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Exhibit 10(a)
CML GROUP, INC.
AND ITS UNDERSIGNED SUBSIDIARIES
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▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Dated as of October 15, 1996
The First National Bank of Boston
BankAmerica Business Credit, Inc.
c/o The First National Bank of Boston,
as Administrative Agent
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▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Amendment No. 1 to the Credit Agreement, Consent and Waiver
Ladies and Gentlemen:
We refer to the Revolving Credit Agreement, dated as of April 17, 1996
(as amended by a letter agreement dated as of June 5, 1996, the "Credit
Agreement"), among (i) CML Group, Inc. ("CML"), (ii) NordicTrack, Inc., Nordic
Advantage, Inc., OTNC, Inc. (formerly known as The Nature Company), ▇▇▇▇▇ &
▇▇▇▇▇▇, Ltd. and Biscuit Factory Publications Incorporated (d/b/a Hear Music),
(iii) The First National Bank of Boston ("Bank of Boston") and BankAmerica
Business Credit, Inc. ("BankAmerica") (each a "Lender" and collectively, the
"Lenders") and (ii) Bank of Boston, as administrative, collateral and
documentation agent for the Lenders (the "Administrative Agent") and as Issuing
Bank. Capitalized terms used and not otherwise defined in this letter agreement
(this "Amendment Agreement") shall have the meanings assigned to such terms in
the Credit Agreement.
We have advised the Lenders and the Administrative Agent that: (i) we
have not delivered the Agency Account Agreement for Bank of America required to
be delivered pursuant to Section 9.14 of the Credit Agreement, (ii) we have not
delivered the intellectual property appraisals required to be delivered pursuant
to Section 9.16 of the Credit Agreement, (iii) we are not in compliance with the
Minimum Quarterly Consolidated EBITDA covenant set forth in Section 11.1 of the
Credit Agreement for the fiscal quarter ending July 31, 1996, (iv) we are not in
compliance with the Minimum Quarterly EBITDA (NordicTrack) covenant set forth in
Section 11.5 of the Credit Agreement for the fiscal quarter ending July 31,
1996, and (v) we are not in compliance with the Minimum Quarterly EBITDA
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(TNC) covenant set forth in Section 11.6 of the Credit Agreement for the fiscal
quarter ending July 31, 1996. Each of the foregoing constitute an Event of
Default under Section 14.1 of the Credit Agreement (items (iii) through (v) are
referred to herein as the "Specified Financial Covenant Events of Default" and
items (i) and (ii) are referred to herein as the "Specified Other Events of
Default").
We have further advised you that CML wishes to declare and pay a cash
dividend on its outstanding common stock even though we are not in compliance
with the Minimum Consolidated EBITDA requirement for payment of dividends set
forth in Section 10.4.2(a)(iii) of the Credit Agreement.
We have requested the undersigned Lenders to (i) waive the Specified
Other Events of Default, (ii) waive the Specified Financial Covenant Events of
Default for the fiscal quarter ending July 31, 1996, and (iii) consent to the
declaration and payment by CML of a cash dividend on or about November 1, 1996
in an aggregate amount not in excess of $500,000.
In addition, we have requested the undersigned Lenders to amend the
Credit Agreement to, among other things, eliminate the Overadvance, to amend
certain financial covenants and to address the sale of the assets of OTNC, Inc.
The undersigned Lenders have advised us that they are prepared to so
amend the Credit Agreement, grant the requested consents and waive the Specified
Other Events of Default and Specified Financial Covenant Events of Default on
the terms, subject to the conditions and in reliance on our representations
contained herein.
Accordingly, CML, the Borrowers, OTNC, Inc. and the Lenders hereby
agree as follows:
SECTION 1. Amendments to Credit Agreement. The Credit Agreement is
hereby amended as set forth below.
(a) OTNC, Inc. as Borrower. The preamble of the Credit
Agreement is amended by deleting the words "THE NATURE COMPANY, a
California corporation ("TNC")," and the words ", TNC" where they
appear in the preamble.
(b) Definitions. Section 1.1 of the Credit Agreement is
amended as follows:
(i) the definition of "Aggregate Borrowing Base" set
forth in such section is amended by deleting the words ", the
TNC Borrowing Base";
(ii) the definition of "Borrowing Base" set forth in
such section is amended and restated in its entirety as
follows:
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▇▇▇▇▇▇▇▇▇ ▇▇▇▇. Collectively, the
NordicTrack Borrowing Base, the S&H Borrowing Base
and the Hear Music Borrowing Base.
