contemplated by this Agreement (including, without limitation, the use of the proceeds from the sale of the Offering Securities), will violate or result in a violation of Section 7 of the Exchange Act, or any regulation promulgated thereunder, including, without limitation, Regulations T, U, and X of the Board of Governors of the Federal Reserve System. (oo) No "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Securities Act (i) has imposed (or has informed the Company or any Guarantor that it is considering imposing) any condition (financial or otherwise) on the Company's or any Guarantor's retaining any rating assigned to the Company or any Guarantor, any securities of the Company or any Guarantor or (ii) has indicated to the Company or any Guarantor that it is considering (a) the downgrading, suspension, or withdrawal of, or any review for a possible change that does not indicate the direction of the possible change in, any rating so assigned or (b) any unfavorable change in the outlook for any rating of the Company, any Guarantor or any securities of the Company or any Guarantor. (pp) No form of general solicitation or general advertising (as defined in Regulation D under the Securities Act) was used by the Company, the Guarantors or any of their respective representatives (other than the Initial Purchasers, as to whom the Company and the Guarantors make no representation) in connection with the offer and sale of the Offered Securities contemplated hereby, including, but not limited to, articles, notices or other communications published in any newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. 10 (qq) The Offered Securities offered and sold in reliance on Regulation S have been and will be offered and sold only in offshore transactions. (rr) None of the Company, the Guarantors nor any of their respective affiliates or any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company and the Guarantors make no representation) has engaged or will engage in any directed selling efforts within the meaning of Regulation S with respect to the Offered Securities or the Subsidiary Guarantees. (ss) The sale of the Offered Securities pursuant to Regulation S is not part of a plan or scheme to evade the registration provisions of the Securities Act. (tt) The Credit Agreement (as defined in the Indenture) has been duly and validly authorized by the Company and the Guarantors, and upon its execution and delivery and, assuming due authorization, execution and delivery by the lenders party thereto, will constitute the valid and legally binding agreement of the Company and the Guarantors, enforceable against the Company and the Guarantors in accordance with its terms, subject to the qualification that the enforceability of the Company's and the Guarantors' obligations thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Initial Purchasers and the Initial Purchasers agree, severally and not jointly, to purchase from the Company, at a purchase price of 95.964% of the principal amount thereof plus accrued interest from April 9, 2002 to the Closing Date (as hereinafter defined), the respective principal amounts of Securities set forth opposite the names of the several Initial Purchasers in Schedule A hereto. The Company will deliver against payment of the purchase price the Offered Securities to be offered and sold by the Initial Purchasers in reliance on Regulation S (the "Regulation S Securities") in the form of one or more temporary global Securities in registered form without interest coupons (the "Regulation S Temporary Global Securities") which will be deposited with the Trustee as custodian for The Depository Trust Company ("DTC") for the respective accounts of the DTC participants for Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System ("Euroclear"), and Clearstream Banking, societe anonyme ("Clearstream, Luxembourg") and registered in the name of Cede & Co., as nominee for DTC. The Company will deliver against payment of the purchase price the Offered Securities to be purchased by the Initial Purchasers hereunder and to be offered and sold by the Initial Purchasers in reliance on Rule 144A under the Securities Act (the "144A Securities") in the form of one permanent global security in definitive form without interest coupons (the "Restricted Global Securities") deposited with the Trustee as custodian for DTC and registered in the name of Cede & Co., as nominee for DTC. The Regulation S Temporary Global Securities and the Restricted Global Securities shall be assigned separate CUSIP numbers. The Restricted Global Securities shall include the legend regarding restrictions on transfer set forth under "Transfer Restrictions" in the Offering 11 Document. Until the termination of the restricted period (as defined in Regulation S) with respect to the offering of the Offered Securities, interests in the Regulation S Temporary Global Securities may only be held by the DTC participants for Euroclear and Clearstream, Luxembourg and may not be held in definitive form. Interests in any permanent global Securities will be held only in book-entry form through Euroclear, Clearstream, Luxembourg or DTC, as the case may be, except in the limited circumstances described in the Offering Document. Payment for the Regulation S Securities and the 144A Securities shall be made by the Initial Purchasers in Federal (same day) funds by wire transfer to an account at a bank acceptable to CSFBC drawn to the order of ICON Health & Fitness, Inc. at a closing to be conducted at the office of Latham & Watkins, 885 Third Avenue, New York, New York 10022 at 10:00 A.M., (New York time), on April 9, 2002, or at such other time not later than seven full business days thereafter as CSFBC and the Company determine, such time being herein referred to as the "Closing Date," against delivery to the Trustee as custodian for DTC of (i) the Regulation S Temporary Global Securities representing all of the Regulation S Securities for the respective accounts of the DTC participants for Euroclear and Clearstream, Luxembourg and (ii) the Restricted Global Securities representing all of the 144A Securities. The Regulation S Temporary Global Securities and the Restricted Global Securities will be made available for checking at the above office of Latham & Watkins at least 24 hours prior to the Closing Date. 4. Representations by Initial Purchasers; Resale by Initial Purchasers. (a) Each Initial Purchaser severally represents and warrants to the Company and each of the Guarantors that it is an "accredited investor" within the meaning of Regulation D under the Securities Act. (b) Each Initial Purchaser severally acknowledges that the Offered Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act. Each Initial Purchaser severally represents and agrees that it has offered and sold the Offered Securities and will offer and sell the Offered Securities (i) as part of its distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 or Rule 144A under the Securities Act ("Rule 144A"). Accordingly, neither such Initial Purchaser nor its affiliates, nor any persons acting on its or their behalf, have engaged or will engage in any directed selling efforts with respect to the Offered Securities, and such Initial Purchaser, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S. Each Initial Purchaser severally agrees that, at or prior to confirmation of sale of the Offered Securities, other than a sale pursuant to Rule 144A, such Initial Purchaser will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases the Offered Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 12 days after the later of the date of the commencement of the offering and the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meanings given to them by Regulation S." Terms used in this subsection (b) have the meanings given to them by Regulation S. (c) Each Initial Purchaser severally agrees that it and each of its affiliates has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except with the prior written consent of the Company. (d) Each Initial Purchaser severally agrees that it and each of its affiliates will not offer or sell the Offered Securities in the United States by means of any form of general solicitation or general advertising, within the meaning of Rule 502(c) under the Securities Act, including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Each Initial Purchaser severally agrees, with respect to initial resales made in reliance on Rule 144A of any of the Offered Securities, to deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Offered Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A. (e) Each Initial Purchaser severally represents and agrees that (i) it has not authorized the notes to be offered to the public in the United Kingdom, within the meaning of the Public Offers of Securities Regulations 1995, as amended, and (ii) no Offering Document may be passed on to any person in the United Kingdom unless that person is of a kind described in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 or is a person to whom the document may otherwise lawfully be issued or passed on. The Offering Document is only directed at persons having professional experience in matters relating to investments and the offering described in the Offering Document is only available to such persons and only such persons will be permitted to participate in the offering. Persons who do not have professional experience in matters relating to investments should not rely on the Offering Document. All applicable provisions of the Financial Services and Markets Act 2000, as amended, must be complied with in respect of anything done in relation to the notes in, from or otherwise involving the United Kingdom. 5. Certain Agreements of the Company. The Company and each of the Guarantors, jointly and severally, agree with the Initial Purchasers that: (a) During such period as, in the opinion of Latham & Watkins, an Offering Document is required by law to be delivered in connection with Exempt Resales by the Initial Purchasers and in connection with market-making activities of the Initial Purchasers for so long as any Offered Securities are outstanding, the Company and each of the Guarantors will advise CSFBC promptly of any proposal to amend or supplement the Offering Document and will not effect such amendment or supplementation without CSFBC's consent (which consent shall not be unreasonably withheld). If, at any time 13 prior to the completion of the resale of the Offered Securities by the Initial Purchasers any event occurs as a result of which the Offering Document 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 it is necessary at any such time to amend or supplement the Offering Document to comply with any applicable law, the Company and each of the Guarantors promptly will notify CSFBC of such event and promptly will prepare, at its own expense, an amendment or supplement which will correct such statement or omission or effect such compliance. Neither CSFBC's consent to, nor the Initial Purchasers' delivery to offerees or investors of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. (b) The Company will furnish to CSFBC copies of the Offering Document and all amendments and supplements to such documents, in each case as soon as available and in such quantities as CSFBC requests. Subject to the Initial Purchasers' compliance with its representations and warranties and agreements set forth in Section 4 hereof, the Company and the Guarantors consent to the use of the Offering Document, and any amendments and supplements thereto required pursuant hereto, by the Initial Purchasers in connection with Exempt Resales. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish or cause to be furnished to CSFBC (and, upon request, to each of the other Initial Purchasers) and, upon request of holders and prospective purchasers of the Offered Securities, to such holders and purchasers, copies of the information required to be delivered to holders and prospective purchasers of the Offered Securities pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of the Offered Securities. The Company will pay the expenses of printing and distributing to the Initial Purchasers all such documents. (c) The Company and each of the Guarantors will use its best efforts to arrange for the qualification of the Offered Securities for sale and the determination of their eligibility for investment under the laws of such jurisdictions in the United States as CSFBC reasonably designates and will continue such qualifications in effect so long as required for the resale of the Offered Securities by the Initial Purchasers provided that neither the Company nor any of the Guarantors will be required to qualify as a foreign corporation or otherwise subject itself to taxation in any state in which it is not otherwise so qualified or subject, nor shall any of them be required to file a general consent to service of process in any such state. (d) During the period of ten years hereafter (or until the date of payment in full of the Offered Securities, if earlier), the Company and each of the Guarantors will furnish to CSFBC and, upon request, to each of the other Initial Purchasers as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company and each of the Guarantors will furnish to CSFBC and, upon request, to each of the other Initial Purchasers (i) as soon as available, a copy of each report and any definitive proxy statement of the Company and the Guarantors mailed to 14 stockholders and (ii) from time to time, such other information concerning the Company or any of the Guarantors as CSFBC may reasonably request. (e) During the period of two years after the Closing Date, the Company will, upon request, furnish to CSFBC, each of the other Initial Purchasers and any holder of Offered Securities a copy of the restrictions on transfer applicable to the Offered Securities. (f) During the period of two years after the Closing Date, the Company and each of the Guarantors will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Offered Securities that have been reacquired by any of them. (g) During the period of two years after the Closing Date, the Company and each of the Guarantors will not be or become, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act. (h) The Company and each of the Guarantors, jointly and severally, agree to pay all expenses incidental to the performance of their obligations under this Agreement, the Indenture and the Registration Rights Agreement including (i) the fees and expenses of the Trustee and its professional advisors; (ii) all expenses in connection with the execution, issue, authentication, packaging and initial delivery of the Offered Securities and, as applicable, the Exchange Securities, the preparation and printing of this Agreement, the Registration Rights Agreement, the Offered Securities, the Indenture, the Offering Document and amendments and supplements thereto, and any other document relating to the issuance, offer, sale and delivery of the Offered Securities and as applicable the Exchange Securities; (iii) the cost of qualifying the Offered Securities for trading in The PortalSM Market ("PORTAL") of The Nasdaq National Market Inc. and any expenses incidental thereto, (iv) the cost of any advertising approved by the Company in connection with the issue of the Offered Securities; (v) for any expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities or the Exchange Securities for sale under the laws of such jurisdictions in the United States as CSFBC designates and the printing of memoranda relating thereto; (vi) for any fees charged by investment rating agencies for the rating of the Securities or the Exchange Securities; and (vii) for expenses incurred in distributing the Offering Document (including any amendments and supplements thereto) to the Initial Purchasers. The Company and each of the Guarantors will also pay or reimburse the Initial Purchasers for all travel expenses of the Initial Purchasers (to the extent incurred by them) and the Company's officers and employees and any other expenses of the Initial Purchasers and the Company in connection with attending or hosting meetings with prospective purchasers of the Offered Securities (i) In connection with the offering, until CSFBC shall have notified the Company and the other Initial Purchasers of the completion of the resale of the Offered Securities, neither the Company nor any of its affiliates has or will, either alone or with one or more other persons, bid for or purchase for any account in which it or any of its affiliates has a beneficial interest any Offered Securities or attempt to induce any person to purchase any 15 Offered Securities; and neither it nor any of its affiliates will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Offered Securities. (j) For a period of 180 days after the date of the initial offering of the Offered Securities by the Initial Purchasers, the Company and each of the Guarantors, without the prior written consent of CSFBC, will not offer, sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, any United States dollar-denominated debt securities issued or guaranteed by the Company or any Guarantor and having a maturity of more than one year from the date of issue. Neither the Company nor any Guarantor will at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, pledge, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act or the safe harbor of Regulation S thereunder to cease to be applicable to the offer and sale of the Offered Securities. (k) The Company and each of the Guarantors will apply the net proceeds from the sale of the Offered Securities to be sold by it hereunder substantially in accordance with the description set forth in the Offering Document under the caption "Use of Proceeds." (l) Except as stated in this Agreement and in the Offering Document, neither the Company, any of the Guarantors nor any of their respective affiliates have taken, nor will any of them take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company or any of the Guarantors to facilitate the sale or resale of the Offered Securities. Except as permitted by the Securities Act, the Company and each of the Guarantors will not distribute any offering material in connection with resales of the Offered Securities. (m) The Company and each of the Guarantors will use their best efforts to permit the Offered Securities to be designated PORTAL securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. relating to trading in PORTAL and to permit the Offered Securities to be eligible for clearance and settlement through DTC. (n) The Company and the Guarantors have complied and will comply with all provisions of Florida Statutes Section 517.075 relating to issuers doing business with Cuba. (o) The Company and the Guarantors agree not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act), that would be integrated with the sale of the Offered Securities in a manner that would require the registration under the Securities Act of the sale to the Initial Purchasers or the resale of the Offered Securities. 16 (p) The Company and each of the Guarantors agree to comply with all the terms and conditions of the Registration Rights Agreement and all agreements set forth in the representation letters of the Company and each of the Guarantors to DTC relating to the approval of the Offered Securities by DTC for "book entry" transfer. (q) The Company and each of the Guarantors agree that prior to any registration of the Offered Securities pursuant to the Registration Rights Agreement, or at such earlier time as may be required, the Indenture shall be qualified under the 1939 Act and any necessary supplemental indentures will be entered into in connection therewith. (r) The Company and each of the Guarantors will not voluntarily claim, and will resist actively all attempts to claim, the benefit of any usury laws against holders of the Offered Securities. (s) For so long as any of the Offered Securities are outstanding and if, in the reasonable judgment of the Initial Purchasers or Latham & Watkins, the Initial Purchasers or any of their affiliates (as defined in the rules and regulations under the Securities Act) are required to deliver a prospectus (any such prospectus, a "Market Making Prospectus") in connection with sales of the Offered Securities, to (i) provide the Initial Purchasers and their affiliates, without charge, as many copies of the Market Making Prospectus as they may reasonably request, (ii) periodically amend the Offering Document and the Exchange Offer Registration Statement so that the information contained therein complies with the requirements of Section 10(a) of the Securities Act, (iii) amend the Exchange Offer Registration Statement or amend or supplement the Market Making Prospectus when necessary to reflect any material changes in the information provided therein and promptly file such amendment or supplement with the Commission, (iv) provide the Initial Purchasers and their affiliates with copies of each amendment or supplement so filed and such other documents, including opinions of counsel and "comfort" letters, as they may reasonably request and (v) indemnify the Initial Purchasers and their affiliates with respect to the Market Making Prospectus and, if applicable, contribute to any amount paid or payable by the Initial Purchasers and their affiliates in a manner substantially identical to that specified in Section 7 hereof (with appropriate modifications). The Company and each of the Guarantors consent to the use, subject to the provisions of the Securities Act and the state securities or Blue Sky laws of the jurisdictions in which the Offered Securities are offered by the Initial Purchasers, of each Market Making Prospectus. (t) The Company and each of the Guarantors will do and perform all things required or necessary to be done and performed under this Agreement by them prior to the Closing Date, and to satisfy all conditions precedent to the Initial Purchasers' obligations hereunder to purchase the Offered Securities. 6. Conditions of the Obligations of the Initial Purchasers. The obligations of the several Initial Purchasers to purchase and pay for the Offered Securities on the Closing Date will be subject to the accuracy of the representations and warranties on the part of the Company and each of the Guarantors herein, to the accuracy of the statements of officers of the Company and each of the Guarantors made pursuant to the provisions hereof, to the performance by the Company and each of 17 the Guarantors of their respective obligations hereunder and to the following additional conditions precedent: (a) The Initial Purchasers shall have received a letter, dated the date of this Agreement, of PricewaterhouseCoopers LLP in form and substance satisfactory to the Initial Purchasers concerning the financial information set forth in the Offering Document. (b) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) a change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls as would, in the judgment of CSFBC, be likely to prejudice materially the success of the proposed issue, sale or distribution of the Offered Securities, whether in the primary market or in respect of dealings in the secondary market, or (ii) (A) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company, any of the Guarantors and their respective subsidiaries which, in the judgment of a majority in interest of the Initial Purchasers including CSFBC, is so material and adverse as to make it impractical or inadvisable to proceed with completion of the offering or the sale of and payment for the Offered Securities; (B) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Securities Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating) or any announcement that the Company has been placed on negative outlook; (C) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (D) any banking moratorium declared by U.S. Federal or New York authorities; (E) any major disruption of settlements of securities; or (F) any attack on, any outbreak or escalation of hostilities or acts of terrorism involving the United States, any declaration of war by Congress or any other national or international calamity or emergency if, in the judgment of a majority in interest of the Purchasers including CSFBC, the effect of any such attack, outbreak, escalation, act, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the offering or the sale of and payment for the Offered Securities. (c) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Hutchins, Wheeler & Dittmar, a Professional Corporation counsel for the Company, in form and substance satisfactory to the Initial Purchasers, to the effect that: (i) The Company and each of the Delaware Guarantors is a validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own its properties and conduct its business as described in the Offering Document; and, based solely on certificates of public officials, the Company and each of the Delaware Guarantors are duly qualified to do business as a foreign corporation in good standing in all other jurisdictions 18 identified by the Company (x) in which its ownership or lease of property or the conduct of its business requires such qualification, and (y) where the failure to so qualify could reasonably be anticipated to result in a Material Adverse Effect. (ii) The Offered Securities have been duly authorized, executed, authenticated and delivered by the Company and conform in all material respects to the description thereof contained in the Offering Document. (iii) The Indenture has been duly authorized, executed and delivered by the Company and each of the Delaware Guarantors. (iv) The Indenture conforms in all material respects to the requirements of the Trust Indenture Act, and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder. (v) The Exchange Notes have been duly authorized by the Company. (vi) The Guarantee to be endorsed on the Offered Securities by each of the Delaware Guarantors has been duly authorized by each such Delaware Guarantor, and has been duly executed and delivered by each such Delaware Guarantor and conforms to the description thereof contained in the Offering Document. (vii) The Exchange Guarantee to be endorsed on the Exchange Notes by each Delaware Guarantor has been duly authorized by each such Delaware Guarantor. (viii) The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Offering Circular, will not be an "investment company" as defined in the Investment Company Act of 1940. (ix) No consent, approval, authorization or order of, or filing with, any governmental agency or body or any court is required to be obtained or made by the Company or any Delaware Guarantor for the consummation of the transactions contemplated by this Agreement or the Registration Rights Agreement in connection with the issuance or sale of the Offered Securities by the Company or any Delaware Guarantor, except such as may be required under state securities laws and except for the order of the Commission declaring the Exchange Offer Registration Statement or the Shelf Registration Statement effective. (x) The execution, delivery and performance of the Indenture, this Agreement and the Registration Rights Agreement and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, rule, regulation or, to such counsel's knowledge, order of any governmental agency or body or any court having jurisdiction over the Company 19 or any of the Delaware Guarantors or any of their respective properties, or any agreement identified to such counsel by the Company as material and listed on a Schedule attached to such counsel's opinion to which the Company or any of the Delaware Guarantors is a party or by which the Company or any of the Delaware Guarantors is bound or to which any of the properties of the Company or any of the Delaware Guarantors is subject, or the charter or by-laws of the Company or any of the Delaware Guarantors, and the Company and each of the Delaware Guarantors has full corporate power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (xi) Such counsel have no reason to believe that the Offering Circular, or any amendment or supplement thereto, as of the date hereof and as of the Closing Date, contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; it being understood that such counsel need express no opinion as to the financial statements or other financial or accounting information contained in the Offering Circular. (xii) This Agreement and the Registration Rights Agreement have each been duly authorized, executed and delivered by the Company and each of the Delaware Guarantors. (xiii) When the Offered Securities are issued and delivered pursuant to this Agreement, such Offered Securities will not be of the same class (within the meaning of Rule 144A under the Securities Act), as any securities of the Company or any Guarantor that are listed on a national securities exchange registered under Section 6 of the Exchange Act or that are quoted in a United States automated inter-dealer quotation system. (xiv) The Offering Document complied with the requirements of Rule 144A of the Securities Act (except for the financial statements and the notes thereto and schedules included therein, as to which no opinion need be expressed). (xv) There are no preemptive or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any securities pursuant to the Company's charter or by-laws or any agreement or other instrument known to such counsel. (xvi) It is not necessary in connection with (i) the offer, sale and delivery of the Offered Securities by the Company and each of the Guarantors to the Initial Purchasers pursuant to this Agreement or (ii) the initial resales of the Offered Securities by the Initial Purchasers in the manner contemplated by this Agreement to register the Offered Securities under the Securities Act or to qualify an indenture in respect thereof under the Trust Indenture Act. (xvii) The statements contained in the Offering Document under the caption "Description of the Notes" in so far as they purport to constitute a summary of 20 the terms of the Offered Securities and under the captions "Certain Relationships and Related Party Transactions," "Certain United States Federal Income Tax Considerations" and "Plan of Distribution," insofar as they describe the laws and documents referred therein, are accurate in all material respects. (xiii) The Credit Agreement has been duly authorized, executed and delivered by the Company and each of the Guarantors; and the Credit Agreement constitutes a valid and legally binding obligation of the Company and each of the Guarantors enforceable against the Company and each of the Guarantors in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles (whether considered in a proceeding in equity or at law), or an implied covenant of good faith and fair dealing and except with respect to the rights of indemnification and contribution thereunder, where enforcement thereof may be limited by state or federal securities laws or the policies underlying such laws. (d) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Orrick, Herrington & Sutcliffe LLP, New York counsel for the Company, that: (i) The Offered Securities constitute valid and legally binding obligations of the Company entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms, subject to the qualification that the enforceability of the Company's obligations thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (ii) The Indenture constitutes a valid and legally binding obligation of the Company and each of the Guarantors enforceable against the Company and each of the Guarantors in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (iii) At such time as the Exchange Notes are issued, executed, authenticated and delivered in accordance with the terms of the Exchange Offer and the Indenture, the Exchange Notes will be entitled to the benefits of the Indenture and will be the valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 21 (iv) When the Offered Securities have been issued, executed and authenticated in accordance with the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, the Guarantee of each Guarantor endorsed thereon will constitute the valid and legally binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (v) At such time as the Exchange Notes have been issued, executed, authenticated and delivered in accordance with the terms of the Exchange Offer and the Indenture, and upon the due execution and delivery of the Exchange Guarantee by each such Guarantor in a form substantially identical to the Guarantee, the Exchange Guarantee of each Guarantor so endorsed thereon will constitute the valid and legally binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (vi) This Agreement and the Registration Rights Agreement each constitutes a valid and binding agreement of the Company and each of the Guarantors enforceable against the Company and each of the Guarantors in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law), or an implied covenant of good faith and fair dealing and except with respect to the rights of indemnification and contribution thereunder, where enforcement thereof may be limited by state or federal securities laws or the policies underlying such laws. .. (e) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Bearnson & Peck, L.C., Utah counsel for the Company, that: (i) Each of the Utah Guarantors has been duly incorporated and is a validly existing corporation under the laws of the State of Utah, with corporate power and authority to own its properties and conduct its business as described in the Offering Document; and each such Utah Guarantor is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions identified by the Company (x) in which its ownership or lease of property or the conduct of its business requires such qualification, and (y) where the failure to so qualify could reasonably be anticipated to result in a Material Adverse Effect. 22 (ii) The Indenture has been duly authorized, executed and delivered by each of the Utah Guarantors. (iii) The Guarantee to be endorsed on the Offered Securities by each of the Utah Guarantors has been duly authorized by each such Utah Guarantor, and has been duly executed and delivered by each such Utah Guarantor, and conforms to the description thereof contained in the Offering Document. (iv) The Exchange Guarantee to be endorsed on the Exchange Notes by each Utah Guarantor has been duly authorized by each such Utah Guarantor. (v) No consent, approval, authorization or order of, or filing with, any governmental agency or body or any court is required to be obtained or made by any of the Utah Guarantors for the consummation of the transactions contemplated by this Agreement or the Registration Rights Agreement in connection with the issuance or sale of the Offered Securities by the Utah Guarantors, except such as may be required under state securities laws and except for the order of the Commission declaring the Exchange Offer Registration Statement or the Shelf Registration Statement effective. (vi) The execution, delivery and performance of the Indenture, this Agreement and the Registration Rights Agreement and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, rule, regulation or, to such counsel's knowledge, order of any governmental agency or body or any court having jurisdiction over any of the Utah Guarantors, or any of their respective properties, or any agreement identified to such counsel by the Company as material and listed on a Schedule attached to such counsel's opinion to which any of the Utah Guarantors is a party or by which any of the Utah Guarantors is bound or to which any of the properties of the Utah Guarantors is subject, or the charter or by-laws of any of the Utah Guarantors, and each of the Utah Guarantors has full corporate power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (vii) This Agreement and the Registration Rights Agreement have each been duly authorized, executed and delivered by each of the Utah Guarantors. (f) The Initial Purchasers shall have received an opinion, dated the Closing Date, Brad Bearnson, Esq., general counsel to the Company, that: (i) None of the Utah Guarantors (i) is in violation of its respective charter or by-laws; or (ii) to such counsel's knowledge, is in default, and no event has occurred which, with notice or lapse of time or both would constitute such default, in the due performance or observance of any obligation, agreement, covenant or condition contained in any material indenture, loan agreement, mortgage, deed of trust, lease or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject, 23 and which such agreements are set forth on a Schedule attached to such counsel's opinion. (ii) Except as described or referred to in the Offering Document, there are no pending actions, suits or proceedings against or, to the Company's knowledge, affecting the Company, any of the Guarantors, any of their respective subsidiaries or any of their respective properties that, if determined adversely to the Company, any of the Guarantors or any of their respective subsidiaries, would individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, or would reasonably be expected to materially and adversely affect the ability of the Company or any of the Guarantors to perform their obligations under the Indenture, this Agreement or the Registration Rights Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and to such counsel's knowledge, no such actions, suits or proceedings are threatened or contemplated. (iii) There are no contracts, agreements or understandings between the Company or any Guarantor and any person (other than the Registration Rights Agreement and the registration rights agreement entered into by the Company in connection with the issuance of the Company's 12% Senior Subordinated Notes due 2005) granting such person the right to require the Company or such Guarantor to file a registration statement under the Securities Act with respect to any securities of the Company or such Guarantor owned or to be owned by such person or to require the Company or such Guarantor to include such securities with the Offered Securities and the Guarantees registered pursuant to the Registration Rights Agreement or in any securities being registered pursuant to any other registration statement filed by the Company or any Guarantor under the Securities Act. (g) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Holmested & Associes, special Quebec counsel for the Company, that: (i) ICON Canada has been duly incorporated and is a validly existing corporation in good standing under the laws of the province of Quebec, with corporate power and authority to own its properties and conduct its business as described in the Offering Document; and such subsidiary is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions identified by the Company (x) in which its ownership or lease of property or the conduct of its business requires such qualification, and (y) where the failure to so qualify could reasonably be anticipated to result in a Material Adverse Effect. (ii) The Indenture has been duly authorized, executed and delivered by ICON Canada. (iii) The Guarantee to be endorsed on the Offered Securities by ICON Canada has been duly authorized by ICON Canada, and has been duly executed 24 and delivered by ICON Canada, and conforms to the description thereof contained in the Offering Document. (iv) The Exchange Guarantee to be endorsed on the Exchange Notes by ICON Canada has been duly authorized by ICON Canada. (v) No consent, approval, authorization or order of, or filing with, any governmental agency or body or any court is required to be obtained or made by ICON Canada for the consummation of the transactions contemplated by this Agreement or the Registration Rights Agreement in connection with the issuance or sale of the Offered Securities by ICON Canada, except such as may be required under state securities laws and except for the order of the Commission declaring the Exchange Offer Registration Statement or the Shelf Registration Statement effective. (vi) The execution, delivery and performance of the Indenture, this Agreement and the Registration Rights Agreement and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, rule, regulation or order of any governmental agency or body or any court having jurisdiction over ICON Canada, or any of its properties, or any agreement identified to such counsel by the Company and listed on a Schedule to such counsel's opinion to which ICON Canada is a party or by which ICON Canada is bound or to which any of the properties of ICON Canada is subject, or the charter or by-laws of ICON Canada, and ICON Canada has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (vii) This Agreement and the Registration Rights Agreement have each been duly authorized, executed and delivered by ICON Canada. (h) The Initial Purchasers shall have received an opinion, dated the Closing Date, of McInnes, Cooper & Robertson, special New Brunswick counsel for the Company, that: (i) N.B. Ltd. has been duly incorporated and is a validly existing corporation in good standing under the laws of the province of New Brunswick, with corporate power and authority to own its properties and conduct its business as described in the Offering Document; and N.B. Ltd. is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions identified by the Company (x) in which its ownership or lease of property or the conduct of its business requires such qualification, and (y) where the failure to so qualify could reasonably be anticipated to result in a Material Adverse Effect. (ii) The Indenture has been duly authorized, executed and delivered by N.B. Ltd. 25 (iii) The Guarantee to be endorsed on the Offered Securities by N.B. Ltd. has been duly authorized by N.B. Ltd., and has been duly executed and delivered by N.B. Ltd., and conforms to the description thereof contained in the Offering Document. (iv) The Exchange Guarantee to be endorsed on the Exchange Notes by N.B. Ltd. has been duly authorized by N.B. Ltd. (v) No consent, approval, authorization or order of, or filing with, any governmental agency or body or any court is required to be obtained or made by N.B. Ltd. for the consummation of the transactions contemplated by this Agreement or the Registration Rights Agreement in connection with the issuance or sale of the Offered Securities by N.B. Ltd., except such as may be required under state securities laws and except for the order of the Commission declaring the Exchange Offer Registration Statement or the Shelf Registration Statement effective. (vi) The execution, delivery and performance of the Indenture, this Agreement and the Registration Rights Agreement and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, rule, regulation or order of any governmental agency or body or any court having jurisdiction over N.B. Ltd., or any of its properties, or any agreement identified to such counsel by the Company and listed on a Schedule to such counsel's opinion to which N.B. Ltd. is a party or by which N.B. Ltd. is bound or to which any of the properties of N.B. Ltd. is subject, or the charter or by-laws of N.B. Ltd., and N.B. Ltd. has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (vii) This Agreement and the Registration Rights Agreement have each been duly authorized, executed and delivered by N.B. Ltd. (i) The Initial Purchasers shall have received from Latham & Watkins, counsel for the Initial Purchasers, such opinion or opinions, dated the Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities, the Offering Document, the exemption from registration for the offer and sale of the Offered Securities by the Company to the Initial Purchasers and the resales by the several Initial Purchasers as contemplated hereby and other related matters as CSFBC may require, and the Company and each of the Guarantors shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (j) The Initial Purchasers shall have received a certificate, dated the Closing Date, of the President or any Vice President and a principal financial or accounting officer of the Company and each of the Guarantors in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company and each of the Guarantors in this Agreement are true and correct, that the Company and each of the Guarantors has complied with all agreements and satisfied all 26 conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date, and that, subsequent to the respective dates of the most recent financial statements in the Offering Document there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company, any of the Guarantors or any of their respective subsidiaries taken as a whole except as set forth in or contemplated by the Offering Document or as described in such certificate and such other matters as CSFBC may require. (k) The Initial Purchasers shall have received a letter, dated the Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of subsection (a) of this Section 6, except that the specified date referred to in such subsection will be a date not more than three days prior to the Closing Date for the purposes of this subsection. (l) The Company shall have given notice of redemption to each holder of the Company's 12% Senior Subordinated Notes due 2005 prior to, or simultaneously with, the Closing Date, or made such other arrangements with respect to the redemption of such notes, as shall be reasonably satisfactory to the Initial Purchasers. (m) The Company shall have consummated the Credit Agreement prior to, or simultaneously with, the Closing Date on substantially the same terms described in the Offering Document and the Initial Purchasers shall have received counterparts, conformed as executed, of the Credit Agreement and such other documentation as they deem necessary to evidence the consummation thereof. The Company and each of the Guarantors will furnish the Initial Purchasers with such conformed copies of such opinions, certificates, letters and documents as the Initial Purchasers reasonably requests. CSFBC may in its sole discretion waive on behalf of the Initial Purchasers compliance with any conditions to the obligations of the Initial Purchasers hereunder 7. Indemnification and Contribution. (a) The Company and each of the Guarantors, jointly and severally, shall indemnify and hold harmless the Initial Purchasers, its partners, directors and officers and each person, if any, who controls the Initial Purchasers within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Initial Purchasers may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any breach of any of the representations and warranties of the Company or any of the Guarantors contained herein or any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related preliminary offering circular, 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 in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, including any losses, claims, damages or liabilities arising out of or based upon the Company's or any of the Guarantor's failure to perform its obligations under Section 5(a) of this Agreement, and will reimburse the Initial Purchasers for any legal or other expenses reasonably incurred by the Initial Purchasers in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, 27 that (i) neither the Company nor any Guarantor shall 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 in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company or any of the Guarantors by any Initial Purchaser through CSFBC specifically for use therein, it being understood and agreed that the only such information consists of the information described as such in subsection (b) below and (ii) with respect to any untrue statement or alleged untrue statement in or omission or alleged omission from the Preliminary Offering Circular, the indemnity agreement contained in this Section 7(a) shall not inure to the benefit of any Initial Purchaser (or any partner, director or officer of such Initial Purchaser or any person who controls such Initial Purchaser) from whom the person asserting any such loss, claim, damage or liability purchased the Offered Securities concerned in any initial resale of the Offered Securities by such Initial Purchaser, to the extent that any such loss, claim, damage or liability occurs under the circumstance where it shall have be determined by a court of competent jurisdiction that (A) the untrue statement or alleged untrue statement in or omission or alleged omission from the Preliminary Offering Circular was corrected in the Offering Circular, (B) the Company had previously furnished copies of the Offering Circular to the Initial Purchasers and (C) the person asserting such loss, claim, damage or liability was not sent or given a copy of the Offering Circular at or prior to the written confirmation of the sale of such Offered Securities. (b) Each Initial Purchaser shall severally and not jointly indemnify and hold harmless the Company and each of the Guarantors, their respective directors and officers and each person, if any, who controls the Company or any of the Guarantors within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities to which the Company or any of the Guarantors may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related preliminary offering circular, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, 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 reliance upon and in conformity with written information furnished to the Company or any of the Guarantors by such Initial Purchaser through CSFBC specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company and any Guarantor in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Initial Purchaser consist of the following information in the Offering Document furnished by the Initial Purchasers: the third, fifth, tenth and fourteenth paragraphs under the caption "Plan of Distribution;" provided however, that the Initial Purchasers shall not be liable for any losses, claims, damages or liabilities arising out of or based upon the Company's or any of the Guarantor's failure to perform their respective obligations under Section 5(a) of this Agreement. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not 28 relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above except to the extent that it has been materially prejudiced by such failure. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who 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 will not be liable to such indemnified party under this Section 7 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes (i) an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or failure to act by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors on the one hand and the Initial Purchasers on the other from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Guarantors on the one hand and the Initial Purchasers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantors on the one hand and the Initial Purchasers 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 and the Guarantors bear to the total discounts and commissions received by the Initial Purchasers from the Company and each of the Guarantors under this Agreement. 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, any Guarantor or the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act or any comparable provision of any other securities law) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Initial Purchasers shall not be required to contribute any amount in excess of the amount by which the total discounts, fees and 29 commissions received by such Initial Purchaser exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Initial Purchasers' obligations in this subsection (d) to contribute are several in proportion to their respective purchase obligations and not joint. (e) The obligations of the Company and each Guarantor under this Section 7 shall be in addition to any liability which the Company and each Guarantor may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Initial Purchasers within the meaning of the Securities Act or the Exchange Act; and the obligations of the Initial Purchasers under this Section 7 shall be in addition to any liability which the Initial Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company and the Guarantors within the meaning of the Securities Act or the Exchange Act. 8. Default of Initial Purchasers. If any Initial Purchaser or Initial Purchasers default in their obligations to purchase Offered Securities hereunder and the aggregate principal amount of Offered Securities that such defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase does not exceed 10% of the total principal amount of Offered Securities, CSFBC may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Initial Purchasers, but if no such arrangements are made by the Closing Date, the non-defaulting Initial Purchasers shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Initial Purchasers agreed but failed to purchase. If any Initial Purchaser or Initial Purchasers so default and the aggregate principal amount of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total principal amount of Offered Securities and arrangements satisfactory to CSFBC and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Initial Purchaser, the Company or any Guarantor, except as provided in Section 9. As used in this Agreement, the term "Initial Purchaser" includes any person substituted for an Initial Purchaser under this Section. Nothing herein will relieve a defaulting Initial Purchaser from liability for its default. 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company, each of the Guarantors or their respective officers and of the Initial Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of the Initial Purchasers, the Company, any of the Guarantors or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Purchasers is not consummated, the Company and the Guarantors shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5(h) and the respective obligations of the Company, the Guarantors and the Initial Purchasers pursuant to Section 7 shall remain in effect. If the purchase of the Offered Securities by the Initial Purchasers is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in Section 6(b)(i) or clause (C), (D), (E) or (F) of Section 6(b)(ii), 30 the Company and the Guarantors will reimburse the Initial Purchasers for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred in connection with the offering of the Offered Securities. 10. Notices. All communications hereunder will be in writing and, if sent to the Initial Purchasers will be mailed, delivered or telegraphed and confirmed to the Initial Purchasers, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, New York 10010-3629, Attention: Transactions Advisory Group, or, if sent to the Company or any of the Guarantors, will be mailed, delivered or telegraphed and confirmed to it at Icon Health & Fitness, Inc., 1500 South 1000, Logan, Utah 84321, Attention: Brad Bearnson, Esq.; provided, however, that any notice to an Initial Purchaser pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Initial Purchaser. 11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder, except that holders of Offered Securities shall be entitled to enforce the agreements for their benefit contained in the second and third sentences of Section 5(b) hereof against the Company and each of the Guarantors as if such holders were parties thereto. 12. Counterparts. This Agreement may be executed 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 Agreement. 13. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflicts of laws. The Company and each of the Guarantors hereby submit to the non-exclusive jurisdiction of the Federal and State courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 31 If the foregoing is in accordance with the Initial Purchasers' understanding of our agreement, kindly sign and return to us one of the counterparts hereof, whereupon it will become a binding agreement between the Company, each of the Guarantors and the several Initial Purchasers in accordance with its terms. Very truly yours, 32 ICON HEALTH & FITNESS, INC. By: /s/ Brad H. Bearnson _____________________________ Name: Brad H. Bearnson Title: GUARANTORS: JUMPKING, INC. By: /s/ Brad H. Bearnson _____________________________ Name: Brad H. Bearnson Title: UNIVERSAL TECHNICAL SERVICES By: /s/ Brad H. Bearnson _____________________________ Name: Brad H. Bearnson Title: ICON INTERNATIONAL HOLDINGS, INC. By: /s/ Brad H. Bearnson _____________________________ Name: Brad H. Bearnson Title: ICON IP, INC. By: /s/ Brad H. Bearnson _____________________________ Name: Brad H. Bearnson Title: FREE MOTION FITNESS, INC. By: /s/ Brad H. Bearnson _____________________________ Name: Brad H. Bearnson Title: NORDICTRACK, INC. By: /s/ Brad H. Bearnson _____________________________ Name: Brad H. Bearnson Title: 510152 N.B. LTD. By: /s/ Brad H. Bearnson _____________________________ Name: Brad H. Bearnson Title: ICON DU CANADA INC. By: /s/ Brad H. Bearnson _____________________________ Name: Brad H. Bearnson Title: The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. Credit Suisse First Boston Corporation, By: /s/ Mark Filipski _________________________ Name: Mark Filipski Title: Managing Director Acting on behalf of itself and as the Representative of the several Initial Purchasers 35 SCHEDULE A Principal Amount of Offered Securities ------------------- Manager ------- Credit Suisse First Boston Corporation ............ $124,000,000 J.P. Morgan Securities Inc. ....................... $ 19,375,000 Fleet Securities, Inc. ............................ $ 11,625,000 ------------ Total ................... $155,000,000 ============ 36 SCHEDULE B Subsidiaries of the Company Jumpking, Inc. Universal Technical Services ICON International Holdings, Inc. ICON IP, Inc. Free Motion Fitness, Inc. NordicTrack, Inc. 510152 N.B. Ltd. ICON du Canada Inc., ICON Health & Fitness (Holdings) Ltd. ICON OS, Inc. ICON Health & Fitness Italia SRL ICON Fitness Lifestyle ICON Health & Fitness France SA AICON Health & Fitness GmbH Weider Health & Fitness France SA 37 EXHIBIT I [Form of Registration Rights Agreement] 38 EX-10.10 13 dex1010.txt EXHIBIT 10.10 - REG. RIGHTS AGREE. DTD 04/09/02 Exhibit 10.10 $155,000,000 ICON HEALTH & FITNESS, INC. 11.25% SENIOR SUBORDINATED NOTES DUE 2012 REGISTRATION RIGHTS AGREEMENT ----------------------------- April 9, 2002 Credit Suisse First Boston Corporation J.P. Morgan Securities Inc. Fleet Securities, Inc. c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Ladies and Gentlemen: ICON Health & Fitness, Inc., a Delaware corporation (the "Issuer"), proposes to issue and sell to Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., and Fleet Securities, Inc. (the "Initial Purchasers"), upon the terms set forth in a purchase agreement dated March 28, 2002 (the "Purchase Agreement"), $155,000,000 aggregate principal amount of its 11.25% Senior Subordinated Notes due 2012 (the "Notes") to be guaranteed (the "Guarantees," and together with the Notes, the "Offered Securities") by JumpKing, Inc., a Utah corporation , Universal Technical Services, a Utah corporation, ICON International Holdings, Inc., a Delaware corporation, ICON IP, Inc., a Delaware corporation, Free Motion Fitness, a Utah corporation, NordicTrack, Inc., a Utah corporation, 510152 N.B. Ltd., a New Brunswick corporation and ICON du Canada Inc., a Quebec corporation (each a "Guarantor" and together, the "Guarantors"; and the Guarantors collectively with the Issuer, the "Company"). The Offered Securities will be issued pursuant to an Indenture, dated as of April 9, 2002 (the "Indenture"), among the Issuer, the Guarantors and The Bank of New York, as trustee (the "Trustee"). As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company agrees with the Initial Purchasers, for the benefit of the Initial Purchasers and the holders of the Securities (as defined below) (collectively, the "Holders"), as follows: 1. Exchange Offer. Unless not permitted by applicable law (after the Company has complied with the ultimate paragraph of this Section 1), the Company shall prepare and, on or prior to 90 days (such 90th day being a "Filing Deadline") after the date on which the Initial Purchasers purchase the Offered Securities pursuant to the Purchase Agreement (the "Closing Date"), file with the Securities and Exchange Commission (the "Commission") a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act of 1933, as amended (the "Securities Act"), with respect to a proposed offer (the "Exchange Offer") to the Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Exchange Offer, to issue and deliver to such Holders, in exchange for the Offered Securities, a like aggregate principal amount of debt securities of the Issuer and Guarantees of the Guarantors issued under the Indenture, identical in all material respects to the Offered Securities and registered under the Securities Act (the "Exchange Notes"). The Company shall (i) use its best efforts to have such Exchange Offer Registration Statement declared effective by the Commission under the Securities Act on or prior to 180 days after the Closing Date and (ii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company will, following the declaration of the effectiveness of the Exchange Offer Registration Statement (a) commence the Exchange Offer and (b) use its best efforts to issue on or prior to 30 business days after the date on which the Exchange Offer Registration Statement was declared effective by the Commission, Exchange Notes, in exchange for all Offered Securities tendered prior thereto in the Exchange Offer (such period being called the "Exchange Offer Registration Period"). Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder of Transfer Restricted Securities electing to exchange the Offered Securities for Exchange Notes (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Notes in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Notes and is not prohibited by any law or policy of the Commission from participating in the Exchange Offer), to trade such Exchange Notes from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder which is a broker-dealer electing to exchange Offered Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Notes (an "Exchanging Dealer"), is required to deliver a prospectus containing the information set forth in (a) Annex A hereto on the cover, (b) Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and (c) Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Notes received by such Exchanging Dealer pursuant to the Exchange Offer and (ii) an Initial Purchaser that elects to sell Securities (as defined below) acquired in exchange for Offered Securities constituting any portion of an unsold allotment, is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. Subject to the next paragraph, for so long as any of the Securities (as defined below) are outstanding (but in no event later than 180 days after the Exchange Offer Registration Statement is declared effective). and if, in the reasonable judgment of the Initial Purchasers or their counsel, the Initial Purchasers or any of their affiliates (as defined in the rules and regulations under the Securities Act) are required to deliver a prospectus (any such prospectus, a "Market Making Prospectus") in connection with sales of the Securities, to (i) provide the Initial Purchasers and their affiliates, without charge, as many copies of the Market Making Prospectus as they may reasonably request, (ii) periodically amend the Offering Document (as defined in the Purchase Agreement) and the Exchange Offer Registration Statement so that the information contained therein complies with the requirements of Section 10(a) of the Securities Act, (iii) amend the Exchange Offer Registration Statement or amend or supplement the Market Making Prospectus when necessary to reflect any material changes in the information provided therein and promptly file such amendment or supplement with the Commission, (iv) provide the Initial Purchasers and their affiliates with copies of each amendment or supplement so filed and such other documents, including opinions of counsel and "comfort" letters, as they may reasonably request and (v) indemnify the Initial Purchasers and their affiliates with respect to the Market Making Prospectus and, if applicable, contribute to any amount paid or payable by the Purchasers and their affiliates in a manner substantially identical to that specified in [Section 7] of the Purchase Agreement (with appropriate modifications). The Company consents to the use, subject to the provisions of the Securities Act and the state securities or Blue Sky laws of the jurisdictions in which the Offered Securities are offered by the Purchasers, of each Market Making Prospectus. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange 2 Notes; provided, however, that (i) in the case where such prospectus and any -------- ------- amendment or supplement thereto must be delivered by an Exchanging Dealer or the Initial Purchasers, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Notes held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Notes for a period of not less than 180 days after the consummation of the Exchange Offer. If, upon consummation of the Exchange Offer, the Initial Purchasers hold Offered Securities acquired by them as part of their initial distribution, the Company, simultaneously with the delivery of the Exchange Notes pursuant to the Exchange Offer, shall issue and deliver to the Initial Purchasers upon the written request of the Initial Purchasers, in exchange (the "Private Exchange") for the Offered Securities held by the Initial Purchasers, a like principal amount of debt securities of the Issuer and Guarantees of the Guarantors issued under the Indenture and identical in all material respects to the Offered Securities (the "Private Exchange Notes"). The Offered Securities, the Exchange Notes and the Private Exchange Notes are herein collectively called the "Securities". In connection with the Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Exchange Offer open for not less than 25 days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Exchange Offer shall remain open; and (e) otherwise comply with all applicable laws. As soon as practicable after the close of the Exchange Offer or the Private Exchange, as the case may be, the Company shall: (x) accept for exchange all the Securities validly tendered and not withdrawn pursuant to the Exchange Offer and the Private Exchange; (y) deliver to the Trustee for cancellation all the Offered Securities so accepted for exchange; and (z) cause the Trustee to authenticate and deliver promptly to each Holder of the Offered Securities, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Offered Securities of such Holder so accepted for exchange. The Indenture will provide that the Exchange Notes will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. 3 Interest on each Exchange Note and Private Exchange Note issued pursuant to the Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Offered Securities surrendered in exchange therefor or, if no interest has been paid on the Offered Securities, from the date of original issue of the Offered Securities. Each Holder participating in the Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Exchange Offer (i) any Exchange Notes received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Notes within the meaning of the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Notes, (v) if such Holder is a broker-dealer, that it will receive Exchange Notes for its own account in exchange for Offered Securities that were acquired as a result of market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes, and (vi) that it is not acting on behalf of any person who could not truthfully make the forgoing statement. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, 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 and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If following the date hereof there has been announced a change in Commission policy with respect to exchange offers that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Exchange Offer is permitted by applicable federal law, the Company will seek a no-action letter or other favorable decision from the Commission allowing the Company to consummate the Exchange Offer. The Company will pursue the issuance of such a decision to the Commission staff level. In connection with the foregoing, the Company will take all such other actions as may be requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (i) participating in telephonic conferences with the Commission, (ii) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that the Exchange Offer should be permitted and (iii) diligently pursuing a resolution (which need not be favorable) by the Commission staff. 2. Shelf Registration. If, (i) the Company is not: (a) required to file the Exchange Offer Registration Statement; or (b) permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy; or (ii) any holder of Transfer Restricted Securities notifies the Issuer prior to the 20th day following consummation of the Exchange Offer that: (a) it is prohibited by law or Commission policy from participating in the Exchange Offer; or (b) that it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales; or (c) that it is a broker-dealer and owns Securities acquired directly from the Company or an affiliate of the Company, the Company shall take the following actions (the date on which any of the conditions described in the foregoing clauses (i) and (ii) occur, being a "Trigger Date"): 4 (a) The Company will file a registration statement (the "Shelf Registration Statement") with the Commission and use its best efforts to cause such filing to be made on or prior to 90 days after such filing obligation arises and to cause the Shelf Registration Statement to be declared effective by the Commission under the Securities Act, on or prior to 180 days after such filing. The Shelf Registration Statement shall be filed on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "Shelf Registration"); provided, however, that no Holder -------- ------- (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the date of its effectiveness or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) are no longer restricted securities (as defined in Rule 144 under the Securities Act, or any successor rule thereof). The Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action in the judgment of counsel for the Company is required by applicable law. (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. Registration Procedures. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to the Initial Purchasers, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that the Initial Purchasers (with respect to any portion of an unsold allotment from the original offering) are participating in the Exchange Offer or the Shelf Registration Statement, the Company shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as the Initial Purchasers reasonably may propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Exchange Offer; (iii) if requested by the Initial Purchasers, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential 5 "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of Exchange Notes received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders who propose to sell Securities pursuant to the Shelf Registration Statement as selling securityholders. (b) The Company shall give written notice to the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus does not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer and the Initial Purchasers, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Initial Purchasers or any such Holder requests, all exhibits thereto (including those incorporated by reference). 6 (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (g) The Company shall deliver to the Initial Purchasers, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by the Initial Purchasers, if necessary, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Exchange Offer in connection with the offering and sale of the Exchange Notes covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities pursuant to any Registration Statement, the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, -------- however, that the Company shall not be required to (i) qualify generally to ------- do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the 7 Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, and provide the applicable trustee with printed certificates for the Offered Securities, the Exchange Notes or the Private Exchange Notes, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, the Company shall (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing -------- ------- inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by you and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4 hereof and shall take place at the offices where such records are normally kept during normal business hours. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing 8 underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that the matters to be covered by such opinion shall include, without limitation, the due incorporation and good corporate standing of the Company and its subsidiaries; the qualification of the Company and its subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(o) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the applicable Securities; the absence of material legal or governmental proceedings involving the Company and its subsidiaries; the absence of governmental approvals required to be obtained in connection with the Shelf Registration Statement, the offering and sale of the applicable Securities, or any agreement of the type referred to in Section 3(o) hereof; the compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act, respectively; and, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from any documents incorporated by reference therein of an untrue statement of a material fact or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities and (iii) its independent public accountants to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. (r) In the case of the Exchange Offer, if requested by the Initial Purchasers or any known Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to the Initial Purchasers or such Participating Broker-Dealer a signed opinion in the form set forth in Section 6(c), (e), (f), (g) and (h) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants to deliver to such Initial Purchaser or such Participating Broker-Dealer a comfort letter, in customary form, meeting the requirements as to the substance thereof as set forth in Section 6(a) and (k) of the Purchase Agreement, with appropriate date changes. (s) If an Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Offered Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Company shall mark, or cause to be marked, on the Offered Securities so exchanged that such Offered Securities are being canceled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall the Offered Securities be marked as paid or otherwise satisfied. (t) The Company will use its best efforts to (a) if the Offered Securities have been rated prior to the initial sale of such Offered Securities, confirm such ratings will apply to the Securities covered by a Registration Statement, or (b) if the Offered Securities were not previously rated, cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing underwriters, if any. (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group 9 or "assist in the distribution" (within the meaning of the Conduct Rules (the "Rules") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker-dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, including Rule 2720, shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. (v) The Company shall use its best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. Registration Expenses. (a) All expenses incident to the Company's performance of and compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement is ever filed or becomes effective, including without limitation; (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state "blue sky" or securities laws; (iii) all expenses of printing (including printing certificates for the Securities to be issued in the Exchange Offer and the Private Exchange and printing of prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company; (v) all application and filing fees in connection with listing the Exchange Notes on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any person, including special experts, retained by the Company. (b) In connection with any Registration Statement required by this Agreement, the Company will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities who are tendering Offered Securities in the Exchange Offer and/or selling or reselling Securities pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Latham & Watkins unless another firm shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. 5. Indemnification. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such 10 Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to collectively as the "Indemnified Parties") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, 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 shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company -------- ------- shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder or Participating Broker-Dealer from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder or Participating Broker-Dealer under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder or Participating Broker-Dealer results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder or Participating Broker-Dealer; provided -------- further, that this indemnity agreement will be in addition to any liability - ------- which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, their officers and directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each of the officers, directors and employees and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or (ii) arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such officer, director or employee or controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified 11 party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, which consent cannot be unreasonably withheld, 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 will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party, in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action, and 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. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the sale of the Transfer Restricted Securities, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified party, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5, the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this subsection (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 12 6. Additional Interest Under Certain Circumstances. (a) Additional interest (the "Additional Interest") with respect to the Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iv) below being herein called a "Registration Default"): (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the date specified for filing; (ii) any Registration Statement required by this Agreement is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"); (iii) the Exchange Offer has not been consummated within 30 business days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement; or (iv) any Registration Statement required by this Agreement has been declared effective by the Commission but (A) such Registration Statement thereafter ceases to be effective or (B) such Registration Statement or the related prospectus ceases to be usable in connection with resales of Transfer Restricted Securities during the periods specified herein. Each of the foregoing will constitute a Registration Default whatever the reason for any such event and whether it is voluntary or involuntary or is beyond the control of the Company or pursuant to operation of law or as a result of any action or inaction by the Commission. The Company shall pay Additional Interest to each Holder in the event of a Registration Default. Additional Interest shall accrue from the first day of such Registration Default in an amount equal to $.05 per week per $1,000 principal amount of Notes for the first 90-day period immediately following the occurrence of such Registration Default and shall increase by an additional $.05 per week per $1,000 principal amount of Notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of $.50 per week per $1,000 principal amount of Notes. (b) A Registration Default referred to in Section 6(a)(iv) hereof shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events, with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a - -------- ------- continuous period in excess of 30 days, Additional Interest shall be payable in accordance with the above paragraph from the day such Registration Default occurs until such Registration Default is cured. (c) Any amounts of Additional Interest due pursuant to Section 6(a) will be payable in cash on the regular interest payment dates with respect to the Securities. (d) "Transfer Restricted Securities" means each Security until (i) the date on which such Security has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of an Initial Security for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the 13 date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 7. Rules 144 and 144A. The Company shall use its best efforts upon the request of any Holder of Securities, to make publicly available any information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Offered Securities identified to the Company by the Initial Purchasers upon request. Upon the request of any Holder of Offered Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("Managing Underwriters") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) Remedies. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Section 1 and 2 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Sections 1 and 2 hereof. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement (other than the registration rights agreement entered into by the Company in connection with the issuance of the Company's 12% senior subordinated notes due 2025) in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents. 14 (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company. (2) if to the Initial Purchasers; Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010-3629 Fax No.: (212) 325-8278 Attention: Transactions Advisory Group with a copy to: Latham & Watkins 885 Third Avenue, Suite 1000 New York, NY 10022 Fax No.: (212) 751-4864 Attention: Marc D. Jaffe, Esq. (3) if to the Company, at its address as follows: Icon Health & Fitness, Inc. 1500 South 1000 West, Logan, UT 84321 Fax No.: (435) 750-3679 Attention: Brad Bearnson, Esq. with a copy to: Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Fax No.: (617) 951-1295 Attention: David T. Dinwoodey, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. 15 (e) Third Party Beneficiaries. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. (f) Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (j) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Securities Held by the Company. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Issuer a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the several Initial Purchasers, the Issuer and the Guarantors in accordance with its terms. [Remainder of page intentionally left blank.] 16 Very truly yours, ICON HEALTH & FITNESS, INC. By: /s/ Brad H. Bearnson ------------------------------ Name: Brad H. Bearnson Title: Sec. GUARANTORS: JUMPKING, INC. By: /s/ Brad H. Bearnson ------------------------------ Name: Brad H. Bearnson Title: Sec. UNIVERSAL TECHNICAL SERVICES By: /s/ Brad H. Bearnson ------------------------------ Name: Brad H. Bearnson Title: Sec. ICON INTERNATIONAL HOLDINGS, INC. By: /s/ Brad H. Bearnson ------------------------------ Name: Brad H. Bearnson Title: Sec. ICON IP, INC. By: /s/ Brad H. Bearnson ------------------------------ Name: Brad H. Bearnson Title: Sec. FREE MOTION FITNESS, INC. By: /s/ Brad H. Bearnson --------------------------------- Name: Brad H. Bearnson Title: Sec. NORDICTRACK, INC. By: /s/ Brad H. Bearnson --------------------------------- Name: Brad H. Bearnson Title: Sec. 510152 N.B. LTD. By: /s/ Brad H. Bearnson --------------------------------- Name: Brad H. Bearnson Title: Sec. ICON DU CANADA INC. By: /s/ Brad H. Bearnson --------------------------------- Name: Brad H. Bearnson Title: Sec. The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. Credit Suisse First Boston Corporation, By: /s/ M.W. Filipski --------------------------- Name: M.W. Filipski Title: Managing Director Acting on behalf of itself and as the Representative of the several Initial Purchasers ANNEX A Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Offered Securities where such Offered Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." ANNEX B Each broker-dealer that receives Exchange Notes for its own account in exchange for Offered Securities, where such Offered Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." ANNEX C Plan of Distribution Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus (the "Prospectus") in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Offered Securities where such Offered Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until [ ], 200[ ], all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus./(1)/ The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. ________________________ /(1)/ In addition, the legend required by item 502(e) of Regulation S-K will appear on the back cover page of the Exchange Offer prospectus. ANNEX D [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ______________________________________________ Address: ______________________________________________ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Offered Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-10.11 14 dex1011.txt EXHIBIT 10.11 - CREDIT AGREEMENT DTD 04/09/02 Exhibit 10.11 ================================================================================ CREDIT AGREEMENT Dated as of April 9, 2002 among ICON HEALTH & FITNESS, INC., as Borrower, THE OTHER CREDIT PARTIES SIGNATORY HERETO, as Credit Parties, THE LENDERS SIGNATORY HERETO FROM TIME TO TIME, as Lenders, GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender, GECC CAPITAL MARKETS GROUP, INC., as Lead Arranger, and JP MORGAN CHASE BANK, as Documentation Agent TABLE OF CONTENTS
Page ---- 1. AMOUNT AND TERMS OF CREDIT.......................................................... 1 1.1 Credit Facilities............................................................ 1 1.2 Letters of Credit............................................................ 5 1.3 Prepayments.................................................................. 6 1.4 Use of Proceeds.............................................................. 8 1.5 Interest and Applicable Margins.............................................. 8 1.6 Eligible Accounts............................................................ 10 1.7 Eligible Inventory........................................................... 13 1.8 Cash Management Systems...................................................... 15 1.9 Fees......................................................................... 15 1.10 Receipt of Payments.......................................................... 15 1.11 Application and Allocation of Payments....................................... 16 1.12 Loan Account and Accounting.................................................. 16 1.13 Indemnity.................................................................... 17 1.14 Access....................................................................... 18 1.15 Taxes........................................................................ 18 1.16 Capital Adequacy; Increased Costs; Illegality................................ 19 1.17 Single Loan.................................................................. 21 2. CONDITIONS PRECEDENT................................................................ 21 2.1 Conditions to the Initial Loans.............................................. 21 2.2 Further Conditions to Each Loan.............................................. 22 2.3 Conditions to Permitted Acquisitions......................................... 23 3. REPRESENTATIONS AND WARRANTIES...................................................... 25 3.1 Corporate Existence; Compliance with Law..................................... 26 3.2 Executive Offices, Collateral Locations, FEIN................................ 26 3.3 Corporate Power, Authorization, Enforceable Obligations...................... 26 3.4 Financial Statements and Projections......................................... 26 3.5 Material Adverse Effect...................................................... 27 3.6 Ownership of Property; Liens................................................. 28 3.7 Labor Matters................................................................ 28 3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness.... 28 3.9 Government Regulation........................................................ 29 3.10 Margin Regulations........................................................... 29 3.11 Taxes........................................................................ 29 3.12 ERISA and Canadian Pension and Benefit Plans................................. 30 3.13 No Litigation................................................................ 31 3.14 Brokers...................................................................... 31 3.15 Intellectual Property........................................................ 31 3.16 Full Disclosure.............................................................. 31 3.17 Environmental Matters........................................................ 32 3.18 Insurance.................................................................... 32
i 3.19 Deposit and Disbursement Accounts.................................... 32 3.20 Government Contracts................................................. 33 3.21 Customer and Trade Relations......................................... 33 3.22 Agreements and Other Documents....................................... 33 3.23 Solvency............................................................. 33 3.24 Status of Holdings................................................... 33 3.25 Subordinated Debt.................................................... 33 3.26 Old Holdcos.......................................................... 34 4. FINANCIAL STATEMENTS AND INFORMATION........................................ 34 4.1 Reports and Notices.................................................. 34 4.2 Communication with Accountants....................................... 34 5. AFFIRMATIVE COVENANTS....................................................... 34 5.1 Maintenance of Existence and Conduct of Business..................... 34 5.2 Payment of Charges................................................... 35 5.3 Books and Records.................................................... 35 5.4 Insurance; Damage to or Destruction of Collateral.................... 35 5.5 Compliance with Laws................................................. 37 5.6 Canadian Pension and Benefit Plans................................... 37 5.7 Supplemental Disclosure.............................................. 38 5.8 Intellectual Property................................................ 38 5.9 Environmental Matters................................................ 38 5.10 Landlords' Agreements, Mortgagee Agreements and Bailee Letters....... 39 5.11 Further Assurances................................................... 39 6. NEGATIVE COVENANTS.......................................................... 40 6.1 Mergers, Subsidiaries, Etc........................................... 40 6.2 Investments; Loans and Advances...................................... 40 6.3 Indebtedness......................................................... 40 6.4 Employee Loans and Affiliate Transactions............................ 41 6.5 Capital Structure and Business....................................... 42 6.6 Guaranteed Indebtedness.............................................. 42 6.7 Liens................................................................ 42 6.8 Sale of Stock and Assets............................................. 43 6.9 ERISA................................................................ 43 6.10 Financial Covenants.................................................. 43 6.11 Hazardous Materials.................................................. 44 6.12 Sale-Leasebacks...................................................... 44 6.13 Cancellation of Indebtedness......................................... 44 6.14 Restricted Payments.................................................. 44 6.15 Change of Corporate Name or Location; Change of Fiscal Year.......... 45 6.16 No Impairment of Intercompany Transfers.............................. 45 6.17 No Speculative Transactions.......................................... 45 6.18 Leases; Real Estate Purchases........................................ 45 6.19 Changes Relating to Subordinated Debt and Other Agreements........... 45 6.20 Credit Parties other than Borrower................................... 46
ii 7. TERM................................................................................ 46 7.1 Termination.................................................................. 46 7.2 Survival of Obligations Upon Termination of Financing Arrangements........... 46 8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES.............................................. 46 8.1 Events of Default............................................................ 46 8.2 Remedies..................................................................... 48 8.3 Waivers by Credit Parties.................................................... 49 8.4 Receivership................................................................. 49 9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT................................. 50 9.1 Assignment and Participations................................................ 50 9.2 Appointment of Agent......................................................... 52 9.3 Agent's Reliance, Etc........................................................ 53 9.4 Agent and Affiliates......................................................... 53 9.5 Lender Credit Decision....................................................... 53 9.6 Indemnification.............................................................. 54 9.7 Successor Agent.............................................................. 54 9.8 Setoff and Sharing of Payments............................................... 54 9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in Concert..... 55 10. SUCCESSORS AND ASSIGNS.............................................................. 58 10.1 Successors and Assigns........................................................ 58 11. MISCELLANEOUS....................................................................... 58 11.1 Complete Agreement; Modification of Agreement................................ 58 11.2 Amendments and Waivers....................................................... 58 11.3 Fees and Expenses............................................................ 60 11.4 No Waiver.................................................................... 61 11.5 Remedies..................................................................... 62 11.6 Severability................................................................. 62 11.7 Conflict of Terms............................................................ 62 11.8 Confidentiality.............................................................. 62 11.9 GOVERNING LAW................................................................ 63 11.10 Notices...................................................................... 63 11.11 Section Titles............................................................... 64 11.12 Counterparts................................................................. 64 11.13 WAIVER OF JURY TRIAL......................................................... 64 11.14 Press Releases; Etc.......................................................... 64 11.15 Reinstatement................................................................ 65 11.16 Advice of Counsel............................................................ 65 11.17 No Drafting Presumptions..................................................... 65 11.18 License...................................................................... 65
iii INDEX OF APPENDICES ------------------- Annex A (Recitals) - Definitions Annex B (Section 1.2) - Letters of Credit ----------- Annex C (Section 1.8) - Cash Management System ----------- Annex D (Section 2.1(a)) - Closing Checklist -------------- Annex E (Section 4.1(a)) - Financial Statements and Projections -- Reporting -------------- Annex F (Section 4.1(b)) - Collateral Reports -------------- Annex G (Section 6.10) - Financial Covenants ------------ Annex H (Section 9.9(a)) - Lenders' Wire Transfer Information -------------- Annex I (Section 11.10) - Notice Addresses ------------- Annex J (from Annex A) - Commitments as of Closing Date Exhibit 1.1(a)(i) - Form of Notice of Revolving Credit Advance Exhibit 1.1(a)(ii) - Form of Revolving Note Exhibit 1.1(b) - Form of Term Note Exhibit 1.1(c)(ii) - Form of Swing Line Note Exhibit 1.5(e) - Form of Notice of Conversion/Continuation Exhibit 4.1(b) - Form of Borrowing Base Certificate Exhibit 9.1(a) - Form of Assignment Agreement Disclosure Schedule 1.4 - Sources and Uses; Funds Flow Memorandum Disclosure Schedule 3.2 - Executive Offices, Collateral Locations, FEIN Disclosure Schedule 3.4(a) - Financial Statements Disclosure Schedule 3.4(b) - Pro Forma Disclosure Schedule 3.4(c) - Projections Disclosure Schedule 3.5 Material Adverse Changes Disclosure Schedule 3.6 - Real Estate and Leases Disclosure Schedule 3.7 - Labor Matters Disclosure Schedule 3.8 - Ventures, Subsidiaries and Affiliates; Outstanding Stock Disclosure Schedule 3.11 - Tax Matters Disclosure Schedule 3.12 - ERISA Plans Disclosure Schedule 3.13 - Litigation Disclosure Schedule 3.15 - Intellectual Property Disclosure Schedule 3.17 - Hazardous Materials Disclosure Schedule 3.18 - Insurance Disclosure Schedule 3.19 - Deposit and Disbursement Accounts Disclosure Schedule 3.20 - Government Contracts Disclosure Schedule 3.21 - Relationships with Suppliers Disclosure Schedule 3.22 - Material Agreements Disclosure Schedule 5.1 - Trade Names Disclosure Schedule 5.10 Landlord Waivers Disclosure Schedule 6.3 - Indebtedness Disclosure Schedule 6.4 - Transactions with Affiliates Disclosure Schedule 6.7 - Existing Liens
1v This CREDIT AGREEMENT (this "Agreement"), dated as of April 9, --------- 2002 among ICON HEALTH & FITNESS, INC., a Delaware corporation ("Borrower"); the -------- other Credit Parties signatory hereto; GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (in its individual capacity, "GE Capital"), for itself, as ---------- Lender, and as Agent for Lenders, and the other Lenders signatory hereto from time to time. RECITALS -------- WHEREAS, Borrower has requested that Lenders extend revolving and term credit facilities to Borrower of up to Two Hundred Thirty Five Million Dollars ($235,000,000) in the aggregate for the purpose of Refinancing and to provide (a) working capital financing for Borrower, (b) financing for Capital Expenditures otherwise permitted hereunder, (c) financing for Permitted Acquisitions and (d) funds for other general corporate purposes of Borrower; and for these purposes, Lenders are willing to make certain loans and other extensions of credit to Borrower of up to such amount upon the terms and conditions set forth herein; and WHEREAS, Borrower has agreed to secure all of its obligations under the Loan Documents by granting to Agent, for the benefit of Agent and Lenders, a security interest in and lien upon all of its existing and after-acquired personal and real property; and WHEREAS, HF Holdings, Inc., a Delaware corporation ("Holdings") -------- is willing to guarantee all of the obligations of Borrower to Agent and Lenders under the Loan Documents and to pledge to Agent, for the benefit of Agent and Lenders, all of the Stock of Borrower to secure such guaranty; and WHEREAS, the Stock and assets of each direct and indirect domestic and Canadian Subsidiary of Borrower will be pledged as Collateral for the Loans and each such Subsidiary will guarantee payment thereof; and WHEREAS, capitalized terms used in this Agreement shall have the meanings ascribed to them in Annex A and, for purposes of this Agreement and the ------- other Loan Documents, the rules of construction set forth in Annex A shall ------- govern. All Annexes, Disclosure Schedules, Exhibits and other attachments (collectively, "Appendices") hereto, or expressly identified to this Agreement, ---------- are incorporated herein by reference, and taken together with this Agreement, shall constitute but a single agreement. These Recitals shall be construed as part of the Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the parties hereto agree as follows: 1. AMOUNT AND TERMS OF CREDIT -------------------------- 1.1 Credit Facilities. ----------------- (a) Revolving Credit Facility. ------------------------- (i) Subject to the terms and conditions hereof, each Revolving Lender agrees to make available to Borrower from time to time until the Commitment Termination Date its Pro Rata Share of advances (each, a "Revolving Credit Advance"). The Pro Rata Share of the Revolving Loan of ------------------------ any Revolving Lender shall not at any time exceed its separate Revolving Loan Commitment. The obligations of each Revolving Lender hereunder shall be several and not joint. The aggregate amount of Revolving Credit Advances outstanding shall not exceed at any time the lesser of (A) the Maximum Amount and (B) the Borrowing Base, in each case less the sum of the Letter of Credit Obligations and the Swing Line Loan outstanding at such time ("Borrowing Availability"). Borrowing Availability may be ---------------------- further reduced by Reserves imposed by Agent in its reasonable credit judgment. Until the Commitment Termination Date, Borrower may from time to time borrow, repay and reborrow under this Section 1.1(a). Each -------------- Revolving Credit Advance shall be made on notice by Borrower to one of the representatives of Agent identified in Schedule 1.1 at the address ------------ specified therein. Those notices must be given no later than (1) noon (New York time) on the Business Day of the proposed Revolving Credit Advance, in the case of an Index Rate Loan, or (2) noon (New York time) on the date which is three (3) Business Days prior to the proposed Revolving Credit Advance, in the case of a LIBOR Loan. Each such notice (a "Notice of Revolving Credit Advance") must be given in writing (by ---------------------------------- telecopy or overnight courier) substantially in the form of Exhibit ------- 1.1(a)(i), and shall include the information required in such Exhibit and --------- such other information as may be required by Agent. If Borrower desires to have the Revolving Credit Advances bear interest by reference to a LIBOR Rate, it must comply with Section 1.5(e). -------------- (ii) Except as provided in Section 1.12, Borrower shall execute ------------ and deliver to each Revolving Lender a note to evidence the Revolving Loan Commitment of that Revolving Lender. Each note shall be in the principal amount of the Revolving Loan Commitment of the applicable Revolving Lender, dated the Closing Date and substantially in the form of Exhibit 1.1(a)(ii) (each a "Revolving Note" and, collectively, the ----------------- -------------- "Revolving Notes"). Each Revolving Note shall represent the obligation of --------------- Borrower to pay the amount of Revolving Lender's Revolving Loan Commitment or, if less, such Revolving Lender's Pro Rata Share of the aggregate unpaid principal amount of all Revolving Credit Advances to Borrower together with interest thereon as prescribed in Section 1.5. The ----------- entire unpaid balance of the Revolving Loan and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date. (b) Term Loans. ---------- (i) Subject to the terms and conditions hereof, each Term Lender agrees to make a term loan (the "Term Loan") on the Closing Date --------- to Borrower in the original principal amount of its Term Loan Commitment. The obligations of each Term Lender hereunder shall be several and not joint with respect to the Term Loan. The Term Loan shall be evidenced by promissory notes substantially in the form of Exhibit 1.1(b) (each a ------------- "Term Note" and collectively the "Term Notes"), and, except as provided --------- ---------- in Section 1.12, Borrower ------------ 2 shall execute and deliver each Term Note to the applicable Term Lender. Each Term Note shall represent the obligation of Borrower to pay the amount of the applicable Term Lender's Term Loan Commitment, together with interest thereon as prescribed in Section 1.5. ----------- (ii) Borrower shall repay the principal amount of the Term Loan in twenty (20) consecutive quarterly installments on the last day of February, May, August and November of each year, commencing May 31, 2002, as follows: Payment Installment Dates Amounts ------- ----------- May 31, 2002 $1,250,000 August 3, 2002 $1,250,000 November 30, 2002 $1,250,000 February 28, 2003 $1,250,000 May 31, 2003 $1,250,000 August 31, 2003 $1,250,000 November 30, 2003 $1,250,000 February 28, 2004 $1,250,000 May 31, 2004 $1,250,000 August 31, 2004 $1,250,000 November 30, 2004 $1,250,000 February 28, 2005 $1,250,000 May 31, 2005 $1,250,000 August 31, 2005 $1,250,000 November 30, 2005 $1,250,000 February 28, 2006 $1,250,000 May 31, 2006 $1,250,000 August 31, 2006 $1,250,000 November 30, 2006 $1,250,000 The final installment due on February 28, 2007 shall be in the amount of $1,250,000 or, if different, the remaining principal balance of the Term Loan. If the Revolving Loan Commitment is terminated for any reason, the entire principal balance of the Term Loan shall be immediately due and payable. 3 (c) Swing Line Facility. ------------------- (i) Agent shall notify the Swing Line Lender upon Agent's receipt of any Notice of Revolving Credit Advance. Subject to the terms and conditions hereof, the Swing Line Lender may, in its discretion, make available from time to time until the Commitment Termination Date advances (each, a "Swing Line Advance") in accordance with any such ------------------ notice. The aggregate amount of Swing Line Advances outstanding shall not exceed at any time the lesser of (A) the Swing Line Commitment and (B) the lesser of the Maximum Amount and the Borrowing Base, in each case, less the outstanding balance of the Revolving Loan at such time ("Swing ----- Line Availability"). Until the Commitment Termination Date, Borrower may ----------------- from time to time borrow, repay and reborrow under this Section 1.1(c). ------------- Each Swing Line Advance shall be made pursuant to a Notice of Revolving Credit advance delivered by Borrower to Agent in accordance with Section ------- 1.1(c). Notwithstanding any other provision of this Agreement or the ------ other Loan Documents, the Swing Line Loan shall constitute an Index Rate Loan. Unless the Swing Line Lender has received at least one (1) Business Day's prior written notice from Requisite Revolving Lenders instructing it not to make a Swing Line Advance, the Swing Line Lender shall, notwithstanding the failure of any condition precedent set forth in Sections 2.2(a)-(c), be entitled to fund that Swing Line Advance, and to ------------------ have each Revolving Lender make Revolving Credit Advances in accordance with Section 1.1(c)(iii) or purchase participating interests in ------------------ accordance with Section 1.1(c)(iv). Those notices from Requisite ----------------- Revolving Lenders must be given no later than noon (New York time) on the Business Day preceding the proposed Swing Line Advance. (ii) Borrower shall execute and deliver to the Swing Line Lender a promissory note to evidence the Swing Line Commitment. Such note shall be in the principal amount of the Swing Line Commitment of the Swing Line Lender, dated the Closing Date and substantially in the form of Exhibit ------- 1.1(c)(ii) (the "Swing Line Note"). The Swing Line Note shall represent --------- --------------- the obligation of Borrower to pay the amount of the Swing Line Commitment or, if less, the aggregate unpaid principal amount of all Swing Line Advances made to Borrower together with interest thereon as prescribed in Section 1.5. The entire unpaid balance of the Swing Line Loan and all ----------- other noncontingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date if not sooner paid in full. (iii) The Swing Line Lender, at any time and from time to time in its sole and absolute discretion but no less frequently than once weekly shall on behalf of Borrower (and Borrower hereby irrevocably authorizes the Swing Line Lender to so act on its behalf) request each Revolving Lender (including the Swing Line Lender) to make a Revolving Credit Advance to Borrower (which shall be an Index Rate Loan) in an amount equal to that Revolving Lender's Pro Rata Share of the principal amount of the Swing Line Loan (the "Refunded Swing Line Loan") outstanding on ------------------------ the date such notice is given. Unless any of the 4 events described in Sections 8.1(h) or 8.1(i) has occurred (in which ------------------------ event the procedures of Section 1.1(c)(iv) shall apply) and regardless of ----------------- whether the conditions precedent set forth in this Agreement to the making of a Revolving Credit Advance are then satisfied, each Revolving Lender shall disburse directly to Agent, its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing Line Lender, prior to 2:00 p.m. (New York time), in immediately available funds on the Business Day next succeeding the date that notice is given. The proceeds of those Revolving Credit Advances shall be immediately paid to the Swing Line Lender and applied to repay the Refunded Swing Line Loan. (iv) If, prior to refunding a Swing Line Loan with a Revolving Credit Advance pursuant to Section 1.1(c)(iii), one of the events ------------------ described in Sections 8.1(h) or 8.1(i) has occurred, then, subject to the ------------------------ provisions of Section 1.1(c)(v) below, each Revolving Lender shall, on ---------------- the date such Revolving Credit Advance was to have been made for the benefit of Borrower, purchase from the Swing Line Lender an undivided participation interest in the Swing Line Loan in an amount equal to its Pro Rata Share of such Swing Line Loan. Upon request, each Revolving Lender shall promptly transfer to the Swing Line Lender, in immediately available funds, the amount of its participation interest. (v) Each Revolving Lender's obligation to make Revolving Credit Advances in accordance with Section 1.1(c)(iii) and to purchase ------------------ participation interests in accordance with Section 1.1(c)(iv) shall be ------------------ absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right that such Revolving Lender may have against the Swing Line Lender, Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Default or Event of Default; (C) any inability of Borrower to satisfy the conditions precedent to borrowing set forth in this Agreement on the date upon which such participation interest is to be purchased or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Revolving Lender does not make available to Agent or the Swing Line Lender, as applicable, the amount required pursuant to Sections -------- 1.1(c)(iii) or 1.1(c)(iv), as the case may be, the Swing Line Lender ------------------------ shall be entitled to recover such amount on demand from such Revolving Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Rate for the first two Business Days and at the Index Rate thereafter. (d) Reliance on Notices. Agent shall be entitled to rely upon, and ------------------- shall be fully protected in relying upon, any Notice of Revolving Credit Advance, Notice of Conversion/Continuation or similar notice believed by Agent to be genuine. Agent may assume that each Person executing and delivering any notice in accordance herewith was duly authorized, unless the responsible individual acting thereon for Agent has actual knowledge to the contrary. 1.2 Letters of Credit. Subject to and in accordance with the terms and ----------------- conditions contained herein and in Annex B, Borrower shall have the right to ------- request, and Revolving 5 Lenders agree to incur, or purchase participations in, Letter of Credit Obligations in respect of Borrower. 1.3 Prepayments. ----------- (a) Voluntary Prepayments; Reductions in Revolving Loan Commitments. --------------------------------------------------------------- Borrower may at any time on at least 5 days' prior written notice to Agent (i) voluntarily prepay all or part of the Term Loan and/or (ii) permanently reduce (but not terminate) the Revolving Loan Commitment, in each case, in increments of $5,000,000; provided that (A) the Revolving Loan Commitment shall not be -------- reduced to an amount less than $190,000,000, and (B) after giving effect to such reductions, Borrower shall comply with Section 1.3(b)(i). Borrower may at any ----------------- time on at least ten 10 days' prior written notice to Agent terminate the Revolving Loan Commitment, provided that upon such termination all Loans and -------- other Obligations shall be immediately due and payable in full and all Letter of Credit Obligations shall be cash collateralized or otherwise satisfied in accordance with Annex B hereto. Any voluntary prepayment and any reduction or ------- termination of the Revolving Loan Commitment must be accompanied by the payment of any LIBOR funding breakage costs in accordance with Section 1.13(b). Upon any --------------- such reduction or termination of the Revolving Loan Commitment, Borrower's right to request Revolving Credit Advances, or request that Letter of Credit Obligations be incurred on its behalf, or request Swing Line Advances, shall simultaneously be permanently reduced or terminated, as the case may be; provided that a permanent reduction of the Revolving Loan Commitment shall not - -------- require a corresponding pro rata reduction in the L/C Sublimit. Each notice of partial prepayment shall designate the Loan or other Obligations to which such prepayment is to be applied; provided that any partial prepayments of the Term -------- Loan shall be applied to prepay the scheduled installments of the Term Loan in inverse order of maturity. (b) Mandatory Prepayments. --------------------- (i) If at any time the outstanding balance of the Revolving Loan exceeds the lesser of (A) the Maximum Amount and (B) the Borrowing Base, in each case, less the outstanding Swing Line Loan at such time, ---- Borrower shall immediately repay the aggregate outstanding Revolving Credit Advances to the extent required to eliminate such excess. If any such excess remains after repayment in full of the aggregate outstanding Revolving Credit Advances, Borrower shall provide cash collateral for the Letter of Credit Obligations in the manner set forth in Annex B to the ------- extent required to eliminate such excess. (ii) Immediately upon receipt by any Credit Party of proceeds of any asset disposition, which, together with other asset dispositions in any Fiscal Year results in proceeds in excess of $400,000 in the aggregate during such Fiscal Year, (excluding proceeds of asset dispositions permitted by Sections 6.8(a), 6.8(c) and 6.8(d)), but including proceeds of ---------------------------------- or any sale of Stock of any Subsidiary of any Credit Party), Borrower shall prepay the Obligations in an amount equal to such proceeds, net of (A) commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by Borrower in connection therewith (in each case, paid 6 to non-Affiliates), (B) transfer taxes payable by such Credit Party in connection therewith, (C) amounts payable to holders of senior Liens (to the extent such Liens constitute Permitted Encumbrances hereunder), if any, and (D) an appropriate reserve for income taxes in accordance with GAAP in connection therewith. Notwithstanding the foregoing, the proceeds of asset dispositions which are reinvested in Capital Expenditures within 180 days after the date of receipt thereof need not be used to prepay the Obligations. Borrower shall report to Agent in writing its' intention to reinvest such proceeds concurrently with each asset disposition and shall also report the dates and amounts of such reinvestments concurrently therewith. All prepayments made hereunder shall be applied in accordance with Section 1.3(c). -------------- (iii) If Holdings or Borrower or any other Credit Party issues Stock (other than issuances of Stock (i) to employees of Holdings and its Subsidiaries and (ii) to stockholders of Holdings as of the Closing Date, the proceeds of which are used to fund all or part of the purchase price of a Permitted Acquisition), no later than the Business Day following the date of receipt of the proceeds thereof, Borrower shall prepay the Loans in an amount equal to all such proceeds, net of underwriting discounts and commissions and other reasonable costs paid to non-Affiliates in connection therewith. Any such prepayment shall be applied in accordance with Section 1.3(c). -------------- (iv) So long as the Term Loan is outstanding, Borrower shall prepay the Obligations on the date that is 10 days after the earlier of (A) the date on which Borrower's annual audited Financial Statements for the immediately preceding Fiscal Year are delivered pursuant to Annex E, commencing with the Fiscal Year ending on or about March 31, ------- 2003, or (B) the date on which such annual audited Financial Statements were required to be delivered pursuant to Annex E, in an amount equal ------- to twenty-five percent (25%) of Excess Cash Flow for the immediately preceding Fiscal Year. Any prepayments from Excess Cash Flow paid pursuant to this clause (iv) shall be applied in accordance with ----------- Section 1.3(c). Each such prepayment shall be accompanied by a -------------- certificate signed by Borrower's chief financial officer certifying the manner in which Excess Cash Flow and the resulting prepayment were calculated, which certificate shall be in form and substance satisfactory to Agent. (c) Application of Certain Prepayments. Any prepayments made by ---------------------------------- Borrower pursuant to clauses (a)(i), (b)(ii), (b)(iii) and (b)(iv) above shall --------------------------------------------- be applied as follows: first, to Fees and reimbursable expenses of Agent then ----- due and payable pursuant to any of the Loan Documents; second, to interest then ------ due and payable on the Term Loan; third, to prepay the principal installments of ----- the Term Loan in inverse order of maturity, until the Term Loan shall have been repaid in full; fourth, to interest then due and payable on the Swing Line Loan; ------ fifth, to the principal balance of the Swing Line Loan until the same has been - ----- repaid in full; sixth, to interest then due and payable on the Revolving Credit ----- Advances; seventh, to the outstanding principal balance of Revolving Credit ------- Advances until the same has been paid in full; and eighth, to any Letter of ------ Credit Obligations, to provide cash collateral therefor in the manner set forth in Annex B, until all such Letter of Credit Obligations have been fully cash ------- collateralized in the 7 manner set forth in Annex B. Neither the Revolving Loan Commitment nor the Swing ------- Line Commitment shall be permanently reduced by the amount of any such prepayments, except to the extent that the failure to reduce such Commitments would result in a contractual requirement that any portion of that prepayment amount be applied to repurchase or prepay Subordinated Debt. (d) Application of Prepayments from Insurance Proceeds. -------------------------------------------------- Prepayments from insurance proceeds received by Agent in accordance with Section ------- 5.4(c) shall be applied as follows: insurance proceeds from casualties or losses - ------ to cash or Inventory shall be applied first, to the Swing Line Loans and, second, to the Revolving Credit Advances; and insurance proceeds from casualties or losses to Equipment, Fixtures and Real Estate shall be applied to scheduled principal installments of the Term Loan, in inverse order of maturity. Neither the Revolving Loan Commitment nor the Swing Line Loan Commitment shall be permanently reduced by the amount of any such prepayments, except to the extent that the failure to reduce such Commitment would result in a contractual requirement that any portion of that prepayment amount be applied to repurchase or prepay Subordinated Debt. If the precise amount of insurance proceeds allocable to Inventory as compared to Equipment, Fixtures and Real Estate are not otherwise determined, the allocation and application of those proceeds shall be as reasonably determined by Agent. (e) No Implied Consent. Nothing in this Section 1.3 shall be ------------------ ----------- construed to constitute Agent's or any Lender's consent to any transaction that is not permitted by other provisions of this Agreement or the other Loan Documents. (f) Ratable Reductions. Any reduction in the Revolving Loan ------------------ Commitments in accordance with this Section 1.3 or otherwise shall result in a ----------- ratable reduction of each Lender's Revolving Loan Commitment. 1.4 Use of Proceeds. Borrower shall utilize the proceeds of the Term --------------- Loan, the Revolving Loan and the Swing Line Loan solely for the Refinancing (and to pay any related transaction expenses), and for the financing of Borrower's ordinary working capital, financing of Capital Expenditures otherwise permitted hereunder, financing of Permitted Acquisitions and general corporate purposes. Disclosure Schedule (1.4) contains a description of Borrower's sources and uses - ------------------------- of funds received and disbursed on the Closing Date, including Loans and Letter of Credit Obligations to be made or incurred on that date, and a funds flow memorandum detailing how funds from each source are to be transferred to particular uses. 1.5 Interest and Applicable Margins. ------------------------------- (a) Borrower shall pay interest in cash to Agent, for the ratable benefit of Lenders in accordance with the various Loans being made by each Lender, in arrears on each applicable Interest Payment Date, at the following rates: (A) with respect to the Revolving Credit Advances, the Index Rate plus the Applicable Revolver Index Margin per annum or, at the election of Borrower, the applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum, based on the aggregate Revolving Credit Advances outstanding from time to time; (B) with respect to the Term Loan, the Index Rate plus the Applicable Term Loan Index Margin, or, at the election of Borrower, the applicable LIBOR Rate plus the Applicable Term Loan 8 LIBOR Margin, per annum; and (C) with respect to the Swing Line Loan, the Index Rate plus the Applicable Revolver Index Margin per annum. The Applicable Margins are as follows: Applicable Revolver Index Margin 1.250% Applicable Revolver LIBOR Margin 2.625% Applicable Term Loan Index Margin 1.750% Applicable Term Loan LIBOR Margin 3.125% Applicable L/C Margin 2.000% Applicable Unused Line Fee Margin (subject to adjustment in accordance with Section 1.9(b)) 0.500% (b) If any payment on any Loan becomes due and payable on a day other than a Business Day, the maturity thereof will be extended to the next succeeding Business Day (except as set forth in the definition of LIBOR Period) and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. (c) All computations of Fees calculated on a per annum basis and interest shall be made by Agent on the basis of a 360-day year, in each case for the actual number of days occurring in the period for which such interest and Fees are payable. The Index Rate shall be determined each day based upon the Index Rate as in effect each day. Each determination by Agent of an interest rate and Fees hereunder shall be conclusive, absent manifest error. (d) So long as an Event of Default has occurred and is continuing under Section 8.1(a), (h) or (i), or so long as any other Event of -------------------------- Default has occurred and is continuing and at the election of Agent (or upon the written request of Requisite Lenders) confirmed by written notice from Agent to Borrower, the interest rates applicable to the Loans and the Letter of Credit Fees shall be increased by two percent (2%) per annum above the rates of interest or the rate of such Fees otherwise applicable hereunder ("Default ------- Rate"), and all outstanding Obligations shall bear interest at the Default Rate - ---- applicable to such Obligations. Interest and Letter of Credit Fees at the Default Rate shall accrue from the initial date of such Event of Default until that Event of Default is cured or waived and shall be payable upon demand. (e) Subject to the conditions precedent set forth in Section ------- 2.2, Borrower shall have the option to (i) request that any Revolving Credit - --- Advance be made as a LIBOR Loan, (ii) convert at any time all or any part of outstanding Loans (other than the Swing Line Loan) from Index Rate Loans to LIBOR Loans, (iii) convert any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR breakage costs in accordance with Section 1.13(b) if such --------------- conversion is made prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue all or any portion of any Loan (other than the Swing Line Loan) as a LIBOR Loan upon the expiration of the applicable LIBOR Period and the succeeding LIBOR Period of that continued Loan shall commence on the last day of the LIBOR Period of the Loan to be continued. Any Loan or group of Loans having the same proposed LIBOR Period to be made or continued as, or converted into, a LIBOR Loan must be in a minimum amount of $5,000,000 and integral multiples of $500,000 in excess of such amount. Any such election must be made by noon (New York time) on the 9 third (3rd) Business Day prior to (1) the date of any proposed Advance which is to bear interest at the LIBOR Rate, (2) the end of each LIBOR Period with respect to any LIBOR Loans to be continued as such, or (3) the date on which Borrower wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR Period designated by Borrower in such election. If no election is received with respect to a LIBOR Loan by noon (New York time) on the third (3rd) Business Day prior to the end of the LIBOR Period with respect thereto, that LIBOR Loan shall be converted to an Index Rate Loan at the end of its LIBOR Period. Borrower must make such election by notice to Agent in writing, by telecopy or overnight courier. In the case of any conversion or continuation, such election must be made pursuant to a written notice (a "Notice of Conversion/Continuation") in the --------------------------------- form of Exhibit 1.5(e). No Loan may be made as or converted into a LIBOR Loan -------------- until the earlier of (i) 45 days after the Closing Date or (ii) completion of primary syndication as determined by Agent. (f) Notwithstanding anything to the contrary set forth in this Section 1.5, if a court of competent jurisdiction determines in a final order - ----------- that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum ------------------- Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided, however, that if at any time -------- ------- thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Agent, on behalf of Lenders, is equal to the total interest that would have been received had the interest rate payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement. Thereafter, interest hereunder shall be paid at the rate(s) of interest and in the manner provided in Sections 1.5(a) through (e), unless and --------------------------- until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this paragraph shall again apply. In no event shall the total interest received by any Lender pursuant to the terms hereof exceed the amount that such Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. If, notwithstanding the provisions of this Section 1.5(f), a court of competent -------------- jurisdiction shall finally determine that a Lender has received interest hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent permitted by applicable law, promptly apply such excess in the order specified in Section 1.11 and thereafter shall refund any excess to Borrower or as a court ------------ of competent jurisdiction may otherwise order. 1.6 Eligible Accounts. All of the Accounts owned by Borrower or its ----------------- domestic or Canadian Subsidiaries and reflected in the most recent Borrowing Base Certificate delivered by Borrower to Agent shall be "Eligible Accounts" for ----------------- purposes of this Agreement, except any Account to which any of the exclusionary criteria set forth below applies. Agent shall have the right to establish, modify or eliminate Reserves against Eligible Accounts from time to time in its reasonable credit judgment. In addition, Agent reserves the right, at any time and from time to time after the Closing Date, to adjust any of the criteria set forth below, to establish new criteria and to adjust advance rates with respect to Eligible Accounts, in its reasonable credit judgment, subject to the approval of Requisite Revolving Lenders in the case of adjustments or new criteria 10 or changes in advance rates which have the effect of making more credit available. Eligible Accounts shall not include any Account of Borrower or its domestic or Canadian Subsidiaries: (a) that does not arise from the sale of goods or the performance of services in the ordinary course of its business; (b) (i) upon which the right to receive payment is not absolute or is contingent upon the fulfillment of any condition whatsoever or (ii) as to which Borrower or one of its domestic or Canadian Subsidiaries is not able to bring suit or otherwise enforce their remedies against the Account Debtor through judicial process, or (iii) if the Account represents a progress billing consisting of an invoice for goods sold or used or services rendered pursuant to a contract under which the Account Debtor's obligation to pay that invoice is subject to Borrower's or one of its domestic or Canadian Subsidiary's completion of further performance under such contract or is subject to the equitable lien of a surety bond issuer; (c) any Account against which any defense, counterclaim, setoff or dispute is asserted, but such Account shall only be ineligible to the extent of any such defense, counterclaim, setoff or dispute; (d) that is not a true and correct statement of bona fide indebtedness incurred in the amount of the Account for merchandise sold to or services rendered and accepted by the applicable Account Debtor; (e) with respect to which an invoice, acceptable to Agent in form and substance, has not been sent to the applicable Account Debtor; (f) that (i) is not owned by Borrower or one of its domestic or Canadian Subsidiaries or (ii) is subject to any right, claim, security interest or other interest of any other Person, other than first priority Liens in favor of Agent, on behalf of itself and Lenders or in favor of Agent and Lenders, as applicable, and Prior Claims that are unregistered and that secure amounts that are not yet due and payable; (g) that arises from a sale to any director, officer, other employee or Affiliate of any Credit Party, or to any entity that has any common officer or director with any Credit Party (other than a portfolio company of one of the Bain Entities or CS First Boston or its Affiliates); (h) that is the obligation of an Account Debtor that is the United States government or a political subdivision thereof, or department, agency or instrumentality thereof, or that is the Canadian government (Her Majesty in Right of Canada) or a political subdivision thereof, or department, agency or instrumentality thereof, unless Agent, in its sole discretion, has agreed to the contrary in writing, the Account is assignable by way of security and Borrower, if necessary or desirable, has complied with the Federal Assignment of Claims Act of 1940, with respect to such obligation, or, the applicable Canadian Subsidiary of Borrower, if necessary or desirable, has complied with the Financial Administration Act (Canada) or any applicable provincial or territorial statute or municipal ordinance of similar purpose and effect, with respect to such obligation, as applicable; 11 (i) that is the obligation of an Account Debtor located in a foreign country (other than Canada (excluding the province of Newfoundland, the Northwest Territories and the territory of Nunavut) and in Agent's discretion, Accounts owing by Regency in Australia and New Zealand, RFE International in the United Kingdom and Sears Mexico in Mexico, if payable in Dollars, in an amount not to exceed $2,000,000 in the aggregate, if notice and other perfection requirements are met) unless payment thereof is assured by a letter of credit assigned and delivered to Agent, satisfactory to Agent as to form, amount and issuer; (j) to the extent Borrower or any Subsidiary thereof is liable for goods sold or services rendered by the applicable Account Debtor to Borrower or any Subsidiary thereof but only to the extent of the potential offset; (k) that arises with respect to goods that are delivered on a bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale or other terms by reason of which the payment by the Account Debtor is or may be conditional; (l) that is in default; provided, that, without limiting the -------- ---- generality of the foregoing, an Account shall be deemed in default upon the occurrence of any of the following: (i) the Account is not paid within the earlier of: 60 days following its due date or 120 days following its original invoice date (provided that Agent may extend such 120 day limitation to 150 days as to -------- Accounts owing by certain creditworthy Account Debtors as determined by Agent in its reasonable credit judgment); (ii) the Account Debtor obligated upon such Account suspends business, makes a general assignment for the benefit of creditors or fails to pay its debts generally as they come due; or (iii) a petition is filed by or against any Account Debtor obligated upon such Account under any bankruptcy law or any other federal, state or foreign (including any provincial), receivership, insolvency relief or other law or laws for the relief of debtors, except for Eligible K-Mart Accounts; provided, that, Agent may, in its reasonable discretion -------- ---- consent to the inclusion in Eligible Accounts of Accounts owing by additional Account Debtors that are debtors-in-possession in Chapter 11 bankruptcy cases and that arise post-petition; (m) that is the obligation of an Account Debtor if fifty percent (50%) or more of the dollar amount of all Accounts owing by that Account Debtor are ineligible under the other criteria set forth in this Section 1.6; ----------- (n) as to which Agent's Lien thereon, on behalf of itself and Lenders, or Agent's and Lenders' Liens thereon, as applicable, is not a first priority perfected Lien; (o) to the extent such Account is evidenced by a judgment, Instrument or Chattel Paper; 12 (p) to the extent such Account exceeds any credit limit established by Agent, in its reasonable credit judgment, following prior notice of such limit by Agent to Borrower; (q) that is payable in any currency other than Canadian Dollars or Dollars or, if permitted, British pounds or New Zealand dollars; (r) that is otherwise unacceptable to Agent in its reasonable credit judgment; (s) Accounts owing to Universal; or (t) Accounts owing by consumers, if two or more payments with respect thereto remain unpaid for more than thirty (30) days or to the extent that the aggregate of those consumer Accounts exceed $10,000,000. Borrower agrees that Accounts as to which payments have been received by Borrower are no longer Eligible Accounts regardless of whether such payments have been applied to the Revolving Loan. Borrower agrees that the following Reserves constitute an appropriate exercise of Agent's credit judgment (i) a co-op advertising Reserve, (ii) a direct response Accounts Reserve, (iii) an unearned financing charge Reserve; (iv) a dilution Reserve and (v) a credit memo accrual Reserve and (vi) without duplication, a reserve for Prior Claims. 