AMENDED AND RESTATED EMPLOYMENT AGREEMENT entered as of the 27th day of
February, 2004.
AMONG: HF HOLDINGS, INC., a Delaware corporation.
("COMPANY")
ICON HEALTH & FITNESS, INC., a Delaware
corporation.
("SUBSIDIARY")
SCOTT R. WATTERSON, acting in his personal
capacity, of the City of LOGAN, State of UTAH.
("EMPLOYEE")
THE PARTIES AGREE AS FOLLOWS:
1 PREAMBLE
1.1 The COMPANY and the SUBSIDIARY made an exchange offer for all
outstanding 13% Senior Subordinated Notes due 2002 of the SUBSIDIARY,
15% Senior Secured Discount Notes due 2004 of IHF Holdings, Inc. and
14% Senior Discount Notes due 2006 of ICON Fitness Corporation,
pursuant to an Exchange Offer and Consent Solicitation, dated July 30,
1999, as supplemented (the "Exchange Offer").
1.2 In connection with the Restructuring (as defined in the Equity Letter
Agreement (the "Equity Letter"), dated July 8, 1999 and attached, as
amended, to the Exchange Offer as Annex H) the COMPANY concluded an
agreement for the employment of the EMPLOYEE as Chairman and Chief
Executive Officer of the COMPANY, according to the terms and
conditions set forth in such agreement, dated September 27, 1999.
1.3 That agreement was amended by a First Amendment to Employment
Agreement, dated April 29, 2002 and a Second Amendment to Employment
Agreement, dated May 17, 2003 (as amended from time to time, the
"Original Agreement").
1.4 EMPLOYEE has informed the COMPANY of his intent to perform full-time
church service, as contemplated in Section 9.3 of the Original
Agreement, and to return to employment with the Company upon
completion of such church service.
1.5 The EMPLOYEE and the COMPANY want to provide for the EMPLOYEE's
ability to perform such full-time church service for approximately
three (3) years pursuant to a Leave of Absence (as hereinafter
defined).
1.6 The Original Agreement is hereby amended and restated in its entirety
to record the terms and conditions which govern the mutual relations .
of the parties hereto with respect to its subject matter and to
expressly provide for EMPLOYEE's performance of full-time church
service pursuant to the Leave of Absence and subsequent return to the
Company (as hereby amended and restated, the "Agreement").
1.7 In this Agreement, "BUSINESS" means the manufacture, sale and
distribution of SPORTING GOODS as carried on by the COMPANY, the
SUBSIDIARY, and their respective various divisions and subsidiaries,
from time to time. "SPORTING GOODS" means fitness equipment and
accessories, which presently involve treadmills, home gyms, aerobic
exercises, trampolines, weights and benches and exercise accessories,
but the content of such product lines may vary from time to time.
1.8 In this Agreement, AFFILIATES means any entity in which the COMPANY or
the SUBSIDIARY holds more than a twenty percent (20%) voting interest
direct or indirect.
2 EMPLOYMENT
2.1 The Original Agreement came into effect on September 27, 1999
("Effective Date")
2.2 Subject to earlier termination as hereinafter provided, the COMPANY
hereby employs the EMPLOYEE and the EMPLOYEE agrees to serve the
COMPANY in the positions of Chairman and Chief Executive Officer from
the Effective Date until July 31, 2008, (the "TERM"). Except as
expressly provided herein, the TERM shall include a one time leave of
absence, during which the EMPLOYEE is relieved of his obligation to
perform the duties, specified in Section 5.1 through 5.8 hereof,
otherwise required pursuant to this Agreement for the COMPANY,
including any current and future SUBSIDIARY commencing on July 1, 2004
and ending not later than July 31, 2007 so that the EMPLOYEE can serve
as a Mission President for The Church of Jesus Christ of Later-day
Saints, which the Company acknowledges is full time church service
(the "Leave of Absence").
2.3 Although this agreement is concluded between the COMPANY and the
EMPLOYEE, it is agreed that the duties and obligations of the EMPLOYEE
hereunder extend to the SUBSIDIARY and to all of the COMPANY's other
subsidiaries, present and future, although the EMPLOYEE will not
necessarily be an employee of such entities. The EMPLOYEE agrees to
serve, if requested by the COMPANY, as an officer or director of the
SUBSIDIARY and any other subsidiaries, in each case without additional
consideration.
3 BASE SALARY, EXPENSES AND BENEFITS
3.1 In consideration for the faithful performance of services, the other
obligations of the Employee hereunder which continue during the Leave
of Absence and the Employee's execution of this amended and restated
Agreement, by the EMPLOYEE to be rendered to the COMPANY as herein
provided during the TERM but not during the Leave of Absence, the
COMPANY shall pay to the EMPLOYEE during the TERM (which shall include
the Leave of Absence) an annual base salary of SIX HUNDRED TWENTY-FIVE
THOUSAND DOLLARS ($625,000) payable in semi-monthly installments or in
accordance with the general policy of the COMPANY which may change
from time to time but in no event less frequently than monthly.
3.2 The annual base salary mentioned in Section 3.1 above shall be
reviewed by the Board of Directors of the COMPANY and may be adjusted
upwards in the Board's discretion, annually for each year of the TERM,
taking into account, among other things:
(a) the performance by the EMPLOYEE of his duties and functions
pursuant to this Agreement,
(b) the general economic situation,
(c) the development and performance of the BUSINESS, and
(d) other matters deemed relevant by the Board of Directors such as an
increase in shareholder equity and the rate on return on
investment.
