<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BALLY TOTAL FITNESS HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
Delaware 7991 36-3228107
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
8700 West Bryn Mawr Avenue
Chicago, Illinois, 60631
(773) 380-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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LEE S. HILLMAN
Bally Total Fitness Holding Corporation
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
(773) 380-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
IRV BERLINER
Benesch, Friedlander, Coplan & Aronoff LLP
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
(216) 363-4500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective and
all other conditions to the exchange offer pursuant to the registration rights
agreement described in the enclosed Prospectus have been satisfied or waived.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement of the earlier effective registration statement for the
same offering. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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MAXIMUM
TITLE OF CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 7/8% Senior Subordinated
Notes due 2007............. $225,000,000 100% $225,000,000 $68,182
================================================================================================================
</TABLE>
(1) Calculated in accordance with Rule 457(f)(2) under the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
BALLY TOTAL FITNESS HOLDING CORPORATION
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM S-4 LOCATION IN PROXY STATEMENT/PROSPECTUS
- ------------------------------------------------ -------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Facing Page of the Registration Statement;
Outside Front Cover Page of Prospectus Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page of Prospectus;
of Prospectus Available Information; Outside Back Cover
Page of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Outside Front Cover Page of Prospectus;
Charges and Other Information Summary; Risk Factors; Selected
Consolidated Financial Data
4. Terms of the Transaction Outside Front Cover Page of Prospectus;
Summary; The Exchange Offer; Description of
the New Notes
5. Pro Forma Financial Information Summary Historical and Pro Forma
Consolidated Financial Data
6. Material Contracts with the Company Being *
Acquired
7. Additional Information Required for *
Reoffering by Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts and Counsel Legal Matters; Experts
9. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities
10. Information with Respect to S-3 Registrants Summary; Summary Historical and Pro Forma
Consolidated Financial Data; Management's
Discussion and Analysis of Results of
Operations and Financial Condition;
Business; Consolidated Financial State-
ments
11. Incorporation of Certain Information by Incorporation of Certain Information by
Reference Reference
12. Information with Respect to S-2 or S-3 *
Registrants
13. Incorporation of Certain Information by *
Reference
14. Information with Respect to Registrants *
Other Than S-3 or S-2 Registrants
15. Information with Respect to S-3 Companies *
16. Information with Respect to S-2 or S-3 *
Companies
17. Information with Respect to Companies Other *
Than S-3 or S-2 Companies
18. Information if Proxies, Consents or *
Authorizations are to be Solicited
19. Information if Proxies, Consents or Management; The Exchange Offer
Authorizations are not to be Solicited or
in an Exchange Offer
</TABLE>
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* Omitted because the item is inapplicable or the answer thereto is negative.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1997
PROSPECTUS
$225,000,000
LOGO
BALLY TOTAL FITNESS HOLDING CORPORATION
OFFER TO EXCHANGE
ALL OUTSTANDING
9 7/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2007
($225,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR 9 7/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
The Exchange Offer (as defined) and withdrawal rights will expire at 5:00
p.m., New York City time, on , 1997 (as such date may be extended,
the "Expiration Date").
Bally Total Fitness Holding Corporation, a Delaware corporation (the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus, as it may be amended and supplemented from time to
time (the "Prospectus"), and the accompanying Letter of Transmittal (the "Letter
of Transmittal", and, together with the Prospectus, the "Exchange Offer"), to
exchange $1,000 in principal amount of its 9 7/8% Series B Senior Subordinated
Notes due 2007 (the "New Notes") for each $1,000 in principal amount of its
outstanding 9 7/8% Series A Senior Subordinated Notes due 2007 (the "Old Notes")
(the Old Notes and the New Notes are collectively referred to herein as the
"Notes") held by Eligible Holders (as defined), of which an aggregate principal
amount of $225 million is outstanding. See "The Exchange Offer". For purposes of
the Exchange Offer, "Eligible Holder" shall mean the registered owner of any
Registrable Securities (as defined) as reflected on the records of First Trust
National Association, a national banking corporation, as registrar for the Old
Notes (in such capacity, the "Registrar"), or any person whose Registrable
Securities are held of record by the Depositary (as defined), as of the Record
Date (as defined). For purposes of the Exchange Offer, "Registrable Securities"
means each Old Note until the earliest to occur of (i) the date on which such
Old Note has been exchanged for a New Note in the Exchange Offer, (ii) the date
on which a registration statement filed by the Company which covers the Old Note
has been declared effective under the Securities Act of 1933, as amended (the
"Securities Act"), and the Old Note is disposed of in accordance with such
registration statement, (iii) the date on which such Old Note is sold to the
public pursuant to Rule 144 (or any similar provision then in force, but not
Rule 144A) under the Securities Act, (iv) the date on which the Old Note ceases
to be outstanding, or (v) the date on which the Old Note can be sold by the
holder thereof without limitation as to holding period or volume.
The Company will accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of the Old Notes being tendered for exchange. However,
the Exchange Offer is subject to certain customary conditions, which may be
waived, in part or in whole, by the Company, and to the terms and provisions of
the Registration Rights Agreement, dated as of October 7, 1997 (the
"Registration Rights Agreement"), among the Company and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase Securities Inc.,
Societe Generale Securities Corporation and Ladenburg Thalmann & Co. Inc.
(collectively, the "Initial Purchasers"). The Old Notes may be tendered only in
multiples of $1,000. See "The Exchange Offer".
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 17 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN
EVALUATING THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is , 1997.
<PAGE> 4
An aggregate of $225 million principal amount of Old Notes were sold by the
Company to the Initial Purchasers on October 7, 1997 (the "Closing Date")
without registration under the Securities Act, in reliance upon exemptions
therefrom, pursuant to a Purchase Agreement dated September 29, 1997 (the
"Purchase Agreement") among the Company and the Initial Purchasers. The Initial
Purchasers subsequently resold the Old Notes in reliance on Rule 144A under the
Securities Act ("Rule 144A"), Regulation S under the Securities Act ("Regulation
S") and certain other exemptions under the Securities Act. The Company and the
Initial Purchasers also entered into the Registration Rights Agreement, pursuant
to which the Company granted certain registration rights for the benefit of the
holders of the Old Notes. The Exchange Offer is intended to satisfy certain of
the Company's obligations under the Registration Rights Agreement with respect
to the Old Notes. See "The Exchange Offer -- Purpose and Effect".
The Old Notes were, and the New Notes will be, issued under the Indenture
dated as of October 7, 1997 (the "Indenture") between the Company and First
Trust National Association, a national banking corporation, as trustee (in such
capacity, the "Trustee"). The form and terms of the New Notes will be identical
in all material respects to the form and terms of the Old Notes, except that (i)
the New Notes will have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof, (ii) holders of New
Notes will not be entitled to any Additional Interest (as defined) pursuant to
the Registration Rights Agreement in respect of Old Notes constituting
Registerable Securities held by such holders upon the occurrence of a
Registration Default (as defined), and (iii) holders of New Notes will not be,
and upon consummation of the Exchange Offer, Eligible Holders of Old Notes will
no longer be, entitled to certain rights under the Registration Rights Agreement
intended for the holders of Registrable Securities; provided, however, that (A)
an Eligible Holder of Old Notes who is not legally permitted to participate in
the Exchange Offer based upon advice of counsel to that effect or who does not
receive fully tradeable New Notes pursuant to the Exchange Offer, subject to
reasonable verification by the Company, and (B) the Initial Purchasers acquiring
a majority of the initial aggregate principal amount of Old Notes with respect
to Registerable Securities acquired directly from the Company, shall have the
right to require the Company to file a shelf registration statement pursuant to
Rule 415 under the Securities Act (a "Shelf Registration Statement") solely for
the benefit of such Eligible Holder of Old Notes and will be entitled to
Additional Interest following the occurrence of a Registration Default in
connection with the filing of such Shelf Registration Statement. The Exchange
Offer shall be deemed consummated upon the occurrence of the delivery by the
Company to the Registrar of New Notes in the same aggregate principal amount as
the aggregate principal amount of Old Notes that were tendered by Eligible
Holders pursuant to the Exchange Offer. See "The Exchange Offer -- Termination
of Certain Rights" and "-- Procedures for Tendering Old Notes" and "Description
of the New Notes".
Interest on the New Notes is payable semiannually, in arrears, on April 15
and October 15 of each year (each, an "Interest Payment Date") commencing on
April 15, 1998. Eligible Holders whose Old Notes are accepted for exchange will
have the right to receive interest accrued thereon from the date of their
original issuance or the last Interest Payment Date, as applicable, to, but not
including, the date of issuance of the New Notes, such interest to be payable
with the first interest payment on the New Notes. Interest on the Old Notes
accepted for exchange will cease to accrue on the day prior to the issuance of
the New Notes. The New Notes will mature on October 15, 2007. See "Description
of the New Notes -- General".
The New Notes will be redeemable at the option of the Company, in whole or
in part, at any time on or after October 15, 2002, at the redemption prices set
forth herein, together with accrued and unpaid interest, if any, to the
redemption date. In addition, on or prior to October 15, 2000, the Company may
redeem up to 35% of the Notes originally issued, at a price of 109 7/8% of the
principal amount thereof, together with accrued and unpaid interest, if any, to
the redemption date, with the net proceeds of one or more Public Equity
Offerings (as defined), provided that not less than $146.3 million in principal
amount of the Notes is outstanding immediately after giving effect to such
redemption. Upon the occurrence of a Change of Control (as defined), each holder
of Notes, subject to the limitations described herein, will have the right to
require the Company to purchase all or a portion of such holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof, together
with accrued and unpaid interest, if any, to the date of purchase.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the SEC (the "SEC Staff") as set
forth in certain interpretive letters addressed to third
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<PAGE> 5
parties in other transactions. However, the Company has not sought its own
interpretive letter and there can be no assurance that the SEC Staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the SEC
Staff, and subject to the following sentences, the Company believes that New
Notes issued pursuant to the Exchange Offer to an Eligible Holder in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by an
Eligible Holder (other than (i) a broker-dealer who purchased Old Notes directly
from the Company for resale pursuant to Rule 144A or any other available
exemption under the Securities Act, or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act), without
further compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Eligible Holder is acquiring the New
Notes in the ordinary course of business and is not participating, and has no
arrangement or understanding with any person to participate, in the
"distribution" (within the meaning of the Securities Act) of the New Notes.
Eligible Holders wishing to accept the Exchange Offer must represent to the
Company, among other things, that such conditions have been met. Any Eligible
Holder of Old Notes who is an "affiliate" of the Company or who intends to
participate in the Exchange Offer for the purpose of participating in the
"distribution" of the New Notes, or any broker-dealer who purchased Old Notes
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act, (a) will not be able to rely on the
interpretations of the SEC Staff set forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to tender such Old Notes in the
Exchange Offer, and (c) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or other
transfer of such Old Notes unless such sale is made pursuant to an exemption
from such requirement. See "The Exchange Offer -- Resales of the New Notes".
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer may be deemed to be a Statutory Underwriter, must acknowledge
that it acquired the Old Notes for its own account as a result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the SEC Staff in the interpretive letters
referred to above, the Company believes that broker-dealers who acquired Old
Notes for their own accounts, as a result of market-making or other trading
activities ("Participating Broker-Dealers"), may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Notes. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of New Notes received in exchange for Old Notes if such
Old Notes were acquired by such Participating Broker-Dealer for its own account
as a result of market-making or other trading activities. Subject to certain
conditions, the Company has agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such New Notes. See "Plan of Distribution". However,
a Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of New Notes received in exchange for Old Notes pursuant to the
Exchange Offer must notify the Company, or cause the Company to be notified, on
or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such
notice may be given in the space provided for that purpose in the Letter of
Transmittal or may be delivered to the Exchange Agent at one of the addresses
set forth herein under "The Exchange Offer -- The Exchange Agent; Assistance".
Any Participating Broker-Dealer who is an "affiliate" of the Company may not
rely on such interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. See "The Exchange Offer -- Resales of the New Notes".
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained in this Prospectus untrue in any material respect or which causes this
Prospectus to omit to state a material fact necessary in order to make the
statements contained herein, in light of the circumstances under which they were
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<PAGE> 6
made, not misleading or of the occurrence of certain other events specified in
the Registration Rights Agreement, such Participating Broker-Dealer will suspend
the sale of New Notes pursuant to this Prospectus until the Company has amended
or supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be.
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages ("PORTAL") system of
the National Association of Securities Dealers, Inc. (the "NASD"). There can be
no assurance that an active trading market for the New Notes will develop. If
such a trading market develops for the New Notes, future trading prices will
depend on many factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for similar
securities. Depending on such factors, the New Notes may trade at a discount
from their face value. See "Risk Factors -- Absence of Public Market for the New
Notes".
The Company will not receive any proceeds from the Exchange Offer, but,
pursuant to the Registration Rights Agreement, the Company will bear certain
registration expenses. No underwriter is being utilized in connection with the
Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
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<PAGE> 7
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in this
Prospectus and is qualified by the more detailed information set forth elsewhere
in this Prospectus which should be read in its entirety. Unless otherwise
indicated, capitalized terms used in this Prospectus Summary have the respective
meanings ascribed to them elsewhere in this Prospectus. The information
contained in this Prospectus Summary contains forward-looking statements which
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. See "Special Note Regarding
Forward-Looking Statements" on page 14.
THE COMPANY
The Company is the largest (and only nationwide) commercial operator of
fitness centers in the United States in terms of revenues, the number of
members, and the number and square footage of facilities. As of June 30, 1997,
the Company operated approximately 320 fitness centers concentrated in major
metropolitan areas in 27 states and Canada and had approximately four million
members. During 1996, Bally's members made more than 100 million visits to its
fitness centers. In August 1997, the Company completed a public offering of
8,000,000 shares of its common stock, which provided net proceeds of $88.4
million to the Company (the "Stock Offering").
The Company offers its members value by providing access to
state-of-the-art fitness facilities with affordable membership programs. Bally's
fitness centers feature an outstanding selection of cardiovascular, conditioning
and strength equipment and offer extensive aerobic training programs. The
Company's new club prototype achieves efficiency by focusing on those fitness
services that receive a high degree of member use. Most of the Company's current
fitness centers include pools, racquet courts or other athletic facilities that
receive a lower degree of member use. The Company has clustered its fitness
centers in major metropolitan areas in order to achieve marketing and operating
efficiencies. These markets include, among others, New York, Los Angeles,
Chicago, Houston, Dallas, Detroit, Baltimore, Washington, D.C., Philadelphia,
Miami, Cleveland, Atlanta, Milwaukee, Seattle, Minneapolis, Orlando, Denver,
Phoenix, St. Louis, Boston and Kansas City. In 1996, the Company completed the
process of renaming its fitness centers so they all use the servicemark "Bally
Total Fitness", thereby enhancing brand identity, concentrating advertising and
eliminating the prior practice of using more than 25 different regional
servicemarks and trade names.
The Company's primary target market for new members is the 18 to 34-year
old, middle income segment of the population. Bally markets itself to this
consumer segment through the use of a variety of membership options and payment
plans. The membership options offered by the Company range from single-club
memberships to premium memberships which provide additional amenities and the
use of all of Bally's fitness centers nationwide. Similarly, the Company offers
a broad range of payment alternatives. Typically, members pay an initiation fee
which can either be financed (generally for 36 months and subject to downpayment
requirements) or paid-in-full at the time of joining. Members are also required
to pay monthly membership dues in order to use the Company's fitness facilities.
Management believes the various memberships and payment plans, in addition to
Bally's strong brand identity and the convenience of its multiple locations,
provide the Company distinct competitive advantages.
OPERATING STRATEGIES
In October 1996, Lee S. Hillman was named President and Chief Executive
Officer of the Company. This completed the transition of senior management of
the Company from predominantly marketing oriented managers, including the
original founders of the Company, to managers with more financial and
operational orientation. Until December 1996, a number of the Company's top
executives, including Mr. Hillman, also performed significant functions for
Bally Entertainment Corporation ("Entertainment"), the owner of the Company
until January 1996. Current management intends to pursue a number of operating
strategies, including the following, which the Company believes will improve the
results of its core business:
- Reduce Discount Pricing on Paid-In-Full Membership Plans -- Since late
1990, the Company has managed its pricing structure to generate immediate
cash for liquidity by significantly discounting its
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<PAGE> 8
membership plans and by emphasizing paid-in-full instead of financed
membership plans. Additional working capital provided by the Stock
Offering will allow the Company to sell more financed membership plans,
which historically have generated better long-term returns for the
Company including streams of recurring dues revenues, rather than selling
discounted paid-in-full memberships for which dues are frequently waived
for up to three years.
- Upgrade and Expand Fitness Centers -- The Company intends to expand and
upgrade its facilities in order to increase its membership base and more
effectively capitalize on its streamlined marketing and administrative
functions. Management plans to make capital expenditures of approximately
$10 million to $12 million over the next twelve months to maintain and
make minor upgrades to the Company's existing facilities, which include
exercise equipment upgrades, heating, ventilation and air conditioning
("HVAC") and other operating equipment upgrades and replacements, and
locker room and workout area refurbishments, among others. In addition,
the Company intends to invest approximately $10 million of the net
proceeds from the Stock Offering over the next two years to extensively
refurbish and make major upgrades to approximately 25% of its clubs,
which include converting low-usage pools and racquet areas into expanded
exercise areas and to a lesser extent retail and outpatient
rehabilitation service areas, adding and upgrading exercise equipment,
and refreshing interior and exterior finishes to improve club ambience,
among others. The Company also intends to spend approximately $25 million
to $30 million of the net proceeds from the Stock Offering over the next
three years to open 20 to 30 new facilities based on its new prototype.
These facilities are designed to cost less to construct and maintain than
the Company's older facilities. The facilities are expected to range in
size from 10,000 to 45,000 square feet and have the capacity to
accommodate significantly more members than older clubs of the same size
because the new facilities will contain only the most widely used
amenities.
- Increase Dues Revenues -- The Company believes that its dues are
substantially less than those charged by its competitors and that it can
significantly increase dues for its members who are beyond their initial
financing period without any material loss in membership.
- Improve Collections on Financed Contracts -- The Company plans to
continue its focus on increasing the downpayment on financed membership
plans and securing payment by electronic funds transfer ("EFT"), which
the Company's experience has shown results in higher quality receivables.
Further, the Company intends to institute more focused collection efforts
based on information provided by "credit scoring", which management
believes will also improve the yield from the receivables portfolio.
- Continue Cost Reduction Policies -- The Company's operating costs and
expenses for 1996 were more than $75 million lower than in 1994.
Management believes that other opportunities exist to cut additional
costs in the areas of administration, advertising and self-insured losses
incurred.
GROWTH OPPORTUNITIES
The Company currently generates substantially all of its revenues from the
sale of membership plans and the receipt of dues. Management believes that it
can increase and diversify its revenues by leveraging its strong brand identity,
extensive distribution infrastructure (approximately 320 facilities),
significant member base (approximately four million members) and frequency of
visitation (in excess of 100 million visits in 1996) by offering a number of
ancillary products and services. In order to pursue these growth opportunities,
the Company plans to:
- Sell Nutritional Products -- The Company has successfully concluded test
marketing certain nutritional products, predominantly vitamins and weight
control supplements, and is launching the sale of these products to
members through its fitness centers and telemarketing.
- Provide Outpatient Rehabilitation Services -- The Company plans to
contract with providers of health care programs and services whereby
certain of the Company's existing facilities will also be used for
comprehensive outpatient rehabilitation services. The Company believes it
has opportunities with a number of third party providers and managers of
health care programs and services to provide similar outpatient
rehabilitation services in additional fitness centers, and expects to
offer these services within three years to members and non-members alike
in up to 100 of its facilities primarily using equipment
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<PAGE> 9
already on-hand. Among others, the Company has recently contracted with
Continucare Corporation to provide such services in certain, initially
four, of the Company's fitness centers. The Company plans to spend
approximately $1 million of the net proceeds from the Stock Offering to
upgrade an initial group of its facilities to provide rehabilitation
services.
- Offer Other Goods and Services -- The Company plans to sell work-out and
related apparel and market certain financial services and direct
marketing programs provided by third parties to its members such as a
co-branded credit card, credit life insurance, dining clubs and automated
teller machines ("ATMs") in its clubs through in-club sales efforts and
direct marketing programs.
THE REFINANCING
On October 7, 1997, the Company completed a refinancing (the "Refinancing")
which reduces interest expense, extends debt maturities and improves financial
flexibility. The components of the Refinancing were (i) the offering of $225
million aggregate principal amount of the Old Notes (the "Offering"), (ii) the
consummation of a tender offer and consent solicitation (the "Tender Offer")
with respect to the Company's 13% Senior Subordinated Notes due 2003 (the "13%
Notes"), and (iii) the application of the proceeds from the Offering to retire
the 13% Notes. Pursuant to the Tender Offer, the Company purchased $177.4
million aggregate principal amount of the 13% Notes. The remaining $22.6 million
aggregate principal amount of the 13% Notes not tendered in the Tender Offer are
expected to be purchased, redeemed or defeased by the Company prior to the end
of January 1998. In addition, the Indenture pursuant to which the 13% Notes were
issued was substantially amended pursuant to the Tender Offer.
ISSUANCE OF THE OLD NOTES
The Old Notes were sold by the Company to the Initial Purchasers on the
Closing Date pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A, Regulation S under
the Securities Act and other available exemptions under the Securities Act. The
Company and the Initial Purchasers also entered into the Registration Rights
Agreement. The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement with respect to the Old
Notes. See "The Exchange Offer".
7
<PAGE> 10
THE EXCHANGE OFFER
The Exchange Offer......... The Company hereby offers, upon the terms and
subject to the conditions set forth herein and in
the accompanying Letter of Transmittal, to exchange
$1,000 in principal amount of the New Notes for
each $1,000 in principal amount of the outstanding
Old Notes. As of the date of this Prospectus, $225
million aggregate principal amount of the Old Notes
were outstanding, the maximum amount authorized by
the Indenture for all Notes. Upon consummation of
the Exchange Offer, holders of Old Notes that were
not prohibited from participating in the Exchange
Offer and did not tender their Old Notes will not
have any registration rights under the Registration
Rights Agreement with respect to such nontendered
Old Notes and, accordingly, such nontendered Old
Notes will continue to be subject to the
restrictions on transfer contained in the legend
thereon. See "The Exchange Offer -- Terms of the
Exchange Offer".
Expiration Date............ 5:00 p.m., New York City time, on ,
1997 as the same may be extended. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments".
Conditions of the Exchange
Offer; Extensions;
Amendments.............. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. However, the Exchange Offer
is subject to certain customary conditions. The
Company expressly reserves the right, in its sole
and absolute discretion, (i) to delay accepting any
Old Notes by giving oral or written notice to the
Exchange Agent, (ii) to extend the Exchange Offer,
(iii) to terminate the Exchange Offer by giving
oral or written notice of such termination to the
Exchange Agent, and (iv) to waive any condition or
otherwise amend the terms of the Exchange Offer in
any manner. If the Exchange Offer is amended in a
manner determined by the Company to constitute a
material change, the Company will promptly disclose
such amendment by means of a prospectus supplement
that will be distributed to the Eligible Holders.
See "The Exchange Offer -- Expiration Date;
Extensions; Amendments" and " -- Conditions of the
Exchange Offer".
Termination of Certain
Rights.................. Eligible Holders of Old Notes have certain rights
pursuant to the Registration Rights Agreement and
the Old Notes. Holders of New Notes will not be
and, upon consummation of the Exchange Offer,
Eligible Holders of Old Notes will no longer be,
entitled to (i) the right to receive Additional
Interest upon the occurrence of Registration
Default, or (ii) certain other rights under the
Registration Rights Agreement intended for the
holders of unregistered securities; provided,
however, that (A) an Eligible Holder of Old Notes
who is not legally permitted to participate in the
Exchange Offer based upon advice of counsel to that
effect or who does not receive fully tradeable New
Notes pursuant to the Exchange Offer, subject to
reasonable verification by the Company, and (B) the
Initial Purchasers acquiring a majority of the
initial aggregate principal amount of Old Notes
with respect to Registerable Securities acquired
directly from the Company, shall have the right to
require the Company to file a Shelf Registration
Statement solely for the benefit of such Eligible
Holders of Old Notes and will be entitled to
receive Additional Interest following the
occurrence of a Registration Default in connection
with the filing of such Shelf Registration
Statement. Notwithstanding anything to the contrary
in the foregoing, Old Notes not tendered in the
Exchange Offer will remain outstanding and continue
to accrue interest in accordance with their terms.
See "The
8
<PAGE> 11
Exchange Offer -- Termination of Certain Rights"
and "-- Procedures for Tendering Old Notes" and
"Description of the New Notes".
Accrued Interest on the
Old Notes............... Eligible Holders whose Old Notes are accepted for
exchange will have the right to receive interest
accrued thereon from the date of their original
issuance or the last Interest Payment Date, as
applicable, to, but not including, the date of
issuance of the New Notes, such interest to be
payable with the first interest payment on the New
Notes. Interest on the Old Notes accepted for
exchange will cease to accrue on the day prior to
the issuance of the New Notes.
Procedures for Tendering
Old Notes............... Unless a tender of Old Notes is effected pursuant
to the procedures for book-entry transfer as
provided herein, each Eligible Holder desiring to
accept the Exchange Offer must complete and sign
the Letter of Transmittal, have the signature
thereon guaranteed if received by the Letter of
Transmittal, and mail or deliver the Letter of
Transmittal, together with the Old Notes or a
Notice of Guaranteed Delivery and any other
required documents (such as evidence of authority
to act, if the Letter of Transmittal is signed by
someone acting in a fiduciary or representative
capacity), to the Exchange Agent (as defined) at
the address set forth on the back cover page of
this Prospectus prior to 5:00 p.m., New York City
time, on the Expiration Date; provided, however,
that the signature on the Letter of Transmittal is
not required to be guaranteed if the Old Notes
surrendered for exchange are tendered (i) by a
registered holder of the Old Notes who has not
completed the box entitled "Special Delivery
Instructions" in the Letter of Transmittal, or (ii)
for the account of an Eligible Institution (as
defined). Any Beneficial Owner (as defined) of the
Old Notes whose Old Notes are registered in the
name of a nominee, such as a broker, dealer,
commercial bank or trust company, and who wishes to
tender Old Notes in the Exchange Offer, should
instruct such entity or person to promptly tender
on such Beneficial Owner's behalf. Any Old Notes
not accepted for exchange for any reason will be
returned, without expense to the tendering Eligible
Holder thereof, as promptly as practicable after
the Expiration Date. See "The Exchange
Offer -- Procedures for Tendering Old Notes".
Guaranteed Delivery
Procedures.............. Eligible Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver
their Old Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent on or prior to
the Expiration Date, or (iii) who complete the
procedures for delivery by book-entry transfer on a
timely basis, may tender their Old Notes according
to the guaranteed delivery procedures set forth in
the Letter of Transmittal. See "The Exchange
Offer -- Guaranteed Delivery Procedures".
Acceptance of Old Notes and
Delivery of New Notes... Upon satisfaction or waiver of all conditions of
the Exchange Offer, the Company will accept any and
all Old Notes that are properly tendered (and not
withdrawn) in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer
will be delivered promptly after acceptance of the
Old Notes. See "The Exchange Offer -- Acceptance of
Old Notes for Exchange; Delivery of New Notes".
9
<PAGE> 12
Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer --
Withdrawal Rights".
The Exchange Agent......... First Trust National Association, a national
banking corporation, is the exchange agent (in such
capacity, the "Exchange Agent"). The address and
telephone number of the Exchange Agent are set
forth in "The Exchange Offer -- The Exchange Agent;
Assistance".
Fees and Expenses.......... All expenses incident to the Company's consummation
of the Exchange Offer and compliance with the
Registration Rights Agreement will be borne by the
Company. The Company will also pay certain transfer
taxes, if applicable, to the Exchange Offer. See
"The Exchange Offer -- Fees and Expenses".
Resales of the New Notes... The Company is making the Exchange Offer in
reliance on the position of the SEC Staff as set
forth in certain interpretive letters addressed to
third parties in other transactions. However, the
Company has not sought its own interpretive letter
and there can be no assurance that the SEC Staff
would make a similar determination with respect to
the Exchange Offer as it has in such interpretive
letters to third parties. Based on these
interpretations by the SEC Staff, and subject to
the following sentences, the Company believes that
New Notes issued pursuant to the Exchange Offer to
an Eligible Holder in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by an Eligible Holder (other than (i) a
broker-dealer who purchased Old Notes directly from
the Company for resale pursuant to Rule 144A or any
other available exemption under the Securities Act,
or (ii) a person that is an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act), without further compliance with
the registration and prospectus delivery provisions
of the Securities Act, provided that such Eligible
Holder is acquiring the New Notes in the ordinary
course of business and is not participating, and
has no arrangement or understanding with any person
to participate, in the "distribution" (within the
meaning of the Securities Act) of the New Notes.
Eligible Holders wishing to accept the Exchange
Offer must represent to the Company, among other
things, that such conditions have been met. Any
Eligible Holder of Old Notes who is an "affiliate"
of the Company or who intends to participate in the
Exchange Offer for the purpose of participating in
the distribution of the New Notes, or any
broker-dealer who purchased Old Notes from the
Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act,
(a) will not be able to rely on the interpretations
of the SEC Staff set forth in the above-mentioned
interpretive letters, (b) will not be permitted or
entitled to tender such Old Notes in the Exchange
Offer, and (c) must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with any sale or other
transfer of such Old Notes unless such sale is made
pursuant to an exemption from such requirement. See
"The Exchange Offer -- Resales of the New Notes".
Each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer may
be deemed to be a statutory underwriter, must
acknowledge that it acquired the Old Notes for its
own account as a result of market-making activities
or other trading activities and must agree that it
will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale
of such New Notes. The
10
<PAGE> 13
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the
SEC Staff in the interpretive letters referred to
above, the Company believes that Participating
Broker-Dealers who acquired Old Notes for their own
accounts, as a result of market-making or other
trading activities, may fulfill their prospectus
delivery requirements with respect to the New Notes
received upon exchange of such Old Notes with a
prospectus meeting the requirements of the
Securities Act, which may be the prospectus
prepared for an exchange offer so long as it
contains a description of the plan of distribution
with respect to the resale of such New Notes.
Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with
resales of New Notes received in exchange for Old
Notes if such Old Notes were acquired by such
Participating Broker-Dealer for its own account as
a result of market-making or other trading
activities. Subject to certain conditions, the
Company has agreed that this Prospectus, as it may
be amended or supplemented, may be used by a
Participating Broker-Dealer in connection with
resales of such New Notes. See "Plan of
Distribution". However, a Participating
Broker-Dealer who intends to use this Prospectus in
connection with the resale of New Notes received in
exchange for Old Notes pursuant to the Exchange
Offer must notify the Company, or cause the Company
to be notified, on or prior to the Expiration Date,
that it is a Participating Broker-Dealer. Such
notice may be given in the space provided for that
purpose in the Letter of Transmittal or may be
delivered to the Exchange Agent at one of the
addresses set forth herein under "The Exchange
Offer -- Exchange Agent; Assistance". Any
Participating Broker-Dealer who is an "affiliate"
of the Company may not rely on such interpretive
letters and must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any resale transaction. See
"The Exchange Offer -- Resales of the New Notes".
11
<PAGE> 14
DESCRIPTION OF THE NEW NOTES
The form and term of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New Notes
will have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, (ii) holders of New Notes will not be
entitled to any Additional Interest thereon pursuant to the Registration Rights
Agreement in respect of Old Notes constituting Registrable Securities held by
such holders if (A) a registration statement concerning the Exchange Offer is
not filed with the SEC on or prior to November 6, 1997, (B) the registration
statement filed by the Company with respect to the Exchange Offer has not been
declared effective on or prior to January 5, 1998, or (C) the Exchange Offer is
not consummated on or prior to February 4, 1998 or a Shelf Registration
Statement, if required, is not declared effective on or prior to February 4,
1998 (or if a Shelf Registration Statement is required based upon a request by
the Initial Purchasers, 30 days after request therefor) (each such event
referred to in clauses (A) through (C) above, a "Registration Default"), and
(iii) holders of New Notes will not be, and upon consummation of the Exchange
Offer, Eligible Holders of Old Notes will no longer be, entitled to certain
rights under the Registration Rights Agreement intended for Eligible Holders;
provided, however, that (X) an Eligible Holder of Old Notes who is not legally
permitted to participate in the Exchange Offer based upon advice of counsel to
that effect or who does not receive fully tradeable New Notes pursuant to the
Exchange Offer, subject to reasonable verification by the Company, and (Y) the
Initial Purchasers acquiring a majority of the initial aggregate principal
amount of Old Notes with respect to Registerable Securities acquired directly
from the Company, shall have the right to require the Company to file a Shelf
Registration Statement solely for the benefit of such Eligible Holder of Old
Notes and will be entitled to Additional Interest following the occurrence of a
Registration Default in connection with the filing of such Shelf Registration
Statement. The Exchange Offer shall be deemed consummated upon the occurrence of
the delivery by the Company to the Registrar of New Notes in the same aggregate
principal amount as the aggregate principal amount of Old Notes that were
tendered (and not withdrawn) by Eligible Holders pursuant to the Exchange Offer.
See "The Exchange Offer -- Termination of Certain Rights", "-- Procedures for
Tendering Old Notes" and "Description of the New Notes".
Maturity Date.............. October 15, 2007.
Interest Payment Dates..... April 15 and October 15 of each year, commencing
April 15, 1998.
Optional Redemption........ The New Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after October 15, 2002, at the redemption prices
set forth herein, together with accrued and unpaid
interest, if any, to the redemption date. In
addition, on or prior to October 15, 2000, the
Company may redeem up to an aggregate of 35% of the
principal amount of the Notes originally issued, at
a price of 109 7/8% of the principal amount
thereof, together with accrued and unpaid interest,
if any, to the redemption date, with the net
proceeds of one or more Public Equity Offerings,
provided that not less than $146.3 million in
principal amount of the Notes is outstanding
immediately after giving effect to such redemption.
See "Description of the New Notes -- Optional
Redemption".
Change of Control.......... Upon the occurrence of a Change in Control, each
holder of Notes, subject to certain limitations
described herein, will have the right to require
the Company to purchase all or a portion of such
holder's Notes at a purchase price in cash equal to
101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of
purchase. See "Description of the New
Notes -- Purchase of Notes Upon a Change in
Control".
Offers to Purchase......... The Company will, under certain circumstances, be
obligated to make offers to purchase Notes in the
event of an Asset Sale. See "Description of the New
Notes -- Certain Covenants -- Limitation on Sale of
Assets".
Ranking.................... The New Notes will be general unsecured obligations
of the Company and will be subordinated in right of
payment to all existing and future Senior
Indebtedness of the Company. In addition, the
Company is a holding company and, accordingly, the
New Notes will also be effectively subordi-
12
<PAGE> 15
nated to all existing and future non-intercompany
liabilities of the Company's subsidiaries. As of
June 30, 1997, after giving effect to (i) the
Refinancing, and (ii) the completion by the Company
of the Stock Offering, the Company would have had
approximately $196 million of Senior Indebtedness,
including $160 million under the Securitization
Facility (as defined), which is a subsidiary
liability, and approximately $484 million of other
non-intercompany subsidiary liabilities (including
$364 million of deferred revenues and $26 million
of deferred income taxes) to which the New Notes
would be subordinated. As of June 30, 1997, other
than indebtedness under the 13% Notes, the
Company's existing revolving credit facility which
it intends to substantially modify or replace (the
"Bank Credit Facility") and capital lease
obligations, substantially all of the Company's
liabilities, including the Securitization Facility
(which is also Senior Indebtedness), were
non-intercompany subsidiary liabilities. The New
Notes will rank pari passu in right of payment with
the Old Notes. The subordination of the New Notes
and the funds available to the Company may limit
the ability of the Company to repurchase the New
Notes. See "Risk Factors -- Subordination of the
New Notes and Holding Company Structure".
Certain Covenants.......... The Indenture (as defined herein) will contain
certain covenants that, among other things, will
limit the ability of the Company and its
subsidiaries to (i) incur additional indebtedness,
(ii) pay dividends and make other restricted
payments, (iii) issue preferred stock of its
subsidiaries, (iv) permit payment restrictions on
its subsidiaries, (v) engage in transactions with
affiliates, (vi) create liens, or (vii) engage in
mergers, consolidations or asset sales. See
"Description of the New Notes--Certain Covenants".
Absence of a Public Market
for the Notes........... The New Notes will be new securities for which
there is currently no established trading market.
Although the Initial Purchasers have informed the
Company that they currently intend to make a market
in the New Notes, the Initial Purchasers are not
obligated to do so, and any such market-making may
be discontinued at any time without notice, in
their sole discretion. Accordingly, there can be no
assurances as to the development or the liquidity
of any market for the New Notes. The Company
intends to apply to have the New Notes designated
for trading in the PORTAL system. The Company does
not intend to apply for listing of the New Notes on
any securities exchange or for quotation through
the Nasdaq National Market or any other quotation
system. See "Risk Factors -- Absence of Public
Market for the New Notes".
For more detailed information regarding the terms of the New Notes and for
definitions of capitalized terms not otherwise defined, see "Description of the
New Notes".
13
<PAGE> 16
RISK FACTORS
See "Risk Factors" beginning on page 17 of this Prospectus for a discussion
of certain factors that should be considered by Eligible Holders in evaluating
the Exchange Offer.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus under "Prospectus Summary",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business", in addition to certain statements contained
elsewhere in this Prospectus, are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
factors include, among others, the following: general economic and business
conditions; competition; success of operating initiatives, advertising and
promotional efforts; existence of adverse publicity or litigation; acceptance of
new product offerings; changes in business strategy or plans; quality of
management; availability, terms, and development of capital; business abilities
and judgment of personnel; changes in, or the failure to comply with, government
regulations; regional weather conditions; those items set forth under the
heading "Risk Factors" beginning on page 17 of this Prospectus; and other
factors referenced in this Prospectus.
------------------
The Company was a wholly-owned subsidiary of Entertainment until
Entertainment spun-off the Company (the "Spin-off") to its stockholders on
January 9, 1996. The Company's executive offices are located at 8700 West Bryn
Mawr Avenue, Chicago, Illinois, 60631, telephone number (773) 380-3000. As used
in this Offering Memorandum, unless the context otherwise requires, the
"Company" or "Bally" refers to Bally Total Fitness Holding Corporation and its
subsidiaries and their predecessors.
In connection with the Stock Offering, the SEC Staff advised the Company it
requires all registrants operating fitness centers with membership plans that
include initial membership fees to follow a "deferral method" of accounting with
respect to the recognition of revenue from initial membership fees. The
accompanying consolidated financial statements for the periods prior to the six
months ended June 30, 1997 have been restated from those originally reported
because this "deferral method" differed from the revenue recognition method
historically used by the Company. See "Consolidated Financial Statements".
14
<PAGE> 17
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
The following table presents summary consolidated financial data of the
Company. The historical financial data were derived from, and should be read in
conjunction with, financial information appearing elsewhere in this Prospectus.
See "Selected Consolidated Financial Data".
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(AS RESTATED) (A)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Membership revenues --
Initial membership fees on paid-in-full
memberships originated................... $ 32.0 $ 43.3 $ 85.6 $ 95.7 $ 103.0 $ 141.8 $ 153.1
Initial membership fees on financed
memberships originated................... 175.6 157.9 290.4 310.0 322.7 316.1 335.4
Dues collected............................. 96.8 85.6 182.9 177.8 173.5 164.9 141.6
Change in deferred revenues................ (0.9) 10.2 29.8 16.8 27.0 (20.7) (25.1)
-------- -------- -------- -------- -------- -------- --------
303.5 297.0 588.7 600.3 626.2 602.1 605.0
Finance charges earned....................... 19.5 18.5 36.4 36.9 34.9 44.4 56.8
Fees and other............................... 7.5 7.3 15.1 16.4 20.9 20.2 26.8
-------- -------- -------- -------- -------- -------- --------
330.5 322.8 640.2 653.6 682.0 666.7 688.6
Operating costs and expenses:
Fitness center operations.................... 189.4 187.4 366.5 396.6 407.1 416.0 398.1
Member processing and collection centers..... 18.2 21.3 42.3 50.3 52.1 57.4 56.7
Advertising.................................. 23.9 25.8 47.4 50.0 47.5 53.3 54.2
General and administrative................... 12.2 10.1 23.6 21.6 21.9 25.6 27.9
Provision for doubtful receivables........... 47.6 44.4 80.4 72.1 103.9 72.5 116.2
Depreciation and amortization................ 28.1 27.7 55.9 57.4 58.9 60.4 57.8
Change in deferred membership origination
costs...................................... 1.5 1.8 4.1 0.4 6.7 (0.4) (3.0)
-------- -------- -------- -------- -------- -------- --------
320.9 318.5 620.2 648.4 698.1 684.8 707.9
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)........................ 9.6 4.3 20.0 5.2 (16.1) (18.1) (19.3)
Interest expense............................... 22.4 23.9 47.6 43.8 38.6 39.1 31.9
-------- -------- -------- -------- -------- -------- --------
Loss before income taxes, extraordinary item
and cumulative effect on prior years of
change in accounting for income taxes........ (12.8) (19.6) (27.6) (38.6) (54.7) (57.2) (51.2)
Income tax provision (benefit)................. 0.2 0.3 (2.7) (7.2) (15.2) (25.8) (17.6)
-------- -------- -------- -------- -------- -------- --------
Loss before extraordinary item and cumulative
effect on prior years of change in accounting
for income taxes (b)(c)...................... $ (13.0) $ (19.9) $ (24.9) $ (31.4) $ (39.5) $ (31.4) $ (33.6)
======== ======== ======== ======== ======== ======== ========
Loss per common share (pro forma for 1995 and
1994) (d).................................... $ (1.06) $ (1.63) $ (2.04) $ (3.25) $ (4.61)
OTHER FINANCIAL DATA:
EBITDA (e)..................................... $ 37.7 $ 32.0 $ 75.9 $ 62.6 $ 42.8 $ 42.3 $ 38.5
Capital expenditures........................... 13.1 11.5 20.6 22.5 21.4 34.9 22.5
EBITDA margin (e).............................. 11.4% 9.9% 11.9% 9.6% 6.3% 6.3% 5.6%
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED JUNE 30, 1997
--------------------
<S> <C>
PRO FORMA FINANCIAL DATA: (F)
EBITDA (e).......................................... $ 81.6
Interest expense.................................... 41.5
Ratio of EBITDA to interest expense................. 2.0x
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------
ACTUAL AS ADJUSTED (F)
------------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents................................ $ 9.6 $ 88.0
Installment contracts receivable, net............... 317.2 317.2
Total assets........................................ 910.2 991.0
Total debt.......................................... 397.8 410.8
Stockholders' equity................................ 13.3 81.1
</TABLE>
(footnotes on page following)
15
<PAGE> 18
- ---------------
(a) The summary consolidated financial data presented herein for periods prior
to the six months ended June 30, 1997 have been restated to reflect a change
in the Company's method of recognizing membership revenue. See "Consolidated
Financial Statements".
(b) In 1996, the Company recognized a net extraordinary gain on extinguishment
of debt consisting of (i) a gain (net of taxes) of $9.9 million ($.81 per
share) resulting from indebtedness owed Entertainment which was forgiven as
part of the December 1996 merger of Entertainment with and into Hilton
Hotels Corporation ("Hilton"), and (ii) a charge (net of taxes) of $4.2
million ($.35 per share) resulting from the refinancing of the Company's
prior securitization facility by the Securitization Facility. In 1993, the
Company recognized an extraordinary loss on extinguishment of debt of $6.0
million (net of taxes) resulting from a refinancing of certain indebtedness.
(c) In 1993, the Company changed its method of accounting for income taxes as
required by Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". As permitted by SFAS No. 109, the Company
elected to use the cumulative effect approach rather than to restate the
consolidated financial statements of any prior years to apply the provisions
of SFAS No. 109, which resulted in a charge of $69.0 million in 1993.
(d) The loss for the years ended December 31, 1995 and 1994 reflects a federal
income tax benefit arising from the Company's prior tax sharing agreement
with Entertainment of $7.1 million and $15.2 million, respectively. Pro
forma loss per common share (which is unaudited) was calculated 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 return
for each year and (ii) the distribution of 11,845,161 shares of the
Company's common stock to Entertainment stockholders as if such distribution
had taken place as of the beginning of each year.
(e) EBITDA is defined as operating income (loss) before depreciation and
amortization and EBITDA margin represents EBITDA divided by net revenues.
The Company has presented EBITDA and EBITDA margin supplementally because
management believes this information is useful given the significance of the
Company's depreciation and amortization and because of its highly leveraged
financial position. These data 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 they
be considered as an indicator of the Company's overall financial
performance. Also, the EBITDA definition used herein may not be comparable
to similarly titled measures reported by other companies.
(f) Adjusted to give effect to (i) the Stock Offering, (ii) the Refinancing and
(iii) the Exchange Offer, as if each had occurred on July 1, 1996 for Pro
Forma Financial Data and on June 30, 1997 for Balance Sheet Data, using the
interest rate of 9 7/8% on the Notes along with the assumptions used in the
capitalization table (see "Capitalization").
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RISK FACTORS
Prior to making an investment decision, prospective investors should
consider carefully all of the information set forth in this Prospectus and,
particularly, should evaluate the following risk factors.
RISKS ASSOCIATED WITH HIGHLY-LEVERAGED FINANCIAL POSITION
In December 1996, the Company issued $160.0 million of asset-backed
securities (the "Securitization Facility") by selling undivided interests in the
H&T Master Trust (the "Trust"). The Trust consists primarily of a portfolio of
installment contracts receivable from membership plans and the proceeds thereof.
The Company plans to refinance the Securitization Facility in the second or
third quarter of 1999; however, there can be no assurance that the Company will
be able to sell such a replacement series or that the terms of such replacement
series will be as favorable as the Securitization Facility.
At June 30, 1997, the Company had total indebtedness (including outstanding
letters of credit) of approximately $408 million ($433 million after giving
effect to the Refinancing). The Company's long-term debt presently includes the
Securitization Facility, $225 million principal amount of the Old Notes, $22.6
million principal amount of the 13% Notes and the $30 million existing Bank
Credit Facility. The Company intends to substantially modify or replace the
existing Bank Credit Facility. The Company's recent losses, total indebtedness
and provisions of existing debt instruments limit the Company's ability to raise
capital or borrow money. The provisions in the Company's existing debt
instruments and the existing Bank Credit Facility limit the Company's ability to
borrow additional funds and to grant security interests and require the Company
to maintain certain financial ratios, including those relating to cash flow and
interest expense. The substantially modified or new Bank Credit Facility is
expected to contain covenants which are similar to those of the existing Bank
Credit Facility. As a result of the limitations, the Company may be more
vulnerable to economic downturns, may not be able to exploit certain business
opportunities when they arise and may have less flexibility to respond to
changing economic conditions, each of which could have a material adverse effect
on the Company's financial condition and results of operations.
SUBORDINATION OF THE NEW NOTES AND HOLDING COMPANY STRUCTURE
The New Notes will be subordinated in right of payment to all existing and
future Senior Indebtedness of the Company, including all Indebtedness under the
existing Bank Credit Facility and any modification or refinancing thereof. As of
June 30, 1997, after giving effect to (i) the Refinancing, and (ii) the
completion by the Company of the Stock Offering, the amount of Senior
Indebtedness of the Company would have been approximately $196 million,
including $160 million under the Securitization Facility, which is a subsidiary
liability. By reason of such subordination, in the event of liquidation or
insolvency of the Company, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than holders of the New Notes, and funds
which would be otherwise payable to holders of the New Notes will be paid to the
holders of Senior Indebtedness to the extent necessary to pay the Senior
Indebtedness in full, and the Company may be unable to meet its obligations
fully with respect to the New Notes. In addition, under certain circumstances,
no payments may be made with respect to the principal of or interest on the New
Notes upon the occurrence of a default under the terms of any Senior
Indebtedness including, but not limited to, a default under the Bank Credit
Facility. The New Notes will rank pari passu in right of payment with the Old
Notes.
The operations of the Company are conducted through subsidiaries. Except to
the extent that the Company may itself be a trade creditor with recognized
claims against its subsidiaries, claims of creditors of such subsidiaries,
including trade creditors, will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including holders of the New Notes, even though such subsidiary obligations do
not constitute Senior Indebtedness. As of June 30, 1997, subsidiary liabilities
(which also include Senior Indebtedness) were approximately $657 million,
including $364 million of deferred revenues and $26 million of deferred income
taxes.
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In certain circumstances, the Company may be obligated to repurchase or to
make an offer to repurchase the New Notes. The subordination of the New Notes to
all existing and future Senior Indebtedness of the Company and the funds
available to the Company may limit the ability of the Company to repurchase the
New Notes.
DECLINE IN MEMBERSHIP FEES ORIGINATED; NET LOSSES
The Company's initial membership fees originated, a principal component of
its total revenues, have decreased from $425.7 million in 1994 to $376.0 million
in 1996, and there can be no assurance that the Company will be able to halt or
reverse this decline. Although the Company's operating costs and expenses were
more than $75 million lower in 1996 than in 1994, there can be no assurance that
the Company will be able to continue reducing its operating costs and expenses.
The Company reported losses before extraordinary item of $13.0 million, $24.9
million, $31.4 million and $39.5 million for the six months ended June 30, 1997
and the years ended December 31, 1996, 1995 and 1994, respectively. On a pro
forma basis, adjusting the income tax provision/benefit as if the Company had
filed its own separate consolidated tax returns, the loss for 1995 and 1994
would have been $38.5 million and $54.6 million, respectively.
RESTRICTIONS IMPOSED BY INDEBTEDNESS
The existing Bank Credit Facility and the Indenture contain covenants that,
among other things and subject to certain exceptions, restrict the ability of
the Company to incur additional indebtedness, pay dividends, prepay Subordinated
Indebtedness, dispose of certain assets, create liens and make certain
investments or acquisitions. The substantially modified or new Bank Credit
Facility is expected to contain covenants which are similar to those of the
existing Bank Credit Facility. The ability of the Company to comply with such
provisions may be affected by events beyond the Company's control. The breach of
any of these covenants could result in a default under the existing or new Bank
Credit Facility. In the event of any such default, depending on the actions
taken by the lenders under the existing or new Bank Credit Facility, such
lenders could elect to declare all amounts borrowed under the existing or new
Bank Credit Facility, together with accrued interest, to be due and payable. A
default under the existing or new Bank Credit Facility or the instruments
governing the Company's other indebtedness could constitute a cross-default
under the Indenture and any instruments governing the Company's other
indebtedness, and a default under the Indenture could constitute a cross-default
under the existing or new Bank Credit Facility and any instruments governing the
Company's other indebtedness.
RISKS ASSOCIATED WITH NEW INITIATIVES
The Company intends to embark on a number of new initiatives to capitalize
on its strong brand identity, extensive distribution infrastructure
(approximately 320 facilities), significant member base (approximately four
million members) and frequency of visitation (in excess of 100 million visits in
1996). These initiatives include selling and marketing nutritional products and
work-out and related apparel to its members and marketing financial services
provided by third parties to its members such as a co-branded credit card,
credit life insurance, dining clubs and ATMs in its clubs as well as making
comprehensive outpatient rehabilitation services available to members and
non-members alike. The Company has not previously generated significant revenues
from any of these new initiatives and there can be no assurance that such
initiatives will be successful. In addition, the Company has limited experience
in marketing new products to its members. The sale and marketing of nutritional
products and work-out and related apparel and the provision of rehabilitation
services involve significant risks of competition. See "-- Competition". The
provision of rehabilitation services also involves risks of government
regulation. See "-- Government Regulation".
RISKS ASSOCIATED WITH PRICING STRATEGY
Competitive conditions in certain markets in which the Company operates may
limit the Company's ability to reduce discount pricing on paid-in-full
memberships and to increase dues significantly without a material loss in
membership.
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COMPETITION
The Company is the largest operator, or among the largest operators, of
fitness centers in every major market in which it has fitness centers. Within
each market, the Company competes with other fitness centers, physical fitness
and recreational facilities established by local governments and hospitals and
by businesses for their employees, the YMCA and similar organizations and, to a
certain extent, with racquet and tennis and other athletic clubs, country clubs,
weight reducing salons and the home-use fitness equipment industry. The Company
also competes with other entertainment and retail businesses for the
discretionary income of its target market. The Company believes competition has
increased in certain markets. There can be no assurance that the Company will be
able to compete effectively in the future in the markets in which it operates.
When the Company embarks on its new initiatives, particularly the sale of
nutritional products and apparel, the Company will be competing against large
established companies with more experience selling such products on a retail
basis and, in some instances, with substantially greater financial resources
than the Company. There can be no assurance that the Company will be able to
compete effectively against such established companies.
SEASONAL MEMBERSHIP FEE ORIGINATIONS
Historically, the Company has experienced greater membership fee
originations in the first quarter and lower membership fee originations in the
fourth quarter. Certain of the new initiatives the Company plans to undertake
may have the effect of further increasing the seasonality of the Company's
business.
GOVERNMENT REGULATION
The operations and business practices of the Company are subject to
regulation at federal, state and, in some cases, local levels. General rules and
regulations of the Federal Trade Commission (the "FTC"), and of state and local
consumer protection agencies, and state statutes apply to the Company's
advertising, sales and other trade practices, including the sale, financing and
collection of memberships. Although management is not aware of any proposed
changes in any statutes, rules or regulations, any changes could have a material
adverse effect on the Company's financial condition and results of operations.
In addition, the provision of rehabilitation services and payments for such
services are subject to government regulation. See "Business -- Government
Regulation".
FRAUDULENT CONVEYANCE
The Company believes that the indebtedness represented by the New Notes is
being incurred for proper purposes and in good faith, and that, based on present
forecasts, asset valuations and other financial information, the Company is
solvent, will have sufficient capital for carrying on its business and will be
able to pay its debts as they mature. Notwithstanding this belief, however,
under federal or state fraudulent transfer laws, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find that
the Company did not receive fair consideration (or reasonably equivalent value)
for incurring the New Notes and, at the time of the incurrence of such
indebtedness, the Company was insolvent, was rendered insolvent by reason of
such incurrence, was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital, intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, or that the Company intended to hinder, delay or defraud its creditors,
then such court could, among other things, (i) void all or a portion of the
Company's obligations to the holders of the New Notes, the effect of which would
be that the holders of the New Notes may not be repaid in full, (ii) recover all
or a portion of the payments made to holders of the New Notes, and/or (iii)
subordinate the Company's obligations to the holders of the New Notes to other
existing and future indebtedness of the Company to a greater extent than would
otherwise be the case, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the New Notes.
The measure of insolvency for purposes of the foregoing will vary depending upon
the law of the relevant jurisdiction. Generally, however, a company would be
considered insolvent for purposes of the foregoing if the sum of the company's
debts is greater than all of the company's property at a fair valuation, or if
the present fair saleable value of the company's assets is less than the amount
that will be required to pay its existing debts as they become due and payable.
There can be no assurances as to what standards a court would apply to determine
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whether the Company was solvent at the relevant time, or whether, whatever
standard was applied, the New Notes would not be voided on another of the
grounds set forth above.
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes will be new securities for which there is currently no
established trading market. Although the Initial Purchasers have informed the
Company that they currently intend to make a market in the New Notes, the
Initial Purchasers are not obligated to do so, and any such market-making may be
discontinued at any time without notice, in their sole discretion. Accordingly
there can be no assurance as to the development or liquidity of any market for
the New Notes. The Company intends to apply to have the New Notes designated for
trading in the PORTAL system. The Company does not intend to apply for listing
of the New Notes on any securities exchange or for quotation through the Nasdaq
National Market or any other quotation system.
