FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the period ended June 30,
1996
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Commission file number 33-99844
BALLY TOTAL FITNESS HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3228107
(State or other jurisdiction of (IRS Employer
of incorporation) Identification No.)
8700 West Bryn Mawr Avenue
Chicago, IL 60631
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (312) 380-3000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
As of August 9, 1996, 12,495,161 shares of the registrant's common
stock were outstanding.<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Condensed consolidated balance sheet (unaudited)
June 30, 1996 and December 31, 1995 1
Consolidated statement of operations (unaudited)
Six months ended June 30, 1996 and 1995 2
Consolidated statement of operations (unaudited)
Three months ended June 30, 1996 and 1995 3
Consolidated statement of stockholders' equity (unaudited)
Six months ended June 30, 1996 4
Consolidated statement of cash flows (unaudited)
Six months ended June 30, 1996 and 1995 5
Notes to condensed consolidated financial statements
(unaudited) 7
Item 2. Management's discussion and analysis of financial
condition and results of operations 10
PART II. OTHER INFORMATION
Item 1. Legal proceedings 16
Item 6. Exhibits and reports on Form 8-K 16
SIGNATURE PAGE 17
BALLY TOTAL FITNESS HOLDING CORPORATION
Condensed Consolidated Balance Sheet
(In thousands)
(Unaudited)
June 30, December 31,
1996 1995
---------- -----------
ASSETS
Current assets:
Cash and equivalents $ 11,662 $ 21,263
Installment contracts receivable, net 155,775 155,504
Other current assets 23,955 20,216
---------- ----------
Total current assets 191,392 196,983
Long-term installment contracts
receivable, net 156,515 147,856
Property and equipment, less accumulated
depreciation and amortization of
$300,574 and $293,698 337,300 348,468
Intangible assets, less accumulated
amortization of $47,369 and $45,117 107,975 110,227
Deferred income taxes 3,205 2,989
Other assets 37,880 39,771
---------- ----------
$ 834,267 $ 846,294
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,338 $ 43,740
Income taxes payable 50 2,241
Deferred income taxes 11,915 11,112
Deferred revenues 58,315 61,881
Accrued liabilities 70,702 64,978
Current maturities of long-term debt 34,745 1,481
---------- ----------
Total current liabilities 209,065 185,433
Long-term debt, less current maturities 337,920 368,032
Tax obligation to Bally Entertainment
Corporation 15,200 15,200
Other liabilities and deferred credits 34,061 37,282
Stockholders' equity 238,021 240,347
---------- ----------
$ 834,267 $ 846,294
========== ==========
See accompanying notes.
1
BALLY TOTAL FITNESS HOLDING CORPORATION
Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)
Six months ended
June 30,
-------------------------
1996 1995
---------- ----------
Net revenues:
Membership revenues -
New $ 211,957 $ 221,117
Dues 91,832 90,822
Finance charges earned 18,556 18,074
Fees and other 7,296 9,229
---------- ----------
329,641 339,242
Operating costs and expenses:
Fitness center operations 186,481 199,226
Member processing and collection
centers 22,543 25,528
Advertising 25,810 22,642
General and administrative 13,028 12,481
Provision for doubtful receivables 39,359 38,355
Depreciation and amortization 27,672 28,668
---------- ----------
314,893 326,900
---------- ----------
Operating income 14,748 12,342
Interest expense 23,900 20,772
---------- ----------
Loss before income taxes (9,152) (8,430)
Income tax provision (benefit) 300 (2,445)
---------- ----------
Net loss $ (9,452) $ (5,985)
========== ==========
Per common share:
Net loss - proforma for 1995 $ (.78) $ (.72)
========== ==========
See accompanying notes.
2
BALLY TOTAL FITNESS HOLDING CORPORATION
Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)
Three months ended
June 30,
-------------------------
1996 1995
---------- ----------
Net revenues:
Membership revenues -
New $ 99,153 $ 103,911
Dues 46,444 45,678
Finance charges earned 8,961 9,155
Fees and other 4,002 4,003
---------- ----------
158,560 162,747
Operating costs and expenses:
Fitness center operations 91,576 98,230
Member processing and collection
centers 10,331 12,737
Advertising 13,199 11,673
General and administrative 5,845 5,978
Provision for doubtful receivables 18,457 17,730
Depreciation and amortization 13,996 14,273
---------- ----------
153,404 160,621
---------- ----------
Operating income 5,156 2,126
Interest expense 12,051 10,723
---------- ----------
Loss before income taxes (6,895) (8,597)
Income tax provision (benefit) 100 (2,495)
---------- ----------
Net loss $ (6,995) $ (6,102)
========== ==========
Per common share:
Net loss - proforma for 1995 $ (.57) $ (.73)
========== ==========
See accompanying notes.
3
BALLY TOTAL FITNESS HOLDING CORPORATION
Consolidated Statement of Stockholders' Equity
(In thousands, except share data)
(Unaudited)
Common Stock Unearned
------------------- compensation Total
Number Stated Contributed Accumulated -restricted stockholders'
of shares value capital deficit stock equity
-------- --------- --------- ----------- ----------- ------------
Balance at December 31,
1995
11,845,161 $ 118 $ 293,062 $ (52,833) $ $ 240,347
Net loss
(9,452) (9,452)
Stock awards under
long-term incentive plan
650,000 7 4,389 (4,396) -
Capital contribution by
Bally Entertainment Corporation
6,760 6,760
Amortization of unearned
compensation
366 366
---------- ------- --------- --------- ---------- ----------
Balance at June 30, 1996
12,495,161 $ 125 $ 304,211 $(62,285) $ (4,030) $ 238,021
========== ======= ========= ========= ========== ==========
See accompanying notes.
4
BALLY TOTAL FITNESS HOLDING CORPORATION
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Six months ended
June 30,
-----------------------
1996 1995
--------- ---------
OPERATING:
Net loss $ (9,452) $ (5,985)
Adjustments to reconcile to cash used -
Depreciation and amortization,
including amortization included
in interest expense 29,274 30,504
Provision for doubtful receivables 39,359 38,355
Deferred income taxes 587 1,901
Change in operating assets and
liabilities (65,610) (71,521)
--------- ---------
Cash used in operating activities (5,842) (6,746)
INVESTING:
Purchases of property and equipment (11,450) (11,578)
Other, net 472 (342)
--------- ---------
Cash used in investing activities (10,978) (11,920)
FINANCING:
Debt transactions -
Proceeds from securitization facility 150,000
Net repayments under revolving credit
agreement (77,000)
Net borrowings (repayments) of other
long-term debt 603 (2,420)
Debt issuance costs (144) (5,137)
--------- ---------
Cash provided by debt transactions 459 65,443
Equity transaction -
Capital contribution by Bally
Entertainment Corporation 6,760
--------- ---------
Cash provided by financing activities 7,219 65,443
--------- ---------
Increase (decrease) in cash and
equivalents (9,601) 46,777
Cash and equivalents, beginning
of period 21,263 12,804
--------- ---------
Cash and equivalents, end of period $ 11,662 $ 59,581
========= =========
See accompanying notes.
5
BALLY TOTAL FITNESS HOLDING CORPORATION
Consolidated Statement of Cash Flows-(Continued)
(In thousands)
(Unaudited)
Six months ended
June 30,
------------------------
1996 1995
---------- ----------
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and
liabilities were as follows -
Increase in installment contracts
receivable $ (48,289) $ (51,118)
Increase in other current and
other assets (3,471) (2,824)
Increase (decrease) in accounts
payable (10,706) 5,610
Decrease in due to Bally
Entertainment Corporation (6,220)
Increase (decrease) in income taxes
payable (2,191) 162
Increase (decrease) in accrued and
other liabilities 5,396 (2,694)
Decrease in deferred revenues (6,349) (14,437)
---------- ----------
$ (65,610) $ (71,521)
========== ==========
Cash payments for interest and income
taxes were as follows-
Interest paid $ 21,818 $ 20,344
Interest capitalized (163) (189)
Income taxes paid (refunded), net 1,904 (4,508)
Investing and financing activities exclude
the following non-cash transaction -
Acquisition of equipment through
capital leases $ 2,853 $
See accompanying notes.
6
BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements
(All dollar amounts in thousands, except share data)
(Unaudited)
Basis of presentation
The accompanying condensed consolidated financial statements include
the accounts of Bally Total Fitness Holding Corporation (_the
Company_) and the subsidiaries which it controls. The Company,
through its subsidiaries, is a nationwide commercial operator of
fitness centers with 323 facilities concentrated in 27 states and
Canada. The Company operates in one industry segment, and all
significant revenues arise from the commercial operation of fitness
centers, primarily in major metropolitan markets in the United States.
Unless otherwise specified in the text, references to the Company
include the Company and its subsidiaries. These condensed
consolidated financial statements should be read in conjunction with
the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
The Company was a wholly owned subsidiary of Bally Entertainment
Corporation (_Bally_) until the consummation of Bally's spin-off (the
_Spin-off_) of the Company on January 9, 1996. On that date,
11,845,161 shares of Company common stock were distributed to holders
of record of Bally's common stock as of November 15, 1995. For
financial accounting purposes, the Company has reflected the effect of
the Spin-off as of December 31, 1995.
All adjustments have been recorded which are, in the opinion of
management, necessary for a fair presentation of the condensed
consolidated balance sheet of the Company at June 30, 1996, its
consolidated statements of operations for the three and six months
ended June 30, 1996 and 1995, its consolidated statement of
stockholders' equity for the six months ended June 30, 1996 and its
consolidated statement of cash flows for the six months ended June 30,
1996 and 1995. All such adjustments were of a normal recurring
nature.
The accompanying condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles
which require the Company's management to make estimates and
assumptions that affect the amounts reported therein. Actual results
could vary from such estimates. In addition, certain
reclassifications have been made to prior period financial statements
to conform with the 1996 presentation.