3.3 The COMPANY shall reimburse the EMPLOYEE for all reasonable expenses
which are incurred during the TERM by the EMPLOYEE in the performance
of his duties hereunder and (i) subject to the COMPANY's annual budget
or (ii) as authorized by the Board of Directors of the COMPANY or
(iii) in accordance with the policies and procedures established from
time to time by the Board of Directors of the COMPANY or a committee
delegated for such purpose.
3.4 During the TERM, but not during the Leave of Absence, the COMPANY
shall provide the EMPLOYEE with the use of a new automobile of his
choice, acting reasonably (and consistently with his past practice)
every three (3) years for the purposes of his employment commensurate
with the position of the EMPLOYEE and having regard to COMPANY policy
in force from time to time.
The COMPANY shall assume all costs and expenses of said automobile and
its operation, including, without limitation, insurance, maintenance,
gas and use of such automobile. Upon the expiry of the TERM, the
EMPLOYEE shall deliver such automobile to the COMPANY.
3.5 During the TERM (including the Leave of Absence), the EMPLOYEE shall
be entitled to participate in the COMPANY's life, welfare, and health
insurance plans for senior executives on the same terms as those of
other senior executives.
3.6 During the TERM, the EMPLOYEE shall be entitled to participate in
fringe benefit programs and general salary adjustment increases which
are not less favorable than those extended by the COMPANY to its
senior executives, including without limitation the deferred
compensation plan previously established by the Board of Directors,
but excluding for this purpose any such plan or program adopted
exclusively for the benefit of junior management.
4 ANNUAL BONUS
4.1 The EMPLOYEE shall receive (a) with respect to (i) each fiscal year
ending during the TERM but not during the Leave of Absence, and (ii)
that portion of any fiscal year ending after TERM but not during the
Leave of Absence, during which he is employed hereunder, a bonus equal
to one and one-half percent (1.50%) or one and one-quarter percent
(1.25%) in the event of the application of the proviso set forth in
Section 9.8 hereof, of the consolidated EBITDA (as that term is
defined in the Credit Agreement, dated April 9, 2002, among the
SUBSIDIARY, General Electric Capital Corporation and the other lenders
thereunder, without regard to any amendments thereto) of the
SUBSIDIARY and its subsidiaries (but not including the COMPANY) and
(b) with respect to each fiscal year ending during the Leave of
Absence, a bonus equal to one and one quarter percent (1.25%) of the
consolidated EBITDA (as defined in Section 4.1(a) above) calculated
using the Company's fiscal year ending May 31, 2003, which annual
bonus shall be payable in equal monthly installments during each year
of the Leave of Absence commencing (on an estimated basis if
necessary) with the first pay period of the first month of the Leave
of Absence; provided, however, that such bonus payments (i) shall, in
the event of a Material Acquisition (as reasonably determined in good
faith by the Board of Directors) by the COMPANY or the SUBSIDIARY and
absent an agreement to the contrary between the COMPANY and the
EMPLOYEE, be calculated without taking account of any EBITDA (as
defined above) properly attributable to such Material Acquisition, and
(ii) shall not be payable with respect to any such fiscal year unless
such EBITDA for such fiscal year exceeds five and one-half percent
(5.5%) of the consolidated net sales of the SUBSIDIARY and its
subsidiaries (but not including the COMPANY) determined in accordance
with generally accepted accounting principles and provided, further,
that for purposes of this Agreement, EBITDA shall be calculated
without regard to any bonuses payable hereunder.
4.2 The sole basis for the bonus calculation shall be the audited
financial statements of the SUBSIDIARY and its subsidiaries for the
fiscal year in question.
4.3 Any bonus to which EMPLOYEE is entitled under the provisions of this
Agreement for any fiscal year shall be paid to him (regardless of
whether the TERM has terminated) in accordance with the COMPANY's
previous practice, with a first installment equal to forty percent
(40%) of a good faith estimate of the bonus for such year, to be paid
during the month of December of such year and a final installment to
be paid as promptly as reasonably practicable after the end of, but
not later than the 75th day after the end of each such fiscal year.
5 DUTIES
5.1 During the TERM but not during the Leave of Absence, the EMPLOYEE
shall perform those functions which are normally the functions of the
Chairman and Chief Executive Officer of the COMPANY and such other
offices as he may hold pursuant to Section 2.3, and shall further
perform those functions which shall be reasonably determined from time
to time by the Board of Directors of the COMPANY, such functions not
to be inconsistent with those herein set forth. The EMPLOYEE shall
report to, and be subject to the authority of, the Board of Directors
of the COMPANY.
5.2 During the TERM but not during the Leave of Absence, the COMPANY shall
give the EMPLOYEE a notice of six (6) months prior to any relocation
of the EMPLOYEE (the COMPANY shall not relocate the EMPLOYEE during
the Leave of Absence).
5.3 During the TERM but not during the Leave of Absence, it is the
specific responsibility of the EMPLOYEE, between regular meetings of
the Board, to apprise Board Members of significant business matters.
5.4 During the TERM but not during the Leave of Absence, EMPLOYEE shall
devote his entire working time, attention and energies to the business
of the COMPANY, the SUBSIDIARY, and their respective AFFILIATES.
5.5 During the TERM but not during the Leave of Absence, the EMPLOYEE
shall not, except under Section 5.6, be engaged in any other business
activity, whether or not such business activity is pursued for gain, .
profit or other pecuniary advantage. Notwithstanding the prohibition
contained in the present clause, the EMPLOYEE shall be entitled to
continue to sit on the boards of directors of the companies listed on
Schedule I hereto, and on the boards of directors of other companies
if such activity is approved in writing by the Board of Directors of
the COMPANY. In the case of non-profit corporations or charities,
such approval shall not be unreasonably withheld, but, in all other
cases, the Board of Directors shall have sole discretion to grant,
delay or withhold approval, with or without conditions.
