Exhibit 10.17
NON-RECOURSE NOTE
U.S. $990,660 September 27, 1999
New York, New York
FOR VALUE RECEIVED, the undersigned, Gary E. Stevenson (the "Borrower"),
hereby promises to pay to HF Holdings, Inc., a Delaware corporation (the
"Company"), at the office of the Company located at 1500 South 1000 West, Logan,
UT 84321, or such other place as the holder hereof may designate, in immediately
available funds, the principal amount of NINE HUNDRED NINETY THOUSAND SIX
HUNDRED AND SIXTY DOLLARS ($990,660) on September 26, 2009 (the "Maturity
Date"), together with interest on the principal balance hereof from the date of
issuance hereof through and including the Maturity Date, at the times and at the
rates provided herein. The repayment of the loan evidenced by this Non-Recourse
Note (the "Note") shall be subject to the terms and conditions set forth
hereinbelow.
1. Interest. Interest shall accrue on the unpaid principal balance of
this Note at a rate identical to the rate of interest payable from time to time
by ICON Health and Fitness, Inc. ("ICON") under the Revolving Loan portion of
the Credit Agreement, dated on even date herewith, among ICON, General Electric
Capital Corporation and other lenders, calculated on the basis of a 360-day year
consisting of twelve 30-day months. Such interest shall be payable quarterly in
cash on the first day of each December, March, June and September. All interest
hereunder shall cease to accrue upon the earlier of (i) the last day of the
calendar month immediately preceding the date as of which the cumulative
consolidated net taxable income of the Company and its subsidiaries (computed by
disregarding deductions of the Company and its subsidiaries arising from events
and transactions occurring after the closing of the ICON Restructuring (as that
term is referred to in the Exchange Offer and Consent Solicitation Statement,
dated July 30, 1999, of the Company and ICON, as supplemented), including
without limitation any extraordinary transactions, including any acquisitions,
effected after the ICON Restructuring) arising on or after the date of the ICON
Restructuring exceeds zero dollars ($0), and (ii) May 31, 2000, provided that
the consolidated EBITDA (as that term is defined in the Credit Agreement of even
date herewith among ICON, General Electric Capital Corporation and the other
lenders thereunder, without regard to any amendments thereto) of ICON and its
subsidiaries, for ICON's fiscal year then ended, exceeds $64 million.
The Borrower and every endorser and guarantor hereof hereby waives
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note, and consents to any extension or postponement of the time of payment
or any other indulgence, to any substitution, exchange or release of collateral
and to the additional release of any other party or person primarily or
secondarily liable. No delay or omission on the part of the holder hereof in
exercising any right hereunder shall operate as a waiver of any such right or of
any other rights hereunder, nor shall any delay, omission or waiver on any one
occasion be construed as a bar to or waiver of the same or any other rights on
any future occasion.
The Borrower and every endorser and guarantor hereof agree to pay on demand
all costs and expenses (including reasonable attorneys' fees and disbursements)
which may be incurred or paid by the holder in the collection of this Note or
the enforcement of the holder's rights and remedies hereunder.
2. Optional Prepayment. This Note may be prepaid at the option of the
Borrower in whole or in part at any time and from time to time without premium
or penalty. Any such prepayment on account of principal hereunder shall be
recorded by the Company and endorsed on the schedule which is attached to and is
part of this Note. The entries on the records of the Company (including any
appearing on this Note) shall be prima facie evidence of all principal amounts
outstanding hereunder.
3. Mandatory Prepayment. The Borrower shall prepay 100% of the unpaid
principal of this Note, together with any accrued and unpaid interest thereon as
provided in Section 1 of this Note, upon the occurrence of a Liquidity Event, as
such term is defined in the Company Stockholders Agreement, also dated as of an
even date herewith.