Seasonal factors
The Company's operations are subject to seasonal factors and,
therefore, the results of operations for the three and six months
ended June 30, 1996 and 1995 are not necessarily indicative of the
results of operations for the full year.
7
BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements-(Continued)
(All dollar amounts in thousands, except share data)
(Unaudited)
Installment contracts receivable
June 30, December 31,
1996 1995
---------- -----------
Current:
Installment contracts $ 238,167 $ 244,522
Less --
Unearned finance charges 27,567 27,128
Allowance for doubtful receivables
and cancellations 54,825 61,890
---------- -----------
$ 155,775 $ 155,504
========== ===========
Long-term:
Installment contracts $ 215,761 $ 211,549
Less --
Unearned finance charges 13,658 13,055
Allowance for doubtful receivables
and cancellations 45,588 50,638
---------- -----------
$ 156,515 $ 147,856
========== ===========
Long-term debt
The Company is restricted from paying cash dividends by the terms of
its 13% Senior Subordinated Notes due 2003 and its revolving credit
agreement. The covenants also limit amounts available for capital
expenditures and additional borrowings, and require maintenance of
certain financial ratios. The Company's revolving credit agreement
provides for a $15,000 line of credit, which is reduced by the amount
of any outstanding letters of credit in excess of $15,000 (which
excess may not exceed $5,000). The maximum amount available under
this revolving credit agreement, including letters of credit, is
$30,000. At June 30, 1996, outstanding letters of credit totaled
approximately $13,300 and the entire line of credit was unused.
Income taxes
Taxable income or loss of the Company is included in the consolidated
federal income tax return of Bally through January 9, 1996. The
Company is required to file its own separate consolidated federal
income tax return for periods after January 9, 1996. The income tax
provision for the three and six months ended June 30, 1996 reflects
state income taxes only, as no federal benefit has been provided due
to the uncertainty of its realization.
8
BALLY TOTAL FITNESS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements-(Continued)
(All dollar amounts in thousands, except share data)
(Unaudited)
Income taxes (continued)
The tax allocation and Indemnity Agreement between the Company and
Bally was amended in the second quarter of 1996 to include a portion
of the Company's 1996 losses in Bally's consolidated federal income
tax return. A contribution was received by the Company representing
an advance on a portion of the estimated benefit that Bally will
receive from the utilization of the Company's loss carry backs.
Earnings (loss) per common share
Loss per common share was computed by dividing net loss by the
weighted average number of shares of common stock outstanding during
each period, which totalled 12,170,161 shares for both the three and
six months ended June 30, 1996. Restricted stock (325,000 shares) was
issued subject to forfeiture unless certain conditions are met. These
contingent shares are considered common stock equivalents and are
excluded from the loss per share computation because their effect
would be anti-dilutive. Proforma loss per common share for the three
and six months ended June 30, 1995, giving effect to (i) adjustments
made to reflect the income tax provision/benefit as if the Company had
filed its own separate consolidated income tax returns for each period
and (ii) the distribution of 11,845,161 shares of Company common stock
to Bally shareholders as if such distribution had taken place as of
the beginning of each period, was $.73 per share and $.72 per share,
respectively.
9
BALLY TOTAL FITNESS HOLDING CORPORATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Six months versus six months
Net revenues for the first six months of 1996 were $329.6 million
compared to $339.2 million in the 1995 period. New membership revenue
decreased $9.2 million (4%) primarily due to a 7% decline in the
number of contracts sold offset, in part, by a 5% increase in the
average selling price. Net revenues for the same fitness centers
selling memberships throughout both periods decreased $5.6 million
(2%), with the remaining decrease resulting from the closure of older,
less profitable facilities that were not replaced and the sale of the
Vertical club in New York City to Bally. The number of fitness
centers decreased from 334 at June 30, 1995 to 323 at June 30, 1996,
representing the closure of fourteen older, typically smaller
facilities and the sale of the Vertical Club to Bally offset, in part,
by the opening of four new, larger facilities. Dues revenue increased
$1.0 million (1%) over 1995 despite the 3% reduction in the number of
facilities operated. Finance charges earned increased $.5 million
(3%) in the 1996 period compared to 1995. Fees and other revenues
decreased $1.9 million (21%) primarily due to non-recurring income in
the first six months of 1995 pertaining to insurance recoveries and a
reduction of personal trainer revenue in the 1996 period as a result
of outsourcing the service.
Operating income for the first six months of 1996 was $14.7 million
compared to $12.3 million in 1995. The increase of $2.4 million (20%)
is primarily due to a $12.0 million (4%) decrease in operating costs
and expenses offset, in part, by the aforementioned decrease in
revenues. Excluding the provision for doubtful receivables, operating
costs and expenses decreased $13.0 million (5%) in the first six
months of 1996 compared to 1995. The decrease was primarily due to i)
the continuing cost reduction program which includes reductions in
payroll and other variable costs (including consolidations of member
processing and collection centers and reductions in personal trainer
salaries), ii) commissions as a result of the aforementioned decline
in new membership sales and iii) the 3% reduction in the number of
facilities operated.
Fitness center operating expenses for the first six months of 1996
decreased $12.7 million (6%) from 1995 primarily due to a reduction in
payroll and related costs ($7.5 million) and other variable costs as a
result of the continuing cost reduction program. As a percentage of
net revenues, fitness center operating expenses decreased from 59% in
the 1995 period to 57% in 1996.
10
BALLY TOTAL FITNESS HOLDING CORPORATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations-(Continued)
Member processing and collection center expenses decreased $3.0
million (12%) primarily due to the completion in late 1995 of the
consolidation of three regional service centers (_RSCs_) into two and
the completion of a computer conversion project. With the addition of
new hardware and software, the Company has streamlined its processing
procedures and developed efficiencies that enable the RSCs to better
service membership accounts while reducing costs. Member processing
and collection center expenses as a percentage of net revenues
decreased from 8% in the 1995 period to 7% in 1996.
Advertising costs for the first six months of 1996 increased $3.2
million (14%) over 1995 primarily due to increased media and club
marketing costs. This is consistent with the Company's belief that
strong marketing support is critical to attracting new members both at
existing and new fitness centers. Advertising expenses as a
percentage of net revenues increased from 7% in the 1995 period to 8%
in 1996.
General and administrative expenses increased $.5 million (4%) and, as
a percentage of net revenues, were 4% for each period.
The provision for doubtful receivables for the first six months of
1996 was $39.4 million compared to $38.4 million for 1995, an increase
of $1.0 million (3%). The provision for doubtful receivables as a
percentage of net financed sales was 26% in both periods.
Depreciation and amortization expenses decreased $1.0 million (3%)
from 1995.
Interest expense, net of capitalized interest, was $23.9 million for
the first six months of 1996 compared to $20.8 million in 1995, an
increase of $3.1 million (15%) principally reflecting a higher average
level of debt offset, in part, by lower average interest rates.
For periods commencing after the Spin-off, the Company is required to
file its own separate consolidated federal income tax return. The
income tax provision for the first six months of 1996 reflects state
income taxes only, as no federal benefit has been provided due to the
uncertainty of its realization.
11
BALLY TOTAL FITNESS HOLDING CORPORATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Quarter versus quarter
Net revenues for the second quarter of 1996 were $158.6 million
compared to $162.7 million in the 1995 period. New membership revenue
decreased $4.8 million (5%) primarily due to a 3% decline in the
number of contracts sold. A significant portion of the net decrease
resulted from the closure of older, less profitable facilities that
were not replaced and the sale of the Vertical club in New York City
to Bally, while net revenues for the same fitness centers selling
memberships throughout both quarters decreased $1.4 million (1%).
Dues revenue increased $.8 million (2%) over 1995 despite the
aforementioned reduction in the number of facilities operated.
Finance charges earned decreased $.2 million (2%) in the 1996 quarter
compared to 1995. Fees and other revenues remained unchanged.
Operating income for the second quarter of 1996 was $5.2 million
compared to $2.1 million in 1995. The increase of $3.0 million (143%)
is primarily due to a $7.2 million (4%) decrease in operating costs
and expenses offset, in part, by the aforementioned decrease in
revenues. Excluding the provision for doubtful receivables, operating
costs and expenses decreased $7.9 million (6%) in the second quarter
of 1996 compared to 1995. The decrease was primarily due to i) the
continuing cost reduction program which includes reductions in payroll
and other variable costs (including consolidations of member
processing and collection costs and reductions in personal trainer
salaries), ii) commissions as a result of the aforementioned decline
in new membership sales and iii) the 3% reduction in the number of
facilities operated.
Fitness center operating expenses for the second quarter of 1996
decreased $6.7 million (7%) from 1995 primarily due to a reduction in
payroll and related costs ($4.1 million) and other variable costs as a
result of the continuing cost reduction program. As a percentage of
net revenues, fitness center operating expenses decreased from 60% in
the 1995 quarter to 58% in 1996.
Member processing and collection center expenses decreased $2.4
million (19%) primarily due to the previously discussed RSC
consolidation and computer conversion project. Member processing and
collection center expenses as a percentage of net revenues decreased
from 8% in the 1995 quarter to 7% in 1996.
Advertising costs for the second quarter of 1996 increased $1.5
million (13%) over 1995 primarily due to increased media costs. As
previously noted, this is consistent with the Company's belief that
strong marketing support is critical to attracting new members both at
existing and new fitness centers. Advertising expenses as a
percentage of net revenues increased from 7% in the 1995 quarter to 8%
in 1996.
12
BALLY TOTAL FITNESS HOLDING CORPORATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations-(Continued)
General and administrative expenses decreased $.1 million (2%) and, as
a percentage of net revenues, were 4% for each quarter.
The provision for doubtful receivables for the second quarter of 1996
was $18.5 million compared to $17.7 million for 1995, an increase of
$.8 million (4%). The provision for doubtful receivables as a
percentage of net financed sales increased from 26% in the 1995 period
to 27% in 1996.