5.6 During the Term but not during the Leave of Absence, the EMPLOYEE
shall not invest his personal assets in any business other than NON-
COMPETING BUSINESSES, and even in the case of such investments:
(a) No services are required or furnished on the part of the EMPLOYEE
in the operations of the companies in which such investments are
made and in which his participation is solely that of an investor
provided that this subsection is not infringed by the EMPLOYEE's
providing counseling (and not acting in a "line" capacity) on a
non-remunerative basis to all such companies for a maximum of 5
hours per week and 200 hours per year; and
(b) If the EMPLOYEE purchases securities in any corporation whose
securities are regularly traded in a recognized securities market,
such purchases shall not result in his collectively owning
beneficially at any time five percent (5%) or more of the equity
securities of any corporation engaged in a business other than a
NON-COMPETING BUSINESS.
The foregoing restrictions shall not apply to any investment of
whatever extent the EMPLOYEE may take in the shares of the COMPANY or
of any successor company.
For the purposes of this subsection, NON-COMPETING BUSINESSES are all
businesses other than those which compete with:
(a) the BUSINESS; or
(b) any other business carried on in the future by the COMPANY, the
SUBSIDIARY or any AFFILIATES, provided that the EMPLOYEE has
access to confidential information concerning such business.
Moreover, the EMPLOYEE shall not knowingly assist any RELATIVE to make
any investment which the EMPLOYEE is not permitted to make by this
section.
5.7 The EMPLOYEE is a member of the Board of Directors and acknowledges
that he has a significant interest in this Agreement and undertakes
during the Term but not during the Leave of Absence, the following:
5.7.1 To seek independent legal counsel at the COMPANY's expense to
negotiate and review this Agreement on the EMPLOYEE's behalf;
5.7.2 To disclose his interest in this Agreement to the other members
of the Board of Directors; and
5.7.3 To retire from and abstain from the discussion and vote at any
meeting of the Board of Directors at which this Agreement or
any default by EMPLOYEE or matter arising therefrom is the
subject of a discussion or a vote.
5.8 The EMPLOYEE also undertakes during the Term but not during the Leave
of Absence, the following:
5.8.1 To use every best effort (including the establishment of
written procedures known to operation personnel) to promptly
bring to the attention of the Board of Directors of the COMPANY
any matter requiring the COMPANY's decision or action where his
own interests or those of a RELATIVE are involved and to
abstain from taking such decision or action until the Board of
Directors decides.
5.8.2 If requested, to be absent from and abstain from the discussion
and vote at any meeting of the aforementioned Board of
Directors where the subject matter being discussed and voted
upon is any matter covered by Section 5.8.1.
5.8.3 For the purposes of this Agreement, RELATIVE means the
EMPLOYEE's spouse, parent, sibling, child or sibling's
children, the spouses of the foregoing and any other person who
could be claimed as a dependent on the EMPLOYEE's or RELATIVE's
federal income tax return, any corporation or partnership in
which a RELATIVE or the EMPLOYEE holds a five percent (5%)
interest or of which a RELATIVE or the EMPLOYEE is an officer
or director, and any trust of which any of the foregoing is a
beneficiary.
Notwithstanding anything contained herein to the contrary, no
provision of this Agreement shall be deemed to excuse the Executive during
the Leave of Absence of any and all fiduciary obligations imposed on a member
of the Board of Directors by applicable law.
6 EQUITY GRANT
6.1 The COMPANY previously issued to the EMPLOYEE 375,000 shares of Common
Stock of the COMPANY in connection with the execution of the Original
Agreement, at no cost to EMPLOYEE, which the COMPANY represents and
warrants is equal to 3.74893% of the COMPANY's Common Stock
outstanding on a fully diluted basis upon closing of the
Restructuring.
7 CONFIDENTIALITY, ETC.
7.1 The EMPLOYEE recognizes and acknowledges that the confidential
information, trade secrets and proprietary processes of the COMPANY,
its AFFILIATES and subsidiaries as they may exist from time to time
are valuable, special and unique assets of the BUSINESS of the
COMPANY, its AFFILIATES and subsidiaries, access to and knowledge of
which are essential to the performance of the EMPLOYEE's duties
hereunder. The EMPLOYEE will not, during the TERM or at any time
within five (5) years following its termination, for any reason
whatsoever, in whole or in part, disclose such confidential
information, secrets or processes to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever, nor
shall the EMPLOYEE make use of such property for his own purposes or
for the benefit of any person, firm, corporation or other entity
(except the COMPANY, its AFFILIATES and subsidiaries) under any
circumstances whatsoever, except as may be required in the fulfillment
of his function with the COMPANY within the terms of this Agreement or
except as provided by law, provided these restrictions shall not apply
to such information, secrets and processes which are then in the
public domain (provided that the EMPLOYEE was not responsible,
directly or indirectly, for permitting such secrets or process to
enter the public domain without the COMPANY's consent).
7.2 The EMPLOYEE furthermore agrees that upon termination of the TERM he
will remit to the COMPANY all writings and materials, in his
possession or under his control, which either belong to the COMPANY
and AFFILIATES or which may contain confidential information
concerning the COMPANY and AFFILIATES. The EMPLOYEE may, however,
retain his personal diary/agenda after removing or destroying all
confidential COMPANY or AFFILIATES material therein.