4. Event of Default. An "Event of Default" shall exist if any of the
following conditions or events shall occur and be continuing:
(a) the Borrower fails to pay any principal or interest under
this Note when the same becomes due and payable; or
(b) the Borrower fails to perform or comply with any material
term or condition contained in this Note (other than nonpayment as described in
clause (a) above), and such default continues for more than twenty (20) days
after the Borrower has received written notice thereof from the Company; or
(c) the Borrower makes an assignment for the benefit of
creditors, or admits in writing its inability to pay its debts as they mature or
become due, or petitions or applies for the appointment of a trustee or other
custodian, liquidator or receiver of the Borrower of any substantial part of its
assets, or commences any case or other proceeding relating to the Borrower or
any bankruptcy, reorganization, insolvency or similar law of any jurisdiction;
or any such involuntary case or proceeding shall be filed or commenced against
the Borrower by any third party, and the Borrower shall indicate its approval
thereof or consent thereto or such case or proceeding shall not have been
dismissed within sixty (60) days following the filing or commencement thereof;
or
(d) a decree or order is entered appointing any trustee,
custodian, liquidator or receiver for the Borrower or its assets, or
adjudicating the Borrower a bankrupt or insolvent, or approving a petition in
any such case or proceeding, or a decree or order of relief is entered in
respect of the Borrower in an involuntary case under federal or state bankruptcy
laws as now or hereafter constituted.
5. Remedies on Event of Default.
(a) Automatic Acceleration. If an Event of Default described in
paragraph (c) or (d) of Section 4 of this Note has occurred, this Note shall
thereupon automatically become immediately due and payable.
(b) Acceleration by Declaration. If an Event of Default
described in paragraph (a) or (b) of Section 4 of this Note has occurred and is
continuing, the Company may at any time declare this Note to be immediately due
and payable.
(c) Effect of Acceleration. Upon this Note becoming due and
payable under this Section 5, whether automatically or by declaration, this Note
will forthwith mature and the entire unpaid principal amount of this Note, plus
all accrued and unpaid interest thereon (to the full extent permitted by
applicable law), shall be immediately due and payable.
6. Nonrecourse. All loans made under this Note, and all interest thereon
and all costs related thereto, shall be nonrecourse to the Borrower or to any
other person, and the holder hereof shall have recourse only to the assets of
the Borrower referred to in Section 7 hereof which are being pledged to secure
the Borrower's obligations hereunder.
7. Pledge of Collateral. As collateral security for the prompt payment of
the indebtedness evidenced hereby and the performance of all obligations
hereunder and all amendments and replacements hereof, the Borrower hereby agrees
to pledge, assign, deliver and grant a security interest in the Collateral (as
defined below) at the time of the making of the initial loan hereunder. The
value of such collateral security shall be equal to at least $1,981,320 (the
"Minimum Collateral Value Amount"), and shall consist of (i) common stock of the
Company held by the Borrower, representing 291,700 of the Company's common stock
outstanding immediately after the ICON Restructuring (the "Stock Collateral"),
plus (ii) sufficient membership interests held by the Borrower in HF Investment
Holdings, LLC, a Delaware limited liability company (the "Membership Interest
Collateral"), such that the aggregate value of the Stock Collateral plus the
Membership Interest Collateral (collectively, the "Collateral") is not less than
the Minimum Collateral Value Amount. For purposes of this Note, the value of the
Collateral shall be equal to such value as established at the time of the ICON
Restructuring closing. The pledging of the Collateral shall be governed by a
Pledge and Security Agreement, substantially in the form attached hereto as
Appendix A, which shall be executed and delivered by the Borrower, together with
all necessary stock certificates, executed stock powers and executed UCC-1
financing statements, as a condition to the making of the initial loan
hereunder.
This Non-Recourse Note shall take effect as a sealed instrument, shall be
governed by the laws of the State of Utah and shall be binding upon the Borrower
and its successors and assigns.
BORROWER
/s/ Gary E. Stevenson
---------------------
Gary E. Stevenson
SCHEDULE TO NON-RECOURSE NOTE
OF GARY E. STEVENSON
TO HF HOLDINGS, INC.
DATED SEPTEMBER 27, 1999
Remaining
Principal Unpaid
Date of Amount Principal Notation
Entry Paid Balance Made by
---- ------- -------
Appendix A to
Non-Recourse Note
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement (the "Agreement"), dated as of September
27, 1999, is made by Gary E. Stevenson, an individual (the "Grantor"), and HF
Holdings, Inc., a Delaware corporation (the "Company").
WHEREAS, the Grantor is the legal and beneficial owner of certain capital
stock of the Company;
WHEREAS, the Grantor is also the legal and beneficial owner of certain
membership interests in HF Investment Holdings, LLC, a Delaware limited
liability company ("Holdings LLC");
WHEREAS, it is a condition precedent to the making by the Company of a loan
to the Grantor under that certain $990,660 Non-Recourse Note, dated September
27, 1999 (the "Note"), made by the Grantor to the Company, that the Grantor
execute and deliver a pledge and security agreement in substantially the form
hereof; and
WHEREAS, the Grantor wishes to grant pledges and security interests in the
"Collateral" more particularly described hereinbelow in favor of the Company,
all as herein provided.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definition of Terms. All capitalized terms not otherwise defined
herein shall have the respective meanings ascribed to such terms in the Note.