CERTAIN MARKET CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
To the extent that Old Notes are tendered and accepted for exchange
pursuant to the Exchange Offer, the trading market for Old Notes that remain
outstanding may be significantly more limited, which might adversely affect the
liquidity of the Old Notes not exchanged. The extent of the market therefor and
the availability of price quotations would depend upon a number of factors,
including the number of holders of Old Notes remaining at such time and the
interest in maintaining a market in such Old Notes on the part of securities
firms. An issue of securities with a smaller outstanding market value available
for trading (the "float") may command a lower price than would a comparable
issue of securities with a greater float. Therefore, the market price for Old
Notes that are not exchanged in the Exchange Offer may be affected adversely to
the extent that the amount of Old Notes exchanged pursuant to the Exchange Offer
reduces the float. The reduced float also may make the trading price of the Old
Notes that are not exchanged more volatile.
CERTAIN CONSEQUENCES OF FAILURE TO VALIDLY TENDER
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made following the prior satisfaction, or waiver, of the
conditions set forth in "The Exchange Offer -- Conditions of the Exchange Offer"
and only after timely receipt by the Exchange Agent of such Old Notes, a
properly completed and duly executed Letter of Transmittal and all other
required documents. Therefore, holders of Old Notes desiring to tender such Old
Notes in exchange for New Notes should allow sufficient time to ensure timely
delivery of all required documentation. Beneficial holders of Old Notes should
also take into account the fact that the delivery of documents to The Depository
Trust Company ("DTC") in accordance with DTC's procedures does not constitute
delivery to the Exchange Agent. Neither the Exchange Agent, the Company nor any
other person is under any duty to give notification of defects or irregularities
with respect to the tenders of Old Notes for exchange. Old Notes that may be
tendered in the Exchange Offer but which are not validly tendered will,
following consummation of the Exchange Offer, remain outstanding and will
continue to be subject to the same transfer restrictions currently applicable to
the Old Notes.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company to the Initial Purchasers on October
7, 1997, pursuant to the Purchase Agreement. The Initial Purchasers subsequently
resold the Old Notes in reliance on Rule 144A, Regulation S under the Securities
Act and certain other exemptions under the Securities Act. The Company and the
Initial Purchasers also entered into the Registration Rights Agreement, pursuant
to which the Company agreed, with respect to the Old Notes, to use its best
efforts (i) to file, on or prior to November 6, 1997, a registration statement
concerning the Exchange Offer with the SEC under the Securities Act, (ii) to
cause the registration statement filed by the Company with respect to the
Exchange Offer to be declared effective by the SEC on or prior to January 5,
1998, (iii) to keep the registration statement filed by the Company with respect
to the Exchange Offer effective until the closing of the Exchange Offer, and
(iv) to cause the Exchange Offer to be consummated on or prior to February 4,
1998. The Exchange Offer is intended to satisfy the Company's exchange offer
obligations under the Registration Rights Agreement.
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, Eligible Holders of Old Notes in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of the New Notes for each $1,000 in principal amount of the
outstanding Old Notes. The Company will accept for exchange any and all Old
Notes that are validly tendered (and not withdrawn) prior to 5:00 p.m., New York
City time, on the Expiration Date. Tenders of the Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the Exchange Offer is subject to certain
customary conditions which may be waived by the Company, and to the terms and
provisions of the Registration Rights Agreement. See "Conditions of the Exchange
Offer".
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, Eligible Holders may tender less than the aggregate principal amount
represented by the Old Notes held by them, provided that they appropriately
indicate this fact on the Letter Of Transmittal accompanying the tendered Old
Notes (or so indicate pursuant to the procedures for book-entry transfer).
As of the date of this Prospectus, $225 million aggregate principal amount
of the Old Notes were outstanding, the maximum amount authorized by the
Indenture for the Notes. Solely for reasons of administration (and for no other
purpose), the Company has fixed the close of business on , 1997, as
the record date (the "Record Date") for purposes of determining the persons to
whom this Prospectus and the Letter of Transmittal will be mailed initially.
Only an Eligible Holder of the Old Notes (or such Eligible Holder's legal
representative or attorney-in-fact) may participate in the Exchange Offer. There
will be no fixed record date for determining Eligible Holders of the Old Notes
entitled to participate in the Exchange Offer. The Company believes that, as of
the date of this Prospectus, no such Eligible Holder is an affiliate (as defined
in Rule 405 under the Securities Act) of the Company.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Eligible
Holders of Old Notes and for the purposes of receiving the New Notes from the
Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Eligible Holder thereof as promptly as
practicable after the Expiration Date.
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN
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FROM TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE
OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION.
HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO
THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES TO
TENDER, AFTER READING CAREFULLY THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL
AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN FINANCIAL
POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1997 at 5:00 p.m., New York City
time, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
The Company expressly reserves the right, in its sole and absolute
discretion, (i) to delay accepting any Old Notes, (ii) to extend the Exchange
Offer, (iii) to terminate the Exchange Offer, and (iv) to waive any condition or
otherwise amend the terms of the Exchange Offer in any manner. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the Eligible Holders.
Any such delay in acceptance, extension, termination, amendment or waiver
will be followed promptly by oral or written notice thereof to the Exchange
Agent and by making a public announcement thereof, and such notice and
announcement in the case of an extension will be made no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Without limiting the manner in which the Company may choose to
make any public announcement and subject to applicable law, the Company shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to the Dow Jones News
Service.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Old Notes for New Notes, and, as described below,
may terminate the Exchange Offer (whether or not any Old Notes have theretofore
been accepted for exchange) or may waive any conditions to or amend the Exchange
Offer, if any of the following conditions have occurred or exists or have not
been satisfied:
(i) the Exchange Offer, or the making of any exchange by an Eligible
Holder, violates any applicable law or any applicable interpretation of the
SEC Staff;
(ii) the due tendering of Registrable Securities in accordance with
the Exchange Offer; and
(iii) each Eligible Holder of Registrable Securities exchanged in the
Exchange Offer shall have made certain customary representations, including
representations that such Eligible Holder is not an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act, that all
New Notes to be received by it shall be acquired in the ordinary course of
its business and that at the time of the consummation of the Exchange
Offer, such Eligible Holder has no arrangement or understanding with any
person to participate in the "distribution" (within the meaning of the
Securities Act) of the New Notes, and any such representation as may be
reasonably necessary under applicable SEC rules, regulations or
interpretations to allow Eligible Holders to use of the registration
statement filed by the Company with respect to the Exchange Offer.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, the Company may, subject to applicable law, terminate the Exchange
Offer (whether or not any Old Notes have theretofore been accepted for exchange)
or may waive any such condition or otherwise amend the terms of the Exchange
Offer in any respect. If such waiver or amendment constitutes a material change
to the Exchange Offer, the Company will promptly disclose such waiver or
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Old
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Notes, and the Company will extend the Exchange Offer to the extent required by
Rule 14e-1 under the Exchange Act.
The Company expects that the foregoing conditions will be satisfied. The
foregoing conditions are for the sole benefit of the Company and may be waived
by the Company in whole or in part at any time and from time to time in its sole
discretion. The failure by the Company at any time to exercise any of the
foregoing rights shall not be deemed a waiver of such rights and each such right
shall be deemed an ongoing right which may be asserted at any time and from time
to time. Any determination by the Company concerning the events described above
will be final and binding upon all parties.
TERMINATION OF CERTAIN RIGHTS
The Registration Rights Agreement provides that, in the event of a
Registration Default, the interest rate borne by the Old Notes (except in the
case of the Exchange Offer not being consummated by February 4, 1998 or if a
Shelf Registration Statement is not declared effective on or prior to February
4, 1998, or if a Shelf Registration Statement is not filed within 30 days of
request by the request of the Initial Purchasers, in which case only the Old
Notes that have not been exchanged in the Exchange Offer) shall be increased by
one-quarter of one percent (0.25%) per annum upon the occurrence of any
Registration Default, which rate (as increased as aforesaid) will increase by an
additional one-quarter of one percent (0.25%) each 90-day period that such
additional interest continues to accrue under any such circumstance, with an
aggregate maximum increase in the interest rate equal to one percent (1%) per
annum (such interest in excess of 9 7/8% paid by the Company pursuant to a
Registration Default referred to herein as "Additional Interest"). Following the
cure of all Registration Defaults, the accrual of Additional Interest will cease
and the interest rate will revert to 9 7/8%. Holders of New Notes will not be
and, upon consummation of the Exchange Offer, Eligible Holders of Old Notes will
no longer be, entitled to (i) the right to receive Additional Interest upon the
occurrence of a Registration Default, or (ii) certain other rights under the
Registration Rights Agreement intended for the holders of unregistered
securities; provided, however, that (A) an Eligible Holder of Old Notes who is
not legally permitted to participate in the Exchange Offer based upon advice of
counsel to that effect or who does not receive fully tradeable New Notes
pursuant to the Exchange Offer, subject to reasonable verification by the
Company, and (B) the Initial Purchasers acquiring a majority of the initial
aggregate principal amount of the Old Notes with respect to Registerable
Securities acquired directly from the Company, shall have the right to require
the Company to file a Shelf Registration Statement solely for the benefit of
such Eligible Holders of Old Notes and will be entitled to receive Additional
Interest following the occurrence of a Registration Default in connection with
the filing of such Shelf Registration Statement. Notwithstanding anything to the
contrary in the foregoing, Old Notes not tendered in the Exchange Offer will
remain outstanding and continue to accrue interest in accordance with their
terms.
ACCRUED INTEREST ON THE OLD NOTES
Eligible Holders whose Old Notes are accepted for exchange will have the
right to receive interest accrued thereon from the date of their original
issuance or the last Interest Payment Date, as applicable, to, but not
including, the date of issuance of the New Notes, such interest to be payable
with the first interest payment on the New Notes. Interest on the Old Notes
accepted for exchange will cease to accrue on the day prior to the issuance of
the New Notes.
PROCEDURES FOR TENDERING OLD NOTES
The tender of an Eligible Holder's Old Notes as set forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering Eligible Holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, an Eligible Holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit such Old
Notes, together with a properly completed and duly executed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to the Exchange Agent at the address set forth on the back cover
page of this Prospectus prior to 5:00 p.m., New York City time on the Expiration
Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
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REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE ELIGIBLE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE ELIGIBLE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedures for such transfer. However, although delivery
of the Old Notes may be effected through book-entry transfer into the Exchange
Agent's accountant DTC, the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees and
any other required documents, must in any case, be delivered to and received by
the Exchange Agent at its address set forth under " -- The Exchange Agent;
Assistance" on or prior to the Expiration Date, or the guaranteed delivery
procedure set forth below must be complied with.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
are tendered (i) by a registered holder of the Old Notes who has not completed
the box entitled "Special Delivery Instructions" in the Letter of Transmittal,
or (ii) for the account of an Eligible Institution. In the event that a
signature on a Letter of Transmittal or a notice of withdrawal, as the case may
be, is required to be guaranteed, such signature must be guaranteed by a
participant in a recognized Medallion Signature Program (a "Medallion Signature
Guarantor"). If the Letter of Transmittal is signed by a person other than the
registered holder of the Old Notes, the Old Notes surrendered for exchange must
be endorsed by the registered holder, with the signature thereon guaranteed by a
Medallion Signature Guarantor. The term "registered holder" as used herein with
respect to the Old Notes means any person in whose name the Old Notes are
registered on the books of the Registrar. The term "Eligible Institution" as
used herein means a firm which is a member of a registered national securities
exchange or of the NASD, a commercial bank or trust company having an office or
correspondent in the United States or any other "eligible guarantor institution"
as such term is defined in Rule 17Ad-15 under the Exchange Act.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Company's
acceptance of which might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Company shall determine. Tenders of the
Old Notes will not be deemed to have been made until such irregularities have
been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and, unless waived by the Company, provide
proper evidence satisfactory to the Company, in its sole discretion, of such
person's authority so to act.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.
24
<PAGE> 27
By tendering, each registered holder will represent to the Company that,
among other things (i) the New Notes to be acquired in connection with the
Exchange Offer by the Eligible Holder and each Beneficial Owner of the Old Notes
are being acquired by the Eligible Holder and each Beneficial Owner in the
ordinary course of business of the Eligible Holder and each Beneficial Owner,
(ii) the Eligible Holder and each Beneficial Owner are not participating, do not
intend to participate, and have no arrangement or understanding with any person
to participate, in the distribution of the New Notes, (iii) the Eligible Holder
and each Beneficial Owner acknowledge and agree that any person who is an
affiliate of the Company or who is participating in the Exchange Offer for the
purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes acquired by such person and cannot
rely on the position of the SEC Staff set forth in no-action letters that are
discussed herein under "Resales of New Notes", (iv) that if the Eligible Holder
is a broker-dealer that acquired Old Notes as a result of market-making or other
trading activities, it will deliver a prospectus in connection with any resale
of New Notes acquired in the Exchange Offer, provided, however, by so
acknowledging and by delivering a Prospectus, the Eligible Holder will not be
deemed to admit that it is an "underwriter" within the meaning of Section 2(ii)
of the Securities Act, (v) the Eligible Holder and each Beneficial Owner
understand that a secondary resale transaction described in clause (iii) above
should be covered by an effective registration statement containing the selling
security holder information required by Item 507 of Regulation S-K adopted by
the SEC pursuant to the Securities Act, and (vi) neither the Eligible Holder nor
any Beneficial Owner is an "affiliate", as defined under Rule 405 of the
Securities Act, of the Company except as otherwise disclosed to the Company in
writing. In connection with a book-entry transfer, each participant will confirm
that it makes the representations and warranties contained in the Letter of
Transmittal.
GUARANTEED DELIVERY PROCEDURES
Eligible Holders who wish to tender their Old Notes and (i) whose Old Notes
are not immediately available, (ii) who cannot deliver their Old Notes, the
Letter of Transmittal or any other documents required by the Letter of
Transmittal to the Exchange Agent on or prior to the Expiration Date, or (iii)
who complete the procedures for book-entry transfer on a timely basis, may
tender their Old Notes according to the guaranteed delivery procedures set forth
in the Letter of Transmittal. Pursuant to such procedures: (A) such tender must
be made by or through an Eligible Institution and a Notice of Guaranteed
Delivery (as defined in the Letter of Transmittal) must be signed by such
Eligible Holder, (B) on or prior to the Expiration Date, the Exchange Agent must
have received from the Eligible Institution a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) and a Notice of Guaranteed
Delivery (by telegram, facsimile transmission, mail or hand delivery) setting
forth the name and address of the Eligible Holder, the certificate number or
numbers of the tendered Old Notes, and the principal amount of tendered Old
Notes, stating that the tender is being made thereby and guaranteeing that,
within three New York Stock Exchange trading days after the Expiration Date, any
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (C) such properly completed
and executed documents required by the Letter of Transmittal and the tendered
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
of such Old Notes into the Exchange Agent's account at DTC) must be received by
the Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date. Any Eligible Holder who wishes to tender Old Notes pursuant to
the guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery and Letter of Transmittal
relating to such Old Notes prior to 5:00 p.m., New York City time, on the
Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions of the Exchange Offer,
the Company will accept any and all Old Notes that are properly tendered (and
not withdrawn) in the Exchange Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The New Notes issued pursuant to the Exchange Offer will be
delivered promptly after acceptance of the Old Notes. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted validly tendered
Old Notes, when, as, and if the Company has given oral or written notice thereof
to the Exchange Agent.
25
<PAGE> 28
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC);
provided, however, that the Company reserves the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Notes are not accepted for any reason, such unaccepted Old
Notes will be returned without expense to the tendering Eligible Holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a telegram, telex,
facsimile transmission or letter to the Exchange Agent, at its address set forth
on the back cover page of this Prospectus, at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes, as
applicable), (iii) be signed by the Eligible Holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by a
bond power in the name of the person withdrawing the tender, in satisfactory
form as determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by a Medallion
Signature Guarantor together with the other documents required upon transfer by
the Indenture, and (iv) specify the name in which such Old Notes are to be
re-registered, if different from the Depositor, pursuant to such documents of
transfer. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Company, in its sole
discretion. The Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are withdrawn will be returned to the
Eligible Holder thereof without cost to such Eligible Holder as soon as
practicable after withdrawal. Properly withdrawn Old Notes may be retendered by
following one of the procedures described under "--Procedures for Tendering Old
Notes" at any time on or prior to the Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
First Trust National Association, a national banking corporation, is the
Exchange Agent. All tendered Old Notes, executed Letters of Transmittal and
other related documents should be directed to the Exchange Agent. Questions and
requests for assistance and requests for additional copies of the Prospectus,
the Letter of Transmittal and other related documents should be addressed to the
Exchange Agent as follows:
By Hand, Registered or Certified Mail or Overnight Courier:
First Trust National Association
First Trust Center
180 East Fifth Street
Saint Paul, MN 55101
Attention: Therese Linscheid,
Specialized Finance Corporation
Trust Department
By Facsimile:
(612) 244-1537
Attention: Therese Linscheid,
Specialized Finance Corporation
Trust Department
Confirm by Telephone: (612) 244-1234
26
<PAGE> 29
FEES AND EXPENSES
All fees and expenses incident to the Company's consummation of the
Exchange Offer and compliance with the Registration Rights Agreement will be
borne by the Company, including without limitation, and if applicable: (i) all
Commission, stock exchange or NASD registration and filing fees, (ii) all fees
and expenses incurred in connection with compliance with state securities or
blue sky laws and compliance with the rules of the NASD (including reasonable
fees and disbursements of counsel for any underwriters or Holders in connection
with blue sky qualification of any of the New Notes or Registrable Securities
and any filings with the NASD), (iii) all expenses of any persons in preparing
or assisting in preparing, word processing, printing and distributing any
registration statement, any prospectus, any amendments or supplements thereto,
any underwriting agreements, securities sale agreements and other documents
relating to the performance of and compliance with this Agreement, (iv) all fees
and expenses incurred in connection with the listing, if any, of any of the
Registrable Securities on any securities exchange or exchanges, (v) all rating
agency fees, (vi) the fees and disbursements of counsel for the Company and of
the independent public accountants of the Company, including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance, (vii) the fees and expenses of the Trustee, and any
escrow agent or custodian, (viii) the reasonable fees and disbursements of
special counsel representing the holders of Registrable Securities, and (ix) any
fees and disbursements of the underwriters required to be paid by issuers or
sellers of securities, if any, and the reasonable fees and expenses of any
special experts retained by the Company in connection with any registration
statement, if any, but excluding underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of Registrable
Securities by an Eligible Holder.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized by the Company for accounting
purposes. The expenses of the Exchange Offer will be amortized over the term of
the New Notes.
RESALES OF THE NEW NOTES
Upon consummation of the Exchange Offer, holders of Old Notes who did not
tender their Old Notes and who were not legally prohibited from participating in
the Exchange Offer based upon advice of counsel to that effect and who would
have received fully tradeable New Notes pursuant to the Exchange Offer will not
have any registration rights under the Registration Rights Agreement with
respect to such nontendered Old Notes and, accordingly, such Old Notes will
continue to be subject to the restrictions on transfer contained in the legend
thereon. In general, the Old Notes may not be offered or sold unless registered
under the Securities Act and applicable state securities laws, except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not intend to register the
Old Notes under the Securities Act.
The Company is making the Exchange Offer in reliance on the position of the
SEC Staff as set forth in certain interpretive letters addressed to third
parties in other transactions. However, the Company has not sought its own
interpretive letter and there can be no assurance that the SEC Staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these
27
<PAGE> 30
interpretations by the SEC Staff, and subject to the following sentences, the
Company believes that New Notes issued pursuant to the Exchange Offer to an
Eligible Holder in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by an Eligible Holder (other than (i) a broker-dealer who
purchased Old Notes directly from the Company for resale pursuant to Rule 144A
or any other available exemption under the Securities Act, or (ii) a person that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), without further compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Eligible Holder is
acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the "distribution" (within the meaning of the Securities Act) of
the New Notes. Eligible Holders wishing to accept the Exchange Offer must
represent to the Company, among other things, that such conditions have been
met. Any Eligible Holder of Old Notes who is an "affiliate" of the Company or
who intends to participate in the Exchange Offer for the purpose of
participating in the distribution of the New Notes, or any broker-dealer who
purchased Old Notes from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, (a) will not be able to rely
on the interpretations of the SEC Staff set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Notes in the Exchange Offer, and (c) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or other transfer of such Old Notes unless such sale is made pursuant to an
exemption from such requirement.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer may be deemed to be a statutory underwriter, must acknowledge
that it acquired the Old Notes for its own account as a result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the SEC Staff in the interpretive letters
referred to above, the Company believes that Participating Broker-Dealers who
acquired Old Notes for their own accounts, as a result of market-making or other
trading activities, may fulfill their prospectus delivery requirements with
respect to the New Notes received upon exchange of such Old Notes with a
prospectus meeting the requirements of the Securities Act, which may be the
prospectus prepared for an exchange offer so long as it contains a description
of the plan of distribution with respect to the resale of such New Notes.
Accordingly, this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
New Notes received in exchange for Old Notes if such Old Notes were acquired by
such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain conditions, the
Company has agreed that this Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer in connection
with resales of such New Notes. See "Plan of Distribution". However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of New Notes received in exchange for Old Notes pursuant to the
Exchange Offer must notify the Company, or cause the Company to be notified, on
or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such
notice may be given in the space provided for that purpose in the Letter of
Transmittal or may be delivered to the Exchange Agent at one of the addresses
set forth herein under "-- The Exchange Agent; Assistance". Any Participating
Broker-Dealer who is an "affiliate" of the Company may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained in this Prospectus untrue in any material respect or which causes this
Prospectus to omit to state a material fact necessary in order to make the
statements contained herein, in light of the circumstances under which they were
made, not misleading or of the occurrence of certain other events specified in
the Registration Rights Agreement, such Participating Broker-Dealer will suspend
the sale of New Notes pursuant to this Prospectus until the Company has amended
or supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be.
28
<PAGE> 31
MISCELLANEOUS
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
Upon consummation of the Exchange Offer, holders of the Old Notes that were
not prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and, accordingly, such Old
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. However, in the event the Company fails to consummate the
Exchange Offer or a holder of Old Notes notifies the Company in accordance with
the Registration Rights Agreement that it will be unable to participate in the
Exchange Offer due to circumstances delineated in the Registration Rights
Agreement, then the holder of the Old Notes will have certain rights to have
such Old Notes registered under the Securities Act pursuant to the Registration
Rights Agreement and subject to conditions contained therein.
THE REFINANCING
On October 7, 1997, the Company completed the Refinancing which reduces
interest expense, extends debt maturities and improves financial flexibility.
The components of the Refinancing were (i) the Offering of $225 million
aggregate principal amount of the Old Notes, (ii) the consummation of the Tender
Offer with respect to the 13% Notes, and (iii) the application of the proceeds
from the Offering to retire the 13% Notes. Pursuant to the Tender Offer, the
Company purchased $177.4 million aggregate principal amount of the 13% Notes.
The remaining $22.6 million aggregate principal amount of the 13% Notes not
tendered in the Tender Offer are expected to be purchased, redeemed or defeased
by the Company prior to the end of January 1998. In addition, the Indenture
pursuant to which the 13% Notes were issued was substantially amended pursuant
to the Tender Offer.
29
<PAGE> 32
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company at June 30, 1997 and as adjusted to give effect to (i) the Stock
Offering, (ii) the Refinancing, and (iii) the Exchange Offer.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------------------------------------------------------
AS ADJUSTED FOR
THE STOCK OFFERING(A),
AS ADJUSTED FOR THE REFINANCING(b) AND
ACTUAL THE STOCK OFFERING(a) THE EXCHANGE OFFER(C)
---------------------- ---------------------- ----------------------
(IN MILLIONS)
<S> <C> <C> <C>
Cash and equivalents.................... $ 9.6 $ 86.0 $ 88.0
======= ====== ======
Long-term debt, including current
portion:
Securitization Facility............ $160.0 $160.0 $160.0
Bank Credit Facility............... 12.0 -- --
Capital lease obligations and
other............................ 25.8 25.8 25.8
13% Notes.......................... 200.0 200.0 --
New Notes.......................... -- -- 225.0
------- ------ ------
Total debt.................... 397.8 385.8 410.8
Stockholders' equity.................... 13.3 101.7 81.1
------- ------ ------
Total capitalization.......... $411.1 $487.5 $491.9
======= ====== ======
</TABLE>
- ---------------
(a) The Stock Offering provided net proceeds of $88.4 million to the Company
after deducting the underwriting discount and related expenses. The Company
used a portion of the proceeds from the Stock Offering to repay amounts
borrowed under the Bank Credit Facility.
(b) The components of the Refinancing were (i) the Offering of $225 million
aggregate principal amount of the Old Notes, (ii) the consummation of the
Tender Offer with respect to the 13% Notes, and (iii) the application of the
proceeds from the Offering to retire the 13% Notes. Pursuant to the Tender
Offer, the Company purchased $177.4 million aggregate principal amount of
the 13% Notes. The remaining $22.6 million aggregate principal amount of the
13% Notes not tendered in the Tender Offer are expected to be purchased,
redeemed or defeased by the Company prior to the end of January 1998. In
connection therewith, the Company will recognize an extraordinary loss on
the early extinguishment of debt of approximately $20.6 million due to the
premium to retire all of the 13% Notes and the related write-off of
unamortized debt issuance costs on the 13% Notes. The estimated fees and
expenses of the Offering and the Exchange Offer total $6.8 million.
(c) Assumes all of the outstanding Old Notes are exchanged for New Notes
pursuant to the Exchange Offer.
30
<PAGE> 33
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company presented below for
and as of the end of each of the three years ended December 31, 1996 were
derived from the audited consolidated financial statements of the Company. The
data presented below for and as of the end of each of the years ended December
31, 1993 and 1992 and six months ended June 30, 1997 and 1996 are unaudited. In
the opinion of management, such interim data include all adjustments (which were
of a normal recurring nature) necessary for a fair presentation of the
information set forth therein. The Company's operations are subject to seasonal
factors, and therefore, the results of operations for the six months ended June
30, 1997 and 1996 are not necessarily indicative of the results of operations
for the full year. The data presented should be read in conjunction with
financial information appearing elsewhere in this Prospectus. See "Consolidated
Financial Statements" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------- --------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ -------- --------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
(AS RESTATED)(a)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................................... $330.5 $322.8 $640.2 $653.6 $682.0 $ 666.7 $ 688.6
Depreciation and amortization..................... 28.1 27.7 55.9 57.4 58.9 60.4 57.8
Operating income (loss)........................... 9.6 4.3 20.0 5.2 (16.1) (18.1) (19.3)
Loss before extraordinary item and cumulative
effect on prior years of change in accounting
for income taxes (b)(c)......................... (13.0) (19.9) (24.9) (31.4) (39.5) (31.4) (33.6)
Loss per common share (pro forma for 1995 and
1994) (d)....................................... (1.06) (1.63) (2.04) (3.25) (4.61)
OTHER FINANCIAL DATA:
EBITDA (e)........................................ $ 37.7 $ 32.0 $ 75.9 $ 62.6 $ 42.8 $ 42.3 $ 38.5
Cash provided by (used in):
Operating activities............................ (4.1) (5.8) (5.3) (9.9) 32.8 49.9 64.5
Investing activities............................ (13.2) (11.0) (9.8) (42.1) (21.4) (36.1) (25.1)
Financing activities............................ 10.2 7.2 10.4 60.4 (9.6) (13.6) (41.8)
Ratio of earnings to fixed charges (f)............ -- -- -- -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and equivalents (g).......................... $ 9.6 $ 11.7 $ 16.5 $ 21.3 $ 12.8 $ 11.0 $ 10.7
Installment contracts receivable, net............. 317.2 300.7 300.2 303.4 284.1 322.7 327.8
Total assets...................................... 910.2 910.0 893.3 936.5 951.0 1,016.7 1,012.4
Total debt........................................ 397.8 372.7 384.8 369.5 300.4 312.1 276.2
Stockholders' equity (c)(g)....................... 13.3 18.9 24.2 31.7 34.8 50.6 146.8
</TABLE>
- ---------------
(a) The selected consolidated financial data presented herein for periods prior
to the six months ended June 30, 1997 have been restated to reflect a change
in the Company's method of recognizing membership revenue. See "Consolidated
Financial Statements".
(b) In 1996, the Company recognized a net extraordinary gain on extinguishment
of debt consisting of (i) a gain (net of taxes) of $9.9 million ($.81 per
share) resulting from indebtedness owed Entertainment which was forgiven as
part of the December 1996 merger of Entertainment with and into Hilton and
(ii) a charge (net of taxes) of $4.2 million ($.35 per share) resulting from
the refinancing of the Company's prior securitization facility by the
Securitization Facility. In 1993, the Company recognized an extraordinary
loss on extinguishment of debt of $6.0 million (net of taxes) resulting from
a refinancing of certain indebtedness.
(c) In 1993, the Company changed its method of accounting for income taxes as
required by SFAS No. 109, "Accounting for Income Taxes". As permitted by
SFAS No. 109, the Company elected to use the cumulative effect approach
rather than to restate the consolidated financial statements of any prior
years to apply the provisions of SFAS No. 109, which resulted in a charge of
$69.0 million in 1993.
(d) The loss for the years ended December 31, 1995 and 1994 reflects a federal
income tax benefit arising from the Company's prior tax sharing agreement
with Entertainment of $7.1 million and $15.2 million, respectively. Pro
forma loss per common share (which is unaudited) was calculated 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 return
for each year and (ii) the distribution of 11,845,161 shares of the
Company's common stock to Entertainment stockholders as if such distribution
had taken place as of the beginning of each year.
(e) EBITDA is defined as operating income (loss) before depreciation and
amortization. The Company has presented EBITDA supplementally because
management believes this information is useful given the significance of the
Company's depreciation and amortization and because of its highly leveraged
financial position. These data 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 they be
considered as an indicator of the Company's overall financial performance.
Also, the EBITDA definition used herein may not be comparable to similarly
titled measures reported by other companies.
(f) The ratio of earnings to fixed charges is calculated by dividing (i) loss
before income taxes, extraordinary item and cumulative effect on prior years
of change in accounting for income taxes plus fixed charges (adjusted for
capitalized interest) by (ii) fixed charges. Fixed charges consist of
interest incurred (expensed or capitalized) and the portion of rent expense
which is deemed representative of interest. Earnings were insufficient to
cover fixed charges by $12.9 million, $19.0 million, $26.2 million, $37.1
million, $53.1 million, $55.9 million and $49.7 million for the six months
ended June 30, 1997 and 1996 and for the years ended December 31, 1996,
1995, 1994, 1993 and 1992, respectively.
(g) In August 1997, the Company completed the Stock Offering, which provided net
proceeds of $88.4 million to the Company after deducting the underwriting
discount and related expenses.
31
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The primary strategic initiative of management involves improving the
results of its core business and, as capital is available, replicating the
profitable new fitness center model through expansion. In 1993, the Company
began building more efficient fitness centers by eliminating pools and other wet
areas and racquet sports (all of which are costly to build and maintain and
which have significantly lower utilization rates), and replacing much of that
space with expanded workout areas which receive a higher degree of member use.
At approximately the same time, the Company emphasized member payment plans
using EFT for financed initial membership fees by adjusting sales commissions
and member incentives. The Company's experience has indicated better collection
results for financed memberships sold under EFT plans compared to those sold
with standard coupon book payment plans. EFT-financed memberships represented
approximately 56% of the total financed initial membership fee contracts in the
receivables portfolio at June 30, 1997. Over the past several years, membership
types and pricing options were standardized, making the selling process less
complicated for both the customer and the sales personnel. In August 1994, the
Company implemented a program to increase monthly dues for contracts sold after
that date and in late 1995 began to curtail the practice of discounting dues for
multiple year renewal offers. The Company believes all of these actions, certain
of which reduced new membership unit sales and revenues, will ultimately improve
cash flows and operating income.
In addition, management made certain changes designed to integrate
operations and reduce operating costs including personnel costs, advertising
expenses and other operating expenses. As part of its continuing cost reduction
program, the Company began a long-term consolidation project in 1991 and
computer conversion in 1994 for its regional service centers ("RSCs"). The
consolidation of five RSCs into two remaining RSCs was completed in the third
quarter of 1995, and the elimination of cost redundancies continued throughout
1996. The primary phase of the computer conversion was completed in the fourth
quarter of 1995. With the addition of new hardware and software, the Company has
streamlined its processing procedures and developed efficiencies that enable the
RSCs to service members better while reducing costs.
The rate of the Company's provision for doubtful receivables can vary from
period to period. The Company estimates the ultimate realization of initial
membership fees originated on financed memberships based upon a number of
factors such as method of payment (EFT vs. coupon books) and amount of
downpayment, among others. The Company continually analyzes the provision
because initial membership fees can be paid to the Company in installments.
Updated collection experience trends are reviewed each reporting period and, if
necessary, the allowance is adjusted accordingly. Changes in the allowance as a
percentage of gross receivables may result from various factors including
significant near-term fluctuations in amounts of initial membership fees
originated for financed memberships (historically, approximately one-half of
financed memberships that default do so within 120 days of origination) or the
timing or acceleration of write-offs. The Company believes the qualitative
profile of its receivables portfolio at June 30, 1997 is generally improved from
that in recent years due to more accounts paying by EFT and higher average
downpayments.
Management also believes significant opportunities exist to increase
revenues beyond those generated by the sale of memberships without significant
capital expenditures. To capitalize on the Company's strong brand identity,
extensive distribution infrastructure (approximately 320 facilities),
significant member base (approximately four million members) and frequency of
visitation (in excess of 100 million visits in 1996), management has begun to
pursue the following growth opportunities: (i) the sale of nutritional products
to its members through its fitness centers and telemarketing; (ii) the provision
of comprehensive outpatient rehabilitation services to both members and
non-members; and (iii) the sale of other goods and services, including apparel
and other items in retail shops located within its fitness centers and certain
financial services to its members.
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RESULTS OF OPERATIONS
Accounting change
In connection with the Stock Offering, the SEC Staff advised the Company it
requires all registrants operating fitness centers with membership plans that
include initial membership fees to follow a "deferral method" of accounting with
respect to the recognition of revenue from initial membership fees. The
accompanying consolidated financial statements for periods prior to the six
months ended June 30, 1997 have been restated from those originally reported
because this "deferral method" differed from the revenue recognition method
historically used by the Company. See "Consolidated Financial Statements".
Comparison of the six months ended June 30, 1997 and 1996
Net revenues for the first six months of 1997 were $330.5 million compared
to $322.8 million in 1996, an increase of $7.7 million (2%). The average number
of fitness centers selling memberships decreased from 323 in the first six
months of 1996 to 318 in the first six months of 1997, reflecting the closure of
13 older, typically smaller and less profitable facilities and the sale of a
fitness center to a franchisee, offset, in part, by the opening of six new,
larger facilities between January 1996 and June 1997. Initial membership fees
originated increased $6.4 million (3%) in the 1997 period, consisting of a $17.7
million (11%) increase in financed memberships originated, offset, in part, by
an $11.3 million (26%) decrease in paid-in-full memberships originated. These
results generally reflect management's current strategy of selling more financed
membership plans and fewer discounted paid-in-full membership plans, which
resulted in a 21% increase in the average selling price of contracts sold and a
14% decline in the number of contracts sold. Dues collected increased $11.2
million (13%) over 1996, reflecting the Company's continuing strategy of
increasing renewal dues. Finance charges earned increased $1.0 million (5%) in
the 1997 period due primarily to the increase in the size of the receivables
portfolio. The change in deferred revenues for the 1997 period compared to the
1996 period negatively impacted net revenues by $11.1 million, and this
unfavorable trend with respect to the change in deferred revenues in 1997 versus
1996 is expected to continue through the remainder of 1997.
Operating income for the first six months of 1997 was $9.6 million compared
to $4.3 million in 1996. The increase of $5.3 million is due to the
aforementioned increase in revenues offset, in part, by a $2.3 million (1%)
increase in operating costs and expenses, which includes a $3.4 million charge,
principally non-recurring amortization, relating to restricted stock awards
issued in conjunction with the Spin-off (for which the remaining restrictions
lapsed in June 1997 and vesting did not occur until August 1997). Excluding the
charge related to restricted stock awards and the provision for doubtful
receivables, operating costs and expenses decreased $4.2 million (2%) from 1996
primarily due to a $3.1 million (15%) decrease in member processing and
collection center expenses, which includes decreases in telephone expenses (as a
result of renegotiated rates and fewer member service calls), equipment rental
and printing costs. In addition, advertising expenses decreased $1.9 million
(7%) due to reduced television spending and the elimination of certain agency
fees in 1997. Operating costs and expenses for the third quarter of 1997 are
anticipated to include a final $2.9 million charge in connection with the August
1997 vesting of the restricted stock awards described above, and results from an
increase in the market price of the Company's common stock through the vesting
date.
The provision for doubtful receivables for the first six months of 1997 was
$47.6 million compared to $44.4 million in 1996, an increase of $3.2 million
(7%) primarily due to the increase in initial membership fees originated on
financed memberships.
Interest expense was $22.4 million for the first six months of 1997
compared to $23.9 million in 1996, a decrease of $1.5 million (6%) primarily due
to lower average interest rates and an increase in the amount of capitalized
interest.
The income tax provision for the first six months of 1997 and 1996 has been
determined using the estimated annual effective tax rate for each year and
reflects state income taxes only, as no federal benefit has been provided due to
the uncertainty of tax loss realization.
Comparison of the years ended December 31, 1996 and December 31, 1995
Net revenues for 1996 were $640.2 million compared to $653.6 million in
1995. The decrease in revenues results, in part, because the average number of
fitness centers selling memberships decreased from 332 in 1995 to
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322 in 1996, reflecting the closure of 25 older, typically smaller and less
profitable facilities and the sale of a fitness center to Entertainment offset,
in part, by the opening of 13 new, larger facilities over the two-year period.
Initial membership fees originated decreased $29.7 million (7%) primarily due to
a 12% decline in the number of contracts sold offset, in part, by a 6% increase
in the average selling price as a result of the sale of more premium
memberships. Dues collected increased $5.1 million (3%) over 1995 despite the 3%
reduction in the average number of facilities operated, reflecting the Company's
continuing strategy of increasing renewal dues. Finance charges earned decreased
$.5 million (1%) in 1996 compared to 1995. Fees and other revenues decreased
$1.3 million (8%) primarily due to the reduction of personal trainer revenue in
1996 as a result of temporarily outsourcing the service and non-recurring income
in 1995 pertaining to insurance recoveries.
Operating income for 1996 was $20.0 million compared to $5.2 million in
1995. The increase of $14.8 million was due to a $28.3 million (4%) reduction in
operating costs and expenses offset, in part, by the aforementioned decrease in
revenues. The reduction in operating costs and expenses was achieved despite an
$8.3 million increase in the provision for doubtful receivables and a $5.1
million charge related to restricted stock awards issued in conjunction with the
Spin-off for which restrictions lapsed due to an increase in the market price of
the Company's common stock. Excluding the provision for doubtful receivables and
charge related to restricted stock awards, operating costs and expenses
decreased $41.6 million (7%) in 1996 compared to 1995 primarily due to
reductions in fitness center operating expenses and member processing and
collection center expenses. Fitness center operating expenses for 1996 decreased
$30.1 million (8%) from 1995 primarily due to a reduction in payroll and related
costs and other variable costs as a result of the continuing cost reduction
program and the 3% reduction in the average number of fitness centers operated
in 1996 compared to 1995. In addition, insurance expenses declined due to
favorable experience in controlling general liability risks, and commissions
decreased as a result of the decline in initial membership fees originated.
Member processing and collection center expenses decreased $8.0 million (16%)
primarily due to the aforementioned RSC consolidation and computer projects.
The provision for doubtful receivables for 1996 was $80.4 million compared
to $72.1 million in 1995, an increase of $8.3 million (12%). Management believes
the additional provision for doubtful receivables in 1996 adequately reserves
for collection experience that may ultimately be realized from sales programs in
general, and specifically from sales promotions allowing very low downpayments
offered from time to time between July 1995 and October 1996 that have shown
indications of underperforming historical collection experience.
Interest expense, net of capitalized interest, was $47.6 million in 1996
compared to $43.8 million in 1995, an increase of $3.8 million (9%) principally
reflecting a higher average level of debt offset, in part, by lower average
interest rates.
As a result of the Spin-off, the Company is no longer included in the
consolidated federal income tax return of Entertainment and is required to file
its own separate consolidated federal income tax return. Accordingly, the income
tax benefit for 1996 reflects a benefit equal to the federal provision allocated
to the extraordinary item (no additional benefit has been provided due to the
uncertainty of tax loss realization), net of a state income tax provision.
Pursuant to a tax sharing agreement with Entertainment, the effective rate of
the income tax benefit for 1995 was lower than the U.S. statutory tax rate (35%)
due principally to operating losses without a current year tax benefit and
non-deductible amortization of costs in excess of acquired assets.
Comparison of the years ended December 31, 1995 and December 31, 1994
Net revenues for 1995 were $653.6 million compared to $682.0 million in
1994. Dues collected increased by $4.2 million (2%) reflecting the Company's
strategy of increasing renewal dues. Initial membership fees originated
decreased $20.0 million (5%) in 1995 primarily due to a 6% decline in the number
of contracts sold offset, in part, by a 4% increase in the average selling
price, generally reflecting the Company's strategy of realigning its sales mix
to include more financed contracts and somewhat fewer cash contracts, although
some promotions were offered with an emphasis on cash contracts. Management
believes that initial membership fees originated were also negatively impacted
by the general retail climate and increased competition. The average number of
fitness centers selling memberships decreased from 336 in 1994 to 332 in 1995,
reflecting the closure
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of 26 older, typically smaller facilities and the sale of a fitness center to
Entertainment offset, in part, by the opening of 13 new, larger facilities over
the two-year period.
Operating income for 1995 was $5.2 million compared to an operating loss of
$16.1 million in 1994. The improvement of $21.3 million was due to a $49.8
million (7%) reduction 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 $18.0 million (3%) in 1995
compared to 1994 primarily due to a reduction in fitness center operating
expenses. Fitness center operating expenses for 1995 decreased $10.6 million
(3%) from 1994 primarily due to a reduction in salaries and other variable costs
as a result of the continuing cost reduction program and, to a lesser extent,
reduced commissions as a result of the decline in initial membership fees
originated. In addition, member processing and collection center expenses
decreased $1.8 million (4%) primarily due to the aforementioned RSC
consolidation project.
The provision for doubtful receivables for 1995 was $72.1 million compared
to $103.9 million in 1994, a decrease of $31.8 million (31%). The reduction was
primarily due to additional reserves recorded in 1994 in conjunction with
management's reevaluation of collection risks associated with financed sales and
due to the improving collection experience of installment contracts receivable,
primarily the reduction in first payment defaults and an increase in EFT
contracts within the receivables portfolio.
Interest expense, net of capitalized interest, was $43.8 million in 1995
compared to $38.6 million in 1994, an increase of $5.2 million (13%) principally
reflecting a higher average level of debt offset, in part, by lower average
interest rates.
Pursuant to a tax sharing agreement with Entertainment, the effective rates
of the income tax benefit for 1995 and 1994 were lower than the U.S. statutory
tax rate (35%) due principally to operating losses without a current year tax
benefit and non-deductible amortization of costs in excess of acquired assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no scheduled principal payments under the Notes until 2007.
The principal amount of the certificates under the Securitization Facility
remains fixed at $160 million through July 1999. The existing Bank Credit
Facility, under which borrowings on the credit line totaled $12 million at June
30, 1997, expires in June 1998. Accordingly, without giving effect to the Stock
Offering, the Refinancing or the Exchange Offer, debt service requirements
(including interest) of the Company for the twelve months ending June 30, 1998
are approximately $64 million. See "Summary Historical and Pro Forma
Consolidated Financial Data" for the pro forma effects of the Stock Offering,
the Refinancing and the Exchange Offer.
The Company raised $225 million through the issuance of the Old Notes,
which is being used to retire the 13% Notes (including premiums paid to the
holders thereof) and pay the fees and expenses of the Offering and the Exchange
Offer. Pursuant to the Tender Offer, the Company purchased $177.4 million
aggregate principal amount of the 13% Notes. The remaining $22.6 million
aggregate principal amount of the 13% Notes not tendered in the Tender Offer are
expected to be purchased, redeemed or defeased by the Company prior to the end
of January 1998. The Company intends to substantially modify or replace the
existing Bank Credit Facility. The Refinancing and the substantial modification
or replacement of the existing Bank Credit Facility will reduce interest
expense, extend debt maturities and improve financial flexibility.
The Company intends to expand and upgrade its facilities in order to
increase its membership base and more effectively capitalize on its streamlined
marketing and administrative functions. Using cash generated by operations and
through leasing arrangements, management plans to make capital expenditures of
approximately $10 million to $12 million over the next twelve months to maintain
and make minor upgrades to the Company's existing facilities, which include
exercise equipment upgrades, HVAC and other operating equipment upgrades and
replacements, and locker room and workout area refurbishments, among others.
In addition, the Company issued 8,000,000 shares of its common stock in
August 1997 through the Stock Offering, which provided net proceeds of $88.4
million to the Company. The Company has used or intends to use the proceeds of
the Stock Offering as follows: (i) approximately $25 million to $30 million over
the next three years for capital expenditures to open 20 to 30 new facilities,
(ii) approximately $10 million over the next two
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years to extensively refurbish and make major upgrades to approximately 25% of
its clubs, which include converting low-usage pools and racquet areas into
expanded exercise areas and to a lesser extent retail and outpatient
rehabilitation service areas, adding and upgrading exercise equipment, and
refreshing interior and exterior finishes to improve club ambience, among
others, (iii) $7.5 million to repay a loan from an affiliate of an underwriter
of the Stock Offering, (iv) as much as $3 million to support the introduction of
new initiatives, and (v) the balance for general corporate and working capital
purposes. Pending such uses, the Company may temporarily invest available funds
from the Stock Offering in short-term securities and/or reduce indebtedness
under its existing revolving credit agreement.
Prior to the Stock Offering, the Company was dependent on availability
under the existing Bank Credit Facility and its operations to provide for cash
needs. The Company has managed liquidity requirements in recent years by
utilizing membership plan discounting techniques designed to increase its cash
sales and down-payments and to accelerate collections and dues payments to
increase available cash reserves and, to a lesser extent, sales of non-strategic
assets and sale/leaseback arrangements. Management believes use of these
discounting techniques has had a negative impact on both current and long term
results, and that the proceeds provided by the Stock Offering have reduced the
need to continue the discounting techniques. Management also believes that the
Company will be able to satisfy its debt service and capital expenditure
requirements over the next twelve months. As a result of the Stock Offering and
the Refinancing, the Company's liquidity and financial flexibility have
significantly improved.
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BUSINESS
The Company is the largest (and only nationwide) commercial operator of
fitness centers in the United States in terms of revenues, the number of
members, and the number and square footage of facilities. As of June 30, 1997,
the Company operated approximately 320 fitness centers concentrated in major
metropolitan areas in 27 states and Canada and had approximately four million
members. During 1996, Bally's members made more than 100 million visits to its
fitness centers.
The Company offers its members value by providing access to
state-of-the-art fitness facilities with affordable membership programs. Bally's
fitness centers feature an outstanding selection of cardiovascular, conditioning
and strength equipment and offer extensive aerobic training programs. The
Company's new club prototype achieves efficiency by focusing on those fitness
services that receive a high degree of member use. Most of the Company's current
fitness centers include pools, racquet courts or other athletic facilities that
receive a lower degree of member use. The Company has clustered its fitness
centers in major metropolitan areas in order to achieve marketing and operating
efficiencies. These markets include, among others, New York, Los Angeles,
Chicago, Houston, Dallas, Detroit, Baltimore, Washington, D.C., Philadelphia,
Miami, Cleveland, Atlanta, Milwaukee, Seattle, Minneapolis, Orlando, Denver,
Phoenix, St. Louis, Boston and Kansas City. In 1996, the Company completed the
process of renaming its fitness centers so they all use the servicemark "Bally
Total Fitness", thereby enhancing brand identity, concentrating advertising and
eliminating the prior practice of using more than 25 different regional
servicemarks and trade names.
The Company's primary target market for new members is the 18 to 34-year
old, middle income segment of the population. Bally markets itself to this
consumer segment through the use of a variety of membership options and payment
plans. The membership options offered by the Company range from single-club
memberships to premium memberships which provide additional amenities and the
use of all of Bally's fitness centers nationwide. Similarly, the Company offers
a broad range of payment alternatives. Typically, members pay an initiation fee
which can either be financed (generally for 36 months and subject to downpayment
requirements) or paid-in-full at the time of joining. Members are also required
to pay monthly membership dues in order to use the Company's fitness facilities.
Management believes the various memberships and payment plans, in addition to
Bally's strong brand identity and the convenience of its multiple locations,
provide the Company distinct competitive advantages.
OPERATING STRATEGIES
In October 1996, Lee S. Hillman was named President and Chief Executive
Officer of the Company. This completed the transition of senior management of
the Company from predominantly marketing oriented managers, including the
original founders of the Company, to managers with more financial and
operational orientation. Until December 1996, a number of the Company's top
executives, including Mr. Hillman, also performed significant functions for
Entertainment, the owner of the Company until January 1996. Current management
intends to pursue a number of operating strategies, including the following,
which the Company believes will improve the results of its core business:
- Reduce Discount Pricing on Paid-In-Full Membership Plans -- Since late
1990, the Company has managed its pricing structure to generate immediate
cash for liquidity by significantly discounting its membership plans and
by emphasizing paid-in-full instead of financed membership plans.
Additional working capital provided by the Stock Offering will allow the
Company to sell more financed membership plans, which historically have
generated better long-term returns for the Company including streams of
recurring dues revenues, rather than selling discounted paid-in-full
memberships for which dues are frequently waived for up to three years.
- Upgrade and Expand Fitness Centers -- The Company intends to expand and
upgrade its facilities in order to increase its membership base and more
effectively capitalize on its streamlined marketing and administrative
functions. Management plans to make capital expenditures of approximately
$10 million to $12 million over the next twelve months to maintain and
make minor upgrades to the Company's existing facilities, which include
exercise equipment upgrades, HVAC and other operating equipment upgrades
and replacements, and locker room and workout area refurbishments, among
others. In addition, the Company intends to invest approximately $10
million of the net proceeds from the Stock Offering over the next two
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years to extensively refurbish and make major upgrades to approximately
25% of its clubs, which include converting low-usage pools and racquet
areas into expanded exercise areas and to a lesser extent retail and
outpatient rehabilitation service areas, adding and upgrading exercise
equipment, and refreshing interior and exterior finishes to improve club
ambience, among others. The Company also intends to spend approximately
$25 million to $30 million of the net proceeds from the Stock Offering
over the next three years to open 20 to 30 new facilities based on its
new prototype. These facilities are designed to cost less to construct
and maintain than the Company's older facilities. The facilities are
expected to range in size from 10,000 to 45,000 square feet and have the
capacity to accommodate significantly more members than older clubs of
the same size because the new facilities will contain only the most
widely used amenities.
- Increase Dues Revenues -- The Company believes that its dues are
substantially less than those charged by its competitors and that it can
significantly increase dues for its members who are beyond their initial
financing period without any material loss in membership.
- Improve Collections on Financed Contracts -- The Company plans to
continue its focus on increasing the downpayment on financed membership
plans and securing payment by EFT, which the Company's experience has
shown results in higher quality receivables. Further, the Company intends
to institute more focused collection efforts based on information
provided by "credit scoring", which management believes will also improve
the yield from the receivables portfolio.
- Continue Cost Reduction Policies -- The Company's operating costs and
expenses for 1996 were more than $75 million lower than in 1994.
Management believes that other opportunities exist to cut additional
costs in the areas of administration, advertising and self-insured losses
incurred.
GROWTH OPPORTUNITIES
The Company currently generates substantially all of its revenues from the
sale of membership plans and the receipt of dues. Management believes that it
can increase and diversify its revenues by leveraging its strong brand identity,
extensive distribution infrastructure (approximately 320 facilities),
significant member base (approximately four million members) and frequency of
visitation (in excess of 100 million visits in 1996) by offering a number of
ancillary products and services. In order to pursue these growth opportunities,
the Company plans to:
- Sell Nutritional Products -- The Company has successfully concluded test
marketing certain nutritional products, predominantly vitamins and weight
control supplements, and is launching the sale of these products to
members through its fitness centers and telemarketing.
- Provide Outpatient Rehabilitation Services -- The Company plans to
contract with providers of health care programs and services whereby
certain of the Company's existing facilities will also be used for
comprehensive outpatient rehabilitation services. The Company believes it
has opportunities with a number of third party providers and managers of
health care programs and services to provide similar outpatient
rehabilitation services in additional fitness centers, and expects to
offer these services within three years to members and nonmembers alike
in up to 100 of its facilities primarily using equipment already on-hand.
Among others, the Company has recently contracted with Continucare
Corporation to provide such services in certain, initially four, of the
Company's fitness centers. The Company plans to spend approximately $1
million of the net proceeds from the Stock Offering to upgrade an initial
group of its facilities to provide rehabilitation services.
- Offer Other Goods and Services -- The Company plans to sell work-out and
related apparel and market certain financial services and direct
marketing programs provided by third parties to its members such as a
co-branded credit card, credit life insurance, dining clubs and ATMs in
its clubs through in-club sales efforts and direct marketing programs.
The Company has entered into agreements with various entities to test
market the provision by third parties of financial services to its members
including the sale of credit life insurance, pursuant to which a participant's
unpaid credit card debts are paid-off if the participant dies. The programs are
typically designed such that the Company shares in either the revenue generated
by or net profit resulting from members purchasing the offered services. Test
marketing and, ultimately, the provision of services of this type by third
parties to the Company's members do not require significant capital expenditures
by the Company. Consequently, the Company expects to explore the sale of other
similar or complementary services and expects to make those products that are
most successful available to all of its members.
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MEMBERSHIP PLANS
The Company currently offers prospective members a number of membership
plans that differ primarily by the inclusion of additional in-club services
(such as racquet sports and child care) and access to other fitness centers
operated by the Company, either locally or nationally. From time to time, the
Company also offers special membership plans which limit access to fitness
centers to certain days and non-peak hours. The initial membership fees for
access to the Company's fitness center facilities range from approximately $399
to $1,179 depending on the membership plan selected, the diversity of facilities
and services available at the club of enrollment, the local competitive
environment, as well as the effects of seasonal promotional strategies.
In addition to the one-time initial membership fee, members pay monthly
membership dues in order to maintain their membership privileges. Monthly dues
for memberships generally range from $4.00 to $5.50 during the typical financing
period for a membership plan and vary based on the type of plan purchased by the
member. Some seasonal promotional programs offered by the Company in the past
have required no dues payments for up to 36 months if the member pays the
initiation fee in full at the time of joining. Renewal dues (those paid after
the typical 36 month initial period ends) generally range from as little as
$2.00 to as much as $25.00 per month, with increases as contractually permitted.