7.3 Any and all inventions, discoveries, development, methods, processes,
compositions, works, concepts and ideas (whether or not patentable or
copyrightable) conceived, made, developed, created or reduced to
practice by the EMPLOYEE (whether at the request or suggestion of the
COMPANY or otherwise, whether alone or in conjunction with others, and
whether during regular hours of work or otherwise) during the TERM
which may relate to the business, ventures or other activities of or
products manufactured or sold by the COMPANY or any of its
subsidiaries (collectively, "Proprietary Rights"), shall be promptly
and fully disclosed by the EMPLOYEE to an appropriate executive
officer of the COMPANY and shall be the COMPANY's exclusive property
as against the EMPLOYEE and his heirs and personal representatives,
and the EMPLOYEE hereby assigns to the COMPANY his entire right, title
and interest therein and shall promptly deliver to an appropriate
executive officer of the COMPANY all papers, drawings models, data and
other material relating to any of the foregoing Proprietary Rights,
conceived, made, developed, created or reduced to practice by him as
aforesaid. All copyrightable Proprietary Rights shall be considered
"works made for hire."
The EMPLOYEE shall, upon the COMPANY's request and without any payment
therefor, execute any documents reasonably necessary or advisable in
the opinion of the COMPANY's counsel to assign, and confirm the
COMPANY's title in, his entire right, title and interest in the
foregoing Proprietary Rights and to direct issuance of patents or
copyrights to the COMPANY with respect to such Proprietary Rights as
are the COMPANY's exclusive property as against the EMPLOYEE and his
heirs and personal representatives under this Section 7.3 or to vest
in the COMPANY title to such Proprietary Rights as against the
EMPLOYEE and his heirs and personal representatives, the expense of
securing any such patent or copyright, however, to be borne by the
COMPANY. In addition, the Company shall reimburse the EMPLOYEE for
any reasonable expenses incurred in having such documents reviewed by
EMPLOYEE's counsel.
8 VACATION
8.1 During the TERM, but not during the Leave of Absence, the EMPLOYEE
shall have the right to an annual paid vacation of no less duration
than four (4) weeks.
9 TERMINATION OF EMPLOYMENT; LEAVE OF ABSENCE
9.1 Notwithstanding any other provision contained herein, the COMPANY may
on or after the Effective Date send to the EMPLOYEE notice of one of
the following events and should the EMPLOYEE fail to cure the matter
giving rise to the notice within thirty (30) days after receipt of
such notice, the TERM shall terminate without any delay stipulated
therein or any indemnity payable in lieu thereof:
(a) EMPLOYEE's willful misconduct or gross negligence;
(b) The commission of a criminal act by the EMPLOYEE against the
COMPANY involving material harm (whether nor not charges are
filed);
(c) The commission by the EMPLOYEE of a criminal act of moral
turpitude bringing the COMPANY into disrepute (whether or not
charges are filed);
(d) Willful insubordination to any directive of the Board of Directors
provided reasonable prior notice of such directive is given; or
(e) Actions contrary to Sections 5.4, 5.5, 5.6, 5.8, 7 or 10 causing
COMPANY or AFFILIATES material harm; provided, however, during the
Leave of Absence (i) in the case of paragraph "(d)" above, the
Board of Directors shall not make any "directives" to the EMPLOYEE
that are not consistent with the EMPLOYEE's actual circumstances
during the Leave of Absence, and (ii) in the case of paragraph
"(e)" above, the cross reference to Sections 5.4, 5.5,5.6, 5.7 and
5.8 shall not apply.
9.2 Notwithstanding any other provision contained herein (in which case
the provisions of Section 9.9(d) shall apply), the TERM shall
terminate automatically, without notice or indemnity in lieu thereof,
upon the occurrence of one of the following events:
(a) The bankruptcy or voluntary state insolvency filing of the
EMPLOYEE; or
(b) The death of the EMPLOYEE.
9.3 Except during the Leave of Absence, the EMPLOYEE may terminate the
TERM by sending his resignation in writing to the Board of Directors
not less than six (6) months prior to the effective date of such
resignation, failing which notice the EMPLOYEE may be subject to any
and all damages incurred as a result of such failure.
9.4 Except under the circumstances described in Section 9.6 and except
during the Leave of Absence other than as provided in Section 9.9(c),
the COMPANY may terminate the TERM by sending a notice in writing to
the EMPLOYEE. Notwithstanding the foregoing, the COMPANY may at any
time following an occurrence of a "Change of Control" as defined in
the Stockholders Agreement of HF Holdings, Inc. dated September 27,
1999 terminate the TERM by sending notice in writing to EMPLOYEE.
9.5 The EMPLOYEE may immediately terminate the TERM by sending a notice of
termination to the Board of Directors with immediate effect following
any material diminution of the EMPLOYEE's responsibilities or in the
event that the EMPLOYEE is asked by the Board of Directors to perform
any act which a reasonable person would consider illegal or unethical
and the COMPANY has not withdrawn its request to the EMPLOYEE to
perform such act within five (5) days of receiving a written notice
from the EMPLOYEE to withdraw such a request.