1.7 Eligible Inventory. All of the Inventory owned by Borrower and its ------------------ domestic or Canadian Subsidiaries and reflected in the most recent Borrowing Base Certificate delivered by Borrower to Agent shall be "Eligible Inventory" ------------------ for purposes of this Agreement, except any Inventory to which any of the exclusionary criteria set forth below applies. Agent shall have the right to establish, modify, or eliminate Reserves against Eligible Inventory from time to time in its reasonable credit judgment. In addition, Agent reserves the right, at any time and from time to time after the Closing Date, to adjust any of the criteria set forth below, to establish new criteria and to adjust advance rates with respect to Eligible Inventory in its reasonable credit judgment, subject to the approval of Requisite Revolving Lenders in the case of adjustments or new criteria or changes in advance rates which have the effect of making more credit available. Eligible Inventory shall not include any Inventory of Borrower or its domestic or Canadian Subsidiaries that: (a) is not owned by Borrower or one of its domestic or Canadian Subsidiaries free and clear of all Liens and rights of any other Person (including the rights of a purchaser that has made progress payments and the rights of a surety that has issued a bond to assure Borrower's or one of its domestic or Canadian Subsidiary's performance with respect to that Inventory and the rights of unpaid suppliers (other than another Credit Party) under Section 81.1 of the Bankruptcy and Insolvency Act (Canada)), except the Liens in favor of Agent, on behalf of itself and Lenders, or, in favor of Agent and Lenders, as applicable, and Prior Claims (excluding the rights of unpaid suppliers (other than another Credit Party) under Section 81.1 of the Bankruptcy and Insolvency Act (Canada)), subject to Permitted Encumbrances described in clauses (a) and (e) of the definition thereof; (b) is (i) not located on premises owned, leased or rented by such Borrower or a domestic or Canadian Subsidiary and set forth in Disclosure ---------- Schedule 3.2 or is (ii) stored at a leased location or with a bailee, - ------------ warehouseman or similar Person, unless Agent has given its 13 prior consent thereto and unless (x) a satisfactory bailee letter or landlord waiver has been delivered to Agent, or (y) Reserves satisfactory to Agent have been established with respect thereto, or is (iii) located at any site if the aggregate book value of Inventory at any such location is less than $50,000 or a lesser minimum amount determined by Agent in its reasonable credit judgment; (c) is placed on consignment (unless Agent's Liens are fully perfected in its sole and absolute discretion) or is in transit except, in Agent's discretion, Eligible In-Transit Inventory that has been shipped to the United States that is "on the water"; (d) is covered by a negotiable document of title, unless such document has been delivered to Agent with all necessary endorsements, free and clear of all Liens except those in favor of Agent and Lenders; (e) in Agent's reasonable determination, is discontinued Inventory, excess, obsolete, unsalable, shopworn, seconds, damaged or unfit for sale; (f) consists of display or other promotional items or packing or shipping materials, manufacturing supplies, work-in-process Inventory or replacement parts for Equipment; (g) consists of goods which have been returned by the buyer unless the same have been inspected by Borrower or its domestic or Canadian Subsidiaries, as applicable, with satisfactory results and returned to finished goods; (h) is not of a type held for sale in the ordinary course of Borrower's or its domestic or Canadian Subsidiaries' business; (i) is not subject to a first priority Lien in favor of Agent on behalf of itself and Lenders or in favor of Agent and Lenders, as applicable, subject to Permitted Encumbrances in accordance with clauses (a) and (e) of the definition thereof; (j) consists of any costs associated with "freight-in" charges; (k) consists of Hazardous Materials or goods that can be transported or sold only with licenses that are not readily available; (l) is not covered by casualty insurance acceptable to Agent; (m) does not meet all standards imposed by Governmental Authorities; (n) is subject to any agreement which restricts Agent's ability to sell or dispose of such Inventory; (o) bears a Reebok trademark unless Agent determines that such Inventory can be quickly and cost-effectively converted to "Pro Form" or other Borrower branded Inventory and sold by Agent without restrictions; or 14 (p) is otherwise unacceptable to Agent in its reasonable credit judgment. Borrower agrees that a reserve against Borrowing Availability attributable to Eligible Inventory equal to sales, goods and services and harmonized sales taxes payable upon the sale of such Inventory, a Reserve in the amount of intercompany profit attributable to sales of Inventory among Borrower and its Subsidiaries, a Reserve in the amount of warranty repair costs and, without duplication, a Reserve in the amount of Prior Claims are reasonable exercises of Agent's credit judgment. 1.8 Cash Management Systems. Borrower will maintain until the Termination ----------------------- Date, the cash management systems described in Annex C (the "Cash Management ------- --------------- Systems") with respect to itself and its domestic and Canadian Subsidiaries. - ------- 1.9 Fees. ---- (a) Borrower shall pay to GE Capital, individually, the Fees specified in that certain fee letter dated as of April 9, 2002 between Borrower and GE Capital (the "Fee Letter"), at the times specified for payment therein. ---------- (b) As additional compensation for the Revolving Lenders, Borrower shall pay to Agent, for the ratable benefit of such Lenders, in arrears, on the first Business Day of each month prior to the Commitment Termination Date and on the Commitment Termination Date, a fee for Borrower's non-use of available funds in an amount equal to the Applicable Unused Line Fee Margin per annum (calculated on the basis of a 360 day year for actual days elapsed) multiplied by the "Average Unused Daily Balance," consisting of the difference between (x) the Maximum Amount and (y) the average for the period of the daily closing balances of the Revolving Loan and the Swing Line Loan outstanding during the period for which the such Fee is due. If the Average Unused Daily Balance for the eleven month period ending on March 31, 2003 or the twelve month period ending on March 31st in any year thereafter is less than $105,000,000, then the Applicable Unused Line Fee payable shall be increased retroactively to three quarters of one percent (0.75%) per annum and the amount of that increased Applicable Unused Line Fee Margin shall be payable in a single installment on or before April 13th of each year. (c) Borrower shall pay to Agent, for the ratable benefit of Revolving Lenders, the Letter of Credit Fee as provided in Annex B. ------- 1.10 Receipt of Payments. Borrower shall make each payment under this ------------------- Agreement not later than 1:00 p.m. (New York time) on the day when due in immediately available funds in Dollars to the Collection Account. For purposes of computing interest and Fees and determining Borrowing Availability or Net Borrowing Availability as of any date, all payments shall be deemed received on the Business Day of receipt of immediately available funds therefor in the Collection Account prior to 1:00 p.m. New York time. Payments received after 1:00 p.m. New York time on any Business Day shall be deemed to have been received on the following Business Day. If Agent receives any payment from or on behalf of any Credit Party in a currency other than the currency in which an Obligation payable is denominated, Agent may convert the payment (including the monetary proceeds of realization upon any Collateral and any 15 funds then held in a cash collateral account) into the Equivalent Amount of the currency of the relevant Obligation as determined on the Business Day immediately preceding the date of actual payment. The Obligations shall be satisfied only to the extent of the amount actually received by Agent upon such conversion. 1.11 Application and Allocation of Payments. -------------------------------------- (a) So long as no Event of Default under Section 8.1(a) has occurred -------------- and is continuing, (i) payments consisting of proceeds of Accounts or other Collateral received in the ordinary course of business shall be applied, first, to the Swing Line Loan and, second, to the Revolving Loan; (ii) payments matching specific scheduled payments then due shall be applied to those scheduled payments; (iii) voluntary prepayments shall be applied as determined by Borrower, subject to the provisions of Section 1.3(a); and (iv) mandatory -------------- prepayments shall be applied as set forth in Sections 1.3(c) and 1.3(d). All -------------------------- payments and prepayments applied to a particular Loan shall be applied ratably to the portion thereof held by each Lender as determined by its Pro Rata Share. As to all payments received at a time when an Event of Default under Section ------- 8.1(a) has occurred and is continuing or following the Commitment Termination - ------ Date, Borrower hereby irrevocably waives the right to direct the application of any and all payments received from or on behalf of Borrower, and Borrower hereby irrevocably agrees that all such payments shall be applied against the Obligations as set forth below notwithstanding any previous entry by Agent in the Loan Account or any other books and records. In the absence of a specific determination to the contrary by all Lenders, such payments shall be applied to amounts then due and payable in the following order: (1) to Fees and Agent's expenses reimbursable hereunder; (2) to interest on the Swing Line Loan; (3) to principal payments on the Swing Line Loan; (4) to interest on the Revolving Loan and Term Loan, ratably in proportion to the interest accrued as to each such Loan; (5) to principal payments on the Revolving Loan and Term Loan (to scheduled installments in inverse order of maturity) and to provide cash collateral for Letter of Credit Obligations in the manner described in Annex B, ------- ratably to the aggregate, combined principal balance of such Loans and outstanding Letter of Credit Obligations; and (6) to all other Obligations, including expenses of Lenders to the extent reimbursable under Section 11.3. ------------ (b) Agent is authorized to, and may in its discretion, charge to the Revolving Loan balance on behalf of Borrower and cause to be paid all Fees, expenses, Charges, costs (including insurance premiums in accordance with Section 5.4(a)) and interest and principal, other than principal of the - --------------- Revolving Loan, owing by Borrower under this Agreement or any of the other Loan Documents if and to the extent Borrower fails to pay promptly any such amounts as and when due, even if such charges would cause the aggregate balance of the Revolving Loan and the Swing Line Loan to exceed Borrowing Availability. At Agent's option and to the extent permitted by law, any charges so made shall constitute part of the Revolving Loan hereunder. 1.12 Loan Account and Accounting. Agent shall maintain a loan account --------------------------- (the "Loan Account") on its books to record: all Advances and the Term Loan, all ------------ payments made by Borrower, and all other debits and credits as provided in this Agreement with respect to the Loans or any other Obligations. All entries in the Loan Account shall be made in accordance with Agent's customary accounting practices as in effect from time to time. The balance in the Loan Account, as recorded on Agent's most recent printout or other written statement, shall, absent manifest error, be presumptive evidence of the amounts due and owing to Agent and 16 Lenders by Borrower; provided that any failure to so record or any error in so -------- recording shall not limit or otherwise affect Borrower's duty to pay the Obligations. Agent shall render to Borrower a monthly accounting of transactions with respect to the Loans setting forth the balance of the Loan Account. Unless Borrower notifies Agent in writing of any objection to any such accounting (specifically describing the basis for such objection), within thirty (30) days after Borrower's receipt thereof, each and every such accounting shall, absent manifest error, be deemed final, binding and conclusive on Borrower in all respects as to all matters reflected therein. Only those items expressly objected to in such notice shall be deemed to be disputed by Borrower. Notwithstanding any provision herein contained to the contrary, any Lender may elect (which election may be revoked) to dispense with the issuance of Notes to that Lender and may rely on the Loan Account as evidence of the amount of Obligations from time to time owing to it. 1.13 Indemnity. --------- (a) Each Credit Party that is a signatory hereto shall jointly and severally indemnify and hold harmless (except ICON of Canada which shall only severally indemnify and hold harmless to the extent permitted by the corporate statute under which it is incorporated) each of Agent, Lenders and their respective Affiliates, and each such Person's respective officers, directors, employees, attorneys, agents and representatives (each, an "Indemnified ----------- Person"), from and against any and all suits, actions, proceedings, claims, - ------ damages, losses, liabilities and expenses (including reasonable attorneys' fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal) that may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents and the administration of such credit, and in connection with or arising out of the transactions contemplated hereunder and thereunder and any actions or failures to act in connection therewith, including any and all Environmental Liabilities and legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Loan Documents --- ------- (collectively, "Indemnified Liabilities"); provided, that no such Credit Party ----------------------- -------- shall be liable for any indemnification to an Indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results from that Indemnified Person's gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER. (b) To induce Lenders to provide the LIBOR Rate option on the terms provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to the last day of any applicable LIBOR Period (whether that repayment is made pursuant to any provision of this Agreement or any other Loan Document or occurs as a result of acceleration, by operation of law or otherwise); (ii) Borrower shall default in making any borrowing of, conversion into or continuation of LIBOR Loans after Borrower has given notice requesting the same in accordance 17 herewith; or (iii) Borrower shall fail to make any prepayment of a LIBOR Loan after Borrower has given a notice thereof in accordance herewith, then Borrower shall indemnify and hold harmless each Lender from and against all losses, costs and expenses resulting from or arising from any of the foregoing. Such indemnification shall include any loss (including loss of margin) or expense arising from the reemployment of funds obtained by it or from fees payable to terminate deposits from which such funds were obtained. For the purpose of calculating amounts payable to a Lender under this subsection, each Lender shall be deemed to have actually funded its relevant LIBOR Loan through the purchase of a deposit bearing interest at the LIBOR Rate in an amount equal to the amount of that LIBOR Loan and having a maturity comparable to the relevant LIBOR Period; provided, that each Lender may fund each of its LIBOR Loans in any -------- manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. As promptly as practicable under the circumstances, each Lender shall provide Borrower with its written calculation of all amounts payable pursuant to this Section 1.13(b), and such calculation --------------- shall be binding on the parties hereto unless Borrower shall object in writing within ten (10) Business Days of receipt thereof, specifying the basis for such objection in detail. 1.14 Access. Each Credit Party that is a party hereto shall, during normal ------ business hours, from time to time upon three (3) Business Days' prior notice as frequently as Agent reasonably determines to be appropriate: (a) provide Agent and any of its officers, employees and agents access to its properties, facilities, advisors and employees (including officers) of each Credit Party and to the Collateral, (b) permit Agent, and any of its officers, employees and agents, to inspect, audit and make extracts from any Credit Party's books and records, and (c) permit Agent, and its officers, employees and agents, to inspect, review, evaluate and make test verifications and counts of the Accounts, Inventory and other Collateral of any Credit Party. If a Default or Event of Default has occurred and is continuing or if access is necessary to preserve or protect the Collateral as determined by Agent, each such Credit Party shall provide such access to Agent and to each Lender at all times and without advance notice. Furthermore, so long as any Event of Default has occurred and is continuing, each Credit Party shall provide Agent and each Lender with access to its suppliers and customers. Each Credit Party shall make available to Agent and its counsel, as promptly as is possible under the circumstances, originals or copies of all books and records that Agent may request. Each Credit Party shall deliver any document or instrument necessary for Agent, as it may from time to time request, to obtain records from any service bureau or other Person that maintains records for such Credit Party, and shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by such Credit Party. Agent will give Lenders at least ten (10) days' prior written notice of regularly scheduled audits. Representatives of other Lenders may accompany Agent's representatives on regularly scheduled audits at no charge to Borrower. 1.15 Taxes. ----- (a) Any and all payments by Borrower hereunder or under the Notes shall be made, in accordance with this Section 1.15, free and clear of and ------------ without deduction for any and all present or future Taxes. If Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the Notes, (i) the sum payable shall be increased as much as shall be necessary so that after making all required deductions (including deductions 18 applicable to additional sums payable under this Section 1.15), Agent or ------------- Lenders, as applicable, receive an amount equal to the sum they would have received had no such deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law. Within thirty (30) days after the date of any payment of Taxes, Borrower shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof; provided that should any Lender actually receive a tax credit or refund -------- in the future with respect to (and as a result of) any Taxes paid by Borrower as required by this Section 1.15, and Lender reasonably determines that such credit ------------ or refund relates to Borrower, then such Lender shall return the amount of such credit or refund (net of any taxes thereon) to Borrower. (b) Each Credit Party that is a signatory hereto shall indemnify and, within ten (10) days of demand therefor, pay Agent and each Lender for the full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts payable under this Section 1.15) paid by Agent or such Lender, as appropriate, ------------ and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted; provided that should any Lender actually receive a tax credit or -------- refund in the future with respect to (and as a result of) any Taxes paid by Borrower as required by this Section 1.15, and Lender reasonably determines that ------------ such credit or refund relates to Borrower, then such Lender shall return the amount of such credit or refund (net of any taxes thereon) to Borrower. (c) Each Lender organized under the laws of a jurisdiction outside the United States (a "Foreign Lender") as to which payments to be made under this -------------- Agreement or under the Notes are exempt from United States withholding tax under an applicable statute or tax treaty shall provide to Borrower and Agent a properly completed and executed IRS Form W-8ECI or Form W-8BEN or other applicable form, certificate or document prescribed by the IRS or the United States certifying as to such Foreign Lender's entitlement to such exemption (a "Certificate of Exemption"). Any foreign Person that seeks to become a Lender ------------------------ under this Agreement shall provide a Certificate of Exemption to Borrower and Agent prior to becoming a Lender hereunder. No foreign Person may become a Lender hereunder if such Person fails to deliver a Certificate of Exemption. 1.16 Capital Adequacy; Increased Costs; Illegality. --------------------------------------------- (a) If any Lender shall have determined that any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by any Lender with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law), in each case, adopted after the Closing Date, from any central bank or other Governmental Authority increases or would have the effect of increasing the amount of capital, reserves or other funds required to be maintained by such Lender and thereby reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder, then Borrower shall from time to time upon demand by such Lender (with a copy of such demand to Agent) pay to Agent, for the account of such Lender, additional amounts sufficient to compensate such Lender for such reduction; provided, however, that -------- ------- Borrower shall have no obligation to make any such payment if such Lender fails to demand payment thereof within 180 days after such 19 Lender becomes aware of an event giving rise to such a payment. A certificate as to the amount of that reduction and showing the basis of the computation thereof submitted by such Lender to Borrower and to Agent shall, absent manifest error, be final, conclusive and binding for all purposes. (b) If, due to either (i) the introduction of or any change in any law or regulation (or any change in the interpretation thereof) or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), in each case adopted after the Closing Date, there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining any Loan, then Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to Agent), pay to Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost; provided, -------- however, that Borrower shall have no obligation to make any such payment if such - ------- Lender fails to demand payment thereof within 180 days after such Lender becomes aware of an event giving rise to such payment. A certificate as to the amount of such increased cost, submitted to Borrower and to Agent by such Lender, shall be conclusive and binding on Borrower for all purposes, absent manifest error. Each Lender agrees that, as promptly as practicable after it becomes aware of any circumstances referred to above which would result in any such increased cost, the affected Lender shall, to the extent not inconsistent with such Lender's internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by Borrower pursuant to this Section 1.16(b). --------------- (c) Notwithstanding anything to the contrary contained herein, if the introduction of or any change in any law or regulation (or any change in the interpretation thereof) shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender to agree to make or to make or to continue to fund or maintain any LIBOR Loan, then, unless that Lender is able to make or to continue to fund or to maintain such LIBOR Loan at another branch or office of that Lender without, in that Lender's opinion, adversely affecting it or its Loans or the income obtained therefrom, on notice thereof and demand therefor by such Lender to Borrower through Agent, (i) the obligation of such Lender to agree to make or to make or to continue to fund or maintain LIBOR Loans shall terminate and (ii) Borrower shall forthwith prepay in full all outstanding LIBOR Loans owing to such Lender, together with interest accrued thereon, unless Borrower, within five (5) Business Days after ------ the delivery of such notice and demand, converts all LIBOR Loans into Index Rate Loans. (d) Replacement of Lender in Respect of Increased Costs. Within --------------------------------------------------- fifteen (15) days after receipt by Borrower of written notice and demand from any Lender (an "Affected Lender") for payment of additional amounts or increased --------------- costs as provided in Sections 1.15(a), 1.16(a) or 1.16(b), Borrower may, at its ------------------------------------ option, notify Agent and such Affected Lender of its intention to replace the Affected Lender. So long as no Default or Event of Default has occurred and is continuing, Borrower, with the consent of Agent, may obtain, at Borrower's expense, a replacement Lender ("Replacement Lender") for the Affected Lender, ------------------ which Replacement Lender must be satisfactory to Agent. If Borrower obtains a Replacement Lender within ninety (90) days following notice of its intention to do so, the Affected Lender must sell and assign its Loans and Commitments to such Replacement Lender for an amount equal to the principal balance of all Loans held by the Affected Lender and all accrued interest and Fees with respect 20 thereto through the date of such sale, provided that Borrower shall have -------- reimbursed such Affected Lender for the additional amounts or increased costs that it is entitled to receive under this Agreement through the date of such sale and assignment. Notwithstanding the foregoing, Borrower shall not have the right to obtain a Replacement Lender if the Affected Lender rescinds its demand for increased costs or additional amounts within fifteen (15) days following its receipt of Borrower's notice of intention to replace such Affected Lender. Furthermore, if Borrower gives a notice of intention to replace and does not so replace such Affected Lender within ninety (90) days thereafter, Borrower's rights under this Section 1.16(d) shall terminate as to that Affected Lender and Borrower shall - --------------- promptly pay all increased costs or additional amounts demanded by such Affected Lender pursuant to Sections 1.15(a), 1.16(a) and 1.16(b). ------------------------------------- 1.17 Single Loan. All Loans to Borrower and all of the other Obligations ----------- of Borrower arising under this Agreement and the other Loan Documents shall constitute one general obligation of Borrower secured, until the Termination Date, by all of the Collateral. 2. CONDITIONS PRECEDENT -------------------- 2.1 Conditions to the Initial Loans. No Lender shall be obligated to ------------------------------- make any Loan or incur any Letter of Credit Obligations on the Closing Date, or to take, fulfill, or perform any other action hereunder, until the following conditions have been satisfied or provided for in a manner satisfactory to Agent, or waived in writing by Agent and Requisite Lenders: (a) Credit Agreement; Loan Documents. This Agreement or -------------------------------- counterparts hereof shall have been duly executed by, and delivered to, Borrower, each other Credit Party, Agent and Lenders; and Agent shall have received such documents, instruments, agreements and legal opinions as Agent shall reasonably request in connection with the transactions contemplated by this Agreement and the other Loan Documents, including all those listed in the Closing Checklist attached hereto as Annex D, each in form and substance ------- satisfactory to Agent. (b) Repayment of Original Obligations; Satisfaction of Outstanding -------------------------------------------------------------- L/C's. (i) Agents shall have received a fully executed original of a pay-off - ----- letter satisfactory to Agent confirming that all of the Original Obligations will be repaid in full from the proceeds of the Term Loan, the initial Revolving Credit Advance and the Subordinated Notes and all Liens upon any of the property of Borrower or any of its Subsidiaries in favor of the Original Lenders shall be terminated by Original Lenders, acting through Agent as their agent under the Original Credit Agreement immediately upon such payment; and (ii) all letters of credit issued or guaranteed by Original Lenders shall have been cash collateralized, supported by a guaranty of Agent or supported by a Letter of Credit issued pursuant to Annex B, as mutually agreed upon by Agent, Borrower ------- and Original Lenders. (c) Approvals. Agent shall have received (i) satisfactory evidence --------- that the Credit Parties have obtained all required consents and approvals of all Persons including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Loan Documents and the consummation of the Related Transactions or 21 (ii) an officer's certificate in form and substance satisfactory to Agent affirming that no such consents or approvals are required. (d) Opening Availability/Indebtedness. The Borrowing Base --------------------------------- supporting the initial Revolving Credit Advance and the initial Letter of Credit Obligations incurred and the amount of the Reserves to be established on the Closing Date shall be sufficient in value, as determined by Agent, to provide Borrower with Net Borrowing Availability, after giving effect to the initial Revolving Credit Advance, the incurrence of any initial Letter of Credit Obligations and the consummation of the Related Transactions (on a pro forma basis, with trade payables, expenses and liabilities being paid in the ordinary course of business and without acceleration of sales) of at least Sixty Five Million Dollars ($65,000,000). Total Indebtedness of the Borrower on a consolidated basis on the Closing Date, after giving effect to the Related Transactions, shall not exceed Two Hundred Seventy Million Dollars ($270,000,000). (e) Payment of Fees. Borrower shall have paid the Fees required to --------------- be paid on the Closing Date in the respective amounts specified in Section 1.9 ----------- (including the Fees specified in the Fee Letter), and shall have reimbursed Agent for all fees, costs and expenses of closing presented as of the Closing Date. (f) Capital Structure; Other Indebtedness. The capital structure of ------------------------------------- each Credit Party and the terms and conditions of all Indebtedness shall be acceptable to Agent in its sole discretion. (g) Related Transactions Documents. Agent shall have received fully ------------------------------ executed copies of the Subordinated Debt Documents and each of the other Related Transactions Documents, each of which shall be in form and substance satisfactory to Agent and its counsel. The other Related Transactions shall have been consummated in accordance with the terms of the Subordinated Debt Documents and the other Related Transactions Documents. Borrower shall not have waived or amended any provision of any Subordinated Debt Document delivered to Agent without the consent of Agent and Requisite Lenders. (h) Consummation of Related Transactions on Closing Date. Borrower ---------------------------------------------------- shall have received at least $152,812,950 in net cash proceeds from the issuance of the Subordinated Debt (before deduction, among other things, of an amount not in excess of $4,500,000 which was applied in payment of CS First Boston's closing fees and expenses in respect of the Subordinated Notes). 2.2 Further Conditions to Each Loan. Except as otherwise expressly ------------------------------- provided herein, no Lender shall be obligated to fund any Advance, convert or continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation, if, as of the date thereof: (a) any representation or warranty by any Credit Party contained herein or in any of the other Loan Document is untrue or incorrect as of such date, except to the extent that such representation or warranty expressly relates to an earlier date and except for changes therein expressly permitted or expressly contemplated by this Agreement, and Agent or Requisite Revolving Lenders have determined not to make such Advance, convert or continue any Loan as 22 LIBOR Loan or incur such Letter of Credit Obligation as a result of the fact that such warranty or representation is untrue or incorrect; (b) any event or circumstance having a Material Adverse Effect has occurred since the date hereof as determined by the Requisite Revolving Lenders, and Agent or Requisite Revolving Lenders have determined not to make such Advance, convert or continue any Loan as a LIBOR Loan or incur such Letter of Credit Obligation as a result of the fact that such event or circumstance has occurred; (c) any Default or Event of Default has occurred and is continuing or would result after giving effect to any Advance or the incurrence of any Letter of Credit Obligation, and Agent or Requisite Revolving Lenders shall have determined not to make any Advance, convert or continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation as a result of that Default or Event of Default; or (d) after giving effect to any Advance (or the incurrence of any Letter of Credit Obligations), the outstanding principal amount of the Revolving Loan would exceed the lesser of the Borrowing Base and the Maximum Amount, in each case, less the then outstanding principal amount of the Swing Line Loan. The request and acceptance by Borrower of the proceeds of any Loan, the incurrence of any Letter of Credit Obligations or the conversion or continuation of any Loan into, or as, a LIBOR Loan, as the case may be, shall be deemed to constitute, as of the date of such request, acceptance or incurrence, (i) a representation and warranty by Borrower that the conditions in this Section 2.2 ----------- have been satisfied and (ii) a reaffirmation by Borrower of the granting and continuance of Agent's Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents. 2.3 Conditions to Permitted Acquisitions. Borrower may not directly or ------------------------------------ indirectly use any proceeds of any Advance to acquire all or substantially all of the assets or the Stock (by Stock purchase or merger) of any Person (the "Target") (in each case an "Acquisition") until the following conditions have ------ been satisfied or provided for in a manner satisfactory to Agent, or waived in writing by Agent and Requisite Lenders: (a) Agent shall receive at least thirty (30) Business Days' prior written notice of such proposed Acquisition, which notice shall include a reasonably detailed description of such proposed Acquisition; (b) such Acquisition shall involve assets at least 50% of which are located in the United States or Canada and comprising a business, or those assets of a business, of the type, or reasonably similar or related to the type, engaged in by Borrower as of the Closing Date, and which business would not subject Agent or any Lender to regulatory or third party approvals in connection with the exercise of its rights and remedies under this Agreement or any other Loan Documents other than approvals applicable to the exercise of such rights and remedies with respect to Borrower prior to such Acquisition; (c) such Acquisition shall be consensual and shall have been approved by the Target's board of directors; 23 (d) no additional Indebtedness, Guaranteed Indebtedness or contingent obligations or other liabilities shall be incurred, assumed or otherwise be reflected on a consolidated balance sheet of Borrower and Target after giving effect to such Acquisition, except (A) Loans made hereunder, (B) ordinary course trade payables, accrued expenses and unsecured Indebtedness of the Target to the extent no Default or Event of Default has occurred and is continuing or would result after giving effect to such Acquisition, (C) industrial revenue bonds or other similar Indebtedness of the Target not incurred in anticipation of such Acquisition and otherwise in amounts, and subject to terms, acceptable to Agent, (D) contingent liabilities, including Environmental Liabilities, acceptable to Agent, and (E) Indebtedness of the type permitted in Section 6.7(c) subject to the limitations set forth therein; -------------- (e) the sum of Revolving Credit Advances incurred hereunder in connection with all Acquisitions shall not exceed $25,000,000 in the aggregate; (f) the business and assets acquired in such Permitted Acquisition shall be free and clear of all Liens (other than Permitted Encumbrances) and other Liens acceptable to Agent; (g) at or prior to the closing of any Permitted Acquisition, Agent will be granted a first priority perfected Lien (subject to Permitted Encumbrances) in all assets acquired pursuant thereto or in the assets and Stock of the Target, and Holdings, Borrower, Target and the other Credit Parties shall have executed such documents and taken such actions as may be required by Agent in connection therewith; (h) concurrently with delivery of the notice referred to in clause ------ (a) above, Borrower shall have delivered to Agent, in form and substance - --- reasonably satisfactory to Agent: (i) a pro forma consolidated balance sheet, income statement and cash flow statement of Holdings and its Subsidiaries (the "Acquisition ----------- Pro Forma"), based on recent financial statements, which shall be complete --------- and shall fairly present in all material respects the assets, liabilities, financial condition and results of operations of Holdings and its Subsidiaries in accordance with GAAP consistently applied, but taking into account such Permitted Acquisition and the funding of all Loans in connection therewith, and such Acquisition Pro Forma shall reflect that, on a pro forma basis, Holdings and its Subsidiaries would have had an (x) average daily Borrowing Availability for the 90-day period preceding the consummation of such Permitted Acquisition would have exceeded $20,000,000 (without deterioration of working capital) on a pro forma basis (after giving effect to such Permitted Acquisition and all Loans funded in connection therewith as if made on the first day of such period) and the Acquisition Projections (as hereinafter defined) shall reflect that such Borrowing Availability of $20,000,000 or greater (without deterioration of working capital) shall continue for at least 90 days after the consummation of such Permitted Acquisition; and (y) on a pro forma basis, no Event of Default has occurred and is continuing or would result after giving effect to such Permitted Acquisition and Borrower would have been in compliance with the financial covenants set forth in Annex G for the ------- four quarter period reflected in the Compliance Certificate most recently 24 delivered to Agent pursuant to Annex E prior to the consummation of such ------- Permitted Acquisition (after giving effect to such Permitted Acquisition and all Loans funded in connection therewith as if made on the first day of such period); (ii) updated versions of the most recently delivered Projections covering the one (1) year period commencing on the date of such Permitted Acquisition and otherwise prepared in accordance with the Projections (the "Acquisition Projections") and based upon ----------------------- historical financial data of a recent date reasonably satisfactory to Agent, taking into account such Permitted Acquisition; and (iii) a certificate of the chief financial officer of Holdings and Borrower to the effect that: (w) Borrower (after taking into consideration all rights of contribution and indemnity Borrower has against Holdings and each other Subsidiary of Holdings) will be Solvent upon the consummation of the Permitted Acquisition; (x) the Acquisition Pro Forma fairly presents the financial condition of Holdings and Borrower (on a consolidated basis) as of the date thereof after giving effect to the Permitted Acquisition; (y) the Acquisition Projections are reasonable estimates, based upon knowledge then available to Borrower, of the future financial performance of Holdings and Borrower subsequent to the date thereof based upon the historical performance of Holdings, Borrower and the Target and show that Holdings and Borrower shall continue to be in compliance with the financial covenants set forth in Annex G for the one (1) year period thereafter; and (z) ------- Holdings and Borrower have completed their due diligence investigation with respect to the Target and such Permitted Acquisition; (iv) on or prior to the date of such Permitted Acquisition, Agent shall have received, in form and substance reasonably satisfactory to Agent, copies of the acquisition agreement and related agreements and instruments, and all opinions, certificates, lien search results and other documents reasonably requested by Agent, including those specified in the second to last sentence of Section 5.10; and ------------ (v) at the time of such Permitted Acquisition and after giving effect thereto, no Default or Event of Default has occurred and is continuing. Notwithstanding the foregoing, the Accounts and Inventory of the Target shall not be included in Eligible Accounts and Eligible Inventory without the prior written consent of Agent following completion of a collateral audit. 3. REPRESENTATIONS AND WARRANTIES ------------------------------ To induce Lenders to make the Loans and to incur Letter of Credit Obligations, the Credit Parties executing this Agreement, jointly and severally, make the following representations and warranties to Agent and each Lender, effective as of the Closing Date, with respect to all Credit Parties, each and all of which shall survive the execution and delivery of this Agreement: 25 3.1 Corporate Existence; Compliance with Law. Each Credit Party (a) is a ---------------------------------------- corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (b) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where effects of the failure to be so qualified would be immaterial; (c) has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease and to conduct its business as now, heretofore and proposed to be conducted; (d) subject to specific representations regarding Environmental Laws, has all material licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (e) is in compliance with its charter and bylaws; and (f) subject to specific representations set forth herein regarding ERISA, Environmental Laws, tax and other laws, is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 3.2 Executive Offices, Collateral Locations, FEIN. As of the Closing Date, --------------------------------------------- the current location of each Credit Party's chief executive office, domicile (within the meaning of the Quebec Civil Code) and the warehouses and premises at which any Collateral is located are set forth in Disclosure Schedule (3.2). In ------------------------- addition, Disclosure Schedule (3.2) lists the federal employer identification ------------------------- number of each Credit Party. 3.3 Corporate Power, Authorization, Enforceable Obligations. The execution, ------------------------------------------------------- delivery and performance by each Credit Party of the Loan Documents to which it is a party and the creation of all Liens provided for therein: (a) are within such Person's corporate power; (b) have been duly authorized by all necessary or proper corporate and shareholder action; (c) do not contravene any provision of such Person's charter or bylaws; (d) do not violate any law or regulation, or any order or decree of any court or Governmental Authority; (e) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage or deed of trust, or material lease, agreement or other instrument to which such Person is a party or by which such Person or any of its property is bound; (f) do not result in the creation or imposition of any Lien upon any of the property of such Person other than those in favor of Agent, on behalf of itself and Lenders, pursuant to the Loan Documents; and (g) do not require the consent or approval of any Governmental Authority or any other Person, except those referred to in Section 2.1(c), all of which will have been -------------- duly obtained, made or complied with prior to the Closing Date. On or prior to the Closing Date, each of the Loan Documents shall have been duly executed and delivered by each Credit Party that is a party thereto and each such Loan Document shall then constitute a legal, valid and binding obligation of such Credit Party enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws affecting the rights and remedies of creditors generally. 3.4 Financial Statements and Projections. Except for the Projections, all ------------------------------------ Financial Statements concerning Borrower and its Subsidiaries that are referred to below have been prepared in accordance with GAAP consistently applied throughout the periods covered (except as disclosed therein and except, with respect to unaudited Financial Statements, for the absence 26 of footnotes and normal year-end audit adjustments) and present fairly in all material respects the financial position of the Persons covered thereby as at the dates thereof and the results of their operations and cash flows for the periods then ended. (a) The following Financial Statements attached hereto as Disclosure ---------- Schedule (3.4(a)) will have been delivered as of the Closing Date: - ----------------- (i) The audited consolidated and consolidating balance sheets at May 31, 2001 and the related statements of income and cash flows of Borrower and its Subsidiaries for the Fiscal Year then ended, certified by PriceWaterhouseCoopers, LLP. (ii) The unaudited balance sheet(s) and the related statement(s) of income and cash flows of Borrower and its Subsidiaries for all interim monthly periods ending up to and including March 2, 2002. (b) Pro Forma. The Pro Forma attached hereto as Disclosure Schedule --------- ------------------- (3.4(b)) was prepared by Borrower giving pro forma effect to the Related - -------- --------- Transactions, was based on the unaudited consolidated and consolidating balance sheets of Borrower and its Subsidiaries dated March 2, 2002 and was prepared in accordance with GAAP, with only such adjustments thereto as would be required in accordance with GAAP. (c) Projections. The Projections attached hereto as Disclosure ----------- ---------- Schedule (3.4(c)) have been prepared by Borrower in light of the past operations - ----------------- of its businesses, and reflect projections for the five year period beginning on December 30, 2001 on a month-by-month basis for the first year and on a year-by-year basis thereafter. The Projections are based upon estimates and assumptions stated therein, all of which Borrower believes to be reasonable and fair in light of current conditions and current facts known to Borrower and, as of the Closing Date, reflect Borrower's good faith and reasonable estimates of the future financial performance of Borrower and of the other information projected therein for the period set forth therein (it being understood that such Projections are not warranties of future performance). 3.5 Material Adverse Effect. Between May 31, 2001 and the Closing Date, ----------------------- excluding defaults under credit arrangements refinanced pursuant to the Related Transactions, (a) no Credit Party has incurred any obligations, contingent or noncontingent liabilities, liabilities for Charges, long-term leases or unusual forward or long-term commitments that are not reflected in the Pro Forma and that, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect, (b) no contract, lease or other agreement or instrument has been entered into by any Credit Party or has become binding upon any Credit Party's assets and no law or regulation applicable to any Credit Party has been adopted that has had or could reasonably be expected to have a Material Adverse Effect, and (c) no Credit Party is in default and to the best of Borrower's knowledge no third party is in default under any material contract, lease or other agreement or instrument, that alone or in the aggregate could reasonably be expected to have a Material Adverse Effect. Excluding the effect of the write off of Accounts owing by K-Mart, Inc. between May 31, 2001 and the Closing Date no event has occurred, that alone or together with other events, could reasonably be expected to have a Material Adverse Effect, except for matters set forth on Disclosure Schedule (3.5). - ------------------------- 27 3.6 Ownership of Property; Liens. As of the Closing Date, the real estate ---------------------------- ("Real Estate") listed in Disclosure Schedule (3.6) constitutes all of the real ----------- ------------------------- property owned, leased, subleased, or used by any Credit Party. Each Credit Party owns good and marketable fee simple title to all of its owned Real Estate, and valid and marketable leasehold interests in all of its leased Real Estate, all as described on Disclosure Schedule (3.6), and copies of all such leases or ------------------------- a summary of terms thereof satisfactory to Agent have been delivered to Agent. Disclosure Schedule (3.6) further describes any Real Estate with respect to - ------------------------- which any Credit Party is a lessor, sublessor or assignor as of the Closing Date. Each Credit Party also has good and marketable title to, or valid leasehold interests in, all of its personal property and assets. As of the Closing Date, none of the properties and assets of any Credit Party are subject to any Liens other than Permitted Encumbrances, and there are no facts, circumstances or conditions known to any Credit Party that may result in any Liens (including Liens arising under Environmental Laws) other than Permitted Encumbrances. Each Credit Party has received all deeds, assignments, waivers, consents, nondisturbance and attornment or similar agreements, bills of sale and other documents, and has duly effected all recordings, filings and other actions necessary to establish, protect and perfect such Credit Party's right, title and interest in and to all such Real Estate and other properties and assets. Disclosure Schedule (3.6) also describes as of the Closing Date any purchase - ------------------------- options, rights of first refusal or other similar contractual rights pertaining to any Real Estate. As of the Closing Date, no portion of any Credit Party's Real Estate has suffered any material damage by fire or other casualty loss that has not heretofore been repaired and restored in all material respects to its original condition or otherwise remedied. As of the Closing Date, all material permits required to have been issued or appropriate to enable the Real Estate to be lawfully occupied and used for all of the purposes for which it is currently occupied and used have been lawfully issued and are in full force and effect. 3.7 Labor Matters. As of the Closing Date (a) no strikes or other material ------------- labor disputes against any Credit Party are pending or, to any Credit Party's knowledge, threatened; (b) hours worked by and payment made to employees of each Credit Party comply with the Fair Labor Standards Act and each other federal, state, local or foreign law applicable to such matters; (c) all payments due from any Credit Party for employee health and welfare insurance have been paid or accrued as a liability on the books of such Credit Party; (d) except as set forth in Disclosure Schedule (3.7), no Credit Party is a party to or bound by ------------------------- any collective bargaining agreement, management agreement, consulting agreement, employment agreement, bonus, stock option, or stock appreciation plan or agreement (and true and complete copies of any agreements described on Disclosure Schedule (3.7) have been delivered to Agent); (e) there is no - ------------------------- organizing activity involving any Credit Party pending or, to any Credit Party's knowledge, threatened by any labor union or group of employees; (f) there are no representation proceedings pending or, to any Credit Party's knowledge, threatened with the National Labor Relations Board or any other labor relations board, and no labor organization or group of employees of any Credit Party has made a pending demand for recognition; and (g) except as set forth in Disclosure ---------- Schedule (3.7), there are no complaints or charges against any Credit Party - -------------- pending or, to the knowledge of any Credit Party, threatened to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by any Credit Party of any individual. 3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and ------------------------------------------------------------ Indebtedness. Except as set forth in Disclosure Schedule (3.8), no Credit Party - ------------ ------------------------- has any Subsidiaries, is engaged 28 in any joint venture or partnership with any other Person, or is an Affiliate of any other Person. All of the issued and outstanding Stock of each Credit Party is owned by each of the Stockholders and in the amounts set forth in Disclosure ---------- Schedule (3.8). There are no outstanding rights to purchase, options, warrants - -------------- or similar rights or agreements pursuant to which any Credit Party may be required to repurchase or redeem any of its Stock or other equity securities or any Stock or other equity securities of its Subsidiaries. No Subsidiary of Holdings is subject to any agreement or arrangement obligating it to issue or sell any of its Stock. All outstanding Indebtedness of each Credit Party as of the Closing Date is described in Section 6.3 (including Disclosure Schedule ----------- ------------------- (6.3)). Holdings has no assets (except Stock of Borrower) and no Indebtedness or - ------ Guaranteed Indebtedness (except the Obligations). 3.9 Government Regulation. No Credit Party is an "investment company" or --------------------- an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940. No Credit Party is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, or any other domestic or foreign federal, state or provincial statute that restricts or limits its ability to incur Indebtedness or to perform its obligations hereunder. The making of the Loans by Lenders to Borrower, the incurrence of the Letter of Credit Obligations on behalf of Borrower, the application of the proceeds thereof and repayment thereof and the consummation of the Related Transactions will not violate any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission. 3.10 Margin Regulations. No Credit Party is engaged, nor will it engage, ------------------ principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" as such terms are defined in Regulation U of the Federal Reserve Board as now and from time to time hereafter in effect (such securities being referred to herein as "Margin Stock"). No Credit Party owns any Margin Stock, and none of the proceeds ------------ of the Loans or other extensions of credit under this Agreement will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Indebtedness that was originally incurred to purchase or carry any Margin Stock or for any other purpose that might cause any of the Loans or other extensions of credit under this Agreement to be considered a "purpose credit" within the meaning of Regulations T, U or X of the Federal Reserve Board. No Credit Party will take or permit to be taken any action that might cause any Loan Document to violate any regulation of the Federal Reserve Board. 3.11 Taxes. All tax returns, reports and statements, including information ----- returns, required by any Governmental Authority to be filed by any Credit Party have been filed with the appropriate Governmental Authority and all Charges have been paid prior to the date on which any fine or penalty may be added thereto for nonpayment thereof (or any such fine, penalty, interest, late charge or loss has been paid), excluding Charges or other amounts being contested in accordance with Section 5.2(b). Proper and accurate amounts have been withheld by each -------------- Credit Party from its respective employees for all periods in full and complete compliance with all applicable federal, state, local and foreign laws and such withholdings have been timely paid to the respective Governmental Authorities. Disclosure Schedule (3.11) sets forth as of the Closing Date those taxable years - -------------------------- for which any Credit Party's tax returns are currently being audited by the IRS or any other applicable Governmental Authority and any assessments or 29 threatened assessments in connection with such audit, or otherwise currently outstanding. Except as described in Disclosure Schedule (3.11), no Credit Party -------------------------- has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. None of the Credit Parties and their respective predecessors are liable for any Charges: (a) under any agreement (including any tax sharing agreements) or (b) to each Credit Party's knowledge, as a transferee. As of the Closing Date, no Credit Party has agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise, which would have a Material Adverse Effect. 3.12 ERISA and Canadian Pension and Benefit Plans. -------------------------------------------- (a) Disclosure Schedule (3.12) lists as of the Closing Date all Plans -------------------------- and separately identifies all Pension Plans, including Title IV Plans, Multiemployer Plans, ESOPs and Welfare Plans, including all Retiree Welfare Plans. Copies of all such listed Plans, together with a copy of the latest form 5500 for each such Plan, have been delivered to Agent. Except with respect to Multiemployer Plans, each Qualified Plan has been determined by the IRS to qualify under Section 401 of the IRC, and the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the IRC, and nothing has occurred that would cause the loss of such qualification or tax-exempt status. Each Plan is in compliance in all material respects with the applicable provisions of ERISA and the IRC, including the timely filing of IRS/DOL 5500-series form reports required under the IRC or ERISA. No Credit Party or ERISA Affiliate has failed to make any contribution or pay any amount due as required by either Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan. No Credit Party or ERISA Affiliate has engaged in a "prohibited transaction," as defined in Section 4975 of the IRC, in connection with any Plan, that would subject any Credit Party to a material tax on prohibited transactions imposed by Section 4975 of the IRC. (b) Except as set forth in Disclosure Schedule (3.12): (i) no Title IV -------------------------- Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably expected to occur; (iii) there are no pending, or to the knowledge of any Credit Party, threatened claims (other than claims for benefits in the normal course), sanctions, actions or lawsuits, asserted or instituted against any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party or ERISA Affiliate has incurred or reasonably expects to incur any liability as a result of a complete or partial withdrawal from a Multiemployer Plan; (v) within the last five years no Title IV Plan of any Credit Party or ERISA Affiliate has been terminated nor has any such Plan with Unfunded Pension Liabilities been transferred outside of the "controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of any Credit Party or ERISA Affiliate; (vi) except in the case of any ESOP, Stock of all Credit Parties and their ERISA Affiliates makes up, in the aggregate, no more than 10% of fair market value of the assets of any Plan; and (vii) no liability under any Title IV Plan has been satisfied with the purchase of a contract from an insurance company that is not rated AAA by the Standard & Poor's Corporation or the equivalent by another nationally recognized rating agency. (c) Disclosure Schedule (3.12) lists all Canadian Benefit Plans (other -------------------------- than, for greater certainty, universal plans created by and to which any Credit Party is obligated to 30 contribute by statute) and Canadian Pension Plans adopted by each Credit Party. The Canadian Pension Plans are duly registered under the ITA and all other applicable laws which require registration and no event has occurred which is reasonably likely to cause the loss of such registered status. All material obligations of each Credit Party (including fiduciary, funding, investment and administration obligations) required to be performed in connection with the Canadian Pension Plans and the funding agreements therefor have been performed in a timely fashion. There have been no improper withdrawals or applications of the assets of the Canadian Pension Plans or the Canadian Benefit Plans. There are no outstanding disputes concerning the assets of the Canadian Pension Plans or the Canadian Benefit Plans. Each of the Canadian Pension Plans is fully funded on a solvency basis (using actuarial methods and assumptions which are consistent with the valuations last filed with the applicable Governmental Authorities and which are consistent with generally accepted actuarial principles). 3.13 No Litigation. No action, claim, lawsuit, demand, investigation or ------------- proceeding is now pending or, to the knowledge of any Credit Party, threatened against any Credit Party, before any Governmental Authority or before any arbitrator or panel of arbitrators (collectively, "Litigation"), (a) that ---------- challenges any Credit Party's right or power to enter into or perform any of its obligations under the Loan Documents to which it is a party, or the validity or enforceability of any Loan Document or any action taken thereunder, or (b) that has a reasonable risk of being determined adversely to any Credit Party and that, if so determined, could have a Material Adverse Effect. Except as set forth on Disclosure Schedule (3.13), as of the Closing Date there is no ------------------------- Litigation pending or threatened that seeks damages in excess of $100,000 or injunctive relief against, or alleges criminal misconduct of any Credit Party. 3.14 Brokers. No broker or finder acting on behalf of any Credit Party ------- or Affiliate thereof brought about the obtaining, making or closing of the Loans or the Related Transactions, and no Credit Party or Affiliate thereof has any obligation to any Person in respect of any finder's or brokerage fees in connection therewith. 3.15 Intellectual Property. As of the Closing Date, each Credit Party --------------------- owns or has rights to use all Intellectual Property necessary to continue to conduct its business as now or heretofore conducted by it or proposed to be conducted by it, and each Patent, Design, Trademark, Copyright and License is listed, together with application or registration numbers, as applicable, in Disclosure Schedule (3.15). To the best of its knowledge, each Credit Party - ------------------------- conducts its business and affairs without infringement of or interference with any Intellectual Property of any other Person. Except as set forth in Disclosure ---------- Schedule (3.15), no Credit Party is aware of any infringement claim by any other - -------------- Person with respect to any Intellectual Property. 3.16 Full Disclosure. None of the information contained in this --------------- Agreement, any of the other Loan Documents, any Projections, Financial Statements or Collateral Reports or other reports from time to time delivered hereunder or any written statement furnished by or on behalf of any Credit Party to Agent or any Lender pursuant to the terms of this Agreement, when taken as a whole, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Liens granted to Agent, on behalf of itself and Lenders, pursuant to the Collateral Documents will at all times be 31 fully perfected first priority Liens in and to the Collateral described therein, subject, as to priority, only to Permitted Encumbrances with respect to the Collateral other than Accounts. 