(iii) the definition of "Eligible Inventory" set
forth in such section is amended by (A) deleting the comma
after the words "Hear Music" in the first line thereof and
substituting in place thereof the word "and", (B) deleting the
words "and TNC" where they appear in such definition, (C)
deleting the dollar amount "$1,750,000" in clause (iii)(C) of
such definition and substituting in place thereof the phrase:
"$6,000,000 with respect to inventory located at S&H's
distribution center and warehouse located at ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and operated by The Discovery
Channel Store, Inc. pursuant to the Cooperation and Services
Agreement between The Discovery Channel Store, Inc. and S&H,
and $1,750,000 with respect to all other inventory locations"
and (D) inserting at the end of clause (iii)(y) the following
proviso:
"provided, however that the Administrative Agent may,
in its sole discretion, waive the foregoing
requirement with respect to financing statements,";
(iv) the definition of "Foreign Pledge Agreement" set
forth in such section is amended by deleting the word "TNC" in
clause (b) and substituting in place thereof the words "The
Nature Company (now known as OTNC)";
(v) the definition of "Guarantor" set forth in such
section is amended by inserting the words ", OTNC" after the
words "CML, each Borrower";
(vi) the definition of "Loans" set forth in such
section is amended by deleting the words ", the TNC Loans";
(vii) the definition of "Note Records" set forth in
such section is amended by deleting the words ", the TNC Note
Records";
(viii) the definition of "Notes" set forth in such
section is amended by deleting the words ", the TNC Notes";
(ix) the definitions of "Determined Value", "Eligible
Machinery and Equipment", "Eligible Real Estate", "Litigation
Reserve", "Overadvance", "Overadvance Borrowing Base",
"Overadvance Reallocation Date", "Overadvance Reallocation
Request", "Permitted Overadvance Amount", "Sub-Overadvance
Amount", "TNC", "TNC Borrowing Base", "TNC Loans", "TNC
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Notes" and "TNC Note Records" set forth in such section are
deleted in their entirety; and
(x) the following new definition is inserted in the
appropriate alphabetical sequence in such section:
OTNC. OTNC, Inc., a California corporation
formerly known as The Nature Company.
(c) Commitment to Lend NordicTrack Loans. Section 2.1.1 of the
Credit Agreement is amended by deleting the following from the proviso
in the first sentence of section: "plus the lesser of (i) the
Overadvance Borrowing Base less the aggregate outstanding amount of the
Overadvances of the other Borrowers (after giving effect to all amounts
requested) and (ii) NordicTrack's Sub-Overadvance Amount in effect at
such time".
(d) Commitment to Lend TNC Loans. Section 2.1.2 of the Credit
Agreement is amended by deleting such section in its entirety and
substituting in place thereof the phrase "Intentionally Omitted."
(e) Commitment to Lend S&H Loans. Section 2.1.3 of the Credit
Agreement is amended by deleting the following from the proviso in the
first sentence of section: "plus the lesser of (i) the Overadvance
Borrowing Base less the aggregate outstanding amount of the
Overadvances of the other Borrowers (after giving effect to all amounts
requested) and (ii) S&H's Sub-Overadvance Amount in effect at such
time".
(f) Commitment to Lend Hear Music Loans. Section 2.1.4 of the
Credit Agreement is amended by deleting the following from the proviso
in the first sentence of section: "plus the lesser of (i) the
Overadvance Borrowing Base less the aggregate outstanding amount of the
Overadvances of the other Borrowers (after giving effect to all amounts
requested) and (ii) Hear Music's Sub-Overadvance Amount in effect at
such time".
(g) Permitted Overadvance Amount. Section 2.1.5 of the Credit
Agreement is amended by deleting such section in its entirety and
substituting in place thereof the phrase "Intentionally Omitted".
(h) The TNC Notes. Section 2.4.2 of the Credit Agreement is
amended by deleting such section in its entirety and substituting in
place thereof the phrase "Intentionally Omitted."
(i) Interest on Loans. Section 2.5 of the Credit Agreement is
amended by (i) deleting the words "which does not constitute an
Overadvance" in paragraph (a) of such section and (ii) deleting
paragraph
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(c) of such section in its entirety and substituting in place thereof
the phrase "Intentionally Omitted."
(j) Conversion to Different Type of Loan. Section 2.7.1 of the
Credit Agreement is amended by deleting the parenthetical "(excluding
the Loans outstanding from time to time which constitute Overadvances)"
in the first sentence of such section.