9.6 The COMPANY may immediately terminate the TERM, but not the Leave of
Absence, by sending a notice in writing to the EMPLOYEE with immediate
effect:
9.6.1 after a period of six (6) consecutive months (or aggregating
six (6) months in any twelve (12) month period) of absence by
the EMPLOYEE from his employment as a result of sickness or
disability, or
9.6.2 after sixty (60) days of absence by the EMPLOYEE from his
employment as a result of sickness or disability and a
certification by three (3) physicians that the EMPLOYEE is
likely to be disabled for a period of at least six (6) months
from the initial date of sickness or disability. One (1) such
physician shall be chosen by the EMPLOYEE, one (1) shall be
chosen by the COMPANY and the third shall be chosen by the
other two (2) selected physicians. The EMPLOYEE agrees that in
the event of his sickness, he shall submit himself for
examination by such physicians if reasonably requested to do so
by the COMPANY. For the purposes of this section, "disabled"
or "disability" shall mean a temporary or permanent substantial
inability because of a physical or mental illness to continue
to discharge the EMPLOYEE's duties hereunder.
Notwithstanding any other provision hereof, the EMPLOYEE's
compensation during any period of the EMPLOYEE's disability shall be
reduced to the extent of any payments to the EMPLOYEE for such period
under any disability plan or program maintained for the EMPLOYEE by
the COMPANY for his benefit.
9.7 In the event of the termination of the TERM by virtue of section 9.6
in addition to the payments described therein, the COMPANY shall pay
to the EMPLOYEE a severance pay equal to one (1) month base salary in
effect at termination for each calendar year, or part thereof, of the
EMPLOYEE's employment with the COMPANY, the SUBSIDIARY, IHF Capital,
Inc. or IHF Holdings, Inc. (or any predecessor companies of the
COMPANY, the SUBSIDIARY, IHF Capital, Inc., or IHF Holdings, Inc.)
after January 1, 1988.
9.8 In the event of the termination of the TERM by virtue of Section 9.3,
9.4 or 9.5, the COMPANY shall pay to the EMPLOYEE a severance payment
equal to the EMPLOYEE's base salary then in effect and the bonus
referred to in Section 4 hereof, pro-rated (meaning paid in equal
monthly installments each year over the period of the payment), for
(a) twelve (12) months following the termination of the TERM if such
termination occurs after the date which is three (3) months after the
Return Date or (b) the number of months remaining in the TERM if such
Termination occurs prior to the date which is three (3) months after
the Return Date; provided, however, that (i) if the EMPLOYEE's
resignation is submitted by EMPLOYEE pursuant to Section 9.3, then the
bonus referred to in Section 4.1 hereof shall be calculated at the
rate of one and one-quarter percent (1.25%), (ii) the aggregate
severance pay payable to the EMPLOYEE pursuant to this Section 9.8
(irrespective and independent of any payments pursuant to Section 10.3
hereof) shall not exceed (a) 36 months in the event that the EMPLOYEE
elects not to return to employment with the Company following the
Leave of Absence and (b) 48 months in the event that the EMPLOYEE is
terminated by the Company for any reason and (iii) for purposes of the
preceding clause (ii) in calculating the amount of severance pay,
payments of base salary and bonus during the Leave of Absence shall be
deemed to constitute severance pay. For the purposes of this Section
9.8, the bonus referred to in Section 4.1 hereof shall be determined
using EBITDA (as defined in Section 4.1 hereof) for the fiscal year
immediately preceding termination and shall be paid to the EMPLOYEE
within ninety (90) days from the end of the COMPANY's applicable
fiscal year, and the base salary shall be paid to the EMPLOYEE on the
same payment schedule as was applicable to the EMPLOYEE during his
employment; provided however if termination occurs during the Leave of
Absence the bonus referred to in Section 4.1 shall be determined using
EBITDA as of May 31, 2003.
9.9 (a) Notwithstanding the foregoing, the COMPANY has agreed to the
EMPLOYEE taking the Leave of Absence commencing not later than
July 1, 2004 (the "Commencement Date") and ending not later than
July 31, 2007 (the "Return Date"). In no event will the Leave of
Absence by the EMPLOYEE be deemed a resignation by EMPLOYEE;
provided, however, that if EMPLOYEE does not return to the COMPANY
to resume his duties on or prior to the Return Date, the EMPLOYEE
will be deemed to have terminated the TERM pursuant to Section 9.3
hereof as of the Return Date but without being subject to any
damages for lack of notice provided therein.
(b) During the Leave of Absence, this Agreement shall remain in full
force and effect and the COMPANY shall continue to pay EMPLOYEE
his (i) base salary in effect on the date such Leave of Absence
begins, payable on the same schedule as was payable to EMPLOYEE
prior to the Leave of Absence, and (ii) the annual bonus payments
referred to in Section 4.1 hereof.
(c) At such time as the EMPLOYEE determines to end the Leave of
Absence, EMPLOYEE shall provide the COMPANY not less than two (2)
months prior written notice of his intent to return to the COMPANY
to resume his full duties as its Chairman and Chief Executive
Officer, as set forth in this Agreement, and state the Return
Date. On the Return Date, the EMPLOYEE will be reinstated as the
Company's Chairman and Chief Executive Officer for the duration of
the TERM, subject to the provisions of this Agreement, and any
bonus payments following the Leave of Absence shall be calculated
pursuant to Section 4.1(b).