3.17 Environmental Matters. --------------------- (a) Except as set forth in Disclosure Schedule (3.17), as of the ------------------------- Closing Date: (i) the Real Estate is free of contamination from any Hazardous Material except for such contamination that would not adversely impact the value or marketability of such Real Estate and that would not result in Environmental Liabilities that could reasonably be expected to exceed $100,000; (ii) no Credit Party has caused or suffered to occur any Release of Hazardous Materials on, at, in, under, above, to, from or about any of its Real Estate; (iii) the Credit Parties are and have been in compliance with all Environmental Laws, except for such noncompliance that would not result in Environmental Liabilities which could reasonably be expected to exceed $100,000; (iv) the Credit Parties have obtained, and are in compliance with, all Environmental Permits required by Environmental Laws for the operations of their respective businesses as presently conducted or as proposed to be conducted, except where the failure to so obtain or comply with such Environmental Permits would not result in Environmental Liabilities that could reasonably be expected to exceed $100,000, and all such Environmental Permits are valid, uncontested and in good standing; (v) no Credit Party is involved in operations or knows of any facts, circumstances or conditions, including any Releases of Hazardous Materials, that are likely to result in any Environmental Liabilities of such Credit Party which could reasonably be expected to exceed $100,000, and no Credit Party has permitted any current or former tenant or occupant of the Real Estate to engage in any such operations; (vi) there is no Litigation arising under or related to any Environmental Laws, Environmental Permits or Hazardous Material that seeks damages, penalties, fines, costs or expenses in excess of $100,000 or injunctive relief, or that alleges criminal misconduct by any Credit Party; (vii) no notice has been received by any Credit Party identifying it as a "potentially responsible party" or requesting information under CERCLA or analogous state statutes, and to the knowledge of the Credit Parties, there are no facts, circumstances or conditions that may result in any Credit Party being identified as a "potentially responsible party" under CERCLA or analogous state statutes; and (viii) the Credit Parties have provided to Agent copies of all existing environmental reports, reviews and audits and all written information pertaining to actual or potential Environmental Liabilities, in each case relating to any Credit Party. (b) Each Credit Party hereby acknowledges and agrees that Agent (i) is not now, and has not ever been, in control of any of the Real Estate or any Credit Party's affairs, and (ii) does not have the capacity through the provisions of the Loan Documents or otherwise to influence any Credit Party's conduct with respect to the ownership, operation or management of any of its Real Estate or compliance with Environmental Laws or Environmental Permits. 3.18 Insurance. Disclosure Schedule (3.18) lists all insurance policies --------- ------------------------- of any nature maintained, as of the Closing Date, for current occurrences by each Credit Party, as well as a summary of the terms of each such policy. 3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19) lists --------------------------------- ------------------------- all banks and other financial institutions at which any Credit Party maintains deposit or other accounts as of the Closing Date, including any Disbursement Accounts, and such Schedule correctly 32 identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor. 3.20 Government Contracts. Except as set forth in Disclosure Schedule -------------------- ------------------- (3.20), as of the Closing Date, no Credit Party is a party to any contract or - ----- agreement with any Governmental Authority and no Credit Party's Accounts are subject to the Federal Assignment of Claims Act (31 U.S.C. Section 3727), the Financial Administration Act (Canada) or any similar state, provincial or local law. 3.21 Customer and Trade Relations. As of the Closing Date, except as set ---------------------------- forth on Disclosure Schedule 3.21 attached hereto, there exists no actual or, to ------------------------ the knowledge of any Credit Party, threatened termination or cancellation of, or any material adverse modification or change in, the business relationship of any Credit Party with any customer or group of customers whose purchases during the preceding twelve (12) months caused them to be ranked among the ten largest customers of such Credit Party; or the business relationship of any Credit Party with any supplier material to its operations. 3.22 Agreements and Other Documents. As of the Closing Date, each Credit ------------------------------ Party has provided to Agent or its counsel, on behalf of Lenders, accurate and complete copies (or summaries) of all of the following agreements or documents to which it is subject and each of which is listed in Disclosure Schedule ------------------- (3.22): supply agreements and purchase agreements not terminable by such Credit - ----- Party within sixty (60) days following written notice issued by such Credit Party and involving transactions in excess of $1,000,000 per annum; leases of Equipment having a remaining term of one year or longer and requiring aggregate rental and other payments in excess of $500,000 per annum; licenses and permits held by the Credit Parties, the absence of which could be reasonably likely to have a Material Adverse Effect; instruments and documents evidencing Indebtedness of such Credit Party and any Lien granted by such Credit Party with respect thereto; and instruments and agreements evidencing the issuance of any equity securities, warrants, rights or options to purchase equity securities of such Credit Party. 3.23 Solvency. Both before and after giving effect to (a) the Loans and -------- Letter of Credit Obligations to be made or incurred on the Closing Date or such other date as Loans and Letter of Credit Obligations requested hereunder are made or incurred, (b) the disbursement of the proceeds of such Loans pursuant to the instructions of Borrower, (c) the consummation of the other Related Transactions and (d) the payment and accrual of all transaction costs in connection with the foregoing, each Credit Party is and will be Solvent. 3.24 Status of Holdings. Prior to the Closing Date, Holdings will not ------------------ have engaged in any business or incurred any Indebtedness or any other liabilities (except in connection with its corporate formation, the CS First Boston Debt, the Related Transactions Documents and this Agreement). 3.25 Subordinated Debt. As of the Closing Date, Borrower has delivered ----------------- to Agent a complete and correct copy of the Subordinated Debt Documents (including all schedules, exhibits, amendments, supplements, modifications, assignments and all other documents delivered pursuant thereto or in connection therewith). Borrower has the corporate power and 33 authority to incur the Indebtedness evidenced by the Subordinated Notes. The subordination provisions of the Subordinated Debt Documents are enforceable against the holders of the Subordinated Notes by Agent and Lenders. All Obligations, including the Letter of Credit Obligations, constitute senior Indebtedness entitled to the benefits of the subordination provisions contained in the Subordinated Debt Documents. The principal of and interest on the Notes, all Letter of Credit Obligations and all other Obligations will constitute "senior debt" as that or any similar term is or may be used in any other instrument evidencing or applicable to any other Subordinated Debt. The Subordinated Notes mature at least six (6) months after the fifth anniversary of the Closing Date. Borrower acknowledges that Agent and each Lender are entering into this Agreement and are extending the Commitments in reliance upon the subordination provisions of the Subordinated Debt Documents and this Section ------- 3.25. - ---- 3.26 Old Holdcos. As of the Closing Date, the Old Holdcos shall have ----------- repaid in full all Indebtedness incurred by the Old Holdcos prior to September 24, 1999 and Intermediate Holdings shall have repaid in full the $7,000,000 of its 14% Senior Discount Notes due 2006. 4. FINANCIAL STATEMENTS AND INFORMATION ------------------------------------ 4.1 Reports and Notices. -------------------- (a) Each Credit Party executing this Agreement hereby agrees that from and after the Closing Date and until the Termination Date, it shall deliver to Agent or to Agent and Lenders, as required, the Financial Statements, notices, Projections and other information at the times, to the Persons and in the manner set forth in Annex E. ------- (b) Each Credit Party executing this Agreement hereby agrees that from and after the Closing Date and until the Termination Date, it shall deliver to Agent or to Agent and Lenders, as required, the various Collateral Reports (including Borrowing Base Certificates in the form of Exhibit 4.1(b)) at the -------------- times, to the Persons and in the manner set forth in Annex F. ------- 4.2 Communication with Accountants. Each Credit Party executing this ------------------------------ Agreement authorizes Agent and, so long as a Default or Event of Default has occurred and is continuing, each Lender, to communicate directly with its independent certified public accountants, including PriceWaterhouseCoopers, LLP and authorizes and at Agent's request shall instruct those accountants and advisors to disclose and make available to Agent and each Lender any and all Financial Statements and other supporting financial documents, schedules and information relating to any Credit Party (including copies of any issued management letters) with respect to the business, financial condition and other affairs of any Credit Party. 5. AFFIRMATIVE COVENANTS --------------------- Each Credit Party executing this Agreement jointly and severally agrees as to all Credit Parties, except ICON of Canada, which severally agrees only as to itself, that from and after the date hereof and until the Termination Date: 5.1 Maintenance of Existence and Conduct of Business. Each Credit Party ------------------------------------------------ shall: do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises; continue to conduct its business substantially as now 34 conducted or as otherwise permitted hereunder; at all times maintain, preserve and protect all of its assets and properties used or useful in the conduct of its business, and keep the same in good repair, working order and condition in all material respects (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices; and transact business only in such corporate and trade names as are set forth in Disclosure Schedule (5.1). ------------------------ 5.2 Payment of Charges. ------------------ (a) Subject to Section 5.2(b), each Credit Party shall pay and ------------- discharge or cause to be paid and discharged promptly all Charges payable by it, including (i) Charges imposed upon it, its income and profits, or any of its property (real, personal or mixed) and all Charges with respect to tax, social security and unemployment withholding with respect to its employees, and (ii) lawful claims for labor, materials, supplies and services or otherwise, and (iii) all storage or rental charges payable to warehousemen and bailees, in each case, before any thereof shall become past due. (b) Each Credit Party may in good faith contest, by appropriate proceedings, the validity or amount of any Charges or claims described in Section 5.2(a); provided, that (i) adequate reserves with respect to such - ------------- -------- Charges are maintained on the books of such Credit Party, in accordance with GAAP; (ii) no Lien shall arise to secure payment of such Charges (other than payments to bailees) that is superior to any of the Liens securing payment of the Obligations and such contest is maintained and prosecuted with diligence and operates to suspend collection or enforcement of such Charges, (iii) none of the Collateral becomes subject to forfeiture or loss as a result of such contest, (iv) such Credit Party shall promptly pay or discharge such contested Charges or claims and all additional charges, interest, penalties and expenses, if any, and shall deliver to Agent evidence acceptable to Agent of such compliance, payment or discharge, if such contest is terminated or discontinued adversely to such Credit Party or the conditions set forth in this Section 5.2(b) are no longer ------------- met, and (v) Agent has not advised Borrower in writing that Agent reasonably believes that nonpayment or nondischarge thereof could have or result in a Material Adverse Effect. 5.3 Books and Records. Each Credit Party shall keep adequate books and ----------------- records with respect to its business activities in which proper entries, reflecting all financial transactions, are made in accordance with GAAP and on a basis consistent with the Financial Statements attached as Disclosure Schedule ------------------- (3.4(a)). - ------- 5.4 Insurance; Damage to or Destruction of Collateral. ------------------------------------------------- (a) The Credit Parties shall, at their sole cost and expense, maintain the policies of insurance described on Disclosure Schedule (3.18) as in ------------------------- effect on the date hereof or otherwise in form and amounts and with insurers acceptable to Agent, including property insurance at replacement values and flood insurance for all properties located in a flood plain (to the extent of available coverage from the National Flood Insurance Program). If any Credit Party at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above or to pay all premiums relating thereto, Agent may at any time or times thereafter obtain and maintain such policies of insurance and pay such premiums and take any 35 other action with respect thereto that Agent deems advisable. Agent shall have no obligation to obtain insurance for any Credit Party or pay any premiums therefor. By doing so, Agent shall not be deemed to have waived any Default or Event of Default arising from any Credit Party's failure to maintain such insurance or pay any premiums therefor. All sums so disbursed, including attorneys' fees, court costs and other charges related thereto, shall be payable on demand by Borrower to Agent and shall be additional Obligations hereunder secured by the Collateral. (b) Agent reserves the right at any time upon any change in any Credit Party's risk profile (including any change in the product mix maintained by any Credit Party or any laws affecting the potential liability of such Credit Party) to require additional forms and limits of insurance to, in Agent's opinion, adequately protect both Agent's and Lenders' interests in all or any portion of the Collateral and to ensure that each Credit Party is protected by insurance in amounts and with coverage customary for its industry. If requested by Agent, each Credit Party shall deliver to Agent from time to time a report of a reputable insurance broker, satisfactory to Agent, with respect to its insurance policies. (c) Borrower shall deliver to Agent, in form and substance satisfactory to Agent, endorsements to (i) all "All Risk" and business interruption insurance naming Agent, on behalf of itself and Lenders, as loss payee, or, in the case of insurance covering assets located in the Province of Quebec, naming Agent and Lenders as loss payees, and, in the case of "All Risk" insurance covering Canada, containing the Canadian standard mortgage clause, and (ii) all general liability and other liability policies naming Agent, on behalf of itself and Lenders, as additional insured, or, in the case of insurance covering assets located in the Province of Quebec, naming Agent and Lenders as additional insureds. Borrower irrevocably makes, constitutes and appoints Agent (and all officers, employees or agents designated by Agent), so long as any Default or Event of Default has occurred and is continuing or the anticipated insurance proceeds exceed $10,000,000, as Borrower's true and lawful agent and attorney-in-fact for the purpose of making, settling and adjusting claims under such "All Risk" policies of insurance, endorsing the name of Borrower on any check or other item of payment for the proceeds of such "All Risk" policies of insurance and for making all determinations and decisions with respect to such "All Risk" policies of insurance. Agent shall have no duty to exercise any rights or powers granted to it pursuant to the foregoing power-of-attorney. Borrower shall promptly notify Agent of any loss, damage, or destruction to the Collateral in the amount of $250,000 or more, whether or not covered by insurance. After deducting from such proceeds the expenses, if any, incurred by Agent in the collection or handling thereof, Agent shall, at its election, either apply such proceeds to the reduction of the Obligations in accordance with Section 1.3(d), or permit or require Borrower to use such money, or any -------------- part thereof, to replace, repair, restore or rebuild the Collateral in a diligent and expeditious manner with materials and workmanship of substantially the same quality as existed before the loss, damage or destruction. Notwithstanding the foregoing, if the casualty giving rise to such insurance proceeds could not reasonably be expected to have a Material Adverse Effect, such insurance proceeds do not exceed $10,000,000 in the aggregate and no Default or Event of Default has occurred and is continuing, Agent shall permit Borrower to replace, restore, repair or rebuild the property; provided that if -------- Borrower has not completed or entered into binding agreements to complete such replacement, restoration, repair or rebuilding within 180 days of such casualty, Agent may elect to apply such insurance proceeds to prepay the Obligations in accordance with Section 1.3(d). All insurance proceeds ------------- 36 that are to be made available to Borrower to replace, repair, restore or rebuild the Collateral shall be applied by Agent to reduce the outstanding principal balance of the Revolving Loan (which application shall not result in a permanent reduction of the Revolving Loan Commitment) and upon such application, Agent shall establish a Reserve against the Borrowing Base in an amount equal to the amount of such proceeds so applied. All insurance proceeds made available to any Credit Party that is not a Borrower to replace, repair, restore or rebuild Collateral shall be deposited in a cash collateral account. Thereafter, such funds shall be made available to Borrower to provide funds to replace, repair, restore or rebuild the Collateral as follows: (i) Borrower shall request that a Revolving Credit Advance or release from the cash collateral account be made to Borrower in the amount requested to be released; (ii) so long as the conditions set forth in Section 2.2 have been met, Revolving Lenders shall make such ----------- Revolving Credit Advance or Agent shall release funds from the cash collateral account; and (iii) in the case of insurance proceeds applied against the Revolving Loan, the Reserve established with respect to such insurance proceeds shall be reduced by the amount of such Revolving Credit Advance. To the extent not used to replace, repair, restore or rebuild the Collateral, such insurance proceeds shall be applied in accordance with Section 1.3(d). -------------- 5.5 Compliance with Laws. Each Credit Party shall comply with all federal, -------------------- state, local and foreign laws and regulations applicable to it, including those relating to ERISA and labor matters and Environmental Laws and Environmental Permits, except to the extent that the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.6 Canadian Pension and Benefit Plans. ---------------------------------- (a) For each existing Canadian Pension Plan, each Credit Party shall ensure that such plan retains its registered status under and is administered in a timely manner in all material respects in accordance with the applicable pension plan text, funding agreement, the ITA and all other applicable laws. (b) For each Canadian Pension Plan hereafter adopted by any Credit Party which is required to be registered under the ITA or any other applicable laws, that Credit Party shall use its best efforts to seek and receive confirmation in writing from the applicable Governmental Authorities to the effect that such plan is unconditionally registered under the ITA and such other applicable laws. (c) For each existing and hereafter adopted Canadian Pension Plan and Canadian Benefit Plan, each Credit Party shall in a timely fashion perform in all material respects all obligations (including fiduciary, funding, investment and administration obligations) required to be performed in connection with such plan and the funding media therefor. (d) Each Credit Party shall deliver to Agent if requested by Agent, promptly after the filing thereof by any Credit Party with any applicable Governmental Authority, copies of each annual and other return, report or valuation with respect to each Canadian Pension Plan; promptly after receipt thereof, a copy of any direction, order, notice, ruling or opinion that any Credit Party may receive from any applicable Governmental Authority with respect to any Canadian Pension Plan; and notification within 30 days of any increases having a cost to such 37 Credit Party in excess of C$100,000 per annum, in the benefits of any existing Canadian Pension Plan or Canadian Benefit Plan, or the establishment of any new Canadian Pension Plan or Canadian Benefit Plan, or the commencement of contributions to any such plan to which any Credit Party was not previously contributing. 5.7 Supplemental Disclosure. From time to time as may be requested by ----------------------- Agent (which request will not be made more frequently than once each year absent the occurrence and continuance of a Default or an Event of Default), the Credit Parties shall supplement each Disclosure Schedule hereto, or any representation herein or in any other Loan Document, with respect to any matter hereafter arising that, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in such Disclosure Schedule or as an exception to such representation or that is necessary to correct any information in such Disclosure Schedule or representation which has been rendered inaccurate thereby (and, in the case of any supplements to any Disclosure Schedule, such Disclosure Schedule shall be appropriately marked to show the changes made therein); provided that (a) no such supplement to any such Disclosure Schedule -------- or representation shall be or be deemed a waiver of any Default or Event of Default resulting from the matters disclosed therein, except as consented to by Agent and Requisite Lenders in writing; and (b) no supplement shall be required or permitted as to representations and warranties that relate solely to the Closing Date. 5.8 Intellectual Property. Each Credit Party will conduct its business --------------------- and affairs without infringement of or interference with any Intellectual Property of any other Person in any material respect. 5.9 Environmental Matters. Each Credit Party shall and shall cause --------------------- each Person within its control to: (a) conduct its operations and keep and maintain its Real Estate in compliance with all Environmental Laws and Environmental Permits other than noncompliance that could not reasonably be expected to have a Material Adverse Effect; (b) implement any and all investigation, remediation, removal and response actions that are appropriate or necessary to maintain the value and marketability of the Real Estate in all material respects or to otherwise comply with Environmental Laws and Environmental Permits pertaining to the presence, generation, treatment, storage, use, disposal, transportation or Release of any Hazardous Material on, at, in, under, above, to, from or about any of its Real Estate; (c) notify Agent promptly after such Credit Party becomes aware of any violation of Environmental Laws or Environmental Permits or any Release on, at, in, under, above, to, from or about any Real Estate that is reasonably likely to result in Environmental Liabilities in excess of $100,000; and (d) promptly forward to Agent a copy of any order, notice, request for information or any communication or report received by such Credit Party in connection with any such violation or Release or any other matter relating to any Environmental Laws or Environmental Permits that could reasonably be expected to result in Environmental Liabilities in excess of $100,000, in each case whether or not the Environmental Protection Agency or any Governmental Authority has taken or threatened any action in connection with any such violation, Release or other matter. If Agent at any time has a reasonable basis to believe that there may be a violation of any Environmental Laws or Environmental Permits by any Credit Party or any Environmental Liability arising thereunder, or a Release of Hazardous Materials on, at, in, under, above, to, from or about any of its Real Estate, that, in each case, could reasonably be expected to have a Material Adverse Effect, then each Credit Party shall, upon Agent's written request (i) cause the performance of 38 such environmental audits including subsurface sampling of soil and groundwater, and preparation of such environmental reports, at Borrower's expense, as Agent may from time to time reasonably request, which shall be conducted by reputable environmental consulting firms reasonably acceptable to Agent and shall be in form and substance acceptable to Agent, and (ii) permit Agent or its representatives to have access to all Real Estate for the purpose of conducting such environmental audits and testing as Agent deems appropriate, including subsurface sampling of soil and groundwater. Borrower shall reimburse Agent for the costs of such audits and tests and the same will constitute a part of the Obligations secured hereunder. 5.10 Landlords' Agreements, Mortgagee Agreements and Bailee Letters. -------------------------------------------------------------- Each Credit Party shall use reasonable commercial efforts to obtain a landlord's agreement, mortgagee agreement or bailee letter, as applicable, from the lessor of each leased property, mortgagee of owned property or bailee with respect to any warehouse, processor or converter facility or other location where Collateral is stored or located, which agreement or letter shall contain a waiver or subordination of all Liens or claims that the landlord, mortgagee or bailee may assert against the Collateral at that location, and shall otherwise be satisfactory in form and substance to Agent. With respect to such locations or warehouse space leased or owned as of the Closing Date and thereafter, if Agent has not received a landlord or mortgagee agreement or bailee letter within thirty (30) days following the Closing Date (or, if later, as of the date such location is acquired or leased), Borrower's Eligible Inventory at that location shall, in Agent's discretion, be excluded from the Borrowing Base or be subject to such Reserves as may be established by Agent in its reasonable credit judgment. After the Closing Date, no real property or warehouse space shall be leased by any Credit Party and no Inventory shall be shipped to a processor, converter or consignee under arrangements established after the Closing Date without the prior written consent of Agent (which consent, in Agent's discretion, may be conditioned upon the exclusion from the Borrowing Base of Eligible Inventory at that location or the establishment of Reserves acceptable to Agent) or, unless and until a satisfactory landlord agreement or bailee letter, as appropriate, shall first have been obtained with respect to such location. Each Credit Party shall timely and fully pay and perform its obligations under all leases and other agreements with respect to each leased location or public warehouse where any Collateral is or may be located. If any Credit Party proposes to acquire a fee ownership interest in Real Estate after the Closing Date, it shall first provide to Agent a mortgage or deed of trust, environmental audits, mortgage title insurance commitment, survey, and if required by Agent supplemental casualty insurance and flood insurance all in form and substance, satisfactory to Agent. Attached as Disclosure Schedule ------------------- (5.10) is a list of all of Borrower's and its domestic and Canadian - ------ Subsidiaries' leased locations as to which landlord waivers have been obtained and Reserves imposed as to leased locations for which all waivers have not been obtained as of the Closing Date. 5.11 Further Assurances. Each Credit Party executing this Agreement ------------------ agrees that it shall and shall cause each other Credit Party to, at such Credit Party's expense and upon request of Agent, duly execute and deliver, or cause to be duly executed and delivered, to Agent such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of Agent to carry out more effectively the provisions and purposes of this Agreement or any other Loan Document. 39 6. NEGATIVE COVENANTS ------------------ Each Credit Party executing this Agreement jointly and severally agrees as to all Credit Parties, except ICON of Canada, which severally agrees only as to itself, that, without the prior written consent of Agent and the Requisite Lenders, from and after the date hereof until the Termination Date: 6.1 Mergers, Subsidiaries, Etc. No Credit Party shall directly or -------------------------- indirectly, by operation of law or otherwise, (a) form or acquire any Subsidiary, or (b) merge with, consolidate with, acquire all or substantially all of the assets or Stock of, or otherwise combine with or acquire any Person, except for Permitted Acquisitions, and except that any Subsidiary of Borrower (other than Jumpking and International Holdings) may merge with Borrower. 6.2 Investments; Loans and Advances. No Credit Party shall make or ------------------------------- permit to exist any investment in, or make, accrue or permit to exist loans or advances of money to, any Person, through the direct or indirect lending of money, holding of securities or otherwise, except that: (a) Credit Parties may hold investments comprised of notes payable, or stock or other securities issued by Account Debtors to such Credit Parties pursuant to negotiated agreements with respect to settlement of such Account Debtor's Accounts in the ordinary course of business; (b) each Credit Party may maintain its existing investments in its Subsidiaries as of the Closing Date; (c) Borrower may make intercompany loans to any Subsidiary Guarantor (provided, however, that in the case of ICON New -------- ------- Brunswick, such intercompany loans may only be reloaned to ICON of Canada) in accordance with Section 6.3; (d) after the Closing Date, Borrower may invest up ----------- to $25,000 per year in International Holdings; and (e) so long as no Default or Event of Default has occurred and is continuing and there is no outstanding Revolving Loan balance, Borrower may make investments, subject to Control Letters in favor of Agent for the benefit of Lenders, in (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc., (iii) certificates of deposit maturing no more than one year from the date of creation thereof issued by commercial banks incorporated under the laws of the United States of America, each having combined capital, surplus and undivided profits of not less than $300,000,000 and having a senior unsecured rating of "A" or better by a nationally recognized rating agency (an "A Rated Bank"), (iv) time ------------ deposits maturing no more than 30 days from the date of creation thereof with A Rated Banks and (v) mutual funds that invest solely in one or more of the investments described in clauses (i) through (iv) above; (f) investments in ------------------------ European Subsidiaries permitted under Section 6.3; (g) Borrower may make loans ----------- expressly permitted in this Section 6, and (h) loans or investments to Versalite --------- not to exceed $200,000 in the aggregate. 6.3 Indebtedness. ------------ (a) No Credit Party shall create, incur, assume or permit to exist any Indebtedness, except (without duplication) (i) Indebtedness secured by purchase money security interests and Capital Leases permitted in Section ------- 6.7(c), (ii) the Loans and the other Obligations, (iii) existing Indebtedness as - ------ of the Closing Date described in Disclosure Schedule (6.3) and ------------------------- 40 refinancings thereof or amendments or modifications thereof that do not have the effect of increasing the principal amount thereof or changing the amortization thereof (other than to extend the same) and that are otherwise on terms and conditions no less favorable to any Credit Party, Agent or any Lender, as determined by Agent in its reasonable discretion, than the terms of the Indebtedness being refinanced, amended or modified, (iv) Indebtedness specifically permitted under Section 6.17, (v) loans by third parties to ------------ Borrower's European Subsidiaries after the Closing Date in an amount not to exceed $20,000,000 outstanding in the aggregate at any time; provided, that the -------- proceeds of such loans are used solely to permanently repay loans made by Borrower to such European Subsidiaries pursuant to clause (vi) of this Section ------- 6.3(a) and/or for such European Subsidiaries' working capital purposes, (vi) - ------ loans by Borrower to Borrower's European Subsidiaries (including the transfer of Inventory for which Borrower is not paid) in an aggregate amount not to exceed $25,000,000 at any time outstanding and accrued interest on such (including such advances in the amount of $21,000,000 outstanding on the Closing Date), (vii) the Subordinated Notes, (viii) other unsecured Indebtedness not to exceed $100,000 in the aggregate; (ix) Indebtedness consisting of intercompany loans and advances made by Borrower to Subsidiary Guarantors (provided, however, that -------- ------- in the case of ICON New Brunswick, such intercompany loans are for the sole purpose of reloaning the proceeds thereof to ICON of Canada)in an amount not to exceed $20,000,000 in the aggregate; provided, that: such Subsidiary Guarantor -------- shall have executed and delivered to Borrower, on the Closing Date, demand notes (the "Intercompany Notes") to evidence any such intercompany Indebtedness owing ------------------ by such Subsidiary Guarantor to Borrower, which Intercompany Notes shall be in form and substance satisfactory to Agent and shall be pledged and delivered to Agent pursuant to the applicable Pledge Agreement or Security Agreement as additional collateral security for the Obligations; (B) Borrower shall record all intercompany transactions on its books and records in a manner reasonably satisfactory to Agent; and (C) the obligations of such Subsidiary Guarantor under such Intercompany Notes shall be subordinated to the Obligations of such Subsidiary Guarantor as a Guarantor in a manner satisfactory to Agent; and (D) with the exception of an amount not to exceed $50,000 in each Fiscal Year, the amount of any royalty or license fee received by ICON IP from Borrower or any Subsidiary of Borrower shall promptly be loaned back to Borrower or such Subsidiary of Borrower, which intercompany loan shall be evidenced by Intercompany Notes and shall be subordinated to the Obligations of Borrower or such Subsidiary of Borrower as a Guarantor in a manner satisfactory to Agent and (x) the CS First Boston Debt incurred by Holdings. (b) No Credit Party shall, directly or indirectly, voluntarily purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any Indebtedness prior to its due date or maturity, other than (i) the Obligations, (ii) Indebtedness secured by a Permitted Encumbrance if the asset securing such Indebtedness has been sold or otherwise disposed of in accordance with Section 6.8(b) and (iii) the ------------- Subordinated Notes. 6.4 Employee Loans and Affiliate Transactions. ----------------------------------------- (a) Except as otherwise expressly permitted in this Section 6 with --------- respect to Affiliates, no Credit Party shall enter into or be a party to any transaction with any other Credit Party or any Affiliate thereof except in the ordinary course of and pursuant to the reasonable requirements of such Credit Party's business and upon fair and reasonable terms that are no less 41 favorable to such Credit Party than would be obtained in a comparable arm's length transaction with a Person not an Affiliate of such Credit Party and in compliance with the restrictions on granting financial assistance under applicable laws. In addition, if any such transaction or series of related transactions involves payments by a Credit Party in excess of $250,000 in the aggregate, the terms of these transactions must be disclosed in advance to Agent and Lenders. All such transactions existing as of the Closing Date are described in Disclosure Schedule 6.4. ----------------------- (b) No Credit Party shall enter into any lending or borrowing transaction with any employees of any Credit Party, except (i) loans to its respective employees on an arm's-length basis in the ordinary course of business consistent with past practices for travel expenses, relocation costs and similar purposes up to a maximum of $1,200,000 in the aggregate at any one time outstanding and (ii) loans to management employees described in Disclosure ---------- Schedule 6.4. - ------------ (c) The Credit Parties shall not pay compensation as salaries or otherwise in excess of $1,200,000 in the aggregate per year to Scott Watterson and Gary Stevenson, subject to annual increases approved by a disinterested majority of Borrower's Board of Directors, plus such bonuses as may be approved by a disinterested majority of Borrower's Board of Directors in its reasonable discretion, plus, subject to Section 6.14, management fees to Scott Watterson ---- ------------ and Gary Stevenson of $67,000 in the aggregate per year. 6.5 Capital Structure and Business. No Credit Party shall (a) make any ------------------------------ changes in any of its business objectives, purposes or operations that could in any way adversely affect the repayment of the Loans or any of the other Obligations or could reasonably be expected to have or result in a Material Adverse Effect, (b) make any change in its capital structure as described in Disclosure Schedule (3.8), including the issuance of any shares of Stock, - ------------------------- warrants or other securities convertible into Stock or any revision of the terms of its outstanding Stock; provided that Holdings may make a Public Offering of -------- its common Stock so long as (i) the proceeds thereof are applied in prepayment of the Obligations as required by Section 1.3(b)(iii), and (ii) no Change of ------------------- Control occurs after giving effect thereto, or (c) amend its charter or bylaws in a manner that would adversely affect Agent or Lenders or such Credit Party's duty or ability to repay the Obligations. No Credit Party shall engage in any business other than the businesses currently engaged in by it. 6.6 Guaranteed Indebtedness. No Credit Party shall create, incur, assume ----------------------- or permit to exist any Guaranteed Indebtedness except (a) by endorsement of instruments or items of payment for deposit to the general account of any Credit Party, (b) for Guaranteed Indebtedness incurred by any Credit Party if the primary obligation is expressly permitted to be incurred by Borrower or any of its domestic or Canadian Subsidiaries by this Agreement, (c) a guaranty by Borrower of the obligations of F.G. Aviation, Inc. in an amount not to exceed $4,500,000, (d) an unsecured guaranty of Indebtedness advanced to Borrower's European Subsidiaries in an aggregate amount not to exceed $20,000,000 and (e) a guarantee of the Subordinated Notes (directly or indirectly) by the Borrower's domestic and Canadian Subsidiaries. 6.7 Liens. No Credit Party shall create, incur, assume or permit to exist ----- any Lien on or with respect to its Accounts or any of its other properties or assets (whether now owned or hereafter acquired) except for (a) Permitted Encumbrances; (b) Liens in existence on the date 42 hereof and listed on Disclosure Schedule (6.7); (c) Liens created after the date ------------------------- hereof by conditional sale or other title retention agreements (including Capital Leases) or in connection with purchase money Indebtedness with respect to Equipment and Fixtures acquired by any Credit Party in the ordinary course of business, involving the incurrence of an aggregate amount of purchase money Indebtedness and Capital Lease Obligations of not more than $6,000,000 outstanding at any one time for all such Liens (provided that such Liens attach -------- only to the assets subject to such purchase money debt and such Indebtedness is incurred within twenty (20) days following such purchase and does not exceed 100% of the purchase price of the subject assets); and (d) other Liens securing other Indebtedness not exceeding $250,000 in the aggregate at any time outstanding, so long as such Liens do not attach to any Accounts or Inventory. In addition, no Credit Party shall become a party to any agreement, note, indenture or instrument, or take any other action, that would prohibit the creation of a Lien on any of its properties or other assets in favor of Agent, on behalf of itself and Lenders, as additional collateral for the Obligations, except operating leases, purchase money installment contracts, Capital Leases or Licenses which prohibit Liens upon the assets that are subject thereto. 6.8 Sale of Stock and Assets. No Credit Party shall sell, transfer, ------------------------ convey, assign or otherwise dispose of any of its properties or other assets, including the Stock of any of its Subsidiaries (whether in a public or a private offering or otherwise) or any of its Accounts, other than (a) the sale of Inventory in the ordinary course of business, (b) the sale, transfer, conveyance or other disposition for cash by a Credit Party of (i) Equipment or Fixtures that are obsolete or no longer used or useful in such Credit Party's business and having a value not exceeding $500,000 in the aggregate in any Fiscal Year and (ii) other Equipment and Fixtures having a value not exceeding $1,000,000 in the aggregate in any Fiscal Year, (c) non-recourse sales of consumer Accounts on terms approved in advance in writing by Agent , (d) non-recourse sales (or limited recourse sales on terms satisfactory to Agent) not to exceed $10,000,000 in any 12-month period of Accounts owing by Account Debtors that are in bankruptcy, or whose Accounts are excluded from Eligible Accounts for reasons related to the Account Debtor's creditworthiness, on terms approved in advance in writing by Agent and (e) sale-leasebacks permitted under Section 6.12. ------------ Without limiting the generality of the foregoing, no Credit Party will sell any of its Patents or Trademarks or license any of its Patents or Trademarks to third parties under licenses that (i) restrict the ability of the Credit Party (or Agent) to sell the subject Patent or Trademark or (ii) diminish or impair the value of the subject Patent or Trademark as a salable asset of the applicable Credit Party. With respect to any disposition of assets or other properties permitted pursuant to clause (b) above, Agent agrees on reasonable ---------- prior written notice to release its Lien on such assets or other properties in order to permit the applicable Credit Party to effect such disposition and shall execute and deliver to Borrower, at Borrower's expense, appropriate UCC-3 termination statements and other releases as reasonably requested by Borrower. 6.9 ERISA. No Credit Party shall, or shall cause or permit any ERISA ----- Affiliate to, cause or permit to occur an event that could result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA or cause or permit to occur an ERISA Event to the extent such ERISA Event could reasonably be expected to have a Material Adverse Effect. 6.10 Financial Covenants. Borrower shall not breach or fail to comply with ------------------- any of the Financial Covenants. 43 6.11 Hazardous Materials. No Credit Party shall cause or permit a Release ------------------- of any Hazardous Material on, at, in, under, above, to, from or about any of the Real Estate where such Release would (a) violate in any respect, or form the basis for any Environmental Liabilities under, any Environmental Laws or Environmental Permits or (b) otherwise adversely impact the value or marketability of any of the Real Estate or any of the Collateral, other than such violations or Environmental Liabilities that could not reasonably be expected to have a Material Adverse Effect. 6.12 Sale-Leasebacks. No Credit Party shall engage in any sale-leaseback, --------------- synthetic lease or similar transaction involving any of its assets, except sale-leaseback transactions with respect to items of Equipment (other than computer equipment and software) on terms reasonably satisfactory to Agent in amounts not to exceed $2,000,000 in the aggregate in any Fiscal Year. 6.13 Cancellation of Indebtedness. No Credit Party shall cancel any claim ---------------------------- or debt owing to it, except for reasonable consideration negotiated on an arm's-length basis and in the ordinary course of its business consistent with past practices. 6.14 Restricted Payments. No Credit Party shall make any Restricted ------------------- Payment, except (a) the making of intercompany loans and advances between Borrower and Jumpking, ICON New Brunswick, ICON of Canada, NordicTrack, Free Motion or ICON IP, as the case may be, to the extent permitted by Section 6.3, ----------- (b) dividends and distributions by Subsidiaries of Borrower paid directly or indirectly to Borrower, (c) employee loans permitted under Section 6.4(b) above, -------------- (d) payments of principal and interest of Intercompany Notes issued in accordance with Section 6.3; (e) scheduled payments of interest with respect to ----------- Subordinated Notes, provided, that no Event of Default under Sections 8.1(a), ---------------- 8.1(h) or 8.1(i) has occurred and is continuing and no Payment Blockage Period - ---------------- (as defined in the Subordinated Notes Documents) is in effect at the time any payment otherwise permitted under clause (e) is to be made; (f) payments of ------ management fees pursuant to the Management Agreements, not to exceed $800,000 in the aggregate in any Fiscal Year to all of Bain Capital, Inc., CS First Boston, Scott Watterson, Gary Stevenson and the Affiliates of any of the foregoing and any expenses associated therewith; provided, however, that (1) no such -------- ------- management fees shall be paid so long as any Event of Default has occurred and is continuing (payments accrued during such period may be paid when the subject Events of Default have been cured or waived) and (2) management fees shall be payable in four equal quarterly installments sixty (60) days after the end of each Fiscal Quarter (g) payments to Holdings necessary to enable Holdings: (1) to satisfy its federal, state and local income tax obligations that are the result of net consolidated income of Borrower and its Subsidiaries being attributed to Holdings; (2) to pay the fees and expenses necessary to maintain Holdings' corporate existence and good standing; (3) to pay accounting fees attributable to Borrower and its Subsidiaries; and (4) payments to buy back the Holdings' stock of any employee who has died or whose employment with Borrower or its Subsidiaries has otherwise terminated, such repurchase payments not to exceed $500,000 in the aggregate in any Fiscal Year in cash payments or otherwise by the issuance of Subordinated Debt, and (h) bonuses and other payments (including the forgiveness of Indebtedness) to Affiliates of Borrower as set forth on Disclosure Schedule (6.4) hereto. ------------------------- 44 6.15 Change of Corporate Name or Location; Change of Fiscal Year. No Credit ----------------------------------------------------------- Party shall (a) change its name as it appears in official filings in the jurisdiction of its incorporation or other organization (b) change its chief executive office, domicile (within the meaning of the Quebec Civil Code), principal place of business, corporate offices or warehouses or locations at which Collateral is held or stored, or the location of its records concerning the Collateral, (c) change the type of entity that it is, (d) change its organization identification number, if any, issued by its jurisdiction of incorporation or other organization, or (e) change its jurisdiction of incorporation or organization, in each case without at least thirty (30) days prior written notice to Agent and after Agent's written acknowledgment that any reasonable action requested by Agent in connection therewith, including to continue the perfection of any Liens in favor of Agent, on behalf of Agent and Lenders, or, in favor of Agent and Lenders, as applicable in any Collateral, has been completed or taken, and provided that any such new location shall be in the -------- continental United States of America or Canada. Without limiting the foregoing, no Credit Party shall change its name, identity or corporate structure in any manner that might make any financing or continuation statement filed in connection herewith seriously misleading as such term is defined in and/or used in the Code or any other then applicable provision of the Code, or materially misleading within the meaning of any other applicable law except upon prior written notice to Agent and Lenders and after Agent's written acknowledgment that any reasonable action requested by Agent in connection therewith, including to continue the perfection of any Liens in favor of Agent, on behalf of Agent and Lenders, in any Collateral, has been completed or taken. No Credit Party shall change its Fiscal Year. 6.16 No Impairment of Intercompany Transfers. No Credit Party shall --------------------------------------- directly or indirectly enter into or become bound by any agreement, instrument, indenture or other obligation (other than this Agreement and the other Loan Documents) that could directly or indirectly restrict, prohibit or require the consent of any Person with respect to the payment of dividends or distributions or the making or repayment of intercompany loans by a Subsidiary of Borrower to Borrower. 6.17 No Speculative Transactions. No Credit Party shall engage in any --------------------------- transaction involving commodity options, futures contracts or similar transactions, except solely to hedge against fluctuations in the prices of commodities owned or purchased by it and the values of foreign currencies receivable or payable by it and interest swaps, caps or collars. 6.18 Leases; Real Estate Purchases. No Credit Party shall enter into any ----------------------------- operating lease for Equipment, if the aggregate of all such operating lease payments payable in any year for all Credit Parties on a consolidated basis would exceed $6,000,000. No Credit Party shall purchase fee simple ownership interest in Real Estate. 6.19 Changes Relating to Subordinated Debt and Other Agreements. No Credit ---------------------------------------------------------- Party shall change or amend the terms of the Subordinated Debt Documents or any other Subordinated Debt (or any indenture or agreement in connection therewith), the Management Agreements, the Employment Agreements or the Stockholders Agreement, except changes or amendments that do not adversely affect the rights or interests of Lenders, as determined by Agent in advance in writing. 45 6.20 Credit Parties other than Borrower. Holdings shall not engage in any ---------------------------------- trade or business, or own any assets (other than Stock of Borrower) or incur any Indebtedness or Guaranteed Indebtedness (other than the Obligations and the CS First Boston Debt). ICON New Brunswick shall not engage in any trade or business, or own any assets (other than a Borrower Account) or incur any Indebtedness or Guaranteed Indebtedness (other than a guaranty of the Obligations and the Subordinated Notes). International Holdings shall not engage in any trade or business or incur any Indebtedness or Guaranteed Indebtedness (other than a guaranty of the Obligations and the Subordinated Notes) or own any assets (other than the Stock of ICON Health & Fitness, Ltd., ICON OS, Inc., ICON of Canada and ICON New Brunswick). 7. TERM ---- 7.1 Termination. The financing arrangements contemplated hereby shall be ----------- in effect until the Commitment Termination Date, and the Loans and all other Obligations shall be automatically due and payable in full on such date. 7.2 Survival of Obligations Upon Termination of Financing Arrangements. ------------------------------------------------------------------ Except as otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or impair the obligations, duties and liabilities of the Credit Parties or the rights of Agent and Lenders relating to any unpaid portion of the Loans or any other Obligations, due or not due, liquidated, contingent or unliquidated or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is required after the Commitment Termination Date. Except as otherwise expressly provided herein or in any other Loan Document, all undertakings, agreements, covenants, warranties and representations of or binding upon the Credit Parties, and all rights of Agent and each Lender, all as contained in the Loan Documents, shall not terminate or expire, but rather shall survive any such termination or cancellation and shall continue in full force and effect until the Termination Date; provided, that the provisions of Section -------- ------- 11, the payment obligations under Sections 1.15 and 1.16, and the indemnities - -- ---------------------- contained in the Loan Documents shall survive the Termination Date. 8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES -------------------------------------- 8.1 Events of Default. The occurrence of any one or more of the following ----------------- events (regardless of the reason therefor) shall constitute an "Event of -------- Default" hereunder: - ------- (a) Borrower (i) fails to make any payment of principal of, or interest on, or Fees owing in respect of, the Loans or any of the other Obligations when due and payable, or (ii) fails to pay or reimburse Agent or Lenders for any expense reimbursable hereunder or under any other Loan Document within ten (10) days following Agent's demand for such reimbursement or payment of expenses. (b) Any Credit Party fails or neglects to perform, keep or observe any of the provisions of Sections 1.4, 1.8, 1.14, 5.4(a), 5.4(c), 5.6 or 6, or ------------------------------------------------- any of the provisions set forth in Annexes C or G, respectively. -------------- 46 (c) Borrower fails or neglects to perform, keep or observe any of the provisions of Section 4 or any provisions set forth in Annexes E or F, --------- -------------- respectively, and the same shall remain unremedied for three (3) Business Days or more. (d) Any Credit Party fails or neglects to perform, keep or observe any other provision of this Agreement or of any of the other Loan Documents (other than any provision embodied in or covered by any other clause of this Section ------- 8.1) and the same shall remain unremedied for thirty (30) days or more. - --- (e) A default or breach occurs under any other agreement, document or instrument to which any Credit Party is a party that is not cured within any applicable grace period therefor, and such default or breach (i) involves the failure to make any payment when due in respect of any Indebtedness (other than the Obligations) of any Credit Party in excess of $500,000 in the aggregate, or (ii) causes, or permits any holder of such Indebtedness or a trustee to cause, Indebtedness or a portion thereof in excess of $500,000 in the aggregate to become due prior to its stated maturity or prior to its regularly scheduled dates of payment, regardless of whether such default is waived, or such right is exercised, by such holder or trustee. (f) Any information contained in any Borrowing Base Certificate is untrue or incorrect in any respect (other than inadvertent, immaterial errors not exceeding $750,000 in the aggregate in any Borrowing Base Certificate and errors that have the effect of understating the Borrowing Base), or any representation or warranty herein or in any Loan Document or in any written statement, report, financial statement or certificate (other than a Borrowing Base Certificate) made or delivered to Agent or any Lender by any Credit Party is untrue or incorrect in any material respect as of the date when made or deemed made. (g) Assets of any Credit Party with a fair market value of $250,000 or more are attached, seized, levied upon or subjected to a writ or distress warrant, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors of any Credit Party and such condition continues for thirty (30) days or more. (h) A case or proceeding is commenced against any Credit Party seeking a decree or order in respect of such Credit Party (i) under the Insolvency Laws, as now constituted or hereafter amended or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for such Credit Party or for any substantial part of any such Credit Party's assets, or (iii) ordering the winding-up or liquidation of the affairs of such Credit Party, and such case or proceeding shall remain undismissed or unstayed for sixty (60) days or more or a decree or order granting the relief sought in such case or proceeding by a court of competent jurisdiction. (i) Any Credit Party (i) files a petition seeking relief under the Insolvency Laws, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) consents or fails to contest in a timely and appropriate manner to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for such Credit Party or for any substantial part of any such Credit Party's assets, (iii) makes an assignment for the benefit of creditors, (iv) files a proposal 47 or notice of intention to file a proposal under any Insolvency Laws, (v) takes any corporate action in furtherance of any of the foregoing, (vi) admits in writing its inability to, or is generally unable to, pay its debts as such debts become due, or (vii) is not Solvent. (j) A final judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate at any time are outstanding against one or more of the Credit Parties (which are not covered by insurance policies as to which coverage has been accepted) and the same are not, within thirty (30) days after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay. (k) Any material provision of any Loan Document for any reason ceases to be valid, binding and enforceable in accordance with its terms (or any Credit Party shall challenge the enforceability of any Loan Document or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms), or any Lien created under any Loan Document shall cease to be a valid and perfected first priority Lien (except as otherwise permitted herein or therein) in any of the Collateral purported to be covered thereby. (l) Any Change of Control occurs. 8.2 Remedies. -------- (a) If any Default or Event of Default has occurred and is continuing, Agent may (and at the written request of the Requisite Revolving Lenders shall), without notice, suspend the Revolving Loan facility with respect to additional Advances and/or the incurrence of additional Letter of Credit Obligations, whereupon any additional Advances and the incurrence of additional Letter of Credit Obligations shall be made or extended in Agent's sole discretion (or in the sole discretion of the Requisite Revolving Lenders, if such suspension occurred at their direction) so long as such Default or Event of Default is continuing. If any Event of Default has occurred and is continuing, Agent may (and at the written request of Requisite Lenders shall), without notice except as otherwise expressly provided herein, increase the rate of interest applicable to the Loans and the Letter of Credit Fees to the Default Rate. (b) If any Event of Default has occurred and is continuing, Agent may (and at the written request of the Requisite Lenders shall), without notice, (i) terminate the Revolving Loan facility with respect to further Advances or the incurrence of further Letter of Credit Obligations; (ii) from time to time reduce the Revolving Loan Commitments; (iii) declare all or any portion of the Obligations, including all or any portion of any Loan to be forthwith due and payable, and require that the Letter of Credit Obligations be cash collateralized as provided in Annex B, all without presentment, demand, protest ------- or further notice of any kind, all of which are expressly waived by Borrower and each other Credit Party; or (iv) exercise any rights and remedies provided to Agent under the Loan Documents or at law or equity, including all remedies provided under the Code; provided, that upon the occurrence of an Event of -------- Default specified in Sections 8.1(h) or (i), the Revolving Loan facility shall ---------------------- be immediately terminated 48 and all of the Obligations, including the Revolving Loan, shall become immediately due and payable without declaration, notice or demand by any Person. 8.3 Waivers by Credit Parties. Except as otherwise provided for in ------------------------- this Agreement or by applicable law, each Credit Party waives: (a) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Agent on which any Credit Party may in any way be liable, and hereby ratifies and confirms whatever Agent may do in this regard, (b) all rights to notice and a hearing prior to Agent's taking possession or control of, or to Agent's replevy, attachment or levy upon, the Collateral or any bond or security that might be required by any court prior to allowing Agent to exercise any of its remedies, and (c) the benefit of all valuation, appraisal, marshaling and exemption laws. 8.4 Receivership. Without limiting the generality of the foregoing or ------------ limiting in any way the rights of Agent or the Lenders under the Collateral Documents or otherwise under applicable law, at any time after (i) the entire principal balance of any Loan shall have become due and payable (whether at maturity, by acceleration or otherwise) and (ii) the Agent shall have provided to the Credit Parties not less than ten (10) days' prior written notice of its intention to apply for a receiver, the Agent shall be entitled to apply for and have a receiver appointed under state or federal law by a court of competent jurisdiction in any action taken by the Agent to enforce the Lenders' and Agent's rights and remedies hereunder and under the Collateral Documents in order to manage, protect, preserve, sell and otherwise dispose of all or any portion of the Collateral and continue the operation of the business of the Credit Parties, and to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership, including the compensation of the receiver, and to the payment of the Loans and other fees and expenses due hereunder and under the Collateral Documents as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated. THE CREDIT PARTIES HEREBY IRREVOCABLY CONSENT TO AND WAIVE ANY RIGHT TO OBJECT TO OR OTHERWISE CONTEST THE APPOINTMENT OF A RECEIVER AS PROVIDED ABOVE. THE CREDIT PARTIES (I) GRANT SUCH WAIVER AND CONSENT KNOWINGLY AFTER HAVING DISCUSSED THE IMPLICATIONS THEREOF WITH COUNSEL, (II) ACKNOWLEDGE THAT (A) THE UNCONTESTED RIGHT TO HAVE A RECEIVER APPOINTED FOR THE FOREGOING PURPOSES IS CONSIDERED ESSENTIAL BY THE LENDERS IN CONNECTION WITH THE ENFORCEMENT OF THE LENDERS' AND AGENT'S RIGHTS AND REMEDIES HEREUNDER AND UNDER THE COLLATERAL DOCUMENTS, AND (B) THE AVAILABILITY OF SUCH APPOINTMENT AS A REMEDY UNDER THE FOREGOING CIRCUMSTANCES WAS A MATERIAL FACTOR IN INDUCING THE LENDERS TO MAKE THE LOANS TO THE BORROWER; AND (III) AGREE TO ENTER INTO ANY AND ALL STIPULATIONS IN ANY LEGAL ACTIONS, OR AGREEMENTS OR OTHER INSTRUMENTS IN CONNECTION WITH THE FOREGOING AND TO COOPERATE FULLY WITH THE AGENT AND THE LENDERS IN CONNECTION WITH THE ASSUMPTION AND EXERCISE OF CONTROL BY THE RECEIVER OVER ALL OR ANY PORTION OF THE COLLATERAL. THE LENDERS AND THE AGENT ACKNOWLEDGE AND AGREE THAT NOTHING IN THIS SECTION SHALL BE DEEMED TO 49 CONSTITUTE A WAIVER OF THE CREDIT PARTIES' RIGHT TO FILE FOR PROTECTION UNDER TITLE 11 OF THE UNITED STATES CODE AT ANY TIME PRIOR TO THE APPOINTMENT OF A RECEIVER. 9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT --------------------------------------------------- 9.1 Assignment and Participations. ----------------------------- (a) The Credit Parties signatory hereto consent to the sale of participations in, at any time or times, the Loan Documents, Loans, Letter of Credit Obligations and any Commitment or of any portion thereof or interest therein, including any Lender's rights, title, interests, remedies, powers or duties thereunder. Any assignment by a Lender shall: (i) require the consent of Agent (which consent shall not be unreasonably withheld or delayed with respect to a Qualified Assignee) and the execution of an assignment agreement (an "Assignment Agreement") substantially in the form attached hereto as Exhibit -------------------- ------- 9.1(a) and otherwise in form and substance satisfactory to, and acknowledged by, - ------ Agent; (ii) be conditioned on such assignee Lender representing to the assigning Lender and Agent that it is purchasing the applicable Loans to be assigned to it for its own account, for investment purposes and not with a view to the distribution thereof; (iii) if a partial assignment, be in an amount at least equal to $5,000,000 and, after giving effect to any such partial assignment, the assigning Lender shall have retained Commitments in an amount at least equal to $5,000,000; and (iv) include a payment to Agent of an assignment fee of $3,500. In the case of an assignment by a Lender under this Section 9.1, the assignee ----------- shall have, to the extent of such assignment, the same rights, benefits and obligations as all other Lenders hereunder. Notwithstanding the foregoing, an assignment by a Lender to a Qualified Assignee under common ownership and control with such Lender does not require Agent's consent and is not subject to the $3,500 assignment fee. The assigning Lender shall be relieved of its obligations hereunder with respect to its Commitments or assigned portion thereof from and after the date of such assignment. Borrower hereby acknowledges and agrees that any assignment shall give rise to a direct obligation of Borrower to the assignee and that the assignee shall be considered to be a "Lender." In all instances, each Lender's liability to make Loans hereunder shall be several and not joint and shall be limited to such Lender's Pro Rata Share of the applicable Commitment. In the event Agent or any Lender assigns or otherwise transfers all or any part of the Obligations, Agent or any such Lender shall so notify Borrower and Borrower shall, upon the request of Agent or such Lender, execute new Notes in exchange for the Notes, if any, being assigned. Notwithstanding the foregoing provisions of this Section 9.1(a), any Lender may -------------- at any time pledge the Obligations held by it and such Lender's rights under this Agreement and the other Loan Documents to a Federal Reserve Bank, and any lender that is an investment fund may assign the Obligations held by it and such Lender's rights under this Agreement and the other Loan Documents to another investment fund managed by the same investment advisor; provided, that no such -------- pledge to a Federal Reserve Bank shall release such Lender from such Lender's obligations hereunder or under any other Loan Document. Credit Parties' consent to an assignment of Commitments is not required (i) if the assignee is a Qualified Assignee or (ii) if the assignee is not a Qualified Assignee, but an Event of Default has occurred and is continuing. Agent's consent to an assignment of Commitments is not required if the assignment is made by a Lender to one or more Qualified Assignees and such sale is made in connection with a sale of all or substantially all of that Lender's loan portfolio. 