SECTION 2. Grant of Security Interest. The Grantor hereby pledges and
assigns to the Company and grants to the Company a first priority security
interest in the following (the "Collateral"):
(i) the membership interest held by such Grantor in Holdings LLC (the
"LLC Interests"), as set forth in Schedule A attached hereto and
incorporated herein, all rights and powers accruing to such LLC Interests,
whether by contract, statute or operation of law or otherwise, all
certificates (if any) representing such LLC Interests and, subject to the
provisions of Section 7 hereof, all dividends, cash, instruments and other
property (including, without limitation, all distributions of capital or
alternative securities pursuant to any recapitalization, restructuring or
dissolution of the Company) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
LLC Interests; and
(ii) the shares of capital stock held by such Grantor in the Company
(collectively, the "Grantor Stock"), also as set forth in Schedule A
attached hereto and incorporated herein, all rights and powers accruing to
such Grantor Stock, whether by contract, statute or operation of law or
otherwise, all securities issued in exchange or substitution for such
Grantor Stock, all certificates (if any) representing such Grantor Stock
and, subject to the provisions of Section 7 hereof, all dividends, cash,
instruments and other property (including without limitation all
distributions of capital or alternative securities pursuant to any
recapitalization, restructuring or dissolution of the Company) from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Grantor Stock.
SECTION 3. Security for Obligations. This Agreement and the security
interest granted hereby are made in order to secure the payment and performance
in full of all payment obligations of the Grantor for principal, interest and
expenses arising under the Note (the "Obligations").
SECTION 4. Delivery of Collateral. The Grantor has herewith delivered all
certificates or instruments representing or evidencing the Collateral to the
Company, accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance reasonably satisfactory to the Company. All
additional securities or interests which may hereafter be acquired by the
Grantor and become part of the Collateral shall, if certificated, also be
delivered to the Company in suitable form for transfer and shall be accompanied
by similar executed instruments of transfer or assignments in blank.
SECTION 5. Representations and Warranties. The Grantor represents and
warrants as follows with respect to the Collateral pledged by such Grantor
pursuant to Section 2 hereof:
(a) The Grantor has good and marketable title to, and is the legal and
beneficial owner of the Collateral attributable to it as shown on Schedule A
attached hereto, free and clear of any lien, security interest, option or other
charge or encumbrance, except for (i) the restrictions imposed by the Holdings
LLC Limited Liability Company Agreement (the "LLC Agreement"), dated as of the
ICON Restructuring closing, (ii) the Company Stockholders Agreement (the
"Stockholders Agreement"), also dated as of the ICON Restructuring closing, and
(iii) the security interests created by this Agreement.
(b) The pledge and assignment of the Collateral to the Company
pursuant to this Agreement creates a valid security interest in the Collateral,
securing the payment of the Obligations. Upon the filing of appropriate
financing statements describing the LLC Interests, such security interest will
be a perfected first priority security interest as to the LLC Interests. Upon
the delivery of the share certificates representing the Grantor Stock,
accompanied by stock powers or other appropriate instruments of assignment
thereof duly executed in blank by the Grantor, such security interest will be a
perfected first priority security interest as to the Grantor Stock.
(c) No authorization, consent, approval, or other action by, and no
notice to or filing with any person, including, without limitation, any
governmental authority or regulatory body, is required for (i) the execution and
delivery of, and performance of its obligations under, this Agreement by the
Grantor (except such authorizations, consents, approvals, actions, notices or
filings which have already been obtained).
(d) The Grantor has full power, authority and legal right to execute,
deliver and perform its obligations under this Agreement and to pledge and grant
a security interest in the Collateral pursuant to this Agreement, and the
execution, delivery and performance hereof and the pledge and assignment of a
security interest in the Collateral hereunder do not contravene any law, rule or
regulation applicable to Grantor, or constitute a violation or breach of any
judgment, decree, contract, agreement or instrument to which the Grantor is a
party or by which it or any of its properties is bound.