At June 30, 1997, approximately 90% of the Company's members were being charged
dues ranging from $2.00 to $15.00 per month, with the overall average
approximately $7.70 per month. The Company has experienced an annual growth rate
of dues revenues of 7% from 1992 to 1996. The Company expects the annual
increases in dues revenues will continue in the future due to the contractual
terms of current membership plans and the Company's belief that it can
significantly increase dues for its members who are beyond their initial
financing period without any material loss in membership. The Company also
offers renewal dues that vary depending on the member's historical usage of the
fitness center facilities. The Company's recent experience has shown that
members faced with a membership renewal decision for the first time renewed at a
rate of approximately 58% and members faced with a membership renewal decision
for subsequent periods renewed at a rate of approximately 84%.
Members selecting finance membership plans can choose from several payment
mechanisms and downpayment options. The Company expects to continue its focus on
increasing the downpayment it receives on financed membership contracts and on
securing payment by EFT. The Company believes that both these strategies result
in better quality receivables. Further, the Company intends to modify its
collection efforts, based on the information provided by "credit scoring", which
management believes will also improve the yield from the receivables portfolio.
See "-- Account Servicing".
FINANCING OF INITIAL MEMBERSHIP FEE
Financed portions of initial membership fees may be prepaid without penalty
at any time during the financing term. Generally, financing terms of 36 months
are offered. Shorter terms are offered on a promotional basis or as required by
applicable state law. Contracts are financed at a fixed annual percentage rate
(generally between 16% and 18%, except as otherwise limited by applicable state
retail installment laws). Management expects that approximately 80% to 85% of
all new membership contracts originated during 1997 will be financed.
The Company offers two payment methods for financed portions of initial
membership fees: coupon books and EFT. EFT plans are the most popular mechanism
for payment of the financed portion of initial membership fees. Under an EFT
plan, on the same date each month a predetermined amount is either (i)
automatically transferred from a member's bank checking or savings account to
the Company, or (ii) automatically charged to a member's designated credit card.
Currently, more than 60% of all financed memberships sold are paid by EFT. The
other mechanism for payment financing is the use of a coupon book. This
mechanism requires the member to mail a check monthly, accompanied by a payment
coupon, to the RSC responsible for administering the membership account. Members
have the option of changing their payment method.
On average, the Company received a downpayment of approximately $75 on
contracts that were financed during 1996. This downpayment adequately defrays
both the initial account set-up cost as well as any collection costs should the
account become immediately delinquent. As a result, the Company is able to
attract new members who might otherwise be rejected while covering the
incremental cost of new membership processing and collection through the
downpayment. The Company does not perform individual credit checks on
prospective
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members. This is due, in part, to the high cost associated with performing
credit checks on the large volume of prospective members, but also due to the
Company's ability, from past performance, to measure the average value of
contracts between coupon book and EFT payers and satisfactorily manage credit
risk. Historical analysis performed by the Company indicates that the collection
experience of EFT accounts is approximately 50% better than that of coupon book
accounts. As of June 30, 1997, approximately 56% of membership contract
receivables consisted of EFT-financed memberships compared to 29% at December
31, 1992, when emphasis on payments by EFT was introduced by management.
FITNESS CENTERS
Most of the Company's fitness centers are located near regional, urban and
suburban shopping areas and in downtown areas of major cities and are generally
operated under long-term leases. Fitness centers vary in size, available
facilities and types of services provided. Fitness centers contain a wide
variety of state-of-the-art progressive resistance, cardiovascular and
conditioning exercise equipment as well as free weights. A member's use of a
fitness center may include planned exercise programs and instruction stressing
cardiovascular conditioning, strength development and improved appearance. The
Company also has a comprehensive training program for its service personnel on
the use of exercise equipment.
Generally, the Company's fitness centers constructed prior to 1980 are
smaller in size and have fewer amenities than the fitness centers constructed in
the 1980's which average 35,000 square feet and generally include a colorful
workout area, sauna and steam facilities, a lap pool, free-weight rooms, aerobic
exercise rooms, an indoor jogging track and, in some cases, racquetball courts.
The Company's prototype fitness center focuses on those fitness services that
the Company's members most frequently use rather than on a broader range of
fitness services that generally receive a lower degree of member use such as
pools, racquet courts or other athletic facilities. These "dry" clubs, which
tend to be approximately 20,000 to 30,000 square feet, have recently averaged
approximately $800,000 to construct, exclusive of real estate and exercise
equipment costs and net of any landlord contribution. The Company invests
approximately $500,000 for exercise equipment for a typical new fitness center.
The Company intends to expand and upgrade its facilities in order to
increase its membership base and more effectively capitalize on its streamlined
marketing and administrative functions. Management plans to make capital
expenditures of approximately $10 million to $12 million over the next twelve
months to maintain and make minor upgrades to the Company's existing facilities,
which include exercise equipment upgrades, HVAC and other operating equipment
upgrades and replacements, and locker room and workout area refurbishments,
among others. In addition, the Company expects to invest approximately $10
million of the proceeds from the Stock Offering over the next two years to more
extensively refurbish and make major upgrades to approximately 25% of its clubs,
which include converting low-usage pools and racquet areas into expanded
exercise areas and to a lesser extent retail and outpatient rehabilitation
service areas, adding and upgrading exercise equipment, and refreshing interior
and exterior finishes to improve club ambience, among others. For the last
several years, the Company has spent $6 million to $15 million annually, as
funds were available, to open new or replacement facilities. The Company also
intends to spend approximately $25 million to $30 million of the proceeds from
the Stock Offering over the next three years to open 20 to 30 new facilities
based on its new prototype. These facilities are designed to cost less to
construct and maintain than the Company's older facilities. The facilities are
expected to range in size from 10,000 to 45,000 square feet and have the
capacity to accommodate significantly more members than older clubs of the same
size because they will contain only the most widely used amenities. At December
31, 1996, the Company had 35 of the new prototype facilities in operation, of
which 30 had been in operation for at least one year. The average 1996 net
revenues in excess of operating costs excluding depreciation and amortization
for these 30 facilities was approximately $900,000 compared to the average 1996
results for all of the Company's other fitness facilities of approximately
$650,000.
The Company recently entered into an agreement pursuant to which three
fitness centers in Syracuse, New York, including one facility previously owned
by the Company, are operated by a third party under the service mark "Bally
Total Fitness". The Company plans to seek additional franchise relationships for
facilities located in smaller markets.
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SALES AND MARKETING
The Company devotes substantial resources to the marketing and promotion of
its fitness centers and their services because the Company believes strong
marketing support is critical to attracting new members both at existing and new
fitness centers. In 1996, the Company completed the process of renaming its
fitness centers so they all use the servicemark "Bally Total Fitness", thereby
enhancing brand identity, concentrating advertising and eliminating the prior
practice of using more than 25 different regional servicemarks and trade names.
The Company's strategy is to cluster numerous fitness centers in major
media markets in order to increase the efficiency of its marketing and
advertising programs. At June 30, 1997, the Company operated approximately 260
clubs in 26 of the top 30 U.S. media markets.
The Company expects to spend approximately $45 million for advertising and
promotion during 1997 compared to approximately $47 million in 1996, $50 million
in 1995 and $48 million in 1994. The Company primarily advertises on television,
and, to a lesser extent, newspapers, telephone directories, radio and other
promotional activities.
The Company's sales and marketing programs emphasize the benefits of
health, physical fitness and exercise by appealing to the public's desire to
look and feel better. The Company's advertisements are augmented by individual
sales presentations made by its sales personnel in the fitness centers.
Management believes the various memberships and payment plans, in addition to
Bally's strong brand identity and the convenience of its multiple locations,
provide the Company distinct competitive advantages.
The Company's marketing efforts also include corporate membership sales and
insurance-eligible programs which are designed to reduce workers' compensation
costs and improve productivity. In addition to its advertising, personal sales
presentations and targeted marketing efforts, the Company is increasingly
utilizing in-club marketing programs. Open houses and contests for members and
their guests foster member loyalty and introduce fitness centers to prospective
members. Referral incentive programs involve current members in the process of
new member enrollments.
Direct mail reminders encourage renewal of existing memberships. The
Company has a group of approximately 100 individuals located at the Towson,
Maryland RSC dedicated primarily to inbound telemarketing renewal programs to
existing members, although telemarketing is not currently used to attract
prospective new members.
ACCOUNT SERVICING
The Company administers and collects amounts owing under its membership
contracts according to uniform procedures implemented by its two RSCs. The RSCs
enable the Company to conduct centralized data processing of all membership
accounts. At June 30, 1997, the RSCs employed approximately 770 people in the
account processing and collection areas, including approximately 155 employees
dedicated to customer service, approximately 340 employees dedicated to account
processing and administration and approximately 275 employees dedicated to
account collections. The two RSCs collectively receive, deposit and post more
than $550 million of membership transactions annually, including the processing
of downpayments and cash sales, and collections of financed receivables and
dues. In addition, the RSCs process, on average, 3,000 new membership accounts
per day. The RSCs are also responsible for responding to member inquiries and
maintaining membership data.
All collections for past-due accounts are handled internally by the RSCs.
The Company systematically collects accounts that are past due by utilizing a
series of computer-generated correspondence and telephone contacts.
Computer-generated correspondence is sent to a delinquent member at 7 and 20
days after an account becomes past due. Collectors with varying levels of
experience are responsible for handling delinquent accounts, depending on the
period of delinquency. At 30 and 60 days past due, the accounts are assigned to
power dialer assisted collectors initially as a reminder and later as a demand
for payment. Accounts that have not been collected for a 90-day period are
transferred to a group of the most experienced collectors (unless the first
scheduled payment has not been received on such accounts, in which case they are
generally written-off and any downpayment received is not refunded). All
remaining delinquent accounts are written-off after 180 days without
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payment. Written-off accounts are reported to credit reporting bureaus and sold
to a third-party collection group. The Company intends to modify its collection
efforts based on the information provided by "credit scoring", which management
believes will improve the yield from the receivables portfolio. For example, the
Company would not make costly collection calls to a member with a strong credit
history until late in the collection cycle. Likewise, the Company would
aggressively pursue collection tactics on a member with poor credit scoring
early in the delinquency period and reduce collection efforts if results were
not quickly realized. By tailoring its collection approach to reflect a
delinquent member's likeliness to pay, the Company believes it can collect more
of its receivables at a lower cost. The Company uses a national bureau which
charges the Company a nominal fee per credit score. Beginning in March 1997, the
Company has credit scored a majority of its financed members.
COMPETITION
The Company is the largest (and only nationwide) commercial operator of
fitness centers in the United States in terms of revenues, the number of members
and the number and square footage of facilities. The Company is the largest
operator, or among the largest operators, of fitness centers in every major
market in which it has fitness centers. The Company believes its fitness centers
generally offer a high level of amenities to its primary target market for new
members, the 18 to 34-year old, middle income segment of the population. Within
each market, the Company competes with other fitness centers, physical fitness
and recreational facilities established by local governments and hospitals and
by businesses for their employees, the YMCA and similar organizations and, to a
certain extent, with racquet and tennis and other athletic clubs, country clubs,
weight reducing salons and the home-use fitness equipment industry. However, the
Company believes that its operating experience, its ability to allocate
advertising and administration costs over all of its fitness centers, its
nationwide operations and its account processing and collection infrastructure
provide the Company distinct competitive advantages. There can be no assurance
that the Company will be able to compete effectively in the future in the
markets in which it operates.
The Company believes that competition has increased in certain markets. The
Company believes that this increase reflects the public's enthusiasm for fitness
and the decrease in the cost of entering the market due to financing available
from landlords and equipment manufacturers. The Company believes that its
membership plans are affordable and have the flexibility to be responsive to
economic conditions. However, the Company also competes with other entertainment
and retail businesses for the discretionary income of its target market.
When the Company embarks on its new initiatives, particularly the sale of
nutritional products and apparel, the Company will be competing against large,
established companies with more experience selling such products on a retail
basis and, in some instances, with substantially greater financial resources
than the Company. There can be no assurance that the Company will be able to
compete effectively against such established companies.
PROPERTIES
The Company operates approximately 320 fitness centers in 27 states and
Canada. The Company owns approximately 30 fitness centers and leases either the
land or the building or both for the remainder of its fitness centers. Aggregate
rent expense (including office and administrative space) was $45.5 million,
$86.7 million, $85.9 million and $83.3 million for the six months ended June 30,
1997 and the years ended December 31, 1996, 1995 and 1994, respectively. Most
leases require the Company to pay real estate taxes, insurance, maintenance and,
in the case of shopping center and office building locations, common area
maintenance fees. A limited number of leases also provide for percentage rental
based on receipts. Various leases also provide for rent adjustments based on
changes in the Consumer Price Index, most with limits provided to protect the
Company. Two fitness centers each accounted for between 1% to 2% of the
Company's net revenues during 1996. The Company believes its properties are
adequate for its current membership.
Leases for fitness centers entered into in the last five years generally
provide for an original term of no less than 15 years and, in some cases, for 20
years. Most leases for fitness centers contain at least one five-year option to
renew and often two or more such options.
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The Company's executive offices are located in Chicago, Illinois where it
is co-tenant at a monthly base rental cost to the Company of $43,700. The lease
expires in January 2003. The Company also leases space in Huntington Beach,
California and Towson, Maryland for RSC operations.
TRADEMARKS AND TRADE NAMES
In 1996, the Company completed the process of renaming its fitness centers
so they all use the servicemark "Bally Total Fitness", thereby enhancing brand
identity, concentrating advertising and eliminating the prior practice of using
more than 25 different regional servicemarks or trade names. The name "Bally
Total Fitness" is a servicemark of Hilton as successor to Entertainment. In
January 1996, the Company and Entertainment entered into a 10-year trademark
license agreement to allow the Company to use certain marks, including the
"Bally Total Fitness" servicemark, in connection with its fitness center
business. The Company paid no royalty or license fee for the first year of the
license and now pays a fee of $1 million per year. Following the initial
ten-year term, the Company has the option to renew the license for an additional
five-year period at a rate equal to the greater of the fair market value or $1
million per year.
SEASONAL MEMBERSHIP FEE ORIGINATIONS
Historically, the Company has experienced greater membership fee
originations in the first quarter and lower membership fee originations in the
fourth quarter. Certain of the new initiatives the Company plans to undertake
may have the effect of further increasing the seasonality of the Company's
business.
EMPLOYEES
At June 30, 1997, the Company had approximately 13,700 employees, including
approximately 7,100 part-time employees. Approximately 12,650 employees are
involved in club operations, including sales personnel, instructors, supervisory
or custodial personnel, approximately 770 are involved in the operation of the
RSCs and approximately 280 are administrative support personnel, including
accounting, legal, human resources, real estate and other national services.
The Company is not a party to any collective bargaining agreement with its
employees. Although the Company experiences high turnover of non-management
personnel, the Company historically has not experienced difficulty in obtaining
adequate replacement personnel, except with respect to sales personnel, which
the Company believes have become somewhat more difficult to replace due, in
part, to increased competition for skilled retail sales personnel.
GOVERNMENT REGULATION
The operations and business practices of the Company are subject to
regulation at federal, state and, in some cases, local levels. General rules and
regulations of the FTC, and of state and local consumer protection agencies,
apply to the Company's advertising, sales and other trade practices.
Statutes and regulations affecting the fitness industry have been enacted
or proposed in all of the states in which the Company conducts business.
Typically, these statutes and regulations prescribe certain forms and regulate
the terms and provisions of membership contracts, giving the member the right to
cancel the contract, in most cases, within three business days after signing,
requiring an escrow for funds received from pre-opening sales or the posting of
a bond or proof of financial responsibility and, in some cases, establishing
maximum prices and terms for membership contracts and limitations on the term of
contracts. In addition, the Company is subject to numerous other types of
federal and state regulations governing the sale, financing and collection of
memberships including, among others, the Truth-in-Lending Act and Regulation Z
adopted thereunder, as well as state laws governing the collection of debts.
These laws and regulations are subject to varying interpretations by a large
number of state and federal enforcement agencies and the courts. The Company
maintains internal review procedures in order to comply with these requirements
and it believes that its activities are in substantial compliance with all
applicable statutes, rules and decisions.
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Under so-called state "cooling-off" statutes, members of fitness centers
have the right to cancel their memberships for a period of three to ten days
after the date the contract was entered into (depending on the applicable state
law) and are entitled to refunds of any payment made. In addition, the Company's
membership contracts provide that a member may cancel his or her membership at
any time for qualified medical reasons or if the member relocates a certain
distance away from the health club, and a membership may be canceled in the
event of a member's death. The specific procedures for cancellation in these
circumstances vary according to differing state laws. In each instance, the
canceling member is entitled to a refund of prepaid amounts only. Furthermore,
where permitted by law, a cancellation fee is due to the Company upon
cancellation and the Company may offset such amount against any refunds owed.
The Company is a party to several state and federal consent orders. From
time to time, the Company makes minor adjustments in its operating procedures to
comply with such consent orders. The consent orders essentially require
continued compliance with applicable laws and require that the Company refrain
from activities that are not in compliance with applicable laws.
The provision of rehabilitation services is affected by federal, state and
local laws and regulations concerning the development and operation of physical
rehabilitation health programs, licensing, certification and reimbursement and
other matters, which may vary by jurisdiction and which are subject to periodic
revision. The opening of a rehabilitation facility may require approval from
state and/or local governments and re-licensure from time to time, both of which
may be subject to a number of conditions. In addition, a substantial number of
recipients of rehabilitation services have fees paid by governmental programs as
well as private third-party payors. Governmental reimbursement programs
(including Medicare and Medicaid) generally require facilities and services to
meet certain standards promulgated by the federal and/or state government.
Additionally, reimbursement levels by governmental and private third-party
payors are subject to change which could limit or reduce reimbursement levels
and could have a material adverse effect on the demand for rehabilitation
services. Further, in a number of states and in certain circumstances pursuant
to federal law, the referral of patients to rehabilitation services is subject
to limitations imposed by law, the violation of which may, in certain
circumstances, constitute a felony. Recently, federal and state governments have
focused significant attention on health care reform and cost control. These
proposals include cut-backs to Medicare and Medicaid programs. It is uncertain
at this time what legislation and health care reform may ultimately be enacted
or whether other changes in the administration or interpretation of government
health care programs will occur. There can be no assurance that future health
care legislation or other changes in the administration or interpretation of
government health care programs will not have a material adverse effect on the
provision of rehabilitation services by the Company.
LEGAL PROCEEDINGS
A class action entitled Jackson v. Health & Tennis Corporation of America
was filed in the state district court in Bexar County, Texas on May 8, 1995. The
complaint alleges that the defendant, a subsidiary of the Company, charged
excessive amounts on its financed memberships in violation of the Texas Credit
Code and the Texas Deceptive Trade Practices -- Consumer Protection Act. A
purported class action entitled Vasquez et al. v. Bally Total Fitness
Corporation, d/b/a Bally's, was filed in state district court in Bexar County,
Texas on September 18, 1997. The complaint alleges that the defendant, a
subsidiary of the Company, charged excessive amounts on its finance memberships
in violation of the Texas Credit Code, the Federal Truth-in-Lending Act and
Federal Reserve Board regulations. The relief sought in both cases is damages
equal to the alleged overpayments and statutory remedies. The Company is
currently unable to estimate the amount sought in these actions because the
potential size of each class and the amount of damages for each member of the
putative classes are currently unknown. The Company is vigorously defending
these actions. The outcome of this litigation is not currently determinable and,
consequently, the Company cannot predict whether it will have a material adverse
effect on the Company's financial condition or results of operations in any
future period.
The Company is involved in various other claims and lawsuits incidental to
its business, including claims arising from accidents at its fitness centers. In
the opinion of management, the Company is adequately insured against such claims
and lawsuits, and any ultimate liability arising out of such claims and lawsuits
will not have a material adverse effect on the financial condition or results of
operations of the Company.
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MANAGEMENT
The following table sets forth certain information concerning the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH COMPANY
---------------------------- --- ---------------------------------------------
<S> <C> <C>
Arthur M. Goldberg 55 Chairman of the Board
Lee S. Hillman 42 President, Chief Executive
Officer and Director
John W. Dwyer 45 Senior Vice President, Chief Financial
Officer and Treasurer
Cary A. Gaan 51 Senior Vice President, Secretary and
General Counsel
Harold Morgan 41 Senior Vice President, Human Resources
John H. Wildman 38 Senior Vice President, Sales and Marketing
Julie Adams 52 Vice President and Controller
Aubrey C. Lewis 62 Director
J. Kenneth Looloian 75 Director
James F. Mc Anally, M.D. 48 Director
Liza M. Walsh 39 Director
</TABLE>
Arthur M. Goldberg has been a director of the Company since 1990, has
served as Chairman of the Board of Directors of the Company since September
1995, and was the Company's Chief Executive Officer from September 1995 until
October 1996. Mr. Goldberg also serves as Executive Vice President, President --
Gaming Division and a director of Hilton, and he was Chairman of the Board of
Directors and Chief Executive Officer of Entertainment between October 1990 and
December 1996, and President of Entertainment between January 1993 and December
1996. Mr. Goldberg has been Chairman of the Board of Directors of Bally's Grand,
Inc. since August 1992 and has been its Chief Executive Officer since September
1992. In addition, Mr. Goldberg has been Chairman of the Board of Directors,
President and Chief Executive Officer of Di Giorgio Corporation and a director
of White Rose Foods, Inc. (food distributors) since February 1990. Mr. Goldberg
is also a director of First Union Corporation (a financial services company) and
Continucare Corporation (a manager of outpatient rehabilitation programs) and
Managing Partner of Arveron Investments L.P. (an investment partnership).
Lee S. Hillman has been director of the Company since September 1992 and
was elected President and Chief Executive Officer of the Company in October
1996. Additionally, Mr. Hillman was Treasurer of the Company from April 1991 to
October 1996, Executive Vice President of the Company from September 1995 to
October 1996, Senior Vice President of the Company from April 1991 to September
1995 and Chief Financial Officer of the Company from April 1991 to May 1994. Mr.
Hillman was Vice President, Chief Financial Officer and Treasurer of
Entertainment between November 1991 and December 1996 and Executive Vice
President of Entertainment between August 1992 and December 1996. Mr. Hillman
also served as Vice President-Administration of Bally's Grand, Inc. from August
1993 through February 1997. From October 1989 to April 1991, Mr. Hillman was a
partner with the accounting firm of Ernst & Young LLP.
John W. Dwyer was elected Vice President and Chief Financial Officer of the
Company in May 1994, a Senior Vice President of the Company in September 1995
and Treasurer of the Company in October 1996. Mr. Dwyer was Corporate Controller
of Entertainment between June 1992 and December 1996 and a Vice President of
Entertainment between December 1992 and December 1996. From October 1986 to June
1992, Mr. Dwyer was a partner with the accounting firm of Ernst & Young LLP.
Cary A. Gaan was elected Senior Vice President and General Counsel of the
Company in January 1991 and Secretary of the Company in April 1996. Mr. Gaan
served as a Vice President of the Company from 1987 to 1991.
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Harold Morgan has been employed by the Company since August 1991 and he was
elected a Vice President of the Company in January 1992 and Senior Vice
President, Human Resources of the Company in September 1995. Mr. Morgan was Vice
President, Human Resources of Entertainment between December 1992 and December
1996. From 1985 until August 1991, Mr. Morgan was Director of Employee and Labor
Relations of the Hyatt Corporation.
John H. Wildman was elected Senior Vice President, Sales and Marketing of
the Company in November 1996 and Vice President, Sales and Marketing of the
Company in September 1995. For approximately four years prior thereto, Mr.
Wildman was a Senior Area Director of the Company.
Julie Adams was elected Vice President and Controller of the Company in
January 1994 and was Controller of the Company from December 1992 to January
1994. Ms. Adams was Director of Financial Reporting of the Company from August
1985 to December 1992.
Aubrey C. Lewis was elected a director of the Company in December 1995. Mr.
Lewis has been a Vice President of Woolworth Corporation (a global retailer)
since 1967. Mr. Lewis also serves on the Boards of Directors of the United
States Naval Academy Foundation, the University of Notre Dame, the Port
Authority of New York and New Jersey, the New Jersey State Chamber of Commerce
and the Y.M.C.A. of Chinatown in New York City.
J. Kenneth Looloian was elected a director of the Company in December 1995.
Mr. Looloian is an Executive Vice President of Di Giorgio Corporation, a former
partner in Arveron Investments L.P. and a former Executive Vice President of
International Controls Corporation. Mr. Looloian is also a director of Bally's
Grand, Inc.
James F. Mc Anally, M.D. was elected a director of the Company in December
1995. Dr. Mc Anally is a private practitioner who specializes in hypertension
and kidney disease. He has been in private practice since 1980. Dr. Mc Anally
has been the Medical Director of Nephrology Services at Elizabeth General
Medical Center in Elizabeth, New Jersey since 1984. Dr. Mc Anally has also been
Chief of Nephrology at St. Elizabeth's Hospital in Elizabeth, New Jersey since
1981.
Liza M. Walsh was elected a director of the Company in December 1995. Ms.
Walsh has been an attorney at the law firm of Connell, Foley & Geiser since
1986, was named a partner of the firm in 1992 and concentrates in commercial
litigation. Ms. Walsh has also served as an Arbitrator for the United States
District Court for the District of New Jersey since 1990.
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<PAGE> 49
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
BANK CREDIT FACILITY
The existing Bank Credit Facility was amended in February 1997 to provide
for a $20 million line of credit, which is reduced by the amount of any
outstanding letters of credit in excess of $10 million (which excess may not
exceed $10 million). The maximum amount available under the existing Bank Credit
Facility, including letters of credit, is $30 million. The rate of interest on
borrowings is at the Company's option, based upon either the agent bank's prime
rate plus 2% or a Eurodollar rate plus 3%. A fee of 2.25% on outstanding letters
of credit is payable quarterly. A commitment fee of one-half of 1% is payable
quarterly on the unused portion of the Bank Credit Facility. At August 31, 1997,
the entire line of credit was unused and outstanding letters of credit totalled
$10.1 million. The existing Bank Credit Facility is secured by substantially all
real and personal property (excluding installment contracts receivable) of the
Company. The Company intends to substantially modify or replace the existing
Bank Credit Facility.
SECURITIZATION FACILITY
In December 1996, the Company completed a private placement of asset-backed
securities pursuant to which $145.5 million of 8.43% Accounts Receivable Trust
Certificates and $14.5 million of Floating Rate Accounts Receivable Trust
Certificates (the "Floating Certificates") were issued as undivided interests in
the Trust. The Floating Certificates bear interest (8.22% at August 31, 1997) at
2.57% above the London Interbank Offer Rate ("LIBOR"), with the interest rate on
the Floating Certificates capped at 9.43% pursuant to an interest rate cap
agreement. The Trust was created for the issuance of asset-backed securities and
was formed pursuant to a pooling and servicing agreement. The Trust includes a
portfolio of substantially all of the Company's installment contracts receivable
from membership sales and the proceeds thereof. The amount by which installment
contracts receivable in the Trust exceed the $160 million principal amount of
certificates issued by the Trust is generally retained by the Company. The
Company services the installment contracts receivable held by the Trust and
earns a servicing fee which approximates the servicing costs incurred by the
Company. Through July 1999, the principal amount of the certificates remains
fixed and collections of installment contracts receivable flow through to the
Company in exchange for the securitization of additional installment contracts
receivable, except that collections are first used to fund interest
requirements. The amortization period commences in August 1999, after which
collections of installment contracts receivable will be used first to fund
interest requirements and then to repay principal on the certificates. The
amortization period ends upon the earlier to occur of the certificates being
repaid in full or August 2002.
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<PAGE> 50
DESCRIPTION OF THE NEW NOTES
The New Notes offered hereby will be issued under the Indenture dated as of
October 7, 1997 between the Company and First Trust National Association, as
Trustee, a copy of which will be made available to Eligible Holders upon request
to the Company.
Upon the effectiveness of the Registration Statement (as hereinafter
defined) of which this Prospectus is a part, the Indenture will be subject to
and governed by the Trust Indenture Act. The following summaries of the material
provisions of the Indenture do not purport to be complete, and where reference
is made to particular provisions of the Indenture, such provisions, including
the definitions of certain terms, are qualified in their entirety by reference
to all of the provisions of the Indenture and those terms made a part of the
Indenture by the Trust Indenture Act. For definitions of certain capitalized
terms used in the following summary, see "-- Certain Definitions".
GENERAL
The New Notes will mature on October 15, 2007, will be limited to
$225,000,000 aggregate principal amount and will be unsecured senior
subordinated obligations of the Company. Each New Note will bear interest at
9 7/8% per annum from the date of exchange or from the most recent interest
payment date to which interest has been paid on the Old Note which was
exchanged, payable semiannually on April 15 and October 15 in each year,
commencing April 15, 1998, to the Person in whose name the New Note (or any
predecessor Note) is registered at the close of business on the April 1 or
October 1 immediately preceding such interest payment date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the New Notes will be
payable, and the New Notes will be exchangeable and transferable, at the office
or agency of the Company in The City of New York maintained for such purposes
(which initially will be the corporate trust office of the Trustee); provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the Person entitled thereto as shown on the security register.
The New Notes will be issued only in fully registered form without coupons, in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer, exchange or redemption of New
Notes, except in certain circumstances for any tax or other governmental charge
that may be imposed in connection therewith.
Settlement for the New Notes will be made in same day funds. All payments
of principal and interest will be made by the Company in same day funds. The New
Notes will trade in the Same Day Funds Settlement System of The Depository Trust
Company (the "Depositary" or "DTC") until maturity, and secondary market trading
activity for the New Notes will therefore settle in same day funds.
When issued, the New Notes will be new securities for which there is no
established trading market. There can be no assurance as to the development or
liquidity of any market for the New Notes. See "Risk Factors -- Absence of
Public Market for the New Notes".
The New Notes will not be entitled to the benefits of any sinking fund.
CERTAIN DIFFERENCES BETWEEN NEW NOTES AND OLD NOTES
Old Notes which remain outstanding after the consummation of the Exchange
Offer will have substantially similar terms to those of the New Notes. However,
following the consummation of the Exchange Offer, Old Notes which are not
validly tendered and accepted by the Company in the Exchange Offer will continue
to be subject to the same transfer restrictions currently applicable to the Old
Notes. In addition, the Company is required, at its cost, to file with the SEC,
and use its best efforts to cause to be declared effective as promptly as
practicable but in no event later than February 4, 1998 (or, in the case of a
request by the Initial Purchasers, within 30 days of such request), a Shelf
Registration Statement with respect to the Old Notes solely for the benefit of
Eligible Holders in the event that (i) any changes in law, rules or regulations
of the SEC or applicable interpretations thereof by the SEC Staff do not permit
the Company to effect the Exchange Offer, (ii) the Registration Statement is not
declared effective by January 5, 1998 or the Exchange Offer is not consummated
by February 4, 1998, (iii) upon the request of the Initial Purchasers acquiring
a majority of the initial aggregate
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<PAGE> 51
principal amount of the Old Notes with respect to any Registrable Securities
acquired directly from the Company and, with respect to other Registrable
Securities held by them, if such Initial Purchasers are not permitted, in the
reasonable opinion of counsel, to participate in the Exchange Offer or otherwise
receive fully tradeable New Notes, or (iv) if a holder of Old Notes is not
legally permitted to participate in the Exchange Offer based upon advice of
counsel to that effect or does not receive fully tradeable New Notes pursuant to
the Exchange Offer, subject to reasonable verification by the Company. Subject
to certain exceptions, the Company will use its best efforts to keep the Shelf
Registration Statement continuously effective for two years (or one year in the
case of a request by the Initial Purchasers), or such shorter period terminating
when all such Old Notes have been sold pursuant to the Shelf Registration
Statement or cease to be outstanding or otherwise to be Registrable Securities.
In the event that a Shelf Registration Statement, if required, is not declared
effective on or prior to February 4, 1998 (or, if required to be filed pursuant
to a request of the Initial Purchasers, 30 days after such request), the
interest rate borne by the Old Notes not exchanged in the Exchange Offer shall
be increased by one-quarter of one percent (0.25%) per annum, which rate (as
increased aforesaid) will increase by an additional one-quarter of one percent
(0.25%) each 90-day period that such additional interest continues to accrue
under such circumstance, with an aggregate maximum increase in the interest rate
equal to one percent (1%) per annum. Following the cure of such Registration
Default, the accrual of additional interest will cease and the interest rate on
such Old Notes will revert to 9 7/8%.
OPTIONAL REDEMPTION
The New Notes will be subject to redemption at any time on or after October
15, 2002, at the option of the Company, in whole or in part, on not less than 30
nor more than 60 days' prior notice in amounts of $1,000 or any integral
multiple thereof at the following redemption prices (expressed as percentages of
the principal amount), if redeemed during the 12-month period beginning on
October 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002..................................................... 104.938%
2003..................................................... 103.292%
2004..................................................... 101.646%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
rights of holders of record on the relevant record dates to receive interest due
on an interest payment date).
In addition, at any time on or prior to October 15, 2000, the Company may,
at its option, use the net proceeds of one or more Public Equity Offerings to
redeem up to an aggregate of 35% of the aggregate principal amount of Notes
originally issued at a redemption price equal to 109 7/8% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the redemption date; provided that at least $146.3 million aggregate principal
amount of Notes remains outstanding immediately after giving effect to such
redemption. In order to effect the foregoing redemption, the Company must mail a
notice of redemption no later than 60 days after the related closing of the
Public Equity Offering and must consummate such redemption within 90 days of the
closing of the Public Equity Offering.
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable.
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each holder of Notes
shall have the right to require the Company to repurchase all or a portion of
such holder's Notes, in integral multiples of $1,000, at a purchase price (the
"Change of Control Purchase Price") in cash in an amount equal to 101% of the
principal amount of such Notes, together with accrued and unpaid interest (if
any) to the date of purchase (the "Change of Control
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<PAGE> 52
Purchase Date"), pursuant to the offer described below (a "Change of Control
Offer") and in accordance with the other procedures set forth in the Indenture.
Within 30 days of any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Notes, by first-class mail, postage prepaid, at his, her or its address
appearing in the security register, stating, among other things, that a Change
of Control has occurred and the date of such event, the circumstances and
relevant facts regarding such Change of Control (including, if applicable,
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); the purchase
price and the purchase date which shall be fixed by the Company on a business
day no earlier than 30 days nor later than 60 days from the date such notice is
first mailed to the holders of the Notes, or such later date as is necessary to
comply with requirements under the Exchange Act; that any Note not tendered will
continue to accrue interest; that, unless the Company defaults in the payment of
the Change of Control Purchase Price, any Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date; and certain other procedures that a holder of Notes must
follow to accept a Change of Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be tendered by holders of the
Notes seeking to accept the Change of Control Offer. See "-- Ranking". The
failure of the Company to make or consummate the Change of Control Offer or pay
the Change of Control Purchase Price when due will give the Trustee and the
holders of the Notes the rights described under "-- Events of Default".
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing law
of the Indenture) to represent a specific quantitative test. As a consequence,
in the event the holders of the Notes elected to exercise their rights under the
Indenture with respect to a Change of Control involving (or asserted to involve)
the transfer or lease of all or substantially all of the Company's assets (as
described in clause (iii) of such definition) and the Company elected to contest
such election, there could be no assurance as to how a court interpreting New
York law would interpret such term.
The existence of a holder's right to require the Company to repurchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
In addition to the obligations of the Company under the Indenture with
respect to the Notes in the event of a "Change of Control", the Bank Credit
Facility also contains an event of default upon a "Change of Control" clause as
defined therein which obligates the Company to repay amounts outstanding under
the Bank Credit Facility upon an acceleration of the indebtedness issued
thereunder. See "Description of Certain Other Indebtedness".
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
RANKING
The payment of the principal of, premium (if any) and interest on the New
Notes or other obligations under the Indenture will be subordinated, as set
forth in the Indenture, in right of payment to the prior payment in full in cash
or Cash Equivalents or, as acceptable to the holders of Senior Indebtedness, in
any other manner, of all Senior Indebtedness. The New Notes will be senior
subordinated indebtedness of the Company, ranking pari passu in right of payment
with all other existing and future senior subordinated indebtedness of the
Company and senior to all existing and future Subordinated Indebtedness of the
Company. The New Notes will rank pari passu in right of payment with the Old
Notes.
Upon the occurrence of any default in the payment of any Designated Senior
Indebtedness beyond any applicable grace period, no payment (other than payments
previously made pursuant to the provisions described under "-- Defeasance or
Covenant Defeasance of Indenture" or "-- Satisfaction and Discharge") or
distribution of any assets of the Company or any Subsidiary of any kind or
character (excluding certain permitted equity interests or subordinated
securities) may be made on account of the principal of, premium (if any) or
interest on,
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<PAGE> 53
the Notes or other obligations under the Indenture unless and until such default
shall have been cured or waived or shall have ceased to exist or such Designated
Senior Indebtedness shall have been discharged or paid in full in cash or Cash
Equivalents or, as acceptable to the holders of Senior Indebtedness, in any
other manner, after which the Company shall resume making any and all required
payments in respect of the Notes, including any missed payments.
Upon the occurrence and during the continuance of any non-payment default
with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may then be accelerated immediately (a "Non-payment Default")
and after the receipt by the Trustee and the Company from a representative of
holders of any Designated Senior Indebtedness (collectively, a "Senior
Representative") of written notice of such Non-payment Default, no payment
(other than payments previously made pursuant to the provisions described under
"-- Defeasance or Covenant Defeasance of Indenture" or "-- Satisfaction and
Discharge") or distribution of any assets of the Company of any kind or
character (excluding certain permitted equity interests or subordinated
securities) may be made by the Company or any Subsidiary on account of the
principal of, premium (if any) or interests on the Notes or other obligations
under the Indenture or on account of the purchase, redemption, defeasance or
other acquisition of or in respect of, the Notes or other obligations under the
Indenture for the period specified below (the "Payment Blockage Period").
A Payment Blockage Period shall commence upon the receipt of notice of the
Non-payment Default by the Trustee and the Company from a Senior Representative
and shall end on the earliest of (i) the 179th day after such commencement, (ii)
the date on which such Non-payment Default (and all Non-payment Defaults as to
which notice is also given after such Payment Blockage Period is initiated) is
cured, waived or ceases to exist or on which such Designated Senior Indebtedness
is discharged or paid in full in cash or cash equivalents or, as acceptable to
the holders of Senior Indebtedness, in any other manner, or (iii) the date on
which such Payment Blockage Period shall have been terminated by written notice
to the Company or the Trustee from the Senior Representative initiating such
Payment Blockage Period, after which, in the case of each of clauses (i), (ii)
and (iii), the Company will promptly resume making any and all required payments
in respect of the Notes, including any missed payments. In no event will a
Payment Blockage Period extend beyond 179 days from the date of the receipt by
the Company and the Trustee of the notice initiating such Payment Blockage
Period (such 179-day period referred to as the "Initial Period"). Any number of
notices of Non-payment Defaults may be given during the Initial Period; provided
that during any period of 365 consecutive days only one Payment Blockage Period,
during which payment of principal of, premium, if any, or interest on, the Notes
may not be made, may commence and the duration of such period may not exceed 179
days. No Non-payment Default with respect to any Designated Senior Indebtedness
that existed or was continuing on the date of the commencement of any Payment
Blockage Period, will be, or can be, made the basis for the commencement of a
second Payment Blockage Period, whether or not within a period of 365
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "-- Events of Default".
The Indenture will provide that in the event of any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other winding up of the Company, whether voluntary or involuntary, or whether
or not involving insolvency or bankruptcy, or any assignment for the benefit of
creditors or any other marshaling of assets or liabilities of the Company, all
Senior Indebtedness must be paid in full before any payment or distribution
(excluding distributions of certain permitted equity interest or subordinated
securities) is made on account of the principal of, premium (if any) or interest
on the Notes or other obligations under the Indenture or on account of the
purchase, redemption, defeasance or other acquisition of, or in respect of, the
Notes (other than payments previously made pursuant to the provisions described
under "-- Defeasance or Covenant Defeasance of Indenture").
By reason of such subordination, in the event of liquidation or insolvency
of the Company, creditors of the Company who are holders of Senior Indebtedness
may recover more, ratably, than the holders of the Notes, and
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<PAGE> 54
funds which would be otherwise payable to the holders of the Notes will be paid
to the holders of the Senior Indebtedness to the extent necessary to pay the
Senior Indebtedness in full, and the Company may be unable to meet its
obligations fully with respect to the Notes.
"Senior Indebtedness" under the Indenture means the principal of, premium
(if any) and interest (including interest accruing after the filing of a
petition initiating any proceeding under any state, federal or foreign
bankruptcy law whether or not allowable as a claim in such proceeding) and all
other monetary obligations on any Indebtedness of the Company (other than as
otherwise provided in this definition), whether outstanding on the date of the
Indenture or thereafter created, incurred or assumed, and whether at any time
owing, actually or contingently, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, Senior Indebtedness shall include principal, premium (if any)
and interest (including interest accruing after the filing of a petition
initiating any proceedings under any state, federal or foreign bankruptcy laws
whether or not allowable as a claim in such proceeding) and all other monetary
obligations of every kind and nature of the Company from time to time owed under
the Bank Credit Facility or under the Securitization Facility; provided,
however, that any Indebtedness under any refinancing, refunding or replacement
of the Bank Credit Facility or the Securitization Facility shall not constitute
Senior Indebtedness to the extent the Indebtedness thereunder is by its express
terms subordinate to any other Indebtedness of the Company. Notwithstanding the
foregoing, "Senior Indebtedness" shall not include (i) Indebtedness evidenced by
the Notes, (ii) Indebtedness that is by its terms subordinate or junior in right
of payment to any Indebtedness of the Company, (iii) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of title 11
United States Code, is without recourse to the Company, (iv) Indebtedness which
is represented by Redeemable Capital Stock, (v) any liability for foreign,
federal, state, local or other tax owed or owing by the Company to the extent
such liability constitutes Indebtedness, (vi) Indebtedness of the Company to a
Subsidiary or any other Affiliate of the Company or any of such Affiliate's
subsidiaries, and (vii) that portion of any Indebtedness which at the time of
issuance is issued in violation of the Indenture.
As of June 30, 1997, after giving effect to the Refinancing and the Stock
Offering, the Company would have had approximately $196 million of Senior
Indebtedness, including $160 million under the Securitization Facility (which is
a Subsidiary liability), and approximately $484 million of other
non-intercompany Subsidiary liabilities (including $364 million of deferred
revenues and $26 million of deferred income taxes) to which the Notes would be
subordinated. As of June 30, 1997, other than Indebtedness under the 13% Notes,
the Bank Credit Facility and capital lease obligations, substantially all of the
Company's liabilities, including the Securitization Facility (which is also
Senior Indebtedness), were non-intercompany Subsidiary liabilities.
The Indenture will limit, but not prohibit, the incurrence by the Company
and its Subsidiaries of additional Indebtedness, and the Indenture will prohibit
the incurrence by the Company of Indebtedness that is subordinated in right of
payment to any Senior Indebtedness of the Company and senior in right of payment
to the Notes.
The Notes will be effectively subordinated to all Indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
the Company's Subsidiaries. Any right of the Company to receive assets of any
such Subsidiary upon the liquidation or reorganization of any such Subsidiary
(and the consequent right of the holders of the Notes to participate in those
assets) will be effectively subordinated to the claims of that Subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such Subsidiary, in which case the claims of the Company would still
be subordinate to any security in the assets of such Subsidiary and any
Indebtedness of such Subsidiary senior to that held by the Company.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. The Company will not create, issue, incur,
assume, guarantee or otherwise in any manner become directly or indirectly
liable for the payment of or otherwise suffer to exist (collectively, "incur"),
any Indebtedness (including any Acquired Indebtedness), other than Permitted
Indebtedness, unless such Indebtedness is incurred by the Company and the
Company's Consolidated Fixed Charge Coverage Ratio
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for the four full fiscal quarters for which financial results are available
immediately preceding the date of incurrence of such Indebtedness (the
"Incurrence Date"), taken as one period (and after giving pro forma effect to:
(i) the incurrence of such Indebtedness and (if applicable) the application of
the net proceeds therefrom, including to refinance other Indebtedness, as if
such Indebtedness was incurred, and the application of such proceeds occurred,
at the beginning of such four-quarter period; (ii) the incurrence, repayment or
retirement of any other Indebtedness by the Company since the first day of such
four-quarter period as if such Indebtedness was incurred, repaid or retired at
the beginning of such four-quarter period (except that, in making such
computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average daily balance of such Indebtedness
during such four-quarter period); (iii) in the case of Acquired Indebtedness,
the related acquisition; and (iv) any acquisition or disposition by the Company
and its Subsidiaries of any company or any business or any assets out of the
ordinary course of business, or any related repayment of Indebtedness, in each
case since the first day of such four-quarter period, assuming such acquisition
or disposition and any such related payments had been consummated on the first
day of such four-quarter period), would be at least 1.8:1 from the date of the
Indenture to and including December 31, 1998, and 2.0:1 thereafter. The Company
will not permit any of its Subsidiaries to incur any Indebtedness (other than
Permitted Subsidiary Indebtedness).
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Company's Capital Stock (other than dividends
or distributions payable solely in shares of its Qualified Capital Stock or
in options, warrants or other rights to acquire shares of such Qualified
Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, the Company's Capital Stock or any Capital Stock of
any Affiliate of the Company (other than Capital Stock of any Wholly Owned
Subsidiary of the Company);
(iii) prior to any scheduled principal payment, sinking fund payment
or maturity of any Subordinated Indebtedness, make any principal payment
on, or repurchase, redeem, defease, retire or otherwise acquire for value,
such Subordinated Indebtedness (other than any such Indebtedness owed to
the Company or a Wholly Owned Subsidiary);
(iv) declare or pay any dividend or distribution on any Capital Stock
of any Subsidiary to any Person (other than to the Company or any of its
Wholly Owned Subsidiaries) or purchase, redeem or otherwise acquire or
retire for value any Capital Stock of any Subsidiary held by any person
(other than the Company or any of its Wholly Owned Subsidiaries);
(v) incur, create, or assume, any guarantee of Indebtedness of any
Affiliate of the Company (other than a Wholly Owned Subsidiary of the
Company); or
(vi) make any Investment in any Person
(other than, in the case of clauses (ii) through (vi) above, Permitted
Investments) (any of the foregoing actions described in clauses (i) through
(vi), other than any such action that is a Permitted Payment (as defined below),
collectively, a "Restricted Payment") (the amount of any such Restricted
Payment, if other than cash, being determined by the board of directors of the
Company, whose determination shall be conclusive and evidenced by a board
resolution); unless (1) immediately before and immediately after giving effect
to such proposed Restricted Payment on a pro forma basis, no Default or Event of
Default shall have occurred and be continuing and such Restricted Payment shall
not be an event which is, or after notice or lapse of time or both, would be, an
"event of default" under the terms of any Indebtedness of the Company or its
Subsidiaries; (2) immediately before and immediately after giving effect to such
Restricted Payment on a pro forma basis, the Company could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness or Permitted
Subsidiary Indebtedness) under the provisions described under "-- Limitation on
Indebtedness"; and (3) after giving effect to the proposed
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Restricted Payment, the aggregate amount of all such Restricted Payments
declared or made after the date of the Indenture plus the Permitted Payments
made under clause (b)(vi), do not exceed $5.0 million plus the sum of:
(A) 50% of the aggregate Consolidated Net Income of the Company
accrued on a cumulative basis during the period beginning on January 1,
1998 and ending on the last day of the Company's last fiscal quarter ending
prior to the date of the Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss); plus
(B) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company either (x) as capital contributions in the form of
common equity to the Company or (y) from the issuance or sale (other than
to any of its Subsidiaries) of Qualified Capital Stock of the Company or
any options, warrants or rights to purchase such Qualified Capital Stock of
the Company (except, in each case, to the extent such proceeds are used to
purchase, redeem or otherwise retire Capital Stock or Subordinated
Indebtedness as set forth in clause (ii) or (iii) of paragraph (b) below),
in each case, other than Net Cash Proceeds received from the issuance or
sale of Qualified Capital Stock or options, warrants or rights to purchase
Qualified Capital Stock in, or otherwise received in connection with, the
Refinancing; plus
(C) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company (other than from any of its Subsidiaries) upon the
exercise of any options, warrants or rights to purchase Qualified Capital
Stock of the Company; plus
(D) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the conversion or exchange, if any, of debt
securities or Redeemable Capital Stock of the Company or its Subsidiaries
into or for Qualified Capital Stock of the Company plus, to the extent such
debt securities or Redeemable Capital Stock were issued after the date of
the Indenture, the aggregate of Net Cash Proceeds from their original
issuance; plus
(E) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the date of the Indenture, an
amount equal to the lesser of the return of capital with respect to such
Investment and the initial amount of such Investment, in either case, less
the cost of the disposition of such Investment.
(b) Notwithstanding the foregoing, and in the case of clauses (ii) through
(vii) below, so long as there is no Default or Event of Default continuing, the
foregoing provisions shall not prohibit the following actions (each of clauses
(i) through (vii) being referred to as a "Permitted Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof if at the date of declaration thereof such other
dividend (A) would be permitted by the provisions of paragraph (a) of this
Section and (B) shall be deemed to have been paid on such date of
declaration for purposes of the calculation required by paragraph (a) of
this Section;
(ii) the repurchase, redemption, or other acquisition or retirement
for value of any shares of any class of Capital Stock of the Company in
exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid in lieu
of the issuance of fractional shares or scrip), or out of the Net Cash
Proceeds of a substantially concurrent issue and sale for cash (other than
to a Subsidiary) of, other shares of Qualified Capital Stock of the
Company; provided that the Net Cash Proceeds from the issuance of such
shares of Qualified Capital Stock are, to the extent so used, excluded from
clause (3) (B) of paragraph (a) of this Section;
(iii) the repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any Subordinated
Indebtedness or Redeemable Capital Stock in exchange for, or in an amount
not in excess of the Net Cash Proceeds of, a substantially concurrent
issuance and sale for cash (other than to any Subsidiary) of any Qualified
Capital Stock of the Company, provided that the Net Cash Proceeds from the
issuance of such shares of Qualified Capital Stock are, to the extent so
used, excluded from clause (3)(B) of paragraph (a) of this Section;
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing")
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<PAGE> 57
through the substantially concurrent issuance of new Subordinated
Indebtedness of the Company, provided that any such new Subordinated
Indebtedness (1) shall be in a principal amount that does not exceed the
principal amount so refinanced (or, if such Subordinated Indebtedness
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, then such lesser amount
as of the date of determination), plus the lesser of (I) the stated amount
of any premium or other payment required to be paid in connection with such
a refinancing pursuant to the terms of the Indebtedness being refinanced,
or (II) the amount of premium or other payment actually paid at such time
to refinance the Indebtedness, plus, in either case, the amount of expenses
of the Company incurred in connection with such refinancing; (2) has an
Average Life to Stated Maturity greater than the remaining Average Life to
Stated Maturity of the Notes; (3) has a Stated Maturity for its final
scheduled principal payment later than the Stated Maturity for the final
scheduled principal payment of the Notes; and (4) is expressly subordinated
in right of payment to the Notes at least to the same extent as the
Subordinated Indebtedness to be refinanced;
(v) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of any Redeemable Capital Stock through
the substantially concurrent issuance of new Redeemable Capital Stock of
the Company, provided that any such new Redeemable Capital Stock (1) shall
have an aggregate liquidation preference that does not exceed the aggregate
liquidation preference of the amount so refinanced; (2) has an Average Life
to Stated Maturity greater than the remaining Average Life to Stated
Maturity of the Notes; and (3) has a Stated Maturity later than the Stated
Maturity for the final scheduled principal payment of the Notes;
(vi) the repurchase of shares of, or options or warrants to purchase
shares of, common stock of the Company or any of its Subsidiaries from
employees, former employees, directors or former directors of the Company
or any of its Subsidiaries (or permitted transferees of such employees,
former employees, directors or former directors), pursuant to the terms of
the agreements (including employment agreements) or plans (or amendments
thereto) approved by the board of directors of the Company under which such
individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock; and
(vii) the repurchase, redemption, defeasance, retirement or
acquisition for value of the 13% Notes on or prior to their scheduled
maturity.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with or
for the benefit of any Affiliate of the Company (other than the Company or a
Subsidiary) unless such transaction or series of related transactions is entered
into in good faith and (a) such transaction or series of related transactions is
on terms that are no less favorable to the Company or such Subsidiary, as the
case may be, than those that would be available in a comparable transaction in
arm's-length dealings with an unrelated third party, (b) with respect to any
transaction or series of related transactions involving aggregate value in
excess of $1.0 million, the Company delivers an officers' certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (a) above, and (c) with respect to any transaction or
series of related transactions involving aggregate value in excess of $10.0
million, either (A) such transaction or series of related transactions has been
approved by a majority of the Disinterested Directors of the Company, or in the
event there is only one Disinterested Director, by such Disinterested Director,
or (B) the Company delivers to the Trustee a written opinion of an investment
banking firm of national standing or other recognized independent expert with
experience appraising the terms and conditions of the type of transaction or
series of related transactions for which an opinion is required stating that the
transactions or series of related transactions are fair to the Company or such
Subsidiary from a financial point of view; provided, however, that clauses (a)
through (c) above shall not apply to (i) any transaction with an employee or
director of the Company or any of its Subsidiaries entered into in the ordinary
course of business (including compensation and employee benefit arrangements
with any officer, director or employee of the Company or any Subsidiary,
including under any stock option or stock incentive plans), (ii) Restricted
Payments made in accordance with "-- Limitation on Restricted Payments" or
Permitted Payments, (iii) any transactions related to the Securitization
Facility, (iv) management agreements or similar agreements between (A) the
Company or any Subsidiary and (B) Affiliates in which the Company or any
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Subsidiary has made an Investment, and (v) contributions by the Company or any
Subsidiary to a real estate investment trust pursuant to clause (ix) of the
definition of Permitted Investments.
Limitation on Liens. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create or incur any Lien of any kind
securing any Pari Passu Indebtedness or Subordinated Indebtedness (including any
assumption, guarantee or other liability with respect thereto by any Subsidiary)
upon any property or assets (including any intercompany notes) of the Company or
any Subsidiary owned on the date of the Indenture or acquired after the date of
the Indenture, or any income or profits therefrom, unless the Notes are directly
secured equally and ratably with (or, in the case of Subordinated Indebtedness,
prior or senior thereto, with the same relative priority as the Notes shall have
with respect to such Subordinated Indebtedness) the obligations or liability
secured by such Lien except for Liens (A) securing any Indebtedness which became
Indebtedness pursuant to a transaction permitted under "-- Consolidation,
Merger, Sale of Assets" or securing Acquired Indebtedness which, in each case,
were created prior to (and not created in connection with, or in contemplation
of) the incurrence of such Pari Passu Indebtedness or Subordinated Indebtedness
(including any assumption, guarantee or other liability with respect thereto by
any Subsidiary) and which Indebtedness is permitted under the provisions of
"-- Limitation on Indebtedness", (B) securing any Indebtedness incurred in
connection with any refinancing, renewal, substitutions or replacements of any
such Indebtedness described in clause (A), so long as the aggregate principal
amount of Indebtedness represented thereby is not increased by such refinancing
by an amount greater than the lesser of (i) the stated amount of any premium or
other payment required to be paid in connection with such a refinancing pursuant
to the terms of the Indebtedness being refinanced, or (ii) the amount of premium
or other payment actually paid at such time to refinance the Indebtedness, plus,
in either case, the amount of expenses of the Company incurred in connection
with such refinancing, provided, however, that in the case of clauses (A) and
(B), any such Lien only extends to the assets that were subject to such Lien
securing such Indebtedness prior to the related acquisition by the Company or
its Subsidiaries, or (C) securing Indebtedness incurred to effect a defeasance
of the Notes pursuant to the defeasance provisions of the Indenture.