50 (b) Any participation by a Lender of all or any part of its Commitments shall be made with the understanding that all amounts payable by Borrower hereunder shall be determined as if that Lender had not sold such participation, and that the holder of any such participation (other than a participant that is a majority-owned Subsidiary of the parent of such Lender) shall not be entitled to require such Lender to take or omit to take any action hereunder except actions directly affecting (i) any reduction in the principal amount of, or interest rate or Fees payable with respect to, any Loan in which such holder participates, (ii) any extension of the scheduled amortization of the principal amount of any Loan in which such holder participates or the final maturity date thereof, and (iii) any release of all or substantially all of the Collateral (other than in accordance with the terms of this Agreement, the Collateral Documents or the other Loan Documents). Solely for purposes of Sections 1.13, 1.15, 1.16(a) and (b) and 9.8, Borrower acknowledges and agrees - ---------------------------- --- --- that a participation shall give rise to a direct obligation of Borrower to the participant and the participant shall be considered to be a "Lender." Except as set forth in the preceding sentence neither Borrower nor any other Credit Party shall have any obligation or duty to any participant. Neither Agent nor any Lender (other than the Lender selling a participation) shall have any duty to any participant and may continue to deal solely with the Lender selling a participation as if no such sale had occurred. (c) Except as expressly provided in this Section 9.1, no Lender ----------- shall, as between Borrower and that Lender, or Agent and that Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Loans, the Notes or other Obligations owed to such Lender. (d) Each Credit Party executing this Agreement shall assist any Lender permitted to sell assignments or participations under this Section 9.1 as ----------- reasonably required to enable the assigning or selling Lender to effect any such assignment or participation, including the execution and delivery of any and all agreements, notes and other documents and instruments as shall be requested and the preparation of informational materials for, and the participation of management in meetings with, potential assignees or participants. Each Credit Party executing this Agreement shall certify the correctness, completeness and accuracy of all descriptions of the Credit Parties and their respective affairs contained in any selling materials provided by it and all other information provided by it and included in such materials, except that any Projections delivered by Borrower shall only be certified by Borrower as having been prepared by Borrower in compliance with the representations contained in Section ------- 3.4(c). - ------ (e) A Lender may furnish any information concerning Credit Parties in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). Each Lender shall obtain from assignees or participants confidentiality covenants substantially equivalent to those contained in Section 11.8. ------------ (f) So long as no Event of Default has occurred and is continuing, no Lender shall assign or sell participations in any portion of its Loans or Commitments to a potential Lender or participant, if, as of the date of the proposed assignment or sale, the assignee Lender or participant would be subject to capital adequacy or similar requirements under Section 1.16(a), increased --------------- costs under Section 1.16(b), an inability to fund LIBOR Loans under Section --------------- ------- 1.16(c), or withholding taxes in accordance with Section 1.15(a). - ------- --------------- 51 9.2 Appointment of Agent. GE Capital is hereby appointed to act on behalf -------------------- of all Lenders as Agent under this Agreement and the other Loan Documents. The provisions of this Section 9.2 are solely for the benefit of Agent and Lenders ----------- and no Credit Party nor any other Person shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement and the other Loan Documents, Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for any Credit Party or any other Person. Agent shall have no duties or responsibilities except for those expressly set forth in this Agreement and the other Loan Documents. The duties of Agent shall be mechanical and administrative in nature and Agent shall not have, or be deemed to have, by reason of this Agreement, any other Loan Document or otherwise a fiduciary relationship in respect of any Lender. Except as expressly set forth in this Agreement and the other Loan Documents, Agent shall not have any duty to disclose, and shall not be liable for failure to disclose, any information relating to any Credit Party or any of their respective Subsidiaries or any Account Debtor that is communicated to or obtained by GE Capital or any of its Affiliates in any capacity. Neither Agent nor any of its Affiliates nor any of their respective officers, directors, employees, agents or representatives shall be liable to any Lender for any action taken or omitted to be taken by it hereunder or under any other Loan Document, or in connection herewith or therewith, except for damages caused by its or their own gross negligence or willful misconduct. Agent shall not be deemed to have knowledge of any Default or Event of Default unless and until written notice thereof is given to Agent by the Borrower or a Lender, and Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in, or in connection with, this Agreement or the other Loan Documents, (ii) the contents of any certificate, report or other document delivered hereunder or under any of the other Loan Documents or in connection herewith of therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or in any other Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, the other Loan Documents or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Section 2 or elsewhere herein, other than to confirm --------- receipt of items expressly required to be delivered to Agent. If Agent shall request instructions from Requisite Lenders, Requisite Revolving Lenders or all affected Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Loan Document, then Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from Requisite Lenders, Requisite Revolving Lenders or all affected Lenders, as the case may be, and Agent shall not incur liability to any Person by reason of so refraining. Agent shall be fully justified in failing or refusing to take any action hereunder or under any other Loan Document (a) if such action would, in the opinion of Agent, be contrary to law or the terms of this Agreement or any other Loan Document, (b) if such action would, in the opinion of Agent, expose Agent to Environmental Liabilities or (c) if Agent shall not first be indemnified to its satisfaction against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting hereunder or under any other Loan Document in accordance with the instructions of Requisite Lenders, Requisite Revolving Lenders or all affected Lenders, as applicable. 52 9.3 Agent's Reliance, Etc. Neither Agent nor any of its Affiliates nor any --------------------- of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the other Loan Documents, except for damages caused by its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, Agent: (a) may treat the payee of any Note as the holder thereof until Agent receives written notice of the assignment or transfer thereof signed by such payee and in form reasonably satisfactory to Agent; (b) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of any Credit Party or to inspect the Collateral (including the books and records) of any Credit Party; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (f) shall incur no liability under or in respect of this Agreement or the other Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopy, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. 9.4 Agent and Affiliates. With respect to its Commitments hereunder, GE -------------------- Capital shall have the same rights and powers under this Agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include GE Capital in its individual capacity. GE Capital and its Affiliates may lend money to, invest in, and generally engage in any kind of business with, any Credit Party, any of their Affiliates and any Person who may do business with or own securities of any Credit Party or any such Affiliate, all as if GE Capital were not Agent and without any duty to account therefor to Lenders. GE Capital and its Affiliates may accept fees and other consideration from any Credit Party for services in connection with this Agreement or otherwise without having to account for the same to Lenders. Each Lender acknowledges the potential conflict of interest between GE Capital as a Lender holding disproportionate interests in the Loans and GE Capital as Agent. No Lender designated as documentation agent, syndication agent or co-agent shall have any duties or liabilities hereunder whatsoever, except solely in its capacity as a Lender. 9.5 Lender Credit Decision. Each Lender acknowledges that it has, ---------------------- independently and without reliance upon Agent or any other Lender and based on the Financial Statements referred to in Section 3.4(a) and such other documents -------------- and information as it has deemed appropriate, made its own credit and financial analysis of the Credit Parties and its own decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. Each Lender acknowledges the potential conflict of interest of each other Lender as a result of Lenders holding disproportionate interests in the Loans, and expressly consents to, and waives any claim based upon, such conflict of interest. 53 9.6 Indemnification. Lenders agree to indemnify Agent (to the extent not --------------- reimbursed by Credit Parties and without limiting the obligations of Borrower hereunder), ratably according to their respective Pro Rata Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted to be taken by Agent in connection therewith; provided, that no Lender shall be liable for any portion of such -------- liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent's gross negligence or willful misconduct. Without limiting the foregoing, each Lender agrees to reimburse Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and each other Loan Document, to the extent that Agent is not reimbursed for such expenses by Credit Parties. 9.7 Successor Agent. Agent may resign at any time by giving not less than --------------- 30 days' prior written notice thereof to Lenders and Borrower. Upon any such resignation, the Requisite Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Requisite Lenders and shall have accepted such appointment within 30 days after the resigning Agent's giving notice of resignation, then the resigning Agent may, on behalf of Lenders, appoint a successor Agent, which shall be a Lender, if a Lender is willing to accept such appointment, or otherwise shall be a commercial bank or financial institution or a subsidiary of a commercial bank or financial institution if such commercial bank or financial institution is organized under the laws of the United States of America or of any State thereof and has a combined capital and surplus of at least $300,000,000. If no successor Agent has been appointed pursuant to the foregoing, within thirty (30) days after the date such notice of resignation was given by the resigning Agent, such resignation shall become effective and the Requisite Lenders shall thereafter perform all the duties of Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor Agent as provided above. Any successor Agent appointed by Requisite Lenders hereunder shall be subject to the approval of Borrower, such approval not to be unreasonably withheld or delayed; provided that such approval -------- shall not be required if a Default or an Event of Default has occurred and is continuing. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the resigning Agent. Upon the earlier of the acceptance of any appointment as Agent hereunder by a successor Agent or the effective date of the resigning Agent's resignation, the resigning Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents, except that any indemnity rights or other rights in favor of such resigning Agent shall continue. After any resigning Agent's resignation hereunder, the provisions of this Section 9 shall inure to its --------- benefit as to any actions taken or omitted to be taken by it while it was acting as Agent under this Agreement and the other Loan Documents. 9.8 Setoff and Sharing of Payments. In addition to any rights now or ------------------------------ hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default and subject to Section 9.9(f), each Lender is hereby authorized at any time or -------------- from time to time, without notice to any Credit 54 Party or to any other Person, any such notice being hereby expressly waived, to offset and to appropriate and to apply any and all balances held by it at any of its offices for the account of Borrower or any Guarantor (regardless of whether such balances are then due to Borrower or any Guarantor) and any other properties or assets at any time held or owing by that Lender or that holder to or for the credit or for the account of Borrower or any Guarantor against and on account of any of the Obligations that are not paid when due. Any Lender exercising a right of setoff or otherwise receiving any payment on account of the Obligations in excess of its Pro Rata Share thereof shall purchase for cash (and the other Lenders or holders shall sell) such participations in each such other Lender's or holder's Pro Rata Share of the Obligations as would be necessary to cause such Lender to share the amount so offset or otherwise received with each other Lender or holder in accordance with their respective Pro Rata Shares, (other than offset rights exercised by any Lender with respect to Sections 1.13, 1.15 or 1.16). Each Lender's obligation under this Section 9.8 --------------------------- ----------- shall be in addition to and not in limitation of its obligations to purchase a participation in an amount equal to its Pro Rata Share of the Swing Line Loans under Section 1.1. Borrower and each Guarantor agree, to the fullest extent ----------- permitted by law, that (a) any Lender may exercise its right to offset with respect to amounts in excess of its Pro Rata Share of the Obligations and may sell participations in such amounts so offset to other Lenders and holders and (b) any Lender so purchasing a participation in the Loans made or other Obligations held by other Lenders or holders may exercise all rights of offset, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Lender or holder were a direct holder of the Loans and the other Obligations in the amount of such participation. Notwithstanding the foregoing, if all or any portion of the offset amount or payment otherwise received is thereafter recovered from the Lender that has exercised the right of offset, the purchase of participations by that Lender shall be rescinded and the purchase price restored without interest. 9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in ---------------------------------------------------------------- Concert. - ------- (a) Advances; Payments. ------------------ (i) Revolving Lenders shall refund or participate in the Swing Line Loan in accordance with clauses (iii) and (iv) of Section 1.1(c). If ---------------------- -------------- the Swing Line Lender declines to make a Swing Line Loan or if Swing Line Availability is zero, Agent shall notify Revolving Lenders, promptly after receipt of a Notice of Revolving Advance and in any event prior to 1:00 p.m. (New York time) on the date such Notice of Revolving Advance is received, by telecopy, telephone or other similar form of transmission. Each Revolving Lender shall make the amount of such Lender's Pro Rata Share of such Revolving Credit Advance available to Agent in same day funds by wire transfer to Agent's account as set forth in Annex H not later than ------- 3:00 p.m. (New York time) on the requested funding date, in the case of an Index Rate Loan and not later than 11:00 a.m. (New York time) on the requested funding date in the case of a LIBOR Loan. After receipt of such wire transfers (or, in the Agent's sole discretion, before receipt of such wire transfers), subject to the terms hereof, Agent shall make the requested Revolving Credit Advance to Borrower. All payments by each Revolving Lender shall be made without setoff, counterclaim or deduction of any kind. 55 (ii) On the second (2nd) Business Day of each calendar week or more frequently as aggregate cumulative payments in excess of $2,000,000 are received with respect to the Loans (other than the Swing Line Loan) (each, a "Settlement Date"), Agent shall advise each Lender --------------- by telephone, or telecopy of the amount of such Lender's Pro Rata Share of principal, interest and Fees paid for the benefit of Lenders with respect to each applicable Loan. Provided that each Lender has funded all payments and Advances required to be made by it and purchased all participations required to be purchased by it under this Agreement and the other Loan Documents as of such Settlement Date, Agent shall pay to each Lender such Lender's Pro Rata Share of principal, interest and Fees paid by Borrower since the previous Settlement Date for the benefit of such Lender on the Loans held by it. To the extent that any Lender (a "Non-Funding Lender") has failed to fund all such payments ------------------ and Advances or failed to fund the purchase of all such participations, Agent shall be entitled to set off the funding short-fall against that Non-Funding Lender's Pro Rata Share of all payments received from Borrower. Such payments shall be made by wire transfer to such Lender's account (as specified by such Lender in Annex H or the applicable ------- Assignment Agreement) not later than 2:00 p.m. (Chicago time) on the next Business Day following each Settlement Date. (b) Availability of Lender's Pro Rata Share. Agent may assume --------------------------------------- that each Revolving Lender will make its Pro Rata Share of each Revolving Credit Advance available to Agent on each funding date. If such Pro Rata Share is not, in fact, paid to Agent by such Revolving Lender when due, Agent will be entitled to recover such amount on demand from such Revolving Lender without setoff, counterclaim or deduction of any kind. If any Revolving Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly notify Borrower and Borrower shall immediately repay such amount to Agent. Nothing in this Section 9.9(b) or elsewhere in this Agreement or the other Loan -------------- Documents shall be deemed to require Agent to advance funds on behalf of any Revolving Lender or to relieve any Revolving Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Borrower may have against any Revolving Lender as a result of any default by such Revolving Lender hereunder. To the extent that Agent advances funds to Borrower on behalf of any Revolving Lender and is not reimbursed therefor on the same Business Day as such Advance is made, Agent shall be entitled to retain for its account all interest accrued on such Advance until reimbursed by the applicable Revolving Lender. (c) Return of Payments. ------------------ (i) If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrower and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender on demand without setoff, counterclaim or deduction of any kind. (ii) If Agent determines at any time that any amount received by Agent under this Agreement must be returned to Borrower or paid to any other Person pursuant to any Insolvency Law or otherwise, then, notwithstanding any 56 other term or condition of this Agreement or any other Loan Document, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower or such other Person, without setoff, counterclaim or deduction of any kind. (d) Non-Funding Lenders. The failure of any Non-Funding Lender ------------------- to make any Revolving Credit Advance or any payment required by it hereunder, or to purchase any participation in any Swing Line Loan to be made or purchased by it on the date specified therefor shall not relieve any other Lender (each such other Revolving Lender, an "Other Lender") of its obligations to make such ------------ Advance or purchase such participation on such date, but neither any Other Lender nor Agent shall be responsible for the failure of any Non-Funding Lender to make an Advance, purchase a participation or make any other payment required hereunder. Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Loan Document or constitute a "Lender" or a "Revolving Lender" (or be included in the calculation of "Requisite Lenders," or "Requisite Revolving Lenders" hereunder) for any voting or consent rights under or with respect to any Loan Document. At Borrower's request, Agent or a Person acceptable to Agent shall have the right with Agent's consent and in Agent's sole discretion (but shall have no obligation) to purchase from any Non-Funding Lender, and each Non-Funding Lender agrees that it shall, at Agent's request, sell and assign to Agent or such Person, all of the Commitments of that Non-Funding Lender for an amount equal to the principal balance of all Loans held by such Non-Funding Lender and all accrued interest and fees with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment Agreement. (e) Dissemination of Information. Agent shall use reasonable ---------------------------- efforts to provide Lenders with any notice of Default or Event of Default received by Agent from, or delivered by Agent to, any Credit Party, with notice of any Event of Default of which Agent has actually become aware and with notice of any action taken by Agent following any Event of Default; provided, that Agent shall not be liable to any Lender for any failure to do so, except to the extent that such failure is attributable to Agent's gross negligence or willful misconduct. Lenders acknowledge that Borrower is required to provide Financial Statements and Collateral Reports to Lenders in accordance with Annexes E and F --------- - hereto and agree that Agent shall have no duty to provide the same to Lenders. (f) Actions in Concert. Anything in this Agreement to the ------------------ contrary notwithstanding, each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or enforce its rights arising out of this Agreement or the Notes (including exercising any rights of setoff) without first obtaining the prior written consent of Agent and Requisite Lenders, it being the intent of Lenders that any such action to protect or enforce rights under this Agreement and the Notes shall be taken in concert and at the direction or with the consent of Agent. 9.10 Power of Attorney in Quebec. Without limiting any of the ----------------------------------- foregoing provisions in favor of Agent, for the purposes of holding any security granted by any Credit Party pursuant to the laws of the Province of Quebec, including any deed of hypothec, debenture, bond or other 57 title of indebtedness and debenture or bond pledge agreements, Agent is hereby appointed to act as the Person holding the power of attorney (fonde de pouvoir) pursuant to article 2692 of the Civil Code of Quebec to act on behalf of each present and future Lender. Each party hereto agrees that, notwithstanding Section 32 of an Act respecting the Special Powers of Legal Persons (Quebec), Agent may, as the Person holding the power of attorney of the Lenders, acquire and/or be the pledgee of any debentures, bonds or other titles of indebtedness secured by any hypothec granted by any Credit Party to Agent pursuant to the laws of the Province of Quebec. 10. SUCCESSORS AND ASSIGNS ---------------------- 10.1 Successors and Assigns. This Agreement and the other Loan ---------------------- Documents shall be binding on and shall inure to the benefit of each Credit Party, Agent, Lenders and their respective successors and assigns (including, in the case of any Credit Party, a debtor-in-possession on behalf of such Credit Party), except as otherwise provided herein or therein. No Credit Party may assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder or under any of the other Loan Documents without the prior express written consent of Agent and Lenders. Any such purported assignment, transfer, hypothecation or other conveyance by any Credit Party without the prior express written consent of Agent and Lenders shall be void. The terms and provisions of this Agreement are for the purpose of defining the relative rights and obligations of each Credit Party, Agent and Lenders with respect to the transactions contemplated hereby and no Person shall be a third party beneficiary of any of the terms and provisions of this Agreement or any of the other Loan Documents. 11. MISCELLANEOUS ------------- 11.1 Complete Agreement; Modification of Agreement. The Loan Documents --------------------------------------------- constitute the complete agreement between the parties with respect to the subject matter thereof and may not be modified, altered or amended except as set forth in Section 11.2. Any letter of interest, commitment letter, or fee letter ------------ (other than the Fee Letter and the syndication provisions of the Commitment Letter) between any Credit Party and Agent or any Lender or any of their respective Affiliates, predating this Agreement and relating to a financing of substantially similar form, purpose or effect shall be superseded by this Agreement. 11.2 Amendments and Waivers. ---------------------- (a) Except for actions expressly permitted to be taken by Agent, no amendment, modification, termination or waiver of any provision of this Agreement or any other Loan Document, or any consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by Agent and Borrower, and by Requisite Lenders, Requisite Revolving Lenders or all affected Lenders, as applicable. Except as set forth in clauses (b) and (c) below, all such amendments, modifications, terminations or - ------------------- waivers requiring the consent of any Lenders shall require the written consent of Requisite Lenders. (b) No amendment, modification, termination or waiver of or consent with respect to any provision of this Agreement that increases the percentage advance rates set forth in the definition of the Borrowing Base, or that makes less restrictive the criteria for exclusion 58 from Eligible Accounts and Eligible Inventory set forth in Sections 1.6 and 1.7, -------------------- shall be effective (except to the extent reserved to Agent's discretion) unless the same shall be in writing and signed by Agent, Requisite Revolving Lenders and Borrower. No amendment, modification, termination or waiver of or consent with respect to any provision of this Agreement that waives compliance with the conditions precedent set forth in Section 2.2 to the making of any Loan or the ----------- incurrence of any Letter of Credit Obligations shall be effective unless the same shall be in writing and signed by Agent, Requisite Revolving Lenders and Borrower. Notwithstanding anything contained in this Agreement to the contrary, no waiver or consent with respect to any Default or any Event of Default shall be effective for purposes of the conditions precedent to the making of Loans or the incurrence of Letter of Credit Obligations set forth in Section 2.2 unless ----------- the same shall be in writing and signed by Agent, Requisite Revolving Lenders and Borrower. (c) No amendment, modification, termination or waiver shall, unless in writing and signed by Agent and each Lender directly affected thereby: (i) increase the aggregate principal amount of the Commitments or increase the principal amount of any Lender's Term Loan Commitment or Revolving Loan Commitment (which action shall be deemed to directly affect all Lenders); (ii) reduce the principal of, rate of interest on or Fees payable with respect to any Loan or Letter of Credit Obligations of any affected Lender; (iii) extend or waive any payment date or final maturity date of the principal amount of any Loan of any affected Lender; (iv) waive, forgive, defer, extend or postpone any payment of interest or Fees as to any affected Lender; (v) release any Guaranty or, except as otherwise permitted herein or in the other Loan Documents, release, or subordinate Agent's Liens in, or permit any Credit Party to sell or otherwise dispose of, any Collateral with a value exceeding $5,000,000 in the aggregate so long as the Obligations remain outstanding (which action shall be deemed to directly affect all Lenders); (vi) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans that shall be required for Lenders or any of them to take any action hereunder; (vii) amend or waive this Section 11.2 or the definitions of the terms "Requisite Lenders" ------------ or "Requisite Revolving Lenders" insofar as such definitions affect the substance of this Section 11.2; and (viii) amend or waive Sections 1.3(b), ------------ --------------- 1.3(c), 1.11 or 8.3. Furthermore, no amendment, modification, termination or - ------------ --- waiver affecting the rights or duties of Agent under this Agreement or any other Loan Document shall be effective unless in writing and signed by Agent, in addition to Lenders required hereinabove to take such action. Each amendment, modification, termination or waiver shall be effective only in the specific instance and for the specific purpose for which it was given. No amendment, modification, termination or waiver shall be required for Agent to take additional Collateral pursuant to any Loan Document. No amendment, modification, termination or waiver of any provision of any Note shall be effective without the written concurrence of the holder of that Note. No notice to or demand on any Credit Party in any case shall entitle such Credit Party or any other Credit Party to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 11.2 shall be binding upon each holder ------------ of the Notes at the time outstanding and each future holder of the Notes. (d) If, in connection with any proposed amendment, modification, waiver or termination (a "Proposed Change"): --------------- (i) requiring the consent of all affected Lenders, the consent of Requisite Lenders is obtained, but the consent of other Lenders whose consent is 59 required is not obtained (any such Lender whose consent is not obtained as described in this clause (i) and in clauses (ii) and (iii) below ---------- ---------------------- being referred to as a "Non-Consenting Lender"), --------------------- (ii) requiring the consent of Requisite Revolving Lenders, the consent of Revolving Lenders holding 51% or more of the aggregate Revolving Loan Commitments is obtained, but the consent of Requisite Revolving Lenders is not obtained, or (iii) requiring the consent of Requisite Lenders, the consent of Lenders holding 51% or more of the aggregate Commitments is obtained, but the consent of Requisite Lenders is not obtained, then, so long as Agent is not a Non-Consenting Lender, at Borrower's request Agent, or a Person acceptable to Agent, shall have the right with Agent's consent and in Agent's sole discretion (but shall have no obligation) to purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree that they shall, upon Agent's request, sell and assign to Agent or such Person, all of the Commitments of such Non-Consenting Lenders for an amount equal to the principal balance of all Loans held by the Non-Consenting Lenders and all accrued interest and Fees with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment Agreement. (e) Upon payment in full in cash and performance of all of the Obligations (other than indemnification Obligations), termination of the Commitments and a release of all claims against Agent and Lenders, and so long as no suits, actions proceedings, or claims are pending or threatened against any Indemnified Person asserting any damages, losses or liabilities that are Indemnified Liabilities, Agent shall deliver to Borrower termination statements, mortgage releases and other documents necessary or appropriate to evidence the termination of the Liens securing payment of the Obligations. (f) In order to complete syndication of the Loans, Agent specifically reserves its rights as to amendments related to syndication as provided in the Commitment Letter. (g) Notwithstanding any provision herein contained to the contrary, the percentage advance rates for Eligible Accounts and Eligible Inventory set forth in the definition of Borrowing Base may not be increased without the prior written consent of the holders of at least eighty percent (80%) of the Revolving Loan Commitment. 11.3 Fees and Expenses. Borrower shall reimburse (i) Agent for all ----------------- fees, costs and expenses (including the reasonable fees and expenses of all of its special counsel, advisors, consultants and auditors) and (ii) Agent (and, with respect to clauses (c) and (d) below, all Lenders) for all fees, costs and ------------------- expenses, including the reasonable fees, costs and expenses of counsel or other advisors (including environmental and management consultants and appraisers) incurred in connection with the negotiation and preparation of the Loan Documents and for advice, assistance, or other representation in connection with: (a) the forwarding to Borrower or any other Person on behalf of Borrower by Agent of the proceeds of the Loans; 60 (b) any amendment, modification or waiver of, or consent with respect to, or termination of, any of the Loan Documents or Related Transactions Documents or advice in connection with the administration of the Loans made pursuant hereto or its rights hereunder or thereunder; (c) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Agent, any Lender, Borrower or any other Person and whether as a party, witness or otherwise) in any way relating to the Collateral, any of the Loan Documents or any other agreement to be executed or delivered in connection herewith or therewith, including any litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against Borrower or any other Person that may be obligated to Agent by virtue of the Loan Documents, including any such litigation, contest, dispute, suit, proceeding or action arising in connection with any work-out or restructuring of the Loans during the pendency of one or more Events of Default; provided, that in the case of reimbursement of counsel -------- for Lenders other than Agent, such reimbursement shall be limited to one counsel for all such Lenders; (d) any attempt to enforce any remedies of Agent or any Lender against any or all of the Credit Parties or any other Person that may be obligated to Agent or any Lender by virtue of any of the Loan Documents, including any such attempt to enforce any such remedies in the course of any work-out or restructuring of the Loans during the pendency of one or more Events of Default; provided, that in the case of reimbursement of counsel for Lenders -------- other than Agent, such reimbursement shall be limited to one counsel for all such Lenders; (e) any workout or restructuring of the Loans during the pendency of one or more Events of Default; and (f) efforts to (i) monitor the Loans or any of the other Obligations, (ii) evaluate, observe or assess any of the Credit Parties or their respective affairs, and (iii) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of any of the Collateral; including, as to each of clauses (a) through (f) above, all attorneys' and other ----------------------- professional and service providers' fees arising from such services, including those in connection with any appellate proceedings, and all expenses, costs, charges and other fees incurred by such counsel and others in connection with or relating to any of the events or actions described in this Section 11.3, all of ------------ which shall be payable, on demand, by Borrower to Agent. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: fees, costs and expenses of accountants, environmental advisors, appraisers, investment bankers, management and other consultants and paralegals; court costs and expenses; photocopying and duplication expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram or telecopy charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal or other advisory services. 11.4 No Waiver. Agent's or any Lender's failure, at any time or times, to --------- require strict performance by the Credit Parties of any provision of this Agreement or any other Loan 61 Document shall not waive, affect or diminish any right of Agent or such Lender thereafter to demand strict compliance and performance herewith or therewith. Any suspension or waiver of an Event of Default shall not suspend, waive or affect any other Event of Default whether the same is prior or subsequent thereto and whether the same or of a different type. Subject to the provisions of Section 11.2, none of the undertakings, agreements, warranties, covenants and ------------ representations of any Credit Party contained in this Agreement or any of the other Loan Documents and no Default or Event of Default by any Credit Party shall be deemed to have been suspended or waived by Agent or any Lender, unless such waiver or suspension is by an instrument in writing signed by an officer of or other authorized employee of Agent and the applicable required Lenders and directed to Borrower specifying such suspension or waiver. 11.5 Remedies. Agent's and Lenders' rights and remedies under this -------- Agreement shall be cumulative and nonexclusive of any other rights and remedies that Agent or any Lender may have under any other agreement, including the other Loan Documents, by operation of law or otherwise. Recourse to the Collateral shall not be required. 11.6 Severability. Wherever possible, each provision of this Agreement and ------------ the other Loan Documents shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement or any other Loan Document shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 11.7 Conflict of Terms. Except as otherwise provided in this Agreement or ----------------- any of the other Loan Documents by specific reference to the applicable provisions of this Agreement, if any provision contained in this Agreement conflicts with any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 11.8 Confidentiality. Agent and each Lender agree to use commercially --------------- reasonable efforts (equivalent to the efforts Agent or such Lender applies to maintain the confidentiality of its own confidential information) to maintain as confidential all confidential information provided to them by the Credit Parties for a period of one (1) year following the Termination Date, except that Agent and each Lender may disclose such information (a) to Persons employed or engaged by Agent or such Lender in evaluating, approving, structuring or administering the Loans and the Commitments; (b) to any bona fide assignee or participant or potential assignee or participant that has agreed to comply with the covenant contained in this Section 11.8 (and any such bona fide assignee or participant ------------ or potential assignee or participant may disclose such information to Persons employed or engaged by them as described in clause (a) above); (c) as required or requested by any Governmental Authority (including the Securities Valuation Office of the National Association of Insurance Commissioners) or reasonably believed by Agent or such Lender to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, on the advise of Agent's or such Lender's counsel, is required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any Litigation to which Agent or such Lender is a party; or (f) that ceases to be confidential through no fault of Agent or any Lender. 62 11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE ------------- LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH CREDIT PARTY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, CITY OF CHICAGO, ILLINOIS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT AGENT, LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT ANY - -------- APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, CITY OF CHICAGO, ILLINOIS AND; PROVIDED, FURTHER THAT NOTHING IN -------- ------- THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH CREDIT PARTY HEREBY WAIVES ANY OBJECTION THAT SUCH CREDIT PARTY MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM ----- NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE - -------------- RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN ANNEX I OF THIS AGREEMENT AND THAT SERVICE SO ------- MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID. 11.10 Notices. Except as otherwise provided herein, whenever it is ------- provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other parties, or whenever any of the parties desires to give or serve upon any other parties any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage 63 prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 11.10); (c) one (1) Business Day after deposit with a reputable - ------------- overnight courier with all charges prepaid or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated in Annex I or to ------- such other address (or facsimile number) as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than Borrower or Agent) designated in Annex I to receive copies shall in no way adversely affect the effectiveness ------- of such notice, demand, request, consent, approval, declaration or other communication. 11.11 Section Titles. The Section titles and Table of Contents contained -------------- in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 11.12 Counterparts. This Agreement may be executed in any number of ------------ separate counterparts, each of which shall collectively and separately constitute one agreement. 11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH -------------------- COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND ANY CREDIT PARTY ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO. 11.14 Press Releases; Etc. Each Credit Party executing this Agreement ------------------- agrees that neither it nor its Affiliates will in the future issue any press releases or other public disclosure using the name of GE Capital or its affiliates or referring to this Agreement, the other Loan Documents or the Related Transactions Documents without at least two (2) Business Days' prior notice to GE Capital and without the prior written consent of GE Capital unless (and only to the extent that) such Credit Party or Affiliate is required to do so under law and then, in any event, such Credit Party or Affiliate will consult with GE Capital before issuing such press release or other public disclosure. Each Credit Party consents to the publication by Agent or any Lender of a tombstone or similar advertising material relating to the financing transactions contemplated by this Agreement. Agent or such Lender shall provide a draft of any such tombstone or similar advertising material to each Credit Party for review and comment prior to the publication 64 thereof. Agent and Lenders reserve the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements with Borrower's consent which shall not be unreasonably withheld or delayed. 11.15 Reinstatement. This Agreement shall remain in full force and effect ------------- and continue to be effective should any petition be filed by or against Borrower for liquidation or reorganization, should Borrower become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of Borrower's assets, and shall continue to be effective or to be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 11.16 Advice of Counsel. Each of the parties represents to each other ----------------- party hereto that it has discussed this Agreement and, specifically, the provisions of Sections 11.9 and 11.13, with its counsel. ----------------------- 11.17 No Drafting Presumptions. The parties hereto have participated ------------------------ jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. 11.18 License. Each Credit Party hereby grants to Agent for the benefit of ------- all of the Lenders a world-wide, royalty-free license to use all of its Patents and Trademarks after the occurrence of an Event of Default to complete, the manufacture of, and to sell or otherwise dispose of, all of each Credit Party's Inventory. Such royalty-free license shall extend to any person or persons purchasing Inventory from the Lenders. 65 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. BORROWER ICON HEALTH & FITNESS, INC. By: /s/ Brad H. Bearnson -------------------------------------- Name: Brad H. Bearnson Title: Secretary GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender By: /s/ Illegible -------------------------------------- Duly Authorized Signatory THE CIT GROUP/BUSINESS CREDIT, INC., as a Lender /s/ James D. Danforth, Jr. ------------------------------------------ By: James D. Danforth, Jr. -------------------------------------- Duly Authorized Signatory JPMORGAN CHASE BANK, as a Lender /s/ Jim L. Holloway ------------------------------------------ By: Jim L. Holloway -------------------------------------- Duly Authorized Signatory FLEET CAPITAL CORPORATION, as a Lender /s/ Craig G. Nutbrown ------------------------------------------ By: Craig G. Nutbrown, Vice President -------------------------------------- Duly Authorized Signatory S-1 COMERICA BUSINESS CREDIT, as a Lender /s/ Riley Couch, Vice President ------------------------------------------ By: Riley C. Couch -------------------------------------- Duly Authorized Signatory S-2 The following Persons are signatories to this Agreement in their capacity as Credit Parties and not as Borrowers. HF HOLDINGS, INC. By: /s/ Brad H. Bearnson -------------------------------------- Name: Brad H. Bearnson Title: Secretary JUMPKING, INC. By: /s/ Brad H. Bearnson -------------------------------------- Name: Brad H. Bearnson Title: Secretary ICON INTERNATIONAL HOLDINGS, INC. By: /s/ Brad H. Bearnson -------------------------------------- Name: Brad H. Bearnson Title: Secretary UNIVERSAL TECHNICAL SERVICES By: /s/ Brad H. Bearnson -------------------------------------- Name: Brad H. Bearnson Title: Secretary ICON DU CANADA INC./ICON OF CANADA INC. By: /s/ Brad H. Bearnson -------------------------------------- Name: Brad H. Bearnson Title: Secretary S-3 510152 N.B. LTD. By: /s/ Brad H. Bearnson -------------------------------------- Name: Brad H. Bearnson Title: Secretary NORDICTRACK, INC. By: /s/ Brad H. Bearnson -------------------------------------- Name: Brad H. Bearnson Title: Secretary ICON IP., INC. By: /s/ Brad H. Bearnson -------------------------------------- Name: Brad H. Bearnson Title: Secretary FREE MOTION FITNESS, INC. By: /s/ Brad H. Bearnson -------------------------------------- Name: Brad H. Bearnson Title: Secretary S-4 ANNEX A (Recitals) -------- to CREDIT AGREEMENT ---------------- DEFINITIONS ----------- Capitalized terms used in the Loan Documents shall have (unless otherwise provided elsewhere in the Loan Documents) the following respective meanings and all references to Sections, Exhibits, Schedules or Annexes in the following definitions shall refer to Sections, Exhibits, Schedules or Annexes of or to the Agreement: "A Rated Bank" has the meaning ascribed to it in Section 6.2. ------------ ----------- "Account Debtor" means any Person who may become obligated to any -------------- Credit Party under, with respect to, or on account of, an Account. "Accounting Changes" has the meaning ascribed thereto in Annex G. ------------------ ------- "Accounts" means all "accounts," as such term is defined in the Code, -------- and all "claims," as such term is defined in the Quebec Civil Code, now owned or hereafter acquired by any Credit Party and, in any event, including (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments), whether arising out of goods sold or services rendered by it or from any other transaction (including any such obligations that may be characterized as an account or contract right under the Code), (b) all of each Credit Party's rights in, to and under all purchase orders or receipts for goods or services, (c) all of each Credit Party's rights to any goods represented by any of the foregoing (including unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all monies due or to become due to any Credit Party, under all purchase orders and contracts for the sale of goods or the performance of services or both by such Credit Party or in connection with any other transaction (whether or not yet earned by performance on the part of such Credit Party), including the right to receive the proceeds of said purchase orders and contracts, and (e) all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Acquisition Pro Forma" has the meaning ascribed to it in Section --------------------- ------- 2.3(i). - ------- "Advance" means any Revolving Credit Advance or Swing Line Advance, as ------- the context may require. "Affected Lender" has the meaning ascribed to it in Section 1.16(d). --------------- ---------------- "Affiliate" means, with respect to any Person, (a) each Person that, --------- directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, five percent (5%) or more of the Stock having ordinary voting power in the election of directors of such Person, (b) each Person that controls, is controlled by or is under common control with such Person, (c) each of such Person's officers, directors, joint venturers and partners and (d) in A-1 the case of Borrower, the immediate family members, spouses and lineal descendants of individuals who are Affiliates of Borrower. For the purposes of this definition, "control" of a Person shall mean the possession, directly or ------- indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise; provided, however, that the term "Affiliate" shall specifically -------- ------- --------- exclude Agent and each Lender. "Agent" means GE Capital in its capacity as Agent for Lenders or its ----- successor appointed pursuant to Section 9.7. ----------- "Agreement" means the Credit Agreement by and among Borrower, the --------- other Credit Parties party thereto, GE Capital, as Agent and Lender, and the other Lenders from time to time party thereto, as the same may be amended, supplemented, restated or otherwise modified from time to time. "Appendices" has the meaning ascribed to it in the recitals to the ---------- Agreement. "Applicable L/C Margin" means the per annum fee, from time to time in --------------------- effect, payable with respect to outstanding Letter of Credit Obligations as determined by reference to Section 1.5(a). -------------- "Applicable Margins" means collectively the Applicable L/C Margin, the ------------------ Applicable Unused Line Fee Margin, the Applicable Revolver Index Margin and the Applicable Revolver LIBOR Margin. "Applicable Percentage" has the meaning ascribed to it in Section --------------------- ------- 1.9(c). - ------ "Applicable Revolver Index Margin" means the per annum interest rate -------------------------------- margin from time to time in effect and payable in addition to the Index Rate applicable to the Revolving Loan, as determined by reference to Section 1.5(a). -------------- "Applicable Revolver LIBOR Margin" means the per annum interest rate -------------------------------- from time to time in effect and payable in addition to the LIBOR Rate applicable to the Revolving Loan, as determined by reference to Section 1.5(a). ------------- "Applicable Term Loan Index Margin" means the per annum interest rate --------------------------------- from time to time in effect and payable in addition to the Index Rate applicable to the Term Loan, as determined by reference to Section 1.5(a). ------------- "Applicable Term Loan LIBOR Margin" means the per annum interest rate --------------------------------- from time to time in effect and payable in addition to the LIBOR Rate applicable to the Term Loan, as determined by reference to Section 1.5(a). ------------- "Applicable Unused Line Fee Margin" means the per annum fee, from time --------------------------------- to time in effect, payable in respect of Borrower's non-use of committed funds pursuant to Section 1.9(b), which fee is determined by reference to Section -------------- ------- 1.5(a). - ------ "Assignment Agreement" has the meaning ascribed to it in Section -------------------- ------- 9.1(a). - ------ A-2 "Bain Entities" shall mean, collectively, Bain Capital Fund IV, L.P., ------------- Bain Capital Fund IV B, L.P., Bain Associates and BCIP Trust Associates, L.P., and funds or trusts managed or controlled by Bain Capital, Inc. "Bankruptcy Code" means the provisions of Title 11 of the United --------------- States Code, 11 U.S.C.ss.ss. 101 et seq. "Borrower" has the meaning ascribed thereto in the recitals to the -------- Agreement. "Borrower Accounts" has the meaning ascribed to it in Annex C. ----------------- ------- "Borrower Pledge Agreement" means the Pledge Agreement of even date ------------------------- herewith executed by Borrower in favor of Agent, on behalf of itself and Lenders, pledging all Stock of its domestic and Canadian Subsidiaries and all Intercompany Notes owing to or held by it. "Borrowing Availability" has the meaning ascribed to it in Section ---------------------- ------- 1.1(a). - ------ "Borrowing Base" means, as of any date of determination by Agent, from -------------- time to time, an amount equal to the sum at such time of: (a) up to eighty-five percent (85%) of the book value of Borrower's and its domestic and Canadian Subsidiaries' Eligible Accounts, less any Reserves established by Agent at such time; (b) up to the lesser of (i) sixty percent (60%) (seventy percent (70%) during the period of July 1 to November 30 of each year) of the book value of Borrower's and its domestic and Canadian Subsidiaries' Eligible Inventory valued on a first-in, first-out basis (at the lower of cost or market), less any Reserves established by Agent at such time or (ii) eighty-five percent (85%) (ninety-five percent (95%) during the period of July 1 to November 30 of each year) of the appraised net orderly liquidation value (less liquidation costs in an amount determined by Agent in its reasonable discretion) of Inventory based on an appraisal, such appraisal to be conducted by an appraiser acceptable to Agent and in form and substance satisfactory to Agent; and (c) in the sole and absolute discretion of Agent, up to 50% of the book value of Eligible In-Transit Inventory valued at the lower of cost (determined on a first-in, first-out basis) or market, excluding individual shipments (per vessel) with an aggregate book value of less than $250,000; For the purpose of valuing the Collateral of each of Borrower's Canadian Subsidiaries that is denominated in Canadian Dollars or Borrower's Accounts that are denominated in pounds sterling or Australian dollars, such Collateral shall be converted into the Equivalent Amount thereof in Dollars, in each case, as determined as of the last day of each Fiscal Month unless Agent has notified Borrower that, in light of recent or expected currency fluctuations, the conversion shall be made on a more current basis. A-3 "Borrowing Base Certificate" means a certificate to be executed and -------------------------- delivered from time to time by Borrower in the form attached to the Agreement as Exhibit 4.1(b). - -------------- "Business Day" means any day that is not a Saturday, a Sunday or a day ------------ on which banks are required or permitted to be closed in the States of Illinois or New York and in reference to LIBOR Loans shall mean any such day that is also a LIBOR Business Day. "Canadian Benefit Plans" means all material employee benefit plans of ---------------------- any nature or kind whatsoever that are not Canadian Pension Plans and are maintained or contributed to by any Credit Party having employees in Canada. "Canadian Dollars" and "C$" each mean lawful money of Canada. ---------------- -- "Canadian Pension Plans" means each plan which is considered to be a ---------------------- pension plan for the purposes of any applicable pension benefits standards statute and/or regulation in Canada established, maintained or contributed to by any Credit Party for its employees or former employees. "Canadian Security Agreements" means each of the Security Agreements ----------------------------- entered into by and between Agent, on behalf of itself and Lenders, and ICON of Canada and ICON New Brunswick. "Capital Expenditures" means, with respect to any Person, all -------------------- expenditures (by the expenditure of cash or the incurrence of Indebtedness) by such Person during any measuring period for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one year and that are required to be capitalized under GAAP. "Capital Lease" means, with respect to any Person, any lease of any ------------- property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, would be required to be classified and accounted for as a capital lease on a balance sheet of such Person. "Capital Lease Obligation" means, with respect to any Capital Lease of ------------------------ any Person, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease. "Carry Over Amount" has the meaning ascribed to it in Annex G. ----------------- ------- "Cash Collateral Account" has the meaning ascribed to it in Annex B. ----------------------- ------- "Cash Equivalents" has the meaning ascribed to it in Annex B. ---------------- ------- "Cash Management Systems" has the meaning ascribed to it in Section ----------------------- ------- 1.8. - --- "Certificate of Exemption" has the meaning ascribed to it in Section ------------------------ ------- 1.15(c). - ------- A-4 "Change of Control" means any event, transaction or occurrence as a ----------------- result of which (a) the Bain Entities shall cease to constitute a Voting Majority of HF Investment so long as the Bain Entities hold their investment in Holdings through HF Investment, (b) the Bain Entities shall cease to have or exercise the right, directly or indirectly, to designate at least 5 of the 9 members of the Board of Directors of Holdings, (c) the Bain Entities and CS First Boston and their Affiliates cease to own (directly or indirectly) and control all of the economic and voting rights associated with ownership of at least fifty-one percent (51%) of all classes of the outstanding capital Stock of all classes of Holdings on a fully diluted basis, (d) Holdings ceases to own and control all of the economic and voting rights associated with all of the outstanding capital Stock of Borrower, (e) Borrower ceases to own and control all of the economic and voting rights associated with all of the outstanding capital Stock of each of its Subsidiaries or (f) any "Change of Control" (as such term is defined in the Subordinated Notes Documents) shall occur. "Charges" means all federal, state, county, city, municipal, local, ------- foreign or other governmental taxes (including taxes owed to the PBGC at the time due and payable), levies, assessments, charges, liens, claims or encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c) the employees, payroll, income or gross receipts of any Credit Party, (d) any Credit Party's ownership or use of any properties or other assets, or (e) any other aspect of any Credit Party's business. "Chattel Paper" means any "chattel paper," as such term is defined in ------------- the Code, now owned or hereafter acquired by any Credit Party, wherever located. "Closing Date" means April 9, 2002. ------------ "Closing Checklist" means the schedule, including all appendices, ----------------- exhibits or schedules thereto, listing certain documents and information to be delivered in connection with the Agreement, the other Loan Documents and the transactions contemplated thereunder, substantially in the form attached hereto as Annex D. ------- "Code" means the Uniform Commercial Code as the same may, from time to ---- time, be enacted and in effect in the State of Illinois; provided, that in the -------- event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Agent's or any Lender's Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Illinois or by foreign personal property security laws as enacted and in effect in a foreign jurisdiction, the term "Code" shall mean the Uniform Commercial Code or such ---- foreign personal property security laws as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions; and, provided further, that if such foreign personal -------- ------- property security laws do not contain a definition that is used in another Loan Document, the definition that is used in such other Loan Document shall have the meaning given to it in the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of Illinois. A-5 "Collateral" means the property covered by the Security Agreement, the ---------- Mortgages and the other Collateral Documents and any other property, real or personal, tangible or intangible, now existing or hereafter acquired, that may at any time be or become subject to a Lien granted by a Credit Party in favor of Agent, on behalf of itself and Lenders, to secure the Obligations. "Collateral Documents" means the Security Agreement, the Pledge -------------------- Agreements, the Holdings Guaranty, the Mortgages, the Patent Security Agreement, the Trademark Security Agreement, the Copyright Security Agreement, the Canadian Security Agreements, the ICON of Canada Hypothec, the ICON of Canada Debenture, the ICON of Canada Pledge Agreement, and all similar agreements entered into guaranteeing payment of, or granting a Lien upon property as security for payment of, the Obligations. "Collateral Reports" means the reports with respect to the Collateral ------------------ referred to in Annex F. ------- "Collection Account" means that certain account of Agent, account ------------------ number 502-328-54 in the name of Agent at Bankers Trust Company in New York, New York ABA No. 021 001 033, or such other account as may be specified in writing by Agent as the "Collection Account." "Commitment Letter" means that certain commitment letter dated as of ----------------- April __, 2002 between Borrower and GE Capital. "Commitment Termination Date" means the earliest of (a) the fifth --------------------------- anniversary of the Closing Date, (b) the date of termination of Lenders' obligations to make Advances and to incur Letter of Credit Obligations or permit existing Loans to remain outstanding pursuant to Section 8.2(b), and (c) the -------------- date of indefeasible prepayment in full by Borrower of the Loans and the cancellation and return (or stand-by guarantee) of all Letters of Credit or the cash collateralization of all Letter of Credit Obligations pursuant to Annex B, ------- and the permanent reduction of the Revolving Loan Commitment and the Swing Line Commitment to zero dollars ($0). "Commitments" means (a) as to any Lender, the aggregate of such ----------- Lender's Revolving Loan Commitment (including without duplication the Swing Line Lender's Swing Line Commitment as a subset of its Revolving Loan Commitment) and Term Loan Commitment as set forth on Annex J to the Agreement or in the most ------- recent Assignment Agreement executed by such Lender and (b) as to all Lenders, the aggregate of all Lenders' Revolving Loan Commitments (including without duplication the Swing Line Lender's Swing Line Commitment as a subset of its Revolving Loan Commitment) and Term Loan Commitment, which aggregate commitment shall be Two Hundred Thirty-Five Million Dollars ($235,000,000) on the Closing Date, as to each of clauses (a) and (b), as such Commitments may be reduced, ------------------- amortized or adjusted from time to time in accordance with the Agreement. "Compliance Certificate" has the meaning ascribed to it in Annex E. ---------------------- "Concentration Account" has the meaning ascribed to it in Annex C. --------------------- A-6 "Concentration Account Bank" has the meaning ascribed to it in Annex -------------------------- ----- C. - - "Contracts" means all "contracts," as such term is defined in the --------- Code, now owned or hereafter acquired by any Credit Party, in any event, including all contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which any Credit Party may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account. "Control Letter" means a letter agreement between Agent and (i) the -------------- issuer of uncertificated securities with respect to uncertificated securities in the name of any Credit Party, (ii) a securities intermediary with respect to securities, whether certificated or uncertificated, securities entitlements and other financial assets held in a securities account in the name of any Credit Party, (iii) a futures commission merchant, as applicable, or clearing house with respect to commodity accounts and commodity contracts held by any Credit Party, whereby, among other things, the issuer, securities intermediary or futures commission merchant disclaims any security interest in the applicable financial assets, acknowledges the Lien of Agent, on behalf of itself and Lenders, on such financial assets, and agrees to follow the instructions or entitlement orders of Agent without further consent by the affected Credit Party. "Copyright License" means any and all rights now owned or hereafter ----------------- acquired by any Credit Party under any written agreement granting any right to use any Copyright or Copyright registration. "Copyright Security Agreements" means the Copyright Security ----------------------------- Agreements made in favor of Agent, on behalf of itself and Lenders, by each applicable Credit Party. "Copyrights" means all of the following now owned or hereafter adopted ---------- or acquired by any Credit Party: (a) all copyrights and General Intangibles of like nature (whether registered or unregistered), all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof, and (b) all reissues, extensions or renewals thereof. "Credit Parties" means Holdings, Borrower and each of their respective -------------- Subsidiaries. "CS First Boston" means Credit Suisse First Boston Corporation, a --------------- Delaware corporation. "CS First Boston Debt" means Indebtedness of Holdings issued to CS -------------------- First Boston in the amount of $7,500,000 pursuant to a Note Agreement dated as of September 27, 1999. A-7 "Current Assets" means, with respect to any Person, all current assets -------------- of such Person as of any date of determination calculated in accordance with GAAP, but excluding cash, cash equivalents and debts due from Affiliates. "Current Liabilities" means, with respect to any Person, all ------------------- liabilities that should, in accordance with GAAP, be classified as current liabilities, and in any event shall include all Indebtedness payable on demand or within