(e) This Agreement is the legal, valid and binding obligation of the
Grantor enforceable against the Grantor in accordance with its terms, subject to
bankruptcy, insolvency and similar laws of general application affecting the
rights and remedies of creditors, equitable principles, and, with respect to the
availability of remedy of specific enforcement, subject to the discretion of the
court before which proceedings therefor may be brought.
(f) The principal residence of the Grantor is set forth on the
signature page hereto. Grantor will not change the address of its principal
place of residence, unless Grantor has given written notice of any such
alteration or change to the Company no less than ten (10) business days prior
thereto.
SECTION 6. Further Assurances. The Grantor agrees that at any time and from
time to time it will promptly execute and deliver all further instruments and
documents, and take all further action, that may be reasonably necessary, or
that the Company may reasonably request, in order to defend the right, title and
security interest of the Company against the claims and demands of others, to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Company to exercise and enforce its rights and remedies
hereunder with respect to any Collateral.
SECTION 7. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default under the Note shall have occurred
and be continuing:
(i) The Grantor shall be entitled to exercise any and all
voting and other consensual rights (including without limitation all powers
of consent, approval, designation and removal) pertaining to the Collateral
or any part thereof for any purpose not inconsistent with the terms of this
Agreement or the Note.
(ii) The Company shall execute and deliver (or cause to be
executed and delivered) to the Grantor all such proxies and other
instruments as the Grantor may reasonably request for the purpose of
enabling it to exercise the voting and other rights which the Grantor is
entitled to exercise pursuant to paragraph (i) above.
(iii) The Grantor shall be entitled to receive, retain and
distribute all regularly scheduled periodic cash dividends on the Grantor
Stock (including without limitation any portion thereof received by
Holdings LLC and distributed thereunder) and all regularly scheduled
periodic cash distributions on the LLC Interests, and, with respect to all
other cash dividends or other cash distributions upon the Collateral at any
time (including without limitation any portion thereof received by Holdings
LLC and distributed thereunder), Grantor shall be entitled to receive,
retain and distribute only such amount thereof as is necessary to pay any
federal, state or local taxes of any kind required by law to be paid by the
Grantor thereon and the remainder thereof, together with all other
dividends or other distributions, shall remain as part of the Collateral
pursuant to Section 2 hereof.
(b) Upon the occurrence and during the continuance of an Event of
Default, all rights of the Grantor to exercise the voting and other consensual
rights (including without limitation all powers of consent, approval,
designation and removal) and to receive dividends or distributions which such
Grantor would otherwise be entitled to exercise or receive pursuant to paragraph
(a) above shall cease upon written notice from the Company, and all such rights
shall thereupon become vested in the Company who shall thereupon have the sole
right to exercise such voting and other consensual rights and to receive
dividends or distributions.
SECTION 8. Transfers and Other Liens. The Grantor agrees that it will not
(i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Collateral, or (ii) create or
suffer to exist any lien, security interest, or other charge or encumbrance upon
or with respect to any of the Collateral to secure indebtedness of any Person,
except as provided in the LLC Agreement and Stockholders Agreement and except
for the security interests created under this Agreement.
SECTION 9. Company Appointed Attorney-in-Fact. The Grantor hereby appoints
the Company as its attorney-in-fact, with full authority in the place and stead
of the Grantor and in the name of the Grantor or otherwise, from time to time in
the Company's discretion, to take any action and to execute any instrument which
the Company may deem reasonably necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive, endorse
and collect all instruments made payable to the Grantor representing any
dividend, interest payment or other distribution in respect of the Collateral or
any part thereof and to give full discharge for the same; provided, however,
that the Company shall not have the right to exercise its power under this
Section 9 until the occurrence and continuance of an Event of Default.
SECTION 10. Company May Perform. If a Grantor fails to perform any
agreement contained herein within the time provided, the Company may itself
perform, or cause performance of, such agreement, and the reasonable expenses of
the Company incurred in connection therewith shall be payable by the Grantor
under Section 13.
SECTION 11. Reasonable Care. The Company shall exercise reasonable care in
the custody and preservation of the Collateral in its possession or control, it
being understood that the Company shall not have any responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
the Company has or is deemed to have knowledge of such matters, or (ii) taking
any necessary steps to preserve rights against any parties with respect to any
Collateral. It is agreed that, subject to the foregoing, the Company shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral if the Company exercises the same care that it exercises with respect
to its own property.