Depreciation and amortization expenses decreased $.3 million (2%) from
1995.
Interest expense, net of capitalized interest, was $12.1 million for
the second quarter of 1996 compared to $10.7 million in 1995, an
increase of $1.4 million (13%) principally reflecting a higher average
level of debt offset, in part, by lower average interest rates.
For periods commencing after the Spin-off, the Company is required to
file its own separate consolidated federal income tax return. The
income tax provision for the second quarter of 1996 reflects state
income taxes only, as no federal benefit has been provided due to the
uncertainty of its realization.
Liquidity and capital resources
The Company has no scheduled principal payments under its subordinated
indebtedness until 2003, no scheduled principal payments under its
securitization facility until January 1997 and its scheduled principal
payments under other indebtedness outstanding at June 30, 1996 are not
significant. Approximately $31 million principal amount of the $150
million securitization facility will be amortized unless the financing
is renewed or replaced. The Company plans to offer a new series of
securitization certificates to replace the current issue during the
last quarter of 1996. However, there can be no assurance that such a
replacement series will be sold or that the terms of such series will
be as favorable as the existing series. In addition, the Company's
debt service payments for the next twelve months, principally for
interest, are expected to be approximately $43 million.
The Company's recent losses and the terms of its revolving credit
agreement limit the Company's ability to borrow significant amounts of
additional funds. Consequently, the Company is dependent on its
operations and availability under its revolving credit agreement for
its cash needs. As of August 9, 1996, approximately $5 million was
outstanding on the borrowing portion of the line of credit.
13
BALLY TOTAL FITNESS HOLDING CORPORATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations-(Continued)
The Company has managed in recent years and expects to continue to
manage near-term liquidity requirements utilizing, in addition to the
occasional sale of non-strategic assets, a variety of techniques to
increase the cash sales and down payments and to accelerate
collections and dues payments to increase available cash reserves.
For example, during late 1995 the Company initiated a program which
allowed members to transfer the balance of their installment contracts
to a credit card sponsored by a third party bank which results in the
payment of the full principal amount of the installment contract
without the need for a discount to the member. For the six months
ended June 30, 1996, approximately $11 million of such payment
accelerations were generated.
Management plans to make capital expenditures of approximately $10
million to $15 million over the next twelve months to maintain, and in
many cases upgrade, its existing facilities as funds are available.
In recent years, the Company has also spent $10 million to $15 million
annually, as funds were available, to build new or replacement
facilities. The Company expects to continue those expenditures if
operations generate sufficient cash flow. The Company believes it
will be able to satisfy its cash needs over the next twelve months.
Cash Earnings Before Interest, Taxes, Depreciation And Amortization
(_Cash EBITDA_)
The indenture governing the Company's 13% Senior Subordinated Notes
due 2003 (the _13% Notes_) requires the disclosure of information with
respect to Cash EBITDA (as calculated using accounting principles in
effect in January 1993, when the 13% Notes were issued). Cash EBITDA
should not be considered as an alternative to any measure of
performance or liquidity as promulgated under generally accepted
accounting principles (such as net income/loss or cash provided
by/used in operating, investing and financing activities) nor should
it be considered as an indicator of the Company's overall financial
performance.
14
BALLY TOTAL FITNESS HOLDING CORPORATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations-(Continued)
Cash EBITDA is calculated as follows (in millions):
Six months ended
June 30,
------------------------
1996 1995
---------- ---------
Loss before income taxes $ (9.2) $ (8.4)
Adjustments to reconcile to Cash EBITDA:
Interest expense (excluding $7.4
million of interest on the
securitization certificates in 1996) 16.5 20.8
Depreciation and amortization 27.7 28.7
Provision for doubtful receivables 39.4 38.4
Increase in installment contracts
receivable (48.3) (51.1)
Decrease in deferred revenues (6.3) (14.4)
Proforma decrease in installment contracts
receivable 150.0
Other non-cash expenses .8 .8
--------- ---------
Cash EBITDA $ 20.6 $ 164.8
========= =========
Cash EBITDA was $20.6 million for the first six months of 1996
compared to $164.8 million for 1995, a decrease of $144.2 million,
primarily attributed to the effect of the securitization facility.
Accounting principles in January 1993 treated this type of financing
as a sale, and therefore a $150.0 million reduction in receivables,
rather than as indebtedness with related interest expense. Excluding
the $150.0 million reduction in receivables in the 1995 period and
adding back $7.4 million of related interest expense in the 1996
period, Cash EBITDA increased $13.2 million, from $14.8 million during
the first six months of 1995 to $28.0 million for 1996. This increase
is principally due to an $11.0 million decrease in cash expenses and a
$2.2 million increase in cash revenue (primarily collections on
contracts receivable). The decrease in cash expenses (primarily
payroll and commissions) was principally due to the aforementioned
cost reduction program. The increase in collections was primarily due
to the aforementioned credit card acceleration program.
15
BALLY TOTAL FITNESS HOLDING CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
10.26 First Amendment dated as of May 20, 1996 to the
Tax Allocation and Indemnity Agreement dated as of
January 9, 1996 between the Company and Bally.
10.27 Employment Agreement dated as of April 16, 1996
and effective as of January 1, 1996, between the
Company, Bally and John W. Dwyer.
10.28 Employment Agreement dated as of April 16, 1996
and effective as of January 1, 1996, between the
Company, Bally and Harold Morgan.
27 Financial Data Schedule (filed electronically
only).
(b) Reports on Form 8-K:
None.
16
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BALLY TOTAL FITNESS HOLDING CORPORATION
---------------------------------------
Registrant
/s/ Julie Adams
-----------------------------
Julie Adams
Vice President and Controller
(Principal Accounting Officer)
Dated: August 14, 1996
17
AMENDMENT NO. 1 TO
TAX ALLOCATION AND INDEMNITY AGREEMENT
Amendment No. 1, dated May 20, 1996 (the "Amendment"),
to the Tax Allocation and Indemnity Agreement, dated as of
January 9, 1996 (the "Agreement"), among Bally Entertainment
Corporation, a Delaware corporation (the "Company"), Bally Total
Fitness Holding Corporation, formerly Bally's Health & Tennis
Corporation ("BTFHC"), and their respective direct and indirect
subsidiaries.
WHEREAS, the Company, BTFHC and their subsidiaries
joined in filing consolidated Federal Income Tax Returns and
certain consolidated, combined or unitary state Income Tax
Returns for periods ended on or prior to January 9, 1996;
WHEREAS, the Company and BTFHC entered into the
Agreement to govern tax matters related to taxable periods ended
on or prior to January 9, 1996; and
WHEREAS, the parties hereto wish to amend the Agreement
as set forth below;
NOW THEREFORE, in consideration of their mutual
promises, the parties hereby agree as follows:
1. Definitions.
Except as otherwise set forth herein, capitalized terms
shall have the meanings ascribed to them in the Agreement.
2. Revised Carryback Treatment.
Section 2(j) of the Agreement is amended to read as
follows:
j. Carrybacks. BTFHC shall notify the Company
promptly of the existence of any items of deduction, loss or
credit arising in a Post-Closing Taxable Year that are required
to be or may be carried back to a Taxable Period of the Bally
Group or any Bally Member (other than to a separate Tax Return of
a member of the BTFHC Group) (a "Carryback"). BTFHC hereby
expressly agrees (on its behalf and on behalf of all BTFHC
Members and successors thereto) that, subject to the payment
obligations set forth in Section 3 below, the Company or any
member of the Company Group may retain any cash refund or
reduction of a Tax liability or any other Tax Benefit obtained by
the Company or any member of the Company Group (other than a
member of the BTFHC Group) as a result of any Carryback without
additional compensation to BTFHC or any BTFHC Member. BTFHC and
the Company agree that, without the express written consent of
the Company, BTFHC shall not elect to carry forward any such item
that affects or could affect the Company or any member of the
Company Group, except as required under applicable law.
3. Payments
In consideration of this Agreement, the Company shall
pay to BTFHC (i) $6.76 million in immediately available funds by
wire transfer to a designated bank account of BTFHC and (ii) 50%
of the Tax Benefits (measured on an After-Tax Basis) realized by
the Company or any Company Member resulting from any Carryback
if, and to the extent that, such Tax Benefits exceed $16.76
million in the aggregate. In further consideration of this
Agreement, the Company hereby reduces the first payment by BTFHC
to the Company due under Section 11 of the Transitional Services
Agreement, dated as of January 9, 1996, by $2.6 million. The
Payment pursuant to (i) above shall be made on or before July 12,
1996. Any payments pursuant to (ii) above shall be made in
accordance with Section 4 of the Agreement, and shall initially
become due and payable upon the Company's filing of each Tax
Return reflecting the utilization of any such Carrybacks and
shall be increased upon any subsequent increase in such Tax
Benefits as a result of any Final Determination. All payments
hereunder shall be characterized in accordance with Section 4(c)
of the Agreement.
4. Indemnification.
New Section 3(c) is added to the Agreement as follows:
c. By BTFHC with respect to Carrybacks.
(i) General. Except for refunds required by
in Section (3)(c)(ii) below, BTFHC shall have no obligation to
indemnify the Company or any Company Member against any Taxes
resulting from the loss of any Tax Benefit resulting from any
Carryback permitted by Section 2(j) as amended.
(ii) Refund of Payments BTFHC shall
refund to the Company the amount of any payment received by BTFHC
pursuant to clause (ii) of Section 3 above if, and to the extent
that, such payment is attributable to, or arose from, Carrybacks
that were reflected on Tax Returns on an "as filed" basis, but
which resulted in Tax Benefits that were later denied pursuant to
a Final Determination. Any such refund shall be made by BTFHC in
accordance with Section 4 of the Agreement.