one year from any date of determination without any option on the part of the obligor to extend or renew beyond such year, all accruals for federal or other taxes based on or measured by income and payable within such year, but excluding long term deferred taxes and the current portion of long-term debt required to be paid within one year and the aggregate outstanding principal balances of the Revolving Loan and the Swing Line Loan. "Default" means any event that, with the passage of time or notice or ------- both, would, unless cured or waived, become an Event of Default. "Default Rate" has the meaning ascribed to it in Section 1.5(d). ------------ -------------- "Deposit Accounts" means all "deposit accounts" as such term is ---------------- defined in the "Code", now or hereafter held in the name of any Credit Party. "Design" means the following now owned or hereafter acquired by any ------ Credit Party: (a) all industrial designs, design patents and other designs now owned or existing or hereafter adopted or acquired, all registrations and recordings thereof and all applications in connection therewith, including all registrations, recordings and applications in the Canadian Industrial Designs Office or any similar office in any country and all records thereof and (b) all reissues, extensions or renewals thereof. "Design License" means rights under any written agreement now owned or -------------- hereafter acquired by any Credit Party granting any right to use any Design. "Disbursement Accounts" has the meaning ascribed to it in Annex C. --------------------- ------- "Disclosure Schedules" means the Schedules prepared by Borrower and -------------------- denominated as Disclosure Schedules (1.4) through (6.7) in the Index to the ---------------------------------------- Agreement. "Documents" means any "documents," as such term is defined in the --------- Code, now owned or hereafter acquired by any Credit Party, wherever located. "Dollars" or "$" means lawful currency of the United States of ------- - America. "EBITDA" means, with respect to any Person for any fiscal period, ------ without duplication, an amount equal to (a) consolidated net income of such Person for such period, minus (b) the sum of (i) income tax credits, (ii) ----- interest income, (iii) gain from extraordinary items for such period, (iv) any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, exchange or other disposition of capital assets by such Person (including any fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets and all securities), and (v) any other non-cash gains that have been A-8 added in determining consolidated net income, in each case to the extent included in the calculation of consolidated net income of such Person for such period in accordance with GAAP, but without duplication, plus (c) the sum of (i) any provision for income taxes, (ii) Interest Expense, (iii) loss from extraordinary items for such period, (iv) the amount of non-cash charges (including depreciation and amortization) for such period, (v) amortized debt discount for such period, and (vi) the amount of any deduction to consolidated net income as the result of any grant to any members of the management of such Person of any Stock, in each case to the extent included in the calculation of consolidated net income of such Person for such period in accordance with GAAP, but without duplication. For purposes of this definition, the following items shall be excluded in determining consolidated net income of a Person: (1) the income (or deficit) of any other Person accrued prior to the date it became a Subsidiary of, or was merged or consolidated into, such Person or any of such Person's Subsidiaries; (2) the income (or deficit) of any other Person (other than a Subsidiary) in which such Person has an ownership interest, except to the extent any such income has actually been received by such Person in the form of cash dividends or distributions; (3) the undistributed earnings of any Subsidiary of such Person to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any contractual obligation or requirement of law applicable to such Subsidiary; (4) any restoration to income of any extraordinary or contingency reserve, except to the extent that such restoration is deemed to have occurred in the same Fiscal Quarter during which the subject reserve was established; (5) any write-up of any asset; (6) any net gain from the collection of the proceeds of life insurance policies; (7) any net gain (but not any aggregate loss) arising from the acquisition of any securities, or the extinguishment, under GAAP, of any Indebtedness, of such Person; (8) in the case of a successor to such Person by consolidation or merger or as a transferee of its assets, any earnings of such successor prior to such consolidation, merger or transfer of assets; and (9) any deferred credit representing the excess of equity in any Subsidiary of such Person at the date of acquisition of such Subsidiary over the cost to such Person of the investment in such Subsidiary. "Eligible Accounts" has the meaning ascribed to it in Section 1.6 of ----------------- ----------- the Agreement. "Eligible Inventory" has the meaning ascribed to it in Section 1.7 of ------------------ ----------- the Agreement. "Eligible In-Transit Inventory" means all finished goods inventory ----------------------------- owned by Borrower and not covered by Letters of Credit, and which finished goods Inventory is in transit from China, Hong Kong or Taiwan to Borrower's facilities in North America with a freight carrier or shipping company which is not an Affiliate of either the Borrower or the supplier and which finished goods Inventory (a) has been the subject of a transfer of title to Borrower, (b) is fully insured, (c) is subject to a first priority security interest in and lien upon such goods in favor of Agent (except for any possessory lien upon such goods in the possession of a freight carrier or shipping company securing only the freight charges for the transportation of such goods to Borrower), (d) is evidenced or deliverable pursuant to documents, notices, instruments, statements and bills of lading that have been delivered to Agent or an agent acting on its behalf, (e) with respect to which Agent has been designated as consignee on any bill of lading or document of title and (f) is otherwise deemed to be "Eligible Inventory" hereunder. A-9 "Eligible K-Mart Accounts" means post-petition Accounts owing by ------------------------ K-Mart, Inc., as debtor-in-possession, with an aggregate book value not to exceed $5,000,000 in the aggregate; provided that (i) no such Account shall -------- remain unpaid more than thirty (30) days after the receipt of goods by the Account Debtor, (ii) the debtor-in-possession credit facility provided to K-Mart, Inc. shall not have been terminated or suspended or credit availability thereunder restricted and (iii) the Chapter 11 proceeding in which K-Mart, Inc. is the debtor shall not have been converted to a liquidating Chapter 11 case or a Chapter 7 bankruptcy proceeding. "Employment Agreements" means the Employment Agreement dated as of --------------------- September 24, 1999 among Holdings, Borrower and Scott Watterson and the Employment Agreement dated as of September 24, 1999 among Holdings, Borrower and Gary Stevenson. "Environmental Laws" means all applicable federal, state, local and ------------------ foreign laws, statutes, ordinances, codes, rules, standards, orders-in-council and regulations, now or hereafter in effect, and any applicable judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree, order or judgment, imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. (S)(S)9601 et seq.) ("CERCLA"); the Hazardous Materials ------ ------ Transportation Authorization Act of 1994 (49 U.S.C( S)(S) 5101 et seq.); the ------ Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C (S)(S) 136 et seq.); the Solid Waste Disposal Act (42 U.S.C. (S)(S) 6901 et seq.); the - ------ ------ Toxic Substance Control Act (15 U.S.C (S)(S) 2601 et seq.); the Clean Air Act ------- (42 U.S.C (S)(S)7401 et seq.); the Federal Water Pollution Control Act (33 ------ U.S.C (S)(S)1251 et seq.); the Occupational Safety and Health Act (29 ------ U.S.C(S)(S)651 et seq.); and the Safe Drinking Water Act (42 U.S.C (S)(S) 300(f) ------ et seq.), and any and all regulations promulgated thereunder, and all - ------ analogous state, local and foreign counterparts or equivalents and any transfer of ownership notification or approval statutes. "Environmental Liabilities" means, with respect to any Person, all ------------------------- liabilities, obligations, responsibilities, response, remedial and removal costs, investigation and feasibility study costs, capital costs, operation and maintenance costs, losses, damages, punitive damages, property damages, natural resource damages, consequential damages, treble damages, costs and expenses (including all fees, disbursements and expenses of counsel, experts and consultants), fines, penalties, sanctions and interest incurred as a result of or related to any claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, including any arising under or related to any Environmental Laws, Environmental Permits, or in connection with any Release or threatened Release or presence of a Hazardous Material whether on, at, in, under, from or about or in the vicinity of any real or personal property. "Environmental Permits" means all permits, licenses, authorizations, --------------------- certificates, approvals or registrations required by any Governmental Authority under any Environmental Laws. A-10 "Equipment" means all "equipment," as such term is defined in the --------- Code, now owned or hereafter acquired by any Credit Party, wherever located and, in any event, including all such Credit Party's machinery and equipment, including processing equipment, conveyors, machine tools, data processing and computer equipment with software and peripheral equipment and all engineering, processing and manufacturing equipment, office machinery, furniture, materials handling equipment, tools, attachments, accessories, automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other equipment of every kind and nature, trade fixtures and fixtures not forming a part of real property, together with all additions and accessions thereto, replacements therefor, all parts therefor, all substitutes for any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties and rights with respect thereto, and all products and proceeds thereof and condemnation awards and insurance proceeds with respect thereto. "Equivalent Amount" means, on any date of determination, with respect ----------------- to obligations or valuations denominated in one currency (the "first currency"), -------------- the amount of another currency (the "second currency") which would result from --------------- the conversion of the relevant amount of the first currency into the second currency at the 12:00 noon rate quoted on the Reuters Monitor Screen (Page BOFC or such other Page as may replace such Page for the purpose of displaying such exchange rates) on such date or, if such date is not a Business Day, on the Business Day immediately preceding such date of determination, or at such other rate as may have been agreed in writing between Borrower and Agent. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time, and any regulations promulgated thereunder. "ERISA Affiliate" means, with respect to any Credit Party, any trade --------------- or business (whether or not incorporated) that, together with such Credit Party, are treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the IRC. "ERISA Event" means, with respect to any Credit Party or any ERISA ----------- Affiliate, (a) any event described in Section 4043(c) of ERISA with respect to a Title IV Plan; (b) the withdrawal of any Credit Party or ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the complete or partial withdrawal of any Credit Party or any ERISA Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Credit Party or ERISA Affiliate to make when due required contributions to a Multiemployer Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other event or condition that might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a Multiemployer Plan under Section 4041A of ERISA or the reorganization or insolvency of a Multiemployer Plan under Section 4241 of ERISA; (i) the loss of a Qualified Plan's qualification or tax exempt status; or (j) the termination of a Plan described in Section 4064 of ERISA. A-11 "ESOP" means a Plan that is intended to satisfy the requirements ---- of Section 4975(e)(7) of the IRC. "European Subsidiaries" means ICON Health & Fitness (Holdings) --------------------- Ltd., ICON Health & Fitness Italia SRL, ICON Fitness Lifestyle Limited, ICON Health & Fitness France SA, Weider Health & Fitness France SA. "Event of Default" has the meaning ascribed to it in Section 8.1. ---------------- ----------- "Excess Cash Flow" means, without duplication, with respect to ---------------- any Fiscal Year of Borrower and its Subsidiaries, consolidated net income plus ---- (a) depreciation, amortization and Interest Expense to the extent deducted in determining consolidated net income, plus decreases or minus increases (as the ----- case may be) (b) in Working Capital, minus (c) Capital Expenditures during such ----- Fiscal Year (excluding the financed portion thereof and excluding any Capital Expenditures in such Fiscal Year to the extent in excess of the amount permitted to be made in such Fiscal Year pursuant to clause (a) of Annex G), minus (d) ---------- ------- ----- Interest Expense paid or accrued (excluding any original issue discount, interest paid in kind or amortized debt discount, to the extent included in determining Interest Expense) and scheduled principal payments paid or payable in respect of Funded Debt, plus or minus (as the case may be), (e) extraordinary ---- ----- gains or losses which are cash items not included in the calculation of net income, minus (f) mandatory prepayments paid in cash pursuant to Section 1.3 ----- ----------- other than mandatory prepayments made pursuant to Sections 1.3(b)(i), ------------------- 1.3(b)(ii), 1.3(b)(iv) or 1.3(d), minus (g) voluntary prepayments made pursuant - -------------------------------- ----- to Section 1.3(a), plus (h) taxes paid in cash during such period and not -------------- ---- deducted in determining consolidated net income for that period. "Fair Labor Standards Act" means the Fair Labor Standards Act, 29 ------------------------ U.S.C.ss.201 et seq. "Federal Funds Rate" means, for any day, a floating rate equal to ------------------ the weighted average of the rates on overnight federal funds transactions among members of the Federal Reserve System, as determined by Agent. "Federal Reserve Board" means the Board of Governors of the --------------------- Federal Reserve System. "Fee Letter" has the meaning ascribed to it in Section 1.9. ---------- ----------- "Fees" means any and all fees payable to Agent or any Lender ---- pursuant to the Agreement or any of the other Loan Documents. "Financial Covenants" means the financial covenants set forth in ------------------- Annex G. - ------- "Financial Statements" means the consolidated and consolidating -------------------- income statements, statements of cash flows and balance sheets of Borrower delivered in accordance with Section 3.4 and Annex E. ----------- ------- "Fiscal Month" means any of the monthly accounting periods of ------------ Borrower. A-12 "Fiscal Quarter" means any of the quarterly accounting periods of -------------- Borrower, ending on or about August 31, November 30, February 28 and May 31 of each year; provided, however, that the first three Fiscal Quarters of each -------- ------- Fiscal Year end on the Saturday nearest the dates set forth in this definition. "Fiscal Year" means any of the annual accounting periods of ----------- Borrower ending on May 31 of each year. "Fixed Charges" means, with respect to Borrower on a consolidated ------------- basis for any fiscal period, (a) the aggregate of all Interest Expense paid or accrued during such period, plus (b) scheduled payments of principal with respect to Indebtedness during such period. "Fixed Charge Coverage Ratio" means, with respect to Borrower on --------------------------- a consolidated basis for any fiscal period, the ratio of (x) EBITDA minus the ----- sum of Capital Expenditures during such period (excluding Capital Expenditures financed by third parties) and income taxes with respect to such period paid or payable in cash to (y) Fixed Charges. For purposes of calculating the Fixed Charge Coverage Ratio, EBITDA and Capital Expenditures shall be measured on a trailing four (4) quarters basis in all instances, and Fixed Charges for the first Fiscal Quarter ending after the Closing Date shall be multiplied by four (4), for the two (2) Fiscal Quarters ending on the last day of the second Fiscal Quarter following the Closing Date, multiplied by two (2) and for the three (3) Fiscal Quarters ending on the last day of the third Fiscal Quarter following the Closing Date, multiplied by 1.333. For the four (4) Fiscal Quarters ending on the last day of the fourth Fiscal Quarter following the Closing Date and the last day of each Fiscal Quarter thereafter, Fixed Charges shall be measured on a trailing four (4) quarters basis. "Fixtures" means all "fixtures" as such term is defined in the -------- Code, now owned or hereafter acquired by any Credit Party. "Foreign Lender" has the meaning ascribed to it in Section 1.15. -------------- ------------ "Free Motion" means Free Motion Fitness, Inc., a Utah ----------- corporation. "Funded Debt" means, with respect to any Person, without ----------- duplication, all Indebtedness for borrowed money evidenced by notes, bonds, debentures, or similar evidences of Indebtedness and that by its terms matures more than one year from, or is directly or indirectly renewable or extendible at such Person's option under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from the date of creation thereof, and specifically including Capital Lease Obligations, current maturities of long-term debt, revolving credit and short-term debt extendible beyond one year at the option of the debtor, and also including, in the case of Borrower, the Obligations and, without duplication, Guaranteed Indebtedness consisting of guaranties of Funded Debt of other Persons. "GAAP" means generally accepted accounting principles in the ---- United States of America, consistently applied, as such term is further defined in Annex G to the Agreement. ------- A-13 "GE Capital" means General Electric Capital Corporation, a ---------- Delaware corporation. "General Intangibles" means "general intangibles," as such term ------------------- is defined in the Code, now owned or hereafter acquired by any Credit Party, and, in any event, including all right, title and interest that such Credit Party may now or hereafter have in or under any Contract, all customer lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor and reissues, extensions or renewals thereof, rights in Intellectual Property, interests in partnerships, joint ventures and other business associations, licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any Trademark or Trademark License), all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, deposit, checking and other bank accounts, rights to receive tax refunds and other payments, rights of indemnification, all books and records, correspondence, credit files, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of such Credit Party or any computer bureau or service company from time to time acting for such Credit Party. "Goods" means any "goods" as defined in the Code, now owned or ----- hereafter acquired by any Person. "Governmental Authority" means any nation or government, any ---------------------- state, province or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranteed Indebtedness" shall mean, as to any Person, any ----------------------- obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligation") of any other Person (the "primary ------------------ ------- obligor") in any manner, including any obligation or arrangement of such Person - ------- to (a) purchase or repurchase any such primary obligation, (b) advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (c) purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) indemnify the owner of such primary obligation against loss in respect thereof. The amount of any Guaranteed Indebtedness at any time shall be deemed to be an amount equal to the lesser at such time of (x) the stated or determinable amount of the primary obligation in respect of which such Guaranteed Indebtedness is incurred and (y) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guaranteed Indebtedness, or, if not stated or determinable, the maximum reasonably anticipated liability (assuming full performance) in respect thereof. A-14 "Guaranties" means, collectively, the Holdings Guaranty, the ---------- Subsidiary Guaranty and any other guaranty executed by any Guarantor in favor of Agent and Lenders in respect of the Obligations. "Guarantors" means Holdings, ICON of Canada, ICON New Brunswick, ---------- International Holdings, Universal, Free Motion, ICON IP, NordicTrack and Jumpking and each other Person, if any, that executes a guaranty or other similar agreement in favor of Agent in connection with the transactions contemplated by the Agreement and the other Loan Documents. "Hazardous Material" means any substance, material or waste that ------------------ is regulated by, or forms the basis of liability now or hereafter under, any Environmental Laws, including any material or substance that is (a) defined as a "hazardous waste," "hazardous material," "hazardous substance," "dangerous good," "extremely hazardous waste," "restricted hazardous waste," "pollutant," "contaminant," "hazardous constituent," "special waste," "toxic substance" or other similar term or phrase under any Environmental Laws, or (b) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or any radioactive substance. "Holdings" has the meaning ascribed to it in the recitals to the -------- Agreement. "Holdings Guaranty" means the guaranty of even date herewith ----------------- executed by Holdings in favor of Agent and Lenders. "Holdings Pledge Agreement" means the Pledge Agreement of even ------------------------- date herewith executed by Holdings in favor of Agent, on behalf of itself and Lenders, pledging all of the Stock of Borrower. "ICON IP" means ICON IP, Inc., a Delaware corporation. ------- "ICON New Brunswick" means 510152 N.B. Ltd., a New Brunswick ------------------ corporation. "ICON of Canada" means ICON of Canada Inc./ICON du Canada Inc., a -------------- Quebec company. "ICON of Canada Debenture" means the Debenture in the principal ------------------------ amount of C $600,000,000 issued by ICON of Canada to Agent pursuant to the ICON of Canada Hypothec. "ICON of Canada Hypothec" means the Deed of Hypothec entered into ----------------------- by and between Agent and ICON of Canada. "ICON of Canada Pledge Agreement" means the Pledge Agreement ------------------------------- between ICON of Canada and Agent pursuant to which ICON of Canada pledges the ICON of Canada Debenture to Agent and Lenders. "Indebtedness" means, with respect to any Person, without ------------ duplication (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property payment for which is deferred six (6) months or more, but excluding obligations to trade creditors incurred in the ordinary course of business that are not overdue by more than six (6) months unless being contested in good faith, (b) all reimbursement and other obligations with A-15 respect to letters of credit, bankers' acceptances and surety bonds, whether or not matured, (c) all obligations evidenced by notes, bonds, debentures or similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations and the present value (discounted at the Index Rate as in effect on the Closing Date) of future rental payments under all synthetic leases, (f) all obligations of such Person under commodity purchase or option agreements or other commodity price hedging arrangements, in each case whether contingent or matured, (g) all net obligations of such Person under any foreign exchange contract, currency swap agreement, interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in currency values or interest rates, in each case whether contingent or matured, (h) all Indebtedness referred to above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property or other assets (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, and (i) the Obligations. "Indemnified Liabilities" has the meaning ascribed to it in ----------------------- Section 1.13. - ------------ "Indemnified Person" has the meaning ascribed to it in Section ------------------ ------- 1.13. - ---- "Index Rate" means, for any day, a floating rate equal to the ---------- higher of (i) the rate publicly quoted from time to time by The Wall Street --------------- Journal as the "base rate on corporate loans at large U.S. money center - ------- commercial banks" (or, if The Wall Street Journal ceases quoting a base rate of ----------------------- the type described, the highest per annum rate of interest published by the Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled "Selected Interest Rates" as the Bank prime loan rate or its equivalent), and (ii) the Federal Funds Rate plus fifty (50) basis points per annum. Each change in any interest rate provided for in the Agreement based upon the Index Rate shall take effect at the time of such change in the Index Rate. "Index Rate Loan" means a Loan or portion thereof bearing --------------- interest by reference to the Index Rate. "Insolvency Laws" means any of the Bankruptcy Code, the --------------- Bankruptcy and Insolvency Act (Canada) and the Companies' Creditors Arrangement Act (Canada), each as now and hereafter in effect, any successors to such statutes and any other applicable insolvency or other similar law of any jurisdiction including, without limitation, any law of any jurisdiction permitting a debtor to obtain a stay or a compromise of the claims of its creditors against it. "Instruments" means any "instrument," as such term is defined in ----------- the Code, now owned or hereafter acquired by any Credit Party, wherever located, and, in any event, including all certificated securities, all certificates of deposit, and all notes and other, without limitation, evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. A-16 "Intellectual Property" means any and all Licenses, Patents, --------------------- Designs, Copyrights, Trademarks, and the goodwill associated with such Trademarks. "Intercompany Notes" has the meaning ascribed to it in Section ------------------ ------- 6.3. - --- "International Holdings" means ICON International Holdings, Inc., ---------------------- a Delaware corporation. "International Pledge Agreement" means a Pledge Agreement dated ------------------------------ as of the Closing Date, pledging to the Agent for the benefit of the Lenders 100% of the stock of ICON of Canada and ICON New Brunswick and 65% of the stock of all other Subsidiaries of International Holdings. "Interest Expense" means, with respect to any Person for any ---------------- fiscal period, interest expense (whether cash or non-cash) of such Person determined in accordance with GAAP for the relevant period ended on such date, including interest expense with respect to any Funded Debt of such Person and interest expense for the relevant period that has been capitalized on the balance sheet of such Person. "Interest Payment Date" means (a) as to any Index Rate Loan the --------------------- first Business Day of each month to occur while such Loan is outstanding, and (b) as to any LIBOR Loan, the last day of the applicable LIBOR Period; provided, -------- that in the case of any LIBOR Period greater than three months in duration, interest shall be payable at three month intervals and on the last day of such LIBOR Period; and provided further that, in addition to the foregoing, each of -------- ------- (x) the date upon which all of the Commitments have been terminated and the Loans have been paid in full and (y) the Commitment Termination Date shall be deemed to be an "Interest Payment Date" with respect to any interest that has --------------------- then accrued under the Agreement. "Intermediate Holdings" means ICON Fitness Corporation, a --------------------- Delaware corporation. "Inventory" means any "inventory," as such term is defined in the --------- Code, now owned or hereafter acquired by any Credit Party, wherever located, and in any event including inventory, merchandise, goods and other personal property that are held by or on behalf of any Credit Party for sale or lease or are furnished or are to be furnished under a contract of service, or that constitute raw materials, work in process or materials used or consumed or to be used or consumed in such Credit Party's business or in the processing, production, packaging, promotion, delivery or shipping of the same, including other supplies. "Investment Property" means all "investment property" as such ------------------- term is defined in Section 9-115 of the Code in those jurisdictions in which such definition has been adopted now owned or hereafter acquired by any Credit Party, wherever located, including (i) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all securities entitlements of any Credit Party, including the rights of such Credit Party to any securities account and the financial assets held by a securities intermediary in such securities account and any free credit balance or other money owing by any securities intermediary with A-17 respect to that account; (iii) all securities accounts of any Credit Party; (iv) all commodity contracts of any Credit Party; and (v) all commodity accounts held by any Credit Party. "IRC" means the Internal Revenue Code of 1986, as amended, and --- all regulations promulgated thereunder. "IRS" means the Internal Revenue Service. --- "ITA" means the Income Tax Act (Canada) as the same may, from --- time to time, be in effect. "Jumpking" means Jumpking, Inc., a Utah corporation. -------- "L/C Issuer" has the meaning ascribed to it in Annex B. ---------- ------- "L/C Sublimit" has the meaning ascribed to in it Annex B. ------------ ------- "Lenders" means GE Capital and other Lenders named on the ------- signature pages of the Agreement, and, if any such Lender shall decide to assign all or any portion of the Obligations, such term shall include any assignee of such Lender. "Letter of Credit Fee" has the meaning ascribed to it in Annex B. -------------------- ------- "Letter of Credit Obligations" means all outstanding obligations ---------------------------- incurred by Agent and Lenders at the request of Borrower, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance of a reimbursement agreement or guaranty by Agent or purchase of a participation as set forth in Annex B with respect to any Letter of Credit. The ------- amount of such Letter of Credit Obligations shall equal the maximum amount that may be payable by Agent or Lenders thereupon or pursuant thereto. "Letter-of-Credit Rights" means letter-of-credit rights as such ----------------------- term is defined in the Code, now owned or hereafter acquired by any Credit Party, including rights to payment or performance under a letter of credit, whether or not such Credit Party, as beneficiary, has demanded or is entitled to demand payment or performance. "Letters of Credit" means commercial or standby letters of credit ----------------- issued for the account of Borrower by any L/C Issuer, and bankers' acceptances issued by Borrower, for which Agent and Lenders have incurred Letter of Credit Obligations. "LIBOR Business Day" means a Business Day on which banks in the ------------------ City of London are generally open for interbank or foreign exchange transactions. "LIBOR Loan" means a Loan or any portion thereof bearing interest ---------- by reference to the LIBOR Rate. "LIBOR Period" means, with respect to any LIBOR Loan, each period ------------ commencing on a LIBOR Business Day selected by Borrower pursuant to the Agreement and ending one, two, three or six months thereafter, as selected by Borrower's irrevocable notice to A-18 Agent as set forth in Section 1.5(e); provided, that the foregoing provision -------------- -------- relating to LIBOR Periods is subject to the following: (a) if any LIBOR Period would otherwise end on a day that is not a LIBOR Business Day, such LIBOR Period shall be extended to the next succeeding LIBOR Business Day unless the result of such extension would be to carry such LIBOR Period into another calendar month in which event such LIBOR Period shall end on the immediately preceding LIBOR Business Day; (b) any LIBOR Period that would otherwise extend beyond the Commitment Termination Date shall end two (2) LIBOR Business Days prior to such date; (c) any LIBOR Period that begins on the last LIBOR Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Period) shall end on the last LIBOR Business Day of a calendar month; (d) Borrower shall select LIBOR Periods so as not to require a payment or prepayment of any LIBOR Loan during a LIBOR Period for such Loan; and (e) Borrower shall select LIBOR Periods so that there shall be no more than seven (7) separate LIBOR Loans in existence at any one time. "LIBOR Rate" means for each LIBOR Period, a rate of interest ---------- determined by Agent equal to: (a) the offered rate for deposits in United States Dollars for the applicable LIBOR Period that appears on Telerate Page 3750 as of 11:00 a.m. (London time), on the second full LIBOR Business Day next preceding the first day of such LIBOR Period (unless such date is not a Business Day, in which event the next succeeding Business Day will be used); divided by (b) a number equal to 1.0 minus the aggregate (but without ----- duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day that is two (2) LIBOR Business Days prior to the beginning of such LIBOR Period (including basic, supplemental, marginal and emergency reserves under any regulations of the Federal Reserve Board or other Governmental Authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board which are required to be maintained by a member bank of the Federal Reserve System. If such interest rates shall cease to be available from Telerate News Service, the LIBOR Rate shall be determined from such financial reporting service or other information as shall be mutually acceptable to Agent and Borrower. "License" means any Copyright License, Patent License, Trademark ------- License, Design License or other license of rights or interests now held or hereafter acquired by any Credit Party. A-19 "Lien" means any mortgage or deed of trust, pledge, ---- hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Code or comparable law of any jurisdiction). "Litigation" has the meaning ascribed to it in Section 3.13. ---------- ------------ "Loan Account" has the meaning ascribed to it in Section 1.12. ------------ ------------ "Loan Documents" means the Agreement, the Notes, the Collateral -------------- Documents and all other agreements, instruments, documents and certificates identified in the Closing Checklist executed and delivered to, or in favor of, Agent or any Lenders and including all other pledges, powers of attorney, consents, assignments, contracts, notices, and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Credit Party, or any employee of any Credit Party, and delivered to Agent or any Lender in connection with the Agreement or the transactions contemplated thereby. Any reference in the Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to the Agreement or such Loan Document as the same may be in effect at any and all times such reference becomes operative. "Loans" means the Revolving Loan, the Swing Line Loan, and the ----- Term Loan. "Lock Boxes" has the meaning ascribed to it in Annex C. ---------- ------- "Management Agreements" means each of the Management Agreements --------------------- dated as of the September 24, 1999 among Borrower, Holdings, and each of Scott Watterson and Gary Stevenson, the Management Agreement dated as of the September 24, 1999 among Borrower, Holdings and Bain Capital, Inc. and Section 7.1(b) of Securities Purchase Agreement dated as of the September 24, 1999 between Holdings and CS First Boston. "Margin Stock" has the meaning ascribed to it in Section 3.10. ------------ ------------ "Material Adverse Effect" means a material adverse effect on (a) ----------------------- the business, assets, operations or financial or other condition of the Credit Parties considered as a whole, (b) Borrower's ability to pay any of the Loans or any of the other Obligations in accordance with the terms of the Agreement, (c) the Collateral or Agent's Liens, on behalf of itself and Lenders, on the Collateral or the priority of such Liens, or (d) Agent's or any Lender's rights and remedies under the Agreement and the other Loan Documents. Without limiting the generality of the foregoing, any event or occurrence adverse to one or more Credit Parties which results or could reasonably be expected to result in costs and/or liabilities in excess of $5,000,000 shall constitute a Material Adverse Effect. A-20 "Maximum Amount" means, as of any date of determination, an -------------- amount equal to the Revolving Loan Commitment of all Lenders as of that date. "Maximum Lawful Rate" has the meaning ascribed to it in Section ------------------- ------- 1.5(f). - ------ "Mortgaged Properties" has the meaning assigned to it in Annex D. -------------------- ------- "Mortgages" means each of the mortgages, deeds of trust, --------- leasehold mortgages, leasehold deeds of trust, collateral assignments of leases or other real estate security documents delivered by any Credit Party to Agent on behalf of itself and Lenders with respect to the Mortgaged Properties, all in form and substance satisfactory to Agent. "Multiemployer Plan" means a "multiemployer plan" as defined in ------------------ Section 4001(a)(3) of ERISA, and to which any Credit Party or ERISA Affiliate is making, is obligated to make or has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them. "Net Borrowing Availability" means as of any date of -------------------------- determination, the lesser of (i) the Maximum Amount and (ii) the Borrowing Base, in each case less the sum of the Revolving Loan and Swing Line Loan then ---- outstanding. "Non-Consenting Lender" has the meaning ascribed to it in Section --------------------- ------- 11.2(d). - ------- "Non-Funding Lender" has the meaning ascribed to it in Section ----------------- ------- 9.9(a). - ------ "NordicTrack" means NordicTrack, Inc., a Utah corporation. ----------- "Notes" means the Revolving Notes and the Swing Line Note. ----- "Notice of Conversion/Continuation" has the meaning ascribed to --------------------------------- it in Section 1.5(e). -------------- "Notice of Revolving Credit Advance" has the meaning ascribed to ---------------------------------- it in Section 1.1(a). -------------- "Obligations" means all loans, advances, debts, liabilities and ----------- obligations, for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or such amounts are liquidated or determinable) owing by any Credit Party to Agent or any Lender, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under the Agreement or any of the other Loan Documents. This term includes all principal, interest, hedging obligations, cash management account obligations (including all interest that accrues after the commencement of any case or proceeding by or against any Credit Party in bankruptcy, whether or not allowed in such case of proceeding), Fees, Charges, expenses, attorneys' fees and any other sum chargeable to any Credit Party under the Agreement or any of the other Loan Documents. A-21 "Old Holdcos" shall mean collectively IHF Capital, Inc., IHF Holdings, ----------- Inc. and ICON Fitness Corporation, a Delaware corporation "Original Credit Agreement" means that certain Credit Agreement dated ------------------------- as of September 24, 1999 among Borrower, the other Credit Parties signatory thereto, Agent, Fleet National Bank as a Lender and as Syndication Agent and the other Lenders signatory thereto. "Original Lenders" means collectively GE Capital and the lenders under ---------------- the Original Credit Agreement. "Original Obligations" means the "Obligations" as defined in the -------------------- Original Credit Agreement. "Other Lender" has the meaning ascribed to it in Section 9.9(d). ------------ -------------- "Patent Security Agreements" means the Patent Security Agreements made -------------------------- in favor of Agent, on behalf of itself and Lenders, by each applicable Credit Party. "Patent License" means rights under any written agreement now owned or -------------- hereafter acquired by any Credit Party granting any right with respect to any invention on which a Patent is in existence. "Patents" means all of the following in which any Credit Party now ------- holds or hereafter acquires any interest: (a) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or of any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State or any other country, and (b) all reissues, continuations, continuations-in-part or extensions thereof. "PBGC" means the Pension Benefit Guaranty Corporation. ---- "Pension Plan" means a Plan described in Section 3(2) of ERISA. ------------ "Permitted Acquisition" means each Acquisition which satisfies the --------------------- conditions set forth in Section 2.3. ----------- "Permitted Encumbrances" means the following encumbrances: (a) Liens ---------------------- for taxes or assessments or other governmental Charges not yet due and payable or which are being contested in accordance with Section 5.2(b); (b) pledges or -------------- deposits of money securing statutory obligations under workmen's compensation, unemployment insurance, social security or public liability laws or similar legislation (excluding Liens under ERISA); (c) pledges or deposits of money securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which any Credit Party is a party as lessee made in the ordinary course of business; (d) inchoate and unperfected workers', mechanics' or similar liens arising in the ordinary course of business, so long as such Liens attach only to Equipment, Fixtures and/or Real Estate; (e) carriers', warehousemen's or other similar possessory liens arising in the ordinary course of business and securing liabilities in an outstanding aggregate amount not in excess of $1,000,000 at any time, so long as such Liens attach only to Inventory; (f) deposits securing, or in lieu of, A-22 surety, appeal or customs bonds in proceedings to which any Credit Party is a party; (g) any attachment or judgment lien not constituting an Event of Default under Section 8.1(j); (h) zoning restrictions, easements, licenses, or other -------------- restrictions on the use of any Real Estate or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such Real Estate; (i) presently existing or hereafter created Liens in favor of Agent, on behalf of Agent and Lenders or in favor of Agent and Lenders, as applicable; (j) Liens expressly permitted under clauses (b), (c) and (d) of Section 6.7 of the Agreement; and ------------------------ ----------- (k) to the extent not included in clauses (a), (d) or (e) of this definition, ----------------------- Prior Claims that are unregistered and that secure amounts that are not yet due and payable. "Person" means any individual, sole proprietorship, partnership, joint ------ venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county, city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof). "Plan" means, at any time, an "employee benefit plan," as defined in ---- Section 3(3) of ERISA, that any Credit Party or ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any Credit Party. "Pledge Agreements" means the Borrower Pledge Agreement, the Holdings ----------------- Pledge Agreement, International Pledge Agreement and any other pledge agreement entered into after the Closing Date by any Credit Party (as required by the Agreement or any other Loan Document). "Prior Claims" means all Liens created by applicable law (in contrast ------------ with Liens voluntarily granted) which rank or are capable of ranking prior or pari passu with Agent's security interests or Agent's and Lenders' hypothecs (or the applicable equivalent of such Liens), as applicable, against all or part of the Collateral, including for amounts owing for wages, employee deductions, goods and services taxes, sales taxes, income taxes, employer health taxes, municipal taxes, workers' compensation, pension fund obligations and overdue rents. "Proceeds" means "proceeds," as such term is defined in the Code and, -------- in any event, shall include (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any Credit Party from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to any Credit Party from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of governmental authority), (c) any claim of any Credit Party against third parties (i) for past, present or future infringement of any Patent or Patent License, or (ii) for past, present or future infringement or dilution of any Copyright, Copyright License, Trademark or Trademark License, or for injury to the goodwill associated with any Trademark or Trademark License, (d) any recoveries by any Credit Party against third parties with respect to any litigation or dispute concerning any of the Collateral, (e) dividends, interest and distributions with respect to Investment Property, and (f) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral, upon disposition or otherwise. A-23 "Pro Forma" means the unaudited consolidated and consolidating balance --------- sheet of Borrower and its Subsidiaries as of March 2, 2002 after giving pro forma effect to the Related Transactions. "Pro Rata Share" means with respect to all matters relating to any -------------- Lender (a) with respect to the Revolving Loan (including the Swing Line Loan as a subset of the Swing Line Lender's Revolving Loan), the percentage obtained by dividing (i) the Revolving Loan Commitment (including the Swing Line Commitment as a subset of the Swing Line Lender's Revolving Loan Commitment) of that Lender by (ii) the aggregate Revolving Loan Commitments of all Lenders, (b) with respect to the Term Loan, the percentage obtained by dividing (i) the Term Loan Commitment of each Term Lender by (ii) the aggregate Term Loan Commitment of all Term Lenders, as any such percentages may be adjusted by assignments permitted by Section 9.1. ----------- "Projections" means Borrower's forecasted consolidated and ----------- consolidating: (a) balance sheets; (b) profit and loss statements; and (c) cash flow statements, all prepared on a Subsidiary by Subsidiary or division-by-division basis, if applicable, and otherwise consistent with the historical Financial Statements of Borrower, together with appropriate supporting details and a statement of underlying assumptions. "Proposed Change" has the meaning ascribed to it in Section 11.2(d). --------------- --------------- "Public Offering" means a firm underwritten public offering of common --------------- stock registered on form S-1, S-2 or S-3 under the Securities Act of 1933, as amended, by a nationally recognized investment banking firm and after giving effect to which the issuer shall be qualified for listing on the NASDAQ National Market, the American Stock Exchange or the New York Stock Exchange. "Qualified Assignee" means (i) (a) any Lender, any Affiliate of any ------------------ Lender and, with respect to any Lender that is an investment fund that invests in commercial loans, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor, and (b) any commercial bank, savings and loan association or savings bank or any other entity which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses, including insurance companies, mutual funds, lease financing companies and commercial finance companies; and (ii) in addition to the criteria set forth in the foregoing clause (i), any such ---------- Assignee shall be a Person which has and maintains a rating of BBB or higher from S&P and a rating of Baa2 or higher from Moody's and which, through its applicable lending office, is capable of lending to Borrower without the imposition of any withholding or similar taxes; provided that (a) no Affiliate -------- of any Credit Party, (b) no Person determined by Agent to be acting in the capacity of a vulture fund and (c) no Person who holds Subordinated Debt or is an Affiliate of a holder of Subordinated Debt shall be a Qualified Assignee. "Qualified Plan" means a Pension Plan that is intended to be -------------- tax-qualified under Section 401(a) of the IRC. A-24 "Real Estate" has the meaning ascribed to it in Section 3.6. ----------- "Refinancing" means the repayment in full of the Original Obligations. ----------- "Refunded Swing Line Loan" has the meaning ascribed to it in Section ------------------------v ------- 1.1(c). - ------ "Related Person" has the meaning ascribed to it in Annex C. -------------- ------- "Related Transactions" means the initial borrowing under the Revolving -------------------- Loan and the Term Loan on the Closing Date, the Refinancing, the issuance of the Subordinated Debt and the payment of all fees, costs and expenses associated with all of the foregoing and the execution and delivery of all of the Related Transactions Documents. "Related Transactions Documents" means the Loan Documents and the ------------------------------ Subordinated Debt Documents. "Relationship Bank" has the meaning ascribed to it in Annex C. ----------------- ------- "Release" means any release, threatened release, spill, emission, ------- leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Material in the indoor or outdoor environment, including the movement of Hazardous Material through or in the air, soil, surface water, ground water or property. "Replacement Lender" has the meaning ascribed to it in Section ------------------ ------- 1.16(d). - ------- "Requisite Lenders" means Lenders having (a) more than sixty-six and ----------------- two-thirds percent (66 2/3%) of the Commitments of all Lenders, or (b) if the Commitments have been terminated, more than sixty-six and two-thirds percent (66 2/3%) of the aggregate outstanding amount of the Loans. "Requisite Revolving Lenders" means Lenders having (a) more than --------------------------- sixty-six and two-thirds percent (66 2/3%) of the Revolving Loan Commitments of all Lenders, or (b) if the Revolving Loan Commitments have been terminated, more than sixty-six and two-thirds percent (66 2/3%) of the aggregate outstanding amount of the Revolving Loan. "Reserves" means, with respect to the Borrowing Base (a) reserves -------- established by Agent from time to time against Eligible Inventory pursuant to Section 5.10, (b) reserves established pursuant to Section 5.4(c), and (c) such - ------------ -------------- other reserves (including in respect of Prior Claims) against Eligible Accounts, Eligible Inventory or Borrowing Availability that Agent may, in its reasonable credit judgment, establish from time to time. Without limiting the generality of the foregoing, Reserves established to ensure the payment of accrued Interest Expenses, Indebtedness or Prior Claims shall be deemed to be a reasonable exercise of Agent's credit judgment. "Restricted Payment" means, with respect to any Credit Party (a) the ------------------ declaration or payment of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of Stock; (b) any payment on account of A-25 the purchase, redemption, defeasance, sinking fund or other retirement of such Credit Party's Stock or any other payment or distribution made in respect thereof, either directly or indirectly; (c) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to, any Subordinated Debt; (d) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire Stock of such Credit Party now or hereafter outstanding; (e) any payment of a claim for the rescission of the purchase or sale of, or for material damages arising from the purchase or sale of, any shares of such Credit Party's Stock or of a claim for reimbursement, indemnification or contribution arising out of or related to any such claim for damages or rescission; (f) any payment, loan, contribution, or other transfer of funds or other property to any Stockholder of such Credit Party other than payment of compensation in the ordinary course to stockholders who are employees of such Credit Party; and (g) any payment of management fees (or other fees of a similar nature) by such Credit Party to any Stockholder of such Credit Party or its Affiliates. "Retiree Welfare Plan" means, at any time, a Welfare Plan that -------------------- provides for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant's termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the participant. "Revolving Credit Advance" has the meaning ascribed to it in Section ------------------------ 1.1(a). "Revolving Lenders" means, as of any date of determination, Lenders ----------------- having a Revolving Loan Commitment. "Revolving Loan" means, at any time, the sum of (i) the aggregate -------------- amount of Revolving Credit Advances outstanding to Borrower plus (ii) the ---- aggregate Letter of Credit Obligations incurred on behalf of Borrower. Unless the context otherwise requires, references to the outstanding principal balance of the Revolving Loan shall include the outstanding balance of Letter of Credit Obligations. "Revolving Loan Commitment" means (a) as to any Revolving Lender, the ------------------------- aggregate commitment of such Revolving Lender to make Revolving Credit Advances (including without duplication Swing Line Advances as a subset of the Swing Line Lender's Revolving Loan Commitment) or incur Letter of Credit Obligations as set forth on Annex J to the Agreement or in the most recent Assignment Agreement ------- executed by such Revolving Lender and (b) as to all Revolving Lenders, the aggregate commitment of all Revolving Lenders to make Revolving Credit Advances (including without duplication Swing Line Advances as a subset of the Swing Line Lender's Revolving Loan Commitment) or incur Letter of Credit Obligations, which aggregate commitment shall be Two Hundred Ten Million Dollars ($210,000,000) on the Closing Date, as such amount may be adjusted, if at all, from time to time in accordance with the Agreement. "Revolving Note" has the meaning ascribed to it in Section 1.1(a). -------------- -------------- A-26 "Security Agreement" means the Security Agreement of even date ------------------ herewith entered into by and among Agent, on behalf of itself and Lenders, and each Credit Party that is a signatory thereto. "Settlement Date" has the meaning ascribed to it in Section 9.9(a). --------------- -------------- "Software" means all "software" as such term is defined in the Code, -------- now owned or hereafter acquired by any Credit Party, other than software embedded in any category of goods, including all computer programs and all supporting information provided in connection with a transaction related to any program. "Solvent" means (i) with respect to any Person on a particular date ------- that is subject to Insolvency Laws of the United States of America, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person; (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (d) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person's property would constitute an unreasonably small capital and (ii) with respect to any Person on a particular date that is subject to Insolvency Laws of Canada, that on such date (a) the property of such Person is sufficient, if disposed of at a fairly conducted sale under legal process, to enable payment of all its obligations, due and accruing due, (b) the property of such Person is, at a fair valuation, greater than the total amount of liabilities, including contingent liabilities, of such Person; (c) such Person has not ceased paying its current obligations in the ordinary course of business as they generally become due. The amount of contingent liabilities (such as litigation, guaranties and pension plan liabilities) at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, represents the amount that can be reasonably be expected to become an actual or matured liability. "Stock" means all shares, options, warrants, general or limited ----- partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934). "Stockholder" means, with respect to any Person, each holder of Stock ----------- of such Person. "Stockholders Agreement" means the certain Stockholders Agreement ---------------------- among the stockholders of Holdings dated as of September 24, 1999. "Subordinated Debt" means the Indebtedness of Borrower evidenced by ----------------- the Subordinated Notes and any other Indebtedness of any Credit Party subordinated to the A-27 Obligations in a manner and form satisfactory to Agent and Lenders in their sole discretion, as to right and time of payment and as to any other rights and remedies thereunder. "Subordinated Debt Documents" means the Subordinated Notes and the --------------------------- Indenture between Borrower and The Bank of New York dated as of April 9, 2002, as from time to time amended. "Subordinated Notes" means those certain 11.25% unsecured Subordinated ------------------ Notes due 2012 issued by Borrower in an aggregate original principal amount of $155,000,000. "Subsidiary" means, with respect to any Person, (a) any corporation of ---------- which an aggregate of more than fifty percent (50%) of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of fifty percent (50%) or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%) or of which any such Person is a general partner or may exercise the powers of a general partner. Unless the context otherwise requires, each reference to a Subsidiary shall be a reference to a Subsidiary of the Borrower. "Subsidiary Guarantor" means a domestic or Canadian Subsidiary of -------------------- Borrower (a) that is a Guarantor under this Agreement, (b) that has granted Agent for the benefit of Lenders a security interest in all or substantially all of its assets and (c) 100% of the issued and outstanding Stock of which has been pledged to Agent for the benefit of Lenders. "Subsidiary Guaranty" the guaranty of even date herewith executed by ------------------- International Holdings, Universal, Free Motion, ICON IP, NordicTrack and Jumpking in favor of Agent and Lenders. "Supporting Obligations" means all supporting obligations as such term ---------------------- is defined in the Code, including letters of credit and guaranties issued in support of Accounts, Chattel Paper, Documents, General Intangibles, Instruments, or Investment Property. "Swing Line Advance" has the meaning ascribed to it in Section 1.1(c). ------------------ -------------- "Swing Line Availability" has the meaning ascribed to it in Section ----------------------- ------- 1.1(c). - ------ "Swing Line Commitment" means, as to the Swing Line Lender, the --------------------- commitment of the Swing Line Lender to make Swing Line Advances as set forth on Annex J to the Agreement, which commitment constitutes a subfacility of the - ------- Revolving Loan Commitment of the Swing Line Lender. "Swing Line Lender" means GE Capital. ----------------- A-28 "Swing Line Loan" means at any time, the aggregate amount of Swing --------------- Line Advances outstanding to Borrower. "Swing Line Note" has the meaning ascribed to it in Section 1.1(c). --------------- -------------- "Target" has the meaning ascribed to it in Section 2.3. ------ ----------- "Taxes" means taxes, levies, imposts, deductions, Charges and ----- withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the net income of Agent or a Lender by the jurisdictions under the laws of which Agent and Lenders are organized or any political subdivision thereof. "Term Lenders" means those Lenders having a Term Loan Commitment. ------------ "Term Loan" shall have the meaning assigned to it in Section --------- ------- 1.1(b)(i). - --------- "Term Loan Commitment" means (a) as to any Lender with a Term Loan -------------------- Commitment, the commitment of such Lender to make its Pro Rata Share of the Term Loan as set forth on Annex J to the Agreement or in the most recent Assignment ------- Agreement executed by such Lender, and (b) as to all Lenders with a Term Loan Commitment, the aggregate commitment of all Lenders to make the Term Loan, which aggregate commitment shall be Twenty-Five Million Dollars ($25,000,000) on the Closing Date. After advancing the Term Loan, each reference to a Lender's Term Loan Commitment shall refer to that Lender's Pro Rata Share of the outstanding Term Loan. "Term Note" has the meaning assigned to it in Section 1.1(b)(i). --------- ----------------- "Termination Date" means the date on which (a) the Loans have been ---------------- indefeasibly repaid in full, (b) all other Obligations under the Agreement and the other Loan Documents have been completely discharged, (c) all Letter of Credit Obligations have been cash collateralized, cancelled or backed by stand-by letters of credit in accordance with Annex B, and (d) Borrower shall ------- not have any further right to borrow any monies under the Agreement. "Title IV Plan" means a Pension Plan (other than a Multiemployer ------------- Plan), that is covered by Title IV of ERISA, and that any Credit Party or ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Trademark Security Agreements" means the Trademark Security ----------------------------- Agreements made in favor of Agent, on behalf of Lenders, by each applicable Credit Party. "Trademark License" means rights under any written agreement now owned ----------------- or hereafter acquired by any Credit Party granting any right to use any Trademark. "Trademarks" means all of the following now owned or hereafter adopted ---------- or acquired by any Credit Party: (a) all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature A-29 (whether registered or unregistered), all registrations and recordings thereof, and all applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof; (b) all reissues, extensions or renewals thereof; and (c) all goodwill associated with or symbolized by any of the foregoing. "Unfunded Pension Liability" means, at any time, the aggregate amount, -------------------------- if any, of the sum of (a) the amount by which the present value of all accrued benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions for funding purposes in effect under such Title IV Plan, and (b) for a period of five (5) years following a transaction which might reasonably be expected to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by any Credit Party or any ERISA Affiliate as a result of such transaction. "Uniform Commercial Code jurisdiction" means any jurisdiction that had ------------------------------------ adopted all or substantially all of Article 9 as contained in the 2000 Official Text of the Uniform Commercial Code, as recommended by the National Conference of Commissioners on Uniform State Laws and the American Law Institute, together with any subsequent amendments or modifications to the Official Text. "Universal" means Universal Technical Services, a Utah corporation. --------- "Versalite" means Versalite Systems Co., Ltd., a British Virgin --------- Islands company. "Welfare Plan" means a Plan described in Section 3(i) of ERISA. ------------ "Working Capital" means the average of Borrower's Current Assets less --------------- Current Liabilities for the first three months of each Fiscal Year compared to the average of Borrower's Current Assets less Current Liabilities for the last ---- three months of such Fiscal Year. Rules of construction with respect to accounting terms used in the Agreement or the other Loan Documents shall be as set forth in Annex G. All other undefined terms contained in any of the Loan Documents shall, unless the context indicates otherwise, have the meanings provided for by the Code as in effect in the State of Illinois to the extent the same are used or defined therein. Unless otherwise specified, references in the Agreement or any of the Appendices to a Section, subsection or clause refer to such Section, subsection or clause as contained in the Agreement. The words "herein," "hereof" and "hereunder" and other words of similar import refer to the Agreement as a whole, including all Annexes, Exhibits and Schedules, as the same may from time to time be amended, restated, modified or supplemented, and not to any particular section, subsection or clause contained in the Agreement or any such Annex, Exhibit or Schedule. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter genders. The words A-30 "including," "includes" and "include" shall be deemed to be followed by the words "without limitation"; the word "or" is not exclusive; references to Persons include their respective successors and assigns (to the extent and only to the extent permitted by the Loan Documents) or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of the same and any successor statutes and regulations. Whenever any provision in any Loan Document refers to the knowledge (or an analogous phrase) of any Credit Party, such words are intended to signify that such Credit Party has actual knowledge or awareness of a particular fact or circumstance or that such Credit Party, if it had exercised reasonable diligence, would have known or been aware of such fact or circumstance. A-31 ANNEX B (Section 1.2) ----------- to CREDIT AGREEMENT ---------------- LETTERS OF CREDIT ----------------- (a) Issuance. Subject to the terms and conditions of the Agreement, -------- Agent and Revolving Lenders agree to incur, from time to time prior to the Commitment Termination Date, upon the request of Borrower and for Borrower's account, Letter of Credit Obligations by causing Letters of Credit to be issued (by a bank or other legally authorized Person selected by or acceptable to Agent in its sole discretion (each, an "L/C Issuer")) for Borrower's account and ---------- guaranteed by Agent; provided, that if the L/C Issuer is a Revolving Lender, -------- then such Letters of Credit shall not be guaranteed by Agent but rather each Revolving Lender shall, subject to the terms and conditions hereinafter set forth, purchase (or be deemed to have purchased) risk participations in all such Letters of Credit issued with the written consent of Agent, as more fully described in paragraph (b)(ii) below. The aggregate amount of all such Letter of Credit Obligations shall not at any time exceed the least of (i) Ten Million Dollars ($10,000,000) (the "L/C Sublimit"), (ii) the Maximum Amount less the ------------ ---- aggregate outstanding principal balance of the Revolving Credit Advances and the Swing Line Loan, and (iii) the Borrowing Base less the aggregate outstanding ---- principal balance of the Revolving Credit Advances and the Swing Line Loan. No such Letter of Credit shall have an expiry date that is more than one year following the date of issuance thereof, and neither Agent nor Revolving Lenders shall be under any obligation to incur Letter of Credit Obligations in respect of, or purchase risk participations in, any Letter of Credit having an expiry date that is later than the Commitment Termination Date. (b) (i) Advances Automatic; Participations. In the event that Agent ---------------------------------- or any Revolving Lender shall make any payment on or pursuant to any Letter of Credit Obligation, such payment shall then be deemed automatically to constitute a Revolving Credit Advance under Section 1.1(a) of the Agreement regardless of -------------- whether a Default or Event of Default has occurred and is continuing and notwithstanding Borrower's failure to satisfy the conditions precedent set forth in Section 2, and each Revolving Lender shall be obligated to pay its Pro Rata --------- Share thereof in accordance with the Agreement. The failure of any Revolving Lender to make available to Agent for Agent's own account its Pro Rata Share of any such Revolving Credit Advance or payment by Agent under or in respect of a Letter of Credit shall not relieve any other Revolving Lender of its obligation hereunder to make available to Agent its Pro Rata Share thereof, but no Revolving Lender shall be responsible for the failure of any other Revolving Lender to make available such other Revolving Lender's Pro Rata Share of any such payment. (ii) If it shall be illegal or unlawful for Borrower to incur Revolving Credit Advances as contemplated by paragraph (b)(i) above because of an Event of Default described in Sections 8.1(h) or (i) or otherwise or if it --------------- shall be illegal or unlawful for any Revolving Lender to be deemed to have assumed a ratable share of the reimbursement obligations owed to an L/C Issuer, or if the L/C Issuer is a Revolving Lender, then (i) immediately and without further action whatsoever, each Revolving Lender shall be deemed to have irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the case may be) an undivided interest and participation equal to such Revolving Lender's Pro Rata Share B-1 (based on the Revolving Loan Commitments) of the Letter of Credit Obligations in respect of all Letters of Credit then outstanding and (ii) thereafter, immediately upon issuance of any Letter of Credit, each Revolving Lender shall be deemed to have irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the case may be) an undivided interest and participation in such Revolving Lender's Pro Rata Share (based on the Revolving Loan Commitments) of the Letter of Credit Obligations with respect to such Letter of Credit on the date of such issuance. Each Revolving Lender shall fund its participation in all payments or disbursements made under the Letters of Credit in the same manner as provided in the Agreement with respect to Revolving Credit Advances. (c) Cash Collateral. (i) If Borrower is required to provide cash --------------- collateral for any Letter of Credit Obligations pursuant to the Agreement prior to the Commitment Termination Date, Borrower will pay to Agent for the ratable benefit of itself and Revolving Lenders cash or cash equivalents acceptable to Agent ("Cash Equivalents") in an amount equal to 105% of the maximum amount then ---------------- available to be drawn under each applicable Letter of Credit outstanding. Such funds or Cash Equivalents shall be held by Agent in a cash collateral account (the "Cash Collateral Account") maintained at a bank or financial institution ----------------------- acceptable to Agent. The Cash Collateral Account shall be in the name of Borrower and shall be pledged to, and subject to the control of, Agent, for the benefit of Agent and Lenders, in a manner satisfactory to Agent. Borrower hereby pledges and grants to Agent, on behalf of itself and Lenders, a security interest in all such funds and Cash Equivalents held in the Cash Collateral Account from time to time and all proceeds thereof, as security for the payment of all amounts due in respect of the Letter of Credit Obligations and other Obligations, whether or not then due. The Agreement, including this Annex B, ------- shall constitute a security agreement under applicable law. (ii) If any Letter of Credit Obligations, whether or not then due and payable, shall for any reason be outstanding on the Commitment Termination Date, Borrower shall either (A) provide cash collateral therefor in the manner described above, or (B) cause all such Letters of Credit and guaranties thereof to be canceled and returned, or (C) deliver a stand-by letter (or letters) of credit in guarantee of such Letter of Credit Obligations, which stand-by letter (or letters) of credit shall be of like tenor and duration (plus thirty (30) additional days) as, and in an amount equal to 105% of the aggregate maximum amount then available to be drawn under, the Letters of Credit to which such outstanding Letter of Credit Obligations relate and shall be issued by a Person, and shall be subject to such terms and conditions, as are satisfactory to Agent in its sole discretion. (iii) From time to time after funds are deposited in the Cash Collateral Account by Borrower, whether before or after the Commitment Termination Date, Agent may apply such funds or Cash Equivalents then held in the Cash Collateral Account to the payment of any amounts, and in such order as Agent may elect, as shall be or shall become due and payable by Borrower to Agent and Lenders with respect to such Letter of Credit Obligations of Borrower and, upon the satisfaction in full of all Letter of Credit Obligations of Borrower, to any other Obligations then due and payable. Neither Borrower nor any Person claiming on behalf of or through Borrower shall have any right to withdraw any of the funds or Cash Equivalents held in the Cash Collateral B-2 Account, except that upon the termination of all Letter of Credit Obligations and the payment of all amounts payable by Borrower to Agent and Lenders in respect thereof, any funds remaining in the Cash Collateral Account shall be applied to other Obligations then due and owing and upon payment in full of such Obligations, any remaining amount shall be paid to Borrower or as otherwise required by law. (d) Fees and Expenses. Borrower agrees to pay to Agent for the ----------------- benefit of Revolving Lenders, as compensation to such Lenders for Letter of Credit Obligations incurred hereunder, (x) all costs and expenses incurred by Agent or any Lender on account of such Letter of Credit Obligations, and (y) for each month during which any Letter of Credit Obligation shall remain outstanding, a fee (the "Letter of Credit Fee") in an amount equal to the -------------------- Applicable L/C Margin from time to time in effect multiplied by the maximum amount available from time to time to be drawn under the applicable Letter of Credit. Such fee shall be paid to Agent for the benefit of the Revolving Lenders in arrears, on the first day of each month and on the Commitment Termination Date. In addition, Borrower shall pay to any L/C Issuer, on demand, such fees (including all per annum fees), charges and expenses of such L/C Issuer in respect of the issuance, negotiation, acceptance, amendment, transfer and payment of such Letter of Credit or otherwise payable pursuant to the application and related documentation under which such Letter of Credit is issued. (e) Request for Incurrence of Letter of Credit Obligations. Borrower ------------------------------------------------------ shall give Agent at least two (2) Business Days' prior written notice requesting the incurrence of any Letter of Credit Obligation, specifying the date such Letter of Credit Obligation is to be incurred, identifying the beneficiary to which such Letter of Credit Obligation relates and describing the nature of the transactions proposed to be supported thereby. The notice shall be accompanied by the form of the Letter of Credit (which shall be acceptable to the L/C Issuer) to be guaranteed and, to the extent not previously delivered to Agent, copies of all agreements between Borrower and the L/C Issuer pertaining to the issuance of Letters of Credit. Notwithstanding anything contained herein to the contrary, Letter of Credit applications by Borrower and approvals by Agent and the L/C Issuer may be made and transmitted pursuant to electronic codes and security measures mutually agreed upon and established by and among Borrower, Agent and the L/C Issuer. (f) Obligation Absolute. The obligation of Borrower to reimburse ------------------- Agent and Revolving Lenders for payments made with respect to any Letter of Credit Obligation shall be absolute, unconditional and irrevocable, without necessity of presentment, demand, protest or other formalities, and the obligations of each Revolving Lender to make payments to Agent with respect to Letters of Credit shall be unconditional and irrevocable. Such obligations of Borrower and Revolving Lenders shall be paid strictly in accordance with the terms hereof under all circumstances including the following: (i) any lack of validity or enforceability of any Letter of Credit or the Agreement or the other Loan Documents or any other agreement; (ii) the existence of any claim, setoff, defense or other right that Borrower or any of its Affiliates or any Lender may at any time have against a beneficiary or any transferee of any Letter of Credit (or any Persons or entities for whom any such B-3 transferee may be acting), Agent, any Lender, or any other Person, whether in connection with the Agreement, the Letter of Credit, the transactions contemplated herein or therein or any unrelated transaction (including any underlying transaction between Borrower or any of its Affiliates and the beneficiary for which the Letter of Credit was procured); (iii) any draft, demand, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by Agent (except as otherwise expressly provided in paragraph (g)(ii)(C) below) or any L/C Issuer under any Letter of Credit or guaranty thereof against presentation of a demand, draft or certificate or other document that does not comply with the terms of such Letter of Credit or such guaranty; (v) any other circumstance or event whatsoever, that is similar to any of the foregoing; or (vi) the fact that a Default or an Event of Default has occurred and is continuing. (g) Indemnification; Nature of Lenders' Duties. (i) In addition to ------------------------------------------ amounts payable as elsewhere provided in the Agreement, Borrower hereby agrees to pay and to protect, indemnify, and save harmless Agent and each Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including attorneys' fees and allocated costs of internal counsel) that Agent or any Lender may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit or guaranty thereof, or (B) the failure of Agent or any Lender seeking indemnification or of any L/C Issuer to honor a demand for payment under any Letter of Credit or guaranty thereof as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority, in each case other than to the extent solely as a result of the gross negligence or willful misconduct of Agent or such Lender (as finally determined by a court of competent jurisdiction). (ii) As between Agent and any Lender and Borrower, Borrower assumes all risks of the acts and omissions of, or misuse of any Letter of Credit by beneficiaries of any Letter of Credit. In furtherance and not in limitation of the foregoing, to the fullest extent permitted by law neither Agent nor any Lender shall be responsible for: (A) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document issued by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (C) failure of the beneficiary of any Letter of Credit to comply fully with conditions required in order to demand payment under such Letter of Credit; provided, that in the -------- case of any payment by L/C Issuer under any Letter of Credit or guaranty thereof, L/C Issuer shall be liable to the extent such payment was made primarily as a result of its gross negligence or willful misconduct in determining that the demand for payment under B-4 such Letter of Credit or guaranty thereof complies on its face with any applicable requirements for a demand for payment under such Letter of Credit or guaranty thereof; (D) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they may be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a payment under any Letter of Credit or guaranty thereof or of the proceeds thereof; (G) the credit of the proceeds of any drawing under any Letter of Credit or guaranty thereof; and (H) any consequences arising from causes beyond the control of Agent or any Lender. None of the above shall affect, impair, or prevent the vesting of any of Agent's or any Lender's rights or powers hereunder or under the Agreement. (iii) Nothing contained herein shall be deemed to limit or to expand any waivers, covenants or indemnities made by Borrower in favor of any L/C Issuer in any letter of credit application, reimbursement agreement or similar document, instrument or agreement between Borrower and such L/C Issuer. B-5 ANNEX C (Section 1.8) ----------- to CREDIT AGREEMENT ---------------- CASH MANAGEMENT SYSTEM ---------------------- Borrower shall, and shall cause its Subsidiaries to, establish and maintain the Cash Management Systems described below: (a) On or before the Closing Date and until the Termination Date, Borrower shall (i) establish lock boxes ("Lock Boxes") at one or more of the ---------- banks set forth in Disclosure Schedule (3.19), and shall request in writing and ------------------------- otherwise take such reasonable steps to ensure that all Account Debtors forward payment directly to such Lock Boxes, and (ii) deposit and cause its Subsidiaries to deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all cash, checks, drafts or other similar items of payment relating to or constituting payments made in respect of any and all Collateral (whether or not otherwise delivered to a Lock Box) into one or more bank accounts in Borrower's name or any such Subsidiary's name (each a "Borrower Account" and collectively, the "Borrower Accounts") at a ---------------- ----------------- bank identified in Disclosure Schedule (3.19) (each, a "Relationship Bank"). On ------------------------- ----------------- or before the date that is ninety (90) days following the Closing Date, Borrower shall have established a concentration account in its name (the "Concentration ------------- Account") at the bank that shall be designated as the Concentration Account bank - ------- for Borrower in Disclosure Schedule (3.19) (the "Concentration Account Bank") ------------------------- -------------------------- which bank shall be satisfactory to Agent. (b) Borrower may maintain, in its name, an account (each a "Disbursement Account" and collectively, the "Disbursement Accounts") at a bank -------------------- --------------------- acceptable to Agent into which Agent shall, from time to time, deposit proceeds of Revolving Credit Advances and Swing Line Advances made to Borrower pursuant to Section 1.1 for use by Borrower solely in accordance with the provisions of ----------- Section 1.4. - ----------- (c) On or before the date that is ninety (90) days following the Closing Date (or such later date as Agent shall consent to in writing), the Concentration Account Bank, each bank where a Disbursement Account is maintained and all other Relationship Banks, shall have entered into tri-party blocked account agreements with Agent, for the benefit of itself and Lenders, and Borrower and Subsidiaries thereof, as applicable, in form and substance acceptable to Agent, which shall become operative on or prior to the date that is ninety (90) days following the Closing Date. Each such blocked account agreement shall provide, among other things, that (i) all items of payment deposited in such account and proceeds thereof deposited in the Concentration Account are held by such bank as agent or bailee-in-possession for Agent, on behalf of itself and Lenders, (ii) the bank executing such agreement has no rights of setoff or recoupment or any other claim against such account, as the case may be, other than for payment of its service fees and other charges directly related to the administration of such account, for returned checks or other items of payment and for any required adjustments due to clerical errors or calculation errors relating to such account and in accordance with any court order, notice of garnishment binding on such bank or any other applicable law binding on such bank, and (iii) C-1 from and after the date that is ninety (90) days following the Closing Date (A) with respect to banks at which a Borrower Account is maintained, such bank agrees to forward immediately all amounts in each Borrower Account to the Concentration Account Bank and to commence the process of daily sweeps from such Borrower Account into the Concentration Account and (B) with respect to the Concentration Account Bank, such bank agrees to immediately forward all amounts received in the Concentration Account to the Collection Account through daily sweeps from such Concentration Account into the Collection Account. Borrower shall not, and shall not cause or permit any Subsidiary thereof to, accumulate or maintain cash in Disbursement Accounts or payroll accounts as of any date of determination in excess of checks outstanding against such accounts as of that date and amounts necessary to meet minimum balance requirements. (d) So long as no Default or Event of Default has occurred and is continuing, Borrower may amend Disclosure Schedule (3.19) to add or replace a ------------------------- Relationship Bank, Lock Box or Borrower Account or to replace any Concentration Account or any Disbursement Account; provided, that (i) Agent shall have -------- consented in writing in advance to the opening of such account or Lock Box with the relevant bank and (ii) prior to the time of the opening of such account or Lock Box, Borrower or its Subsidiaries, as applicable, and such bank shall have executed and delivered to Agent a tri-party blocked account agreement, in form and substance satisfactory to Agent. Borrower shall close any of its accounts (and establish replacement accounts in accordance with the foregoing sentence) promptly and in any event within thirty (30) days following notice from Agent that the creditworthiness of any bank holding an account is no longer acceptable in Agent's reasonable judgment, or as promptly as practicable and in any event within sixty (60) days following notice from Agent that the operating performance, funds transfer or availability procedures or performance with respect to accounts or Lock Boxes of the bank holding such accounts or Agent's liability under any tri-party blocked account agreement with such bank is no longer acceptable in Agent's reasonable judgment. (e) The Lock Boxes, Borrower Accounts, Disbursement Accounts and the Concentration Account shall be cash collateral accounts, with all cash, checks and other similar items of payment in such accounts securing payment of the Loans and all other Obligations, and in which Borrower and each Subsidiary thereof shall have granted a Lien to Agent, on behalf of itself and Lenders, pursuant to the Security Agreement. (f) All amounts deposited in the Collection Account shall be deemed received by Agent in accordance with Section 1.10 and shall be applied (and ------------ allocated) by Agent in accordance with Section 1.11 or 8.3 as applicable. In no ------------ --- event shall any amount be so applied unless and until such amount shall have been credited in immediately available funds to the Collection Account. (g) Borrower shall and shall cause its Affiliates, officers, employees, agents, directors or other Persons acting for or in concert with Borrower (each a "Related Person") to (i) hold in trust for Agent, for the -------------- benefit of itself and Lenders, all checks, cash and other items of payment received by Borrower or any such Related Person, and (ii) within one (1) Business Day after receipt by Borrower or any such Related Person of any checks, cash or other items of payment, deposit the same into a Borrower Account. Borrower and each Related Person thereof acknowledges and agrees that all cash, checks or other items of payment constituting proceeds of C-2 Collateral are the property of Agent and Lenders. All proceeds of the sale or other disposition of any Collateral, shall be deposited directly into Borrower Accounts. C-3 ANNEX D (Section 2.1(a)) -------------- to CREDIT AGREEMENT ---------------- CLOSING CHECKLIST ----------------- In addition to, and not in limitation of, the conditions described in Section 2.1 of the Agreement, pursuant to Section 2.1(a), the following items - ----------- -------------- must be received by Agent in form and substance satisfactory to Agent on or prior to the Closing Date (each capitalized term used but not otherwise defined herein shall have the meaning ascribed thereto in Annex A to the Agreement): ------- A. Appendices. All Appendices to the Agreement, in form and ---------- substance satisfactory to Agent. B. Revolving Notes, Swing Line Note and Term Note. Duly executed ---------------------------------------------- originals of the Revolving Notes, Swing Line Note and Term Note for each applicable Lender, dated the Closing Date. C. Security Agreement. Duly executed originals of the Security ------------------ Agreement, dated as of the date hereof, and all instruments, documents and agreements executed pursuant thereto. D. Insurance. Satisfactory evidence that the insurance policies --------- required by Section 5.4 are in full force and effect, together with appropriate ----------- evidence showing loss payable and/or additional insured clauses or endorsements, as requested by Agent, in favor of Agent, on behalf of Lenders. E. Security Interests, Hypothecs and Code Filings. (a) Evidence ---------------------------------------------- satisfactory to Agents that Agent (for the benefit of itself and Lenders) has a valid and perfected first priority security interest in the Collateral and that Agent and Lenders have valid and registered first ranking hypothecs on the Collateral, including (i) such documents duly executed by each Credit Party (including financing statements under the Code and other applicable documents under the laws of any jurisdiction with respect to the perfection of Liens) as Agents may request in order to perfect the Agent's security interests in and Agent's and Lenders' hypothecs on the Collateral and (ii) copies of Code search reports listing all effective financing statements (or other applicable equivalent) that name any Credit Party as debtor, together with copies of such financing statements (or other applicable equivalent), none of which shall cover the Collateral, except for those relating to the Prior Lenders' Obligations (all of which shall be terminated on the Closing Date). (b) Evidence satisfactory to Agents, including copies, of all UCC-1 and other financing statements (or other applicable equivalent) filed in favor of any Credit Party with respect to each location, if any, at which Inventory may be consigned. (c) Control Letters from (i) all issuers of uncertificated securities and financial assets held by Borrower, (ii) all securities intermediaries with respect to all securities accounts and securities entitlements of Borrower, and (iii) all futures commission agents and clearing houses with respect to all commodities contracts and commodities accounts held by Borrower. F. Payoff Letter; Termination Statements. Copies of a duly executed ------------------------------------- payoff letter, in form and substance satisfactory to Agents, by and between all parties to the Original Lenders loan documents evidencing repayment in full of all the Original Lenders' Obligations, together with (a) UCC-3 or other appropriate termination statements, in form and substance satisfactory to Agents, manually signed by the Original Lenders releasing all liens of Original Lenders upon any of the personal property and real property of each Credit Party, and (b) termination of all blocked account agreements, bank agency agreements or other similar agreements or arrangements or arrangements in favor of the Original Lenders or relating to the Original Lenders' Obligations. G. Intellectual Property Security Agreements. Duly executed ----------------------------------------- originals of Trademark Security Agreements, Copyright Security Agreements and Patent Security Agreements, each dated as of the date hereof and signed by each Credit Party which owns Trademarks, Copyrights and/or Patents, as applicable, all in form and substance satisfactory to Agent, together with all instruments, documents and agreements executed pursuant thereto. H. Holdings Guaranty. Duly executed originals of the Holdings ----------------- Guaranty, dated as of the date hereof, and all documents, instruments and agreements executed pursuant thereto. I. Initial Borrowing Base Certificate. Duly executed originals of an ---------------------------------- initial Borrowing Base Certificate from Borrower, dated as of the date hereof, reflecting information concerning Eligible Accounts and Eligible Inventory of Borrower as of a date not more than seven (7) days prior to the date hereof. J. Initial Notice of Revolving Credit Advance. Duly executed ------------------------------------------ originals of a Notice of Revolving Credit Advance, dated April 9, 2002, with respect to the initial Revolving Credit Advance to be requested by Borrower on the Closing Date. K. Letter of Direction. Duly executed originals of a letter of ------------------- direction from Borrower addressed to Agent, on behalf of itself and Lenders, with respect to the disbursement on the Closing Date of the proceeds of the Term Loan and the initial Revolving Credit Advance. L. Charter and Good Standing. For each Credit Party, such Person's ------------------------- (a) charter and all amendments thereto, (b) good standing certificates (including verification of tax status) (or applicable equivalent) in its state (or province) of incorporation and (c) good standing certificates (including verification of tax status) and certificates of qualification (or applicable equivalents) to conduct business in each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, each dated a recent date prior to the date hereof and certified by the applicable Secretary of State or other authorized Governmental Authority. D-2 M. Bylaws and Resolutions. For each Credit Party, (a) such Person's ---------------------- bylaws, together with all amendments thereto and (b) resolutions of such Person's Board of Directors and stockholders, approving and authorizing the execution, delivery and performance of the Loan Documents to which such Person is a party and the transactions to be consummated in connection therewith, each certified as of the date hereof by such Person's corporate secretary or an assistant secretary as being in full force and effect without any modification or amendment. N. Incumbency Certificates. For each Credit Party, signature and ----------------------- incumbency certificates of the officers of each such Person executing any of the Loan Documents, certified as of the date hereof by such Person's corporate secretary or an assistant secretary as being true, accurate, correct and complete. O. Opinions of Counsel. Duly executed originals of opinions of ------------------- Hutchins, Wheeler & Dittmar, counsel for the Credit Parties, together with any local counsel opinions requested by Agent from counsel in Utah, Quebec, Ontario and New Brunswick, each in form and substance satisfactory to Agent and its counsel, dated as of the date hereof. P. Pledge Agreements. Duly executed originals of each of the Pledge ----------------- Agreements accompanied by (as applicable) (a) (i) share certificates representing all of the outstanding Stock of Borrower and each domestic and Canadian Subsidiary of Borrower (registered in Agent's name in the case of each such Canadian Subsidiary in order to better perfect Agent's security therein) and 65% of the outstanding Stock of each other Subsidiary of Borrower and stock powers for such share certificates executed in blank (except when such Stock certificates are registered in Agent's name) and (ii) a photocopy of the share register of each Canadian Subsidiary showing Agent as the registered owner of all of the outstanding Stock of each Canadian Subsidiary certified to be true and complete by the Secretary or Assistant Secretary of each such Canadian Subsidiary and (b) the original Intercompany Note and other instruments evidencing Indebtedness being pledged pursuant to such Pledge Agreement, duly endorsed in blank. Q. Accountants' Letters. A letter from the Credit Parties to their -------------------- independent auditors authorizing the independent certified public accountants of the Credit Parties to communicate with Agent and Lenders in accordance with Section 4.2, and a letter from such auditors acknowledging Lenders' reliance on - ----------- the auditor's certification of past and future Financial Statements. R. Appointment of Agent for Service. An appointment of CT -------------------------------- Corporation as each Credit Party's agent for service of process. S. Solvency Certificate. The Credit Parties shall deliver to Agent -------------------- for the benefit of Lenders a solvency certificate signed by the Chief Financial Officer of Borrower in form and substance satisfactory to Agent. T. Fee Letter. Duly executed originals of the Fee Letter. ---------- U. Officer's Certificate. Agent shall have received duly executed --------------------- originals of a certificate of the Chief Operating Officer of Borrower, dated as of the date hereof, stating that, D-3 except as set forth in the Credit Agreement, since May 31, 2002 (a) no event or condition has occurred or is existing which could reasonably be expected to have a Material Adverse Effect; (b) there has been no material adverse change in the industry in which Borrower operates; (c) no Litigation has been commenced which, if successful, would have a Material Adverse Effect or could challenge any of the transactions contemplated by the Agreement and the other Loan Documents; (d) there have been no Restricted Payments made by any Credit Party; and (e) there has been no material increase in liabilities, liquidated or contingent, and no material decrease in assets of Borrower or any of its Subsidiaries. V. Waivers. Agent, on behalf of Lenders, shall have received ------- landlord waivers and consents, bailee letters and mortgagee agreements in form and substance satisfactory to Agent, in each case as required pursuant to Section 5.9. - ----------- W. Mortgages. Mortgages or, in the case of Real Estate located in --------- the Province of Quebec, the ICON of Canada Hypothec, covering all of the Real Estate (the "Mortgaged Properties") together with: (a) title insurance policies, -------------------- flood insurance policies (if applicable), current as-built surveys, zoning letters, certificates of location, and certificates of occupancy, in each case satisfactory in form and substance to Agent, in its sole discretion; (b) evidence that counterparts of the Mortgages have been recorded in all places to the extent necessary or desirable, in the judgment of Agent, to create a valid and enforceable first priority lien (subject to Permitted Encumbrances) on each Mortgaged Property in favor of Agent for the benefit of itself and Lenders (or in favor of such other trustee as may be required or desired under local law); and (c) an opinion of counsel in each state in which any Mortgaged Property is located in form and substance and from counsel satisfactory to Agents. X. Subordination and Intercreditor Agreements. Agent and Lenders ------------------------------------------ shall have received any and all subordination and/or intercreditor agreements, all in form and substance reasonably satisfactory to Agent, in its sole discretion, as Agent shall have deemed necessary or appropriate with respect to any Indebtedness of any Credit Party. Y. Audited Financials; Financial Condition. Agent shall have --------------------------------------- received Borrower's final Financial Statements for its Fiscal Year ended May 31, 2001, audited by PriceWaterhouseCoopers. Borrower shall have provided Agent with its current operating statements, a consolidated and consolidating balance sheet and statement of cash flows, the Pro Forma, Projections and a Borrowing Base Certificate with respect to Borrower certified by its Chief Financial Officer, in each case in form and substance satisfactory to Agent, and Agent shall be satisfied, in its sole discretion, with all of the foregoing. Agent shall have further received a certificate of the Chief Executive Officer and/or the Chief Financial Officer of Borrower, based on such Pro Forma and Projections, to the effect that (a) Borrower will be Solvent upon the consummation of the transactions contemplated herein; (b) the Pro Forma fairly presents the financial condition of Borrower as of the date thereof after giving effect to the transactions contemplated by the Loan Documents; (c) the Projections are based upon estimates and assumptions stated therein, all of which Borrower believes to be reasonable and fair in light of current conditions and current facts known to Borrower and, as of the date hereof, reflect Borrower's good faith and reasonable estimates of its future financial performance and of the other information projected therein for the period set forth therein; and (d) containing such other D-4 statements with respect to the solvency of Borrower and matters related thereto as Agent shall request. Z. Subsidiary Guaranties. Guaranties executed by the domestic and --------------------- Canadian Subsidiaries of Borrower. AA. Canadian Security Documents. --------------------------- (i) ICON of Canada Hypothec. Duly executed original of the ICON ----------------------- of Canada Hypothec, dated prior to the Closing Date, and all instruments, documents and agreements executed pursuant thereto, including the ICON of Canada Debenture and the ICON of Canada Pledge Agreement. (ii) Canadian Security Agreements. Duly executed originals of the ---------------------------- Canadian Security Agreements, dated as of the date hereof, and all instruments, documents and agreements executed pursuant thereto. BB. Subordinated Debt. Certificate from Borrower certifying as of the ----------------- Closing Date that the issuance of the Subordinated Notes has been completed and that Borrower has received not less than $152,812,950 (before deduction, among other things, of an amount not in excess of $4,500,000 which was applied in payment of CS First Boston's closing fees and expenses in respect of the Subordinated Notes). CC. Other Documents. Such other certificates, documents and --------------- agreements respecting any Credit Party as Agent may, in its sole discretion, request. D-5 ANNEX E (Section 4.1(a)) -------------- to CREDIT AGREEMENT ---------------- FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING ------------------------------------------------- Borrower shall deliver or cause to be delivered to Agent or to Agent and Lenders, as indicated, the following: (a) Monthly Financials. To Agent and Lenders, within forty-five (45) ------------------ days after the end of each Fiscal Month, financial information regarding Borrower and its Subsidiaries, certified by the Chief Financial Officer of Borrower, consisting of consolidated and consolidating (i) unaudited balance sheets as of the close of such Fiscal Month and the related statements of income and cash flows for that portion of the Fiscal Year ending as of the close of such Fiscal Month; (ii) unaudited statements of income and cash flows for such Fiscal Month, setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the Projections for such Fiscal Year, all prepared in accordance with GAAP (subject to normal year-end adjustments); and (iii) a summary of the outstanding balance of all Intercompany Note as of the last day of that Fiscal Month. Such financial information shall be accompanied by the certification of the Chief Financial Officer of Borrower that (i) such financial information presents fairly in accordance with GAAP (subject to normal year-end adjustments) the financial position and results of operations of Borrower and its Subsidiaries, on a consolidated and consolidating basis, in each case as at the end of such Fiscal Month and for that portion of the Fiscal Year then ended and (ii) any other information presented is true, correct and complete in all material respects and that there was no Default or Event of Default in existence as of such time or, if a Default or Event of Default shall have occurred and be continuing, describing the nature thereof and all efforts undertaken to cure such Default or Event of Default. (b) Quarterly Financials. To Agent and Lenders, within forty-five -------------------- (45) days after the end of each Fiscal Quarter, consolidated and consolidating financial information regarding Borrower and its Subsidiaries, certified by the Chief Financial Officer of Borrower, including (i) unaudited balance sheets as of the close of such Fiscal Quarter and the related statements of income and cash flow for that portion of the Fiscal Year ending as of the close of such Fiscal Quarter and (ii) unaudited statements of income and cash flows for such Fiscal Quarter, in each case setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the Projections for such Fiscal Year, all prepared in accordance with GAAP (subject to normal year-end adjustments). Such financial information shall be accompanied by (A) a statement in reasonable detail (each, a "Compliance Certificate") ---------------------- showing the calculations used in determining compliance with each of the Financial Covenants that is tested on a quarterly basis and (B) the certification of the Chief Financial Officer of Borrower that (i) such financial information presents fairly in accordance with GAAP (subject to normal year-end adjustments) the financial position, results of operations and statements of cash flows of Borrower and its Subsidiaries, on both a consolidated and consolidating basis, as at the end of such Fiscal Quarter and for that portion of the Fiscal Year then ended, (ii) any other information presented is true, correct and complete in all material respects and that there was no E-1 Default or Event of Default in existence as of such time or, if a Default or Event of Default has occurred and is continuing, describing the nature thereof and all efforts undertaken to cure such Default or Event of Default. In addition, Borrower shall deliver to Agent and Lenders, within forty-five (45) days after the end of each Fiscal Quarter, a management discussion and analysis that includes a comparison to budget for that Fiscal Quarter and a comparison of performance for that Fiscal Quarter to the corresponding period in the prior year. (c) Operating Plan. To Agent and Lenders, as soon as available, but -------------- not later than sixty (60) days after the end of each Fiscal Year, an annual operating plan for Borrower, approved by the Board of Directors of Borrower, for the following Fiscal Year, which will (i)include a statement of all of the material assumptions on which such plan is based, (ii) include monthly balance sheets and a monthly budget for the following year and (iii) integrate sales, gross profits, operating expenses, operating profit, cash flow projections and Borrowing Availability projections, all prepared on the same basis and in similar detail as that on which operating results are reported (and in the case of cash flow projections, representing management's good faith estimates of future financial performance based on historical performance), and including plans for personnel, Capital Expenditures and facilities. (d) Annual Audited Financials. To Agent and Lenders, within ninety ------------------------- (90) days after the end of each Fiscal Year, audited Financial Statements for Borrower and its Subsidiaries on a consolidated and (unaudited) consolidating basis, consisting of balance sheets and statements of income and retained earnings and cash flows, setting forth in comparative form in each case the figures for the previous Fiscal Year, which Financial Statements shall be prepared in accordance with GAAP and certified without qualification, by an independent certified public accounting firm of national standing or otherwise acceptable to Agent. Such Financial Statements shall be accompanied by (i) a statement prepared in reasonable detail showing the calculations used in determining compliance with each of the Financial Covenants, (ii) a report from such accounting firm to the effect that, in connection with their audit examination, nothing has come to their attention to cause them to believe that a Default or Event of Default has occurred (or specifying those Defaults and Events of Default that they became aware of), it being understood that such audit examination extended only to accounting matters and that no special investigation was made with respect to the existence of Defaults or Events of Default, (iii) a letter addressed to Agent, on behalf of itself and Lenders, in form and substance reasonably satisfactory to Agent and subject to standard qualifications required by nationally recognized accounting firms, signed by such accounting firm acknowledging that Agent and Lenders are entitled to rely upon such accounting firm's certification of such audited Financial Statements, (iv) the annual letters to such accountants in connection with their audit examination detailing contingent liabilities and material litigation matters, and (v) the certification of the Chief Executive Officer or Chief Financial Officer of Borrower that all such Financial Statements present fairly in accordance with GAAP the financial position, results of operations and statements of cash flows of Borrower and its Subsidiaries on a consolidated and consolidating basis, as at the end of such Fiscal Year and for the period then ended, and that there was no Default or Event of Default in existence as of such time or, if a Default or Event of Default has occurred and is continuing, describing the nature thereof and all efforts undertaken to cure such Default or Event of Default. E-2 (e) Management Letters. To Agent and Lenders, within five (5) ------------------ Business Days after receipt thereof by any Credit Party, copies of all management letters, exception reports or similar letters or reports received by such Credit Party from its independent certified public accountants. (f) Default Notices. To Agent and Lenders, as soon as practicable, --------------- and in any event within five (5) Business Days after an executive officer of Borrower has actual knowledge of the existence of any Default, Event of Default or other event that has had a Material Adverse Effect, telephonic or telecopied notice specifying the nature of such Default or Event of Default or other event, including the anticipated effect thereof, which notice, if given telephonically, shall be promptly confirmed in writing on the next Business Day. (g) SEC Filings and Press Releases. To Agent and Lenders, promptly ------------------------------ upon their becoming available, copies of: (i) all Financial Statements, reports, notices and proxy statements made publicly available by any Credit Party to its security holders; (ii) all regular and periodic reports and all registration statements and prospectuses, if any, filed by any Credit Party with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority; and (iii) all press releases and other statements made available by any Credit Party to the public concerning material changes or developments in the business of any such Person. (h) Subordinated Debt and Equity Notices. To Agent, as soon as ------------------------------------ practicable, copies of all material written notices given or received by any Credit Party with respect to any Subordinated Debt or Stock of such Person, and, within two (2) Business Days after any Credit Party obtains knowledge of any matured or unmatured event of default with respect to any Subordinated Debt, notice of such event of default. (i) Supplemental Schedules. To Agent, supplemental disclosures, if ---------------------- any, required by Section 5.6. ----------- (j) Litigation. To Agent in writing, promptly upon learning thereof, ---------- notice of any Litigation commenced or threatened against any Credit Party that (i) seeks damages in excess of $500,000, (ii) seeks injunctive relief, (iii) is asserted or instituted against any Plan, its fiduciaries or its assets or against any Credit Party or ERISA Affiliate in connection with any Plan, (iv) alleges criminal misconduct by any Credit Party, (v) alleges the violation of any law regarding, or seeks remedies in connection with, any Environmental Liabilities; or (vi) involves any product recall; provided, however, that -------- ------- Borrower shall give Agent written notice of any litigation commenced or threatened against any Credit Party that seeks damages in excess of $100,000 on a quarterly basis; (k) Insurance Notices. To Agent, disclosure of losses or casualties ----------------- required by Section 5.4. ----------- (l) Lease Default Notices. To Agent, copies of (i) any and all --------------------- default notices received under or with respect to any leased location or public warehouse where Collateral is located, and (ii) such other notices or documents as Agent may request in its reasonable discretion. E-3 (m) Product Recall. To Agent, prompt written notice of any product -------------- recall whether voluntary or otherwise. (n) Other Documents. To Agent and Lenders, such other financial and --------------- other information respecting any Credit Party's business or financial condition as Agent or any Lender shall, from time to time, request. E-4 ANNEX F (Section 4.1(b)) -------------- to CREDIT AGREEMENT ---------------- COLLATERAL REPORTS ------------------ Borrower shall deliver or cause to be delivered the following: (a) To Agent, upon Agent's request, and in any event no less frequently than five (5) Business Days after the end of each Fiscal Month (together with a copy of all or any part of the following reports requested by any Lender in writing after the Closing Date), each of the following reports, each of which shall be prepared by the Borrower as of the last day of the immediately preceding Fiscal Month: (i) a summary of Inventory by location and type with a supporting perpetual Inventory report, in each case accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion; and (ii) a monthly trial balance showing Accounts outstanding aged from invoice due date as follows: 1 to 30 days, 31 to 60 days, 61 to 90 days and 91 days or more, accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion. (b) To Lenders, upon Agent's request, and in any event no less frequently than three (3) Business Days after the end of each month (as of the last Business Day of each month), a Borrowing Base Certificate, accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion; provided that, so long as Borrowing Availability is less -------- than $15,000,000, the Borrowing Base and accompanying information will be provided no less frequently than three (3) Business Days after the end of each week. (c) As requested by Agent, on a weekly basis or at such more frequent intervals as Agent may request from time to time (together with a copy of all or any part of such delivery requested by any Lender in writing after the Closing Date), collateral reports with respect to Borrower, including all additions and reductions (cash and non-cash) with respect to Accounts of Borrower, in each case accompanied by such supporting detail and documentation as shall be requested by Agent in their reasonable discretion each of which shall be prepared by Borrower as of the last day of the immediately preceding week; (d) As requested by Agent, at the time of delivery of each of the monthly Financial Statements delivered pursuant to Annex E, a reconciliation of ------- the Accounts trial balance and month-end Inventory reports of Borrower to Borrower's general ledger and monthly Financial Statements delivered pursuant to such Annex E, in each case accompanied by such supporting detail and ------- documentation as shall be requested by Agent in its reasonable discretion; (e) To Agent, at the time of delivery of each of the annual Financial Statements delivered pursuant to Annex E, (i) a listing of government contracts ------- of Borrower F-1 subject to the Federal Assignment of Claims Act of 1940, the Financial Administrators Act (Canada) or any applicable state, provincial or territorial statute or municipal ordinance of similar purpose and effect; and (ii) a list of any applications for the registration of any Patent, Trademark or Copyright filed by any Credit Party with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency (including in any foreign jurisdiction) in the prior Fiscal Quarter; (f) Borrower, at its own expense, shall deliver to Agent the results of each physical verification, if any, that Borrower or any of its Subsidiaries may in their discretion have made, or caused any other Person to have made on their behalf, of all or any portion of their Inventory (and, if a Default or an Event of Default has occurred and be continuing, Borrower shall, upon the request of Agent, conduct, and deliver the results of, such physical verifications as Agent may require); (g) Borrower, at its own expense, shall deliver to Agent (i) appraisals of its Inventory no more frequently than one (1) time per year and (ii) such appraisals of its inventory and other assets as Agent may request at any time after the occurrence and during the continuance of a Default or an Event of Default, such appraisals to be conducted by an appraiser, and in form and substance, satisfactory to Agent; (h) Borrower shall cause to be delivered to Agent on the two (2) year anniversary of the Closing Date and the anniversary of the Closing Date each year thereafter until the Termination Date, a guaranty renewal in the form of Schedule II to that certain Guaranty dated as of the Closing Date between ICON of Canada and Agent and shall deliver to Agent a legal opinion from counsel and in form and substance satisfactory to Agent as to the due authorization, execution, delivery and enforceability of such documents and as to such other matters relating to Guarantor and such documents as Agent may reasonably request; (i) (j) Such other reports, statements and reconciliations with respect to the Borrowing Base or Collateral of any or all Credit Parties as Agent shall from time to time request in its reasonable discretion. F-2 ANNEX G (Section 6.10) ------------ to CREDIT AGREEMENT ---------------- FINANCIAL COVENANTS ------------------- Borrower shall not breach or fail to comply with any of the following financial covenants, each of which shall be calculated in accordance with GAAP consistently applied: (a) Maximum Capital Expenditures. Borrower and its Subsidiaries on a ---------------------------- consolidated basis shall not make Capital Expenditures in excess of $15,000,000 in the aggregate during any Fiscal Year; provided, however, that the amount of -------- ------- permitted Capital Expenditures for each Fiscal Year after Fiscal Year 2002 may be increased by an amount equal to the lesser of the unspent amount of Capital Expenditures in any Fiscal Year or $7,500,000 (the "Carry Over Amount"). For ----------------- purposes of determining compliance with this covenant, the Carry Over Amount shall be deemed to be the last amount spent on Capital Expenditures in the succeeding Fiscal Year. (b) Minimum Fixed Charge Coverage Ratio. Borrower and its Subsidiaries ----------------------------------- shall have on a consolidated basis at the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending on or about August 31, 2002, a Fixed Charge Coverage Ratio of not less than 1.25%. (c) Minimum EBITDA. Borrower and its Subsidiaries on a consolidated basis -------------- shall have, at the end of each Fiscal Quarter set forth below, EBITDA for the 12-month period then ended of not less than the following: $62,250,000 for the Fiscal Quarter ending on or about August 31, 2002; $63,250,000 for the Fiscal Quarter ending on or about November 30, 2002; $63,250,000 for the Fiscal Quarter ending on or about February 28, 2003; $64,250,000 for the Fiscal Quarter ending on or about May 31, 2003; $64,250,000 for the Fiscal Quarter ending on or about August 31, 2003; $65,250,000 for the Fiscal Quarter ending on or about November 30, 2003; $65,250,000 for the Fiscal Quarter ending on or about February 28, 2004; $66,250,000 for the Fiscal Quarter ending on or about May 31, 2004; $66,250,000 for the Fiscal Quarter ending on or about August 31, 2004; $67,500,000 for the Fiscal Quarter ending on or about November 30, 2004; $67,500,000 for the Fiscal Quarter ending on or about February 28, 2005; $68,500,000 for the Fiscal Quarter ending on or about May 31, 2005; $68,500,000 for the Fiscal Quarter ending on or about August 31, 2005; $69,500,000 for the Fiscal Quarter ending on or about November 30, 2005; $69,500,000 for the Fiscal Quarter ending on or about February 28, 2006; $70,750,000 for the Fiscal Quarter ending on or about May 31, 2006; $70,750,000 for the Fiscal Quarter ending on or about August 31, 2006; and $71,750,000 for each Fiscal Quarter ending thereafter. G-1 References to the Fiscal Quarters ending August 31, November 30, and February 28/29 shall be deemed to refer to the Fiscal Quarters ending on the Saturday closest to those dates. Unless otherwise specifically provided herein, any accounting term used in the Agreement shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP consistently applied. That certain items or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. If any "Accounting Changes" (as defined below) occur and such changes result in a change in the calculation of the financial covenants, standards or terms used in the Agreement or any other Loan Document, then Borrower, Agent and Lenders agree to enter into negotiations in order to amend such provisions of the Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating Borrower's and its Subsidiaries' financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made; provided, however, that the agreement of Requisite Lenders to -------- ------- any required amendments of such provisions shall be sufficient to bind all Lenders. "Accounting Changes" means (i) changes in accounting principles ------------------ required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successor thereto or any agency with similar functions), (ii) changes in accounting principles concurred in by Borrower's certified public accountants; (iii) purchase accounting adjustments under A.P.B. 16 or 17 and EITF 88-16, and the application of the accounting principles set forth in FASB 109, including the establishment of reserves pursuant thereto and any subsequent reversal (in whole or in part) of such reserves; and (iv) the reversal of any reserves established as a result of purchase accounting adjustments. All such adjustments resulting from expenditures made subsequent to the Closing Date (including capitalization of costs and expenses or payment of pre-Closing Date liabilities) shall be treated as expenses in the period the expenditures are made and deducted as part of the calculation of EBITDA in such period. If Agent, Borrower and Requisite Lenders agree upon the required amendments, then after appropriate amendments have been executed and the underlying Accounting Change with respect thereto has been implemented, any reference to GAAP contained in the Agreement or in any other Loan Document shall, only to the extent of such Accounting Change, refer to GAAP, consistently applied after giving effect to the implementation of such Accounting Change. If Agent, Borrower and Requisite Lenders cannot agree upon the required amendments within thirty (30) days following the date of implementation of any Accounting Change, then all Financial Statements delivered and all calculations of financial covenants and other standards and terms in accordance with the Agreement and the other Loan Documents shall be prepared, delivered and made without regard to the underlying Accounting Change. For purposes of Section 8.1, ----------- a breach of a Financial Covenant contained in this Annex G shall be deemed to ------- have occurred as of any date of determination by Agent or as of the last day of any specified measurement period, regardless of when the Financial Statements reflecting such breach are delivered to Agent. G-2 ANNEX H (Section 9.9(a)) to CREDIT AGREEMENT ---------------- LENDERS' WIRE TRANSFER INFORMATION General Electric Capital Corporation: Bankers Trust 90 Hudson Street., 5TH Floor Jersey City, NJ 07302 ABA #021001033 Account #50232854 Account Name: GECC/CAF Depository Reference: ICON Comerica Bank: Comerica Bank 39200 W. Six Mile Road Livonia, MI 48152 Commercial Loan Department ABA Number 072000096 Account Name: Commercial Loan Department Account Number: 4094920030 Account Reference: ICON Health & Fitness JPMorgan Chase Bank: JPMorgan Chase Bank Asset Based Region 395 North Service Road, 3/rd/ Floor Melville, NY 11747 Attention: Diane Butler ABA Number: 021-000-021 Account Name: ICON Health & Fitness Account Number: 801-903211 Fleet Capital Corporation: Fleet National Bank Hartford, CT ABA Number: 011-900-571 Account Name: Fleet Capital Corp. Account Number: 9401743041 Account Reference: ICON Health & Fitness The CIT Group/Business Credit, Inc.: [To come] H-1 ANNEX I (Section 11.10) to CREDIT AGREEMENT ---------------- NOTICE ADDRESSES ---------------- (A) If to Agent or GE Capital, at General Electric Capital Corporation 500 West Monroe Street Chicago, Illinois 60661 Attention: ICON Health & Fitness, Account Manager Telecopier No.: (312) 419-7500 Telephone No.: (312) 419-0985 with copies to: Latham & Watkins Sears Tower, Suite 5800 Chicago, Illinois 60606 Attention: David G. Crumbaugh Telecopier No.: (312) 993-9767 Telephone No.: (312) 876-7700 and --- General Electric Capital Corporation 201 High Ridge Road Stamford, Connecticut 06927-5100 Attention: Corporate Counsel-Commercial Finance Telecopier No.: (203) 316-7889 Telephone No.: (203) 316-7552 (B) If to Borrower, at ICON Health & Fitness, Inc. 1500 South, 1000 West Logan, Utah 84321 Attention: S. Fred Beck Telecopier No.: (435) 750-3665 Telephone No.: (435) 750-5000 I-1 with copies to: ICON Health & Fitness, Inc. 1500 South 1000 West Logan, Utah 84321 Attention: Brad Bearnson, General Counsel Telecopier No.: (435) 750-3665 Telephone No.: (435) 750-5000 and --- Hutchins, Wheeler & Dittmar 101 Federal Street Boston, Massachusetts 02110 Attention: Charles W. Robins Telecopier No.: (617) 951-1295 Telephone No.: (617) 951-6600 (C) If to Lenders, at Comerica Bank 4100 Spring Valley Road, Suite 400 Dallas, TX 75244 Attention: Riley C. Couch Telecopier No.: (972) 361-2550 Telephone No.: (972) 361-2549 JPMorgan Chase Bank 2200 Ross Avenue, 4/th/ Floor Dallas, TX 75201 Attention: Chad Ramsey Telecopier No.: (214) 965-3294 Telephone No.: (214) 965-3294 Fleet Capital Corporation MA DE 10307X, One Federal Street Boston, MA 02110 Attention: Craig G. Nutbrown Telecopier No.: (617) 654-1167 Telephone No.: (617) 654-1182 The CIT Group/Business Credit, Inc. [To come] I-2 ANNEX J (from Annex A - Commitments definition) to CREDIT AGREEMENT ---------------- Lenders: General Electric Capital Corporation - ------------------------------------ Revolving Loan Commitment (including a Swing Line Commitment of $10,000,000): $111,702,127.00 Term Loan Commitment $ 13,297,873.00 Comerica Business Credit - ------------------------ Revolving Loan Commitment: $ 13,404,255.00 Term Loan Commitment $ 1,595,745.00 Fleet Capital Corporation - ------------------------- Revolving Loan Commitment: $ 31,276,596.00 Term Loan Commitment $ 3,723,404.00 JPMorgan Chase Bank - ------------------- Revolving Loan Commitment: $ 31,276,596.00 Term Loan Commitment $ 3,723,404.00 The CIT Group/Business Credit, Inc. - ----------------------------------- Revolving Loan Commitment: $ 22,340,426.00 Term Loan Commitment $ 2,659,574.00 J-1 EX-99.1 15 dex991.txt EXHIBIT 99.1 - LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL ICON HEALTH & FITNESS, INC. Offer to Exchange all Outstanding 11.25% Notes Due 2012 That Were Sold in a Transaction Exempt From Registration Under the Securities Act of 1933, As Amended, Pursuant to the Prospectus Dated March 28, 2002 for 11.25% Notes Due 2012 Which Have Been Registered Under the Securities Act of 1933, As Amended THE EXCHANGE OFFER AND ANY WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002, UNLESS THE OFFER IS EXTENDED OR TERMINATED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE The Exchange Agent for the Exchange Offer is: THE BANK OF NEW YORK Facsimile Transmissions By Overnight Delivery or (eligible institutions By Hand: Registered/Certified Mail: only) The Bank of New York The Bank of New York (212) 815-6339 101 Barclay Street 101 Barclay Street To confirm by telephone Ground Level Corporate New York, New York 10286 or for Trust Services Window Attention: Reorganization information call: (212) New York, New York 10286 Unit-7E 815-3687 Attention: Reorganization Unit 7-E
DELIVERY OF THIS LETTER OF TRANSMITTAL (THE "LETTER OF TRANSMITTAL") TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID TENDER OF 11.25% NOTES DUE 2012 (THE "OLD NOTES"). The Instructions contained herein should be read carefully before this Letter of Transmittal is completed and signed. This Letter of Transmittal is to be completed by registered holders of Old Notes ("Holders") if: (i) certificates representing Old Notes are to be physically delivered to the Exchange Agent by such Holders; (ii) tender of Old Notes is to be made by book-entry transfer to the Exchange Agent's account at The Depositary Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the procedures set forth in the Prospectus, dated , 2002 (as the same may be amended from time to time, the "Prospectus") under the caption "Book-Entry, Delivery and Form" by any financial institution that is a participant in DTC and whose name appears on a security position listing as the owner of Old Notes or (iii) delivery of Old Notes is to be made according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures," and, in each case, instructions are not being transmitted through the DTC Automated Tender Program ("ATOP"). DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. In order to properly complete this Letter of Transmittal, a Holder must (i) complete the box entitled "Method of Delivery" by checking one of the three boxes therein and supplying the appropriate information, (ii) complete the box entitled "Description of Old Notes," (iii) if such Holder is a Participating Broker Dealer (as defined below) and wishes to receive additional copies of the Prospectus for delivery in connection with resales of Exchange Notes, check the applicable box, (iv) sign this Letter of Transmittal by completing the box entitled "Please Sign Here", (v) if appropriate, check and complete the boxes relating to the "Special Issuance Instructions" and "Special Delivery Instructions," and (vi) complete the Substitute Form W-9. Each Holder should carefully read the detailed Instructions below prior to completing this Letter of Transmittal. See "The Exchange Offer--Procedures For Tendering" in the Prospectus. Holders of Old Notes that are tendering by book-entry transfer to the Exchange Agent's account at DTC can execute the tender through ATOP for which the transaction will be eligible. DTC participants that are accepting the Exchange Offer should transmit their acceptance to DTC, which will edit and verify the acceptance and execute a book-entry delivery to the Exchange Agent's account at DTC. DTC will then send an agent's message forming part of a book-entry transfer in which the participant agrees to be bound by the terms of the Letter of Transmittal (an "Agent's Message") to the Exchange Agent for its acceptance. Transmission of the Agent's Message by DTC will satisfy the terms of the Exchange Offer as to execution and delivery of a Letter of Transmittal by the participant identified in the Agent's Message. DTC participants may also accept the Exchange Offer by submitting a Notice of Guaranteed Delivery through ATOP. If Holders desire to tender Old Notes pursuant to the Exchange Offer and (i) certificates representing such Old Notes are not lost but are not immediately available, (ii) time will not permit this Letter of Transmittal, certificates representing such Holder's Old Notes and all other required documents to reach the Exchange Agent prior to the Expiration Date or (iii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date, such Holders must tender the Old Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2 below. Any Beneficial Owner (as defined below) whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender must contact such Holder promptly and instruct such Holder to tender on behalf of the Beneficial Owner. If the Beneficial Owner wishes to tender on its own behalf, such Beneficial Owner must, prior to completing and executing this Letter of Transmittal and delivering its Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such Beneficial Owner's name or obtain a properly completed bond power from the Holder. The transfer of record ownership may take considerable time. THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS OF OLD NOTES BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. All capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Prospectus. The instructions included with this Letter of Transmittal must be followed. Your bank or broker can assist you in completing this form. Questions and requests for assistance or for additional copies of the Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Exchange Agent, whose address and telephone number appear on the front cover of this Letter of Transmittal. See Instruction 11 below. METHOD OF DELIVERY [_] CHECK HERE IF CERTIFICATES FOR TENDERED OLD NOTES ARE BEING DELIVERED HEREWITH. [_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: _____________________________________________ DTC Account Number: Transaction Code Number:
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT PURSUANT TO INSTRUCTION 2 BELOW AND COMPLETE THE FOLLOWING: Name of Registered Holder(s): ______________________________________________ Window Ticket Number (if any): _____________________________________________ Date of Execution of Notice of Guaranteed Delivery: ________________________ Name of Eligible Institution that Guaranteed Delivery: _____________________ Guaranteed Delivery is to be made by Book-Entry Transfer (yes or no): ______ Name of Tendering Institution: _____________________________________________ DTC Account Number: Transaction Code Number:
List below the Old Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, list the certificate numbers and principal amounts on a separately signed schedule and affix the schedule to this Letter of Transmittal.