Limitation on Sale of Assets. (a) The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, consummate an Asset
Sale unless (i) at least 75% of the consideration from such Asset Sale is
received in cash or Cash Equivalents, and (ii) the Company or such Subsidiary
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the shares or assets subject to such Asset Sale (as determined
by the board of directors of the Company and evidenced in a board resolution).
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Senior Indebtedness then
outstanding as required by the terms thereof, or the Company determines not to
apply such Net Cash Proceeds to the permanent prepayment of such Senior
Indebtedness, or if no such Senior Indebtedness is then outstanding, then the
Company or a Subsidiary may, within 360 days of the Asset Sale, invest the Net
Cash Proceeds in properties and other assets that (as determined by the board of
directors of the Company) replace the properties and assets that were the
subject of the Asset Sale or in properties and assets that will be used in the
businesses of the Company or its Subsidiaries existing on the date of the
Indenture or in businesses reasonably related or complementary thereto. The
amount of such Net Cash Proceeds not applied to repay Senior Indebtedness or
used or invested within 360 days of the Asset Sale as set forth in this
paragraph constitutes "Excess Proceeds".
(c) When the aggregate amount of Excess Proceeds exceeds $15.0 million, the
Company will apply the Excess Proceeds to the repayment of the Notes and any
other Pari Passu Indebtedness outstanding with provisions requiring the Company
to make an offer to purchase or to purchase or redeem such Indebtedness with the
proceeds from any Asset Sale as follows: (A) the Company will make an offer to
purchase (an "Offer") from all holders of the Notes in accordance with the
procedures set forth in the Indenture in the maximum principal amount (expressed
as a multiple of $1,000) of Notes that may be purchased out of an amount (the
"Note Amount") equal to the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of the
Notes, and the denominator of which is the sum of the outstanding principal
amount of the Notes and such Pari Passu Indebtedness (subject to proration in
the event such amount is less than the aggregate Offered Price (as defined
herein) of all Notes tendered), and (B) to the extent required by such Pari
Passu Indebtedness to permanently reduce the principal amount of such Pari Passu
Indebtedness, the Company
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will make an offer to purchase or otherwise repurchase or redeem Pari Passu
Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu Debt Amount")
equal to the excess of the Excess Proceeds over the Note Amount; provided that
in no event will the Company be required to make a Pari Passu Offer in a Pari
Passu Debt Amount exceeding the principal amount of such Pari Passu Indebtedness
plus the amount of any premium required to be paid to repurchase such Pari Passu
Indebtedness. The offer price for the Notes will be payable in cash in an amount
equal to 100% of the principal amount of the Notes plus accrued and unpaid
interest, if any, to the date (the "Offer Date") such Offer is consummated (the
"Offered Price"), in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate Offered Price of the Notes tendered pursuant to
the Offer is less than the Note Amount relating thereto or the aggregate amount
of Pari Passu Indebtedness that is purchased in a Pari Passu Offer is less than
the Pari Passu Debt Amount, the Company will use any remaining Excess Proceeds
for general corporate purposes. If the aggregate principal amount of Notes and
Pari Passu Indebtedness surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon the completion of the purchase of all the Notes tendered
pursuant to an Offer and the completion of a Pari Passu Offer, the amount of
Excess Proceeds, if any, shall be reset at zero.
(d) The Indenture will provide that, if the Company becomes obligated to
make an Offer pursuant to clause (c) above, the Notes and the Pari Passu
Indebtedness shall be purchased by the Company, at the option of the holders
thereof, in whole or in part in integral multiples of $1,000, on a date that is
not earlier than 30 days and not later than 60 days from the date the notice of
such Offer is given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act.
(e) The Indenture will provide that the Company will comply with the
applicable tender offer rules, including Rule 14e-l under the Exchange Act, and
any other applicable securities laws or regulations in connection with an Offer.
Limitation on Senior Subordinated Indebtedness. The Company will not,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise in
any manner become directly or indirectly liable for or with respect to or
otherwise permit to exist any Indebtedness that is subordinate in right of
payment to any Indebtedness of the Company unless such Indebtedness is also pari
passu with the Notes or subordinate in right of payment to the Notes at least to
the same extent as the Notes are subordinate in right of payment to Senior
Indebtedness.
Limitation on Preferred Stock of Subsidiaries. The Company will not permit
(a) any Subsidiary of the Company to issue any Preferred Stock, except for (i)
Preferred Stock issued to the Company or a Wholly Owned Subsidiary, and (ii)
Preferred Stock issued by a Person prior to the time (A) such Person becomes a
Subsidiary, (B) such Person merges with or into a Subsidiary, or (C) a
Subsidiary merges with or into such Person; provided that the Preferred Stock
referred to in clause (ii) above was not issued or incurred by such Person in
anticipation of the type of transaction contemplated by subclause (A), (B) or
(C); or (b) any Person (other than the Company or a Wholly Owned Subsidiary) to
acquire Preferred Stock of any Subsidiary from the Company or any Subsidiary,
except, in the case of clause (a) or (b), upon the acquisition of all the
outstanding Preferred Stock of such Subsidiary in accordance with the terms of
the Indenture.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or suffer to exist any consensual encumbrance
or restriction on the ability of any Subsidiary to (i) pay dividends or make any
other distribution on its Capital Stock, (ii) pay any Indebtedness owed to the
Company or any other Subsidiary, (iii) make any Investment in the Company or any
other Subsidiary, or (iv) transfer any of its properties or assets to the
Company or any other Subsidiary, except for: (a) any encumbrance or restriction
pursuant to any agreement in effect on the date of the Indenture; (b) any
encumbrance or restriction, with respect to a Subsidiary that is not a
Subsidiary of the Company on the date of the Indenture, in existence at the time
such Person becomes a Subsidiary of the Company and not incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary; (c) customary
non-assignment or subletting provisions of any lease, license or other contract;
(d) any restriction entered into in the ordinary course of business contained in
any lease of any Subsidiary or any security agreement or mortgage securing
Indebtedness of any Subsidiary to the extent such restriction restricts the
transfer of property subject to such security agreement, mortgage or lease; (e)
any restriction contained in an agreement pursuant to which Permitted Subsidiary
Indebtedness is incurred; and (f) any encumbrance or restriction existing
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under any agreement that amends, substitutes, restructures, supplements,
extends, renews, refinances, replaces or otherwise modifies the agreements
containing the encumbrances or restrictions in the foregoing clauses (a), (b),
(c), (d) or (e), or in this clause (f); provided in each case that the terms and
conditions of any such encumbrances or restrictions are no more restrictive in
any material respect than those under or pursuant to the agreement evidencing
the Indebtedness so amended, substituted, restructured, supplemented, extended,
renewed, refinanced, replaced or modified.
Limitations on Unrestricted Subsidiaries. The Company will not make, and
will not permit its Subsidiaries to make, an Investment in Unrestricted
Subsidiaries unless, at the time thereof, (a) the aggregate amount of such
Investments would not exceed the amount of Restricted Payments then permitted to
be made pursuant to the provisions described under "-- Limitation on Restricted
Payments", or (b) such Investment is a Permitted Investment. Except for
Permitted Investments, any Investment in Unrestricted Subsidiaries permitted to
be made pursuant to this covenant (i) must be permitted to be made pursuant to
the provision described under "-- Limitation on Restricted Payments" and will be
treated as a Restricted Payment in calculating the amount of Restricted Payments
made by the Company, and (ii) may be made in cash or property.
Provision of Financial Statements. After the earlier to occur of the
consummation of the Exchange Offer and the 120th calendar day following the date
of original issue of the Notes, whether or not the Company is subject to Section
13(a) or 15(d) of the Exchange Act, the Company will, to the extent permitted
under the Exchange Act, file with the SEC the annual reports, quarterly reports
and other documents which the Company would have been required to file with the
SEC pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were
so subject, such documents to be filed with the SEC on or prior to the date (a
"Required Filing Date") by which the Company would have been required so to file
such documents if the Company were so subject. The Company will also in any
event (x) within 15 days of each Required Filing Date occurring after the
issuance of the Notes (i) transmit by mail to all holders, as their names and
addresses appear in the security register, without cost to such holders and (ii)
file with the Trustee, copies of the annual reports, quarterly reports and other
documents which the Company would have been required to file with the SEC
pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were
subject to either of such Sections, and (y) if filing such documents by the
Company with the SEC is not permitted under the Exchange Act, promptly upon
written request and payment of the reasonable cost of duplication and delivery,
supply copies of such documents to any prospective holder at the Company's cost.
The Indenture also provides that, so long as any of the Notes remain
outstanding, the Company will make available to any prospective purchaser of
Notes or beneficial owner of Notes in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act, until such
time as the Company has either exchanged the Notes for securities identical in
all material respects which have been registered under the Securities Act or
until such time as the holders thereof have disposed of such Notes pursuant to
an effective registration statement under the Securities Act.
CONSOLIDATION, MERGER, SALE OF ASSETS
The Company will not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person or
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
affiliated Persons, or permit any of its Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company and its Subsidiaries on a Consolidated
basis to any other Person or group of affiliated Persons, unless at the time and
after giving effect thereto (i) either (a) the Company will be the continuing
corporation, or (b) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of the Company and its
Subsidiaries on a Consolidated basis (the "Surviving Entity") will be a
corporation duly organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia and such Person
expressly assumes, by a supplemental indenture, in a form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture,
as the case may be, and the Notes and the Indenture will remain in full force
and effect as so supplemented, (ii) immediately before and immediately after
giving effect to such
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transaction on a pro forma basis (and treating any Indebtedness not previously
an obligation of the Company or any of its Subsidiaries which becomes the
obligation of the Company or any of its Subsidiaries as a result of such
transaction as having been incurred at the time of such transaction), no Default
or Event of Default will have occurred and be continuing, (iii) immediately
before and immediately after giving effect to such transaction on a pro forma
basis (on the assumption that the transaction occurred on the first day of the
four-quarter period for which financial results are available ending immediately
prior to the consummation of such transaction with the appropriate adjustments
with respect to the transaction being included in such pro forma calculation),
the Company (or the Surviving Entity if the Company is not the continuing
obligor under the Indenture) could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness or Permitted Subsidiary Indebtedness) under the
provisions of "-- Certain Covenants -- Limitation on Indebtedness", and (iv) at
the time of the transaction the Company or the Surviving Entity will have
delivered, or caused to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an officers' certificate and an opinion
of counsel, each to the effect that such consolidation, merger, transfer, sale,
assignment, conveyance, transfer, lease or other transaction and the
supplemental indenture in respect thereof comply with the Indenture and that all
conditions precedent therein provided for relating to such transaction have been
complied with; provided, however, that the foregoing prohibition shall not
prohibit any merger between or among Subsidiaries or between a Subsidiary and
the Company, provided the Company is the continuing corporation.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the continuing corporation, the successor Person formed
or remaining shall succeed to, and be substituted for, and may exercise every
right and power of, the Company, and the Company would be discharged from all
obligations and covenants under the Indenture and the Notes, as the case may be.
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any
Note when it becomes due and payable, and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note at its Maturity (upon acceleration, optional
or mandatory redemption, required repurchase or otherwise);
(iii) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company under the Indenture (other than a
default in the performance, or breach, of a covenant or agreement which is
specifically dealt with in clause (i), (ii) or (iv)) and such default or
breach shall continue for a period of 30 days after written notice has been
given, by certified mail, (x) to the Company by the Trustee, or (y) to the
Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the outstanding Notes;
(iv) (a) there shall be a default in the performance or breach of the
provisions described in "Consolidation, Merger, Sale of Assets", (b) the
Company shall have failed to make or consummate an Offer required in
accordance with the provisions of "-- Certain Covenants -- Limitation on
Sale of Assets", or (c) the Company shall have failed to make or consummate
a Change of Control Offer required in accordance with the provisions of
"-- Purchase of Notes Upon a Change of Control";
(v) one or more defaults shall have occurred under any of the
agreements, indentures or instruments under which the Company or any
Subsidiary then has outstanding Indebtedness in excess of $10.0 million,
individually or in the aggregate, and either (a) such default results from
the failure to pay such Indebtedness at its stated final maturity, or (b)
such default or defaults have resulted in the acceleration of the maturity
of such Indebtedness;
(vi) one or more judgments, orders or decrees for the payment of money
in excess of $10.0 million, either individually or in the aggregate, shall
be rendered against the Company or any Subsidiary or any of their
respective properties and shall not be discharged and either (a) any
creditor shall have commenced an enforcement proceeding upon such judgment,
order or decree, or (b) there shall have been a period of
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60 consecutive days during which a stay of enforcement of such judgment,
order or decree, by reason of an appeal or otherwise, shall not be in
effect, provided that the amount of such money judgment, order or decree
shall be calculated net of any insurance coverage that the Company has
determined in good faith is available in whole or in part with respect to
such money judgment, order or decree;
(vii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company
or any Significant Subsidiary in an involuntary case or proceeding under
any applicable Bankruptcy Law, or (b) a decree or order adjudging the
Company or any Significant Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under any applicable federal or
state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company or any
Significant Subsidiary or of any substantial part of their respective
properties, or ordering the winding up or liquidation of their respective
affairs, and any such decree or order for relief shall continue to be in
effect, or any such other decree or order shall be unstayed and in effect,
for a period of 60 consecutive days; or
(viii) (a) the Company or any Significant Subsidiary commences a
voluntary case or proceeding under any applicable Bankruptcy Law or any
other case or proceeding to be adjudicated bankrupt or insolvent, (b) the
Company or any Significant Subsidiary consents to the entry of a decree or
order for relief in respect of the Company or such Significant Subsidiary
in an involuntary case or proceeding under any applicable Bankruptcy Law or
to the commencement of any bankruptcy or insolvency case or proceeding
against it, (c) the Company or any Significant Subsidiary files a petition
or answer or consent seeking reorganization or relief under any applicable
federal or state law, (d) the Company or any Significant Subsidiary (I)
consents to the filing of such petition or the appointment of, or taking
possession by, a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or such Significant
Subsidiary or of any substantial part of their respective properties, (II)
makes an assignment for the benefit of creditors, or (III) admits in
writing its inability to pay its debts generally as they become due, or (e)
the Company or any Significant Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (viii).
If an Event of Default (other than as specified in clauses (vii) and (viii)
of the prior paragraph with respect to the Company) shall occur and be
continuing with respect to the Indenture, the Trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding may, and
the Trustee at the request of such holders shall, declare all unpaid principal
of, premium, if any, and accrued interest on all Notes to be due and payable, by
a notice in writing to the Company (and to the Trustee if given by the holders
of the Notes) and upon any such declaration, such principal, premium, if any,
and interest shall become due and payable immediately. If an Event of Default
specified in clause (vii) or (viii) of the prior paragraph occurs with respect
to the Company and is continuing, then all the Notes shall ipso facto become and
be due and payable immediately in an amount equal to the principal amount of the
Notes, together with accrued and unpaid interest, if any, to the date the Notes
become due and payable, without any declaration or other act on the part of the
Trustee or any holder. Thereupon, the Trustee may, at its discretion, proceed to
protect and enforce the rights of the holders of Notes by appropriate judicial
proceedings.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of Notes outstanding, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes
then outstanding, (iii) the principal of and premium, if any, on any Notes then
outstanding which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes, and (iv) to
the extent that payment of such interest is lawful, interest upon overdue
interest at the rate borne by the Notes; and (b) all Events of Default, other
than the nonpayment of principal of the Notes which have become due solely by
such declaration of acceleration, have been cured or waived as provided in the
Indenture. No such rescission shall affect any subsequent default or impair any
right consequent thereon.
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The holders of not less than a majority in aggregate principal amount of
the Notes outstanding may on behalf of the holders of all outstanding Notes
waive any past default under the Indenture and its consequences, except a
default in the payment of the principal of, premium, if any, or interest on any
Note or in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each Note affected
by such modification or amendment.
The Company is also required to notify the Trustee within ten business days
of the occurrence of any Default. The Company is required to deliver to the
Trustee, on or before a date not more than 120 days after the end of each fiscal
year, a written statement as to compliance with the Indenture, including whether
or not any Default has occurred. The Trustee is under no obligation to exercise
any of the rights or powers vested in it by the Indenture at the request or
direction of any of the holders of the Notes unless such holders offer to the
Trustee security or indemnity satisfactory to the Trustee against the costs,
expenses and liabilities which might be incurred thereby.
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions, provided that if it acquires any conflicting interest it
must eliminate such conflict upon the occurrence of an Event of Default or else
resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company and any other obligor upon the Notes discharged with
respect to the outstanding Notes ("defeasance"). Such defeasance means that the
Company and any other obligor under the Indenture shall be deemed to have paid
and discharged the entire Indebtedness represented by the outstanding Notes,
except for (i) the rights of holders of such outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (ii) the Company's obligations with respect to
the Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes, and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("covenant defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or an Event of Default with respect to the Notes. In the event covenant
defeasance occurs, certain events (not including non-payment, bankruptcy and
insolvency events) described under "-- Events of Default" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit or cause to be deposited with the Trustee, in
trust, for the benefit of the holders of the Notes, cash in United States
dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants or a nationally
recognized investment banking firm, to pay and discharge the principal of,
premium, if any, and interest on the outstanding Notes on the Stated Maturity
(or on any date after October 15, 2002 (such date being referred to as the
"Defeasance Redemption Date"), if at or prior to electing either defeasance or
covenant defeasance, the Company has delivered to the Trustee an irrevocable
notice to redeem all of the outstanding Notes on the Defeasance Redemption
Date); (ii) in the case of defeasance, the Company shall have delivered to the
Trustee an opinion of independent counsel in the United States stating that (A)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or, (B) since the date of the Indenture, there has been
a change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of independent counsel in the United States
shall confirm that, the holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
had not occurred; (iii) in the case of covenant defeasance, the Company shall
have delivered to the Trustee an opinion of independent counsel in the United
States to the effect that the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such
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covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; (iv) no Default or Event of Default
(other than a Default or an Event of Default resulting from the borrowing of
funds to be applied to such deposit) shall have occurred and be continuing on
the date of such deposit or insofar as clauses (vii) or (viii) under the first
paragraph under "-- Events of Default" are concerned, at any time during the
period ending on the 91st day after the date of deposit (it being understood
that this condition shall not be deemed satisfied until the expiration of such
period); (v) such defeasance or covenant defeasance shall not cause the Trustee
for the Notes to have a conflicting interest as defined in the Indenture and for
purposes of the Trust Indenture Act with respect to any securities of the
Company; (vi) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default under, (A) the Indenture or (B)
any other agreement or instrument to which the Company or any Significant
Subsidiary is a party or by which the Company or any Significant Subsidiary is
bound, if such breach, violation, or default thereof would have a material
adverse effect on the Company and its Subsidiaries taken as a whole; (vii) such
defeasance or covenant defeasance shall not result in the trust arising from
such deposit constituting an investment company within the meaning of the
Investment Company Act of 1940, as amended, unless such trust shall be
registered under such Act or exempt from registration thereunder; (viii) the
Company will have delivered to the Trustee an opinion of independent counsel in
the United States to the effect that after the 91st day following the deposit,
the trust funds will not be subject to avoidance under Section 547 of the United
States Bankruptcy Code (or any successor provision thereto) and related judicial
decisions; (ix) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; (x) no event or condition shall exist that would prevent the
Company from making payments of the principal of, premium, if any, and interest
on the Notes on the date of such deposit or at any time ending on the 91st day
after the date of such deposit; and (xi) the Company will have delivered to the
Trustee an officers' certificate and an opinion of independent counsel, each
stating that all conditions precedent provided for relating to either the
defeasance or the covenant defeasance, as the case may be, have been complied
with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes as expressly provided for in the Indenture) as to all outstanding Notes
under the Indenture when (a) either (i) all such Notes theretofore authenticated
and delivered (except lost, stolen or destroyed Notes which have been replaced
or paid or Notes whose payment has been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company or discharged
from such trust as provided for in the Indenture) have been delivered to the
Trustee for cancellation, or (ii) all Notes not theretofore delivered to the
Trustee for cancellation (x) have become due and payable, (y) will become due
and payable at their Stated Maturity within one year, or (z) are to be called
for redemption within one year under arrangements satisfactory to the applicable
Trustee for the giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company; and the Company has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust an amount in
United States dollars sufficient to pay and discharge the entire indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, including
principal of, premium, if any, and accrued interest on, such Notes at such
Maturity, Stated Maturity or redemption date; (b) the Company has paid or caused
to be paid all other sums payable under the Indenture by the Company; and (c)
the Company has delivered to the Trustee an officers' certificate and an opinion
of independent counsel each stating that (i) all conditions precedent under the
Indenture relating to the satisfaction and discharge of such Indenture have been
complied with, and (ii) such satisfaction and discharge will not result in a
breach or violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which the Company or any Subsidiary is
a party or by which the Company or any Subsidiary is bound.
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of at least a majority of
aggregate principal amount of the Notes then outstanding; provided, however,
that no such modification or amendment may, without the consent of the holder of
each
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outstanding Note affected thereby: (i) change the Stated Maturity of the
principal of, or any installment of interest on, or change to an earlier date
any redemption date of, or waive a default in the payment of the principal or
interest on, any such Note or reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption thereof, or change
the coin or currency in which the principal of any such Note or any premium or
the interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in the
case of redemption, on or after the redemption date); (ii) amend, change or
modify the obligation of the Company to make and consummate an Offer with
respect to any Asset Sale or Asset Sales in accordance with "-- Certain
Covenants -- Limitation on Sale of Assets" or the obligation of the Company to
make and consummate a Change of Control Offer in the event of a Change of
Control in accordance with "-- Purchase of Notes Upon a Change of Control",
including, in each case, amending, changing or modifying any definitions
relating thereto; (iii) reduce the percentage in principal amount of such
outstanding Notes, the consent of whose holders is required for any such
supplemental indenture, or the consent of whose holders is required for any
waiver or compliance with certain provisions of the Indenture; (iv) modify any
of the provisions relating to supplemental indentures requiring the consent of
holders or relating to the waiver of past defaults or relating to the waiver of
certain covenants, except to increase the percentage of such outstanding Notes
required for any such actions or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the holder of each
such Note affected thereby; (v) except as otherwise permitted under
"-- Consolidation, Merger, Sale of Assets", consent to the assignment or
transfer by the Company of any of its rights and obligations under the
Indenture; or (vi) amend or modify any of the provisions referred to under
"-- Ranking" in any manner adverse to the holders of the Notes.
Notwithstanding the foregoing, without the consent of any holders of the
Notes, the Company and the Trustee may modify or amend the Indenture: (a) to
evidence the succession of another Person to the Company or any other obligor
upon the Notes, and the assumption by any such successor of the covenants of the
Company or such obligor in the Indenture and in the Notes in accordance with
"-- Consolidation, Merger, Sale of Assets"; (b) to add to the covenants of the
Company or any other obligor upon the Notes for the benefit of the holders of
the Notes, or to surrender any right or power conferred upon the Company or any
other obligor upon the Notes, as applicable, in the Indenture or in the Notes;
(c) to cure any ambiguity, or to correct or supplement any provision in the
Indenture or in any supplementary indenture or the Notes which may be defective
or inconsistent with any other provision in the Indenture or the Notes or make
any other provisions with respect to matters or questions arising under the
Indenture or the Notes; provided that, in each case, such provisions shall not
adversely affect the interest of the holders of the Notes; (d) to comply with
the requirements of the SEC in order to effect or maintain the qualification of
the Indenture under the Trust Indenture Act; (e) to evidence and provide the
acceptance of the appointment of a successor trustee under the Indenture; or (f)
to mortgage, pledge, hypothecate or grant a security interest in favor of the
Trustee for the benefit of the holders of the Notes as additional security for
the payment and performance of the Company's obligations under the Indenture, in
any property, or assets, including any of which are required to be mortgaged,
pledged or hypothecated, or in which a security interest is required to be
granted to the Trustee pursuant to the Indenture or otherwise.
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
GOVERNING LAW
The Indenture is, and the New Notes will be, governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to the
conflicts of law principles thereof.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the SEC for permission to continue as
Trustee with such conflict or resign as Trustee.
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The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (which has not been cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any holder of Notes unless such holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or merges with or into the Company or any
Subsidiary, or (ii) assumed in connection with the acquisition of assets from
such Person, in each case, other than Indebtedness incurred in connection with,
or in contemplation of, such Person becoming a Subsidiary or such acquisition,
as the case may be. Acquired Indebtedness shall be deemed to be incurred on the
date of the related acquisition of assets from any Person or the date the
acquired Person becomes a Subsidiary, as the case may be.
"Adjusted Consolidated Interest Expense" of any Person means, without
duplication, for any period, as applied to any Person, the sum of (a) the
interest expense of such Person and its Consolidated Subsidiaries (exclusive of
deferred financing fees and any premiums or penalties paid in connection with
redeeming or retiring any Indebtedness prior to its stated maturity) for such
period, on a Consolidated basis, including without limitation, (i) amortization
of debt discount, (ii) the net cost under interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation, and (iv) accrued interest, plus (b) (i) the interest component of
the Capital Lease Obligations paid, accrued and/or scheduled to be paid, or
accrued by such Person during such period, and (ii) all capitalized interest of
such Person and its Consolidated Subsidiaries, in each case as determined in
accordance with GAAP consistently applied.
"Affiliate" means, with respect to any specified Person: (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (ii) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Capital
Stock or beneficial equity interest in such Person (if such Person is a real
estate investment trust), or any officer or director of any such specified
Person or other Person or, with respect to any natural Person, any person having
a relationship with such Person by blood, marriage or adoption not more remote
than first cousin; or (iii) any other Person 10% or more of the Voting Stock of
which is beneficially owned or held directly or indirectly by such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of: (i) any Capital
Stock of any Subsidiary; (ii) all or substantially all of the properties and
assets of any division or line of business of the Company or its Subsidiaries;
or (iii) any other properties or assets of the Company or any Subsidiary, other
than in the ordinary course of business. For the purposes of this definition,
the term "Asset Sale" shall not include any transfer of properties and assets
(A) that is governed by the provisions described under "-- Consolidation,
Merger, Sale of Assets", (B) that is by any Subsidiary to the Company or any
Wholly Owned Subsidiary in accordance with the terms of the Indenture, (C) that
is of obsolete equipment or other obsolete assets in the ordinary course of
business, (D) that constitutes the making of a Permitted Investment (other than
pursuant to clause (v) of the definition of "Permitted Investment"), (E) the
Fair Market Value of which in the aggregate does not exceed $1.0 million in any
transaction or series of related transactions, (F) sales of accounts receivable
and other transactions among the Company and its Subsidiaries pursuant to the
Securitization Facility, or (G) Investments by the Company which comply with the
terms of clause (ix) of the definition of "Permitted Investments".
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of
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determination to the date or dates of each successive scheduled principal
payment of such Indebtedness multiplied by (b) the amount of each such principal
payment; by (ii) the sum of all such principal payments.
"Bank Credit Facility" means the third amended and restated Credit
Agreement dated as of June 26, 1995 among the Company, the Banks and The Chase
Manhattan Bank, as agent, as such agreement, in whole or in part, may be
amended, renewed, extended, substituted, refinanced, restructured, replaced,
supplemented or otherwise modified from time to time (including, without
limitation, any successive renewals, extensions, substitutions, refinancings,
restructurings, replacements, supplementations or other modifications of the
foregoing).
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Banks" means the lenders under the Bank Credit Facility.
"Capital Lease Obligation" of any Person means any obligation of such
Person and its Subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock or other equity interests whether now outstanding or issued after
the date of the Indenture.
"Cash Equivalents" means: (i) Temporary Cash Investments; (ii) securities
received by the Company or any Subsidiary from the transferee in an Asset Sale
that are promptly converted by the Company or such Subsidiary into cash; (iii)
the assumption of Indebtedness or other obligations or liabilities of the
Company or any Subsidiary in connection with an Asset Sale; and (iv) in
connection with an Asset Sale to a Person where the assets sold, issued,
conveyed, transferred, leased or otherwise disposed of are included in a
business which will be a party to the Franchise Program, the net present value
of payments by such Person pursuant to the Franchise Program as calculated and
certified by the chief financial officer of the Company.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have beneficial ownership of all shares that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than a majority of the total
outstanding Voting Stock of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the board of directors of the Company (together with any new directors whose
election to such board or whose nomination for election by the stockholders of
the Company was approved by a vote of 66 2/3% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved), cease for any
reason to constitute a majority of such board of directors then in office; (iii)
the Company consolidates with or merges with or into any Person or conveys,
transfers or leases all or substantially all of its assets to any Person, or any
corporation consolidates with or merges into or with the Company in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Company is changed into or exchanged for cash, securities or other property,
other than any such transaction where the outstanding Voting Stock of the
Company is not changed or exchanged at all (except to the extent necessary to
reflect a change in the jurisdiction of incorporation of the Company) or where
(A) the outstanding Voting Stock of the Company is changed into or exchanged for
(x) Voting Stock of the surviving corporation which is not Redeemable Capital
Stock or (y) cash, securities and other property (other than Capital Stock of
the surviving corporation) in an amount which could be paid by the Company as a
Restricted Payment as described under "-- Certain Covenants -- Limitation on
Restricted Payments" (and such amount shall be treated as a Restricted Payment
subject to the provisions in the Indenture described under "-- Certain
Covenants -- Limitation on Restricted Payments") and (B) no "person" or "group"
owns immediately after such transaction, directly or indirectly, more than a
majority of the total outstanding Voting Stock of the surviving corporation; or
(iv) the Company is liquidated or dissolved or adopts a plan of liquidation or
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dissolution other than in a transaction which complies with the provisions
described under "-- Consolidation, Merger, Sale of Assets".
"Company" means Bally Total Fitness Holding Corporation, a corporation
incorporated under the laws of Delaware, until a successor Person shall have
become such pursuant to the applicable provisions of the Indenture, and
thereafter "Company" shall mean such successor Person.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of EBITDA to the sum of Adjusted Consolidated Interest Expense
for such period and cash dividends paid on any Preferred Stock of such Person
during such period; provided that (i) in making such computation, the Adjusted
Consolidated Interest Expense attributable to interest on any Indebtedness shall
be computed on a pro forma basis and (A) where such Indebtedness was outstanding
during the period and bore a floating interest rate, interest shall be computed
as if the rate in effect on the date of computation had been the applicable rate
for the entire period, and (B) where such Indebtedness was not outstanding
during the period for which the computation is being made but which bears, at
the option of the Company, a fixed or floating rate of interest, shall be
computed by applying at the option of the Company, either the fixed or floating
rates, and (ii) in making such computation, the Adjusted Consolidated Interest
Expense of such Person attributable to interest on any Indebtedness under a
revolving credit facility computed on a pro forma basis shall be computed based
upon the average daily balance of such Indebtedness during the applicable
period.
"Consolidated Income Tax Expense" of any Person means, for any period, the
provision for federal, state, local and foreign income taxes of such Person and
its Consolidated Subsidiaries for such period as determined in accordance with
GAAP.
"Consolidated Net Income (Loss)" of any Person means, for any period, the
Consolidated net income (or loss) of such Person and its Subsidiaries for such
period on a Consolidated basis as determined in accordance with GAAP, adjusted,
to the extent included in calculating such net income (or loss), by excluding,
without duplication, (i) all extraordinary gains or losses (exclusive of all
fees and expenses relating thereto), (ii) the portion of net income (or loss) of
such Person and its Subsidiaries on a Consolidated basis allocable to minority
interests in unconsolidated Persons to the extent that cash dividends or
distributions have not actually been received by such Person or one of its
Subsidiaries, (iii) net income (or loss) of any Person combined with such Person
or any of its Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of combination, (iv) any gain or loss, net of taxes,
realized upon the termination of any employee pension benefit plan, (v) net
gains (or losses) (except for all fees and expenses relating thereto) in respect
of dispositions of assets other than in the ordinary course of business, (vi)
the net income of any Subsidiary to the extent that the declaration of dividends
or similar distributions by that Subsidiary of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders, (vii)
any gain arising from the acquisition of any securities, or the extinguishment,
under GAAP, of any Indebtedness of such Person, (viii) transaction costs charged
in connection with the Refinancing, or (ix) amortization of intangible assets of
such Person and its Subsidiaries on a consolidated basis under GAAP.
"Consolidated Non-Cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Subsidiaries on a Consolidated basis for such period, as determined in
accordance with GAAP (excluding any non-cash charge which requires an accrual or
reserve for cash charges for any future period).
"Consolidated Tangible Assets" means consolidated total assets of the
Company and its Subsidiaries as reported in the Company's Consolidated balance
sheet from time to time as required by "-- Certain Covenants -- Provision of
Financial Statements" less (A) (i) any asset which is treated as an intangible
asset in conformity with GAAP (including, without limitation, leasehold rights,
franchise rights, non-compete agreements, goodwill, unamortized debt discounts,
patents, patent applications, trademarks, trade names, copyrights and licenses),
and (ii) any deferred charges determined in conformity with GAAP (including,
without limitation, deferred finance charges and deferred membership origination
costs), plus (B) any treasury stock.
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"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its Subsidiaries if and to the extent the
accounts of such Person and each of its Subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"Credit Card Program Guarantee" means the Company's obligation to remit
funds in excess of the sum of (a) $25.0 million plus (b) a reserve (of up to 25%
of the amount owed to the Company by a member which becomes an obligation due to
the credit card issuer by such member) with respect to the Company's credit card
program pursuant to the Company's Credit Card Program Agreement dated December
21, 1995, as such agreement, in whole or in part, may be amended, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented, or
otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplementations or other modifications of the foregoing).
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" under the Indenture means (i) all Senior
Indebtedness under, or in respect of, the Bank Credit Facility and the
Securitization Facility, and (ii) any other Senior Indebtedness which at the
time of determination, has an aggregate principal amount outstanding of at least
$15 million and is specifically designated in the instrument evidencing such
Senior Indebtedness or the agreement under which such Senior Indebtedness arises
as "Designated Senior Indebtedness" by the Company.
"Disinterested Director" means, with respect to any transaction or series
of related transactions, a member of the board of directors of the Company who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of related transactions.
"EBITDA" means the sum of Consolidated Net Income, Adjusted Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-Cash
Charges deducted in computing Consolidated Net Income in each case, for such
period, of the Company and its Subsidiaries on a Consolidated basis, all
determined in accordance with GAAP consistently applied.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, or any successor statute.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy. Fair Market Value shall be determined by the board
of directors of the Company acting in good faith and shall be evidenced by a
resolution of the board of directors.
"Franchise Program" means the program under which the Company and/or its
Subsidiaries grant franchises to third parties which require franchisees, among
other things, to pay fees to the Company and/or its Subsidiaries, and which,
among other things, grants to the franchisee the right to receive training from
the Company or its Subsidiaries or sell memberships to use facilities of the
franchisee and the Company or its Subsidiaries. The Franchise Program may
include the conversion of facilities owned by the Company or its Subsidiaries to
franchise facilities and includes such a program as it may be amended, renewed,
extended, substituted, restructured, replaced, supplemented or otherwise
modified from time to time (including, without limitation, any successive
renewal, extension, substitution, restructuring, replacement, supplementation or
other modification of the foregoing).
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date of the Indenture.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (i)
to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the
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debtor to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss, (iii) to supply funds to, or in any other manner
invest in, the debtor (including any agreement to pay for property or services
without requiring that such property be received or such services be rendered),
(iv) to maintain working capital or equity capital of the debtor, or otherwise
to maintain the net worth, solvency or other financial condition of the debtor,
or (v) otherwise to assure a creditor against loss; provided that the term
"guarantee" shall not include endorsements for collection or deposit, in either
case in the ordinary course of business or guarantees of operating leases.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, now or hereafter outstanding, (ii) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments, (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (iv) all
obligations under Interest Rate Agreements of such Person, (v) all Capital Lease
Obligations of such Person, (vi) all Indebtedness referred to in clauses (i)
through (v) above of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien, upon or
with respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness, (vii) all Guaranteed Debt of such
Person, (viii) all Redeemable Capital Stock issued by such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends, (ix) the Credit Card Program Guarantee, (x)
indebtedness incurred by a real estate investment trust in which the Company or
any Subsidiary has invested pursuant to clause (ix) of the definition of
"Permitted Investments" and as to which, in the event that the Company controls
such trust, any of the Company or any Subsidiary is directly or indirectly
liable (by virtue of the Company or any such Subsidiary being the primary
obligor on, guarantor of, or otherwise liable in respect to, such indebtedness),
and (xi) any amendment, supplement, modification, deferral, renewal, extension,
refunding or refinancing of any liability which constitutes Indebtedness of the
types referred to in clauses (i) through (ix) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
Fair Market Value of such Redeemable Capital Stock, such Fair Market Value to be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) and/or other types of interest rate
hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees) or other extension of credit or capital
contribution (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others) or any
purchase, acquisition or ownership (other than ownership obtained without
making, or becoming liable, directly or indirectly, contingent or otherwise, for
the making of, any advance, loan (or the forgiveness thereof), payment,
extension of credit or capital contribution in connection therewith), by such
Person of any Capital Stock, bonds, notes, debentures or other securities issued
or owned by any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP.
"Issue Date" means the date on which the Notes are originally issued under
the Indenture.
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"Lien" means any mortgage or deed of trust, charge, pledge, lien (statutory
or otherwise), privilege, security interest, assignment, deposit, arrangement,
easement, hypothecation, claim, preference, priority or other encumbrance upon
or with respect to any property of any kind (including any conditional sale,
capital lease or other title retention agreement, any leases in the nature
thereof, and any agreement to give any security interest), real or personal,
movable or immovable, now owned or hereafter acquired.
"Maturity" means, when used with respect to the Notes, the date on which
the principal of the Notes becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Offer Date, the
Change of Control Purchase Date or the redemption date and whether by
declaration of acceleration, Offer in respect of Excess Proceeds, Chance of
Control Offer in respect of a Change of Control, call for redemption or
otherwise.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof (without duplication in respect of all Asset Sales) in the
form of cash or Temporary Cash Investments including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or Temporary Cash Investments (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Subsidiary) net of (i) brokerage commissions and other reasonable fees
and expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties the subject of such
Asset Sale, (iv) amounts required to be paid to any Person (other than the
Company or any Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee, and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital Stock,
or debt securities or Capital Stock that have been converted into or exchanged
for Capital Stock as referred to under "-- Certain Covenants -- Limitation on
Restricted Payments", the proceeds of such issuance or sale in the form of cash
or Temporary Cash Investments including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
of for, cash or Temporary Cash Investments (except to the extent that such
obligations are financed or sold with recourse to the Company or any
Subsidiary), net of attorneys' fees, accountants' fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment to the Notes.
"Permitted Indebtedness" means:
(i) Indebtedness under the Bank Credit Facility in an aggregate
principal amount at any one time outstanding not to exceed $70.0 million,
minus any permanent reductions of the amount outstanding under the Bank
Credit Facility, which reduction is a result of the Limitation on Sale of
Assets covenant of the Indenture;
(ii) Indebtedness under the Securitization Facility in an aggregate
amount not to exceed the greater of $160.0 million or 80% of the net book
value of the consolidated accounts receivable of the Company and its
Subsidiaries, calculated in accordance with GAAP;
(iii) Indebtedness of the Company (a) represented by the Notes, or (b)
that is incurred, in any amount, and in whole or in part, to (1) redeem all
of the Notes outstanding as described herein, or (2) effect a complete
defeasance or a covenant defeasance thereof as described herein; provided,
in either case, that any Indebtedness incurred under this subclause (b) is
actually applied in accordance with the applicable redemption or defeasance
provision of the Indenture;
(iv) Indebtedness of the Company outstanding on the date of the
Indenture and listed on a schedule thereto;
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(v) Indebtedness of the Company owing to a Subsidiary; provided that
any Indebtedness of the Company owing to a Subsidiary is made pursuant to
an intercompany note and is expressly subordinated in right of payment to
the payment and performance of the Company's obligations under the Notes,
and, upon an Event of Default, such Indebtedness shall not be due and
payable until such Event of Default is cured, waived or rescinded;
provided, further, that any disposition, pledge or transfer of any such
Indebtedness to a Person (other than a disposition, pledge or transfer to a
Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the
Company not permitted by this clause (v);
(vi) obligations of the Company entered into in the ordinary course of
business pursuant to Interest Rate Agreements designed to protect the
Company against fluctuations in interest rates in respect of Indebtedness
of the Company as long as such obligations do not exceed the aggregate
principal amount of such Indebtedness then outstanding;
(vii) Indebtedness of the Company represented by Capital Lease
Obligations or Purchase Money Obligations or other Indebtedness incurred or
assumed in connection with the acquisition, improvement or development of
real or personal, movable or immovable, property in each case incurred for
the purpose of financing or refinancing all or any part of the purchase
price or cost of construction or improvement of property used in the
business of the Company and any refinancings of such Indebtedness made in
accordance with subclauses (a), (b) and (c) of clause (xi) below, in an
aggregate principal amount pursuant to this clause (vii) not to exceed
$25.0 million outstanding at any time; provided that the principal amount
of any Indebtedness permitted under this clause (vii) did not in each case
at the time of incurrence exceed the cost of the acquired or constructed
asset or improvement so financed;
(viii) Indebtedness of the Company in respect of performance bonds,
surety bonds and replevin bonds provided by the Company in the ordinary
course of business;
(ix) other Indebtedness of the Company that does not exceed $50.0
million in the aggregate at any one time outstanding;
(x) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or other financial instrument drawn
against insufficient funds in the ordinary course of business, provided
that such Indebtedness is extinguished within four business days of its
incurrence; and
(xi) any renewals, extensions, substitutions, refundings, refinancings
or replacements (collectively, a "refinancing") of any Indebtedness
described in clauses (iv) and (v) of this definition of "Permitted
Indebtedness", including any successive refinancings (a) so long as the
borrower under such refinancing is the Company or, if not the Company, the
same as the borrower of the Indebtedness being refinanced, (b) the
aggregate principal amount of Indebtedness represented thereby as of the
date of the Indenture is not increased by such refinancing by an amount
greater than the lesser of (I) the stated amount of any premium or other
payment required to be paid in connection with such a refinancing pursuant
to the terms of the Indebtedness being refinanced or (II) the amount of
premium or other payment actually paid at such time to refinance the
Indebtedness, plus, in either case, the amount of expenses of the Company
incurred in connection with such refinancing, and (c) (A) in the case of
any refinancing of Indebtedness that is Subordinated Indebtedness, such new
Indebtedness is made subordinated to the Notes at least to the same extent
as the Indebtedness being refinanced and (B) in the case of Pari Passu
Indebtedness or Subordinated Indebtedness, as the case may be, such
refinancing does not reduce the Average Life to Stated Maturity or the
Stated Maturity of such Indebtedness.
"Permitted Investment" means: (i) Investments in any Subsidiary or any
Person which, as a result of such Investment, (a) becomes a Subsidiary or (b) is
merged or consolidated with or into, or transfers or conveys substantially all
of its assets to, or is liquidated into, the Company or any Subsidiary; (ii)
Indebtedness of the Company described under clause (v) of the definition of
"Permitted Indebtedness"; (iii) Investments in any of the Notes; (iv) Temporary
Cash Investments; (v) Investments acquired by the Company or any Subsidiary in
connection with an Asset Sale permitted under "-- Certain
Covenants -- Limitation on Sale of Assets" to the extent such Investments are
non-cash proceeds as permitted under such covenant; (vi) Investments in
existence on the date of the Indenture; (vii) Investments in the aggregate
amount of $5.0 million to purchase Capital Stock of
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any Subsidiary; (viii) any advance, loan (including guarantees) or other
extension of credit to any Person who purchases or acquires assets of the
Company or any Subsidiaries which are to be included in a business which will be
or is a party to the Franchise Program, limited to the purchase or acquisition
price of such assets; (ix) a one-time contribution of real property
independently valued at not more than $10.0 million to a real estate investment
trust which is an Affiliate of the Company and additional contributions (and/or
the non-cash component of sales in a situation where less than 75% of the
consideration was received in cash or Cash Equivalents) to such trust of real
property independently valued, which in the aggregate at the time of each
additional contribution, together with all previous additional contributions, do
not have a value in excess of 3% of the Company's Consolidated Tangible Assets
as of the end of the next immediately preceding fiscal year; and (x) any other
Investments in joint ventures, partnerships, real estate investment trusts or
other Persons reasonably related or complementary to the business of the Company
on the date of the Indenture in an aggregate amount not greater than $25.0
million at any one time outstanding. In connection with any assets or property
contributed or transferred to any Person as an Investment, such property and
assets shall be equal to the Fair Market Value (as determined by the board of
directors of the Company) at the time of Investment.
"Permitted Subsidiary Indebtedness" means:
(i) Indebtedness of a Subsidiary owing to the Company or another
Subsidiary; provided that such Indebtedness is made pursuant to an
intercompany note, and, upon an Event of Default, all amounts owing
pursuant to such Indebtedness are immediately due and payable; and
provided, further, that (a) any disposition, pledge or transfer of any such
Indebtedness to a Person (other than the Company or a Subsidiary) shall be
an incurrence of such Indebtedness by the obligor not within the definition
of "Permitted Subsidiary Indebtedness" pursuant to this clause (i), and (b)
any transaction pursuant to which any Subsidiary ceases to be a Subsidiary
shall be deemed to be the incurrence of Indebtedness by such Subsidiary
that is not within the definition of "Permitted Subsidiary Indebtedness"
pursuant to this clause (i);
(ii) Indebtedness of a Subsidiary represented by Indebtedness which
would be permitted by clause (iv), (vi), (vii), (viii), (ix), (x) or (xi)
of the definition of "Permitted Indebtedness" if incurred by the Company;
(iii) Acquired Indebtedness of a Subsidiary that would be permitted to
be incurred by the Company if such Acquired Indebtedness were being
incurred by the Company;
(iv) Indebtedness of a Subsidiary under the Securitization Facility;
(v) guarantees of Senior Indebtedness of the Company; and
(vi) guarantees of Indebtedness of Affiliates provided that the
Investment in such Affiliate complies with the limitation on Restricted
Payments covenant of the Indenture or constitutes a Permitted Investment.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Redeemable Capital Stock) pursuant to a registration statement
that has been declared effective by the SEC (other than a registration statement
on Form S-8 or any successor form or otherwise relating to equity securities
issuable under any employee benefit plan of the Company).
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company and its Subsidiaries and any
additions and accessions thereto, which are purchased at any time after the
Notes are issued; provided that (i) the security agreement or conditional sales
or other title retention contract pursuant to which the Lien on such assets is
created (collectively a "Purchase Money Security
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Agreement") shall be entered into within 120 days after the purchase or
substantial completion of the construction of such assets and shall at all times
be confined solely to the assets so purchased or acquired, any additions and
accessions thereto and any proceeds therefrom, (ii) at no time shall the
aggregate principal amount of the outstanding Indebtedness secured thereby, be
increased, except in connection with the purchase of additions and accession
thereto and except in respect of fees and other obligations in respect of such
Indebtedness, and (iii) (A) the aggregate outstanding principal amount of
Indebtedness secured thereby (determined on a per asset basis in the case of any
additions and accessions) shall not at the time such Purchase Money Security
Agreement is entered into exceed 100% of the purchase price to the Company and
its Subsidiaries of the assets subject thereto, or (B) the Indebtedness secured
thereby shall be with recourse solely to the assets so purchased or acquired,
any additions and accessions thereto and any proceeds therefrom.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of any event or passage of
time would be, required to be redeemed prior to any Stated Maturity of the
principal of the Notes or is redeemable at the option of the holder thereof at
any time prior to any such Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to any such Stated Maturity
at the option of the holder thereof.
"Refinancing" means (i) the offering and sale of the Notes pursuant to the
Indenture, (ii) the modification of the Bank Credit Facility, and (iii) the
consummation of the tender offer by the Company for its 13% Notes outstanding
prior to the Issue Date.
"SEC" means the United States Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the execution of the Indenture such SEC is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Securities Act" means the United States Securities Act of 1933, as
amended, or any successor statute.
"Securitization Facility" means the asset-backed securities issued by the
H&T Master Trust on December 13, 1996 in the aggregate principal amount of
$160.0 million, as such facility in whole or in part, may be amended, renewed,
extended, substituted, refinanced, restructured, replaced (including, without
limitation, with bank financing secured by receivables), supplemented or
otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancing, restructurings,
replacements, supplementations or other modifications of the foregoing).
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the dates specified in such Indebtedness as the
fixed date on which the principal of such Indebtedness or such installment of
interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is by
its terms expressly subordinated in right of payment to the Notes.
"Subsidiary" means any Person, a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries; provided that (i) any Unrestricted Subsidiary shall not be
deemed a Subsidiary under the Indenture, and (ii) any real estate investment
trust in which the Company or any Subsidiary has invested pursuant to clause
(ix) of the definition of "Permitted Investment" shall not be deemed a
Subsidiary under the Indenture.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof, and
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guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit (or, with respect to non-U.S.
banking institutions, similar instruments) maturing not more than one year after
the date of acquisition, issued by, or time deposit of, a commercial banking
institution that is a member of the Federal Reserve System or a commercial
banking institution organized and located in a country recognized by the United
States of America, in each case, that has combined capital and surplus and
undivided profits of not less than $500 million (or the foreign currency
equivalent thereof), whose debt has a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's Investors
Service, Inc. ("Moody's") or any successor rating agency or "A-1" (or higher)
according to Standard & Poor's Rating Group, a division of McGraw Hill, Inc.
("S&P") or any successor rating agency, (iii) commercial paper, maturing not
more than one year after the date of acquisition, issued by a corporation (other
than an Affiliate or Subsidiary of the Company) organized and existing under the
laws of the United States of America with a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P, (iv) any money market deposit accounts or demand
deposit accounts issued or offered by a domestic commercial bank or a commercial
banking institution organized and located in a country recognized by the United
States of America, in each case having capital and surplus in excess of $500
million (or the foreign currency equivalent thereof); provided that the
short-term debt of such commercial bank has a rating, at the time of Investment,
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P,
and (v) any other Investments, that at any one time do not exceed $100,000 in
the aggregate, issued or offered by any domestic commercial bank or any
commercial banking institution organized and located in a country recognized by
the United States of America.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or
any successor statute.
"13% Notes" means the 13% Senior Subordinated Notes due 2003 of the
Company.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
exists on the Issue Date and is so designated as an Unrestricted Subsidiary on a
schedule attached to the Indenture, (ii) any subsidiary of the Company that at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the board of directors of the Company, as provided below), and (iii) any
subsidiary of an Unrestricted Subsidiary. The board of directors of the Company
may designate any subsidiary of the Company (including any newly acquired or
newly formed subsidiary) to be an Unrestricted Subsidiary if all of the
following conditions apply: (a) neither the Company nor any of its Subsidiaries
provides credit support for Indebtedness of such Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness), (b) such Unrestricted Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than Unrestricted Subsidiary
Indebtedness or the Bank Credit Facility, (c) any Investment by the Company in
such Unrestricted Subsidiary made as a result of designating such subsidiary an
Unrestricted Subsidiary shall not violate the provisions described under
"-- Certain Covenants -- Limitation on Unrestricted Subsidiaries" and such
Unrestricted Subsidiary is not party to any agreement, contract, arrangement or
understanding at such time with the Company or any other subsidiary of the
Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such other subsidiary than
those that might be obtained at the time from Persons who are not Affiliates of
the Company or, in the event such condition is not satisfied, the value of such
agreement, contract, arrangement or understanding to such Unrestricted
Subsidiary shall be deemed an Investment, and (d) such Unrestricted Subsidiary
does not own any Capital Stock in any subsidiary of the Company which is not
simultaneously being designated an Unrestricted Subsidiary. Any such designation
by the board of directors of the Company shall be evidenced to the Trustee by
filing with the Trustee a board resolution giving effect to such designation and
an officers' certificate certifying that such designation complies with the
foregoing conditions and any Investment by the Company in such Unrestricted
Subsidiary shall be deemed a Restricted Payment on the date of designation in an
amount equal to the greater of (1) the net book value of such Investment or (2)
the Fair Market Value of such Investment as determined in good faith by the
Company's board of directors. The board of directors of the Company may
designate any Unrestricted Subsidiary as a Subsidiary; provided (i) that if such
Unrestricted Subsidiary has any Indebtedness, that immediately after giving
effect to such designation, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness or Permitted Subsidiary
Indebtedness) pursuant to the restrictions under "-- Certain
Covenants -- Limitation on Indebtedness", and (ii) that all Indebtedness of such
Subsidiary shall be deemed to be incurred on the date such Unrestricted
Subsidiary becomes a Subsidiary.
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"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of any Unrestricted Subsidiary (i) as to which neither the Company
nor any Subsidiary is directly or indirectly liable (by virtue of the Company or
any such Subsidiary being the primary obligor on, guarantor of, or otherwise
liable in any respect to, such Indebtedness), and (ii) which, upon the
occurrence of a default with respect thereto, does not result in, or permit any
holder of any Indebtedness of the Company or any Subsidiary to declare, a
default on such Indebtedness of the Company or any Subsidiary or cause the
payment thereof to be accelerated or payable prior to its Stated Maturity.
"Voting Stock" means Capital Stock of the class or classes pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of a corporation (irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
(other than qualifying shares, if any) is owned by the Company or another Wholly
Owned Subsidiary.
BOOK-ENTRY DELIVERY AND FORM
The Old Notes, which were offered and sold to qualified institutional
buyers (as defined under Rule 144A) ("QIBs") and were deposited with the Trustee
as custodian for DTC and registered in the name of Cede & Co. are registered in
book-entry form and are represented by two global notes, in definitive, fully
registered form without interest coupons (the "U.S. Global Notes").
The Old Notes (i) originally purchased by or transferred to "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) and (7) under the Securities
Act) ("Institutional Accredited Investors") who are not QIBs, or (ii) held by
QIBs who elected to take physical delivery of their certificates instead of
holding their interest through the U.S. Global Notes (and which are then unable
to trade through DTC) (collectively referred to herein as the "Non-Global
Purchasers"), were issued in registered form without interest coupons
("Certificated Notes"). Upon the transfer of such Certificated Notes held by a
Non-Global Purchaser to a QIB, such Certificated Notes will, unless the
transferee requests otherwise or the U.S. Global Notes have previously been
exchanged in whole for Certificated Notes, be exchanged for an interest in the
U.S. Global Note.
The Old Notes offered and sold to persons outside the United States who
received such Old Notes pursuant to sales in accordance with Regulation S under
the Securities Act were each initially represented by a global note certificate
in fully registered form without interest coupons (the "Offshore Global Note
and, together with the U.S. Global Notes, the "Old Global Notes"). The Offshore
Global Note was deposited with the Trustee as custodian for DTC and registered
in the name of Cede & Co. Prior to the expiration of the "40-day restricted
period" within the meaning of Rule 903 of Regulation S under the Securities Act,
transfers of interest in the Offshore Global Note may only be effected through
records maintained by DTC, Cedel Bank, societe anonyme ("Cedel") or Euroclear
System ("Euroclear").
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC holds securities for its participants and
facilitates the clearance and settlement of securities transactions between
participants through electronic computerized book-entry changes in accounts of
its participants, thereby eliminating the need for physical movement of
securities certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Except as set forth below, it is expected that the New Notes will be issued
in global form (the "New Global Notes" and, together with the Old Global Notes,
the "Global Notes"). The Company expects that pursuant to procedures established
by DTC (a) upon the issuance of the New Global Notes, DTC or its custodian will
credit on its internal system portions of the New Global Notes which shall be
comprised of the corresponding respective
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principal amount of the Old Global Note to the respective accounts of persons
who have accounts with such depositary, and (b) ownership of the New Notes will
be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
Participants (as defined)) and the records of participants (with respect to
interests of persons other than participants). Such accounts initially will be
designated by the Exchange Agent and ownership of beneficial interest in the New
Global Notes will be limited to persons who have accounts with DTC
("Participants") or persons who hold interests through Participants. QIBs may
hold their interests in the New Global Notes directly through DTC if they are
Participants in such system, or indirectly through organizations which are
Participants in such system.