5. Cooperation; Document Retention; Confidentiality.
The Company and BTFHC agree that the provisions of
Section 5 of the Agreement shall apply to Tax Returns of the
BTFHC Group and BTFHC Members from which Carrybacks arise and to
Tax Returns of the Company Group and Company Members with respect
to which Carrybacks shall result in Tax Benefits contemplated by
this Amendment.
2
6. Contests and Audits.
The Company and BTFHC agree that the provisions of
Section 6 of the Agreement shall be amended and restated by this
Amendment as follows:
6. Contests and Audits.
(a) Notification of Audits or Disputes. Upon the
receipt by the Company or any Company Member (or BTFHC or any
BTFHC Member, as the case may be) of notice of any pending or
threatened Tax audit or assessment which may affect the liability
for Taxes that are subject to indemnification hereunder, the
Company (or BTFHC) shall promptly notify the other in writing of
the receipt of such notice.
(b) Control and Settlement. The Company shall
have the right to control, and to represent the interests of all
affected taxpayers in, any Tax audit or administrative, judicial
or other proceeding relating, in whole or in part, to any
Pre-Closing Taxable Period or any other Taxable Period for which
the Company is responsible, in whole or in part, for Taxes under
Sections 2(g) and (3), and to employ counsel of its choice at its
expense; provided, however, that, with respect to such issues
that may impact BTFHC or any BTFHC Member for any Post-Closing
Taxable Period or for which BTFHC or HTCA may be responsible in
part under Sections 2(g) and (3), the Company shall (i) afford
BTFHC full opportunity to observe at any such proceedings and to
review any submissions related to such issues, (ii) in good faith
consult with BTFHC regarding its comments with respect to such
proceedings and submissions in an effort to resolve any
differences with respect to the Company's positions with regard
to such issues, (iii) in good faith consider BTFHC's
recommendations for alternative positions with respect to such
issues, and (iv) advise BTFHC of the reasons for rejecting any
such alternative position. In the event of any disagreement
regarding the proceedings, the Company shall have the ultimate
control of the contest and any settlement or other resolution
thereof; provided, however, that the Company shall not agree to
any settlement of any issue that could reasonably have a material
and adverse effect on BTFHC in, or if it were applied to BTFHC's
operations with respect to, any Post-Closing Taxable Period
without either (x) the written consent of the BTFHC, which
consent may not be unreasonably withheld, or (y) a certificate of
the Tax Director (or other appropriate officer) of the Company,
or (at the BTFHC's option) an opinion of outside tax counsel (if
any) to the Company participating in such settlement, to the
effect that such settlement reflects (from the perspective of a
taxpayer bearing all resulting economic benefits and burdens
without indemnity or offset for all current and reasonably
foreseeable future periods) a fair and reasonable compromise of
all legal and factual issues (including any "hazards of
litigation" that may exist with respect to such issues); and
3
provided, further, that, notwithstanding receipt of such a
certificate or opinion, BTFHC may elect to thereafter assume
control of such contest (and the Company shall not thereafter so
settle the contest except as directed by BTFHC) upon provision to
the Company of _adequate assurances_ of BTFHC's agreement and
ability to bear any and all additional costs, expenses and
liabilities that may arise from not having finalized the proposed
settlement (including, but not limited to, any tax liabilities in
excess of the amount contemplated by such settlement and interest
and penalties thereon), and the Company hereby agrees to
negotiate in good faith with BTFHC as to what arrangements shall
constitute _adequate assurances_ for this purpose. BTFHC shall
have the right to control, and to represent the interests of all
affected taxpayers in, any Tax audit or administrative, judicial
or other proceeding relating to any Post-Closing Taxable Period
of the BTFHC Group or any BTFHC Member, or relating to any other
Taxable Period for which BTFHC is responsible for Taxes under
Sections 2(g) and (3), and to employ counsel of its choice at its
expense; provided, however, that BTFHC shall (i) afford the
Company full opportunity to observe at any such proceedings and
to review any submissions related thereto and (ii) not agree to
settle any such proceeding in a manner that could reasonably have
a material and adverse effect on (A) any indemnification
obligation of the Company hereunder, (B) any Tax liability of the
Bally Group or any Bally Member for any Pre-Closing Taxable
Period or (C) any Tax liability of the Company Group or any
Company Member for any Post-Closing Taxable Period, without the
prior written consent of the Company, which consent shall not be
unreasonably withheld. Any issue that may affect the Company
Group's or any Company member's ability to utilize a Carryback to
create a Tax Benefit shall be deemed to "impact BTFHC or any
BTFHC Member for any Post-Closing Taxable Period" for purposes of
the first sentence of this Section 6(b). Any settlement to be
agreed to by BTFHC in accordance with the second preceding
sentence of this Section 6(b) that would reduce the amount of any
Carryback that resulted in a Tax Benefit to the Company Group or
any Company Member shall require either (i) the written consent
of the Company, which consent may not be unreasonably withheld,
or (ii) a certificate of the Tax Director (or other appropriate
officer) of BTFHC, or (at the Company's option) an opinion of
outside tax counsel (if any) to BTFHC participating in such
settlement, to the effect that such settlement reflects (from the
perspective of a taxpayer bearing all resulting economic benefits
and burdens without indemnity or offset) a fair and reasonable
compromise of all legal and factual issues (including any
"hazards of litigation" that may exist with respect to such
issues).
(c) Delivery of Powers of Attorney. BTFHC (or
the Company, as the case may be) and, to the extent necessary,
its respective subsidiaries shall execute and deliver to the
Company (or BTFHC), promptly upon request, such powers of
attorney authorizing the Company (or BTFHC) to represent BTFHC
4
(or the Company), negotiate settlements, retain counsel, extend
statutes of limitations, receive refunds and take such other
actions that the Company (or BTFHC) reasonably considers to be
appropriate in exercising its control rights pursuant to this
Section 6.
7. Miscellaneous.
a. Effectiveness. This Amendment shall be
effective from and after the date hereof and shall survive until
the expiration or termination of the Agreement.
b. Entire Agreement. This Amendment contains
the entire agreement among the parties hereto with respect to the
subject matter hereof.
c. Effect on Agreements. Except as amended
hereby, the Agreement shall otherwise remain in full force and
effect and is hereby adopted, ratified and confirmed in all
respects.
d. Guarantees of Performance. The Company and
BTFHC hereby guarantee the complete and prompt performance by the
members of their respective Affiliated Groups of all of their
obligations and undertakings pursuant to this Amendment. If,
subsequent hereto, either the Company or BTFHC shall be acquired
by another entity such that 50% or more of its common stock is in
common control, such acquirer shall, by making such acquisition,
simultaneously agree to jointly and severally guarantee the
complete and prompt performance by the acquired corporation and
any Affiliate of the acquired corporation of all of their
obligations and undertakings pursuant to this Amendment.
e. Governing Law. This Amendment shall be
governed by and construed in accordance with the internal laws of
the State of Illinois without regard to the conflict of law
principles thereof, except with respect to matters of law
concerning the internal corporate affairs of any corporate entity
which is a party to or subject of this Amendment, and as to those
matters the law of the jurisdiction under which the respective
entity derives its powers shall govern.
f. Other. This Amendment may be executed in any
number of counterparts, each such counterpart being deemed to be
an original instrument, and all of such counterparts shall
together constitute one and the same instrument. The section
numbers and captions herein are for convenience of reference
only, do not constitute part of this Amendment and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
g. Effect of Transitional Services Agreement.
At any time when the Company is providing tax planning and
compliance services to BTFHC under the Transitional Services
5
Agreement, the Consent or Certification requirement of the last
sentence of Section 6 above shall be suspended. Such rights and
obligations shall be immediately reinstated upon the termination
of the Transitional Services Agreement or upon written notice
from BTFHC to such effect.
h. Further Assurances. Subject to the
provisions hereof, the parties hereto shall make, execute,
acknowledge and deliver such other instruments and documents, and
take all such other actions, as may be reasonably required in
order to effectuate the purposes of this Amendment and to
consummate the transactions contemplated hereby.
i. Setoff. Except as provided in Section 4(a)
of the Agreement, all payments to be made by any party under this
Amendment shall be made without setoff, counterclaim or
withholding, all of which are expressly waived.
IN WITNESS WHEREOF, the parties hereto have executed
this Amendment, or have caused this Amendment to be duly executed
on their respective behalf by their respective officers thereunto
duly authorized, as of the day and year above written.
BALLY ENTERTAINMENT CORPORATION
AND
SUBSIDIARIES
By:
Name:
Title:
Bally Entertainment Corporation
BALLY'S TOTAL FITNESS HOLDING
CORPORATION AND SUBSIDIARIES
By:
Name:
Title:
Bally's Total Fitness Holding
Corporation
6
EMPLOYMENT AGREEMENT
THE EMPLOYMENT AGREEMENT made and entered into the 16th day
of April, 1996, and effective as of January 1, 1996, by and
between Bally Entertainment Corporation, a Delaware corporation,
("Bally"), Bally Total Fitness Holding Corporation, a Delaware
corporation ("BTFHC") (Bally and BTFHC shall be referred to
together herein as "Employers") and John Dwyer ("Employee").
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements herein contained, the parties agree as
follows:
1. Employment
(a) Bally hereby employs Employee in the capacity of
Vice President and Corporate Controller, and BTFHC hereby employs
Employee in the capacity of Senior Vice President and Chief
Financial Officer. Employers may employ Employee in such other
capacities of equal status and responsibility as the Chairman of
the Board and Chief Executive Officer of Bally and BTFHC,
respectively, or his designated representative, shall reasonably
determine, and Employee hereby accepts such employment upon the
terms and conditions herein set forth.
(b) During the term of his employment, Employee will
devote his best efforts to his employment and perform such duties
consistent with his capacity as Vice President and Corporate
Controller and Senior Vice President and Chief Financial Officer
of BTFHC and such other capacities as the Chairman of the Board
and Chief Executive Officer of Bally and BTFHC, respectively,
shall determine, as are reasonably assigned to him by Employers.