(i) Notwithstanding the foregoing, in the event that during Leave
of Absence David Watterson shall cease to be Chairman and
Chief Executive Officer of the COMPANY, the COMPANY will give
prompt notice thereof to the EMPLOYEE, asking the EMPLOYEE to
return to the COMPANY as its Chairman and Chief Executive
Officer. In the event EMPLOYEE accepts the COMPANY's request,
is able to cut short his Leave of Absence and actually does
return to the COMPANY within 90 days of such notice, EMPLOYEE
will thereupon be reinstated as the COMPANY's Chairman and
Chief Executive Officer as provided above. In the event the
EMPLOYEE does not so return to the COMPANY, this Agreement
shall continue in effect, however (i) Section 9.4 shall
thereupon apply without the words "and except during the Leave
of Absence", (ii) if the COMPANY during the remainder of the
Leave of Absence terminates the TERM pursuant to Section 9.4
as then applicable, EMPLOYEE shall have the right until
September 30, 2007 to reemployment with the COMPANY, but only
in an executive position, with salary and duties commensurate
with such position, and for such term, in each case, as the
EMPLOYEE and the Board of Directors shall then agree (subject
to the Board of Directors' fiduciary duties), and (iii) if in
the case of clause (ii) EMPLOYEE is unable to reach agreement
with the Board of Directors on the executive position (whether
because of the Board of Directors' exercise of its fiduciary
duties or otherwise), then EMPLOYEE shall receive the
remaining severance payments to which he would then be
entitled to in Section 9.8 as a result of the prior
termination of the TERM by the Company pursuant to Section
9.4, which shall be EMPLOYEE's sole remedy under law, equity
or otherwise.
(ii) In the event that during the Leave of Absence the COMPANY
shall have terminated the TERM pursuant the last sentence of
Section 9.4 following the occurrence of a Change of Control,
EMPLOYEE shall have no obligation to return to the COMPANY as
Chairman and Chief Executive Officer or in any other executive
position, but EMPLOYEE shall have the right until September
30, 2007 to reemployment with the COMPANY but only in an
executive position, with salary and duties commensurate with
such position, and for such term, in each case, as the
EMPLOYEE and the Board of Directors shall then agree (subject
to the Board of Directors' fiduciary duties). If EMPLOYEE is
unable to reach agreement with the Board of Directors with
respect to executive position (whether because of the Board of
Directors' exercise of its fiduciary duties or otherwise),
then EMPLOYEE shall receive the remaining severance payments
to which he would then be entitled to in Section 9.8 as a
result of the prior termination of the TERM by the Company
pursuant to Section 9.4, which shall be EMPLOYEE's sole remedy
under law, equity or otherwise.
(d) In the event the Agreement is terminated pursuant to Section 9.2
(b) during the Leave of Absence, the estate of the Employee shall
be entitled to all payments that would otherwise have been due to
the Employee hereunder during the Leave of Absence.
10 RESTRICTIVE COVENANT
10.1 EMPLOYEE shall not, during the TERM and for a period of one (1) year
from its termination, either directly or indirectly, individually or
in partnership, carry on or be engaged in, or concerned with or
interested in, in any capacity whatsoever (including that of
principal, agent, shareholder (subject to section 5.6(b)), consultant,
employee, lender or surety), any person, firm, association, syndicate
or company engaged in or concerned with or interested in the
conception, development, fabrication, transformation, marketing,
distribution, advertising, franchising or sale in Canada, the United
States or the European Economic Community, or any of them, of any
products or services similar or identical to any of those
manufactured, distributed, or sold by the COMPANY or any of its
subsidiaries in the course of his employment with the COMPANY, its
AFFILIATES and subsidiaries.
10.2 (a) EMPLOYEE shall not, during the TERM hereunder and for a period of
twelve (12) months from its termination, directly or indirectly,
hire any Designated Employee.
(b) EMPLOYEE shall not, during the TERM hereunder and for a period of
eighteen (18) months from its termination, directly or indirectly,
solicit, interfere with or endeavor to entice away, any Designated
Employee.
(c) For purposes of this Section 10.2, the term "Designated Employee"
shall mean any person if that person is or was a Senior Employee
of the COMPANY or any of its AFFILIATES or subsidiaries during the
period beginning six (6) months prior to the termination of the
TERM and ending (i) in the case of clause (a), twelve (12) months
thereafter and (ii) in the case of clause (b), eighteen (18)
months thereafter, but shall exclude Gary E. Stevenson or any
RELATIVE. For purposes of this Section 10.2 "Senior Employee"
shall mean each of the two hundred (200) most highly compensated
employees of the COMPANY or any of its subsidiaries or AFFILIATES.
10.3 With respect to any termination, such period shall be extended by
written notice to the EMPLOYEE within thirty (30) days of such
termination by an additional two (2) years (i.e., for a total of three
(3) years from the termination of EMPLOYEE's employment) if and to the
extent that the COMPANY, at its option, pays to the EMPLOYEE
additional severance pay equal to the EMPLOYEE's base salary then in
effect and the bonus referred to in Section 4 hereof, pro-rated
(meaning paid in equal monthly installments each year over the period
of the payment) for the period of the payment, for an additional two
(2) years beyond that required to be paid by the COMPANY to the
EMPLOYEE under Section 9.8. If paid at the COMPANY's option, such
bonuses, which shall be determined using EBITDA (as defined in Section
4.1 hereof) for the fiscal year immediately preceding termination, are
to be paid within ninety (90) days from the end of the COMPANY's
applicable fiscal year, and the base salary shall be paid to the
EMPLOYEE on the same payment schedule as was applicable to the
EMPLOYEE during his employment.
11 REASONABLENESS AND REMEDIES
11.1 The EMPLOYEE agrees that all the conditions and restrictions
established in this Agreement are reasonable taking into account the
circumstances surrounding this Agreement.