So long as DTC or its nominee is the registered owner or holder of a New
Global Note, DTC or such nominee, as the case may be, will be considered the
sole record owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owners of an interest
in the Global Notes will be able to transfer that interest except in accordance
with DTC's applicable procedures in addition to those provided for under the
Indenture.
Payments of the principal of, premium (if any) and interest on the New
Global Notes will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee or any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium (if any) or interest in respect of the Global Notes will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial ownership interests in the principal amount of such Global
Note, as shown on the records of DTC or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in such Global
Note held through such participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers registered in the names of nominees for such customers.
Such payments will be the responsibility of such participants.
Transfer between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a holder requires physical delivery of
Certificated Notes for any reason, including selling the Notes to persons in
states which require delivery of the Notes or pledging the Notes, such holder
must transfer its interest in the U.S. Global Note, in accordance with the
normal procedures of DTC and the procedures set forth in the Indenture.
Transfers between participants in Euroclear and Cedel will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
DTC has advised the Company that neither DTC nor Cede & Co. will consent or
vote with respect to the Global Notes. Under its usual procedures, DTC mails an
Omnibus Proxy to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those direct
participants to whose accounts the Global Notes are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Interests in the New Global Notes will be exchangeable or transferable, as
the case may be, for Certificated Notes if (i) DTC notifies the Company that it
is unwilling or unable to continue as depositary for such New Global Notes, or
DTC ceases to be a "Clearing Agency" registered under the Exchange Act, and a
successor depositary is not appointed by the Company within 90 days, or (ii) an
Event of Default has occurred and is continuing with respect to such New Notes.
Upon the occurrence of any of the events described in the preceding sentence,
the Company will cause the appropriate Certificated Notes to be delivered.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer may be deemed to be a statutory underwriter, must acknowledge
that it acquired the Old Notes for its own account as a result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes. This Prospectus, as it may be amended or supplemented
from time to time, may be used by Participating Broker-Dealers in connection
with resales of New Notes received in exchange for Old Notes if such Old Notes
were acquired by such Participating Broker-Dealers for their own accounts as a
result of market-making or other trading activities. Subject to certain
conditions, the Company has agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such New Notes. However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of New Notes received in exchange for Old Notes pursuant to the Exchange Offer
must notify the Company, or cause the Company to be notified, on or prior to the
Expiration Date, that it is a Participating Broker-Dealer. Such notice may be
given in the space provided for that purpose in the Letter of Transmittal or may
be delivered to the Exchange Agent at one of the addresses set forth herein
under "The Exchange Offer -- The Exchange Agent; Assistance". See "The Exchange
Offer -- Resales of the New Notes". Any Participating Broker-Dealer who is an
"affiliate" of the Company must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
The Company will not receive any cash proceeds from the Exchange Offer. New
Notes received by broker-dealers for their own accounts in connection with the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Notes.
Any broker-dealer that resells New Notes that were received by it for its
own account in connection with the Exchange Offer or any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Notes any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith, files reports, proxy statements and other information with the SEC.
Reports, registration statements, proxy statements and other information filed
by the Company with the SEC can be inspected and copied at the public reference
facility maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the SEC's Regional Offices, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC maintains a web site at http://www.sec.gov that
contains reports, registration statements, proxy statements and other
information regarding registrants, such as the Company, that file electronically
with the SEC.
The Company has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the SEC under the Securities Act, in respect of
the New Notes offered for exchange hereby. For purposes hereof, the term
"Registration Statement" means the initial Registration Statement and any and
all amendments thereto. This Prospectus omits certain information contained in
the Registration Statement as permitted by the rules and regulations of the SEC.
For further information with respect to the Company and the New Notes offered
for
76
<PAGE> 79
exchange hereby, reference is made to the Registration Statement, including the
exhibits thereto. Statements herein concerning the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to such contract or other document filed with the SEC as an exhibit to the
Registration Statement, or otherwise, each such statement being qualified by,
and subject to, such reference in all respects.
LEGAL MATTERS
The validity, authorization and issuance of the New Notes offered hereby
will be passed upon for the Company by Benesch, Friedlander, Coplan & Aronoff
LLP of Cleveland, Ohio. George N. Aronoff, a partner in Benesch, Friedlander,
Coplan & Aronoff LLP, owns 22,359 shares of the Company's common stock.
EXPERTS
The consolidated financial statements and schedule of the Company at
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, appearing and incorporated by reference in this Prospectus
and the Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing herein and
incorporated by reference, and are included herein and incorporated by reference
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the SEC pursuant to the
Exchange Act are incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996 (file no. 0-27478) (the "Annual Report");
(2) the Company's Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 1997 (file no. 0-27478);
(3) the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 (file no. 0-27478);
(4) the Company's Current Report on Form 8-K filed with the SEC on
August 4, 1997 (file no. 0-27478);
(5) the Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders filed with the SEC on October 17, 1997 (file no.
0-27478); and
(6) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A/A filed with the SEC on
January 3, 1996 (file no. 0-27478).
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the Expiration Date shall be deemed incorporated by reference in this Prospectus
and a part hereof from the respective date of filing each such document. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company undertakes to provide, without charge, to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of any such person, a copy of any
and all of the documents referred to above that have been incorporated in this
Prospectus by reference, other than exhibits to such documents. Requests for
such copies should be directed to the Secretary, Bally Total Fitness Holding
Corporation, 8700 West Bryn Mawr Avenue, Chicago, Illinois 60631, telephone
(773) 380-3000.
77
<PAGE> 80
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------------
<S> <C>
Report of independent auditors............................................... F-2
Consolidated balance sheet at December 31, 1996 and 1995..................... F-3
Consolidated statement of operations for the years ended December 31, 1996,
1995 and 1994.............................................................. F-4
Consolidated statement of stockholders' equity for the years ended December
31, 1996, 1995 and 1994.................................................... F-5
Consolidated statement of cash flows for the years ended December 31, 1996,
1995 and 1994.............................................................. F-6
Notes to consolidated financial statements for the years ended December 31,
1996, 1995 and 1994........................................................ F-8
Supplementary data:
Quarterly consolidated financial information (unaudited)................... F-22
Condensed consolidated balance sheet at June 30, 1997 (unaudited)............ F-23
Consolidated statement of operations for the six months ended June 30, 1997
and 1996 (unaudited)....................................................... F-24
Consolidated statement of stockholders' equity for the six months ended June
30, 1997 (unaudited)....................................................... F-25
Consolidated statement of cash flows for the six months ended June 30, 1997
and 1996 (unaudited)....................................................... F-26
Notes to condensed consolidated financial statements for the six months ended
June 30, 1997 and 1996 (unaudited)......................................... F-28
</TABLE>
F-1
<PAGE> 81
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Bally Total Fitness Holding Corporation
We have audited the accompanying consolidated balance sheet of Bally Total
Fitness Holding Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Bally Total Fitness Holding Corporation at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
The consolidated financial statements referred to above have been restated
as discussed in the "Summary of significant accounting policies -- Restatement
and Membership revenue recognition" notes to the consolidated financial
statements.
ERNST & YOUNG LLP
Chicago, Illinois
February 25, 1997, except for the
"Summary of significant accounting
policies -- Restatement, Membership
revenue recognition and Impact of
recently issued accounting
standards" and "Income Taxes" notes,
as to which the date is July 14,
1997
F-2
<PAGE> 82
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(As restated)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................... $ 16,534 $ 21,263
Installment contracts receivable, net.............................. 153,235 155,504
Deferred income taxes.............................................. 6,953
Other current assets............................................... 24,075 20,216
-------- --------
Total current assets............................................ 193,844 203,936
Long-term installment contracts receivable, net...................... 146,972 147,856
Property and equipment, at cost:
Land............................................................... 22,550 22,550
Buildings.......................................................... 108,361 106,945
Leasehold improvements............................................. 400,340 393,418
Equipment and furnishings.......................................... 99,073 119,253
-------- --------
630,324 642,166
Accumulated depreciation and amortization.......................... 304,865 293,698
-------- --------
Net property and equipment...................................... 325,459 348,468
Intangible assets, less accumulated amortization of $49,619 and
$45,117............................................................ 105,725 110,227
Deferred income taxes................................................ 13,656
Deferred membership origination costs................................ 82,140 86,253
Other assets......................................................... 25,506 39,771
-------- --------
$893,302 $936,511
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 41,565 $ 43,740
Income taxes payable............................................... 2,258 2,241
Deferred income taxes.............................................. 15,145
Accrued liabilities................................................ 55,063 64,977
Current maturities of long-term debt............................... 8,401 1,481
Deferred revenues.................................................. 265,465 285,153
-------- --------
Total current liabilities....................................... 387,897 397,592
Long-term debt, less current maturities.............................. 376,397 368,032
Tax obligation to Bally Entertainment Corporation.................... 15,200
Deferred income taxes................................................ 8,442
Other liabilities.................................................... 6,824 7,596
Deferred revenues.................................................... 98,032 107,960
Stockholders' equity:
Preferred stock, $.10 par value; 10,000,000 shares authorized; none
issued --
Series A Junior Participating; 300,000 shares authorized; none
issued.........................................................
Common stock, $.01 par value; 60,200,000 shares authorized;
12,495,161 and 11,845,161 shares issued and outstanding......... 125 118
Contributed capital................................................ 303,811 290,062
Accumulated deficit................................................ (277,733) (258,491)
Unearned compensation (restricted stock)........................... (2,051)
-------- --------
Total stockholders' equity...................................... 24,152 31,689
-------- --------
$893,302 $936,511
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 83
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share data)
(As restated)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues:
Membership revenues --
Initial membership fees on paid-in-full memberships
originated.......................................... $ 85,624 $ 95,695 $ 102,961
Initial membership fees on financed memberships
originated.......................................... 290,378 309,974 322,752
Dues collected........................................ 182,909 177,783 173,549
Change in deferred revenues........................... 29,791 16,813 26,975
---------- ---------- ----------
588,702 600,265 626,237
Finance charges earned................................... 36,405 36,889 34,877
Fees and other........................................... 15,080 16,399 20,929
---------- ---------- ----------
640,187 653,553 682,043
Operating costs and expenses:
Fitness center operations................................ 366,466 396,564 407,119
Member processing and collection centers................. 42,257 50,255 52,080
Advertising.............................................. 47,428 50,037 47,578
General and administrative............................... 23,586 21,603 21,925
Provision for doubtful receivables....................... 80,350 72,145 103,930
Depreciation and amortization............................ 55,940 57,359 58,856
Change in deferred membership origination costs.......... 4,113 428 6,692
---------- ---------- ----------
620,140 648,391 698,180
---------- ---------- ----------
Operating income (loss).................................... 20,047 5,162 (16,137)
Interest expense........................................... 47,644 43,750 38,556
---------- ---------- ----------
Loss before income taxes and extraordinary item............ (27,597) (38,588) (54,693)
Income tax benefit......................................... (2,700) (7,188) (15,213)
---------- ---------- ----------
Loss before extraordinary item............................. (24,897) (31,400) (39,480)
Extraordinary gain on extinguishment of debt............... 5,655
---------- ---------- ----------
Net loss................................................... $ (19,242) $ (31,400) $ (39,480)
========== ========== ==========
Pro forma net loss reflecting income taxes
on a separate return basis............................... $ (38,469) $ (54,640)
========== ==========
Per common share (pro forma for 1995 and 1994):
Loss before extraordinary item........................... $ (2.04) $ (3.25) $ (4.61)
Extraordinary gain on extinguishment of debt............. .46
---------- ---------- ----------
Net loss................................................. $ (1.58) $ (3.25) $ (4.61)
========== ========== ==========
Average common shares outstanding (pro forma for
1995 and 1994)........................................... 12,174,601 11,845,161 11,845,161
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 84
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(As restated)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED UNEARNED
------------------- EARNINGS COMPENSATION TOTAL
NUMBER PAR CONTRIBUTED (ACCUMULATED (RESTRICTED STOCKHOLDERS'
OF SHARES VALUE CAPITAL DEFICIT) STOCK) EQUITY
---------- ----- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993, as
originally reported............ 19,000,000 $190 $ 238,007 $ 23,118 $ $ 261,315
Cumulative effect of change in
accounting for membership
revenue........................ (210,729) (210,729)
---------- ---- --------- --------- -------- ---------
Balance at December 31, 1993, as
restated....................... 19,000,000 190 238,007 (187,611) 50,586
Net loss......................... (39,480) (39,480)
Settlement of pre-acquisition
contingency.................... (7,669) (7,669)
Forgiveness of income tax
obligation by Bally
Entertainment Corporation...... 31,400 31,400
---------- ---- --------- --------- -------- ---------
Balance at December 31, 1994..... 19,000,000 190 261,738 (227,091) 34,837
Net loss......................... (31,400) (31,400)
Effects of spin-off from Bally
Entertainment Corporation:
Forgiveness of income tax
obligation by Bally
Entertainment
Corporation................ 44,507 44,507
Increase in income tax
valuation allowance due to
adjustments to the income
tax basis of certain
assets..................... (20,147) (20,147)
Excess of sales price over
historical basis of assets
sold to Bally Entertainment
Corporation................ 3,892 3,892
Reduction in number of shares
issued and outstanding..... (7,154,839) (72) 72 --
---------- ---- --------- --------- -------- ---------
Balance at December 31, 1995..... 11,845,161 118 290,062 (258,491) 31,689
Net loss......................... (19,242) (19,242)
Common stock issued under
long-term incentive plan....... 650,000 7 4,389 (4,396) --
Capital contributions by Bally
Entertainment Corporation...... 9,360 9,360
Amortization of unearned
compensation................... 2,345 2,345
---------- ---- --------- --------- -------- ---------
Balance at December 31, 1996..... 12,495,161 $125 $ 303,811 $(277,733) $ (2,051) $ 24,152
========== ==== ========= ========= ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 85
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(As restated)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
OPERATING:
Loss before extraordinary item........................... $ (24,897) $ (31,400) $ (39,480)
Adjustments to reconcile to cash provided (used)--
Depreciation and amortization, including amortization
included in interest expense........................ 59,124 60,701 60,760
Provision for doubtful receivables.................... 80,350 72,145 103,930
Change in operating assets and liabilities............ (119,764) (112,922) (94,150)
Other, net............................................ (114) 1,622 1,774
--------- --------- ---------
Cash provided by (used in) operating
activities..................................... (5,301) (9,854) 32,834
INVESTING:
Purchases and construction of property and equipment..... (20,612) (22,469) (21,357)
Reserve fund deposit refunded (paid) pursuant to
securitization facility............................... 10,000 (20,000)
Other, net............................................... 833 353 (19)
--------- --------- ---------
Cash used in investing activities................ (9,779) (42,116) (21,376)
FINANCING:
Debt transactions --
Proceeds from securitization facility................. 160,000 150,000
Proceeds from other long-term borrowings.............. 2,318
Repayment of securitization facility.................. (153,613)
Net repayments under revolving credit agreement....... (77,000) (3,910)
Repayments of other long-term debt.................... (2,299) (5,917) (5,149)
Debt issuance costs................................... (2,815) (6,654) (575)
--------- --------- ---------
Cash provided by (used in) debt transactions..... 3,591 60,429 (9,634)
Equity transaction --
Capital contribution by Bally Entertainment
Corporation......................................... 6,760
--------- --------- ---------
Cash provided by (used in) financing
activities..................................... 10,351 60,429 (9,634)
--------- --------- ---------
Increase (decrease) in cash and equivalents................ (4,729) 8,459 1,824
Cash and equivalents, beginning of year.................... 21,263 12,804 10,980
--------- --------- ---------
Cash and equivalents, end of year.......................... $ 16,534 $ 21,263 $ 12,804
========= ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 86
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
(In thousands)
(As restated)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and liabilities, net of
effects from acquisitions or sales, were as follows --
Increase in installment contracts receivable......... $ (75,491) $ (91,422) $(65,890)
(Increase) decrease in other current and other
assets............................................. (4,063) 1,589 (3,081)
Decrease in deferred membership origination costs.... 4,113 428 6,692
Decrease in accounts payable......................... (475) (498) (85)
Increase (decrease) in income taxes payable.......... (2,866) (503) (6,257)
Increase (decrease) in accrued and other
liabilities........................................ (11,191) (5,703) 1,446
Decrease in deferred revenues........................ (29,791) (16,813) (26,975)
---------- ---------- ----------
$(119,764) $(112,922) $(94,150)
========== ========== ==========
Cash payments for interest and income taxes were as
follows--
Interest paid........................................ $ 44,604 $ 42,221 $ 36,499
Interest capitalized................................. (236) (278) (253)
Income taxes paid (refunded), net.................... 166 (6,685) (8,956)
Investing and financing activities exclude the following
non-cash activities--
Forgiveness of income tax obligations by Bally
Entertainment Corporation/Hilton Hotels
Corporation........................................ $ 15,200 $ 44,507 $ 31,400
Acquisition of property and equipment through capital
leases............................................. 5,266 2,445
Common stock issued under long-term incentive plan... 4,396
Capital contribution by Bally Entertainment
Corporation........................................ 2,600
Increase in income tax valuation allowance due to
adjustments to the income tax basis of certain
assets upon spin-off from Bally Entertainment
Corporation........................................ 20,147
Excess of sales price over historical basis of assets
sold to Bally Entertainment Corporation............ 3,892
Reduction of intangible assets resulting from
settlement of pre-acquisition contingency.......... 10,331
</TABLE>
See accompanying notes.
F-7
<PAGE> 87
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying 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 approximately 320 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.
The Company was a wholly owned subsidiary of Bally Entertainment
Corporation ("Entertainment") until the consummation of Entertainment's spin-off
of the Company. On November 6, 1995, the Board of Directors of Entertainment
declared a distribution in the form of a dividend (the "Spin-off") to holders of
record of its common stock as of the close of business on November 15, 1995 (the
"Record Date") on the basis of one share of common stock, par value $.01 per
share (the "Common Stock") of the Company, along with an associated stock
purchase right (a "Right") issued pursuant to a stockholder rights plan (the
"Stockholders Rights Plan"), for every four shares of Entertainment common stock
held on the Record Date. On January 9, 1996 (the "Distribution Date"),
11,845,161 shares of Common Stock were distributed. For financial accounting
purposes, the Company has reflected the effect of the Spin-off as of December
31, 1995.
The accompanying 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.
Restatement
The Staff of the Securities and Exchange Commission (the "SEC Staff") has
advised the Company, in connection with an offering of Common Stock, it requires
all registrants operating fitness centers with membership plans that include
initial membership fees to follow a "deferral method" of accounting with respect
to the recognition of such initial membership fees. The Company's fitness
centers primarily offer a dues membership, which permits members, upon paying
initial membership fees, which may be financed, to maintain their membership on
a month-to-month basis as long as monthly dues payments are made. Since 1985,
the Company has recognized the initial membership fee portion of the membership
as revenue at the time the membership was sold (when contractually enforceable)
and deferred the dues portion of such membership (when the dues were waived or
prepaid) under a method that approximated the "selling and service" method. In
connection with an offering of Common Stock, the SEC Staff informed the Company
it no longer agreed with this methodology and the Company should change its
method of recognizing initial membership fees to a "deferral method", which
recognizes the initial membership fee over the weighted average expected life of
the memberships sold. Following a series of extensive discussions with the SEC
Staff, the Company has agreed to restate its consolidated financial statements
for all years presented to this new method. See "-- Membership revenue
recognition". Accordingly, the accompanying consolidated financial statements
have been restated from those originally reported to reflect the resolution of
these discussions between the Company and the SEC Staff regarding revenue
recognition methods. The deferral of historical revenues resulting from the
change in the method of recognizing membership revenue had no impact on the
Company's liquidity or cash flows; and
F-8
<PAGE> 88
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
summarized financial information illustrating the effect of the restatement on
the Company's consolidated financial statements is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
AS AS AS
ORIGINALLY AS ORIGINALLY AS ORIGINALLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Financial position --
Deferred membership
origination costs..... $ -- $ 82,140 $ -- $ 86,253
Current deferred
revenues.............. 55,927 265,465 61,881 285,153
Long-term deferred
revenues.............. 26,440 98,032 29,686 107,960
Stockholders' equity..... 216,507 24,152 240,347 31,689
Results of operations --
Net revenues............. $ 625,640 $640,187 $ 661,740 $653,553 $ 661,505 $682,043
Operating income
(loss)................ 3,744 20,047 7,591 5,162 (37,248) (16,137)
Loss before extraordinary
item.................. (41,200) (24,897) (25,160) (31,400) (50,791) (39,480)
Net loss................. (35,545) (19,242) (25,160) (31,400) (50,791) (39,480)
Net loss per common share
(pro forma for 1995
and 1994)............. (2.92) (1.58) (3.08) (3.25) (6.44) (4.61)
</TABLE>
Cash equivalents
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents. The carrying amount
of cash equivalents approximates fair value due to the short maturity of those
instruments.
Property and equipment
Depreciation of buildings, equipment and furnishings is provided on the
straight-line method over the estimated economic lives of the related assets and
amortization of leasehold improvements is provided on the straight-line method
over the lesser of the estimated economic lives of the improvements or the lease
periods. Depreciation and amortization of property and equipment was $48,444,
$51,999 and $53,476 for 1996, 1995 and 1994, respectively.
Deferred finance costs
Deferred finance costs are amortized over the terms of the related debt
using the bonds outstanding method. Included in "Other assets" at December 31,
1996 and 1995 were deferred finance costs of $8,252 and $10,971, respectively,
net of accumulated amortization of $4,430 and $4,034, respectively.
Intangible assets
Intangible assets consist principally of cost in excess of net assets of
acquired businesses (goodwill), which is being amortized on the straight-line
method over periods ranging up to forty years from dates of acquisition, and
amounts assigned to acquired operating lease rights, which are being amortized
on the straight-line method over the remaining lease periods.
F-9
<PAGE> 89
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
The Company evaluates annually whether the remaining estimated useful life
of goodwill may warrant revision or the remaining balance of goodwill may not be
recoverable, generally considering expectations of future profitability and cash
flows (undiscounted and without interest charges) on a consolidated basis. If
the sum of the Company's expected future cash flows was less than the carrying
value of the Company's long-lived assets and identifiable intangibles, an
impairment loss would be recognized equal to the amount by which the carrying
value of the Company's long-lived assets and identifiable intangibles exceeded
their fair value. Based on present operations and strategic plans, the Company
believes that no impairment of goodwill exists at December 31, 1996. However, if
future operations do not perform as expected, or if the Company's strategic
plans for its business were to change, a reduction in the carrying value of
these assets may be required.
Membership revenue recognition
The Company's fitness centers primarily offer a dues membership, which
permits members, upon paying initial membership fees, which may be financed, to
maintain their membership on a month-to-month basis as long as monthly dues
payments are made. Initial membership fees may be paid-in-full when members join
or may be financed via installment contracts over periods ranging up to 36
months. Revenues from initial membership fees are deferred and recognized
straight-line over the weighted average expected life of the memberships, which
for paid-in-full memberships and financed memberships sold after December 31,
1993 has been calculated to be 36 months and 22 months, respectively (previously
34 months and 20 months, respectively). Costs directly related to the
origination of memberships (substantially all of which are sales commissions
paid, which are included in "Fitness center operations") are also deferred and
are amortized using the same methodology as for initial membership fees
described above. Dues revenue is recorded as monthly services are provided.
Accordingly, when dues are prepaid, the prepaid portion is deferred and
recognized over the applicable term. Installment contracts bear interest at, or
are adjusted for financial accounting purposes at the time the contracts are
sold to, rates for comparable consumer financing contracts. Unearned finance
charges are amortized over the term of the contracts on the
sum-of-the-months-digits method, which approximates the interest method.
Components of deferred revenues as of December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------- -------------------------------
CURRENT LONG-TERM TOTAL CURRENT LONG-TERM TOTAL
-------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Paid-in-full initial
membership fees
deferred................. $ 75,614 $55,278 $130,892 $ 81,563 $ 58,400 $139,963
Financed initial membership
fees deferred............ 148,251 31,981 180,232 162,918 35,967 198,885
Prepaid dues............... 41,600 10,773 52,373 40,672 13,593 54,265
-------- -------- -------- -------- -------- --------
$265,465 $98,032 $363,497 $285,153 $ 107,960 $393,113
======== ======== ======== ======== ======== ========
</TABLE>
F-10
<PAGE> 90
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
Components of the change in deferred revenues for the years ended December
31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Paid-in-full initial memberships fees --
Originating........................................ $ (85,624) $ (95,695) $(102,961)
Recognized......................................... 94,870 116,608 138,654
--------- --------- ---------
Decrease in deferral............................ 9,246 20,913 35,693
Financed initial membership fees --
Originating........................................ (290,378) (309,974) (322,752)
Less provision for doubtful receivables............ 80,350 72,145 103,930
--------- --------- ---------
Originating, net................................... (210,028) (237,829) (218,822)
Recognized......................................... 228,681 220,885 215,270
--------- --------- ---------
Decrease (increase) in deferral................. 18,653 (16,944) (3,552)
Decrease (increase) in prepaid dues.................. 1,892 12,844 (5,166)
--------- --------- ---------
Change in deferred revenues.......................... $ 29,791 $ 16,813 $ 26,975
========= ========= =========
</TABLE>
Components of the change in deferred membership origination costs for the
years ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Incurred (substantially all of which are sales
commissions paid, which are included in "Fitness
center operations")................................ $ (77,257) $ (82,720) $ (85,704)
Amortized............................................ 81,370 83,148 92,396
--------- --------- ---------
Change in deferred membership origination costs...... $ 4,113 $ 428 $ 6,692
========= ========= =========
</TABLE>
Income taxes
For tax periods after January 9, 1996, the Company is required to file its
own separate consolidated federal income tax return. For tax periods prior to
and including January 9, 1996, taxable income or loss of the Company was
included in the consolidated federal income tax return of Entertainment.
Pursuant to a tax sharing agreement with Entertainment, income taxes were
allocated to the Company based on amounts the Company would pay or receive if it
filed a separate consolidated federal income tax return, except that the Company
received from Entertainment an amount equal to the tax benefit of the Company's
net operating losses and tax credits, if any, that could be utilized in
Entertainment's consolidated federal income tax return, whether or not such
losses or credits could be utilized by the Company on a separate return basis.
As a result of the Spin-off, the Company and Entertainment entered into the Tax
Allocation and Indemnity Agreement that defines the parties' rights and
obligations with respect to deficiencies and refunds of federal income taxes for
tax periods through January 9, 1996. In connection therewith, Entertainment
assumed substantially all responsibility for any federal income tax adjustments
related to the Company for tax periods through January 9, 1996. The Tax
Allocation and Indemnity Agreement was amended in 1996 to include a portion of
the Company's losses in Entertainment's consolidated federal income tax return.
As a result, capital contributions totalling $9,360 were received by the Company
($6,760 in cash and $2,600 as an offset to certain indebtedness) representing a
portion of the benefit that Entertainment receives from the utilization of the
Company's loss carrybacks.
F-11
<PAGE> 91
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
Loss per common share
Loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the year, which
totalled 12,174,601 shares for 1996. Certain restricted stock 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 until the conditions are met because their effect would be
anti-dilutive.
Impact of recently issued accounting standards
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", which
provides new accounting and reporting standards for sales, securitizations, and
servicing of receivables and other financial assets, secured borrowing and
collateral transactions, and extinguishments of liabilities occurring after
December 31, 1996. SFAS No. 125 addresses whether a transfer of financial assets
constitutes a sale and, if so, the determination of any resulting gain or loss.
SFAS No. 125 is based on a "financial-components approach" that focuses on
control. Under this approach, following a transfer of financial assets
(including portions of financial assets), an entity recognizes the assets it
controls and liabilities it has incurred, and derecognizes financial assets for
which control has been surrendered and financial liabilities that have been
extinguished. The Company has determined that SFAS No. 125 does not have any
impact on the accounting for its securitization facility.
EXTRAORDINARY ITEM
The extraordinary gain on extinguishment of debt for 1996 consists of (i) a
gain of $9,880 ($.81 per share), net of income taxes of $5,320, resulting from a
$15,200 tax obligation to Entertainment which was forgiven as part of the
December 1996 merger (the "Merger") of Entertainment with and into Hilton Hotels
Corporation ("Hilton") and (ii) a charge of $4,225 ($.35 per share), net of
income taxes of $2,270, resulting from the refinancing of the Company's
securitization facility.
INSTALLMENT CONTRACTS RECEIVABLE
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current:
Installment contracts receivable............................. $226,173 $244,522
Less --
Unearned finance charges.................................. 24,467 27,128
Allowance for doubtful receivables and cancellations...... 48,471 61,890
-------- --------
$153,235 $155,504
======== ========
Long-term:
Installment contracts receivable............................. $195,978 $211,549
Less --
Unearned finance charges.................................. 11,382 13,055
Allowance for doubtful receivables and cancellations...... 37,624 50,638
-------- --------
$146,972 $147,856
======== ========
</TABLE>
The carrying amount of installment contracts receivable at December 31,
1996 and 1995 approximates fair value based on discounted cash flow analyses,
using interest rates in effect at the end of each year comparable to similar
consumer financing contracts.
F-12
<PAGE> 92
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Payroll and benefit-related liabilities........................ $ 16,384 $ 18,263
Interest....................................................... 11,938 12,041
Taxes other than income taxes.................................. 3,853 7,389
Other.......................................................... 22,888 27,284
-------- --------
$ 55,063 $ 64,977
======== ========
</TABLE>
LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Nonsubordinated:
Securitization facility...................................... $160,000 $150,000
Revolving credit agreement................................... -- --
Capital lease obligations.................................... 6,686 2,176
Other secured and unsecured obligations...................... 18,112 17,337
Subordinated:
13% Senior Subordinated Notes due 2003....................... 200,000 200,000
-------- --------
Total long-term debt........................................... 384,798 369,513
Current maturities of long-term debt........................... (8,401) (1,481)
-------- --------
Long-term debt, less current maturities........................ $376,397 $368,032
======== ========
</TABLE>
In December 1996, the Company refinanced its $150,000 securitization
facility by completing a private placement of asset-backed securities (the
"Securitization") pursuant to which $145,500 of 8.43% Accounts Receivable Trust
Certificates and $14,500 of Floating Rate Accounts Receivable Trust Certificates
(the "Floating Certificates") were issued as undivided interests in the H&T
Master Trust (the "Trust"). The Floating Certificates bear interest (8.175% at
December 31, 1996) at 2.57% above the London Interbank Offer Rate ("LIBOR"),
with the interest rate on the Floating Certificates capped at 9.43% pursuant to
an interest rate cap agreement. The Trust was created for the issuance of
asset-backed securities and was formed pursuant to a pooling and servicing
agreement. The Trust includes a portfolio of substantially all of the Company's
installment contracts receivable from membership sales and the proceeds thereof.
The amount by which installment contracts receivable in the Trust exceed the
$160,000 principal amount of certificates issued by the Trust is generally
retained by the Company. The Company services the installment contracts
receivable held by the Trust and earns a servicing fee which approximates the
servicing costs incurred by the Company. Through July 1999, the principal amount
of the certificates remains fixed and collections of installment contracts
receivable flow through to the Company in exchange for the securitization of
additional installment contracts receivable, except that collections are first
used to fund interest requirements. The amortization period commences in August
1999, after which collections of installment contracts receivable will be used
first to fund interest requirements and then to repay principal on the
certificates. The amortization period ends upon the earlier to occur of the
certificates being repaid in full or August 2002.
The Company's revolving credit agreement was amended in February 1997 to
provide for a $20,000 line of credit, which is reduced by the amount of any
outstanding letters of credit in excess of $10,000 (which excess may not exceed
$10,000). The maximum amount available under this revolving credit agreement,
including letters of credit, is $30,000. The rate of interest on borrowings is
at the Company's option, based upon either the agent bank's prime rate plus 2%
or a Eurodollar rate plus 3%. A fee of 2.25% on outstanding letters of credit is
payable quarterly. A commitment fee of 1/2 of 1% is payable quarterly on the
unused portion of the credit facility. At December 31, 1996, the entire line of
credit was unused and outstanding letters of credit totalled $12,687. The
F-13
<PAGE> 93
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
revolving credit agreement is secured by substantially all real and personal
property (excluding installment contracts receivable) of the Company.
The Company leases certain fitness equipment under capital leases expiring
in periods ranging from three to five years. Included in "Property and
equipment" at December 31, 1996 and 1995 were assets recorded under capital
leases of $11,981 and $6,018, respectively, net of accumulated amortization of
$3,318 and $1,611, respectively.
The 13% Senior Subordinated Notes due 2003 (the "13% Notes") are not
subject to any sinking fund requirement, but may be redeemed beginning in
January 1998, in whole or in part, with premiums ranging from 6.5% in 1998 to
zero in 2000 and thereafter. The payment of the 13% Notes is subordinated to the
prior payment in full of all senior indebtedness of the Company, as defined
(approximately $198,000 at December 31, 1996).
The Company is restricted from paying cash dividends by the terms of its
13% Notes and its revolving credit agreement. The covenants also limit the
amounts available for capital expenditures, restrict additional borrowings, and
require maintenance of certain financial ratios.
Maturities of long-term debt and future minimum payments under capital
leases together with the present value of future minimum rentals as of December
31, 1996 are as follows:
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES TOTAL
--------- ------- --------
<S> <C> <C> <C>
1997................................................ $ 6,725 $ 2,398 $ 9,123
1998................................................ 6,711 2,420 9,131
1999................................................ 66,187 1,956 68,143
2000................................................ 95,414 1,341 96,755
2001................................................ 743 267 1,010
Thereafter.......................................... 202,332 202,332
-------- ------ --------
378,112 8,382 386,494
Less amount representing interest................... 1,696 1,696
-------- ------ --------
$ 378,112 $ 6,686 $384,798
======== ====== ========
</TABLE>
The fair value of the Company's long-term debt at December 31, 1996 and
1995 approximates its carrying amount, except for the 13% Notes which had a fair
market value (based on quoted market prices) of $190,875 and $161,500 at
December 31, 1996 and 1995, respectively. The fair values are not necessarily
indicative of the amounts the Company could acquire the debt for in a purchase
or redemption.
INCOME TAXES
The income tax provision (benefit) applicable to loss before income taxes
and extraordinary item consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Federal (all current)................................ $(3,050) $(7,069) $(15,160)
State and other (all current)........................ 350 (119) (53)
------- -------- --------
$(2,700) $(7,188) $(15,213)
======= ======== ========
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial accounting
and income tax purposes. Significant components of the Company's
F-14
<PAGE> 94
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
deferred tax assets and liabilities as of December 31, 1996 and 1995, along with
their classification, are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Installment contract revenues............... $ 27,466 $ $ 73,503 $
Amounts not yet deducted for tax purposes:
Bad debts.............................. 33,509 48,630
Other.................................. 14,275 13,253
Amounts not yet deducted for book purposes:
Deferred membership origination
costs................................ 32,412 38,064
Depreciation and capitalized costs.......... 2,308 5,791
Tax loss carryforwards...................... 118,313 49,817
Other, net.................................. 1,460 2,012
-------- ------- -------- -------
193,563 $36,180 185,203 $45,867
======= =======
Valuation allowance......................... (158,872) (140,825)
-------- --------
$ 34,691 $ 44,378
======== ========
Current..................................... $ 7,420 $22,565 $ 33,964 $27,011
Long-term................................... 27,271 13,615 10,414 18,856
-------- ------- -------- -------
$ 34,691 $36,180 $ 44,378 $45,867
======== ======= ======== =======
</TABLE>
Upon consummation of the Spin-off, a portion of Entertainment's federal tax
loss and Alternative Minimum Tax ("AMT") credit carryforwards were allocated to
the Company pursuant to U.S. Treasury Regulations. The amount of carryforwards
allocated to the Company may ultimately be different as a result of Internal
Revenue Service (the "IRS") adjustments. At December 31, 1996, estimated federal
AMT credit and tax loss carryforwards of $2,987 and $243,508, respectively, have
been recorded by the Company. The AMT credits can be carried forward
indefinitely, while the tax loss carryforwards expire through 2011. In addition,
the Company has substantial state tax loss carryforwards which begin to expire
in 1997 and fully expire through 2011. Based upon the Company's past performance
and the expiration dates of its carryforwards, the ultimate realization of all
of the Company's deferred tax assets can not be assured. Accordingly, a
valuation allowance has been recorded to reduce deferred tax assets to a level
which, more likely than not, will be realized.
A reconciliation of the income tax benefit with amounts determined by
applying the U.S. statutory tax rate to loss before income taxes and
extraordinary item is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Benefit at U.S. statutory tax rate (35%)............... $ (9,659) $(13,506) $(19,143)
Add (deduct):
Operating losses without a current year tax
benefit........................................... 5,509 4,904 3,309
State income taxes, net of related federal income tax
effect and valuation allowance.................... 770 96 (695)
Amortization of cost in excess of acquired assets.... 1,411 1,391 1,393
Prior years' taxes................................... (5) (336) (327)
Other, net........................................... (726) 263 250
-------- -------- --------
Income tax benefit..................................... $ (2,700) $ (7,188) $(15,213)
======== ======== ========
</TABLE>
In May 1994, the Company, Entertainment and the IRS reached a settlement
with respect to certain income tax matters. As the Company adequately provided
deferred and current taxes in connection therewith, the settlement did not have
an adverse effect on the Company's consolidated financial position or results of
F-15
<PAGE> 95
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
operations. For financial accounting purposes, this settlement resulted in a
reversal of previously recorded pre-acquisition contingencies totaling $10,331,
which was reflected as a reduction of intangible assets. Since Entertainment had
agreed to indemnify the Company for a substantial portion of such contingencies,
the settlement resulted in a $7,669 reduction of contributed capital.
STOCKHOLDERS' EQUITY
The Series A Junior Participating Preferred Stock, $.10 par value (the
"Series A Junior Stock"), if issued, will have a minimum preferential quarterly
dividend payment equal to the greater of (i) $1.00 per share and (ii) an amount
equal to 100 times the aggregate dividends declared per share of Common Stock
during the related quarter. In the event of liquidation, the holders of the
shares of Series A Junior Stock will be entitled to a preferential liquidation
payment equal to the greater of (a) $100 per share and (b) an amount equal to
100 times the liquidation payment made per share of Common Stock. Each share of
Series A Junior Stock will have 100 votes, voting together with the shares of
Common Stock. Finally, in the event of any merger, consolidation or other
transaction in which shares of Common Stock are exchanged, each share of Series
A Junior Stock will be entitled to receive 100 times the amount received per
share of Common Stock. These rights are protected by customary antidilution
provisions.
The Board of Directors of the Company adopted the Stockholder Rights Plan
and issued and distributed a Right for each share of Common Stock distributed to
Entertainment stockholders pursuant to the Spin-off. Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share of
Series A Junior Stock at a price of $40.00 per one one-hundredth of a share of
Series A Junior Stock, subject to adjustment (the "Purchase Price").
The Rights are not exercisable or transferable apart from the Common Stock
until the occurrence of one of the following: (i) ten days (or such later date
as may be determined by action of the Board of Directors of the Company prior to
such time as any person or group of affiliated persons becomes an Acquiring
Person) after the date of public announcement that a person (other than an
Exempt Person, as defined below) or group of affiliated or associated persons
has acquired, or obtained the right to acquire, beneficial ownership of 10% or
more of the Common Stock (an "Acquiring Person"), or (ii) ten days after the
date of the commencement of a tender offer or exchange offer by a person (other
than an Exempt Person) or group of affiliated or associated persons, the
consummation of which would result in beneficial ownership by such person or
group of 20% or more of the outstanding shares of Common Stock. "Exempt Persons"
include the Company, any subsidiary of the Company, employee benefit plans of
the Company, directors of the Company on January 5, 1996 who are also officers
of the Company, Entertainment and any person holding the warrant to purchase
shares of Common Stock initially issued to Entertainment.
In the event that, at any time after a person or group of affiliated or
associated persons has become an Acquiring Person, (i) the Company consolidates
with or merges with or into any person and is not the surviving corporation,
(ii) any person merges with or into the Company and the Company is the surviving
corporation, but the shares of Common Stock are changed or exchanged, or (iii)
50% or more of the Company's assets or earning power are sold, each holder of a
Right will thereafter have the right to receive, upon the exercise thereof at
the then current exercise price of the Right, that number of shares of Common
Stock (or under certain circumstances, an economically equivalent security or
securities) of such other person which at the time of such transaction would
have a market value of two times the exercise price of the Right. The Rights,
which do not have voting privileges, are subject to adjustment to prevent
dilution and expire on January 5, 2006. The Company may redeem or exchange all,
but not less than all, of the Rights at a price of $.01 per Right, payable in
cash or Common Stock, at any time prior to such time as a person or group of
affiliated or associated persons becomes an Acquiring Person.
F-16
<PAGE> 96
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights that are or were owned beneficially by the
Acquiring Person (which, from and after the later of the Rights distribution
date and the date of the earliest of any such events, will be void), will
thereafter have the right to receive, upon exercise thereof at the then current
exercise price of the Right, that number of shares of Common Stock (or, under
certain circumstances, an economically equivalent security or securities of the
Company) having a market value of two times the exercise price of the Right.
At December 31, 1996, 4,492,805 shares of Common Stock were reserved for
future issuance (2,942,805 shares in connection with outstanding warrants and
1,550,000 shares in connection with certain stock plans).
SAVINGS PLANS
The Company sponsors several defined contribution plans that provide
retirement benefits for certain full-time employees. Eligible employees may
elect to participate by contributing a percentage of their pre-tax earnings to
the plans. Employee contributions to the plans, up to certain limits, are
matched in various percentages by the Company. The expense related to the plans
totaled $974, $557 and $807 in 1996, 1995 and 1994, respectively.
STOCK PLANS
In January 1996, the Board of Directors of the Company adopted the 1996
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). The
Directors' Plan provides for the grant of non-qualified stock options to
non-employee directors of the Company. Initially, 100,000 shares of Common Stock
were reserved for issuance under the Directors' Plan and at December 31, 1996,
80,000 shares of Common Stock were available for future grant under the
Directors' Plan. Stock options may not be granted under the Directors' Plan
after January 3, 2006.
Pursuant to the Directors' Plan, non-employee directors of the Company are
granted an option to purchase 5,000 shares of Common Stock upon the commencement
of service on the Board of Directors, with another option to purchase 5,000
shares of Common Stock granted on the second anniversary thereof. Options under
the Directors' Plan are generally granted with an exercise price equal to the
fair market value of the Common Stock at the date of grant. Option grants under
the Directors' Plan become exercisable in three equal annual installments
commencing one year from the date of grant and have a 10-year term.
Also in January 1996, the Board of Directors of the Company adopted the
1996 Long-Term Incentive Plan (the "Incentive Plan"). The Incentive Plan
provides for the grant of non-qualified stock options, incentive stock options
and compensatory restricted stock awards (collectively "Awards") to officers and
key employees of the Company. Initially, 2,100,000 shares of Common Stock were
reserved for issuance under the Incentive Plan and at December 31, 1996, 125,340
shares of Common Stock were available for future grant under the Incentive Plan.
Awards may not be granted under the Incentive Plan after January 3, 2006.
Pursuant to the Incentive Plan, non-qualified stock options are generally
granted with an exercise price equal to the fair market value of the Common
Stock at the date of grant. Incentive stock options must be granted at not less
than the fair market value of the Common Stock at the date of grant. Option
grants become exercisable at the discretion of the Compensation Committee of the
Board of Directors (the "Compensation Committee"). Option grants in 1996 under
the Incentive Plan have a 10-year term and are exercisable in four equal annual
installments commencing one year from the date of grant except, if at any time
on or before the third anniversary of the date of grant the fair market value of
the Common Stock reaches a targeted stock price, vesting of such options is
accelerated so that they become exercisable in three equal annual installments
commencing one year from the date of grant.
F-17
<PAGE> 97
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
A summary of 1996 stock option activity under the Directors' Plan and
Incentive Plan is as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-
OF SHARES AVERAGE RANGE OF
REPRESENTED EXERCISE EXERCISE
BY OPTIONS PRICE PRICES
----------- --------- --------------
<S> <C> <C> <C>
Granted.................................... 1,594,580 $ 4.23 $4.125 - 5.125
Forfeited.................................. (249,920) 4.125 4.125
---------
Outstanding at December 31, 1996, none of
which were exercisable................... 1,344,660 4.25 4.125 - 5.125
=========
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for its stock options because, as discussed below,
the alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation" requires use of option valuation
models that were not developed for use in valuing stock options. Under APB No.
25, because the exercise price of the Company's stock options equals the market
price of the Common Stock on the date of grant, no compensation expense is
recognized.
SFAS No. 123 requires pro forma net loss and loss per share information be
provided as if the Company had accounted for stock options under the fair value
method prescribed by SFAS No. 123, which for 1996 is $20,032 and $1.65,
respectively. In addition, the weighted-average fair value of stock options
granted in 1996 was $1.93 per share. The fair value for stock options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1996: risk-free interest rate of
6.22%; no dividend yield; volatility factor of the expected market price of the
Common Stock of 0.413; and a weighted-average expected life of the options of
five years. Pro forma results under SFAS No. 123 in 1996 are not likely to be
representative of future pro forma results because, for example, options vest
over several years and additional awards may be made in future years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
Pursuant to the Incentive Plan, restricted stock awards are rights granted
to an employee to receive shares of stock without payment but subject to
forfeiture and other restrictions as set forth in the Incentive Plan. Generally,
the restricted stock awarded, and the right to vote such stock or to receive
dividends thereon, may not be sold, exchanged or otherwise disposed of during
the restricted period. Except as otherwise determined by the Compensation
Committee, the restrictions and risks of forfeiture will lapse in three equal
annual installments commencing one year after the date of grant.
In 1996, the Compensation Committee awarded 650,000 shares of restricted
Common Stock to certain executive officers of the Company. Restrictions on these
shares generally lapse based upon the market price of the Common Stock reaching
certain targeted stock prices unless less than half of such shares awarded vest
within two years after the date of grant, at which time a number of shares will
vest so that the total number of vested shares equals 50% of the original
grants. In addition, a recipient of these restricted stock awards will receive a
cash payment from the Company upon the lapse of restrictions in an amount
sufficient to insure that the recipient will receive the Common Stock net of all
taxes imposed upon the recipient because of the receipt of such Common Stock and
cash payment. Restrictions applicable to 433,355 of these shares generally
lapsed upon reaching certain targeted stock prices in 1996 and, accordingly, the
fair value of these shares ($2,345) was amortized to
F-18
<PAGE> 98
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
expense in connection therewith. The weighted-average fair value of restricted
Common Stock awarded in 1996 was $4.87 per share as determined under SFAS No.
123.
Prior to the Spin-off, certain officers and key employees of the Company
participated in the 1989 Incentive Plan of Entertainment (the "1989 Plan"),
pursuant to which Entertainment granted these individuals options (generally
becoming exercisable in three equal annual installments commencing one year
after the date of grant) to purchase Entertainment common stock at a price equal
to the fair market value of the stock at the date of grant. Pursuant to the 1989
Plan, following the Spin-off, these officers and key employees no longer
affiliated with Entertainment could no longer participate in this plan. As a
result, their unexercisable options were cancelled on January 9, 1996, and their
vested options terminated 90 days thereafter to the extent not exercised prior
thereto.
COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases various fitness center facilities, office facilities,
and equipment under operating leases expiring in periods ranging from one to
twenty-five years excluding optional renewal periods. Certain of the leases
contain contingent rental provisions generally related to cost of living
criteria or revenues of the respective fitness centers. Rent expense under
operating leases was $86,717, $85,857 and $83,288 for 1996, 1995 and 1994,
respectively.
Minimum future rent payments under long-term noncancellable operating
leases in effect as of December 31, 1996, exclusive of taxes, insurance, other
expenses payable directly by the Company and contingent rent, are $82,441,
$82,638, $81,295, $75,248 and $70,036 for 1997 through 2001, respectively, and
$447,357 thereafter.
Included in the amounts above are leases with real estate partnerships in
which certain of the Company's current or former executive officers have
ownership interests. Rent expense under these leases was $2,002, $1,991 and
$1,953 for 1996, 1995 and 1994, respectively. In addition, these leases require
minimum rent payments of $1,954 for 1997.
Litigation
A class action entitled Jackson v. Health & Tennis Corporation of America
was filed in the state district court in Bexar County, Texas on May 8, 1995. The
complaint alleges that the defendant, a subsidiary of the Company, charged
excessive amounts on its financed memberships in violation of the Texas Credit
Code and the Texas Deceptive Trade Practices -- Consumer Protection Act. The
relief sought is damages equal to the alleged overpayments and statutory
remedies. The Company is currently unable to estimate the amount sought in this
action because the potential size of the class and the amount of damages for
each member of the putative class are currently unknown. The Company is
vigorously defending this action. The outcome of this litigation is not
currently determinable and, consequently, the Company cannot predict whether it
will have a material adverse effect on the Company's financial condition or
results of operations in any future period.
The Company is involved in various other claims and lawsuits incidental to
its business, including claims arising from accidents at its fitness centers. In
the opinion of management, the Company is adequately insured against such claims
and lawsuits, and any ultimate liability arising out of such claims and lawsuits
will not have a material adverse effect on the financial condition or results of
operations of the Company.
TRANSACTIONS WITH ENTERTAINMENT
In connection with the Spin-off, the Company issued Entertainment a warrant
(the "Warrant") entitling Entertainment to acquire 2,942,805 shares of Common
Stock at an exercise price of $5.26 per share (equal to 110% of the average
daily closing price of the Common Stock for the twenty consecutive trading days
beginning
F-19
<PAGE> 99
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
on the first trading day after the Distribution Date). At the time of the
Merger, Entertainment sold the Warrant to two directors and executive officers
of the Company. The Warrants are exercisable until December 31, 2005.
In January 1996, the Company and Entertainment entered into a Trademark
License Agreement pursuant to which Entertainment (Hilton after the Merger)
licenses the use of the name "Bally" and certain trademarks, trade names and
servicemarks to the Company in connection with its fitness center business. The
license is for a period of ten years, subject to termination in certain
circumstances. The Company paid no royalty or license fee for the first year and
pays a fee of $1,000 per year thereafter. Following the initial ten-year term,
the Company has an option to renew the license for an additional five-year
period at a rate equal to the greater of the then market rate or $1,000 per
year.
In connection with the Spin-off, Entertainment purchased a fitness center
from the Company for $6,200. The Company and Entertainment entered into a
management agreement pursuant to which the Company provides certain
administrative services to Entertainment in connection with the operation of
this fitness center, including membership contract processing, membership card
issuance, collections, processing cash receipts and renewal solicitation.
Entertainment pays the Company a management fee equal to 4% of membership
revenues and 2% of total revenues of this fitness center for these services,
which was $279 for 1996. In addition, Entertainment purchased from the Company
all of the shares of capital stock and warrants to purchase shares of capital
stock of Holmes Place PLC owned by the Company, as well as a note receivable
from Holmes Place PLC held by the Company, for $1,800. For financial accounting
purposes, because of Entertainment's ownership interest at the time, the excess
of the sales price over the historical net book value of the fitness center and
Holmes Place PLC assets of $5,988 was accounted for as an increase to
stockholders' equity, net of income taxes of $2,096.
In January 1996, the Company and Entertainment entered into a Transitional
Services Agreement pursuant to which Entertainment provided the Company certain
services for a period of one year following the Spin-off. The services provided
to the Company by Entertainment included services relating to insurance, tax
matters, accounting and other financial services and the administration of
employee benefit programs. The Company provided payroll services to
Entertainment during this period. The net amount charged to the Company by
Entertainment in 1996 pursuant to the Transitional Services Agreement was
$2,344, based on the costs incurred for such services. Prior to the Spin-off,
the Company and Entertainment reimbursed each other for the proportionate share
of costs (salaries, benefits, rent, etc.) related to employees performing
functions on behalf of both companies, based on estimates of time spent on
behalf of each company. The net amount charged to (by) Entertainment in 1995 and
1994 was $(3,045) and $1,510, respectively. The costs charged to (by)
Entertainment varied in amount from year to year primarily due to changes in the
time devoted to each company by personnel based on events at both companies.
Management believes that the method used to allocate these costs was reasonable.
In addition, certain of the Company's insurance coverage was obtained by
Entertainment pursuant to corporate-wide programs and Entertainment charged the
Company its proportionate share of the respective insurance premiums, which
totalled $4,625, $5,668 and $7,176 for 1996, 1995 and 1994, respectively.
Pursuant to the Transitional Services Agreement, the Company indemnified
Entertainment against (i) debts and liabilities of the Company and (ii)
liabilities relating to litigation currently pending or claims, controversies or
other causes of action relating to the Company's business arising through the
Distribution Date. The Transitional Services Agreement also provided for the
payment by the Company of $15,200 due Entertainment under the prior tax sharing
agreement (plus interest at 10% per annum from the Distribution Date). At the
time of the Merger, the $15,200 of indebtedness was forgiven by Hilton, which
the Company reflected as an extraordinary gain. The Company also paid interest,
calculated primarily at a prime rate, on advances from Entertainment. Interest
paid to Entertainment was $1,551, $430 and $720 for 1996, 1995 and 1994,
respectively.
F-20
<PAGE> 100
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)
PRO FORMA INFORMATION (UNAUDITED)
The net loss for the years ended December 31, 1995 and 1994 reflects a
federal income tax benefit arising from the Company's prior tax sharing
agreement with Entertainment of $7,069 and $15,160, respectively. Pro forma net
loss and related per share amounts have been presented on the consolidated
statement of operations 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 return for each year and (ii) the distribution of
11,845,161 shares of Common Stock to Entertainment stockholders as if such
distribution had taken place as of the beginning of each year.
F-21
<PAGE> 101
BALLY TOTAL FITNESS HOLDING CORPORATION
SUPPLEMENTARY DATA
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(All dollar amounts in millions, except share data)
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------------- --------------- --------------- ----------------
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------- ------
(AS RESTATED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............................ $163.9 $165.1 $159.0 $160.2 $157.0 $163.2 $ 160.4 $165.1
Operating income (loss)................. -- 1.0 4.2 (.9) 3.0 (1.4) 12.8 6.4
Income (loss) before extraordinary item
(pro forma for 1995).................. (12.0) (9.0) (7.9) (11.6) (9.2) (12.9) 4.2 (5.0)
Extraordinary gain on extinguishment of
debt.................................. 5.7
Net income (loss) (pro forma for
1995)................................. (12.0) (9.0) (7.9) (11.6) (9.2) (12.9) 9.9 (5.0)
Per common share (pro forma for 1995):
Income (loss) before extraordinary
item................................ $ (.98) $ (.76) $ (.65) $ (.98) $ (.76) $(1.09) $ .35 $ (.42)
Extraordinary gain on extinguishment
of debt............................. .46
Net income (loss)..................... (.98) (.76) (.65) (.98) (.76) (1.09) .81 (.42)
</TABLE>
- ---------------
1. The quarterly consolidated financial information presented herein has been
restated to reflect a change in the Company's method of recognizing
membership revenue. See "Summary of significant accounting policies--
Restatement" in notes to the consolidated financial statements.