Employee will devote his entire working time and attention to
the business and related interests of, and will be loyal to,
Employers, and Employee agrees to render service on behalf of
Employers and their subsidiaries or affiliates.
(c) Employee shall not, without prior written consent
of Employers, directly or indirectly, during the term of this
Employment Agreement:
(i) Other than in the performance of duties
naturally inherent to Employers' business and in furtherance
thereof, render services of a business, professional or
commercial nature to any other person or firm, whether for
compensation or otherwise, but this shall not be construed as
preventing the Employee from investing his assets in such form or
manner as will not require any services on the part of the
Employee in the operation of the affairs of the companies in
which such investments are made and which are not in violation of
subparagraph (ii) below or from engaging in charitable
activities so long as such activities do not interfere with the
performance of Employee's duties hereunder;
(ii) Engage in any activity competitive with or
adverse to Employers' business or welfare, whether alone, as a
partner, or as an officer, director, employee or shareholder of
any other corporation, or otherwise, directly or indirectly,
except that the ownership of not more than one percent (1%) of
the stock of any publicly traded corporation shall not be deemed
violative of this subparagraph (ii);
(iii) Be engaged by any entity which conducts
business with or acts as consultant or advisor to either of
Employers, whether alone, as a partner, or as an officer,
director, employee or shareholder, or otherwise, directly or
indirectly, except that ownership of not more than one percent
(1%) of the stock of any publicly traded corporation shall not
be deemed violative of this subparagraph (iii).
2. Term
The term of this Employment Agreement shall begin on
the effective date stated above ("commencement date") and shall
continue for three (3) years from such date and shall continue
thereafter from year-to-year unless terminated by any party in
his or its sole discretion upon ninety (90) days written notice
given prior to the expiration of a term.
3. Compensation
(a) In consideration of the services to be rendered by
the Employee hereunder, Employers agree to pay to the Employee,
and the Employee agrees to accept, as compensation, the sum of
Two Hundred Twenty-Five Thousand Dollars ($225,000) (the "Base
Salary") for each twelve month period following the effective
date of this Employment Agreement, which shall be paid on the
regularly recurring pay periods established by Employers. The
Base Salary shall be subject to periodic review by Employers.
(b) It is further understood by the parties that,
pursuant to the policies of Employers, discretionary bonus
payments may be made in addition to the Base Salary above
provided.
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(c) Seventy-five percent (75%) of Base Salary and
total other benefits, including, without limitation, medical,
life and disability insurance and automobile allowance, provided
to Employee shall be paid by BTFHC, and twenty-five percent (25%)
shall be paid by Bally. Discretionary bonuses may be paid by
either or both of Employers. Either Employer may, in its sole
discretion, increase the amount of Base Salary it pays Employee.
Any such increase shall not affect the amount of Base Salary to
be paid by the other Employer. Notwithstanding the foregoing,
any payment(s) due under paragraph 9 shall be paid by Bally or
its successor.
4. Vacation and Other Benefits
Employee shall be entitled to a reasonable vacation
each year of his employment with Employers as well as other
employment benefits, including hospitalization, life insurance,
death and retirement plans, an automobile allowance or the use of
an automobile, and the like, afforded to senior executives of
Employers of comparable status and tenure and consistent with
that afforded under Employers' policies. Each of Employers may
in its sole discretion change such policies. In the event of a
conflict between the policies of Bally and BTFHC on the provision
of any benefit afforded to employees of comparable status and
tenure to Employee, Employee shall be provided with the greater
benefit provided by either Employer.
5. Expenses
Each of Employers shall pay all reasonable expenses
incurred by Employee in the performance of his responsibilities
and duties for and the promotion of that Employer. Employee
shall submit to the appropriate Employer periodic statements of
all expenses so incurred. Subject to such audits as each of the
Employers may deem necessary, Employers shall reimburse Employee
the full amount of any such expenses advanced by Employee
promptly in the ordinary course.
6. Covenants and Confidential Information
(a) Employee agrees that for the applicable period
specified below, he will not, directly or indirectly, do any of
the following:
(i) Own, manage, control, or participate in the
ownership, management, or control of, or be employed or engaged
-3-
by or otherwise affiliated or associated as a consultant,
independent contractor or otherwise, with any other corporation,
partnership, proprietorship, firm, association or other business
entity, or otherwise engage in any business which is engaged in
any manner in, the operation of fitness centers as a significant
part of its business (a "Facility") operates such fitness
center(s) within ten (10) miles of any fitness center owned,
managed or under development to be owned or managed by BTFHC, its
subsidiaries, affiliates and/or its or their successors and
assigns (as conducted on the date Employee ceases to be employed
hereunder); provided, however, that the ownership of not more
than one percent (1%) of the stock of any publicly traded
corporation shall not be deemed a violation of this covenant;
(ii) Induce any person who is an employee,
officer, or agent of either of Employers to terminate said
relationship.
(iii) Employ, assist in employing or otherwise
associate in business with any present, former or future employee
or officer of either of Employers.
(iv) Disclose, divulge, discuss, copy or
otherwise use or suffer to be used in any manner, in competition
with, or contrary to the interests of either of Employers, the
customer lists, inventions, ideas, discoveries, manufacturing
methods, product research or engineering data or other trade
secrets of Employers, it being acknowledged by Employee that all
such information regarding the business of Employers compiled or
obtained by, or furnished to, Employee while he shall have been
employed by or associated with such Employer is confidential
information and the exclusive property of that Employer.
(b) The provisions of subparagraphs 6(a)(i) -
6(a)(iii) shall be operative for three (3) years from the
effective date of this Employment Agreement except as provided in
the following sentence. In the event (y) of a "Change of
Control" the provisions of subparagraphs 6(a)(i)-(iii) with
respect to Bally shall be operative only so long as Employee
remains an employee of Bally and (z) Employee is terminated for
"Cause" (as defined in paragraph 8 hereof), the provisions of
subparagraphs 6(a)(i)-(iii) shall be operative for an additional
year. All other obligations created by the terms of this
paragraph 6 are of a continuing nature and shall remain in full
effect at all times during and beyond Employee's period of
employment.
(c) Employee expressly agrees and understands that the
remedy at law for any breach by him of this paragraph 6 will be
-4-
inadequate and that the damages flowing from such breach are not
readily susceptible to being measured in monetary terms.
Accordingly, it is acknowledged that either or both of Employers,
as the case may be, shall be entitled to immediate injunctive
relief and if the court so permits, may obtain a temporary order
restraining any threatened or further breach. Nothing contained
in this paragraph 6 shall be deemed to limit either of Employers'
remedies at law or in equity for any breach by Employee of the
provisions of this paragraph 6 which may be pursued or availed of
by Employers. Any covenant on Employee's part contained
hereinabove, which may not be specifically enforceable, shall
nevertheless, if breached, give rise to a cause of action for
monetary damages.
(d) Employee has carefully considered the nature and
extent of the restrictions upon him and the rights and remedies
conferred upon Employers under this paragraph 6, and hereby
acknowledges and agrees that the same are reasonable in time and
territory, are designed to eliminate competition which otherwise
would be unfair to Employers, do not stifle the inherent skill
and experience of Employee, would not operate as a bar to
Employee's sole means of support, are fully required to protect
the legitimate interests of Employers and do not confer a benefit
upon Employers disproportionate to the detriment to Employee.
(e) For the purposes of this paragraph 6, the term
"Employer" or "Employers" shall be deemed to include BTFHC, Bally
and their respective subsidiaries and affiliates and the
successors and assigns of them and their respective subsidiaries
and affiliates, involved in the operation or management of
fitness centers or gaming facilities.
(f) The covenants contained in this paragraph 6 shall
be construed to extend to separate counties and adjacent
counties, if applicable, of the states of the United States in
which BTFHC and its subsidiaries, affiliates and its and their
successors and assigns has a Facility, and to the extent that any
such covenant shall be illegal and/or unenforceable with respect
to any one of said counties, said covenants shall not be affected
thereby with respect to each other county, such covenants with
respect to each county being construed as severable and
independent.
7. Illness, Incapacity or Death During Employment
a) If the Employee is unable to perform his services
by reason of illness or incapacity resulting in a failure to
discharge his duties under this Employment Agreement for six (6)
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or more consecutive months, then upon thirty (30) days notice,
Employers may terminate the employment of Employee under this
Employment Agreement and Employee, upon such termination, shall
be paid his Base Salary on a pro-rata basis to the date of
termination through the thirty (30) day notice period.
In the event of such termination, the Employee shall
have the right to the assignment of any and all insurance
policies or health protection plans if said policies and plans
permit assignment out of the group to the individual Employee.
(b) In the event that either of Employers elects to
terminate this Employment Agreement by reason of illness or
incapacity, then Employee shall be entitled to the greater of
long-term disability (LTD) benefits provided to senior officers
by either of Employers but in any event at no less than sixty
percent (60%) of Base Salary as of the date of termination,
without reference to set-off or caps existing in any LTD plan.
(c) In the event of Employee's death, all obligations
of Employers under this Employment Agreement shall terminate
other than the payment of that portion of his Base Salary on a
pro-rata basis accrued to the date of death, plus reimbursement
of all expenses reasonably incurred by Employee in performing his
responsibilities and duties for Employers prior to and including
such date.
8. Termination
(a) The employment of Employee under this Employment
Agreement, and the term hereof, may be terminated by either of
Employers for cause at any time. For purposes hereof, the term
"cause" means:
(i) Employee's fraud, dishonesty, willful
misconduct or gross negligence in the performance of his duties
hereunder, including willful failure to perform such duties as
may properly be assigned him hereunder;
(ii) Employee's material breach of any provision
of this Employment Agreement; or
(iii) Employee's failure to qualify (or having so
qualified being thereafter disqualified) under any suitability or
licensing requirement to which Employee may be subject by reason
of his position with Employers and their parents, affiliates or
subsidiaries, whether under the laws of Nevada or New Jersey.