DESCRIPTION OF OLD NOTES - ------------------------------------------------------------------------------------------------------------- 1 2 3 - ------------------------------------------------------------------------------------------------------------- Name(s) and Address(es) of Registered Holder(s) Aggregate Principal Principal Amount (Please fill in, if blank) Certificate Number(s)* Amount of Old Note(s) Tendered** - ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- Total Principal Amount of Old Notes - ------------------------------------------------------------------------------------------------------------- * Need not be completed by Holders tendering by book-entry transfer. ** Unless otherwise indicated in this column, a Holder will be deemed to have tendered ALL of the Old Notes represented by the Old Notes indicated in column 2. See Instruction 3.
FOR PARTICIPATING BROKER-DEALERS ONLY: [_] CHECK HERE AND PROVIDE THE INFORMATION REQUESTED BELOW IF YOU ARE A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND, DURING THE 30-DAY PERIOD FOLLOWING THE CONSUMMATION OF THE EXCHANGE OFFER, 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO, AS WELL AS ANY NOTICES FROM THE COMPANY TO SUSPEND AND RESUME USE OF THE PROSPECTUS. BY TENDERING ITS OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, EACH PARTICIPATING BROKER-DEALER AGREES TO USE ITS REASONABLE BEST EFFORTS TO NOTIFY THE COMPANY OR THE EXCHANGE AGENT WHEN IT HAS SOLD ALL OF ITS EXCHANGE NOTES. (IF NO PARTICIPATING BROKER-DEALERS CHECK THIS BOX, OR IF ALL PARTICIPATING BROKER-DEALERS WHO HAVE CHECKED THIS BOX SUBSEQUENTLY NOTIFY THE COMPANY OR THE EXCHANGE AGENT THAT ALL THEIR EXCHANGE NOTES HAVE BEEN SOLD, THE COMPANY WILL NOT BE REQUIRED TO MAINTAIN THE EFFECTIVENESS OF THE EXCHANGE OFFER REGISTRATION STATEMENT OR TO UPDATE THE PROSPECTUS AND WILL NOT PROVIDE ANY NOTICES TO ANY HOLDERS TO SUSPEND OR RESUME USE OF THE PROSPECTUS.) Provide the name of the individual who should receive, on behalf of the Holder, additional copies of the Prospectus, and amendments and supplements thereto, and any notices to suspend and resume use of the Prospectus: Name: __________________________ Address: _____________________ ____________________________ ____________________________ Telephone No.: _________________ Facsimile No.: __________ NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: By execution hereof, the undersigned acknowledges receipt of the Prospectus, dated , 2002 (as the same may be amended from time to time, the "Prospectus" and, together with the Letter of Transmittal, the "Exchange Offer"), of ICON Health & Fitness, Inc., a Delaware corporation (the "Company"), and this Letter of Transmittal and instructions hereto, which together constitute the Company's offer to exchange $1,000 principal amount of 11.25% Notes due 2012 (the "Exchange Notes") of the Company, upon the terms and subject to the conditions set forth in the Exchange Offer, for each $1,000 principal amount of outstanding 11.25% Notes due 2012 (the "Old Notes") of the Company. Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the principal amount of Old Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Old Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of such extension or amendment), the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Old Notes. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent also acts as the agent of the Company in connection with the Exchange Offer) with respect to such tendered Old Notes, with full power of substitution (such power-of-attorney being deemed to be an irrevocable power coupled with an interest), to (i) present such Old Notes and all evidences of transfer and authenticity to, or transfer ownership of, such Old Notes on the account books maintained by the Book-Entry Transfer Facility to, or upon the order of, the Company, (ii) present such Old Notes for transfer of ownership on the books of the Company or the trustee under the Indenture (the "Trustee"), and (iii) receive all benefits and otherwise exercise all rights and incidents of beneficial ownership with respect to such Old Notes, all in accordance with the terms of and conditions of the Exchange Offer as described in the Prospectus. The undersigned hereby represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Old Notes tendered hereby and to acquire Exchange Notes issuable upon the exchange of such tendered Old Notes, and that, when such Old Notes are accepted for exchange by the Company, the Company will acquire good, unencumbered and marketable title to the tendered Old Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims or rights. The undersigned further warrants that it will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the Old Notes tendered for exchange hereby or transfer ownership of such Old Notes on the account books maintained by the Book-Entry Transfer Facility. The undersigned further agrees that acceptance of any and all validly tendered Old Notes by the Company and the issuance of Exchange Notes in exchange therefor, shall constitute performance in full by the Company of its obligations under the Registration Rights Agreement. THE EXCHANGE OFFER IS NOT BEING MADE TO ANY BROKER-DEALER WHO PURCHASED OLD NOTES DIRECTLY FROM THE COMPANY FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT OR TO ANY PERSON THAT IS AN "AFFILIATE" OF THE COMPANY WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT. THE UNDERSIGNED UNDERSTANDS AND AGREES THAT THE COMPANY RESERVES THE RIGHT NOT TO ACCEPT TENDERED OLD NOTES FROM ANY TENDERING HOLDER IF THE COMPANY DETERMINES, IN ITS REASONABLE DISCRETION, THAT SUCH ACCEPTANCE COULD RESULT IN A VIOLATION OF APPLICABLE SECURITIES LAWS. The undersigned, if the undersigned is a beneficial holder or, if the undersigned is a broker, dealer, commercial bank, trust company or other nominee, represents that it has received representations from the beneficial owners of the Old Notes (the "Beneficial Owner") stating that (i) the Exchange Notes to be acquired in connection with the Exchange Offer by the Holder and each Beneficial Owner of the Old Notes are being acquired by the Holder and each such Beneficial Owner in the ordinary course of business of the Holder and each such Beneficial Owner, (ii) the Holder and each such Beneficial Owner are not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes, (iii) the Holder and each Beneficial Owner acknowledge and agree that any person who is a broker-dealer registered under the Exchange Act or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements Section 10 of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in the no-action letters that are discussed in the Prospectus under the caption "The Exchange Offer--Resale of the Exchange Notes" and may only sell the Exchange Notes acquired by such person pursuant to a registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K under the Securities Act, and (iv) neither the Holder nor any such Beneficial Owner is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company or is a broker-dealer who purchased Old Notes directly from the Company for resale pursuant to Rule 144A under the Securities Act. In addition, if the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of Section 10 of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. A broker-dealer may not participate in the Exchange Offer with respect to the Old Notes acquired other than as a result of marker-making activities or other trading activities. EACH BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO A STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF EXCHANGE NOTES PURSUANT OT THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE EXCHANGE NOTES MAY BE RESUMED, AS THE CASE MAY BE. EACH PARTICIPATING BROKER-DEALER SHOULD CHECK THE BOX HEREIN UNDER THE CAPTION "FOR PARTICIPATING BROKER-DEALERS ONLY" IN ORDER TO RECEIVE ADDITIONAL COPIES OF THE PROSPECTUS, AND ANY AMENDMENTS AND SUPPLEMENTS THERETO, FOR USE IN CONNECTION WITH RESALES OF THE EXCHANGE NOTES, AS WELL AS ANY NOTICES FROM THE COMPANY TO SUSPEND AND RESUME USE OF THE PROSPECTUS. BY TENDERING ITS OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, EACH PARTICIPATING BROKER-DEALER AGREES TO USE ITS REASONABLE BEST EFFORTS TO NOTIFY THE COMPANY OR THE EXCHANGE AGENT WHEN IT HAS SOLD ALL OF ITS EXCHANGE NOTES. IF NO PARTICIPATING BROKER-DEALERS CHECK SUCH BOX, OR IF ALL PARTICIPATING BROKER-DEALERS WHO HAVE CHECKED SUCH BOX SUBSEQUENTLY NOTIFY THE COMPANY OR THE EXCHANGE AGENT THAT ALL THEIR EXCHANGE NOTES HAVE BEEN SOLD, THE COMPANY WILL NOT BE REQUIRED TO MAINTAIN THE EFFECTIVENESS OF THE EXCHANGE OFFER REGISTRATION STATEMENT OR TO UPDATE THE PROSPECTUS AND WILL NOT PROVIDE ANY HOLDERS WITH ANY NOTICES TO SUSPEND OR RESUME USE OF THE PROSPECTUS. The undersigned understands that tenders of the Old Notes pursuant to any one of the procedures described under "The Exchange Offer--Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions of the Exchange Offer. Except as stated in the Prospectus, all authority herein conferred or agreed to be conferred by this Letter of Transmittal and every obligation of the undersigned shall survive the death, incapacity or dissolution of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, legal representatives, successors and assigns, executors, administrators and trustees in bankruptcy of the undersigned. Tendered Old Notes may be withdrawn at any time prior to the Expiration Date in accordance with the terms of the Exchange Offer. The undersigned also understands and acknowledges that the Company reserves the right in its sole discretion to purchase or make offers for any Old Notes that remain outstanding subsequent to the Expiration Date in the open market, in privately negotiated transactions, through subsequent exchange offers or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. The undersigned understands that the delivery and surrender of the Old Notes is not effective, and the risk of loss of the Old Notes does not pass to the Exchange Agent, until receipt by the Exchange Agent of this Letter of Transmittal, or a manually signed facsimile hereof, properly completed and duly executed, with any required signature guarantees, together with all accompanying evidences of authority and any other required documents in form satisfactory to the Company. All questions as to form of all documents and the validity (including time of receipt) and acceptance of tenders and withdrawals of Old Notes will be determined by the Company, in its sole discretion, which determination shall be final and binding. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions," the undersigned hereby requests that any Old Notes representing principal amounts not tendered or not accepted for exchange be issued in the name(s) of the undersigned and that Exchange Notes be issued in the name(s) of the undersigned (or, in the case of Old Notes delivered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility). Similarly, unless otherwise indicated herein in the box entitled "Special Delivery Instructions," the undersigned hereby requests that any Old Notes representing principal amounts not tendered or not accepted for exchange and certificates for Exchange Notes be delivered to the undersigned at the address(es) shown above. In the event that the "Special Issuance Instructions" box or the "Special Delivery Instructions" box is, or both are, completed, the undersigned hereby requests that any Old Notes representing principal amounts not tendered or not accepted for exchange be issued in the name(s) of, certificates for such Old Notes be delivered to, and certificates for Exchange Notes be issued in the name(s) of, and be delivered to, the person(s) at the address(es) so indicated, as applicable. The undersigned recognizes that the Company has no obligation pursuant to the "Special Issuance Instructions" box or "Special Delivery Instructions" box to transfer any Old Notes from the name of the registered Holder(s) thereof if the Company does not accept for exchange any of the principal amount of such Old Notes so tendered. IN ORDER TO VALIDLY TENDER OLD NOTES FOR EXCHANGE NOTES, HOLDERS MUST COMPLETE, EXECUTE AND DELIVER THIS LETTER OF TRANSMITTAL. PLEASE SIGN HERE (TO BE COMPLETED BY ALL HOLDERS OF OLD NOTES REGARDLESS OF WHETHER OLD NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH) x ____________________________________________________ __________________________________________________________ , 2002 x ____________________________________________________ __________________________________________________________ , 2002 Signature(s) of Owner(s) Date
Area Code and Telephone Number: _______________________________________________ This Letter of Transmittal must be signed by the Holder(s) of Old Notes exactly as their name(s) appear(s) on certificate(s) representing the Old Notes or, if delivered by a participant in the Book-Entry Transfer Facility, exactly as such participant's name appears on a security position listing as the owner of Old Notes, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Letter of Transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below under "Capacity" and submit evidence satisfactory to the Company of such person's authority to so act. See Instruction 4 below. If the signature appearing below is not of the record holder(s) of the Old Notes, then the record holder(s) must sign a valid bond power. Name(s): ______________________________________________________________________ (Please Type or Print) Capacity: _____________________________________________________________________ Address: ______________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Including Zip Code) Area Code and Telephone No.: __________________________________________________ Taxpayer Identification or Social Security Number: ____________________________ IMPORTANT: PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN [_] CHECK HERE IF YOU ARE A BROKER DEALER WHO ACQUIRED THE OLD NOTES FOR YOUR OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES AND WISH TO RECEIVE ADDITIONAL COPIES OF THE PROSPECTUS AND COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: _______________________________________________________________________ Address: ____________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ (Include Zip Code) GUARANTEE OF SIGNATURES (SEE INSTRUCTION 4 BELOW) Signature(s) Guaranteed by an Eligible Institution: ______________________________________________________ (Authorized Signature) Name and Title: _______________________________________________________________ (Please Type or Print) Name of Firm: _________________________________________________________________ Address: ______________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Including Zip Code) Area Code and Telephone No.: __________________________________________________ Dated: ________________________________________________________________________ - ---------------------------------------------------------- ---------------------------------------------------------- SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3, 4, 5 AND 7) (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if certificates for Old Notes in To be completed ONLY if certificates for Old Notes in a principal amount not tendered or not accepted for a principal amount not accepted for exchange and/or exchange are to be issued in the name of, or certificates for Exchange Notes are to be sent to certificates for Exchange Notes are to be issued to the someone other than the person or persons whose order of, and sent to someone other than the person or signature(s) appear(s) within this Letter of Transmittal persons whose signature(s) appear(s) within this Letter or to an address different from that shown in the box of Transmittal, or if Old Notes delivered by book-entry entitled "Description of Old Notes" within the Letter transfer which are not accepted for exchange are to be of Transmittal. returned by credit to an account maintained at the Book-Entry Transfer Facility other than the account Deliver: [_] Old Notes [_] Exchange Notes indicated within this Letter of Transmittal. (Check as Applicable) Issue: [_] Old Notes [_] Exchange Notes Name: __________________________________________________ (Check as Applicable) (Please Print) Name: _________________________________________________ Address: _______________________________________________ (Please Print) ________________________________________________________ ________________________________________________________ Address: ______________________________________________ (Zip Code) _______________________________________________________ _______________________________________________________ (Zip Code) _______________________________________________________ (Tax Identification or Social Security Number) (SEE SUBSTITUTE FORM W-9 HEREIN) [_] Credit Old Notes not exchanged and delivered by book entry transfer to the Book Entry Transfer Facility account set below: _______________________________________________________ (Book Entry Transfer Facility Account Number, if applicable) [_] Credit Exchange Notes to the Book Entry Transfer Facility account set below: _______________________________________________________ (Book Entry Transfer Facility Account Number, if applicable) - ---------------------------------------------------------- ----------------------------------------------------------
INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. Delivery of this Letter of Transmittal and Certificates for Old Notes or Book-Entry Confirmations; Withdrawal of Tenders. To tender Old Notes in the Exchange Offer, physical delivery of certificates for Old Notes or confirmation of a book-entry transfer into the Exchange Agent's account with a Book-Entry Transfer Facility of Old Notes tendered electronically, as well as a properly completed and duly executed copy or manually signed facsimile of this Letter of Transmittal, or in the case of a book-entry transfer, an Agent's Message, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date or the tendering holder must comply with the guaranteed delivery procedures set forth below. Tenders of Old Notes in the Exchange Offer may be made prior to the Expiration Date in the manner described in the preceding sentence and otherwise in compliance with this Letter of Transmittal. The method of delivery of this letter of transmittal, certificates for Old Notes and all other required documents, to the Exchange Agent, including delivery through DTC and any acceptance of an Agent's Message transmitted through ATOP, is at the election and risk of the Holder tendering Old Notes. If such delivery is made by mail, it is suggested that the Holder use properly insured, registered mail with return receipt requested and that sufficient time should be allowed to assure timely delivery. No alternative, conditional or contingent tenders of Old Notes will be accepted. Except as otherwise provided below, the delivery will be deemed made only when actually received by the Exchange Agent. THIS LETTER OF TRANSMITTAL, CERTIFICATES FOR THE OLD NOTES AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, NOT TO THE COMPANY, THE TRUSTEE OR DTC. Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. In order to be valid, the notice of withdrawal of tendered Old Notes must comply with the requirements set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders." 2. Guaranteed Delivery Procedures. If Holders desire to tender Old Notes pursuant to the Exchange Offer and (i) certificates representing such Old Notes are not lost but are not immediately available, (ii) time will not permit this Letter of Transmittal, certificates representing such Holder's Old Notes and all other required documents to reach the Exchange Agent prior to the Expiration Date or (iii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date, such Holders may effect a tender of Old Notes in accordance with the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." Pursuant to the guaranteed delivery procedures: (i) such tender must be made by or through an Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent must have received from such Eligible Institution, at one of the addresses set forth on the cover of this Letter of Transmittal, a properly completed and validly executed Notice of Guaranteed Delivery (by manually signed facsimile transmission, mail or hand delivery) in substantially the form provided with the Prospectus, setting forth the name(s) and address(es) of the registered Holder(s) and the principal amount of Old Notes being tendered and stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange ("NYSE") trading days from the Expiration Date, this Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, or, in the case of a book-entry transfer, an Agent's Message, together with certificates representing the Old Notes (or confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at a Book-Entry Transfer Facility), and any other documents required by this Letter of Transmittal and the instructions thereto, will be deposited by such Eligible Institution with the Exchange Agent; and (iii) the Exchange Agent must have received this Letter of Transmittal (or a manually signed facsimile thereof), properly completed and validly executed with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, together with certificate(s) representing such Old Notes in proper form for transfer (or a Book-Entry Confirmation with respect to all tendered Old Notes), and any other documents required by this Letter of Transmittal, within three NYSE trading days after the Expiration Date. No alternative, conditional or contingent tenders will be accepted. All tendering Holders, by execution of this Letter of Transmittal (or facsimile hereof), waive any right to receive notice of the acceptance of their Old Notes for exchange. 3. Partial Tenders. If less than the entire principal amount of any Old Notes evidenced by a submitted certificate is tendered, the tendering Holder must fill in the principal amount of Old Notes which are tendered for exchange in column (3) of the box entitled "Description of Old Notes" herein. The entire principal amount represented by the certificates for all Old Notes delivered to the Exchange Agent will be deemed to have been tendered, unless otherwise indicated. The entire principal amount of all Old Notes not tendered or not accepted for exchange will be sent (or, if tendered by book-entry transfer, returned by credit to the account at the Book-Entry Transfer Facility designated herein) to the Holder unless otherwise provided in the "Special Issuance Instructions" or "Special Delivery Instructions" boxes of this Letter of Transmittal. 4. Signatures on this Letter of Transmittal; Bond Powers and Endorsements; Guarantee of Signatures. If this Letter of Transmittal is signed by the Holder(s) of the Old Notes tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If this Letter of Transmittal is signed by a participant in one of the Book-Entry Transfer Facilities whose name is shown as the owner of the Old Notes tendered hereby, the signature must correspond with the name shown on the security position listing as the owner of the Old Notes. If any of the Old Notes tendered hereby are registered in the name of two or more Holders, all such Holders must sign this Letter of Transmittal. If any tendered Old Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal and any necessary accompanying documents as there are different names in which certificates are held. If this Letter of Transmittal or any certificates for Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority so to act must be submitted with this Letter of Transmittal. If this letter of transmittal is executed by a person or entity other than the registered Holder, then the Old Notes must be accompanied by a properly completed bond power signed by such registered Holder exactly as the name(s) of the Holder appear(s) on the Old Notes. Signatures on such powers must be guaranteed by a participant in a recognized medallion signature program (a "Medallion Signature Guarantor"). No signature guarantee is required if (i) this Letter of Transmittal is signed by the registered Holder(s) of the Old Notes tendered herewith (or by a participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Old Notes) and certificates for Exchange Notes or for any Old Notes for principal amounts not tendered or not accepted for exchange are to be issued, directly to such Holder(s) or, if tendered by a participant in one of the Book-Entry Transfer Facilities, any Old Notes for principal amounts not tendered or not accepted for exchange are to be credited to such participant's account at such Book-Entry Transfer Facility and neither the "Special Issuance Instructions" box nor the "Special Delivery Instructions" box of this Letter of Transmittal has been completed or (ii) such Old Notes are tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL SIGNATURES ON LETTERS OF TRANSMITTAL ACCOMPANYING OLD NOTES MUST BE GUARANTEED BY A MEDALLION SIGNATURE GUARANTOR. In all such other cases (including if this Letter of Transmittal is not signed by the Holder), the Holder must either properly endorse the certificates for Old Notes tendered or transmit a separate properly completed bond power with this Letter of Transmittal (in either case, executed exactly as the name(s) of the registered Holder(s) appear(s) on such Old Notes, and, with respect to a participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Old Notes, exactly as the name(s) of the participant(s) appear(s) on such security position listing), with the signature on the endorsement or bond power guaranteed by a Medallion Signature Guarantor, unless such certificates or bond powers are executed by an Eligible Institution. Endorsements on certificates for Old Notes and signatures on bond powers provided in accordance with this Instruction 4 by registered Holders not executing this Letter of Transmittal must be guaranteed by a Medallion Signature Guarantor. 5. Special Issuance and Special Delivery Instructions. Tendering Holders should indicate in the appropriate box or boxes in this Letter of Transmittal the name and address to which Old Notes for principal amounts not tendered or not accepted for exchange or certificates for Exchange Notes, if applicable, are to be sent or issued, if different from the name and address of the Holder signing this Letter of Transmittal. In the case of payment to a different name, the taxpayer identification or social security number of the person named must also be indicated. If no instructions are given, Old Notes not tendered or not accepted for exchange will be returned, and certificates for Exchange Notes will be sent, to the Holder of the Old Notes tendered. 6. Substitute Form W-9; 30% Backup Withholding. Each tendering Holder is required to provide the Exchange Agent with the Holder's social security or federal employer identification number, on an IRS Form W-9 or a Substitute Form W-9, which is provided under "Important Tax Information" below, or alternatively, to establish another basis for exemption from backup withholding. A Holder must cross out item (2) in the Certification box in Part III on Substitute Form W-9 if such Holder is subject to backup withholding. Failure to provide the information on the form may subject such Holder to 30% federal backup withholding tax on any payment made to the Holder with respect to the Exchange Offer. The box in Part I of the form should be checked if the tendering or consenting Holder has not been issued a Taxpayer Identification Number ("TIN") and has either applied for a TIN or intends to apply for a TIN in the near future. If the box in Part I is checked the Holder should also sign the attached Certification of Awaiting Taxpayer Identification Number in order to avoid backup withholding. If the Exchange Agent is not provided with a TIN within 60 days thereafter, the Exchange Agent will withhold 30% on all such payments of the Exchange Notes until a TIN is provided to the Exchange Agent. Notwithstanding that the box in Part I is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Exchange Agent will withhold 30% of all payments made prior to the time a properly certified TIN is provided to the Exchange Agent. The Exchange Agent will retain such amounts withheld during the 60-day period following the date of the Substitute Form W-9. If the Holder furnishes the Exchange Agent with its TIN within 60 days after the date of the Substitute Form W-9, the amounts retained during the 60-day period will be remitted to the Holder and no further amounts shall be retained or withheld from payments made to the Holder thereafter. If, however, the Holder has not provided the exchange Agent with its TIN within such 60-day period, amounts withheld will be remitted to the IRS as backup withholding. In addition, 30% of all payments made thereafter will be withheld and remitted to the IRS until a correct TIN is provided. 7. Transfer Taxes. The Company will pay all transfer taxes, if any, applicable to the exchange and transfer of Old Notes pursuant to the Exchange Offer, except if (i) deliveries of certificates for Old Notes for principal amounts not tendered or not accepted for exchange are registered or issued in the name of any person other than the Holder of Old Notes tendered thereby, (ii) tendered certificates are registered in the name of any person other than the person signing this Letter of Transmittal or (iii) a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. 8. Irregularities. All questions as to the form, validity, eligibility (including time of receipt) of all documents and compliance with conditions, acceptance of all tenders, and withdrawals of Old Notes will be determined by the Company, in its sole discretion, which determination shall be final and binding. ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF OLD NOTES WILL NOT BE CONSIDERED VALID. The Company reserves the absolute right to reject any and all tenders of Old Notes that are not in proper form or the acceptance of which would, in the Company's opinion, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Company's interpretations of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) will be final and binding on all parties. Any defect or irregularity in connection with tenders of Old Notes must be cured within such time as the Company determines, unless waived by the Company. Tenders of Old Notes shall not be deemed to have been made until all defects or irregularities have been waived by the Company or cured. A defective tender (which defect is not waived by the Company or cured by the Holder) will not constitute a valid tender of Old Notes and will not entitle the Holder to Exchange Notes. None of the Company, the Trustee, the Exchange Agent or any other person will be under any duty to give notice of any defect or irregularity in any tender or withdrawal of any Old Notes, or incur any liability to Holders for failure to give any such notice. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived, will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 9. Waiver of Conditions. The Company reserves the absolute right, in its reasonable discretion, to amend, waive or modify any of the conditions to the Exchange Offer. 10. Mutilated, Lost, Stolen or Destroyed Certificates for Old Notes. Any tendering Holder whose certificates for Old Notes have been mutilated, lost, stolen or destroyed should write to or telephone the Exchange Agent at the address or telephone number set forth on the cover of this Letter of Transmittal. 11. Requests for Assistance or Additional Copies. Questions relating to the procedure for tendering Old Notes and requests for assistance or additional copies of the Prospectus, this Letter of Transmittal, the Notice of Guaranteed Delivery or other documents may be directed to the Exchange Agent, at the address or telephone number set forth on the cover of this Letter of Transmittal. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. IMPORTANT TAX INFORMATION Under federal income tax laws, a Holder who tenders Old Notes prior to receipt of the Exchange Notes is required to provide the Exchange Agent with such Holder's correct TIN on the Substitute Form W-9 below or otherwise establish a basis for exemption from backup withholding. If such Holder is an individual, the TIN is his or her social security number. If the Exchange Agent is not provided with the correct TIN, or false information is provided in connection with a request for a TIN, the Internal Revenue Service ("IRS") may subject the Holder or other payee to penalties, and payments, including any Exchange Notes, made to such Holder with respect to Old Notes exchanged pursuant to the Exchange Offer, may be subject to backup withholding. Certain Holders (including, among others, all corporations and certain foreign persons) may not subject to the backup withholding and reporting requirements. Such Holders should nevertheless complete the Substitute Form W-9 attached below and write "EXEMPT" on the face thereof, to avoid possible erroneous backup withholding. A foreign person may qualify as an exempt recipient by submitting to the Exchange Agent a properly completed IRS Form W-8, signed under penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. Holders are urged to consult their own tax advisors to determine whether they are exempt. If backup withholding applies, the Exchange Agent is required to withhold 30% of any payments made to the Holder or other payee. Backup withholding is not an additional Federal income tax. Rather, the Federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments, including any Exchange Notes, made with respect to Old Notes exchanged pursuant to the Exchange Offer, the Holder is required to provide the Exchange Agent with (i) the Holder's correct TIN by completing the form below, certifying that the TIN provided on the Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and that (A) such Holder is exempt from backup withholding, (B) the Holder has not been notified by the IRS that the Holder is subject to backup withholding as a result of failure to report all interest or dividends or (C) the IRS has notified the Holder that the Holder is no longer subject to backup withholding and (ii) if applicable, an adequate basis for exemption. WHAT NUMBER TO GIVE THE EXCHANGE AGENT The Holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered Holder of the Old Notes. If the Old Notes are held in more than one name or are held not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. SUBSTITUTE FORM W-9 REQUEST FOR TAXPAYER IDENTIFICATION NUMBER AND CERTIFICATION (TO BE COMPLETED BY ALL TENDERING HOLDERS) PAYER'S NAME: ICON HEALTH & FITNESS, INC. PAYEE INFORMATION (Please print or type) Individual or business name (if joint account, list first and circle the name of person or entity whose number you furnish in Part 1 below): - -------------------------------------------------------- Check appropriate box: [_] Individual/Sole proprietor [_] Corporation [_] Partnership [_] Other ________________________ Address (number, street, and apt. or suite no.): _______ City, State, and ZIP code: _____________________________ - --------------------------------------------------------------------------------------------------------------------- PART I: TAXPAYER IDENTIFICATION NUMBER ("TIN") Enter your TIN in the appropriate box. For individuals, this is your social security number. For other entities, it is your employeridentification number. Refer to the chart on page 1 of the Guidelines for Certification of Taxpayer Identification Number on SubstituteForm W-9 (the "Guidelines"). If you do not have a TIN, see instructions on how to obtain a TIN on page 2 of the Guidelines, check theappropriate box below indicating that you have applied for a TIN and, in addition to the Part III Certification, sign the attachedCertification of Awaiting Taxpayer Identification Number. Social security number: __ __ __ - __ __ - __ __ __ __ [_] Applied For
Employer identification number: __ __ - __ __ __ __ __ __ __ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ PART II: PAYEES EXEMPT FROM BACKUP WITHHOLDING Check box (See page 2 of the Guidelines for further clarification. Even if you are exempt from backup withholding, you should stillcomplete and sign the certification below): [_] EXEMPT - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ PART III: CERTIFICATION Under penalties of perjury, I certify that: 1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and 2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and 3. I am a U.S. person (including a U.S. resident alien). Certification Instructions: You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because you have failed to report all interest and dividends on your tax return (See page 2 of the Guidelines for further clarification). - ------------------------------------------------------------------------------------------------------------------
Signature of U.S. Person: __________________________________________ Date: ____________________ YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU CHECKED THE BOX "APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify, under penalties of perjury, that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (b) I intend to mail or deliver an application in the near future. I understand that I must provide a taxpayer identification number to the Exchange Agent within 60 days of submitting this Substitute Form W-9 and that if I do not provide a taxpayer identification number to the Exchange Agent within 60 days, the Exchange Agent is required to withhold 30% of all reportable payments thereafter to me until I furnish the Exchange Agent with a taxpayer identification number. __________________________ Signature __________________________ Date NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 30% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. EX-99.2 16 dex992.txt EXHIBIT 99.2 - NOTICE OF GUARANTEED DELIVERY NOTICE OF GUARANTEED DELIVERY ICON HEALTH & FITNESS, INC. Offer to Exchange all Outstanding 11.25% Notes Due 2012 That Were Sold in a Transaction Exempt From Registration Under the Securities Act of 1933, As Amended, Pursuant to the Prospectus Dated March 28, 2002 for 11.25% Notes Due 2012 Which Have Been Registered Under the Securities Act of 1933, As Amended THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002, UNLESS EXTENDED (SUCH TIME AND DATE, AS THE SAME MAY BE EXTENDED FROM TIME TO TIME) OR TERMINATED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. The Exchange Agent for the Exchange Offer is: THE BANK OF NEW YORK Facsimile Transactions By Overnight Delivery or (Eligible institutions By Hand: Registered/Certified Mail: only): The Bank of New York The Bank of New York (212) 815-6339 101 Barclay Street 101 Barclay Street Ground Level Corporate New York, New York 10286 Trust Services Window Attn: Reorganization New York, New York 10286 Unit-7E Attn: Reorganization Unit-7E
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. As set forth in the Prospectus, dated , 2002 (as the same may be amended from time to time, the "Prospectus"), of ICON Health & Fitness, Inc. (the "Company") under the caption "The Exchange Offer--Guaranteed Delivery Procedures," and in the accompanying Letter of Transmittal (the "Letter of Transmittal" and, together with the Prospectus, the "Exchange Offer") and Instructions thereto, relating to the offer by the Company to exchange $1,000 principal amount of 11.25% Notes due 2012 (the "Exchange Notes") of the Company, upon the terms and subject to the conditions of the Exchange Offer, for each $1,000 principal amount of outstanding 11.25% Notes due 2012 (the "Old Notes") of the Company, this form or one substantially equivalent must be used to tender any of the Old Notes if (i) certificates representing the Old Notes to be tendered for purchase and payment are not lost but are not immediately available, (ii) time will not permit a Holder's Letter of Transmittal, certificates representing the Old Notes to be tendered and all other required documents to reach the Exchange Agent prior to the expiration date, or (iii) the procedures for book-entry transfer cannot be completed prior to the expiration date. This form may be delivered by an Eligible Institution by mail or hand delivery or transmitted, via manually signed facsimile, to the Exchange Agent as set forth above. Capitalized terms used but not otherwise defined herein shall have the meaning given to them in the Prospectus. This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instruction thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tender(s) to the Company, upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." The undersigned hereby represents and warrants that the undersigned has full power and authority to tender the Old Notes. By so tendering, the undersigned does hereby make, at as and of the date hereof, the representations and warranties of a tendering Holder of Old Notes set forth in the Letter of Transmittal. The undersigned understands that tenders of Old Notes may be withdrawn if the Exchange Agent receives, at one of its addresses specified on the cover of this Notice of Guaranteed Delivery, prior to the Expiration Date, a facsimile transmission or letter, which specifies the name of the person who deposited the Old Notes to be withdrawn and the aggregate principal amount of Old Notes delivered for exchange, including the certificate number(s) (if any), and which is signed in the same manner as the original signature on the Letter of Transmittal by which the Old Notes were tendered, including any signature guarantees, all in accordance with the procedures set forth in the Prospectus. The undersigned understands that tenders of Old Notes pursuant to the Exchange Offer may not be validly withdrawn after 5:00 p.m., New York City time, on , 2002. The undersigned authorizes the Exchange Agent to deliver this Notice of Guaranteed Delivery to the Company and the trustee under the indenture governing the Old Notes and the Exchange Notes as evidence of the undersigned's tender of Old Notes. All authority herein conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death, incapacity or dissolution of the undersigned and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned. The undersigned hereby tenders the Old Notes listed below: PLEASE SIGN AND COMPLETE Certificate No.(s) of Old Notes Principal Amount of (if available): Old Notes Tendered: -------------------------------- ------------------- -------------------------------- ------------------- -------------------------------- ------------------- -------------------------------- ------------------- -------------------------------- ------------------- -------------------------------- -------------------
x _____________________________________________________________________________ (Signature(s) of Registered Holder(s) or Authorized Signatory) Title: ________________________________________________________________________ Name(s) of Registered Holder(s): ______________________________________________ (Please Type or Print) Address: ______________________________________________________________________ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Area Code and Telephone No.: __________________________________________________ Date: _________________________________________________________________________ If Old Notes will be delivered by book-entry transfer, complete the following: Depository Account No. ________________________________________________________ This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly as their names appear on certificates for Old Notes or on a security position listing as the owner of Old Notes, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information: Please print name(s) and address(es) Name(s): ______________________________________________________________________ Capacity: _____________________________________________________________________ Address(es): __________________________________________________________________ GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States, hereby guarantees that, within three New York Stock Exchange trading days from the Expiration Date, a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), together with certificates representing the Old Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Old Notes into the Exchange Agent's account at the Depositary Trust Corporation, pursuant to the procedure for book-entry transfer set forth in the Prospectus under the caption "Book-Entry; Delivery and Form"), and any other required documents will be deposited by the undersigned with the Exchange Agent at its address set forth above. Name of Firm: _________________________________________________________________ (Authorized Signature) Address: ______________________________________________________________________ Name: _________________________________________________________________________ Area Code and Telephone No.: __________________________________________________ Title: ________________________________________________________________________ Date: _________________________________________________________________________ DO NOT SEND NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE AGENT, TOGETHER WITH A PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER RELATED DOCUMENTS. EX-99.3 17 dex993.txt EXHIBIT 99.3 - LETTER TO CLIENTS ICON HEALTH & FITNESS, INC. Offer to Exchange all Outstanding 11.25% Notes Due 2012 That Were Sold in a Transaction Exempt From Registration Under the Securities Act of 1933, As Amended, Pursuant to the Prospectus Dated March 28, 2002 for 11.25% Notes Due 2012 Which Have Been Registered Under the Securities Act of 1933, As Amended PLEASE NOTE THAT THE EXCHANGE OFFER AND CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002, UNLESS EXTENDED (SUCH TIME AND DATE, AS THE SAME MAY BE EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE") OR TERMINATED. , 2002 To Our Clients: Enclosed for your consideration is a Prospectus, dated , 2002 (as the same may be amended from time to time, the "Prospectus") of ICON Health & Fitness, Inc. (the "Company") and the related Letter of Transmittal (the "Letter of Transmittal" and, together with the Prospectus, the "Exchange Offer") relating to the offer by the Company to exchange its 11.25% Notes due 2012 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act") for a like principal amount of the Company's issued and outstanding 11.25% Notes due 2012 (the "Old Notes"), upon the terms and subject to the conditions of the Exchange Offer. These materials are being forwarded to you as the beneficial owner of Old Notes carried by us for your account or benefit but not registered in your name. A tender of such Old Notes can be made only by us as the registered holder and pursuant to your instructions. Therefore, the Company urges beneficial owners of Old Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee to contact such holder promptly if they wish to exchange the Old Notes in the Exchange Offer. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Old Notes with respect to Old Notes held by us for your account. Accordingly, we request instructions as to whether you wish us to tender all of the Old Notes held by us for your account pursuant to the Exchange Offer. The Exchange Offer is being made pursuant to the terms and conditions set forth in the Prospectus and the Letter of Transmittal and we urge you to read the Prospectus and the Letter of Transmittal carefully before giving us your instructions. Your instructions to us should be forwarded as promptly as possible to permit us to tender Old Notes on your behalf in accordance with the provisions of the Exchange Offer. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002, UNLESS EXTENDED OR TERMINATED BY THE COMPANY. Tenders may be withdrawn only in accordance with the procedures set forth in the Prospectus at any time prior to the Expiration Date. Your attention is directed to the following: 1. The Exchange Offer is for all outstanding Old Notes. 2. The Exchange Offer is not being made to (nor will the tender of Old Notes be accepted from or on behalf of) Holders in any jurisdiction in which the making of the Exchange Offer would not be in compliance with the laws of such jurisdiction. 3. The Company expressly reserves the right, in its sole discretion, subject to applicable law and the terms of the Exchange Offer, (a) to delay acceptance of any Old Notes or to delay payment for any Old Notes accepted for exchange or to terminate the Exchange Offer and not accept any Old Notes not theretofore accepted for exchange, upon the failure of the Exchange Offer to comply in whole or in part with any applicable law, and (b) at any time, or from time to time, to amend or modify any or all of the terms set forth in the Prospectus in any respect. The reservation by the Company of the right to delay acceptance of Old Notes is subject, if applicable, to the provisions of Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended, which requires that an offeror pay the consideration offered or return the securities deposited by or on behalf of the holders thereof promptly after the termination or withdrawal of a tender offer. 4. The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New York City time, on , 2002, unless extended. 5. Any transfer taxes incident to the transfer of Old Notes from the tendering Holder to the Company will be paid by the Company, except as provided in the Prospectus and the instructions to the Letter of Transmittal. If you wish to exchange Old Notes held by us for your account, pursuant to the Exchange Offer, please so instruct us by completing, executing and returning to us the instruction form that appears below. [Remainder of page intentionally left blank] 2 INSTRUCTIONS The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer of the Company. THIS WILL INSTRUCT YOU TO EXCHANGE THE PRINCIPAL AMOUNT OF OLD NOTES INDICATED BELOW (OR, IF NO AGGREGATE AMOUNT IS INDICATED BELOW, ALL OLD NOTES) HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED, PURSUANT TO THE TERMS AND CONDITIONS SET FORTH IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL. The aggregate face amount of the Old Notes held by you for the account of the undersigned is (fill in amount): $ ____________ of the Old Notes. With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): [_] To TENDER the following Old Notes held by you for the account of the undersigned (insert principal amount of Old Notes to be tendered, if any): $ ____________ of the Old Notes. [_] NOT to TENDER any Old Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Old Notes held by you for the account of the undersigned, it is understood that you are authorized: (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner of the Old Notes, including but not limited to the representations that (i) the undersigned's principal residence is in the State of ________________, (ii) the undersigned is acquiring the Exchange Notes in the ordinary course of business of the undersigned, (iii) the undersigned has no arrangement or understanding with any person to participate in the distribution of Exchange Notes, (iv) the undersigned acknowledges that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended, or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of Section 10 of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the Staff of the Securities and Exchange Commission set forth in certain no action letters (See the section of the Prospectus entitled "The Exchange Offer--Resale of the Exchange Notes"), (v) the undersigned understands that a secondary resale transaction described in clause (iv) above and any resales of Exchange Notes obtained by the undersigned in exchange for the Old Notes acquired by the undersigned directly from the Company should be covered by an effective registration statement containing the selling securityholder information required by Item 507 or Item 508, if applicable, of Regulation S-K under the Securities Act, (vi) the undersigned is not an "affiliate" of the Company, as defined in Rule 405 of the Securities Act, and (vii) if the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of Section 10 of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering such prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of Old Notes. 3 The purchaser status of the undersigned is (check the box that applies): [_] A "Qualified Institutional Buyer" (as defined in Rule 144A under the Securities Act) [_] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) [_] A non "U.S. person" (as defined in Regulation S under the Securities Act) that purchased the Old Notes outside the United States in accordance with Rule 904 under the Securities Act [_] Other (describe): ______________________________________________________ ----------------------------------------------------- Name of Beneficial Owner(s) ----------------------------------------------------- Signature(s) ----------------------------------------------------- Name(s) (please print) ----------------------------------------------------- ----------------------------------------------------- ----------------------------------------------------- Address (please type or print) ----------------------------------------------------- Area code and telephone number ----------------------------------------------------- Taxpayer Identification or Social Security Number , 2002 ----------------------------------------------------- Date 4 EX-99.4 18 dex994.txt EXHIBIT 99.4 - LETTER TO NOMINEES ICON HEALTH & FITNESS, INC. Offer to Exchange all Outstanding 11.25% Notes Due 2012 That Were Sold in a Transaction Exempt From Registration Under the Securities Act of 1933, As Amended, Pursuant to the Prospectus Dated March 28, 2002 for 11.25% Notes Due 2012 Which Have Been Registered Under the Securities Act of 1933, As Amended PLEASE NOTE THAT THE EXCHANGE OFFER AND CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002, UNLESS EXTENDED (SUCH TIME AND DATE, AS THE SAME MAY BE EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE") OR TERMINATED. , 2002 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: Enclosed for your consideration is a Prospectus, dated , 2002 (as the same may be amended from time to time, the "Prospectus") of ICON Health & Fitness, Inc. (the "Company") and the related Letter of Transmittal (the "Letter of Transmittal" and, together with the Prospectus, the "Exchange Offer") relating to the offer by the Company to exchange its 11.25% Notes due 2012 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act") for a like principal amount of the Company's issued and outstanding 11.25% Notes due 2012 (the "Old Notes"), upon the terms and subject to the conditions of the Exchange Offer. We are asking you to contact your clients for whom you hold Old Notes registered in your name or in the name of your nominee. In addition, we ask you to contact your clients who, to your knowledge, hold Old Notes registered in their own name. For your information, and for forwarding to your clients for whom you hold Old Notes registered in your name or in the name of your nominee, we are enclosing the following documents: 1. The Prospectus; 2. A Letter of Transmittal for your use in connection with the tender of Old Notes and for the information of your clients; 3. A printed form of letter, including a Letter of Instructions, which may be sent to your clients for whose account you hold Old Notes in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offer; 4. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer if the Old Notes and all other required documents cannot be delivered to The Bank of New York (the "Exchange Agent") prior to the Expiration Date; 5. A return envelope addressed to the Exchange Agent; 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Depository Trust Company ("DTC") participants will be able to execute tenders through the DTC Automated Tender Offer Program. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002, UNLESS EXTENDED OR TERMINATED. The Company will not pay any fees or commissions to any broker or dealer or other person (other than the Exchange Agent) in connection with the Exchange Offer. However, the Company will reimburse you for customary mailing and handling expenses incurred in forwarding the enclosed materials to your clients. Any inquiries you may have with respect to the Exchange Offer should be addressed to the Exchange Agent, at its address and telephone number as set forth in the enclosed Letter of Transmittal. Additional copies of the enclosed materials may be obtained from the Exchange Agent. Very truly yours, ICON HEALTH & FITNESS, INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON THE AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF EITHER OF THEM IN CONNECTION WITH THE EXCHANGE OFFER EXCEPT FOR THE DOCUMENTS ENCLOSED HEREWITH AND STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL. -----END PRIVACY-ENHANCED MESSAGE-----