2. The Company's operations are subject to seasonal factors.
3. The Company was a wholly owned subsidiary of Entertainment until January 9,
1996, the date 11,845,161 shares of Common Stock were distributed by
Entertainment in the Spin-off. For financial accounting purposes, the Company
has reflected the effect of the Spin-off as of December 31, 1995.
4. Pro forma net loss and related per share amounts for each of the 1995
quarters were calculated 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 return for each quarter and (ii) the distribution of
11,845,161 shares of Common Stock to Entertainment stockholders as if such
distribution had taken place as of the beginning of each quarter.
5. The extraordinary gain on extinguishment of debt for the quarter ended
December 31, 1996 consists of (i) a gain (net of taxes) of $9.9 million ($.81
per share) resulting from indebtedness owed Entertainment which was forgiven
as part of the December 1996 merger of Entertainment with and into Hilton
Hotels Corporation and (ii) a charge (net of taxes) of $4.2 million ($.35 per
share) resulting from the December 1996 refinancing of the Company's
securitization facility.
F-22
<PAGE> 102
BALLY TOTAL FITNESS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
JUNE 30,
1997
--------------
<S> <C>
ASSETS
Current assets:
Cash and equivalents.......................................................... $ 9,565
Installment contracts receivable, less unearned finance charges of $26,406 and
allowance for doubtful receivables and cancellations of $49,832............ 161,499
Other current assets.......................................................... 32,648
---------
Total current assets....................................................... 203,712
Installment contracts receivable, less unearned finance charges of $12,339 and
allowance for doubtful receivables and cancellations of $38,798............... 155,652
Property and equipment, less accumulated depreciation and amortization of
$308,841...................................................................... 317,720
Intangible assets, less accumulated amortization of $51,871..................... 103,473
Deferred income taxes........................................................... 24,761
Deferred membership origination costs........................................... 80,658
Other assets.................................................................... 24,237
---------
$910,213
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 48,161
Income taxes payable.......................................................... 2,325
Deferred income taxes......................................................... 26,250
Accrued liabilities........................................................... 52,155
Current maturities of long-term debt.......................................... 20,837
Deferred revenues............................................................. 265,208
---------
Total current liabilities.................................................. 414,936
Long-term debt, less current maturities......................................... 376,977
Other liabilities............................................................... 6,483
Deferred revenues............................................................... 98,540
Stockholders' equity............................................................ 13,277
---------
$910,213
=========
</TABLE>
See accompanying notes.
F-23
<PAGE> 103
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------------
1997 1996
-------- -----------
(AS RESTATED)
<S> <C> <C>
Net revenues:
Membership revenues --
Initial membership fees on paid-in-full memberships
originated..................................................... $ 32,023 $ 43,285
Initial membership fees on financed memberships originated...... 175,561 157,906
Dues collected.................................................. 96,857 85,642
Change in deferred revenues..................................... (945) 10,159
-------- --------
303,496 296,992
Finance charges earned............................................. 19,533 18,556
Fees and other..................................................... 7,458 7,296
-------- --------
330,487 322,844
Operating costs and expenses:
Fitness center operations.......................................... 189,368 187,400
Member processing and collection centers........................... 18,194 21,318
Advertising........................................................ 23,936 25,810
General and administrative......................................... 12,227 10,089
Provision for doubtful receivables................................. 47,565 44,420
Depreciation and amortization...................................... 28,072 27,672
Change in deferred membership origination costs.................... 1,482 1,880
-------- --------
320,844 318,589
-------- --------
Operating income..................................................... 9,643 4,255
Interest expense..................................................... 22,423 23,900
-------- --------
Loss before income taxes............................................. (12,780) (19,645)
Income tax provision................................................. 200 249
-------- --------
Net loss............................................................. $(12,980) $ (19,894)
======== ========
Net loss per common share............................................ $ (1.06) $ (1.63)
======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE> 104
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
(In thousands, except share data)
<TABLE>
<CAPTION>
COMMON STOCK UNEARNED
------------------- COMPENSATION TOTAL
NUMBER PAR CONTRIBUTED ACCUMULATED (RESTRICTED STOCKHOLDERS'
OF SHARES VALUE CAPITAL DEFICIT STOCK) EQUITY
---------- ----- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996..... 12,495,161 $125 $ 303,811 $(277,733) $ (2,051) $24,152
Net loss......................... (12,980) (12,980)
Issuance of common stock upon
exercise of stock options...... 15,219 54 54
Amortization of unearned
compensation................... 2,051 2,051
---------- ---- -------- -------- ------- --------
Balance at June 30, 1997......... 12,510,380 $125 $ 303,865 $(290,713) $ -- $13,277
========== ==== ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-25
<PAGE> 105
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------------
1997 1996
-------- -----------
(AS RESTATED)
<S> <C> <C>
OPERATING:
Net loss............................................................. $(12,980) $ (19,894)
Adjustments to reconcile to cash used --
Depreciation and amortization, including amortization included in
interest expense................................................. 29,236 29,274
Provision for doubtful receivables................................ 47,565 44,420
Change in operating assets and liabilities........................ (67,886) (59,642)
-------- --------
Cash used in operating activities............................ (4,065) (5,842)
INVESTING:
Purchases and construction of property and equipment................. (13,060) (11,450)
Other, net........................................................... (93) 472
-------- --------
Cash used in investing activities............................ (13,153) (10,978)
FINANCING:
Debt transactions --
Net borrowings under revolving credit agreement................... 12,000
Proceeds from other long-term borrowings.......................... 1,500
Repayments of other long-term debt................................ (1,798) (897)
Debt issuance costs............................................... (7) (144)
-------- --------
Cash provided by debt transactions........................... 10,195 459
Equity transaction --
Proceeds from issuance of common stock upon exercise of stock
options.......................................................... 54
Capital contribution by Bally Entertainment Corporation........... 6,760
-------- --------
Cash provided by financing activities........................ 10,249 7,219
-------- --------
Decrease in cash and equivalents....................................... (6,969) (9,601)
Cash and equivalents, beginning of period.............................. 16,534 21,263
-------- --------
Cash and equivalents, end of period.................................... $ 9,565 $ 11,662
======== ========
</TABLE>
See accompanying notes.
F-26
<PAGE> 106
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) -- (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------------
1997 1996
-------- -----------
(AS RESTATED)
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and liabilities, net of effects from the
sale of a fitness center, were as follows --
Increase in installment contracts receivable...................... $(65,148) $ (41,746)
Increase in other current and other assets........................ (8,783) (3,471)
Decrease in deferred membership origination costs................. 1,482 1,880
Increase (decrease) in accounts payable........................... 6,596 (10,706)
Increase (decrease) in income taxes payable....................... 67 (1,655)
Increase (decrease) in accrued and other liabilities.............. (3,045) 6,215
Increase (decrease) in deferred revenues.......................... 945 (10,159)
-------- --------
$(67,886) $ (59,642)
======== ========
Cash payments for interest and income taxes were as follows --
Interest paid..................................................... $ 22,149 $ 21,818
Interest capitalized.............................................. (892) (163)
Income taxes paid, net............................................ 133 1,904
Investing and financing activities exclude the following non-cash
transactions --
Acquisition of property and equipment through capital
leases/borrowings................................................ $ 2,814 $ 2,853
</TABLE>
See accompanying notes.
F-27
<PAGE> 107
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(All dollar amounts in thousands, except share data)
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 approximately 320
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 of the Company for the years ended December 31, 1996, 1995 and 1994
included elsewhere herein.
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, 1997, its consolidated statements of operations and cash
flows for the six months ended June 30, 1997 and 1996, and its consolidated
statement of stockholders' equity for the six months ended June 30, 1997. 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.
RESTATEMENT
As more fully described in the "Summary of significant accounting
policies -- Restatement and Membership revenue recognition" notes to the
consolidated financial statements of the Company for the years ended December
31, 1996, 1995 and 1994 included elsewhere herein, following a series of
extensive discussions with the Staff of the Securities and Exchange Commission,
the Company restated its condensed consolidated financial statements for periods
prior to the issuance of its June 30, 1997 financial statements to reflect a
change in the method of recognizing membership revenue. Summarized financial
information illustrating the effect of the restatement on the Company's
consolidated statements of operations for the six months ended June 30, 1996 is
as follows:
<TABLE>
<CAPTION>
AS
ORIGINALLY AS
REPORTED RESTATED
---------- --------
<S> <C> <C>
Revenues....................................................... $ 329,641 $322,844
Operating income............................................... 14,748 4,255
Net loss....................................................... (9,452) (19,894)
Net loss per common share...................................... (.78) (1.63)
</TABLE>
In addition, certain reclassifications have been made to prior period
financial statements to conform with the 1997 presentation.
SEASONAL FACTORS
The Company's operations are subject to seasonal factors and, therefore,
the results of operations for the six months ended June 30, 1997 and 1996 are
not necessarily indicative of the results of operations for the full year.
F-28
<PAGE> 108
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(All dollar amounts in thousands, except share data)
LOSS PER COMMON SHARE
Loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during each period, which
totaled 12,296,896 shares and 12,170,161 shares for the six months ended June
30, 1997 and 1996, respectively. Certain restricted stock was issued subject to
forfeiture unless certain conditions were met. These contingent shares were
considered common stock equivalents and were excluded from the loss per share
computation until the conditions were met because their effect was
anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which
establishes new standards for computing and presenting earnings per share. SFAS
No. 128 requires a dual presentation of basic earnings per share (computed by
dividing income (loss) available to common stockholders by the weighted-average
number of common shares outstanding for the period) and diluted earnings per
share (computed similarly to fully diluted earnings per share pursuant to APB
Opinion No. 15) on the face of the Company's statement of operations. The
Company will adopt SFAS No. 128 in the fourth quarter of 1997; earlier
application is not permitted. As computed under SFAS No. 128, basic and diluted
loss per share for the six months ended June 30, 1997 each would have been $1.06
per share.
SUBSEQUENT EVENT
In August 1997, the Company issued 8,000,000 shares of its common stock
through an underwritten public offering. The offering provided net proceeds of
$88,400 after deducting the underwriting discount and related expenses, which
the Company intends to use for capital expenditures to develop new facilities
and more extensively refurbish and upgrade existing facilities, to repay certain
indebtedness, to support the introduction of new initiatives and for general
corporate and working capital purposes.
F-29
<PAGE> 109
======================================================
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
BY HAND, REGISTERED OR CERTIFIED MAIL OR OVERNIGHT COURIER:
FIRST TRUST NATIONAL ASSOCIATION
FIRST TRUST CENTER
180 EAST FIFTH STREET
SAINT PAUL, MN 55101
ATTENTION: THERESE LINSCHEID,
SPECIALIZED FINANCE CORPORATION TRUST DEPARTMENT
BY FACSIMILE:
(612) 244-1537
ATTENTION: THERESE LINSCHEID,
SPECIALIZED FINANCE CORPORATION TRUST DEPARTMENT
CONFIRM BY TELEPHONE: (612) 244-1234
(ORIGINALS OF ALL DOCUMENTS SENT BY FACSIMILE SHOULD BE SENT PROMPTLY BY
HAND, REGISTERED OR CERTIFIED MAIL OR OVERNIGHT COURIER).
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 5
Risk Factors............................... 17
The Exchange Offer......................... 21
The Refinancing............................ 29
Capitalization............................. 30
Selected Consolidated Financial Data....... 31
Management's Discussion and Analysis of
Results of Operations and Financial
Condition................................ 32
Business................................... 37
Management................................. 45
Description of Certain Other
Indebtedness............................. 47
Description of the New Notes............... 48
Plan of Distribution....................... 76
Available Information...................... 76
Legal Matters.............................. 77
Experts.................................... 77
Incorporation of Certain Information by
Reference................................ 77
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF
TRANSMITTAL DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY THE NEW NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY
EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
======================================================
======================================================
$225,000,000
LOGO
BALLY TOTAL FITNESS
HOLDING CORPORATION
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
---------------------------------
PROSPECTUS
---------------------------------
, 1997
======================================================
<PAGE> 110
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") permits the
indemnification of the directors and officers of the Company. The Company
By-laws provide that it will indemnify the officers, directors, employees and
agents of the Company to the extent permitted by the DGCL.
The Company Certificate provides for the indemnification of directors and
officers of the Company, and persons who serve or served at the request of the
Company as a director, officer, employee or agent of another corporation,
including service with respect to employee benefit plans, against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties in amounts paid or to be paid in settlement) reasonably
incurred with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, provided, however, the Company shall
indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the Board. In the event a claim for indemnification by any person has not been
paid in full by the Company after written request has been received by the
Company, the claimant may at any time thereafter bring suit against the Company
to recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense of prosecuting
such claim. The right to indemnification conferred in the Company Certificate is
a contract right and shall include the right to be paid by the Company the
expenses incurred in defending any such proceeding in advance of its final
disposition. The Company maintains insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Company against any such
expense, liability or loss, whether or not the Company would have the power to
indemnify such person against such expense, liability or loss under state law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Purchase Agreement dated September 29, 1997 among Bally Total Fitness Holding
Corporation and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Chase Securities Inc., Societe Generale Securities Corporation
and Ladenburg Thalmann & Co. Inc.
4.1 Indenture dated as of October 7, 1997 between Bally Total Fitness Holding
Corporation and First Trust National Association, as Trustee, including the
form of Old Note and form of New Note.
4.2 Registration Rights Agreement dated as of October 7, 1997 among Bally Total
Fitness Holding Corporation and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Chase Securities Inc., Societe Generale
Securities Corporation and Ladenburg Thalmann & Co. Inc.
*4.3 Indenture dated as of January 15, 1997 between Bally Total Fitness Holding
Corporation and Amalgamated Bank of Chicago, as Trustee (filed as an exhibit
to Entertainment's Annual Report on Form 10-K, file no. 1-7244, for the
fiscal year ended December 31, 1993).
4.4 Supplemental Indenture dated September 24, 1997 between Bally Total Fitness
Holding Corporation and Amalgamated Bank of Chicago, as Trustee.
4.5 Senior Subordinated Note Specimen Certificate.
5.1 Opinion of Benesch, Friedlander, Coplan & Aronoff LLP.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Benesch, Friedlander, Coplan & Aronoff LLP (contained in its
Opinion filed as Exhibit 5.1 hereto).
24.1 Powers of Attorney for the Company (set forth on the signature page hereof).
25.1 Statement of Eligibility of Trustee on Form T-1.
</TABLE>
- ---------------
* Incorporated by reference.
II-1
<PAGE> 111
(b) Financial Statement Schedule
Report of independent auditors on financial statement schedule
Schedule II -- Valuation and qualifying accounts for each of the three
years in the period ended December 31, 1996
All other schedules specified under Regulation S-X for the Company are
omitted because they are either not applicable or required under the
instructions, or because the information required is already set forth in
the consolidated financial statements or related notes thereto.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II-2
<PAGE> 112
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF ILLINOIS, ON OCTOBER 31, 1997.
BALLY TOTAL FITNESS HOLDING
CORPORATION
By: /s/ LEE S. HILLMAN
----------------------------------
Lee S. Hillman
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Lee S. Hillman and John W. Dwyer, or either of
them, his or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact, agent or their substitutes or
substitute may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- --------------------------------- ----------------------
<S> <C> <C>
/s/ Arthur M. Goldberg Chairman of the Board of October 31, 1997
- ----------------------------------- Directors
Arthur M. Goldberg
/s/ LEE S. HILLMAN Chief Executive Officer, October 31, 1997
- ----------------------------------- President, and Director
Lee S. Hillman
/s/ JOHN W. DWYER Senior Vice President, Chief October 31, 1997
- ----------------------------------- Financial Officer and Treasurer
John W. Dwyer
/s/ JULIE ADAMS Vice President and Controller October 31, 1997
- -----------------------------------
Julie Adams
/s/ AUBREY C. LEWIS Director October 31, 1997
- -----------------------------------
Aubrey C. Lewis
/s/ J. KENNETH LOOLOIAN Director October 31, 1997
- -----------------------------------
J. Kenneth Looloian
/s/ JAMES F. MC ANALLY, M.D. Director October 31, 1997
- -----------------------------------
James F. Mc Anally, M.D.
/s/ LIZA M. WALSH Director October 31, 1997
- -----------------------------------
Liza M. Walsh
</TABLE>
II-3
<PAGE> 113
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent auditors on financial statement schedule.......................... S-2
Schedule II -- Valuation and qualifying accounts for each of the three years in the
period ended December 31, 1996........................................................ S-3
</TABLE>
All other schedules specified under Regulation S-X for Bally Total Fitness
Holding Corporation are omitted because they are either not applicable or
required under the instructions, or because the information required is already
set forth in the consolidated financial statements or related notes thereto.
S-1
<PAGE> 114
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
We have audited the consolidated financial statements of Bally Total
Fitness Holding Corporation as of December 31, 1996 and 1995, and for each of
the three years in the period ended December 31, 1996, and have issued our
report thereon dated February 25, 1997, except for the "Summary of significant
accounting policies -- Restatement, Membership revenue recognition and Impact of
recently issued accounting standards" and "Income Taxes" notes, as to which the
date is July 14, 1997 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois
February 25, 1997, except for the
"Summary of significant accounting
policies -- Restatement, Membership
revenue recognition and Impact of
recently issued accounting
standards" and "Income Taxes" notes,
as to which the date is July 14,
1997
S-2
<PAGE> 115
BALLY TOTAL FITNESS HOLDING CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(All dollar amounts in thousands)
<TABLE>
<CAPTION>
ADDITIONS
----------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF YEAR EXPENSES(a) ACCOUNTS(b) DEDUCTIONS(c) YEAR
- ------------------------------------ ---------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
1996:
Allowance for doubtful receivables
and cancellations.............. $ 112,528 $ 80,350 $ 111,736 $ 218,519 $ 86,095
======== ======== ======== ======== ========
1995:
Allowance for doubtful receivables
and cancellations.............. $ 120,329 $ 72,145 $ 114,729 $ 194,675 $ 112,528
======== ======== ======== ======== ========
1994:
Allowance for doubtful receivables
and cancellations.............. $ 82,317 $ 103,930 $ 113,320 $ 179,238 $ 120,329
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) Amounts are included as a component of the deferred revenue computation as
set forth in the "Summary of significant accounting policies--Membership
revenue recognition" note to the consolidated financial statements.
(b) Additions charged to accounts other than costs and expenses primarily
consist of charges to revenues.
(c) Deductions include write-offs of uncollectible amounts, net of recoveries.
S-3
<PAGE> 116
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER IN
SEQUENTIAL
NUMBERING
EXHIBIT SYSTEM
- ------- ---------
<C> <S> <C>
1.1 Purchase Agreement dated September 29, 1997 among Bally Total Fitness
Holding Corporation and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Chase Securities Inc., Societe Generale
Securities Corporation and Ladenberg Thalmann & Co. Inc.
4.1 Indenture dated as of October 7, 1997 between Bally Total Fitness
Holding Corporation and First Trust National Association, as Trustee,
including the form of Old Note and form of New Note.
4.2 Registration Rights Agreement dated as of October 7, 1997 among Bally
Total Fitness Holding Corporation and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Chase Securities Inc.,
Societe Generale Securities Corporation and Ladenburg, Thalmann & Co.
Inc.
*4.3 Indenture dated as of January 15, 1997 between Bally Total Fitness
Holding Corporation and Amalgamated Bank of Chicago, as Trustee (filed
as an exhibit to Entertainment's Annual Report on Form 10-K, file no.
1-7244, for the fiscal year ended December 31, 1993).
4.4 Supplemental Indenture dated September 24, 1997 between Bally Total
Fitness Holding Corporation and Amalgamated Bank of Chicago, as Trustee.
4.5 Senior Subordinated Note Specimen Certificate.
5.1 Opinion of Benesch, Friedlander, Coplan & Aronoff LLP.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Benesch, Friedlander, Coplan & Aronoff LLP (contained in its
Opinion filed as Exhibit 5.1 hereto).
24.1 Powers of Attorney for the Company (set forth on the signature page
hereof).
25.1 Statement of Eligibility of Trustee on Form T-1.
</TABLE>
- ---------------
*Incorporated by reference.
<PAGE> 1
Exhibit 1.1
==============================================
BALLY TOTAL FITNESS HOLDING CORPORATION
a Delaware Corporation
$225,000,000
9-7/8% Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
------------------
Dated September 29, 1997
==============================================
<PAGE> 2
$225,000,000
BALLY TOTAL FITNESS HOLDING CORPORATION
(a Delaware Corporation)
9-7/8% Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
------------------
September 29, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Chase Securities Inc.
Societe Generale Securities Corporation
Ladenburg Thalmann & Co. Inc.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Bally Total Fitness Holding Corporation, a Delaware corporation (the
"Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Chase Securities Inc.,
Societe Generale Securities Corporation and Ladenburg Thalmann & Co. Inc.
(collectively, the "Initial Purchasers," which term shall also include any
initial purchaser substituted as hereinafter provided in Section 11 hereof),
for whom Merrill Lynch is acting as representative (in such capacity, the
"Representative"), with respect to the issue and sale by the Company and the
purchase by the Initial Purchasers, acting severally and not jointly, of the
respective principal amounts set forth in Schedule A of $225,000,000 aggregate
principal amount of the Company's 9-7/8% Senior Subordinated Notes due 2007 (the
1
<PAGE> 3
"Securities"). The Securities are to be issued pursuant to an Indenture to be
dated as of the Closing Time (the "Indenture") between the Company and First
Trust National Association, as trustee (the "Trustee"). Securities issued in
book-entry form will be issued to Cede & Co. as nominee of The Depository Trust
Company ("DTC") pursuant to a letter agreement, to be dated as of the Closing
Time (as defined in Section 2(b)) (the "DTC Agreement"), among the Company, the
Trustee and DTC.
The Company understands that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and
agrees that the Initial Purchasers may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers ("Subsequent
Purchasers") at any time after the date of this Agreement. The Securities are to
be offered and sold through the Initial Purchasers without being registered
under the United States Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon exemptions therefrom. Pursuant to the terms of the
Securities and the Indenture, investors that acquire Securities may only resell
or otherwise transfer such Securities if such Securities are hereafter
registered under the Securities Act or if an exemption from the registration
requirements of the Securities Act is available (including, without limitation,
the exemption afforded by Rule 144A ("Rule 144A") or Regulation S ("Regulation
S") of the rules and regulations promulgated under the Securities Act by the
Securities and Exchange Commission (the "SEC")).
The holders of Securities will be entitled to the benefits of a
Registration Rights Agreement (the "Registration Rights Agreement"), between the
Company and the Initial Purchasers pursuant to which the Company will file a
registration statement (the "Registration Statement") with the SEC registering
the Notes or the Exchange Notes referred to in the Registration Rights Agreement
under the Securities Act.
The Company has prepared and delivered to each Initial Purchaser copies
of a preliminary offering memorandum dated September 15, 1997 (the "Preliminary
Offering Memorandum") and is preparing and will deliver to the Initial
Purchasers, on the date hereof or the next succeeding day, copies of a final
offering memorandum dated the date hereof (the "Final Offering Memorandum"), for
use by the Initial Purchasers in connection with its solicitation of purchases
of or offering of, the Securities. "Offering Memorandum" means, with respect to
any date or time referred to in this Agreement, the most recent offering
memorandum (whether the Preliminary Offering Memorandum or the Final Offering
Memorandum, or any amendment or supplement to either such document), including
exhibits thereto and any documents incorporated therein by reference, which has
been prepared and delivered by the Company to the Initial Purchasers in
connection with their solicitation of purchases of, or offering of, the
Securities.
The Company has obtained the consent of a sufficient number of holders
of its 13% Senior Subordinated Notes due 2003 (the "13% Notes") to execute, and
has executed, a Supplemental Indenture dated as of September 24, 1997 (the
"Supplemental Indenture") effecting certain amendments to the Indenture dated as
of January 15, 1993 between the
2
<PAGE> 4
Company and Amalgamated Bank of Chicago, as trustee, as more fully described in
the Company's Offer to Purchase and Consent Solicitation Statement relating
thereto dated September 3, 1997.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Offering Memorandum (or other references of like import) shall be deemed to mean
and include all such financial statements and other information which are
included in the Offering Memorandum.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Initial Purchaser as of the date hereof, and as
of the Closing Time referred to in Section 2(b) hereof, and agrees with each
Initial Purchaser as follows:
(i) SIMILAR OFFERINGS. The Company has not, directly or
indirectly, solicited any offer to buy or offered to sell, and will
not, directly or indirectly, solicit any offer to buy or offer to sell,
in the United States or to any United States citizen or resident, any
security which is or would be integrated with the sale of the
Securities in a manner that would require the Securities to be
registered under the Securities Act.
(ii) OFFERING MEMORANDUM. As of the date hereof, the Offering
Memorandum does not, and at the Closing Time will not, include an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that
this representation, warranty and agreement shall not apply to
statements in or omissions from the Offering Memorandum made in
reliance upon and in conformity with information furnished to the
Company in writing by any Initial Purchaser through the Representative
expressly for use in the Offering Memorandum.
(iii) INDEPENDENT ACCOUNTANTS. Ernst & Young LLP is an
independent certified public accountant with respect to the Company and
its subsidiaries (each a "Subsidiary" and, collectively, the
"Subsidiaries") within the meaning of Rule 2-01 of Regulation S-X under
the Securities Act.
(iv) FINANCIAL STATEMENTS. The financial statements, together
with the related schedules and notes, included in the Offering
Memorandum present fairly the financial position of the Company and its
consolidated Subsidiaries at the dates indicated and the statement of
operations, stockholders' equity and cash flows of the Company and its
consolidated Subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved (except as otherwise described in such financial
statements). The selected financial data and the summary financial
3
<PAGE> 5
information included in the Offering Memorandum present fairly the
information shown therein and have been compiled on a basis consistent
with that of the audited financial statements included in the Offering
Memorandum. The pro forma financial information of the Company under
the caption "Offering Memorandum Summary - Summary Historical and Pro
Forma Consolidated Financial Data" and in the financial statements of
the Company and the related notes thereto included in the Offering
Memorandum, present fairly the information shown therein, have been
prepared in accordance with the SEC'S rules and guidelines with respect
to pro forma financial statements and have been properly compiled on
the bases described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances
referred to therein.
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Offering
Memorandum, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and
its Subsidiaries considered as one enterprise (a "Material Adverse
Effect"), whether or not arising in the ordinary course of business,
(B) except as set forth in the Offering Memorandum under the caption
"The Refinancing" there have been no transactions entered into by the
Company or any of its Subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company and
its Subsidiaries considered as one enterprise, and (C) there has been
no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(vi) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum and to enter into and
perform its obligations under this Agreement, and the Company is duly
qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to
be in good standing would not result in a Material Adverse Effect.
(vii) GOOD STANDING OF SUBSIDIARIES. Each Subsidiary has been
duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Offering Memorandum and
each Significant Subsidiary (as defined below) is duly qualified as a
foreign corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except as
otherwise disclosed in
4
<PAGE> 6
the Offering Memorandum, all of the issued and outstanding capital
stock of each Subsidiary has been duly authorized and validly issued,
is fully paid and non-assessable and except as set forth on Schedule C
attached hereto, is wholly owned by the Company, directly or through
Subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of the Subsidiaries was issued in violation of
any preemptive or other rights of any security holder of such
Subsidiary. Attached hereto as Schedule C is a true and complete list
of the Subsidiaries of the Company. As used herein, "Significant
Subsidiary" means any subsidiary designated by the Company as a
Significant Subsidiary in Schedule C attached hereto. The assets of the
Significant Subsidiaries (i) constitute at least 95% of the total
assets of the Company and its Subsidiaries considered as one enterprise
and (ii) produced at least 95% of the operating income of the Company
and its Subsidiaries considered as one enterprise in each of the last
three fiscal years, in each case determined in accordance with GAAP.
(viii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Offering Memorandum
in the column entitled "Actual" under the caption "Capitalization",
except for subsequent issuances pursuant to the Stock Offering (as
defined in the Offering Memorandum), pursuant to reservations,
agreements, or employee benefits plans of the Company or pursuant to
the exercise of outstanding warrants, stock options or convertible
securities.
(ix) AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Company, and constitutes a
valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as the enforcement thereof
may be by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or
other laws of general applicability relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding
in equity or at law).
(x) AUTHORIZATION OF REGISTRATION RIGHTS AGREEMENT. The
Registration Rights Agreement has been duly authorized by the Company,
and when executed and delivered by the Company will constitute a valid
and binding agreement of the Company, enforceable against the Company
in accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or
other laws of general applicability relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding
in equity or at law).
(xi) AUTHORIZATION OF THE INDENTURE AND THE DTC AGREEMENT.
Each of the Indenture and the DTC Agreement has been duly authorized by
the Company, and when
5
<PAGE> 7
executed and delivered by the Company will constitute a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or
other laws of general applicability relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding
in equity or at law).
(xii) AUTHORIZATION OF THE SECURITIES. The Securities have
been duly authorized for issuance and sale to the Initial Purchasers
pursuant to this Agreement and, at the Closing Time, will have been
duly executed by the Company and, when authenticated in the manner
provided for in the Indenture and delivered against payment of the
purchase price therefor as provided in this Agreement, will constitute
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers) reorganization,
moratorium or other laws of general applicability relating to or
affecting enforcement of creditors' rights generally, or by general
principles of equity (regardless of whether enforcement is considered
in a proceeding in equity or at law), and will be in the form
contemplated by, and entitled to the benefits of, the Indenture.
(xiii) DESCRIPTION OF THE SECURITIES AND THE INDENTURE. The
Securities and the Indenture will conform in all material respects to
the respective statements relating thereto contained in the Offering
Memorandum and will be in substantially the respective forms previously
delivered to the Initial Purchasers.
(xiv) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company
nor any of its Subsidiaries is in violation of its charter or by-laws
or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which it or any of them may be bound, or to which any
of the property or assets of the Company or any of its Subsidiaries is
subject (collectively, "Agreements and Instruments") except for such
defaults that would not result in a Material Adverse Effect; and the
execution, delivery and performance of this Agreement, the Registration
Rights Agreement, the DTC Agreement, the Indenture and the Securities
and any other agreement or instrument entered into or issued or to be
entered into or issued by the Company in connection with the
transactions contemplated hereby or thereby or in the Offering
Memorandum and the consummation of the transactions contemplated herein
and in the Offering Memorandum (including the issuance and sale of the
Securities, the use of the proceeds from the sale of the Securities as
described in the Offering Memorandum under the caption "Use of
Proceeds" and the consummation of all of the other transactions
comprising the Refinancing) and compliance by the Company with its
6
<PAGE> 8
obligations hereunder have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or a Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
of its Subsidiaries pursuant to, the Agreements and Instruments (except
for such conflicts, breaches or defaults or liens, charges or
encumbrances that, singly or in the aggregate, would not result in a
Material Adverse Effect), nor will such action result in any violation
of the provisions of the charter or by-laws of the Company or any of
its Subsidiaries or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
the Company or any of its Subsidiaries or any of their assets or
properties, except for such violation that would not result in a
Material Adverse Effect. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any of its
Subsidiaries.
(xv) ABSENCE OF DEFAULT ON SENIOR INDEBTEDNESS. No event of
default exists under any contract, indenture, mortgage, loan agreement,
note, lease or other Agreement or Instrument constituting Senior
Indebtedness (as defined in the Indenture).
(xvi) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any of its Subsidiaries exists or, to the
knowledge of the Company, has been threatened, and the Company is not
aware of any existing or threatened labor disturbance by the employees
of any of its, or any Subsidiary's, principal suppliers, manufacturers,
customers or contractors, which, in either case, may reasonably be
expected to result in a Material Adverse Affect.
(xvii) ABSENCE OF PROCEEDINGS. Except as disclosed in the
Offering Memorandum, there is no action, suit, proceeding, inquiry or
investigation before or brought by any court or governmental agency or
body, domestic or foreign, now pending, or, to the knowledge of the
Company, threatened, against or affecting the Company or any Subsidiary
thereof which might reasonably be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets of the Company or any of its
Subsidiaries or the consummation of this Agreement or the Tender Offer
(as defined in the Offering Memorandum) or other transactions
comprising the Refinancing, or the performance by the Company of its
obligations hereunder, thereunder or under the Securities. The
aggregate of all pending legal or governmental proceedings to which the
Company or any Subsidiary thereof is a party or of which any of their
respective property or assets is the subject which are not described in
the Offering Memorandum, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.
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(xviii) POSSESSION OF INTELLECTUAL PROPERTY. The Company and
its Subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property"),
necessary to carry on the business now operated by them, and neither
the Company nor any of its Subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
Subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xix) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency (other than (A) under the Securities Act and the rules and
regulations thereunder with respect to the Registration Statement to be
filed pursuant to the Registration Rights Agreement and the
transactions contemplated thereunder, and (B) under the securities or
"blue sky" laws of the various states) is necessary or required for the
performance by the Company of its obligations hereunder, in connection
with the offering, issuance or sale of the Securities hereunder or the
consummation of the transactions contemplated by this Agreement or of
the Tender Offer.
(xx) POSSESSION OF LICENSES AND PERMITS. The Company and its
Subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them; the
Company and its Subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its Subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xxi) TITLE TO PROPERTY. The Company and its Subsidiaries have
good and marketable title to all real property owned by the Company and
its Subsidiaries and good title to all other properties owned by them,
in each case, free and clear of all mortgages,
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pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the
Offering Memorandum, (b) are listed on Schedule D hereto or (c) do not,
singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company or any of its Subsidiaries; and all of
the leases and subleases material to the business of the Company and
its Subsidiaries, considered as one enterprise, and under which the
Company or any of its Subsidiaries holds properties described in the
Offering Memorandum, are in full force and effect, and neither the
Company nor any of its Subsidiaries has any notice of any material
claim of any sort that has been asserted by anyone adverse to the
rights of the Company or any of its subsidiaries under any of the
leases or subleases mentioned above, or affecting or questioning the
rights of the Company or such Subsidiary to the continued possession of
the leased or subleased premises under any such lease or sublease,
which in either case, may be expected to result in a Material Adverse
Effect.
(xxii) ENVIRONMENTAL LAWS. Except as described in the Offering
Memorandum and except such matters as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its Subsidiaries is in violation of any statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any
judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating
to pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) the Company and its Subsidiaries have all permits,
authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
Subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of
its Subsidiaries relating to Hazardous Materials or the violation of
any Environmental Laws.
(xxiii) TAX RETURNS. All United States federal income tax
returns of the Company and its consolidated Subsidiaries required by
law to be filed have been filed and all taxes shown by such returns or
otherwise assessed, which are due and payable, have been paid, except
taxes or charges that are being contested in good faith or
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assessments against which appeals have been or will be promptly taken.
All United States federal income tax returns of Bally Entertainment
Corporation ("Entertainment") and its consolidated subsidiaries,
including the Company, for tax periods prior to January 9, 1996,
required by law to be filed have been filed and all taxes shown by the
said returns or otherwise assessed which are due and payable have been
paid, except assessments against which appeals have been or will be
promptly taken. The United States federal income tax returns of
Entertainment and its consolidated Subsidiaries, including the Company
and its Subsidiaries, through the fiscal year ended 1986 have been
settled and no assessment in connection therewith has been made against
the Company or Entertainment in connection with the business of the
Company. The Company and its Significant Subsidiaries have filed all
other tax returns that are required to have been filed by them pursuant
to applicable foreign, state, local or other law except insofar as the
failure to file such returns would not result in a Material Adverse
Effect, and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by the Company and its
Subsidiaries, except for such taxes or charges that are being contested
in good faith or assessments against which appeals have been or will
promptly be taken and as to which adequate reserves have been provided
and other than those the nonpayment of which would not have a Material
Adverse Effect. The charges, accruals and reserves on the books of the
Company in respect of any income and corporation tax liability for any
years not finally determined are adequate to meet any assessments or
reassessments for additional income tax for any years not finally
determined, except to the extent of any inadequacy that would not
result in a Material Adverse Effect.
(xxiv) INTERNAL CONTROLS. The Company and its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorization, (B) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with GAAP and to maintain accountability for assets, (C)
access to assets is permitted only in accordance with management's
general or specific authorization and (D) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(xxv) SOLVENCY. The Company is, and immediately after the
Closing Time will be, Solvent. As used herein, the term "Solvent"
means, with respect to the Company on a particular date, that on such
date (A) the fair market value of the assets of the Company is greater
than the total amount of liabilities (including contingent liabilities)
of the Company, (B) the present fair salable value of the assets of the
Company is greater than the amount that will be required to pay the
probable liabilities of the Company on its debts as they become
absolute and matured, (C) the Company is able to realize upon its
assets and pay its debts and other liabilities, including contingent
obligations, as they mature, and (D) the Company does not have
unreasonably small capital.
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(xxvi) STABILIZATION. Neither the Company nor any of its
officers, directors or controlling persons has taken, directly or
indirectly, any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(xxvii) INVESTMENT COMPANY ACT. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xxviii) COMPLIANCE WITH CUBA ACT. The Company has complied
with, and is and will be in compliance with, the provisions of that
certain Florida act relating to disclosure of doing business with Cuba,
codified as Section 517.075 of the Florida statutes, and the rules and
regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(xxix) RULE 144A ELIGIBILITY. At the Closing Time, assuming
the Initial Purchasers are not affiliates of the Company, the
Securities will be eligible for resale by the Initial Purchasers
pursuant to Rule 144A and will not be, at the Closing Time, of the same
class as United States Securities listed on a national securities
exchange registered under Section 6 of the United States Exchange Act
of 1934, as amended (the "Exchange Act"), or quoted in a U.S. automated
interdealer quotation system.
(xxx) NO GENERAL SOLICITATION. None of the Company, its
affiliates, as such term is defined in Rule 501(b) under the Securities
Act ("Affiliates"), or any person acting on its or any of their behalf
(other than the Initial Purchasers, as to whom the Company makes no
representation) has engaged or will engage, in connection with the
offering of the Securities, in any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the
Securities Act.
(xxxi) NO REGISTRATION REQUIRED. Subject to compliance by the
Initial Purchasers with the representations and warranties set forth in
Section 2 and the procedures set forth in Section 6 hereof, it is not
necessary in connection with the offer, sale and delivery of the
Securities to the Initial Purchasers and to each Subsequent Purchaser
in the manner contemplated by this Agreement and the Offering
Memorandum to register the Securities under the Securities Act or to
qualify the Indenture under the Trust Indenture Act of 1939, as amended
(the "1939 Act").
(xxxii) REGISTRATION RIGHTS. There are no holders of
securities (debt or equity) of the Company, or holders of rights
(including, without limitation, preemptive rights), warrants or options
to obtain securities of the Company, who in connection with the
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issuance, sale and delivery of the Securities and the execution,
delivery and performance of this Agreement and the Registration Right
Agreement, have the right to request the Company to register securities
held by them under the Securities Act.
(xxxiii) NO DIRECTED SELLING EFFORTS. With respect to those
Securities sold in reliance on Regulation S, (A) none of the Company,
its Affiliates or any person acting on its or their behalf (other than
the Initial Purchasers, as to whom the Company makes no representation)
has engaged or will engage, in any directed selling efforts within the
meaning of Regulation S and (B) each of the Company and its Affiliates
and any person acting on its or their behalf (other than the Initial
Purchasers, as to whom the Company makes no representation) has
complied and will comply with the offering restrictions requirement of
Regulation S.
(xxxiv) COMPLIANCE WITH LAWS. The Company and its Subsidiaries
have conducted and are conducting their business in compliance with all
applicable federal, state and local laws, rules, regulations,
decisions, directives and orders, except where the failure to do so
would not have a Material Adverse Effect.
(b) Officer's Certificates. Any certificate signed by any officer of
the Company delivered to the Representative or to counsel for the Initial
Purchasers shall be deemed a representation and warranty by the Company to each
Initial Purchaser as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO INITIAL PURCHASERS; CLOSING.
(a) Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each Initial Purchaser, severally and not jointly, and
each Initial Purchaser, severally and not jointly, agrees to purchase from the
Company, at the price set forth in Schedule B, the aggregate principal amount of
Securities set forth in Schedule A opposite the name of such Initial Purchaser,
plus any additional principal amount of Securities which such Initial Purchaser
may become obligated to purchase pursuant to the provisions of Section 11
hereof.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the office of Morgan,
Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178-0060, or at such
other place as shall be agreed upon by the Representative and the Company, at
10:00 A.M. (Eastern time) on the sixth business day after the date hereof
(unless postponed in accordance with the provisions of Section 11), or such
other time not later than ten business days after such date as shall be agreed
upon by the Representative and the Company (such time and date of payment and
delivery being herein called the "Closing Time").
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Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representative for the respective accounts of the Initial Purchasers of
certificates for the Securities to be purchased by them. It is understood that
each Initial Purchaser has authorized the Representative, for its account, to
accept delivery of, receipt for, and make payment of the purchase price for, the
Securities which it has agreed to purchase. Merrill Lynch, individually and not
as representative of the Initial Purchasers, may (but shall not be obligated to)
make payment of the purchase price for the Securities to be purchased by any
Initial Purchaser whose funds have not been received by the Closing Time, but
such payment shall not relieve such Initial Purchaser from its obligations
hereunder. The certificates representing the Securities shall be registered in
the name of Cede & Co. pursuant to the DTC Agreement and shall be made available
for examination and packaging by the Initial Purchasers in The City of New York
not later than 10:00 A.M. (Eastern Time) on the last business day prior to the
Closing Time.
(c) Qualified Institutional Buyer. Each Initial Purchaser severally and
not jointly represents and warrants to, and agrees with, the Company that it is
a "qualified institutional buyer" within the meaning of Rule 144A (a "Qualified
Institutional Buyer").
(d) Denominations; Registration. Certificates for the Securities shall
be in such denominations ($1,000 or integral multiples thereof) and registered
in such names as the Representative may request in writing at least one full
business day before the Closing Time.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
Initial Purchaser as follows:
(a) Delivery of Offering Memorandum. The Company, as promptly as
possible, will furnish to each Initial Purchaser, without charge, such number of
copies of the Preliminary Offering Memorandum, the Final Offering Memorandum and
any amendments and supplements as each Initial Purchaser may reasonably request.
(b) Notice and Effect of Material Events. The Company will immediately
notify each Initial Purchaser, and confirm such notice in writing, of (x) any
filing made by the Company of information relating to the offering of the
Securities with any Securities exchange or any other regulatory body in the
United States or any other jurisdiction, and (y) prior to the completion of the
placement of the Securities by the Initial Purchasers as evidenced by a notice
in writing from the Initial Purchasers to the Company, any material changes in
or affecting the earnings, business affairs or business prospects of the Company
and its Subsidiaries which (i) make any statement in the Offering Memorandum
false or misleading or (ii) are not disclosed in the Offering Memorandum. In
such event or if during such time any event shall occur as a result of which it
is necessary, in the reasonable opinion of the Company, its counsel, the Initial
Purchasers or counsel for the Initial Purchasers, to amend or supplement the
Final Offering Memorandum in order that the Final Offering Memorandum not
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in
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the light of the circumstances then existing, the Company will forthwith amend
or supplement the Final Offering Memorandum by preparing and furnishing to each
Initial Purchaser an amendment or amendments of, or a supplement or supplements
to, the Final Offering Memorandum (in form and substance satisfactory to counsel
for the Initial Purchasers) so that, as so amended or supplemented, the Final
Offering Memorandum will not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances existing at the time it is delivered to a
Subsequent Purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The Company will
advise each Initial Purchaser promptly of any proposal to amend or supplement
the Offering Memorandum and will not effect such amendment or supplement without
the consent of the Initial Purchasers, provided that the Initial Purchasers
shall object to the Company within three business days after receipt of a copy
of any such proposed amendment or supplement. Neither the consent of the Initial
Purchasers, nor the Initial Purchasers' delivery of any such amendment or
supplement, shall constitute a waiver of any of the conditions set forth in
Section 5 hereof.
(d) Blue Sky Qualification of Securities for Offer and Sale. The
Company, in cooperation with the Initial Purchasers, will endeavor to qualify
the Securities for offering and sale under the applicable securities laws of
such jurisdictions as the Representative may designate and will maintain such
qualifications in effect as long as required for the sale of the Securities;
PROVIDED, HOWEVER, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such statements and
reports as may be required by the laws of such jurisdiction to continue such
qualification in effect for so long as may be required to complete the
distribution of the Securities contemplated by this Agreement.
(e) Rating of Securities. The Company shall take all reasonable action
necessary to enable Standard & Poor's Ratings Group ("S&P"), a division of
McGraw Hill, Inc., and Moody's Investors Service, Inc. ("Moody's") to provide
their respective credit ratings of the Securities.
(f) DTC and PORTAL. The Company will cooperate with the Representative
and use its best efforts to (i) permit the Securities to be eligible for
clearance and settlement through the facilities of DTC and (ii) include
quotation of the Securities on the Private Offerings, Resales and Trading
through Automatic Linkages (PORTAL) System of The National Association of
Securities Dealers, Inc. (the "NASD").
(g) Use of Proceeds. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Offering
Memorandum under "Use of Proceeds."
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(h) Restriction of Sale of Securities. During a period of 120 days from
the date of the Offering Memorandum, the Company will not, without the prior
written consent of Merrill Lynch, directly or indirectly, issue, sell, offer or
agree to sell, grant any option for the sale of, or otherwise dispose of, (i)
any other debt securities of the Company, except for the modification or
replacement of the Senior Indebtedness (as defined in the Offering Memorandum)
currently outstanding, or (ii) securities of the Company that are convertible
into, or exchangeable for, the Securities or such other debt securities, other
than the Exchange Notes referred to in the Registration Rights Agreement.
SECTION 4. PAYMENT OF EXPENSES.
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing, delivery to the Initial Purchasers and any filing of the
Preliminary Offering Memorandum and the Offering Memorandum (including financial
statements and exhibits) and of each amendment or supplement thereto, provided
however, that the Initial Purchasers shall pay $100,000 of such printing
expenses, (ii) the preparation, printing and delivery to the Initial Purchasers
of this Agreement, any Agreement among Initial Purchasers, the Indenture and
such other documents as may be required in connection with the offering,
purchase, sale and delivery of the Securities, (iii) the preparation, issuance
and delivery of the certificates for the Securities to the Initial Purchasers,
including any charges of DTC in connection therewith, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Initial Purchasers in connection therewith
and in connection with the preparation of the blue sky survey and any supplement
thereto and delivery to the Initial Purchasers of copies thereof, (vi) the
reasonable fees and expenses of the Trustee, including the reasonable fees and
disbursements of counsel for the Trustee in connection with the Indenture and
the Securities, (vii) any fees payable in connection with the rating of the
Securities, and (viii) any fees payable to the NASD in connection with the
initial and continued designation of the Securities as PORTAL Securities under
the PORTAL Market Rules pursuant to NASD Rule 5322.
(b) Termination of Agreement. If this Agreement is terminated by the
Representative in accordance with the provisions of Section 5(j) or Section
10(a)(i) hereof, the Company shall reimburse the Initial Purchasers for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Initial Purchasers.
SECTION 5. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The
obligations of the several Initial Purchasers hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company delivered
pursuant to the provisions hereof, to the performance by the Company of its
covenants and other obligations hereunder, and to the following further
conditions:
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(a) Opinion of Counsel for Company. At the Closing Time, the
Representative shall have received the favorable opinion, dated as of the
Closing Time, of Benesch, Friedlander, Coplan & Aronoff LLP, counsel for the
Company, in form and substance satisfactory to Morgan, Lewis & Bockius LLP, to
the effect set forth in Exhibit A hereto and to such further effect as Morgan,
Lewis & Bockius LLP may reasonably request. It is understood that the opinions
set forth in paragraphs (i) (as to due incorporation), (iii), (v), (xiv) and
(xvii) of Exhibit A may be delivered by Cary A. Gaan, Esq., on behalf of the
Company, rather than by Benesch, Friedlander, Coplan & Aronoff LLP.
(b) Opinion of Counsel for Initial Purchasers. At the Closing Time, the
Initial Purchasers shall have received the favorable opinion, dated as of the
Closing Time, of Morgan, Lewis & Bockius LLP, counsel for the Initial
Purchasers, with respect to the matters set forth in paragraphs (i), (ii), and
(vi) through (x), inclusive, and the last paragraph, of Exhibit A hereto. Such
counsel may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of officers
of the Company and certificates of public officials.
(c) Officers' Certificate. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its Subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Representative shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of the Closing Time, to the effect that (i) there has
been no such material adverse change, (ii) the representations and warranties in
Section l(a) hereof are true and correct with the same force and effect as
though expressly made at and as of the Closing Time, except for any
representations and warranties which are made as of a specific date, which were
true and correct as of such date, and (iii) the Company has complied with all
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Closing Time.
(d) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representative shall have received from Ernst & Young LLP a
letter dated such date, in form and substance satisfactory to the
Representative, together with signed or reproduced copies of such letter for
each of the other Initial Purchasers, containing statements and information of
the type ordinarily included in accountants' "comfort letters" to Initial
Purchasers with respect to the financial statements and certain financial
information contained in the Offering Memorandum.
(e) Bring-down Comfort Letter. At the Closing Time, the Representative
shall have received from Ernst & Young LLP a letter, dated as of the Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (d) of this Section,
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except that the specified date referred to shall be a date not more than three
business days prior to the Closing Time.
(f) Maintenance of Rating. At the Closing Time, the Securities shall be
rated at least "B3" by Moody's and "B-" by S & P, and the Company shall have
delivered to the Representative a letter dated the Closing Time, from each such
rating agency, or other evidence satisfactory to the Representative, confirming
that the Securities have such ratings; and since the date of this Agreement,
there shall not have occurred a downgrading in the rating assigned to the
securities or any of the Company's other debt securities by any nationally
recognized securities rating agency, and no such securities rating agency shall
have publicly announced that it has under surveillance or review, with possible
negative implications, its rating of the Securities or any of the Company's
other debt securities.
(g) PORTAL and DTC. At the Closing Time, (A) the Securities shall have
been designated for trading on PORTAL, (B) Securities issued pursuant to
Regulation S in book entry form shall have been accepted for settlement through
the facilities of Cedel Bank and Euroclear, and (C) Securities issued pursuant
to Rule 144A in book entry form shall have been accepted for settlement through
the facilities of DTC.
(h) Refinancing. At the Closing Time, (i) the Company shall have
consummated the Tender Offer, (ii) the Company shall have duly and validly
entered into a supplemental indenture with respect to the 13% Notes pursuant to
which the consummation of the transactions contemplated by this Agreement and
the other transactions constituting the Refinancing shall be permissible, and
(iii) the Company shall have consummated all other transactions comprising the
Refinancing which, as described in the Offering Memorandum under the caption
"Refinancing," are intended to occur at or prior to the Closing Time.
(i) Registration Rights Agreement and Indenture. The Company shall have
duly authorized, executed and delivered the Registration Rights Agreement and
the Indenture, in each case in form and substance reasonably satisfactory to the
Representative and counsel to the Initial Purchasers.
(j) Additional Documents. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with such documents and opinions as they
may reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be reasonably satisfactory in form and substance to
the Representative and counsel for the Initial Purchasers.
(k) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the
17
<PAGE> 19
Representative by notice to the Company at any time at or prior to the Closing
Time, and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 7 and 8 shall
survive any such termination and remain in full force and effect.
SECTION 6. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES.
(a) Offer and Sale Procedures. Each of the Initial Purchasers and the
Company hereby establish and agree to observe the following procedures in
connection with the offer and sale of the Securities:
(i) OFFERS AND SALES ONLY TO QUALIFIED INSTITUTIONAL BUYERS.
Offers and sales of the Securities will be made only by the Initial
Purchasers or Affiliates thereof qualified to do so in the
jurisdictions in which such offers or sales are made. Each such offer
or sale shall only be made (A) to persons whom the offeror or seller
reasonably believes to be Qualified Institutional Buyers, and (B) to
non-U.S. persons outside the United States to whom the offeror or
seller reasonably believes offers and sales of the Securities may be
made in reliance upon Regulation S.
(ii) NO GENERAL SOLICITATION. The Securities will be offered
by the Initial Purchasers only by approaching prospective Subsequent
Purchasers on an individual basis. No general solicitation or general
advertising (within the meaning of Rule 502(c) under the Securities
Act) will be used in the United States in connection with the offering
of the Securities.
(iii) PURCHASES BY NON-BANK FIDUCIARIES. In the case of a
non-bank Subsequent Purchaser of a Security acting as a fiduciary for
one or more third parties, in connection with an offer and sale to such
purchaser pursuant to clause (a) above, each third party shall, in the
judgment of the applicable Initial Purchaser, be a Qualified
Institutional Buyer or a non-U.S. person outside the United States.
(iv) SUBSEQUENT PURCHASER NOTIFICATION. Each Initial Purchaser
will take reasonable steps to inform, and cause each of its Affiliates
in the United States to take reasonable steps to inform, persons
acquiring Securities from such Initial Purchaser or Affiliate, as the
case may be, in the United States that the Securities (A) have not been
and will not be registered under the Securities Act, (B) are being sold
to them without registration under the Securities Act in reliance on
Rule 144A or in accordance with another exemption from registration
under the Securities Act, as the case may be, and (C) may not be
offered, sold or otherwise transferred except (1) to the Company, (2)
pursuant to a registration statement which has been declared effective
under the Securities Act, (3) for so long as the Securities are
eligible for resale pursuant to Rule 144A, to a person it reasonably
believes is a Qualified Institutional Buyer that purchases for its own
account or for the account of a Qualified Institutional Buyer to whom
notice is given that the
18
<PAGE> 20
transfer is being made in reliance on Rule 144A, (4) outside the United
States, pursuant to offers and sales to non-U.S. persons in an Offshore
Transaction within the meaning of Regulation S, (5) an institutional
"accredited investor" within the meaning of subparagraph (a) (1), (2),
(3) or (7) of Rule 501 under the Securities Act ("Institutional
Accredited Investor") that is acquiring the Securities for its own
account or for the account of another Institutional Accredited
Investor, for investment purposes and not with a view to, or for offer
or sale in connection with, any distribution in violation of the
Securities Act, or (6) pursuant to any other available exemption from
the registration requirements of the Securities Act, subject in each of
the foregoing cases to any requirement of law that the disposition of
its property or the property of such investor account or accounts be at
all times within its or their control and in compliance with any
applicable state securities laws.
(v) MINIMUM PRINCIPAL AMOUNT. No sale of the Securities to any
one Subsequent Purchaser will be for less than $200,000 principal
amount and no Security will be issued in a smaller principal amount. If
the Subsequent Purchaser is a non-bank fiduciary acting on behalf of
others, each person for whom it is acting must purchase at least
$200,000 principal amount of the Securities.
(vi) RESTRICTIONS ON TRANSFER. The transfer restrictions and
the other provisions set forth in Section 2.2 of the Indenture,
including the legend required thereby, shall apply to the Securities
except as otherwise agreed by the Company and the Initial Purchasers.
Following the sale of the Securities by the Initial Purchasers to
Subsequent Purchasers pursuant to the terms hereof, the Initial
Purchasers shall not be liable or responsible to the Company for any
losses, damages or liabilities suffered or incurred by the Company,
including any losses, damages or liabilities under the Securities Act,
arising from or relating to any resale or transfer of any Security.
(vii) DELIVERY OF OFFERING MEMORANDUM. Each Initial Purchaser
will deliver to each purchaser of the Securities from such Initial
Purchaser, in connection with its original distribution of the
Securities, a copy of the Offering Memorandum, as amended and
supplemented at the date of such delivery.