(k) Change in Borrowing Bases. Section 2.9 of the Credit
Agreement is amended by (i) deleting the words "and the Overadvance
Borrowing Base" in the last sentence of such section and (ii) deleting
the words "or the Overadvance Borrowing Base, as the case may be," in
the last sentence of such section.
(l) Mandatory Repayment of NordicTrack Loans. Section 3.2.1 of
the Credit Agreement is amended by deleting the following from clause
(ii) of the first sentence of such section "plus the lesser of (x) the
Overadvance Borrowing Base less the aggregate outstanding amount of the
Overadvances of the other Borrowers and (y) NordicTrack's
Sub-Overadvance Amount in effect at such time".
(m) Mandatory Repayment of TNC Loans. Section 3.2.2 of the
Credit Agreement is amended by deleting such section in its entirety
and substituting in place thereof the phrase "Intentionally Omitted."
(n) Mandatory Repayment of S&H Loans. Section 3.2.3 of the
Credit Agreement is amended by deleting the following from clause (ii)
of the first sentence of such section "plus the lesser of (x) the
Overadvance Borrowing Base less the aggregate outstanding amount of the
Overadvances of the other Borrowers and (y) S&H's Sub-Overadvance
Amount in effect at such time".
(o) Mandatory Repayment of Hear Music Loans. Section 3.2.4 of
the Credit Agreement is amended by deleting the following from clause
(ii) of the first sentence of such section "plus the lesser of (x) the
Overadvance Borrowing Base less the aggregate outstanding amount of the
Overadvances of the other Borrowers and (y) Hear Music's
Sub-Overadvance Amount in effect at such time".
(p) CML's Depository Arrangements. Section 3.3.2 of the Credit
Agreement is amended by (A) deleting the word "and" at the end of
clause (ii) in the first sentence of such section and substituting in
place thereof a comma and (B) inserting before the period at the end of
clause (iii) in the first sentence of such section the clause "and (iv)
cause any and all tax refunds received by CML to be immediately
deposited into CML's Concentration Account".
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(q) Commitment to Issue Letters of Credit. Section 4.1.1 of
the Credit Agreement is amended by deleting the following from clause
(b)(ii)(B) of such section: "plus the lesser of (x) the Overadvance
Borrowing Base and (y) such Borrower's Sub-Overadvance Amount less the
aggregate Sub-Overadvance Amounts allocated to other Borrowers".
(r) Notice of Sale of TNC. Section 9.5.6 of the Credit
Agreement is amended by deleting such section in its entirety and
substituting in place thereof the phrase "Intentionally Omitted."
(s) Agency Account Agreements. Section 9.14 of the Credit
Agreement is amended by deleting the words "forty-five (45) days after
the Closing Date" in the first sentence of such paragraph and
substituting in place thereof the words "November 30, 1996".
(t) Intellectual Property Appraisals. Section 9.16 of the
Credit Agreement is amended and restated in its entirety as follows:
9.16. INTELLECTUAL PROPERTY APPRAISALS. As soon as
practicable but in any event not later than November 30, 1996,
the Borrowers will deliver to the Co-Agents appraisals of
NordicTrack's trade names and trademarks performed by a third
party mutually agreed upon by the Co-Agents and the Borrowers
and such appraisals shall be in form and substance
satisfactory to the Co-Agents.
(u) Collateral Notes. Section 9.20 of the Credit Agreement is
amended by deleting the words ", the TNC Notes".
(v) Intercompany Distributions and Restricted Payments.
Section 10.4.1(c) of the Credit Agreement is amended by deleting clause
(ii) of such paragraph and substituting in place thereof the following
clause: "(ii) $0 in respect of OTNC,".
(w) Minimum Quarterly Consolidated EBITDA. Section 11.1 of the
Credit Agreement is amended by deleting the table set forth in such
section and substituting in place thereof the following table:
QUARTER ENDING MINIMUM CONSOLIDATED EBITDA
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July 1996 $ (27,750,000)
October 1996 $ (19,600,000)
January 1997 $ 17,500,000
April 1997 $ 6,450,000
July 1997 $ (2,750,000)
October 1997 $ (900,000)
January 1998 $ 43,400,000
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April 1998 $ (2,900,000)
July 1998 $ 1,300,000
October 1998 $ (900,000)
January 1999 $ 43,400,000
(x) Minimum Consolidated EBITDA to Interest Ratio. Section
11.2 of the Credit Agreement is amended by deleting the table set forth
in such section and substituting in place thereof the following table
and text:
PERIOD ENDING RATIO
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April 1997 2.00:1.00
July 1997 0.50:1.00
October 1997 3.00:1.00
January 1998 3.50:1.00
April 1998 and thereafter 4.00:1.00
For purposes of calculating the foregoing ratio, Consolidated EBITDA
and Consolidated Total Interest Expense of CML and its Subsidiaries for
the fiscal quarter ending in July 1996 shall be deemed to be zero
dollars ($0).