-6-
(b) Any termination shall not be in limitation of any
other right or remedy Employers may have under this Employment
Agreement or otherwise.
(c) In the event one of Employers terminates the
employment of Employee, other than upon a Change of Control as
described in Paragraph 9 below, the other Employer (the
"Nonterminating Employer") shall have the option to continue
under this Employment Agreement as the sole Employer (the
"Option") and assume all of the obligations of both Employers
going forward, including, without limitation, those set forth in
Paragraph 3. In order to exercise the Option, the Nonterminating
Employer shall, within seven (7) days from the date of its
receipt of notice of such termination from either the terminating
Employer or Employee, notify both the terminating Employer and
Employee that it elects to exercise the Option. From the date of
such election, the terminating Employer shall have no further
liability hereunder for the termination of Employee or otherwise,
and all of Employee's responsibilities and obligations under this
Employment Agreement shall run to the Nonterminating Employer.
In the event that the Nonterminating Employer does not elect to
exercise the Option, this Employment Agreement shall be
terminated with respect to the Nonterminating Employer with no
further liability, except for the covenants contained in
Paragraph 6 that would otherwise survive according to their
terms, and the terminating Employer shall be liable for 100% of
the severance or other compensation or contract damages payable
to Employee upon termination of this Employment Agreement.
9. Optional Termination Upon Change of Control
a) In the event that there is a change in control of
Bally and the successor in control, without cause, terminates
this Employment Agreement, Employee shall be paid in lump sum
twenty-four (24) months Base Salary or an amount equal to his
Base Salary for the balance of the thirty-six (36) month term,
whichever is greater, and the greater of the average of the
bonuses, if any, paid to Employee by Employers for the three (3)
prior years and the bonus, if any, for the prior year. If the
successor in control changes Employee's title or substantially
changes his duties or functions from those which he previously
performed hereunder or requires Employee to perform the majority
of his duties at a location outside of the metropolitan area of
Chicago, Illinois, the successor in control shall be deemed to
have terminated Employee's services without cause.
A "Change in Control" shall mean a change in
control of Bally of a nature that would be required to be
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reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934 (as in
effect on the effective date of this Employment Agreement, the
"Exchange Act"), whether or not Bally is then subject to such
reporting requirement; provided that, without limitation, such a
Change in Control shall be deemed to have occurred if:
(i) any "person" (as defined in subsections
13(d) and 14(d) of the Exchange Act), other than a person with
which Arthur Goldberg is affiliated or of which he is a part, is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), of securities of Bally representing twenty
percent (20%) or more of the combined voting power of Bally's
then outstanding securities;
(ii) during any period of two (2) consecutive
years or less (not including any period prior to the effective
date of this Employment Agreement) there shall cease to be a
majority of the Board of Directors of Bally comprised of
Continuing Directors (as defined below); or
(iii) the stockholders of Bally approve (1) a
merger or consolidation of Bally with any other corporation,
other than a merger or consolidation that would result in the
voting securities of Bally outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
at least 80% of the combined voting power of the voting
securities of Bally or such surviving entity outstanding
immediately after such merger or consolidation, or (2) a plan of
complete liquidation of Bally or an agreement for the sale or
disposition by Bally of all or substantially all of its assets.
The term "Continuing Directors" shall mean
individuals who constitute the Board of Directors of Bally as of
the effective date of this Employment Agreement and any new
director(s) whose election by such Board or nomination for
election by Bally's stockholders was approved by a vote of at
least two-thirds of the directors then in office who either were
directors as of the effective date of this Employment Agreement
or whose election or nomination for election was previously so
approved.
(b) If it shall be determined that any payment or
distribution to or for the benefit of Employee pursuant to this
Section 9 ("Severance Payments") would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code (the
"Excise Tax"), then Employee shall be entitled to receive from
Employers an additional payment (the "Excise Tax Gross-Up
-8-
Payment") in an amount such that the net amount retained by
Employee, after the calculation and deduction of any Excise Tax
on the Severance Payments and any federal, state and local income
taxes and Excise Tax on the Gross-Up Payment provided for in this
Section 9, shall be equal to the Severance Payments. In
determining this amount, the amount of the Excise Tax Gross-Up
Payment attributable to federal income taxes shall be reduced by
the maximum reduction in federal income taxes that could be
obtained by the deduction of the portion of the Excise Tax Gross-
Up Payment attributable to state and local income taxes.
Finally, the Excise Tax Gross-Up Payment shall be reduced by
income or excise tax withholding payments made by Employers to
any federal, state or local taxing authority with respect to the
Excise Tax Gross-Up Payment that was not deducted from
compensation payable to Employee.
(c) In the event Employee is terminated under this
Paragraph 9 upon a Change of Control as described in this
Paragraph 9, BTFHC shall have the option (the "Change of Control
Option") to continue under this Employment Agreement as the Sole
Employer and assume the obligations of both Employers going
forward, including, without limitation, those set forth in
Paragraph 3, other than the obligations described in this
Paragraph 9. In order to exercise the Change of Control Option,
BTFHC shall, within seven (7) days from the date of its receipt
of notice of such termination from either Bally, its successor in
control or Employee, notify Employee that it elects to exercise
the Change of Control Option. From the date of such election,
all of Employee's responsibilities and obligations under this
Employment Agreement shall run to BTFHC. Regardless of whether
BTFHC exercises the Change of Control Option, Bally or its
successor in control shall be liable for and shall make all
payments described in this Paragraph 9, and BTFHC shall have no
liability therefor.
10. Severable Provisions
The provisions of this Employment Agreement are
severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable, in whole or in part, the
remaining provisions, and any partially unenforceable provision
to the extent enforceable in any jurisdiction, shall nevertheless
be binding and enforceable.
11. Binding Agreement
The rights and obligations of Employers under this
-9-
Employment Agreement shall inure to the benefit of and shall be
binding upon the respective successors and assigns of Employers.
12. Attorneys' Fees
In the event Employee is required to commence legal
action to enforce the provisions of this Employment Agreement and
Employee prevails in such action, any of the Employers who have
been found not to comply with this Employment Agreement shall pay
Employee's costs and expenses, including reasonable attorneys'
fees, incurred in such action.
13. Notices
Any notice to be given to Employers under the terms of
this Employment Agreement shall be addressed to both Employers at
the address of their respective principal places of business, and
any notice to be given to Employee shall be addressed to him at
his home address last shown on the records of the Employer giving
the notice, or at such other address as the parties may hereafter
designate in writing to the other. Any such notice shall have
been duly given when enclosed in a properly sealed envelope
addressed as aforesaid, postage prepaid, registered or certified,
return receipt requested, and deposited in a post office or
branch post office regularly maintained by the United States
Government. Should one of the Employers give notice to Employee,
it shall provide a copy of such notice to the other Employer.
14. Waiver
Any party's failure to enforce any provision or
provisions of this Employment Agreement shall not in any way be
construed as a waiver of any such provision or provisions as to
any future violations thereof, nor prevent that party thereafter
from enforcing each and every other provision of this Employment
Agreement. The rights granted the parties herein are cumulative
and the waiver by a party of any single remedy shall not
constitute a waiver of such party's right to assert all other
legal remedies available to him or it under the circumstances.
15. Governing Law
This Employment Agreement shall be governed by and
construed and interpreted according to the internal laws of the
State of Illinois without reference to principles of conflict of
-10-
laws.
16. Captions and Paragraph Headings
Captions and paragraph headings used herein are for
convenience only and are not a part of this Employment Agreement
and shall not be used in construing it.
17. Entire Agreement
This Employment Agreement constitutes the entire
agreement between Employers and Employee with respect to the
subject matter hereof and may not be modified or terminated
orally. No modification, termination or attempted waiver of this
Employment Agreement shall be valid unless in writing and signed
by the party against whom the same is sought to be enforced.
-11-
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed as of the day and year
first above written.
BALLY TOTAL FITNESS HOLDING
CORPORATION
ATTEST: By:
"BTFHC"
BALLY ENTERTAINMENT CORPORATION
ATTEST: By:
"Bally"
John Dwyer
"Employee"
Approved by the Compensation and Stock Option Committee of Bally
Entertainment Corporation on ___________________, 1996.
Secretary, Compensation and Stock
Option Committee -
Bally Entertainment Corporation
Approved by the Compensation and Stock Option Committee of Bally
Total Fitness Holding Corporation on _________________, 1996.
-12-
Secretary, Compensation and Stock
Option Committee - Bally Total
Fitness Holding Corporation
-13-
EMPLOYMENT AGREEMENT
THE EMPLOYMENT AGREEMENT made and entered into the 16th day
of April, 1996, and effective as of January 1, 1996, by and
between Bally Entertainment Corporation, a Delaware corporation,
("Bally"), Bally Total Fitness Holding Corporation, a Delaware
corporation ("BTFHC") (Bally and BTFHC shall be referred to
together herein as "Employers") and Harold Morgan ("Employee").
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements herein contained, the parties agree as
follows:
1. Employment
(a) Bally hereby employs Employee in the capacity of
Vice President of Human Resources, and BTFHC hereby employs
Employee in the capacity of Senior Vice President of Human
Resources. Employers may employ Employee in such other
capacities of equal status and responsibility as the Chairman of
the Board and Chief Executive Officer of Bally and BTFHC,
respectively, or his designated representative, shall reasonably
determine, and Employee hereby accepts such employment upon the
terms and conditions herein set forth.
(b) During the term of his employment, Employee will
devote his best efforts to his employment and perform such duties
consistent with his capacity as Vice President of Human Resources
and Senior Vice President of Human Resources and such other
capacities as the Chairman of the Board and Chief Executive
Officer of Bally and BTFHC, respectively, shall determine, as are
reasonably assigned to him by Employers. Employee will devote
his entire working time and attention to the business and related
interests of, and will be loyal to, Employers, and Employee
agrees to render service on behalf of Employers and their
subsidiaries or affiliates.