11.2 The EMPLOYEE recognizes that in the view of the serious and
irreparable harm which a violation hereof would have on the COMPANY,
and without prejudice to the COMPANY's other remedies, injunctive
relief would constitute an available and appropriate remedy and, to
the extent permitted by law, the COMPANY shall not be required to
furnish any security or bond in respect thereof.
12 [INTENTIONALLY OMITTED]
13 GENERAL LIMIT ON EMPLOYEE'S LIABILITY
13.1 As a general and overall limitation of the EMPLOYEE's liability to the
COMPANY and AFFILIATES, the COMPANY agrees that the EMPLOYEE shall not
be liable, for any reason except as set forth below, to the COMPANY or
any of its AFFILIATES for an amount in excess of the amount provided
in the next sentence hereof. Accordingly, as and for their sole
remedy against the EMPLOYEE, the COMPANY agrees that for any claim or
cause of action that the COMPANY or any of its AFFILIATES may have
against the EMPLOYEE, whether past or future, their sole remedy shall
be the forfeiture of the EMPLOYEE's salary, bonus and other
compensation (but not the equity grant under Section 6.1 hereof, which
shall not be subject to forfeiture) received by the EMPLOYEE during
the COMPANY's fiscal year in which the EMPLOYEE's termination occurred
plus subsequently accruing compensation. In this regard, the COMPANY
agrees, to the extent permitted by applicable law, to indemnify the
EMPLOYEE from and against any liability the EMPLOYEE may have in
excess of that provided in the immediately preceding sentence (i)
hereunder or (ii) for any other claim the COMPANY or any of its
AFFILIATES may have against the EMPLOYEE. However, nothing in this
Section 13 shall limit the EMPLOYEE's liability to the COMPANY or any
of its AFFILIATES or provide the EMPLOYEE any indemnity (i) for any
act by the EMPLOYEE involving theft, fraud or embezzlement against the
COMPANY or any of its AFFILIATES, (ii) in respect of any equitable
remedy against the EMPLOYEE, (iii) in respect of any agreement listed
on Schedule I of the Old Employment Agreement (as defined in that
separate Termination Agreement among IHF Capital, Inc., IHF Holdings,
Inc., SUBSIDIARY and EMPLOYEE, dated September 27, 1999 (the
"Termination Agreement")) or any agreement heretofore or hereafter
entered into by the EMPLOYEE after the date of the Old Employment
Agreement, (iv) in respect of any claim or cause of action asserted by
the COMPANY or any of its AFFILIATES as a counterclaim (to the extent
of any liability the COMPANY or any of its AFFILIATES may have by
reason of the EMPLOYEE claim in question) or as a set off, or (v)
under Section 7, 9.3 or 10 of this Agreement or under the Non-
Competition Agreement (as defined in the First Amended and Restated
Master Transaction Agreement dated as of October 12, 1994 among ICON
Health & Fitness, Inc. and the other parties thereto (the "Master
Transaction Agreement")); provided, however, that the aggregate of the
liability of the EMPLOYEE to the COMPANY or any of its AFFILIATES,
under Section 7, 9.3 or 10 of this Agreement or to the COMPANY, any of
its AFFILIATES, IHF Capital, Inc. or any of its AFFILIATES (as defined
in the Old Employment Agreement) under the Non-Competition Agreement
and of the liability of the EMPLOYEE to IHF Capital, Inc. or any of
its AFFILIATES (as so defined) in respect of claims subject to the
$18,000,000 limits set forth in the third to last sentence of Section
10.3.1.1 of the Master Transaction Agreement, shall not exceed
$1,240,000.
14 AMENDMENTS
14.1 This Agreement may be amended only by written instrument duly executed
by all the parties hereby and approved by the Board of Directors of
the COMPANY.
15 NO ASSIGNMENT
15.1 No party hereto shall assign, in whole or in part, this agreement or
any of its or his respective rights and obligations hereunder without
the express prior written consent of the other parties hereto; for
this purpose the merger or reorganization of the COMPANY or the
SUBSIDIARY or any AFFILIATES shall not be considered an assignment.
16 NO WAIVER
16.1 No waiver by any party of any breach of the obligations of any other
party hereunder shall be a waiver of any subsequent breach or of any
other obligation, nor shall any forbearance to seek a remedy for any
breach be a waiver of any rights and remedies with respect to any
subsequent breach.
17 SEVERABILITY
17.1 The invalidity of one of the provisions of this Agreement shall not
invalidate or otherwise affect any of the other provisions of this
Agreement, which shall remain in full force and effect, and each such
invalid provision shall be construed by limiting it so as to be valid
for the maximum extent permitted by law.
18 CURRENCY, ETC.
18.1 All references in this Agreement to dollar or $ mean lawful currency
of the United States of America.
18.2 The COMPANY shall have the right to withhold, from or in respect of
any payment, benefit or other item of compensation due to the EMPLOYEE
hereunder, any federal, state or local taxes of any kind required by
law to be withheld with respect thereto. In the event that at the
time any withholding is required hereunder, the amount of cash
payments from which the applicable withholding taxes may be deducted
is less than the withholding taxes due, the EMPLOYEE shall pay to the
COMPANY, in immediately available funds, an amount equal to such
shortfall.
19 GOVERNING LAW; ARBITRATION
19.1 This Agreement shall be governed by and construed in accordance with
the domestic substantive laws of the State of Utah, without giving
effect to any choice or conflict of law provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction; provided, however, that any dispute relating to the
provisions of Section 19.2 shall be governed by the United States
Arbitration Act as then in force.