(y) Total Liabilities to Tangible Net Worth. Section 11.4 of
the Credit Agreement is amended by deleting the table set forth in such
section and substituting in place thereof the following table:
QUARTER ENDING RATIO
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July 1996 2.00:1.00
October 1996 3.00:1.00
January 1997 2.00:1.00
April 1997 1.80:1.00
July 1997 1.90:1.00
October 1997 2.70:1.00
January 1998 1.60:1.00
April 1998 1.60:1.00
July 1998 1.60:1.00
October 1998 2.70:1.00
January 1999 1.80:1.00
(z) Minimum Quarterly EBITDA (NordicTrack). Section 11.5 of
the Credit Agreement is amended by deleting the table set forth in such
section and substituting in place thereof the following table:
QUARTER ENDING MINIMUM EBITDA
-------------- --------------
July 1996 $(26,300,000)
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October 1996 $(16,750,000)
January 1997 $ 16,950,000
April 1997 $ 8,850,000
July 1997 $ (4,150,000)
October 1997 $ 600,000
January 1998 $ 28,100,000
April 1998 $ 6,400,000
July 1998 $ (1,000,000)
October 1998 $ 900,000
January 1999 $ 28,400,000
(aa) Minimum Quarterly EBITDA (TNC). Section 11.6 of the
Credit Agreement is amended by deleting such section in its entirety
and substituting in place thereof the phrase "Intentionally Omitted."
(bb) Borrowing Availability. Section 13.6 of the Credit
Agreement is amended by deleting the phrase "plus the Permitted
Overadvance Amount" from such section.
SECTION 2. Amendment to Loan Documents. All references in the Loan
Documents to "TNC" or "The Nature Company" shall be deemed to refer to OTNC.
Effective as of the Amendment No. 1 Effective Date, the Total Commitment shall
be permanently reduced to $40,000,000.
SECTION 3. Waivers and Consents. The Lenders hereby (i) waive the
Specified Other Events of Default, (ii) waive the Specified Financial Covenant
Events of Default solely for the fiscal quarter ending July 31, 1996, provided
that, after giving effect to the amendments contained in Section 1 hereof, CML
and its Subsidiaries shall be in compliance with such financial covenants being
waived, and (iii) consent to the declaration and payment by CML of a cash
dividend on or about November 1, 1996 in an aggregate amount not in excess of
$500,000.
SECTION 4. Conditions. The effectiveness of Sections 1, 2 and 3 above
is subject to satisfaction of the following conditions precedent:
(a) This Amendment Agreement shall have been duly authorized,
executed and delivered to the Administrative Agent by CML, the
Borrowers, OTNC, the Lenders and the Administrative Agent.
(b) Each of the Guarantors and the Foreign Guarantors shall
have duly authorized, executed and delivered to the Administrative
Agent its consent to this Amendment Agreement.
(c) CML and the Borrowers shall have paid to each Lender an
amendment fee equal in each case to $25,000.
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The date on which all of the foregoing conditions are satisfied is
referred to herein as the "Amendment No. 1 Effective Date".
SECTION 5. Representations and Warranties. Each of the Borrowers, CML
and OTNC hereby represents and warrants to the Administrative Agent and the
Lenders, on and as of the date hereof, as follows:
(a) This Amendment Agreement has been duly executed and
delivered by each of the Borrowers, CML and OTNC. The execution and
delivery by each of the Borrowers, CML and OTNC of this Amendment
Agreement and the performance by each of the Borrowers, CML and OTNC of
this Amendment Agreement and the Loan Documents, as amended hereby
(collectively, the "Amendment Documents"), have been duly authorized by
proper corporate proceedings by such Person, and each Amendment
Document to which any of the Borrowers, CML and OTNC is a party
constitutes the legal, valid and binding obligation of such Person,
enforceable against such Person in accordance with the terms of such
Amendment Document.
(b) The execution, delivery and performance of this Amendment
Agreement by each of the Borrowers, CML and OTNC (i) are within the
corporate authority of such Person, (ii) have been duly authorized by
all necessary corporate proceedings, (iii) do not conflict with or
result in any breach or contravention of any provision of law, statute,
rule or regulation to which CML, any of the Borrowers, OTNC or any of
their Subsidiaries is subject or any judgment, order, writ, injunction,
license or permit applicable to CML, any of the Borrowers, OTNC or any
of their Subsidiaries and (iv) do not conflict with any provision of
the corporate charter or bylaws of, or any agreement or other
instrument binding upon, CML, any of the Borrowers, OTNC or any of
their Subsidiaries.