(c) Employee shall not, without prior written consent
of Employers, directly or indirectly, during the term of this
Employment Agreement:
(i) Other than in the performance of duties
naturally inherent to Employers' business and in furtherance
thereof, render services of a business, professional or
commercial nature to any other person or firm, whether for
compensation or otherwise, but this shall not be construed as
preventing the Employee from investing his assets in such form or
manner as will not require any services on the part of the
Employee in the operation of the affairs of the companies in
which such investments are made and which are not in violation of
subparagraph (ii) below or from engaging in charitable
activities so long as such activities do not interfere with the
performance of Employee's duties hereunder;
(ii) Engage in any activity competitive with or
adverse to Employers' business or welfare, whether alone, as a
partner, or as an officer, director, employee or shareholder of
any other corporation, or otherwise, directly or indirectly,
except that the ownership of not more than one percent (1%) of
the stock of any publicly traded corporation shall not be deemed
violative of this subparagraph (ii);
(iii) Be engaged by any entity which conducts
business with or acts as consultant or advisor to either of
Employers, whether alone, as a partner, or as an officer,
director, employee or shareholder, or otherwise, directly or
indirectly, except that ownership of not more than one percent
(1%) of the stock of any publicly traded corporation shall not
be deemed violative of this subparagraph (iii).
2. Term
The term of this Employment Agreement shall begin on
the effective date stated above ("commencement date") and shall
continue for three (3) years from such date and shall continue
thereafter from year-to-year unless terminated by any party in
his or its sole discretion upon sixty (60) days written notice
given prior to the expiration of a term.
3. Compensation
(a) In consideration of the services to be rendered by
the Employee hereunder, Employers agree to pay to the Employee,
and the Employee agrees to accept, as compensation, the sum of
One Hundred Seventy-Five Thousand Dollars ($175,000) (the "Base
Salary") for each twelve month period following the effective
date of this Employment Agreement, which shall be paid on the
regularly recurring pay periods established by Employers. The
Base Salary shall be subject to periodic review by Employers.
(b) It is further understood by the parties that,
pursuant to the policies of Employers, discretionary bonus
payments may be made in addition to the Base Salary above
provided.
-2-
(c) Seventy-five percent (75%) of Base Salary and
total other benefits, including, without limitation, medical,
life and disability insurance and automobile allowance, provided
to Employee shall be paid by BTFHC, and twenty-five percent (25%)
shall be paid by Bally. Discretionary bonuses may be paid by
either or both of Employers. Either Employer may, in its sole
discretion, increase the amount of Base Salary it pays Employee.
Any such increase shall not affect the amount of Base Salary to
be paid by the other Employer. Notwithstanding the foregoing,
any payment(s) due under paragraph 9 shall be paid by Bally or
its successor.
4. Vacation and Other Benefits
Employee shall be entitled to a reasonable vacation
each year of his employment with Employers as well as other
employment benefits, including hospitalization, life insurance,
death and retirement plans, an automobile allowance or the use of
an automobile, and the like, afforded to senior executives of
Employers of comparable status and tenure and consistent with
that afforded under Employers' policies. Each of Employers may
in its sole discretion change such policies. In the event of a
conflict between the policies of Bally and BTFHC on the provision
of any benefit afforded to employees of comparable status and
tenure to Employee, Employee shall be provided with the greater
benefit provided by either Employer.
5. Expenses
Each of Employers shall pay all reasonable expenses
incurred by Employee in the performance of his responsibilities
and duties for and the promotion of that Employer. Employee
shall submit to the appropriate Employer periodic statements of
all expenses so incurred. Subject to such audits as each of the
Employers may deem necessary, Employers shall reimburse Employee
the full amount of any such expenses advanced by Employee
promptly in the ordinary course.
6. Covenants and Confidential Information
(a) Employee agrees that for the applicable period
specified below, he will not, directly or indirectly, do any of
the following:
(i) Own, manage, control, or participate in the
ownership, management, or control of, or be employed or engaged
-3-
by or otherwise affiliated or associated as a consultant,
independent contractor or otherwise, with any other corporation,
partnership, proprietorship, firm, association or other business
entity, or otherwise engage in any business which is engaged in
any manner in, the operation of fitness centers as a significant
part of its business (a "Facility") operates such fitness
center(s) within ten (10) miles of any fitness center owned,
managed or under development to be owned or managed by BTFHC, its
subsidiaries, affiliates and/or its or their successors and
assigns (as conducted on the date Employee ceases to be employed
hereunder); provided, however, that the ownership of not more
than one percent (1%) of the stock of any publicly traded
corporation shall not be deemed a violation of this covenant;
(ii) Induce any person who is an employee,
officer, or agent of either of Employers to terminate said
relationship.
(iii) Employ, assist in employing or otherwise
associate in business with any present, former or future employee
or officer of either of Employers.
(iv) Disclose, divulge, discuss, copy or
otherwise use or suffer to be used in any manner, in competition
with, or contrary to the interests of either of Employers, the
customer lists, inventions, ideas, discoveries, manufacturing
methods, product research or engineering data or other trade
secrets of Employers, it being acknowledged by Employee that all
such information regarding the business of Employers compiled or
obtained by, or furnished to, Employee while he shall have been
employed by or associated with such Employer is confidential
information and the exclusive property of that Employer.
(b) The provisions of subparagraphs 6(a)(i) -
6(a)(iii) shall be operative for three (3) years from the
effective date of this Employment Agreement except as provided in
the following sentence. In the event (y) of a "Change of
Control" the provisions of subparagraphs 6(a)(i)-(iii) with
respect to Bally shall be operative only so long as Employee
remains an employee of Bally and (z) Employee is terminated for
"Cause" (as defined in paragraph 8 hereof), the provisions of
subparagraphs 6(a)(i)-(iii) shall be operative for an additional
year. All other obligations created by the terms of this
paragraph 6 are of a continuing nature and shall remain in full
effect at all times during and beyond Employee's period of
employment.
(c) Employee expressly agrees and understands that the
remedy at law for any breach by him of this paragraph 6 will be
-4-
inadequate and that the damages flowing from such breach are not
readily susceptible to being measured in monetary terms.
Accordingly, it is acknowledged that either or both of Employers,
as the case may be, shall be entitled to immediate injunctive
relief and if the court so permits, may obtain a temporary order
restraining any threatened or further breach. Nothing contained
in this paragraph 6 shall be deemed to limit either of Employers'
remedies at law or in equity for any breach by Employee of the
provisions of this paragraph 6 which may be pursued or availed of
by Employers. Any covenant on Employee's part contained
hereinabove, which may not be specifically enforceable, shall
nevertheless, if breached, give rise to a cause of action for
monetary damages.
(d) Employee has carefully considered the nature and
extent of the restrictions upon him and the rights and remedies
conferred upon Employers under this paragraph 6, and hereby
acknowledges and agrees that the same are reasonable in time and
territory, are designed to eliminate competition which otherwise
would be unfair to Employers, do not stifle the inherent skill
and experience of Employee, would not operate as a bar to
Employee's sole means of support, are fully required to protect
the legitimate interests of Employers and do not confer a benefit
upon Employers disproportionate to the detriment to Employee.
(e) For the purposes of this paragraph 6, the term
"Employer" or "Employers" shall be deemed to include BTFHC, Bally
and their respective subsidiaries and affiliates and the
successors and assigns of them and their respective subsidiaries
and affiliates, involved in the operation or management of
fitness centers or gaming facilities.
(f) The covenants contained in this paragraph 6 shall
be construed to extend to separate counties and adjacent
counties, if applicable, of the states of the United States in
which BTFHC and its subsidiaries, affiliates and its and their
successors and assigns has a Facility, and to the extent that any
such covenant shall be illegal and/or unenforceable with respect
to any one of said counties, said covenants shall not be affected
thereby with respect to each other county, such covenants with
respect to each county being construed as severable and
independent.
7. Illness, Incapacity or Death During Employment
a) If the Employee is unable to perform his services
by reason of illness or incapacity resulting in a failure to
discharge his duties under this Employment Agreement for six (6)
-5-
or more consecutive months, then upon thirty (30) days notice,
Employers may terminate the employment of Employee under this
Employment Agreement and Employee, upon such termination, shall
be paid his Base Salary on a pro-rata basis to the date of
termination through the thirty (30) day notice period.
In the event of such termination, the Employee shall
have the right to the assignment of any and all insurance
policies or health protection plans if said policies and plans
permit assignment out of the group to the individual Employee.
(b) In the event that either of Employers elects to
terminate this Employment Agreement by reason of illness or
incapacity, then Employee shall be entitled to the greater of
long-term disability (LTD) benefits provided to senior officers
by either of Employers but in any event at no less than sixty
percent (60%) of Base Salary as of the date of termination,
without reference to set-off or caps existing in any LTD plan.
(c) In the event of Employee's death, all obligations
of Employers under this Employment Agreement shall terminate
other than the payment of that portion of his Base Salary on a
pro-rata basis accrued to the date of death, plus reimbursement
of all expenses reasonably incurred by Employee in performing his
responsibilities and duties for Employers prior to and including
such date.
8. Termination
(a) The employment of Employee under this Employment
Agreement, and the term hereof, may be terminated by either of
Employers for cause at any time. For purposes hereof, the term
"cause" means:
(i) Employee's fraud, dishonesty, willful
misconduct or gross negligence in the performance of his duties
hereunder, including willful failure to perform such duties as
may properly be assigned him hereunder;
(ii) Employee's material breach of any provision
of this Employment Agreement; or
(iii) Employee's failure to qualify (or having so
qualified being thereafter disqualified) under any suitability or
licensing requirement to which Employee may be subject by reason
of his position with Employers and their parents, affiliates or
subsidiaries, whether under the laws of Nevada or New Jersey.
-6-
(b) Any termination shall not be in limitation of any
other right or remedy Employers may have under this Employment
Agreement or otherwise.