SECTION 12. Remedies upon Event of Default. If any Event of Default shall
have occurred and be continuing:
(a) The Company may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party under the Uniform
Commercial Code as adopted and in effect in Utah (the "Code"), and, to the
extent permitted by law, the Company may also, without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any exchange, broker's board or at any of the
Company's offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as are commercially reasonable. The Grantor agrees that,
to the extent notice of sale shall be required by law, at least ten (10) days'
notice to the Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Company shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. At any such sale, the Company may, to the
extent permitted by the Code or other applicable law, itself purchase all or any
of the Collateral. The Company may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(b) All cash proceeds received by the Company in respect of any sale
of, collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Company, be held by the Company as collateral for,
and/or then or at any time thereafter applied (after payment of any amounts
payable to the Company pursuant to Section 13) in whole or in part by the
Company against, all or any part of the Obligations in such order as the Company
shall elect, to the extent permitted by law. Any surplus of such cash or cash
proceeds held by the Company and remaining after payment in full of all the
Obligations shall be paid over to the Grantor or to such other persons as may be
lawfully entitled to receive such surplus.
SECTION 13. Expenses. The Grantor will upon demand pay to the Company the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of the Company's counsel and of any experts and agents, which the
Company may incur in connection with (i) the administration of this Agreement,
(ii) the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Company hereunder, or (iv) the failure by the Grantor
to perform or observe any of the provisions hereof.
SECTION 14. Security Interest Absolute. All rights of the Company and
security interests hereunder, and all obligations of the Grantor hereunder,
shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Note or any
other agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the obligations under the Note, or any
other amendment or waiver of or any consent to any departure from the Note;
(iii) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Obligations; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Grantor or a third party
guarantor.
SECTION 15. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by the Grantor herefrom, shall be
effective unless the same shall be in writing and signed by the Company, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
SECTION 16. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including communication by
telecopier) and shall be mailed, telecopied or delivered, at the respective
addresses set forth on the signature page hereto, or in any case at such other
address as shall be designated by such party in a written notice to each other
party complying as to delivery with the terms of this section. All such notices
and other communications shall be effective (i) three (3) days after being
deposited in the mails, (ii) when delivered by telecopier (upon electronic
confirmation of receipt thereof) or by hand, or (iii) one (1) business day after
sending by overnight delivery service, addressed as aforesaid.
SECTION 17. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until indefeasible cash payment in full of the all obligations,
(ii) be binding upon the Grantor and its successors and assigns, and (iii) inure
to the benefit of the Company and its respective successors, transferees and
assigns. Upon the cash payment in full of the Obligations,
the Grantor shall be entitled to the return, upon its request, of such of the
Collateral pledged by the Grantor as shall not have been sold or otherwise
applied pursuant to the terms hereof.
SECTION 18. Governing Law; Terms. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Utah, without
giving effect to the conflicts of laws principles thereof. EACH PARTY HERETO FOR
ITSELF AND ITS PROPERTIES, HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF UTAH FOR
THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF, OR WITH
RESPECT TO THIS AGREEMENT, AND EXPRESSLY WAIVES ANY OBJECTIONS IT MAY HAVE AS TO
VENUE IN SUCH COURTS. THE GRANTOR ALSO HEREBY INTENTIONALLY AND KNOWINGLY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN
ACTION MAY BE COMMENCED ARISING OUT OF THIS AGREEMENT. Unless otherwise defined
herein or in the Loan Agreement, terms defined in Articles 8 and 9 of the Code
are used herein as therein defined.
* * * * * * *
PLEDGE AND SECURITY AGREEMENT
Signature Page
IN WITNESS WHEREOF, the Grantor and the Company have each executed and delivered
this Agreement as an instrument under seal as of the date first above written.
Address: GRANTOR:
370 Abbey Lane
Providence, UT 84332
/s/ Gary E. Stevenson
---------------------
Name: Gary E. Stevenson
Address: HF HOLDINGS, INC.
1500 South 1000 West
Logan, UT 84321
By: /s/ S. Fred Beck
---------------------
Name/Title: S. Fred Beck
CFO, Vice President & Treasurer
S-1
SCHEDULE A
TO
PLEDGE AND SECURITY AGREEMENT
Description of membership interest in Holdings LLC pledged hereunder:
2,807.09 Units
Description of capital stock of the Company pledged hereunder:
291,700 shares of Common Stock
S-2