(c) Each of the representations and warranties of any of CML,
the Borrowers and their Subsidiaries contained in the Credit Agreement,
the other Loan Documents or in any document or instrument delivered
pursuant to or in connection with the Credit Agreement are true as of
the date as of which they were made and are true as of the date of this
Amendment Agreement, except to the extent of changes resulting from
transactions contemplated or permitted by the Credit Agreement and the
other Loan Documents and except to the extent that such representation
and warranties relate expressly to any earlier date.
(d) On or about September 27, 1996, CML has received a cash
refund from the Internal Revenue Service in the amount of $55,900,000
in respect of its tentative carryback adjustment under Section 6411 of
the Code with respect to CML's consolidated net operating loss for
CML's fiscal year 1996.
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(e) After giving effect to this Amendment Agreement, no
Default or Event of Default will be continuing under the Credit
Agreement.
SECTION 6. Continued Validity of Loan Documents. Except for the
amendments of the Credit Agreement and other Loan Documents pursuant to Sections
1 and 2 hereof and the waivers and consents granted pursuant to Section 3
hereof, this Amendment Agreement shall not, by implication or otherwise, limit,
impair, constitute a waiver of or otherwise affect any rights or remedies of the
Administrative Agent or the Lenders under the Credit Agreement or the other Loan
Documents, nor alter, modify, amend or in any way affect any of the obligations
or covenants contained in the Credit Agreement or any of the other Loan
Documents, all of which are ratified and confirmed in all respects and shall
continue in full force and effect. The Lenders shall not have any obligation to
grant any further waiver or consent with respect to the subject matter of the
waivers and consents granted herein or any other waivers or consents.
SECTION 7. Legal Fees. Each of the Borrowers and CML confirms and
agrees that it shall pay or reimburse the Administrative Agent for all legal
fees and disbursements of legal counsel for the Administrative Agent in
connection with this Amendment Agreement and the financing arrangements governed
by the Credit Agreement.
SECTION 8. Loan Documents. From and after the date hereof, this
Amendment Agreement shall be deemed a Loan Document for all purposes of the
Credit Agreement, and each reference to Loan Documents in the Credit Agreement
shall be deemed to include this Amendment Agreement.
SECTION 9. APPLICABLE LAW. THIS AMENDMENT AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS.
SECTION 10. Counterparts. This Amendment Agreement may be executed in
any number of counterparts, each of which shall constitute an original but all
of which when taken together shall constitute but one agreement. Delivery of an
executed counterpart of a signature page by facsimile transmission shall be
effective as delivery of a manually executed counterpart of this Amendment
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
date first above written.
Very truly yours,
CML GROUP, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇, Vice President - Finance
NORDICTRACK, INC.
NORDIC ADVANTAGE, INC.
▇▇▇▇▇ & ▇▇▇▇▇▇, LTD.
BISCUIT FACTORY PUBLICATIONS
INCORPORATED (d/b/a HEAR MUSIC)
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇, Vice President
For purposes of Sections 3.3, 7, and
21-28 of the Credit Agreement:
OTNC, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇, Vice President
Agreed to and Accepted By:
THE FIRST NATIONAL BANK
OF BOSTON, individually and as
Administrative Agent, Co-Agent and Issuing Bank
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇, Director
BANKAMERICA BUSINESS CREDIT, INC.,
individually and as Co-Agent
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Vice President
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CONSENT OF GUARANTORS AND FOREIGN GUARANTORS
Each of the undersigned hereby acknowledges and consents to the
Amendment No. 1 to Credit Agreement, dated as of October 15, 1996 and agrees
that the Guaranty dated as of April 17, 1996 executed by such Person in favor of
the Administrative Agent and the Lenders or, as the case may be, the Foreign
Guaranty dated in April 1996 executed by such Person in favor of the
Administrative Agent and the Lenders, and all of the other Loan Documents to
which such Person is a party remain in full force and effect, and such Person
confirms and ratifies all of its obligations thereunder.
OCR, INC.
OBW, INC.
WFH GROUP, INC.
CML INTERNATIONAL (FSC), LTD.
THE NATURE COMPANY LIMITED
NORDICTRACK (U.K.) LTD.
NORDIC ADVANTAGE OF ONTARIO, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇, Vice President
NORDICTRACK GmbH
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Title: Vice President