(b) Covenants of the Company. The Company covenants with each Initial
Purchaser as follows:
(i) DUE DILIGENCE. In connection with the original
distribution of the Securities, the Company agrees that, prior to any
offer or resale of the Securities by the Initial Purchasers, the
Initial Purchasers and counsel for the Initial Purchasers shall have
the right to make reasonable inquiries into the business of the Company
and its Subsidiaries. The Company also agrees to provide answers to
each prospective Subsequent Purchaser of Securities who so requests
concerning the Company and its
19
<PAGE> 21
Subsidiaries and the terms and conditions of the offering of the
Securities, as provided in the Offering Memorandum.
(ii) INTEGRATION. The Company agrees that it will not and will
cause its Affiliates not to make any offer or sale of securities of the
Company of any class if, as a result of the of "integration" referred
to in Rule 502 under the Securities Act, such offer or sale would
render invalid (for the purpose of (i) the sale of the Securities by
the Company to the Initial Purchasers, (ii) the resale of the
Securities by the Initial Purchasers to Subsequent Purchasers or (iii)
the resale of the Securities by such Subsequent Purchasers to others)
the exemption from the registration requirements of the Securities Act
provided by Section 4(2) thereof or by Rule 144A or by Regulation S
thereunder or otherwise.
(iii) RULE 144A INFORMATION. The Company agrees that, in order
to render the Securities eligible for resale pursuant to Rule 144A
under the Securities Act, while any of the Securities remain
outstanding, it will make available, upon request, to any holder of
Securities or prospective purchasers of Securities the information
specified in Rule 144A(d)(4), unless the Company furnishes information
to the SEC pursuant to Section 13 or 15(d) of the Exchange Act (such
information, whether made available to holders or prospective
purchasers or furnished to the SEC, is herein referred to as
"Additional Information").
(iv) RESTRICTION ON REPURCHASES. Until the expiration of two
years after the original issuance of the Securities, the Company will
not, and will cause its Affiliates not to, purchase or agree to
purchase or otherwise acquire any Securities which are "restricted
securities" (as such term is defined under Rule 144(a)(3) under the
Securities Act), whether as beneficial owner or otherwise (except as
agent acting as a Securities broker on behalf of and for the account of
customers in the ordinary course of business in unsolicited broker's
transactions) unless, immediately upon any such purchase, the Company
or any Affiliate shall submit such Securities to the Trustee for
cancellation.
(c) Resale Pursuant to Rule 903 of Regulation S or Rule 144A. Each
Initial Purchaser understands that the Securities have not been and will not be
registered under the Securities Act and may not be offered or sold within the
United States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S under the Securities Act or pursuant to an
exemption from the registration requirements of the Securities Act. Each Initial
Purchaser represents and agrees that, in connection with sales of Securities
outside of the United States, except as permitted by Section 6(a) above, it has
offered and sold Securities and will offer and sell Securities (i) as part of
its distribution at any time and (ii) otherwise until forty days after the later
of the date upon which the offering of the Securities commences and the Closing
Time, only in accordance with Rule 903 of Regulation S or Rule 144A.
Accordingly, none of the Initial Purchasers, their Affiliates or any persons
acting on their behalf have engaged or will engage in any directed selling
efforts with respect to Securities, and the Initial Purchasers, their affiliates
20
<PAGE> 22
and any person acting on their behalf have complied and will comply with the
offering restriction requirements of Regulation S. Each Initial Purchaser agrees
that, at or prior to confirmation of a sale of Securities outside of the United
States (other than a sale of Securities pursuant to Rule 144A), it will have
sent to each distributor, dealer or person receiving a selling concession, fee
or other remuneration that purchases Securities from it or through it during the
restricted period a confirmation or notice to substantially the following
effect:
"The securities (the "Securities") covered hereby have not been registered
under the United States Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered or sold within the United States
or to or for the account or benefit of U.S. persons (i) as part of their
distribution at any time and (ii) otherwise until forty days after the
later of the date upon which the offering of the Securities commenced
and the date of closing of the offering of the Securities, except in
either case in accordance with Regulation S or Rule 144A under the
Securities Act. Terms used above have the meaning given to them by
Regulation S under the Securities Act."
Terms used in the above paragraph have the meanings given to them by Regulation
S.
Each Initial Purchaser severally represents and agrees that it has not entered
and will not enter into any contractual arrangements with respect to the
distribution of the Securities, except with its affiliates or with the prior
written consent of the Company.
SECTION 7. INDEMNIFICATION.
(a) Indemnification of Initial Purchasers. The Company agrees to
indemnify and hold harmless each Initial Purchaser and each person, if any, who
controls any Initial Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
Preliminary Offering Memorandum or the Final Offering Memorandum (or
any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that
21
<PAGE> 23
(subject to Section 7(d) below) any such settlement is effected with
the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the reasonable fees and disbursements of counsel chosen by
Merrill Lynch), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Initial Purchaser through Merrill Lynch expressly for use in any Preliminary
Offering Memorandum or the Offering Memorandum (or any amendment or supplement
thereto) shall not inure to the benefit of any Initial Purchaser (or to the
benefit of any person controlling such Initial Purchaser) from whom the person
asserting any such losses, liabilities, claims, damages or expenses purchased
Securities if such untrue statement or omission or alleged untrue statement or
omission made in any Preliminary Offering Memorandum or the Offering Memorandum
(or any amendment or supplement thereto) is identified in writing at such time
to such Initial Purchaser and is eliminated or remedied in the Offering
Memorandum as most recently amended or supplemented (copies of such amendments
and supplements having been delivered to such Initial Purchaser in sufficient
quantity at least three business days prior to the written confirmation of the
sale of such Securities to such person) and it shall be established that a copy
of the Offering Memorandum as most recently amended or supplemented had not been
furnished to such person at or prior to the written confirmation of the sale of
such Securities to such person.
(b) Indemnification of Company, Directors and Officers. The Initial
Purchasers severally agree to indemnify and hold harmless the Company, its
directors, each of its officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Offering Memorandum in reliance upon
and in conformity with written information furnished to the Company by the
Initial Purchasers expressly for use in the Offering Memorandum.
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the
22
<PAGE> 24
extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified pursuant
to Section 7(a) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, and, in the case of parties indemnified pursuant to Section 7(b)
above, counsel to the indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the defense of any such
action; PROVIDED, HOWEVER, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 7 or Section 8 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for reasonable fees and expenses of counsel, such indemnifying
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 7(a)(ii) effected without its written consent if (i)
such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
SECTION 8. CONTRIBUTION. If the indemnification provided for in Section
7 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Initial Purchasers on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Initial Purchasers on the other hand in
23
<PAGE> 25
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Initial Purchasers, bear to
the aggregate initial offering price to investors of the Securities as set forth
on the cover page of the Offering Memorandum.
The relative fault of the Company on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
necessary to make the statements made in the Offering Memorandum not misleading
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Initial Purchasers were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 8 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Initial Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such Initial Purchaser, and each director of the Company,
24
<PAGE> 26
each officer of the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act shall have the same rights to contribution as the Company. The
Initial Purchasers' respective obligations to contribute pursuant to this
Section 8 are several in proportion to the principal amount of Securities set
forth opposite their respective names in Schedule A hereto and not joint.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Initial Purchaser or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Initial Purchasers.
SECTION 10. TERMINATION OF AGREEMENT.
(a) Termination; General. The Representative may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Offering
Memorandum, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its Subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, any
outbreak of hostilities or escalation thereof or other calamity or crisis or any
change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Representative,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iii) if trading in any securities of the Company has been
suspended or limited by the SEC or if trading generally on the American Stock
Exchange or The New York Stock Exchange, Inc. or in the NASDAQ National Market
System has been suspended or limited, or minimum or maximum prices for trading
have been fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the SEC, NASD or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either United States Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 7 and 8 shall survive such termination and remain in fall force and effect.
SECTION 11. DEFAULT BY ONE OF THE INITIAL PURCHASERS. If one of the
Initial Purchasers shall fail at the Closing Time to purchase the Securities
which it is obligated to purchase under this Agreement (the "Defaulted
Securities"), the Representative shall have the right, but not the obligation,
within 24 hours thereafter, to make arrangements for the non-
25
<PAGE> 27
defaulting Initial Purchasers, or any other Initial Purchasers, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the Representative
shall not have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Initial Purchasers shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their respective
purchasing obligations hereunder bear to the purchase obligations of all
non-defaulting Initial Purchasers, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement shall
terminate without liability on the part of any non-defaulting Initial Purchaser.
No action pursuant to this Section shall relieve any defaulting Initial
Purchaser from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Representative or the Company shall have the right
to postpone the Closing Time for a period not exceeding seven days in order to
effect any required changes in the Offering Memorandum or in any other documents
or arrangement. As used herein, the term Initial Purchaser includes any person
substituted for an Initial Purchaser under this Section 11.
SECTION 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchasers shall be directed to the Representative at North Tower, World
Financial Center, New York, New York 10281-1201, facsimile no.: (212) 449-8635,
Attention of Lex Maultsby, with a copy to Morgan, Lewis & Bockius LLP, 101 Park
Avenue, New York, New York 10178-0060, facsimile no.: (212) 309- 6273, Attention
of Eduardo Vidal; notices to the Company shall be directed to it at 8700 West
Bryn Mawr Avenue, Chicago, Illinois 60631, facsimle no.: (773) 399-0661,
Attention of Lee S. Hillman, with a copy to Benesch, Friedlander, Coplan &
Aronoff LLP, 2300 BP America Building, 200 Public Square, Cleveland, Ohio 44114,
facsimile no.: (216) 363-4588, Attention of Irv Berliner.
SECTION 13. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the Initial Purchasers and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchasers and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions
26
<PAGE> 28
and provisions hereof are intended to be for the sole and exclusive benefit of
the Initial Purchasers and the Company and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of the Securities from any Initial Purchaser shall be deemed to be a
successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
27
<PAGE> 29
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
BALLY TOTAL FITNESS HOLDING CORPORATION
By: /s/ Lee S. Hillman
---------------------------
Name: Lee S. Hillman
Title: President and Chief
Executive Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
CHASE SECURITIES INC.
SOCIETE GENERALE SECURITIES CORPORATION
LADENBURG THALMANN & CO. INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Christopher G. Turner
--------------------------------
Authorized Signatory Christopher G. Turner
Vice President
For itself and as Representative of the Initial Purchasers named in Schedule A
hereto.
<PAGE> 30
SCHEDULE A
<TABLE>
<CAPTION>
Principal
Amount of
Initial Purchaser Securities
----------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................$128,700,000
Chase Securities Inc................................................56,250,000
Societe Generale Securities Corporation.............................29,925,000
Ladenburg Thalmann & Co. Inc........................................10,125,000
Total.................................................$225,000,000
</TABLE>
Sch A - 1
<PAGE> 31
SCHEDULE B
BALLY TOTAL FITNESS HOLDING CORPORATION
$225,000,000 9-7/8% Senior Subordinated Notes due 2007
1. The initial offering price of the Securities shall be 100% of the
principal amount thereof, plus accrued interest, if any, from the date of
issuance.
2. The purchase price to be paid by the Initial Purchasers for the
Securities shall be 100 % of the principal amount thereof.
3. The interest rate on the Securities shall be 9-7/8% per annum.
4. The Company may redeem up to 35 % of the originally issued
Securities, at a price of 109.875 % of the principal amount thereof.
5. The Securities shall mature on October 15, 2007.
Sch B - 1
<PAGE> 32
SCHEDULE C
List of Subsidiaries
A. List of Significant Subsidiaries:
Bally Total Fitness Corporation
Bally's Fitness and Racquet Clubs, Inc.
Bally's Pacwest, Inc.
Holiday Health Clubs and Fitness Centers, Inc.
Holiday Spa Health Clubs of California
Holiday Universal, Inc.
Houston Health Clubs, Inc.
Jack LaLanne Fitness Centers, Inc.
Scandinavian Health Spa, Inc.
Scandinavian U.S. Swim & Fitness, Inc.
So. Cal Nautilus Fitness Centers, Inc.
Vic Tanny International, Inc.
Vic Tanny International of Missouri, Inc.
Vic Tanny of Greater Michigan, Inc.
B. List of all Subsidiaries other than those listed in A above:
Bally Fitness Franchising, Inc.
Bally Franchise RSC, Inc.
Bally Franchising Holdings, Inc..
Bally's S.C. Management, Inc.
BFIT Rehab of Boca Raton, Inc.
BFIT Rehab of Coral Gables, Inc.
BFIT Rehab of Kendall, Inc.
BFIT Rehab of Sunrise, Inc.
BFIT Rehab of West Palm Beach, Inc.
BFIT Rehabilitation Services, Inc.
C.Z.W. Health Limited
H&T Receivable Funding Corporation
Health & Tennis Corporation of New York, Inc.
Holiday Health Clubs of the East Coast, Inc.
Holiday Health Clubs of the Southeast, Inc.
Holiday/Southeast Holding Corp.
Jack LaLanne Holding Corp.
Lincoln Indemnity Company
Manhattan Sports Clubs, Inc.
Sch C - 1
<PAGE> 33
Scandinavian Development Company
Tidelands Holiday Health Clubs, Inc.
U.S. Health, Inc.
Vertical Fitness and Racquet Club, Ltd.
Vic Tanny International of Cleveland, Inc.
Vic Tanny International of Toledo, Inc.
C. List of Subsidiaries Not Wholly-owned:
Bally Matrix Fitness Centre Ltd.
Connecticut Coast Fitness Centers, Inc.
Connecticut Valley Fitness Centers, Inc.
Exercise Centers of Massachusetts, Inc.
Greater Philly No. 1 Holding Company
Greater Philly No. 2 Holding Company
Health and Tennis (UK) Limited
Holiday Health & Fitness Centers of New York, Inc.
New Fitness Holding Co., Inc.
Nycon Holding Co.
Physical Fitness Centers of Philadelphia
Providence Fitness Centers, Inc.
Rhode Island Holding Company
D. Encumbrances
I Except as set forth below, the capital stock of each subsidiary
of the Company is pledged to the Company's principal lenders
pursuant to various Pledge Agreements delivered in connection
with the Old Credit Agreement and the New Credit Agreement
(except for newly formed subsidiaries who have not yet entered
into pledge agreement in connection with the Old Credit Agreement
and the New Credit Agreement).
(a) JACK LALANNE FITNESS CENTERS, INC. The capital stock of
this subsidiary is pledged to Harry Schwartz pursuant to
that certain Security and Escrow Agreement dated October
26, 1979 among Schwartz, Jack LaLanne Fitness Centers, Inc.
Jack LaLanne Holding Corp. and Israel G. Seeger.
(b) BALLY MATRIX FITNESS CENTER, LTD. AND CZW HEALTH LIMITED.
Only 65% of the shares of capital stock of each of these
Canadian subsidiaries are pledged to the Company's lenders
under the Old Credit Agreement.
Sch C - 2
<PAGE> 34
(c) HEALTH & TENNIS (U.K.) LIMITED. Only 65% of the shares of
capital stock of this U.K. subsidiary are pledged to the
Company's lenders under the Old Credit Agreement.
2. The transfer of encumbrance or the capital stock of Nycon Holding Co.,
New Fitness Holding Co., Inc., Connecticut Coast Fitness Centers,
Inc., Connecticut Valley Fitness Centers, Inc., Holiday Health &
Fitness Centers of New York, Inc., Rhode Island Holding Company,
Greater Philly No. 1 Holding Company, Bally Matrix Fitness Centre
Ltd., Providence Fitness Centers, Inc., Greater Philly No. 2 Holding
Company and Physical Fitness Centers of Philadelphia, Inc. is
restricted pursuant to the terms of certain Shareholders' Agreements
dated December 3, 1982 and April 29, 1987, each as amended.
Sch C - 3
<PAGE> 35
Schedule D
BALLY TOTAL FITNESS HOLDING CORPORATION
SUMMARY OF OWNED LOCATIONS WITH MORTGAGES
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMPANY NAME/ SQUARE YEAR OPENED/ MORTGAGE INTEREST
CLUB ADDRESS FEET ACQUIRED MORTGAGOR BALANCE RATE
- --------------------------------- ------ ----------- ----------------- --------- --------
<S> <C> <C> <C> <C> <C>
Hilltop 745-02 80,000 1987 Boatman's Bank 2,239,910 9.00%
Bally Health & Racquet of Kansas
6600 East 87th Street
Kansas City, MO 64138
Glendale Heights 712-17 35,000 1989 Union Bank & Trust 226,056 9.25%
Chicago Health Clubs II
265 Army Trail Road
Bloomingdale, IL 60139
(includes parking)
Beachwood 819-20 41,520 1986 Ohio Savings Bank 1,626,271 10.25%
Scandinavian Health Spa
3600 Park East
Beachwood, OH 44122
Maple Heights 819-25 18,762 1987 Ohio Savings Bank 3,762,419 10.25%
Scandinavian Health Spa (Note 1)
5510 Warrensville Center Road
Maple Heights OH 44142
Willoughby 819-26 18,762 1987 Ohio Savings Bank (Note 1) 10.25%
Scandinavian Health Spa
5880 Som Center Road
Willoughby, OH 44094
Brook Park 819-27 18,762 1987 Ohio Savings Bank (Note 1) 10.25%
Scandinavian Health Spa
14571 Snow Road
Brook Park, OH 44142
Penn Hills, PA 15235
St. Louis Park 838-40 39,156 1986 Nat'l City Bank 187,952 9.00%
U.S. Swim & Fitness 331,672 9.00%
4900 Excelsior Blvd. 695,000 6.00%
St. Louis Park, MN 55416
<FN>
Notes:
(1) The mortgage balance for Maple Heights represents the total mortgage on three clubs: Maple Heights, Willoughby and Brookpark
</TABLE>
<PAGE> 36
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the Offering
Memorandum, to enter into and perform its obligations under the Purchase
Agreement, the Indenture, the Registration Rights Agreement, the DTC Agreement,
the Securities and the Tender Offer and to enter into and perform its
obligations constituting the Refinancing.
(iii) To our knowledge, the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Offering Memorandum in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent issuances
pursuant to the Stock Offering or pursuant to reservations, agreements, employee
benefit plans of the Company or the exercise of outstanding warrants, stock
options or convertible securities).
(v) Each Significant Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Offering Memorandum and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect; all of the
issued and outstanding capital stock of each Significant Subsidiary has been
duly authorized and validly issued, is fully paid and non-assessable and, except
at disclosed on Schedule C to the Purchase Agreement, to our knowledge, is owned
by the Company, directly or through one of its Subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or equity.
Except as set forth on Schedule C of the Purchase Agreement, there are no
outstanding rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, or agreements or understandings with respect to the
sale or issuance of other equity interest in any Significant Subsidiary.
A-1
<PAGE> 37
(vi) The Purchase Agreement has been duly authorized, executed and
delivered by the Company and (assuming the due authorization, execution and
delivery thereof by the Initial Purchasers) constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
(vii) The Registration Rights Agreement and the DTC Agreement have each
been duly authorized, executed and delivered by the Company and (assuming the
due authorization, execution and delivery thereof by the Initial Purchasers)
constitute a valid and binding agreement of the Company, enforceable against the
Company in accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other similar
laws relating to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).
(viii) The Indenture has been duly authorized, executed and delivered
by the Company and (assuming the due authorization, execution and delivery
thereof by the Trustee) constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
(ix) The Securities are in the form contemplated by the Indenture, have
been duly authorized by the Company and, when executed by the Company and
authenticated by the Trustee in the manner provided in the Indenture (assuming
the due authorization, execution and delivery of the Indenture by the Trustee)
and delivered against payment of the purchase price therefor will constitute
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium (including, without
limitation, all laws relating to fraudulent transfers), or other similar laws
relating to or affecting enforcement of creditor's rights generally, or by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law), and will be entitled to the benefits of the
Indenture.
(x) The Securities and the Indenture conform in all material respects
to the descriptions thereof contained in the Offering Memorandum.
(xi) To our knowledge and other than as described in the Offering
Memorandum, there is not pending or threatened any action, suit, proceeding,
inquiry or investigation, to which the
A-2
<PAGE> 38
Company or any of its Subsidiaries is a party, or to which, to our knowledge,
the property of the Company or any of its Subsidiaries is subject, before or
brought by any court or governmental agency or body, which might reasonably be
expected to result in a Material Adverse Effect, or which might reasonably be
expected to materially and adversely affect the properties or assets thereof or
the consummation of the transactions contemplated in the Purchase Agreement or
the performance by the Company of its obligations thereunder or under the
Securities or the transactions contemplated by the Offering Memorandum including
those making up the Refinancing;
(xii) The information in the Offering Memorandum under "Description of
the Notes," "Description of the Bank Credit Facility," and "Exchange Offer;
Registration Rights," to the extent that it constitutes matters of law,
summaries of legal matters or legal conclusions, has been reviewed by us and is
correct in all material respects.
(xiii) All descriptions in the Offering Memorandum of contracts and
other documents to which the Company or any of its Subsidiaries is a party are
accurate in all material respects; to our knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments to which the Company or any of its Subsidiaries is a party that
would be required to be described in the Offering Memorandum that are not
described in the Offering Memorandum, and the descriptions thereof or references
thereto are correct in all material respects.
(xiv) To our knowledge, neither the Company nor any of its Subsidiaries
is in violation of its charter or bylaws and, to our knowledge, no default by
the Company or any of its Subsidiaries exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described in the Offering Memorandum.
(xv) No authorization, approval, consent or order of any court or
governmental authority or agency, other than such as may be required under the
applicable securities laws of the various jurisdictions in which the Securities
will be offered or sold (as to which we express no opinion) is required on the
part of the Company in connection with the due authorization, execution and
delivery of the Purchase Agreement by the Company or the due execution, delivery
of the Indenture by the Company or for the offering, issuance, sale or delivery
of the Securities to the Initial Purchasers or the resale by the Initial
Purchasers in accordance with the Purchase Agreement.
(xvi) Assuming the accuracy of the representations and warranties of
the Initial Purchasers set forth in the Purchase Agreement, it is not necessary
in connection with the offer, sale and delivery of the Notes to the Initial
Purchasers in the manner contemplated by the Purchase Agreement and the Offering
Memorandum to register the Notes under the Securities Act or to qualify the
Indenture under the 1939 Act.
(xvii) The execution, delivery and performance of the Purchase
Agreement, the DTC Agreement, the Indenture and the Securities by the Company
and the consummation of the transactions contemplated in the Purchase Agreement
and in the Offering Memorandum (including
A-3
<PAGE> 39
the use of the proceeds from the sale of the Securities as described in the
Offering Memorandum under the caption "Use of Proceeds" and the other components
of the Refinancing) and compliance by the Company with its obligations under the
Purchase Agreement, the Indenture and the Securities will not, whether with or
without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in Section
1(a)(xv) of the Purchase Agreement) under or, except for security interests
created by the Bank Credit Facility, result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
its Subsidiaries pursuant to any material contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other material agreement or
instrument, known to us, to which the Company or any of its Subsidiaries is a
party or by which it or any of them may be bound, or to which, to our knowledge,
any of the property or assets of the Company or any of its Subsidiaries is
subject (except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect), nor will such
action result in any violation of the provisions of the charter or by-laws of
the Company or any Significant Subsidiary, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any Significant Subsidiary or any of their respective
properties, assets or operations.
(xviii) The Company is not an "investment company" or an entity
"controlled" by an investment company as such terms are defined in the 1940 Act.
In addition, although we have not undertaken to determine
independently, and do not assume any responsibility for, the accuracy or
completeness of the statements in the Offering Memorandum, we have participated
in conferences with officers and other representatives of the Company and
representatives of the independent public accountants of the Company and
representatives of the Initial Purchasers at which the contents of the Offering
Memorandum were discussed and we have reviewed certain other documents. Because
the primary purpose of our professional engagement was not to establish or
confirm factual matters or financial, accounting or statistical matters and
because of the wholly or partially non-legal character of many of the matters
and statements contained in the Offering Memorandum, we are not passing upon and
do not assume any responsibility for the accuracy, completeness or fairness of
such statement contained in the Offering Memorandum, and we make no
representation that we have independently verified the accuracy, completeness or
fairness of such statements. Without limiting the foregoing, we assume no
responsibility for, and have not independently verified, the accuracy,
completeness or fairness of the financial and statistical data included in or
excluded from the Offering Memorandum, and we have not examined the accounting,
financial or statistical records from which such financial statements, schedules
and data are derived. Although certain portions of the Offering Memorandum
(including financial statements) have been included therein on the authority of
"experts" within the meaning of the Securities Act, we are not such experts with
respect to any portion of the Offering Memorandum, including, without
limitation, such financial statements or schedules or the other financial or
statistical data included therein.
A-4
<PAGE> 40
On the basis of the foregoing, we confirm to you that no information
has come to our attention that would cause us to believe that the Final Offering
Memorandum, at the time such Offering Memorandum was issued or as of the date
hereof, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
A-5
<PAGE> 1
Exhibit 4.1
================================================================================
BALLY TOTAL FITNESS HOLDING CORPORATION
and
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
INDENTURE
---------
Dated as of October 7, 1997
$225,000,000
9-7/8% Senior Subordinated Notes due 2007
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
<S> <C> <C>
Section 1.1. Definitions....................................................................1
-----------
Section 1.2. Other Definitions.............................................................23
-----------------
Section 1.3. Compliance Certificates and Opinions..........................................24
------------------------------------
Section 1.4. Form of Documents Delivered to Trustee........................................25
--------------------------------------
Section 1.5. Acts of Holders...............................................................26
---------------
Section 1.6. Notices, etc., to Trustee and the Company.....................................26
-----------------------------------------
Section 1.7. Notice to Holders; Waiver.....................................................27
-------------------------
Section 1.8. Conflict with Trust Indenture Act.............................................27
---------------------------------
Section 1.9. Effect of Headings and Table of Contents......................................28
----------------------------------------
Section 1.10. Successors and Assigns........................................................28
----------------------
Section 1.11. Separability Clause...........................................................28
-------------------
Section 1.12. Benefits of Indenture.........................................................28
---------------------
Section 1.13. GOVERNING LAW.................................................................28
-------------
Section 1.14. Legal Holidays................................................................28
--------------
Section 1.15. Schedules.....................................................................29
---------
Section 1.16. Counterparts..................................................................29
------------
Section 1.17. No Recourse against Others....................................................29
--------------------------
ARTICLE II
SECURITY FORMS
Section 2.1. Forms Generally...............................................................29
---------------
Section 2.2. Form of Face of Security......................................................30
------------------------
Section 2.3. Form of Reverse of Securities.................................................45
-----------------------------
ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms...............................................................53
---------------
Section 3.2. Denominations.................................................................54
-------------
Section 3.3. Execution, Authentication, Delivery and Dating................................54
----------------------------------------------
Section 3.4. Temporary Securities..........................................................55
--------------------
Section 3.5. Registration, Registration of Transfer and Exchange...........................56
---------------------------------------------------
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 3.6. Book-Entry Provisions for Global Securities...................................58
-------------------------------------------
Section 3.7. Special Transfer Provisions...................................................59
---------------------------
Section 3.8. Mutilated, Destroyed, Lost and Stolen Securities..............................63
------------------------------------------------
Section 3.9. Payment of Interest; Interest Rights Preserved................................64
----------------------------------------------
Section 3.10. CUSIP Numbers.................................................................65
-------------
Section 3.11. Persons Deemed Owners.........................................................66
---------------------
Section 3.12. Cancellation..................................................................66
------------
Section 3.13. Computation of Interest.......................................................66
-----------------------
ARTICLE IV
DEFEASANCE AND COVENANT DEFEASANCE
Section 4.1. Company's Option to Effect Defeasance or Covenant Defeasance..................66
------------------------------------------------------------
Section 4.2. Defeasance and Discharge......................................................67
------------------------
Section 4.3. Covenant Defeasance...........................................................67
-------------------
Section 4.4. Conditions to Defeasance or Covenant Defeasance...............................68
-----------------------------------------------
Section 4.5. Deposited Money and U.S. Government Obligations to Be Held in Trust;
-------------------------------------------------------------------
Other Miscellaneous Provisions................................................70
------------------------------
Section 4.6. Reinstatement.................................................................71
ARTICLE V
REMEDIES
Section 5.1. Events of Default.............................................................71
-----------------
Section 5.2. Acceleration of Maturity; Rescission and Annulment............................73
--------------------------------------------------
Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee...............74
---------------------------------------------------------------
Section 5.4. Trustee May File Proofs of Claim..............................................75
--------------------------------
Section 5.5. Trustee May Enforce Claims without Possession of Securities...................76
-----------------------------------------------------------
Section 5.6. Application of Money Collected................................................76
------------------------------
Section 5.7. Limitation on Suits...........................................................76
-------------------
Section 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest.....77
-------------------------------------------------------------------------
Section 5.9. Restoration of Rights and Remedies............................................77
----------------------------------
Section 5.10. Rights and Remedies Cumulative................................................78
------------------------------
Section 5.11. Delay or Omission Not Waiver..................................................78
----------------------------
Section 5.12. Control by Holders............................................................78
------------------
Section 5.13. Waiver of Past Defaults.......................................................78
-----------------------
Section 5.14. Undertaking for Costs.........................................................79
---------------------
Section 5.15. Waiver of Stay, Extension or Usury Laws.......................................79
---------------------------------------
Section 5.16. Remedies Subject to Applicable Law............................................80
----------------------------------
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE VI
THE TRUSTEE
<S> <C>
Section 6.1. Duties of Trustee.............................................................80
-----------------
Section 6.2. Notice of Defaults............................................................81
------------------
Section 6.3. Certain Rights of Trustee.....................................................81
-------------------------
Section 6.4. Trustee Not Responsible for Recitals, Dispositions of Securities or
-------------------------------------------------------------------
Application of Proceeds Thereof...............................................83
-------------------------------
Section 6.5. Trustee and Agents May Hold Securities; Collections; etc......................83
--------------------------------------------------------
Section 6.6. Money Held in Trust...........................................................84
-------------------
Section 6.7. Compensation and Indemnification of Trustee and Its Prior Claim...............84
---------------------------------------------------------------
Section 6.8. Conflicting Interests.........................................................84
---------------------
Section 6.9. Trustee Eligibility...........................................................85
-------------------
Section 6.10. Resignation and Removal; Appointment of Successor Trustee.....................85
---------------------------------------------------------
Section 6.11. Acceptance of Appointment by Successor........................................87
--------------------------------------
Section 6.12. Merger, Conversion, Consolidation or Succession to Business...................87
-----------------------------------------------------------
Section 6.13. Preferential Collection of Claims Against Company.............................88
-------------------------------------------------
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.....................88
---------------------------------------------------------
Section 7.2. Disclosure of Names and Addresses of Holders..................................88
--------------------------------------------
Section 7.3. Reports by Trustee............................................................89
------------------
Section 7.4. Reports by Company............................................................89
------------------
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 8.1. Company May Merge, Consolidate, etc., Only on Certain Terms...................90
-----------------------------------------------------------
Section 8.2. Successor Substituted.........................................................91
---------------------
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures and Agreements without Consent of Holders.............92
-----------------------------------------------------------------
Section 9.2. Supplemental Indentures and Agreements with Consent of Holders................93
--------------------------------------------------------------
Section 9.3. Execution of Supplemental Indentures and Agreements...........................94
---------------------------------------------------
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 9.4. Effect of Supplemental Indentures.............................................94
---------------------------------
Section 9.5. Conformity with Trust Indenture Act...........................................94
-----------------------------------
Section 9.6. Reference in Securities to Supplemental Indentures............................94
--------------------------------------------------
Section 9.7. Notice of Supplemental Indentures.............................................95
---------------------------------
ARTICLE X
COVENANTS
Section 10.1. Payment of Principal, Premium and Interest....................................95
------------------------------------------
Section 10.2. Maintenance of Office or Agency...............................................95
-------------------------------
Section 10.3. Money for Security Payments to Be Held in Trust...............................96
-----------------------------------------------
Section 10.4. Corporate Existence...........................................................97
-------------------
Section 10.5. Payment of Taxes and Other Claims.............................................97
----------------------------------
Section 10.6. Maintenance of Properties.....................................................98
-------------------------
Section 10.7. Insurance.....................................................................98
---------
Section 10.8. Limitation on Indebtedness....................................................98
--------------------------
Section 10.9. Limitation on Restricted Payments.............................................99
---------------------------------
Section 10.10. Limitation on Transactions with Affiliates...................................102
------------------------------------------
Section 10.11. Limitation on Liens..........................................................103
-------------------
Section 10.12. Limitation on Sale of Assets.................................................104
-----------------------------
Section 10.13. Purchase of Securities upon a Change of Control..............................105
-----------------------------------------------
Section 10.14. Limitation on Preferred Stock of Subsidiaries................................109
---------------------------------------------
Section 10.14A.Limitation on Senior Subordinated Indebtedness...............................109
----------------------------------------------
Section 10.15. Limitation on Dividends and Other Payment Restrictions Affecting
----------------------------------------------------------------
Subsidiaries.................................................................109
------------
Section 10.16. Limitations on Unrestricted Subsidiaries.....................................110
----------------------------------------
Section 10.17. Provision of Financial Statements............................................111
---------------------------------
Section 10.18. Statement by Officers as to Default..........................................111
-----------------------------------
Section 10.19. Waiver of Certain Covenants..................................................112
---------------------------
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Rights of Redemption.........................................................112
--------------------
Section 11.2. Applicability of Article.....................................................113
------------------------
Section 11.3. Election to Redeem; Notice to Trustee........................................113
-------------------------------------
Section 11.4. Selection by Trustee of Securities to Be Redeemed............................113
-------------------------------------------------
Section 11.5. Notice of Redemption.........................................................113
--------------------
Section 11.6. Deposit of Redemption Price..................................................114
---------------------------
Section 11.7. Securities Payable on Redemption Date........................................115
-------------------------------------
Section 11.8. Securities Redeemed or Purchased in Part.....................................115
----------------------------------------
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
ARTICLE XII
SATISFACTION AND DISCHARGE
<S> <C> <C>
Section 12.1. Satisfaction and Discharge of Indenture......................................116
---------------------------------------
Section 12.2. Application of Trust Money...................................................117
--------------------------
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinate to Senior Indebtedness................................117
---------------------------------------------
Section 13.2. Payment Over of Proceeds Upon Dissolution, etc...............................118
----------------------------------------------
Section 13.3. Suspension of Payment When Designated Senior Indebtedness in Default.........119
--------------------------------------------------------------------
Section 13.4. Payment Permitted if No Default..............................................121
-------------------------------
Section 13.5. Subrogation to Rights of Holders of Senior Indebtedness......................121
-------------------------------------------------------
Section 13.6. Provisions Solely to Define Relative Rights..................................121
-------------------------------------------
Section 13.7. Trustee to Effectuate Subordination..........................................122
-----------------------------------
Section 13.8. No Waiver of Subordination Provisions........................................122
-------------------------------------
Section 13.9. Notice to Trustee............................................................123
-----------------
Section 13.10. Reliance on Judicial Orders or Certificates..................................124
-------------------------------------------
Section 13.11. Rights of Trustee as a Holder of Senior Indebtedness; Preservation of
---------------------------------------------------------------------
Trustee's Rights.............................................................124
----------------
Section 13.12. Article Applicable to Paying Agents..........................................124
-----------------------------------
Section 13.13. No Suspensions of Remedies...................................................125
--------------------------
Section 13.14. Trustee's Relation to Senior Indebtedness....................................125
-----------------------------------------
</TABLE>
v
<PAGE> 7
INDENTURE dated as of October 7, 1997 between BALLY TOTAL
FITNESS HOLDING CORPORATION, a Delaware corporation (as more fully defined
below, the "Company"), and FIRST TRUST NATIONAL ASSOCIATION, a national banking
association, as trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
9-7/8% Senior Subordinated Notes due 2007, Series A (the "Series A Securities"
or the "Initial Securities"), and an issue of 9-7/8% Senior Subordinated Notes
due 2007, Series B (the "Series B Securities" or the "Exchange Securities" and,
together with the Series A Securities, the "Securities"), of substantially the
tenor and amount hereinafter set forth, and to provide therefor, the Company has
duly authorized the execution and delivery of this Indenture and the Securities;
Upon the effectiveness of the Exchange Offer Registration
Statement or the Shelf Registration Statement (as defined herein), this
Indenture will be subject to, and shall be governed by, the provisions of the
Trust Indenture Act (as defined herein) that are required to be part of and to
govern indentures qualified under the Trust Indenture Act; and
All acts and things necessary have been done to make (i) the
Securities, when duly issued and executed by the Company and authenticated and
delivered hereunder, the valid obligations of the Company and (ii) this
Indenture a valid agreement of the Company in accordance with the terms of this
Indenture.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.
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For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
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(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(e) all references to $, US$, dollars or United States dollars
shall refer to the lawful currency of the United States of America;
(f) all references herein to particular Sections or Articles
refer to this Indenture unless otherwise so indicated; and
(g) the word "or" is not exclusive and the word "including"
means including without limitation.
The following terms shall have the meanings set forth in this
Section.
"Acquired Indebtedness" means Indebtedness of a Person (i)
existing at the time such Person becomes a Subsidiary or merges with or into the
Company or any Subsidiary, or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Indebtedness incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary or
such acquisition, as the case may be. Acquired Indebtedness shall be deemed to
be incurred on the date of the related acquisition of assets from any Person or
the date the acquired Person becomes a Subsidiary, as the case may be.
"Adjusted Consolidated Interest Expense" of any Person means,
without duplication, for any period, as applied to any Person, the sum of (a)
the interest expense of such Person and its Consolidated Subsidiaries (exclusive
of deferred financing fees and any premiums or penalties paid in connection with
redeeming or retiring any Indebtedness prior to its stated maturity) for such
period, on a Consolidated basis, including without limitation, (i) amortization
of debt discount, (ii) the net cost under interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation, and (iv) accrued interest, plus (b) (i) the interest component of
the Capital Lease Obligations paid, accrued and/or scheduled to be paid, or
accrued by such Person during such period, and (ii) all capitalized interest of
such Person and its Consolidated Subsidiaries, in each case as determined in
accordance with GAAP consistently applied.
"Affiliate" means, with respect to any specified Person: (i)
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with
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such specified Person; (ii) any other Person that owns, directly or indirectly,
10% or more of such specified Person's Capital Stock or beneficial equity
interest in such Person (if such Person is a real estate investment trust), or
any officer or director of any such specified Person or other Person or, with
respect to any natural Person, any person having a relationship with such Person
by blood, marriage or adoption not more remote than first cousin; or (iii) any
other Person 10% or more of the Voting Stock of which is beneficially owned or
held directly or indirectly by such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer,
lease or other disposition (including, without limitation, by way of merger,
consolidation or Sale and Leaseback Transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of: (i) any
Capital Stock of any Subsidiary; (ii) all or substantially all of the properties
and assets of any division or line of business of the Company or its
Subsidiaries; or (iii) any other properties or assets of the Company or any
Subsidiary, other than in the ordinary course of business. For the purposes of
this definition, the term "Asset Sale" shall not include any transfer of
properties and assets (A) that is governed by the provisions of Article VIII,
(B) that is by any Subsidiary to the Company or any Wholly Owned Subsidiary in
accordance with the terms of the Indenture, (C) that is of obsolete equipment or
other obsolete assets in the ordinary course of business, (D) that constitutes
the making of a Permitted Investment (other than pursuant to clause (v) of the
definition of "Permitted Investment"), (E) the Fair Market Value of which in the
aggregate does not exceed $1,000,000 in any transaction or series of related
transactions, (F) sales of accounts receivable and other transactions among the
Company and its Subsidiaries pursuant to the Securitization Facility, or (G)
Investments by the Company which comply with the terms of clause (ix) of the
definition of "Permitted Investments".
"Average Life to Stated Maturity" means, as of the date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from the date of
determination to the date or dates of each successive scheduled principal
payment of such Indebtedness multiplied by (b) the amount of each such principal
payment; by (ii) the sum of all such principal payments.
"Bank Credit Facility" means the third amended and restated
Credit Agreement, dated as of June 26, 1995, among the Company, the Banks and
The Chase Manhattan Bank, as agent, as such agreement, in whole or in part, may
be amended, renewed, extended, substituted, refinanced, restructured, replaced,
supplemented or otherwise modified from time to time (including, without
limitation, any successive renewals, extensions, substitutions, refinancings,
restructurings, replacements, supplementations or other modifications of the
foregoing).
"Bankruptcy Law" means Title 11, United States Bankruptcy
Code of 1978, as amended, or any similar United States federal or state law
relating to bankruptcy, insolvency,
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receivership, winding-up, liquidation, reorganization or relief of debtors or
any amendment to, succession to or change in any such law.
"Banks" means the lenders under the Bank Credit Facility.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of such board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Book-Entry Security" means any Security bearing the legend
specified in Section 2.2 evidencing all or part of a series of Securities,
authenticated and delivered to the Depositary for such series or its nominee,
and registered in the name of such depositary or nominee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in the City of New
York or the city in which the principal office of the Trustee is located are
authorized or obligated by law or executive order to close.
"Capital Lease Obligation" of any Person means any obligation
of such Person and its Subsidiaries on a Consolidated basis under any capital
lease of real or personal property which, in accordance with GAAP, has been
recorded as a capitalized lease obligation.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock or other equity interests whether now outstanding or
issued after the date of the Indenture.
"Cash Equivalents" means: (i) Temporary Cash Investments; (ii)
securities received by the Company or any Subsidiary from the transferee in an
Asset Sale that are promptly converted by the Company or such Subsidiary into
cash; (iii) the assumption of Indebtedness or other obligations or liabilities
of the Company or any Subsidiary in connection with an Asset Sale; and (iv) in
connection with an Asset Sale to a Person where the assets sold, issued,
conveyed, transferred, leased or otherwise disposed of are included in a
business which will be a party to the Franchise Program, the net present value
of payments by such Person pursuant to the Franchise Program as calculated and
certified by the chief financial officer of the Company.
"Change of Control" means the occurrence of any of the
following events: (i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have beneficial ownership of all shares that such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of
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time), directly or indirectly, of more than a majority of the total outstanding
Voting Stock of the Company; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (together with any new directors whose election to the Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of 66 2/3% of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved), cease for any reason to constitute a
majority of such Board of Directors then in office; (iii) the Company
consolidates with or merges with or into any Person or conveys, transfers or
leases all or substantially all of its assets to any Person, or any corporation
consolidates with or merges into or with the Company in any such event pursuant
to a transaction in which the outstanding Voting Stock of the Company is changed
into or exchanged for cash, securities or other property, other than any such
transaction where the outstanding Voting Stock of the Company is not changed or
exchanged at all (except to the extent necessary to reflect a change in the
jurisdiction of incorporation of the Company) or where (A) the outstanding
Voting Stock of the Company is changed into or exchanged for (x) Voting Stock of
the surviving corporation which is not Redeemable Capital Stock or (y) cash,
securities and other property (other than Capital Stock of the surviving
corporation) in an amount which could be paid by the Company as a Restricted
Payment as described in Section 10.9 (and such amount shall be treated as a
Restricted Payment subject to the provisions in the Indenture described in
Section 10.9) and (B) no "person" or "group" owns immediately after such
transaction, directly or indirectly, more than a majority of the total
outstanding Voting Stock of the surviving corporation; or (iv) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution other
than in a transaction which complies with the provisions described in Article
VIII.
"Company" means Bally Total Fitness Holding Corporation, a
corporation incorporated under the laws of Delaware, until a successor Person
shall have become such pursuant to the applicable provisions of the Indenture,
and thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by (i) any of its Chairman of the
Board, its Vice Chairman, its President or a Vice President (regardless of Vice
Presidential designation) or Treasurer, and (ii) any one of its Assistant
Treasurers, its Secretary or any Assistant Secretary, and delivered to the
Trustee, provided, however, that such request or order may be signed by any two
of the officers or directors listed in clause (i) above in lieu of being signed
by one of such officers or directors and one officer pursuant to clause (ii)
above.
"Consolidated Fixed Charge Coverage Ratio" of any Person
means, for any period, the ratio of EBITDA to the sum of Adjusted Consolidated
Interest Expense for such period and cash dividends paid on any Preferred Stock
of such Person during such period; provided that (i) in making such computation,
the Adjusted Consolidated Interest Expense attributable to interest on any
Indebtedness shall be computed on a pro forma basis and (A) where such
Indebtedness was outstanding during the period and bore a floating interest
rate, interest shall be computed as if the
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rate in effect on the date of computation had been the applicable rate for the
entire period, and (B) where such Indebtedness was not outstanding during the
period for which the computation is being made but which bears, at the option of
the Company, a fixed or floating rate of interest, shall be computed by applying
at the option of the Company, either the fixed or floating rates and (ii) in
making such computation, the Adjusted Consolidated Interest Expense of such
Person attributable to interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period.
"Consolidated Income Tax Expense"of any Person means, for any
period, the provision for federal, state, local and foreign income taxes of such
Person and its Consolidated Subsidiaries for such period as determined in
accordance with GAAP.
"Consolidated Net Income (Loss)" of any Person means, for any
period, the Consolidated net income (or loss) of such Person and its
Subsidiaries for such period on a Consolidated basis as determined in accordance
with GAAP, adjusted, to the extent included in calculating such net income (or
loss), by excluding, without duplication, (i) all extraordinary gains or losses
(exclusive of all fees and expenses relating thereto), (ii) the portion of net
income (or loss) of such Person and its Subsidiaries on a Consolidated basis
allocable to minority interests in unconsolidated Persons to the extent that
cash dividends or distributions have not actually been received by such Person
or one of its Subsidiaries, (iii) net income (or loss) of any Person combined
with such Person or any of its Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (iv) any gain or
loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (v) net gains (or losses) (except for all fees and expenses
relating thereto) in respect of dispositions of assets other than in the
ordinary course of business, (vi) the net income of any Subsidiary to the extent
that the declaration of dividends or similar distributions by that Subsidiary of
that income is not at the time permitted, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Subsidiary or
its stockholders, (vii) any gain arising from the acquisition of any securities,
or the extinguishment, under GAAP, of any Indebtedness of such Person, (viii)
transaction costs charged in connection with the Refinancing, or (ix)
amortization of intangible assets of such Person and its Subsidiaries on a
consolidated basis under GAAP.
"Consolidated Non-Cash Charges" of any Person means, for any
period, the aggregate depreciation, amortization and other non-cash charges of
such Person and its Subsidiaries on a Consolidated basis for such period, as
determined in accordance with GAAP (excluding any non-cash charge which requires
an accrual or reserve for cash charges for any future period).
"Consolidated Tangible Assets" means consolidated total assets
of the Company and its Subsidiaries as reported in the Company's Consolidated
balance sheet from time to time as required by Section 10.17 less (A) (i) any
asset which is treated as an intangible asset in
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conformity with GAAP (including, without limitation, leasehold rights, franchise
rights, non-compete agreements, goodwill, unamortized debt discounts, patents,
patent applications, trademarks, trade names, copyrights and licenses), and (ii)
any deferred charges determined in conformity with GAAP (including, without
limitation, deferred finance charges and deferred membership origination costs),
plus (B) any treasury stock.
"Consolidation" means, with respect to any Person, the
consolidation of the accounts of such Person and each of its Subsidiaries if and
to the extent the accounts of such Person and each of its Subsidiaries would
normally be consolidated with those of such Person, all in accordance with GAAP.
The term "Consolidated" shall have a similar meaning.
"Corporate Trust Office" means the office of the Trustee or an
affiliate or agent thereof at which at any particular time the corporate trust
business for the purposes of this Indenture shall be principally administered,
which office at the date of execution of this Indenture is located at 180 East
5th Street, St. Paul, Minnesota 55101, Attention: Corporate Finance.
"Credit Card Program Guarantee" means the obligation of the
Company to remit funds in excess of the sum of (a) $25,000,000 plus (b) a
reserve (of up to 25% of the amount owed to the Company by a member which
becomes an obligation due to the credit card issuer by such member) with respect
to the Company's credit card program pursuant to the Company's Credit Card
Program Agreement dated December 21, 1995, as such agreement, in whole or in
part, may be amended, renewed, extended, substituted, refinanced, restructured,
replaced, supplemented, or otherwise modified from time to time (including,
without limitation, any successive renewals, extensions, substitutions,
refinancings, restructurings, replacements, supplementations or other
modifications of the foregoing).
"Default" means any event which is, or after notice or passage
of any time or both would be, an Event of Default.
"Depositary" means, with respect to the Securities issued in
the form of one or more Book-Entry Securities, The Depository Trust Company
("DTC"), its nominees and successors, or another Person designated as Depositary
by the Company, which must be a clearing agency registered under the Exchange
Act.
"Designated Senior Indebtedness" means (i) all Senior
Indebtedness under, or in respect of, the Bank Credit Facility and the
Securitization Facility, and (ii) any other Senior Indebtedness which at the
time of determination, has an aggregate principal amount outstanding of at least
$15 million and is specifically designated in the instrument evidencing such
Senior Indebtedness or the Agreement under which such Senior Indebtedness arises
as "Designated Senior Indebtedness" by the Company.
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"Disinterested Director" means, with respect to any
transaction or series of related transactions, a member of the Board of
Directors who does not have any material direct or indirect financial interest
in or with respect to such transaction or series of related transactions.
"EBITDA" means the sum of Consolidated Net Income, Adjusted
Consolidated Interest Expense, Consolidated Income Tax Expense and Consolidated
Non-Cash Charges deducted in computing Consolidated Net Income, in each case,
for such period, of the Company and its Subsidiaries on a Consolidated basis,
all determined in accordance with GAAP consistently applied.
"Event of Default" has the meaning specified in Article V.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as amended, or any successor statute.
"Exchange Offer" means the exchange offer by the Company of
Series B Securities for Series A Securities to be effected pursuant to Section
2.1 of the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the registration
statement under the Securities Act contemplated by Section 2.1 of the
Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or
property, the sale value that would be obtained in an arm's-length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer under no compulsion to buy. Fair Market Value shall
be determined by the Board of Directors acting in good faith and shall be
evidenced by a resolution of the Board of Directors.
"Franchise Program" means the program under which the Company
and/or its Subsidiaries grant franchises to third parties which require
franchisees, among other things, to pay fees to the Company and/or its
Subsidiaries, and which, among other things, grants to the franchisee the right
to receive training from the Company or its Subsidiaries or sell memberships to
use facilities of the franchisee and the Company or its Subsidiaries. The
Franchise Program may include the conversion of facilities owned by the Company
or its Subsidiaries to franchise facilities and includes such a program as it
may be amended, renewed, extended, substituted, restructured, replaced,
supplemented or otherwise modified from time to time (including, without
limitation, any successive renewal, extension, substitution, restructuring,
replacement, supplementation or other modification of the foregoing).
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in the United States, consistently
applied, which are in effect on the date of this Indenture.
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"Global Securities" means one or more securities evidencing
all or a part of the Securities to be issued as Book-Entry Securities issued to
the Depositary in accordance with this Indenture.
"Guaranteed Debt" of any Person means, without duplication,
all Indebtedness of any other Person referred to in the definition of
"Indebtedness" contained in this Section guaranteed directly or indirectly in
any manner by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against loss,
(iii) to supply funds to, or in any other manner invest in, the debtor
(including any agreement to pay for property or services without requiring that
such property be received or such services be rendered), (iv) to maintain
working capital or equity capital of the debtor, or otherwise to maintain the
net worth, solvency or other financial condition of the debtor or (v) otherwise
to assure a creditor against loss; provided that the term "guarantee" shall not
include endorsements for collection or deposit, in either case in the ordinary
course of business or guarantees of operating leases.
"Holder" means a Person in whose name a Security is registered
in the Security Register.
"Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade payables
and other accrued current liabilities arising in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit issued under
letter of credit facilities, acceptance facilities or other similar facilities
and in connection with any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of such Person, or any warrants,
rights or options to acquire such Capital Stock, now or hereafter outstanding,
(ii) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade payables arising in the ordinary course
of business, (iv) all obligations under Interest Rate Agreements of such Person,
(v) all Capital Lease Obligations of such Person, (vi) all Indebtedness referred
to in clauses (i) through (v) above of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien, upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vii) all
Guaranteed Debt of such Person, (viii) all Redeemable Capital Stock issued by
such Person valued at the greater of its voluntary or
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involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
(ix) the Credit Card Program Guarantee, (x) indebtedness incurred by a real
estate investment trust in which the Company or any Subsidiary has invested
pursuant to clause (ix) of the definition of "Permitted Investments" and as to
which, in the event that the Company controls such trust, any of the Company or
any Subsidiary is directly or indirectly liable (by virtue of the Company or any
such Subsidiary being the primary obligor on, guarantor of, or otherwise liable
in respect to, such indebtedness), and (xi) any amendment, supplement,
modification, deferral, renewal, extension, refunding or refinancing of any
liability which constitutes Indebtedness of the types referred to in clauses (i)
through (ix) above. For purposes hereof, the "maximum fixed repurchase price" of
any Redeemable Capital Stock which does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Redeemable Capital Stock as
if such Redeemable Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the Fair Market Value of such
Redeemable Capital Stock, such Fair Market Value to be determined in good faith
by the board of directors of the issuer of such Redeemable Capital Stock.
"Indenture" means this instrument as originally executed
(including all exhibits and schedules thereto) and as it may from time to time
be supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company
and any other obligor on the Indenture or under the Securities to pay principal
of, premium, if any, and interest when due and payable, and all other amounts
due or to become due under or in connection with the Indenture, the Securities
and the performance of all other obligations to the Trustee and the holders
under the Indenture and the Securities, according to the terms thereof.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Chase Securities Inc., Societe Generale Securities
Corporation and Ladenburg Thalmann & Co. Inc.
"Initial Securities" has the meaning stated in the first
recital of this Indenture.
"Interest Payment Date" means the Stated Maturity of a regular
installment of interest on the Securities.
"Interest Rate Agreements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements) and/or other types of
interest rate hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or
indirectly, any advance, loan (including guarantees), or other extension of
credit or capital contribution (by means of any transfer of cash or other
property to others or any payment for property or services
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for the account or use of others), or any purchase, acquisition or ownership
(other than ownership obtained without making, or becoming liable, directly or
indirectly, contingent or otherwise, for the making of, any advance, loan (or
the forgiveness thereof), payment, extension of credit or capital contribution
in connection therewith), by such Person of any Capital Stock, bonds, notes,
debentures or other securities issued or owned by any other Person and all other
items that would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"Issue Date" means the date on which the Securities are
originally issued under this Indenture.
"Lien" means any mortgage or deed of trust, charge, pledge,
lien (statutory or otherwise), privilege, security interest, assignment,
deposit, arrangement, easement, hypothecation, claim, preference, priority or
other encumbrance upon or with respect to any property of any kind (including
any conditional sale, capital lease or other title retention agreement, any
leases in the nature thereof, and any agreement to give any security interest),
real or personal, movable or immovable, now owned or hereafter acquired.
"Maturity" means, when used with respect to any Security, the
date on which the principal of such Security becomes due and payable as therein
provided or as provided in the Indenture, whether at Stated Maturity, the Offer
Date, the Change of Control Purchase Date or the redemption date and whether by
declaration of acceleration, Offer in respect of Excess Proceeds, Change of
Control Offer in respect of a Change of Control, call for redemption or
otherwise.
"Moody's" means Moody's Investors Service, Inc. or any
successor rating agency.