19.2 Except solely as set forth in Section 19.4, each dispute, difference,
controversy or claim arising in connection with or related or
incidental to, or question occurring under, this Agreement or the
subject matter hereof shall be finally settled under the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA")
by an arbitral tribunal composed of three (3) arbitrators, at least
one (1) of whom shall be an attorney experienced in corporate
transactions, appointed by agreement of the parties in accordance with
said Rules. In the event the parties fail to agree upon a panel of
arbitrators from the first list of potential arbitrators proposed by
the AAA, the AAA will submit a second list in accordance with said
Rules. In the event the parties shall have failed to agree upon a
full panel of arbitrators from the second list, any remaining
arbitrators to be selected shall be appointed by the AAA in accordance
with said Rules. If, at the time of the arbitration, the parties
agree in writing to submit the dispute to a single arbitrator, said
single arbitrator shall be appointed by agreement of the parties in
accordance with the foregoing procedure, or, failing such agreement,
by the AAA in accordance with said Rules. The foregoing arbitration
proceedings may be commenced by any party by notice to all other
parties.
19.3 The place of arbitration shall be Salt Lake City, Utah.
19.4 The parties hereto exclude any right of appeal to any court on the
merits of the dispute. The provisions of this Section 19 may be
enforced in any court having jurisdiction over the award of any of the
parties or any of their respective assets and judgment on the award
(including without limitation equitable remedies) granted in any
arbitration hereunder may be entered in any such court. Nothing
contained in this Section 19 shall prevent any party from seeking
interim measures of protection in the form of pre-award attachment of
assets or preliminary or temporary equitable relief.
19.5 To the extent not prohibited by applicable law which cannot be waived,
each of the parties hereto hereby waives, and covenants that he or it
will not assert (whether as plaintiff, defendant, or otherwise), any
right to trial by jury in any forum in respect of any issue, claim,
demand, cause of action, action, suit or proceeding arising out of or
based upon this Agreement or the subject matter hereof, in each case
whether now existing or hereafter arising and whether in contract or
tort or otherwise. Any of the parties hereto may file an original
counterpart or a copy of this Section 19.5 with any court as written
evidence of the consent of each of the parties hereto to the waiver of
his or its right to trial by jury.
19.6 Each of the parties hereto acknowledges that he or it has been
informed by each other party that the provisions of Section 19
constitute a material inducement upon which such party is relying and
will rely in entering into this Agreement and the transactions
contemplated hereby.
20 BINDING ON HEIRS
20.1 This Agreement binds and inures to the benefit of the parties, their
heirs, executors, administrators, successors and permitted assigns
(subject to Section 9.2(b)).
21 ENTIRE AGREEMENT
21.1 This Agreement embodies the entire Agreement between the parties
hereto concerning the subject matters mentioned herein and supersedes
all previous discussions, correspondence, understandings or
agreements, whether written or oral, with respect to such matters,
except as provided in the Termination Agreement. This Agreement shall
constitute an agreement between employer and employee of the type
referred to in Section 1, Chapter 28, Title 34 of the Utah Code,
Annotated.
22 ATTORNEY'S FEES
22.1 In the event that any party hereto shall be found in default or in
breach of this Agreement pursuant to arbitral or judicial proceedings,
such party shall be liable to pay all reasonable attorney's fees,
court costs and other related collection costs and expenses incurred
by the non-defaulting or non-breaching party in pursuing its rights
hereunder.
23 NOTICES
23.1 All notices and other communications necessary or contemplated under
this Agreement shall be in writing and shall be delivered in the
manner specified herein or, in the absence of such specification,
shall be deemed to have been duly given three (3) business days after
mailing by certified mail, when delivered by hand, or when delivered
by facsimile upon confirmation of receipt, or one (1) day after
sending by overnight delivery service, to the respective addresses of
the parties set forth below:
(a) for notices and communications to the COMPANY or the SUBSIDIARY:
HF HOLDINGS, INC.
ICON HEALTH & FITNESS, INC.
1500 South 1000 East
Logan, Utah 84321
Fax: 435-750-5238
Attn: Board of Directors
(b) For notices and communications to the EMPLOYEE:
Scott R. Watterson
560 South 1000 East
Logan, Utah 84321
(c) With a copy in each case to:
Weil, Gotshal & Manges LLP
100 Federal Street
34th Floor
Boston, MA 02110
Fax: 617-772-8333
Attn: Charles W. Robins, Esq.
and
Ropes & Gray
One International Place
Boston, MA 02110
Fax: 617-951-7050
Attn: R. Newcomb Stillwell, Esq.
24 JOINT AND SEVERAL LIABILITY
24.1 The COMPANY and the SUBSIDIARY shall be jointly and severally liable
in respect of all payment obligations of the COMPANY hereunder.
[Remainder of Page Intentionally Left blank]
IN WITNESS WHEREOF the parties have hereto signed this Agreement as of the
date first written above.
HF HOLDINGS, INC.
/s/ Debra Stephenson By: /s/ S. Fred Beck
- -------------------- ---------------------
Witness Name: S. Fred Beck
Title: Chief Financial Officer
ICON HEALTH & FITNESS, INC.
/s/ Debra Stephenson By: /s/ S. Fred Beck
- -------------------- ---------------------
Witness Name: S. Fred Beck
Title: Chief Financial Officer
/s/ James W. Brackner By: /s/ Scott R. Watterson
- --------------------- --------------------------
Witness SCOTT R. WATTERSON
SCHEDULE I
To
EMPLOYMENT AGREEMENT
Among
HF HOLDINGS INC.
ICON HEALTH & FITNESS, INC.
And
SCOTT R. WATTERSON
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