(c) In the event one of Employers terminates the
employment of Employee, other than upon a Change of Control as
described in paragraph 9 below, the other Employer (the
"Nonterminating Employer") shall have the option to continue
under this Employment Agreement as the sole Employer (the
"Option") and assume all of the obligations of both Employers
going forward, including, without limitation, those set forth in
paragraph 3. In order to exercise the Option, the Nonterminating
Employer shall, within seven (7) days from the date of its
receipt of notice of such termination from either the terminating
Employer or Employee, notify both the terminating Employer and
Employee that it elects to exercise the Option. From the date of
such election, the terminating Employer shall have no further
liability hereunder for the termination of Employee or otherwise,
and all of Employee's responsibilities and obligations under this
Employment Agreement shall run to the Nonterminating Employer.
In the event that the Nonterminating Employer does not elect to
exercise the Option, this Employment Agreement shall be
terminated with respect to the Nonterminating Employer with no
further liability, except for the covenants contained in
paragraph 6 that would otherwise survive according to their
terms, and the terminating Employer shall be liable for 100% of
the severance or other compensation or contract damages payable
to Employee upon termination of this Employment Agreement.
9. Optional Termination Upon Change of Control
a) In the event that there is a change in control of
Bally and the successor in control, without cause, terminates
this Employment Agreement, Employee shall be paid in lump sum
twenty-four (24) months Base Salary or an amount equal to his
Base Salary for the balance of the thirty-six (36) month term,
whichever is greater, and the greater of the average of the
bonuses, if any, paid to Employee by Employers for the three (3)
prior years and the bonus, if any, for the prior year. If the
successor in control changes Employee's title or substantially
changes his duties or functions from those which he previously
performed hereunder or requires Employee to perform the majority
of his duties at a location outside of the metropolitan area of
Chicago, Illinois, the successor in control shall be deemed to
have terminated Employee's services without cause.
A "Change in Control" shall mean a change in
control of Bally of a nature that would be required to be
-7-
reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934 (as in
effect on the effective date of this Employment Agreement, the
"Exchange Act"), whether or not Bally is then subject to such
reporting requirement; provided that, without limitation, such a
Change in Control shall be deemed to have occurred if:
(i) any "person" (as defined in subsections
13(d) and 14(d) of the Exchange Act), other than a person with
which Arthur Goldberg is affiliated or of which he is a part, is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), of securities of Bally representing twenty
percent (20%) or more of the combined voting power of Bally's
then outstanding securities;
(ii) during any period of two (2) consecutive
years or less (not including any period prior to the effective
date of this Employment Agreement) there shall cease to be a
majority of the Board of Directors of Bally comprised of
Continuing Directors (as defined below); or
(iii) the stockholders of Bally approve (1) a
merger or consolidation of Bally with any other corporation,
other than a merger or consolidation that would result in the
voting securities of Bally outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
at least 80% of the combined voting power of the voting
securities of Bally or such surviving entity outstanding
immediately after such merger or consolidation, or (2) a plan of
complete liquidation of Bally or an agreement for the sale or
disposition by Bally of all or substantially all of its assets.
The term "Continuing Directors" shall mean
individuals who constitute the Board of Directors of Bally as of
the effective date of this Employment Agreement and any new
director(s) whose election by such Board or nomination for
election by Bally's stockholders was approved by a vote of at
least two-thirds of the directors then in office who either were
directors as of the effective date of this Employment Agreement
or whose election or nomination for election was previously so
approved.
(b) If it shall be determined that any payment or
distribution to or for the benefit of Employee pursuant to this
Section 9 ("Severance Payments") would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code (the
"Excise Tax"), then Employee shall be entitled to receive from
Employers an additional payment (the "Excise Tax Gross-Up
-8-
Payment") in an amount such that the net amount retained by
Employee, after the calculation and deduction of any Excise Tax
on the Severance Payments and any federal, state and local income
taxes and Excise Tax on the Gross-Up Payment provided for in this
Section 9, shall be equal to the Severance Payments. In
determining this amount, the amount of the Excise Tax Gross-Up
Payment attributable to federal income taxes shall be reduced by
the maximum reduction in federal income taxes that could be
obtained by the deduction of the portion of the Excise Tax Gross-
Up Payment attributable to state and local income taxes.
Finally, the Excise Tax Gross-Up Payment shall be reduced by
income or excise tax withholding payments made by Employers to
any federal, state or local taxing authority with respect to the
Excise Tax Gross-Up Payment that was not deducted from
compensation payable to Employee.
(c) In the event Employee is terminated under this
paragraph 9 upon a Change of Control as described in this
Paragraph 9, BTFHC shall have the option (the "Change of Control
Option") to continue under this Employment Agreement as the Sole
Employer and assume the obligations of both Employers going
forward, including, without limitation, those set forth in
Paragraph 3, other than the obligations described in this
Paragraph 9. In order to exercise the Change of Control Option,
BTFHC shall, within seven (7) days from the date of its receipt
of notice of such termination from either Bally, its successor in
control or Employee, notify Employee that it elects to exercise
the Change of Control Option. From the date of such election,
all of Employee's responsibilities and obligations under this
Employment Agreement shall run to BTFHC. Regardless of whether
BTFHC exercises the Change of Control Option, Bally or its
successor in control shall be liable for and shall make all
payments described in this Paragraph 9, and BTFHC shall have no
liability therefor.
10. Severable Provisions
The provisions of this Employment Agreement are
severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable, in whole or in part, the
remaining provisions, and any partially unenforceable provision
to the extent enforceable in any jurisdiction, shall nevertheless
be binding and enforceable.
11. Binding Agreement
The rights and obligations of Employers under this
-9-
Employment Agreement shall inure to the benefit of and shall be
binding upon the respective successors and assigns of Employers.
12. Attorneys' Fees
In the event Employee is required to commence legal
action to enforce the provisions of this Employment Agreement and
Employee prevails in such action, any of the Employers who have
been found not to comply with this Employment Agreement shall pay
Employee's costs and expenses, including reasonable attorneys'
fees, incurred in such action.
13. Notices
Any notice to be given to Employers under the terms of
this Employment Agreement shall be addressed to both Employers at
the address of their respective principal places of business, and
any notice to be given to Employee shall be addressed to him at
his home address last shown on the records of the Employer giving
the notice, or at such other address as the parties may hereafter
designate in writing to the other. Any such notice shall have
been duly given when enclosed in a properly sealed envelope
addressed as aforesaid, postage prepaid, registered or certified,
return receipt requested, and deposited in a post office or
branch post office regularly maintained by the United States
Government. Should one of the Employers give notice to Employee,
it shall provide a copy of such notice to the other Employer.
14. Waiver
Any party's failure to enforce any provision or
provisions of this Employment Agreement shall not in any way be
construed as a waiver of any such provision or provisions as to
any future violations thereof, nor prevent that party thereafter
from enforcing each and every other provision of this Employment
Agreement. The rights granted the parties herein are cumulative
and the waiver by a party of any single remedy shall not
constitute a waiver of such party's right to assert all other
legal remedies available to him or it under the circumstances.
15. Governing Law
This Employment Agreement shall be governed by and
construed and interpreted according to the internal laws of the
State of Illinois without reference to principles of conflict of
-10-
laws.
16. Captions and Paragraph Headings
Captions and paragraph headings used herein are for
convenience only and are not a part of this Employment Agreement
and shall not be used in construing it.
17. Entire Agreement
This Employment Agreement constitutes the entire
agreement between Employers and Employee with respect to the
subject matter hereof and may not be modified or terminated
orally. No modification, termination or attempted waiver of this
Employment Agreement shall be valid unless in writing and signed
by the party against whom the same is sought to be enforced.
-11-
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed as of the day and year
first above written.
BALLY TOTAL FITNESS HOLDING
CORPORATION
ATTEST: By:
"BTFHC"
BALLY ENTERTAINMENT CORPORATION
ATTEST: By:
"Bally"
Harold Morgan
"Employee"
Approved by the Compensation and Stock Option Committee of Bally
Entertainment Corporation on ___________________, 1996.
Secretary, Compensation and Stock
Option Committee -
Bally Entertainment Corporation
Approved by the Compensation and Stock Option Committee of Bally
Total Fitness Holding Corporation on _________________, 1996.
-12-
Secretary, Compensation and Stock
Option Committee - Bally Total
Fitness Holding Corporation
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996, THE CONSOLIDATED
STATEMENT OF OPERATIONS AND THE CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,662
<SECURITIES> 0
<RECEIVABLES> 453,928<F1>
<ALLOWANCES> 100,413<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 191,392
<PP&E> 637,874
<DEPRECIATION> 300,574
<TOTAL-ASSETS> 834,267
<CURRENT-LIABILITIES> 209,065
<BONDS> 0
0
0
<COMMON> 125
<OTHER-SE> 237,896
<TOTAL-LIABILITY-AND-EQUITY> 834,267
<SALES> 0
<TOTAL-REVENUES> 329,641
<CGS> 0
<TOTAL-COSTS> 212,291<F2>
<OTHER-EXPENSES> 22,543<F3>
<LOSS-PROVISION> 39,359
<INTEREST-EXPENSE> 23,900
<INCOME-PRETAX> (9,152)
<INCOME-TAX> 300
<INCOME-CONTINUING> (9,452)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,452)
<EPS-PRIMARY> (.78)
<EPS-DILUTED> 0
<FN>
<F1>THESE AMOUNTS REFLECT SHORT-TERM AND LONG-TERM BALANCES AS DISCLOSED IN
THE NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<F2>THIS AMOUNT IS INCLUDED IN THE FITNESS CENTER OPERATIONS LINE AND THE
ADVERTISING LINE IN THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1996.
<F3>THIS AMOUNT IS INCLUDED IN THE MEMBER PROCESSING AND COLLECTION CENTERS
LINE ON THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1996.
</FN>
</TABLE>