"Net Cash Proceeds" means (a) with respect to any Asset Sale
by any Person, the proceeds thereof (without duplication in respect of all Asset
Sales) in the form of cash or Temporary Cash Investments including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed of for, cash or Temporary Cash Investments (except
to the extent that such obligations are financed or sold with recourse to the
Company or any Subsidiary) net of (i) brokerage commissions and other reasonable
fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a
result of such Asset Sale, (iii) payments made to retire Indebtedness where
payment of such Indebtedness is secured by the assets or properties the subject
of such Asset Sale, (iv) amounts required to be paid to any Person (other than
the Company or any Subsidiary) owning a beneficial interest in the assets
subject to the Asset Sale and (v) appropriate amounts to be provided by the
Company or any Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained by
the Company or any Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee, and (b)
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with respect to any issuance or sale of Capital Stock or options, warrants or
rights to purchase Capital Stock, or debt securities or Capital Stock that have
been converted into or exchanged for Capital Stock as referred to in Section
10.9, the proceeds of such issuance or sale in the form of cash or Temporary
Cash Investments including payments in respect of deferred payment obligations
when received in the form of, or stock or other assets when disposed of for,
cash or Temporary Cash Investments (except to the extent that such obligations
are financed or sold with recourse to the Company or any Subsidiary), net of
attorneys' fees, accountants' fees and brokerage, consultation, underwriting and
other fees and expenses actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Non-U.S. Person" means a Person that is not a "U.S. person"
as defined in Regulation S under the Securities Act.
"Non-U.S. Subsidiaries" means Subsidiaries organized under the
laws of jurisdictions other than the United States and the states and
territories thereof.
"Officers' Certificate" means a certificate signed by any of
(i) the Chairman of the Board, Vice Chairman, President or a Vice President
(regardless of Vice Presidential designation) or Treasurer, and (ii) by any one
of its Assistant Treasurers, its Secretary or any Assistant Secretary, of the
Company, and delivered to the Trustee, provided, however, that such certificate
may be signed by any two of the officers or directors listed in clause (i) above
in lieu of being signed by one of such officers or directors and one officer
pursuant to clause (ii) above.
"Opinion of Counsel" means a written opinion of qualified
legal counsel, who may be counsel for the Company or the Trustee, and who shall
be reasonably acceptable to the Trustee, including but not limited to an Opinion
of Independent Counsel.
"Opinion of Independent Counsel" means a written opinion by
qualified legal counsel who is not an employee or consultant of the Company and
who shall be reasonably acceptable to the Trustee.
"Outstanding" when used with respect to Securities means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such Securities;
provided, that if such Securities are to be redeemed, notice of such
redemption
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<PAGE> 19
has been duly given pursuant to this Indenture or provision therefor
reasonably satisfactory to the Trustee has been made;
(c) Securities, except to the extent provided in Sections 4.2
and 4.3, with respect to which the Company has effected defeasance or
covenant defeasance as provided in Article IV; and
(d) Securities in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to this
Indenture, other than any such Securities in respect of which there
shall have been presented to the Trustee and Company proof reasonably
satisfactory to each of them that such Securities are held by a bona
fide purchaser in whose hands the Securities are valid obligations of
the Company; PROVIDED, HOWEVER, that in determining whether the Holders
of the requisite principal amount of Outstanding Securities have given
any request, demand, authorization, direction, notice, consent or
waiver hereunder, Securities owned by the Company or any other obligor
on the Securities or any Affiliate of the Company or such other obligor
shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or
waiver, only Securities which the Trustee knows to be so owned shall be
so disregarded. Securities so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
reasonable satisfaction of the Trustee the pledgee's right so as to act
with respect to such Securities and that the pledgee is not the Company
or any other obligor on the Securities or any Affiliate of the Company
or such other obligor.
"Pari Passu Indebtedness" means any Indebtedness of the
Company that is pari passu in right of payment to the Securities.
"Paying Agent" means any Person authorized by the Company to
pay the principal of, premium, if any, or interest on any Securities on behalf
of the Company.
"Permitted Indebtedness" means:
(i) Indebtedness under the Bank Credit Facility in an
aggregate principal amount at any one time outstanding not to exceed
$70,000,000, minus any permanent reductions of the amount outstanding
under the Bank Credit Facility, which reduction is a result of the
application of Section 10.12;
(ii) Indebtedness under the Securitization Facility in an
aggregate amount not to exceed the greater of $160,000,000 or 80% of
the net book value of the consolidated accounts receivable of the
Company and its Subsidiaries, calculated in accordance with GAAP;
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<PAGE> 20
(iii) Indebtedness of the Company (a) represented by the
Securities, or (b) that is incurred, in any amount, and in whole or in
part, to (1) redeem all of the Securities outstanding as described
herein, or (2) effect a complete defeasance or a covenant defeasance
thereof as described herein; provided, in either case, that any
Indebtedness incurred under this subclause (b) is actually applied in
accordance with the applicable redemption or defeasance provision of
the Indenture;
(iv) Indebtedness of the Company outstanding on the date
hereof and listed on Schedule I;
(v) Indebtedness of the Company owing to a Subsidiary;
provided that any Indebtedness of the Company owing to a Subsidiary is
made pursuant to an intercompany note and is expressly subordinated in
right of payment to the payment and performance of the Company's
obligations under the Securities, and, upon an Event of Default, such
Indebtedness shall not be due and payable until such Event of Default
is cured, waived or rescinded; provided, further, that any disposition,
pledge or transfer of any such Indebtedness to a Person (other than a
disposition, pledge or transfer to a Subsidiary) shall be deemed to be
an incurrence of such Indebtedness by the Company not permitted by this
clause (v);
(vi) obligations of the Company entered into in the ordinary
course of business pursuant to Interest Rate Agreements designed to
protect the Company against fluctuations in interest rates in respect
of Indebtedness of the Company as long as such obligations do not
exceed the aggregate principal amount of such Indebtedness then
outstanding;
(vii) Indebtedness of the Company represented by Capital Lease
Obligations or Purchase Money Obligations or other Indebtedness
incurred or assumed in connection with the acquisition, improvement or
development of real or personal, movable or immovable, property in each
case incurred for the purpose of financing or refinancing all or any
part of the purchase price or cost of construction or improvement of
property used in the business of the Company and any refinancings of
such Indebtedness made in accordance with subclauses (a), (b) and (c)
of clause (xi) below, in an aggregate principal amount pursuant to this
clause (vii) not to exceed $25,000,000 outstanding at any time;
provided that the principal amount of any Indebtedness permitted under
this clause (vii) did not in each case at the time of incurrence exceed
the cost of the acquired or constructed asset or improvement so
financed;
(viii) Indebtedness of the Company in respect of performance
bonds, surety bonds and replevin bonds provided by the Company in the
ordinary course of business;
(ix) other Indebtedness of the Company that does not exceed
$50,000,000 in the aggregate at any one time outstanding;
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<PAGE> 21
(x) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or other financial instrument
drawn against insufficient funds in the ordinary course of business,
provided that such Indebtedness is extinguished within four Business
Days of its incurrence; and
(xi) any renewals, extensions, substitutions, refundings,
refinancings or replacements (collectively, a "refinancing") of any
Indebtedness described in clauses (iv) and (v) of this definition of
"Permitted Indebtedness", including any successive refinancings (a) so
long as the borrower under such refinancing is the Company or, if not
the Company, the same as the borrower of the Indebtedness being
refinanced, (b) the aggregate principal amount of Indebtedness
represented thereby as of the date hereof is not increased by such
refinancing by an amount greater than the lesser of (I) the stated
amount of any premium or other payment required to be paid in
connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced or (II) the amount of premium or other
payment actually paid at such time to refinance the Indebtedness, plus,
in either case, the amount of expenses of the Company incurred in
connection with such refinancing, and (c) (A) in the case of any
refinancing of Indebtedness that is Subordinated Indebtedness, such new
Indebtedness is made subordinated to the Securities at least to the
same extent as the Indebtedness being refinanced and (B) in the case of
Pari Passu Indebtedness or Subordinated Indebtedness, as the case may
be, such refinancing does not reduce the Average Life to Stated
Maturity or the Stated Maturity of such Indebtedness.
"Permitted Investment" means: (i) Investments in any
Subsidiary or any Person which, as a result of such Investment, (a) becomes a
Subsidiary or (b) is merged or consolidated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or any Subsidiary; (ii) Indebtedness of the Company described under clause (v)
of the definition of "Permitted Indebtedness"; (iii) Investments in any of the
Securities; (iv) Temporary Cash Investments; (v) Investments acquired by the
Company or any Subsidiary in connection with an Asset Sale permitted under
Section 10.12 to the extent such Investments are non-cash proceeds as permitted
under such covenant; (vi) Investments in existence on the date of the Indenture;
(vii) Investments in the aggregate amount of $5,000,000 to purchase Capital
Stock of any Subsidiary; (viii) any advance, loan (including guarantees) or
other extension of credit to any Person who purchases or acquires assets of the
Company or any Subsidiaries which are to be included in a business which will be
or is a party to the Franchise Program, limited to the purchase or acquisition
price of such assets; (ix) a one-time contribution of real property
independently valued at not more than $10,000,000 to a real estate investment
trust which is an Affiliate of the Company and additional contributions (and/or
the non-cash component of sales in a situation where less than 75% of the
consideration was received in cash or Cash Equivalents) to such trust of real
property independently valued, which in the aggregate at the time of each
additional contribution, together with all previous additional contributions, do
not have a value in excess of 3% of the Company's Consolidated Tangible Assets
as of the end of the next immediately preceding fiscal year; and (x) any other
Investments in joint ventures, partnerships, real estate
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<PAGE> 22
investment trusts or other Persons reasonably related or complementary to the
business of the Company on the date hereof in an aggregate amount not greater
than $25,000,000 at any one time outstanding. In connection with any assets or
property contributed or transferred to any Person as an Investment, such
property and assets shall be equal to the Fair Market Value (as determined by
the Board of Directors) at the time of Investment.
"Permitted Subsidiary Indebtedness" means:
(i) Indebtedness of a Subsidiary owing to the Company or
another Subsidiary; provided that such Indebtedness is made pursuant to
an intercompany note, and, upon an Event of Default, all amounts owing
pursuant to such Indebtedness are immediately due and payable; and
provided, further, that (a) any disposition, pledge or transfer of any
such Indebtedness to a Person (other than the Company or a Subsidiary)
shall be an incurrence of such Indebtedness by the obligor not within
the definition of "Permitted Subsidiary Indebtedness" pursuant to this
clause (i), and (b) any transaction pursuant to which any Subsidiary
ceases to be a Subsidiary shall be deemed to be the incurrence of
Indebtedness by such Subsidiary that is not within the definition of
"Permitted Subsidiary Indebtedness" pursuant to this clause (i);
(ii) Indebtedness of a Subsidiary represented by Indebtedness
which would be permitted by clause (iv), (vi), (vii), (viii), (ix), (x)
or (xi) of the definition of "Permitted Indebtedness" if incurred by
the Company;
(iii) Acquired Indebtedness of a Subsidiary that would be
permitted to be incurred by the Company if such Acquired Indebtedness
were being incurred by the Company;
(iv) Indebtedness of a Subsidiary under the Securitization
Facility;
(v) guarantees of Senior Indebtedness of the Company; and
(vi) guarantees of Indebtedness of Affiliates provided that
the Investment in such Affiliate complies with the limitation on
Restricted Payments covenant of the Indenture or constitutes a
Permitted Investment.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 3.8 in exchange for a
mutilated Security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed, or stolen
Security.
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<PAGE> 23
"Preferred Stock" means, with respect to any Person, any
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over the Capital Stock of any other class in such Person.
"Prospectus" means the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any portion
of the Series A Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Public Equity Offering" means any underwritten public
offering of Capital Stock (other than Redeemable Capital Stock) pursuant to a
registration statement that has been declared effective by the SEC (other than a
registration statement on Form S-8 or any successor form or otherwise relating
to equity securities issuable under any employee benefit plan of the Company).
"Purchase Money Obligation" means any Indebtedness secured by
a Lien on assets related to the business of the Company and its Subsidiaries and
any additions and accessions thereto, which are purchased at any time after the
Securities are issued; provided that (i) the security agreement or conditional
sales or other title retention contract pursuant to which the Lien on such
assets is created (collectively a "Purchase Money Security Agreement") shall be
entered into within 120 days after the purchase or substantial completion of the
construction of such assets and shall at all times be confined solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom, (ii) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby, be increased, except in connection
with the purchase of additions and accession thereto and except in respect of
fees and other obligations in respect of such Indebtedness, and (iii) (A) the
aggregate outstanding principal amount of Indebtedness secured thereby
(determined on a per asset basis in the case of any additions and accessions)
shall not at the time such Purchase Money Security Agreement is entered into
exceed 100% of the purchase price to the Company and its Subsidiaries of the
assets subject thereto, or (B) the Indebtedness secured thereby shall be with
recourse solely to the assets so purchased or acquired, any additions and
accessions thereto and any proceeds therefrom.
"QIB" or "Qualified Institutional Buyer" means a qualified
institution buyer under Rule 144A of the Securities Act.
"Qualified Capital Stock" of any Person means any and all
Capital Stock of such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that,
either by its terms or by the terms of any security into which it is convertible
or exchangeable or otherwise, is or upon the happening of any event or passage
of time would be, required to be redeemed prior to any
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<PAGE> 24
Stated Maturity of the principal of the Securities or is redeemable at the
option of the holder thereof at any time prior to any such Stated Maturity, or
is convertible into or exchangeable for debt securities at any time prior to any
such Stated Maturity at the option of the holder thereof.
"Redemption Date" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the date fixed for
such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to
be redeemed pursuant to any provision in this Indenture means the price at which
it is to be redeemed pursuant to this Indenture.
"Refinancing" means (i) the offering and sale of the Notes
pursuant to the Indenture, (ii) the modification of the Bank Credit Facility,
and (iii) the consummation of the tender offer by the Company for its 13% Notes
outstanding prior to the Issue Date.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of October 7, 1997, among the Company and the Initial
Purchasers.
"Registration Statement" means any registration statement of
the Company which covers any of the Series A Securities or Series B Securities
pursuant to the provisions of the Registration Rights Agreement, and all
amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Regular Record Date" for the interest payable on any Interest
Payment Date means April 1 or October 1, as the case may be (whether or not a
Business Day), immediately preceding such Interest Payment Date.
"Responsible Officer" when used with respect to the Trustee
means any officer assigned to the Corporate Trust Office of the Trustee or any
agent of the Trustee appointed hereunder, including the chairman or vice
chairman of the board of directors or the executive committee of the board of
directors, the president, any vice president, any assistant vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust officer,
the controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers or
any other officer appointed hereunder to whom any corporate trust matter is
referred because of his or her knowledge of and familiarity with the particular
subject.
"S&P" means Standard and Poor's Corporation or any successor
rating agency.
"Sale and Leaseback Transaction" means any transaction or
series of related transactions pursuant to which the Company or a Subsidiary
sells or transfers any property or
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<PAGE> 25
asset in connection with the leasing, or the resale against installment
payments, of such property or asset to the seller or transferor.
"SEC" means the United States Securities and Exchange
Commission, as from time to time constituted, created under the Exchange Act, or
if, at any time after the execution of the Indenture, the SEC is not existing
and performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Securities" has the meaning specified in the first recital of
this Indenture.
"Securities Act" means the United States Securities Act of
1933, as amended, or any successor statute.
"Securitization Facility" means the asset-backed securities
issued by the H&T Master Trust on December 13, 1996 in the aggregate principal
amount of $160,000,000, as such facility in whole or in part, may be amended,
renewed, extended, substituted, refinanced, restructured, replaced (including,
without limitation, with bank financing secured by receivables), supplemented or
otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancing, restructurings,
replacements, supplementations or other modifications of the foregoing).
"Senior Indebtedness" means the principal of, premium (if any)
and interest (including interest accruing after the filing of a petition
initiating any proceeding under any state, federal or foreign Bankruptcy Law
whether or not allowable as a claim in such proceeding) and all other monetary
obligations on any Indebtedness of the Company (other than as otherwise provided
in this definition), whether outstanding on the date hereof or thereafter
created, incurred or assumed, and whether at any time owing, actually or
contingently, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Securities. Without limiting the generality of the foregoing,
Senior Indebtedness shall include principal, premium (if any) and interest
(including interest accruing after the filing of a petition initiating any
proceedings under any state, federal or foreign Bankruptcy Laws whether or not
allowable as a claim in such proceeding) and all other monetary obligations of
every kind and nature of the Company from time to time owed under the Bank
Credit Facility or under the Securitization Facility; provided, however, that
any Indebtedness under any refinancing, refunding or replacement of the Bank
Credit Facility or the Securitization Facility shall not constitute Senior
Indebtedness to the extent the Indebtedness thereunder is by its express terms
subordinate to any other Indebtedness of the Company. Notwithstanding the
foregoing, "Senior Indebtedness" shall not include (i) Indebtedness evidenced by
the Securities, (ii) Indebtedness that is by its terms subordinate or junior in
right of payment to any Indebtedness of the Company, (iii) Indebtedness which,
when incurred and without respect to any election under Section 1111(b) of title
11 United States Code, is without recourse to the Company, (iv) Indebtedness
which is represented by Redeemable Capital Stock, (v) any liability for foreign,
federal, state, local or other tax owed or
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<PAGE> 26
owing by the Company to the extent such liability constitutes Indebtedness, (vi)
Indebtedness of the Company to a Subsidiary or any other Affiliate of the
Company or any of such Affiliate's subsidiaries, and (vii) that portion of any
Indebtedness which at the time of issuance is issued in violation of this
Indenture.
"Senior Representative" means the agent, indenture trustee or
other trustee or representative for any Senior Indebtedness.
"Series A Security" has the meaning stated in the first
recital of this Indenture.
"Series B Security" has the meaning stated in the first
recital of this Indenture.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to Section 2.2 of the Registration Rights
Agreement, which covers all of the Registrable Securities (as defined in the
Registration Rights Agreement) on an appropriate form under Rule 415 under the
Securities Act, or any similar rule that may be adopted by the SEC, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Significant Subsidiary" means any Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 3.9.
"Stated Maturity" when used with respect to any Indebtedness
or any installment of interest thereon means the dates specified in such
Indebtedness as the fixed date on which the principal of such Indebtedness or
such installment of interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company
which is by its terms expressly subordinated in right of payment to the
Securities.
"Subsidiary" means any Person, a majority of the equity
ownership or the Voting Stock of which is at the time owned, directly or
indirectly, by the Company or by one or more other Subsidiaries, or by the
Company and one or more other Subsidiaries; provided that (i) any Unrestricted
Subsidiary shall not be deemed a Subsidiary under the Indenture and (ii) any
real estate investment trust in which the Company or any Subsidiary has invested
pursuant to clause (ix) of the definition of "Permitted Investment" shall not be
deemed a Subsidiary under this Indenture.
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<PAGE> 27
"Temporary Cash Investments" means (i) any evidence of
Indebtedness, maturing not more than one year after the date of acquisition,
issued by the United States of America, or an instrumentality or agency thereof,
and guaranteed fully as to principal, premium, if any, and interest by the
United States of America, (ii) any certificate of deposit (or, with respect to
non-U.S. banking institutions, similar instruments) maturing not more than one
year after the date of acquisition, issued by, or time deposit of, a commercial
banking institution that is a member of the Federal Reserve System or a
commercial banking institution organized and located in a country recognized by
the United States of America, in each case, that has combined capital and
surplus and undivided profits of not less than $500,000,000 (or the foreign
currency equivalent thereof), whose debt has a rating, at the time as of which
any investment therein is made, of "P-1" (or higher) according to Moody's
Investors Service, Inc. ("Moody's") or any successor rating agency or "A-1" (or
higher) according to Standard & Poor's Rating Group, a division of McGraw Hill,
Inc. ("S&P") or any successor rating agency, (iii) commercial paper, maturing
not more than one year after the date of acquisition, issued by a corporation
(other than an Affiliate or Subsidiary of the Company) organized and existing
under the laws of the United States of America with a rating, at the time as of
which any investment therein is made, of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to S&P, (iv) any money market deposit accounts or
demand deposit accounts issued or offered by a domestic commercial bank or a
commercial banking institution organized and located in a country recognized by
the United States of America, in each case having capital and surplus in excess
of $500,000,000 (or the foreign currency equivalent thereof); provided that the
short-term debt of such commercial bank has a rating, at the time of Investment,
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P,
and (v) any other Investments, that at any one time do not exceed $100,000 in
the aggregate, issued or offered by any domestic commercial bank or any
commercial banking institution organized and located in a country recognized by
the United States of America.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended, or any successor statute. References to sections of the Trust
Indenture Act include successor statute sections dealing with the same subject.
"13% Notes" means the Senior Subordinated Notes Due 2003 of
the Company.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that exists on the Issue Date and is so designated as an Unrestricted
Subsidiary on a schedule attached to the Indenture, (ii) any subsidiary of the
Company that at the time of determination shall be an Unrestricted Subsidiary
(as designated by the Board of Directors, as provided below), and (iii) any
subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any subsidiary of the Company (including any newly acquired or newly formed
subsidiary) to be an
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<PAGE> 28
Unrestricted Subsidiary if all of the following conditions apply: (a) neither
the Company nor any of its Subsidiaries provides credit support for Indebtedness
of such Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness), (b) such Unrestricted Subsidiary is
not liable, directly or indirectly, with respect to any Indebtedness other than
Unrestricted Subsidiary Indebtedness or the Bank Credit Facility, (c) any
Investment by the Company in such Unrestricted Subsidiary made as a result of
designating such subsidiary an Unrestricted Subsidiary shall not violate the
provisions described under Section 10.16 and such Unrestricted Subsidiary is not
party to any agreement, contract, arrangement or understanding at such time with
the Company or any other subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such other subsidiary than those that might be obtained at the time
from Persons who are not Affiliates of the Company or, in the event such
condition is not satisfied, the value of such agreement, contract, arrangement
or understanding to such Unrestricted Subsidiary shall be deemed an Investment,
and (d) such Unrestricted Subsidiary does not own any Capital Stock in any
subsidiary of the Company which is not simultaneously being designated an
Unrestricted Subsidiary. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complies with the foregoing conditions and any Investment by the
Company in such Unrestricted Subsidiary shall be deemed a Restricted Payment on
the date of designation in an amount equal to the greater of (1) the net book
value of such Investment or (2) the Fair Market Value of such Investment as
determined in good faith by the Board of Directors. The Board of Directors may
designate any Unrestricted Subsidiary as a Subsidiary; provided (i) that if such
Unrestricted Subsidiary has any Indebtedness, that immediately after giving
effect to such designation, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness or Permitted Subsidiary
Indebtedness) pursuant to the restrictions under Section 10.18, and (ii) that
all Indebtedness of such Subsidiary shall be deemed to be incurred on the date
such Unrestricted Subsidiary becomes a Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted
Subsidiary means Indebtedness of such Unrestricted Subsidiary (a) as to which
neither the Company nor any Subsidiary is directly or indirectly liable (by
virtue of the Company or any such Subsidiary being the primary obligor on,
guarantor of, or otherwise liable in any respect to, such Indebtedness), and (b)
which, upon the occurrence of a default with respect thereto, does not result
in, or permit any holder of any Indebtedness of the Company or any Subsidiary to
declare, a default on such Indebtedness of the Company or any Subsidiary or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity.
"Voting Stock" means Capital Stock of the class or classes
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of a corporation (irrespective of whether or not at the
time Capital Stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
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<PAGE> 29
"Wholly-Owned Subsidiary" means a Subsidiary all the Capital
Stock of which (other than qualifying shares, if any) is owned by the Company or
another Wholly-Owned Subsidiary.
Section 1.2. Other Definitions.
-----------------
Defined in
Term Section
---- ----------
"Act" 1.5
"Agent Members" 3.6
"Change of Control Offer" 10.13
"Change of Control Purchase Date" 10.13
"Change of Control Purchase Notice" 10.13
"Change of Control Purchase Price" 10.13
"covenant defeasance" 4.3
"Defaulted Interest" 3.9
"defeasance" 4.2
"Defeasance Redemption Date" 4.4
"Defeased Securities" 4.1
"Excess Proceeds" 10.12
"Global Securities" 2.1
"incur" 10.8
"Incurrence Date" 10.8
"Initial Period" 13.3
"Non-Global Purchasers 2.1
"Non-payment Default" 13.3
"Offer" 10.12
"Offer Date" 10.12
"Offered Price" 10.12
"Offshore Global Security" 2.1
"Offshore Securities Exchange Date" 2.1
"Pari Passu Debt Amount" 10.12
"Payment Blockage Period" 13.3
"Payment Default" 13.3
"Pari Passu Offer" 10.12
"Permanent Offshore Physical Securities" 2.1
"Permitted Junior Securities" 13.2
"Permitted Payment" 10.9
"Physical Securities" 3.6
"Private Placement Legend" 2.2
"refinancing" 10.9
"Regulation S" 2.1
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<PAGE> 30
"Required Filing Dates" 10.17
"Restricted Payments" 10.9
"Rule 144A" 2.1
"Security Amount" 10.12
"Security Register" 3.5
"Security Registrar" 3.5
"Special Payment Date" 3.9
"Surviving Entity" 8.1
"U.S. Global Security" 2.1
"U.S. Government Obligations" 4.4
"U.S. Physical Securities 2.1
Section 1.3. Compliance Certificates and Opinions.
-------------------------------------
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company and each
other obligor on the Securities shall furnish to the Trustee an Officers'
Certificate in a form and substance reasonably acceptable to the Trustee stating
that all conditions precedent, if any, provided for in this Indenture (including
any covenant compliance which constitutes a condition precedent) relating to the
proposed action have been complied with and an Opinion of Counsel in a form and
substance reasonably acceptable to the Trustee stating that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that, in the case of any such application or request as to which the
furnishing of any certificates and/or opinions is specifically required by any
provision of this Indenture, relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(a) a statement to the effect that each individual or firm
signing such certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement to the effect that, in the opinion of each
such individual or such firm, he has made such examination or investigation as
is necessary to enable him or them to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual or such firm, such condition or covenant has been complied with.
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<PAGE> 31
Section 1.4. Form of Documents Delivered to Trustee.
---------------------------------------
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to such matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company or
other obligor on the Securities may be based, insofar as it relates to legal
matters, upon a certificate or opinion of, or representations by, counsel,
unless such officer knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to the matters
upon which his certificate or opinion is based are erroneous. Any certificate or
opinion of such an officer or of counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company or other obligor on the Securities with
respect to such factual matters and which contains a statement to the effect
that the information with respect to such factual matters is in the possession
of the Company or other obligor on the Securities, unless such officer or
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous. Opinions of Counsel required to be delivered to the Trustee may have
qualifications customary for opinions of the type required, and counsel
delivering such Opinions of Counsel may rely on certificates of the Company or
government or other officials customary for opinions of the type required,
including certificates certifying as to matters of fact, including that various
financial covenants have been complied with.
Any certificate or opinion of an officer of the Company or
other obligor on the Securities may be based, insofar as it relates to
accounting matters, upon a certificate or opinion of, or representations by, an
accountant or firm of accountants in the employ of the Company, unless such
officer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the accounting matters
upon which his certificate or opinion may be based are erroneous. Any
certificate or opinion of any independent firm of public accountants filed with
the Trustee shall contain a statement that such firm is independent with respect
to the Company.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
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Section 1.5. Acts of Holders.
----------------
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The ownership of Securities shall be proved by the
Security Register.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other Act by the Holder of any Security shall bind every
future Holder of the same Security or the Holder of every Security issued upon
the transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, suffered or omitted to be done by the Trustee, any Paying Agent
or the Company or any other obligor on the Securities in reliance thereon,
whether or not notation of such action is made upon such Security.
(d) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
Section 1.6. Notices, etc., to Trustee and the Company.
------------------------------------------
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company or any other
obligor on the Securities shall be sufficient for every purpose hereunder if
made, given, furnished or filed, in writing, by first-class mail postage prepaid
(return receipt requested) or delivered in person or by recognized overnight
courier to or with the Trustee at its Corporate Trust Office, Attention:
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<PAGE> 33
Corporate Trust Administration or at any other address furnished in writing
prior thereto to the Holders, the Company or any other obligor on the Securities
by the Trustee; or
(b) the Company shall be sufficient for every purpose (except
as provided in Section 5.1(c)) hereunder if made, given, furnished or filed, in
writing, by first-class mail postage prepaid (return receipt requested) or
delivered in person or by recognized overnight courier, to or with the Company
addressed to it at 8700 West Bryn Mawr Avenue, Chicago, Illinois 60633,
Attention: Chief Financial Officer, or at any other address previously furnished
in writing to the Trustee by the Company.
Section 1.7. Notice to Holders; Waiver.
--------------------------
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at such Holder's address as it appears in
the Security Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice, nor
any defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice when mailed
to a Holder in the aforesaid manner shall be conclusively deemed to have been
received by such Holder whether or not actually received by such Holder. Where
this Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause, it shall be impracticable to mail notice of any
event as required by any provision of this Indenture, then any method of giving
such notice as shall be reasonably satisfactory to the Trustee shall be deemed
to be a sufficient giving of such notice.
Section 1.8. Conflict with Trust Indenture Act.
----------------------------------
If and to the extent that any provision hereof limits,
qualifies or conflicts with any provision of the Trust Indenture Act or another
provision which is required or deemed to be included in this Indenture by any of
the provisions of the Trust Indenture Act, the provision or requirement of the
Trust Indenture Act shall control. If any provision of this Indenture modifies
or excludes any provision of the Trust Indenture Act that may be so modified or
excluded, such provision of the Trust Indenture Act shall be deemed to apply to
this Indenture as so modified or to be excluded, as the case may be.
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<PAGE> 34
Section 1.9. Effect of Headings and Table of Contents.
-----------------------------------------
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
Section 1.10. Successors and Assigns.
-----------------------
All covenants and agreements in this Indenture by the Company
and any other obligor on the Securities shall bind their successors and assigns,
whether so expressed or not.
Section 1.11. Separability Clause.
--------------------
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 1.12. Benefits of Indenture.
----------------------
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person (other than the parties hereto and their
successors hereunder, any Paying Agent, the Holders and the holders of Senior
Indebetedness) any benefit or any legal or equitable right, remedy or claim
under this Indenture.
Section 1.13. GOVERNING LAW.
--------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF).
Section 1.14. Legal Holidays.
---------------
In any case where any Interest Payment Date, Redemption Date,
Maturity or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date, or at
Maturity or the Stated Maturity, and no interest shall accrue with respect to
such payment for the period from and after such Interest Payment Date,
Redemption Date, Maturity or Stated Maturity, as the case may be, to the next
succeeding Business Day.
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Section 1.15. Schedules.
----------
All schedules attached hereto are by this reference made a
part with the same effect as if herein set forth in full.
Section 1.16. Counterparts.
-------------
This Indenture may be executed in any number of counterparts,
each of which shall be an original; but such counterparts shall together
constitute but one and the same instrument.
Section 1.17. No Recourse against Others.
---------------------------
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Securities or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder by accepting any of
the Securities waives and releases all such liability. Such waiver may not be
effective to waive liabilities under federal securities laws and it is the view
of the SEC that such a waiver is against public policy.
ARTICLE II
SECURITY FORMS
Section 2.1. Forms Generally.
----------------
The Securities and the Trustee's certificate of authentication
thereon shall be in substantially the forms set forth in this Article II, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted hereby and may have such letters, numbers or other
marks of identification and such legends or endorsements placed thereon as may
be required to comply with the rules of any securities exchange, any
organizational document or governing instrument or applicable law or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities. Any portion of the text of
any Security may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
Initial Securities offered and sold in reliance on Rule 144A
under the Securities Act ("Rule 144A") shall be issued initially in the form of
one or more permanent global Securities
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<PAGE> 36
substantially in the form set forth in Section 2.2 (the "U.S. Global Security")
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the U.S. Global Security may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, as hereinafter provided.
Initial Securities held by QIBs who elect to take physical
delivery of their certificates instead of holding their interest through the
U.S. Global Security (collectively, the "Non-Global Purchasers"), will be in
registered form without interest coupons (the "U.S. Physical Securities"). Upon
the transfer of U.S. Physical Securities, which were initially issued to a Non-
Global Purchaser, to a QIB, such U.S. Physical Securities will, unless the
transferee requests otherwise or the U.S. Global Security has previously been
exchanged in whole for U.S. Physical Securities, be exchanged for an interest in
the U.S. Global Security.
Initial Securities offered and sold in reliance on Regulation
S under the Securities Act ("Regulation S") shall be issued initially in the
form of a global note certificate substantially in the form set forth in Section
2.2 (the "Offshore Global Security" and, together with the U.S. Global Security,
the "Global Securities"). The Offshore Global Security will be deposited with
the Trustee, as custodian for the Depositary, and will be registered in the name
of the Depositary until the later of the completion of the distribution of the
Initial Securities and the termination of the "restricted period" (as defined in
Regulation S) with respect to the offer and sale of the Initial Securities (the
"Offshore Securities Exchange Date"). Prior to the Offshore Securities Exchange
Date, transfers of beneficial interests in the Offshore Global Security can only
be effected through the Depositary in accordance with the requirements of
Section 3.7 hereof. At any time following the Offshore Securities Exchange Date
(but in no event before such date), upon receipt by the Trustee and the Company
of a certificate substantially in the form of Exhibit A hereto, the Company
shall execute, and the Trustee shall authenticate and deliver, one or more
permanent certificated Securities in registered form substantially in the form
set forth in Section 2.2 (the "Permanent Offshore Physical Securities"), in
exchange for the surrender of a Holder's beneficial ownership interest in the
Offshore Global Security of like tenor and amount.
Section 2.2. Form of Face of Security.
-------------------------
(a) The form of the face of any Series A Securities
authenticated and delivered hereunder shall be substantially as follows:
Unless and until (i) an Initial Security is sold under an
effective Registration Statement or (ii) an Initial Security is exchanged for a
Series B Security in connection with an effective Registration Statement, in
each case pursuant to the Registration Rights Agreement, then (A) the U.S.
Global Security and each U.S. Physical Security shall bear the legend set forth
below (the "Private Placement Legend") on the face thereof and (B) the Offshore
Global Security and each Permanent Offshore Physical Security shall bear the
Private Placement Legend on the face thereof until at least 41 days after the
Issue Date.
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<PAGE> 37
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS SET FORTH
BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) OR (B) IT
IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN
"ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION PURSUANT TO
RULE 903 OR 904 OF REGULATION S, (2) AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS
TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF
AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A INSIDE THE UNITED
STATES, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A, (D) OUTSIDE THE UNITED
STATES PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS IN AN
OFFSHORE TRANSACTION WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT, (E) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPHS (A)(1), (A)(2), (A)(3) OR (A)(7) OF RULE 501
UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR
ITS OWN
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<PAGE> 38
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S
AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (I) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE. AS USED HEREIN, THE TERMS "UNITED STATES," "OFFSHORE
TRANSACTION," AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
[Each global security, whether or not an initial security,
shall also bear the following legend on the face thereof:]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A
SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES
OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTIONS 3.6 AND 3.7 OF THE
INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A
NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
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<PAGE> 39
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
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<PAGE> 40
BALLY TOTAL FITNESS HOLDING CORPORATION
--------------------
9-7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
CUSIP NO. __________
No. ________________ $___________________
Bally Total Fitness Holding Corporation, a Delaware
corporation (herein called the "Company," which term includes any successor
Person under the Indenture hereinafter referred to), for value received, hereby
promises to pay to or registered assigns, the principal sum of ______ United
States dollars on October 15, 2007, at the office or agency of the Company
referred to below, and to pay interest thereon from October 7, 1997, or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, semiannually on April 15 and October 15 in each year, commencing
April 15, 1998 at the rate of 9-7/8% per annum, subject to adjustments as
described in the second following paragraph, in United States dollars, until the
principal hereof is paid or duly provided for. Interest shall be computed on the
basis of a 360-day year comprised of twelve 30-day months.
The Holder of this Series A Security is entitled to the
benefits of the Registration Rights Agreement (the "Registration Rights
Agreement") among the Company and the Initial Purchasers, dated October 7, 1997,
pursuant to which, subject to the terms and conditions thereof, the Company is
obligated to consummate the Exchange Offer pursuant to which the Holder of this
Security shall have the right to exchange this Security for the Company's 9-7/8%
Senior Subordinated Notes due 2007, Series B (herein called the "Series B
Securities") in like principal amount as provided therein. The Series A
Securities and the Series B Securities are together referred to as the
"Securities." The Series A Securities rank pari passu in right of payment with
the Series B Securities.
In the event that (a) the Exchange Offer Registration
Statement is not filed with the SEC on or prior to the 30th day following the
date of original issue of the Series A Securities, (b) the Exchange Offer
Registration Statement has not been declared effective on or prior to the 90th
day following the date of original issue of the Series A Securities, or (c) the
Exchange Offer is not consummated on or prior to the 120th day following the
date of original issue of the Series A Securities or a Shelf Registration
Statement is not declared effective on or prior to the 120th day following the
date of original issue of the Series A Securities (or, if a Shelf Registration
Statement is required to be filed because of the request by any Initial
Purchaser, 30 days following the request by any such Initial Purchaser that the
Company file the Shelf Registration Statement) (each such event referred to in
clauses (a) through (c) above, a "Registration Default"), the interest rate
borne by the Series A Securities (except in the case of clause (c), in which
case only the Series A Securities which have not been exchanged in the Exchange
Offer) shall be increased by an amount equal to one-quarter of one percent
(0.25%) per annum upon the occurrence of any
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<PAGE> 41
Registration Default, which rate (as increased as aforesaid) will increase by an
additional one quarter of one percent (0.25%) each 90-day period that such
additional interest continues to accrue under any such circumstance, with an
aggregate maximum increase in the interest rate equal to one percent (1%) per
annum. Following the cure of all Registration Defaults the accrual of additional
interest will cease and the interest rate will revert to the original rate.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Security (or any Predecessor Security) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the April 1 or October 1 (whether or not a Business
Day), as the case may be, immediately preceding such Interest Payment Date. Any
such interest not so punctually paid, or duly provided for, and interest on such
defaulted interest at the interest rate borne by the Series A Securities, to the
extent lawful, shall forthwith cease to be payable to the Holder on such Regular
Record Date, and may either be paid to the Person in whose name this Security
(or any Predecessor Security) is registered at the close of business on a
Special Record Date for the payment of such defaulted interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture.
Payment of the principal of, premium, if any, and interest on,
this Security, and exchange or transfer of the Security, will be made at the
office or agency of the Company in The City of New York maintained for that
purpose (which initially will be the Corporate Trust Office of the Trustee), or
at such other office or agency as may be maintained for such purpose, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the address of the Person entitled thereto as such address shall appear on the
Security Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Security shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by the manual or facsimile signature of its authorized officers
and its corporate seal to be affixed or reproduced hereon.
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<PAGE> 42
BALLY TOTAL FITNESS HOLDING CORPORATION
By:
--------------------------------
Title:
-----------------------------
Attest:
- ---------------------------
Authorized Officer
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<PAGE> 43
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 9-7/8% Senior Subordinated Notes due 2007,
Series A referred to in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By:
--------------------------
Authorized Signer
Dated:
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<PAGE> 44
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company
pursuant to Section 10.12 or Section 10.13, as applicable, of the Indenture,
check the Box: [ ].
If you wish to have a portion of this Security purchased by
the Company pursuant to Section 10.12 or Section 10.13 as applicable, of the
Indenture, state the amount (in original principal amount): $_________________
Date:_______________ Your Signature:____________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:_______________________________
[Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Securities Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Securities Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act.]
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<PAGE> 45
(b) The form of the face of any Series B Securities
authenticated and delivered hereunder shall be substantially as follows:
[Each global security, whether or not an initial security,
shall also bear the following legend on the face thereof:]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A
SUCCESSOR DEPOSITORY. TRANSFERS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES
OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTIONS 3.6 AND 3.7 OF THE
INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A
NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
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<PAGE> 46
BALLY TOTAL FITNESS HOLDING CORPORATION
---------------------
9-7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
CUSIP NO. __________
No. ________________ $___________________
Bally Total Fitness Holding Corporation, a Delaware
corporation (herein called the "Company," which term includes any successor
Person under the Indenture hereinafter referred to), for value received, hereby
promises to pay to _____________ or registered assigns, the principal sum of
______ United States dollars on October 15, 2007, at the office or agency of the
Company referred to below, and to pay interest thereon from October 7, 1997, or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semiannually on April 15 and October 15 in each year,
commencing April 15, 1998 at the rate of 9-7/8% per annum, in United States
dollars, until the principal hereof is paid or duly provided for; provided that
to the extent interest has not been paid or duly provided for with respect to
the Series A Security exchanged for this Series B Security, interest on this
Series B Security shall accrue from the most recent Interest Payment Date to
which interest on the Series A Security which was exchanged for this Series B
Security has been paid or duly provided for. Interest shall be computed on the
basis of a 360-day year comprised of twelve 30-day months.
This Series B Security was issued pursuant to the Exchange
Offer pursuant to which the Company's 9-7/8% Senior Subordinated Notes due 2007,
Series A (herein called the "Series A Securities") in like principal amount were
exchanged for the Series B Securities. The Series B Securities rank pari passu
in right of payment with the Series A Securities.
In addition, for any period in which the Series A Security
exchanged for this Series B Security was outstanding, in the event that (a) the
Exchange Offer Registration Statement was not filed with the SEC on or prior to
the 30th day following the date of original issue of the Series A Security, (b)
the Exchange Offer Registration Statement was not declared effective on or prior
to the 90th day following the date of original issue of the Series A Security,
or (c) the Exchange Offer was not consummated on or prior to the 120th day
following the date of original issue of the Series A Security or a Shelf
Registration Statement was not declared effective on or prior to the 120th day
following the date of original issue of the Series A Security (or, a Shelf
Registration Statement was required to be filed 30 days following a request by
an Initial Purchaser) (each such event referred to in clauses (a) through (c)
above, a "Registration Default"), the interest rate borne by the Series A
Securities (except in the case of clause (c), in which case only the Series A
Securities which have not been exchanged in the Exchange Offer) was increased by
one-quarter of one percent (0.25%) per annum upon the occurrence of the
Registration Default, which rate (as increased as aforesaid) will increase by an
additional one-quarter of one percent (0.25%) each 90-day period that such
additional interest continues to accrue under any such circumstance, with an
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<PAGE> 47
aggregate maximum increase in the interest rate equal to one percent (1%) per
annum. Following the cure of all Registration Defaults the accrual of additional
interest will cease and the interest rate will revert to the original rate;
provided that, to the extent interest at such increased interest rate has been
paid or duly provided for with respect to the Series A Security, interest at
such increased interest rate, if any, on this Series B Security shall accrue
from the most recent Interest Payment Date to which such interest on the Series
A Security has been paid or duly provided for; provided, however, that, if after
any such reduction in interest rate, a different event specified in clause (a),
(b) or (c) above occurs, the interest rate shall again be increased pursuant to
the foregoing provisions.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Security (or any Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the April 1 or October 1 (whether or not a Business
Day), as the case may be, immediately preceding such Interest Payment Date. Any
such interest not so punctually paid, or duly provided for, and interest on such
defaulted interest at the interest rate borne by the Series B Securities, to the
extent lawful, shall forthwith cease to be payable to the Holder on such Regular
Record Date, and may either be paid to the Person in whose name this Security
(or any Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such defaulted interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture.
Payment of the principal of, premium, if any, and interest on,
this Security, and exchange or transfer of the Security, will be made at the
office or agency of the Company in The City of New York maintained for such
purpose (which initially will be the Corporate Trust Office of the Trustee), or
at such other office or agency as may be maintained for such purpose, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the address of the Person entitled thereto as such address shall appear on the
Security Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Security shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
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<PAGE> 48
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by the manual or facsimile signature of its authorized officers
and its corporate seal to be affixed or reproduced hereon.
BALLY TOTAL FITNESS HOLDING CORPORATION
By:
--------------------------------
Title:
----------------------------
Attest:
- --------------------------
Authorized Officer
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<PAGE> 49
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 9-7/8% Senior Subordinated Notes due 2007,
Series B referred to in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By:
-------------------------------
Authorized Signer
Dated:
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<PAGE> 50
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company
pursuant to Section 10.12 or Section 10.13, as applicable, of the Indenture,
check the Box: [ ]
If you wish to have a portion of this Security purchased by
the Company pursuant to Section 10.12 or Section 10.13 as applicable, of the
Indenture, state the amount (in original principal amount): $___________
Date:____________ Your Signature:__________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:________________________________
[Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Securities Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Securities Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act.]
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<PAGE> 51
Section 2.3. Form of Reverse of Securities.
------------------------------
(a) The form of the reverse of the Series A Securities shall
be substantially as follows:
BALLY TOTAL FITNESS HOLDING CORPORATION
9-7/8% Senior Subordinated Notes due 2007, Series A
This Security is one of a duly authorized issue of Securities
of the Company designated as its 9-7/8% Senior Subordinated Notes due 2007,
Series A (herein called the "Securities"), limited (except as otherwise provided
in the Indenture referred to below) in aggregate principal amount limited to
$225,000,000, issued under and subject to the terms of an indenture (herein
called the "Indenture") dated as of October 7, 1997, between the Company and
First Trust National Association, as trustee (herein called the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the Securities, and of
the terms upon which the Securities are, and are to be, authenticated and
delivered.
The Indenture contains provisions for defeasance at any time
of (a) the entire Indebtedness on the Securities and (b) certain restrictive
covenants and related defaults and Events of Default, in each case upon
compliance with certain conditions set forth therein.
The Securities are subject to redemption at any time on or
after October 15, 2002, at the option of the Company, in whole or in part, on
not less than 30 nor more than 60 days' prior notice to the Holders by
first-class mail, in amounts of $1,000 or an integral multiple thereof, at the
following redemption prices (expressed as percentages of the principal amount),
if redeemed during the 12-month period beginning on October 15, of the years
indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002....................................... 104.938%
2003....................................... 103.292%
2004....................................... 101.646%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant Regular Record Dates or Special Record
Dates to receive interest due on an Interest Payment Date).
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<PAGE> 52
If less than all of the Securities or Series B Securities are
to be redeemed, the Trustee shall select the Securities and Series B Securities
or portions thereof to be redeemed pro rata, by lot or by any other method the
Trustee shall deem fair and reasonable
Upon the occurrence of a Change of Control, each Holder may
require the Company to purchase such Holder's Securities in whole or in part in
integral multiples of $1,000, at a purchase price in cash in an amount equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase, pursuant to a Change of Control Offer in accordance
with the procedures set forth in the Indenture.
In addition, at any time on or prior to October 15, 2000, the
Company may, at its option, use the net proceeds of one or more Public Equity
Offerings to redeem up to an aggregate of 35% of the aggregate principal amount
of Securities originally issued under the Indenture at a redemption price equal
to 109.875% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Redemption Date; provided that at least
$146,250,000 aggregate principal amount of Securities and Series B Securities
remains outstanding immediately after the occurrence of such redemption. In
order to effect the foregoing redemption, the Company must mail a notice of
redemption no later than 60 days after the related Public Equity Offering and
must consummate such redemption within 90 days of the closing of the Public
Equity Offering.
Under certain circumstances, in the event the Net Cash
Proceeds received by the Company from any Asset Sale (which proceeds are not
used to permanently repay any Senior Indebtedness or invested in properties or
other assets that replace the properties and assets that were the subject of the
Asset Sale or which will be used in the businesses of the Company or its
Subsidiaries existing on the date of the Indenture or in businesses reasonably
related or complementary thereto) exceeds a specified amount, the Company will
be required to set aside such proceeds in a separate account pending an offer by
the Company to apply such proceeds to the repayment of the Securities and
certain Indebtedness ranking pari passu in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
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<PAGE> 53
If an Event of Default shall occur and be continuing, the
principal amount of all the Securities may be declared due and payable in the
manner and with the effect provided in the Indenture. The Securities are not
entitled to the benefit of any sinking fund.
The Indenture permits, with certain exceptions (including
certain amendments permitted without the consent of any Holders) as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders under the Indenture and
the Securities at any time by the Company and the Trustee with the consent of
the Holders of a specified percentage in aggregate principal amount of the
Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Securities and Series B Securities at the time Outstanding, on behalf of the
Holders of all the Securities and Series B Securities, to waive compliance by
the Company with certain provisions of the Indenture and the Securities and
certain past Defaults under the Indenture and their consequences. Any such
consent or waiver by or on behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
wavier is made upon this Security.
The Securities are subordinated in right of payment, in the
manner and to the extent set forth in the Indenture, to the prior payment in
full in cash or Cash Equivalents or, as acceptable to the holders of Senior
Indebtedness, in any other manner, of all Senior Indebtedness of the Company
whether outstanding on the date hereof or thereafter created, incurred, assumed
or guaranteed. Each Holder by his acceptance hereof agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on his behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustees his
attorney-in-fact for such purpose.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the Company
or any other obligor on the Securities (in the event such other obligor is
obligated to make payments in respect of the Securities), which is absolute and
unconditional, to pay the principal of, premium, if any, and interest on, this
Security at the times, place, and rate, and in the coin or currency, herein
prescribed.
If this Series A Security is in certificated form, then as
provided in the Indenture and subject to certain limitations therein set forth,
the transfer of this Security is registrable on the Security Register of the
Company, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for such purpose in The City of New
York or at such other office or agency of the Company as may be maintained for
such purpose, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or its attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations
-47-
<PAGE> 54
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
If this Series A Security is in certificated form, then as
provided in the Indenture and subject to certain limitations therein set forth,
the Holder, provided it is a Qualified Institutional Buyer, may exchange this
Series A Security for a Book-Entry Security by instructing the Trustee (by
completing the Transferee Certificate in the form in Appendix I) to arrange for
such Series A Security to be represented by a beneficial interest in a Global
Security in accordance with the customary procedures of the Depository unless
the Company has elected not to issue a Global Security.
If this Series A Security is a Global Security, it is
exchangeable for a Series A Security in certificated form as provided in the
Indenture and in accordance with the rules and procedures of the Trustee and the
Depositary. In addition, certificated securities shall be transferred to all
beneficial holders in exchange for their beneficial interests in a Global
Security if (x) the Depository notifies the Company that it is unwilling or
unable to continue as depository for a Global Security and a successor
depositary is not appointed by the Company within 90 days or (y) there shall
have occurred and be continuing an Event of Default and the Security Registrar
has received a request from the Depositary. Upon any such issuance, the Trustee
is required to register such certificated Series A Securities in the name of,
and cause the same to be delivered to, such Person or Persons (or the nominee of
any thereof). All such certificated Series A Securities would be required to
include the Private Placement Legend.
Series A Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series A Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
At any time when the Company is not subject to Sections 13 or
15(d) of the Exchange Act, upon the written request of a Holder of a Series A
Security, the Company will promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities Act
(or any successor provision thereto) to such Holder or to a prospective
purchaser of such Series A Security who such Holder informs the Company is
reasonably believed to be a "Qualified Institutional Buyer" within the meaning
of Rule 144A under the Securities Act, as the case may be, in order to permit
compliance by such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
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<PAGE> 55
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security is overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF).
All terms used in this Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
[The Transferee Certificate, in the form of Appendix I hereto,
will be attached to the Series A Security.]
(b) The form of the reverse of the Series B Securities shall
be substantially as follows:
BALLY TOTAL FITNESS HOLDING CORPORATION
9-7/8% Senior Subordinated Notes due 2007, Series B
This Security is one of a duly authorized issue of Securities
of the Company designated as its 9-7/8% Senior Subordinated Notes due 2007,
Series B (herein called the "Securities"), limited (except as otherwise provided
in the Indenture referred to below) in aggregate principal amount limited to
$225,000,000, issued under and subject to the terms of an indenture (herein
called the "Indenture") dated as of October 7, 1997, between the Company and
First Trust National Association, as trustee (herein called the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the Securities, and of
the terms upon which the Securities are, and are to be, authenticated and
delivered.
The Indenture contains provisions for defeasance at any time
of (a) the entire Indebtedness on the Securities and (b) certain restrictive
covenants and related Defaults and Events of Default, in each case upon
compliance with certain conditions set forth therein.
The Securities are subject to redemption at any time on or
after October 15, 2002, at the option of the Company, in whole or in part, on
not less than 30 nor more than 60 days' prior notice to the Holders by
first-class mail, in amounts of $1,000 or an integral multiple
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<PAGE> 56
thereof, at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning October 15
of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002...................................... 104.938%
2003...................................... 103.292%
2004...................................... 101.646%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant Regular Record Dates or Special Record
Dates to receive interest due on an Interest Payment Date).
If less than all of the Securities or Series A Securities are
to be redeemed, the Trustee shall select the Securities and Series A Securities
or portions thereof to be redeemed pro rata, by lot or by any other method the
Trustee shall deem fair and reasonable.
Upon the occurrence of a Change of Control, each Holder may
require the Company to purchase such Holder's Securities in whole or in part in
integral multiples of $1,000, at a purchase price in cash in an amount equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase, pursuant to a Change of Control Offer and in accordance
with the procedures set forth in the Indenture.
In addition, at any time on or prior to October 15, 2000, the
Company may, at its option, use the net proceeds of one or more Public Equity
Offerings to redeem up to an aggregate of 35% of the aggregate principal amount
of Securities originally issued under the Indenture at a redemption price equal
to 109.875% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Redemption Date; provided that at least
$146,250,000 aggregate principal amount of Securities and Series A Securities
remains outstanding immediately after the occurrence of such redemption. In
order to effect the foregoing redemption, the Company must mail a notice of
redemption no later than 60 days after the related Public Equity Offering and
must consummate such redemption within 90 days of the closing of the Public
Equity Offering.
Under certain circumstances, in the event the Net Cash
Proceeds received by the Company from any Asset Sale (which proceeds are not
used to permanently repay any Senior Indebtedness or invested in properties or
other assets that replace the properties and assets that were the subject of the
Asset Sale or which will be used in the businesses of the Company or its
Subsidiaries existing on the date of the Indenture or in businesses reasonably
related or complementary thereto) exceeds a specified amount, the Company will
be required to set aside such proceeds in a separate account pending an offer by
the Company to apply such proceeds to
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<PAGE> 57
the repayment of the Securities and certain Indebtedness ranking pari passu in
right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal amount of all the Securities may be declared due and payable in the
manner and with the effect provided in the Indenture. The Securities are not
entitled to the benefit of any sinking fund.
The Indenture permits, with certain exceptions (including
certain amendments permitted without the consent of any Holders) as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders under the Indenture and
the Securities at any time by the Company and the Trustee with the consent of
the Holders of a specified percentage in aggregate principal amount of the
Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Securities and Series A Securities at the time Outstanding, on behalf of the
Holders of all the Securities and Series A Securities, to waive compliance by
the Company with certain provisions of the Indenture and the Securities and
certain past Defaults under the Indenture and their consequences. Any such
consent or waiver by or on behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security.
The Securities are subordinated in right of payment, in the manner and
to the extent set forth in the Indenture, to the prior payment in full in cash
or Cash Equivalents or, as acceptable to the holders of Senior Indebtedness, in
any other manner, of all Senior Indebtedness of the Company whether outstanding
on the date hereof or thereafter created, incurred, assumed or guaranteed. Each
Holder by his acceptance hereof agrees to be bound by such provisions and
authorizes and expressly directs the Trustee, on his behalf, to take such action
as may be necessary or appropriate to effectuate the subordination provided for
in the Indenture and appoints the Trustee his attorney-in-fact for such purpose.
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<PAGE> 58
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company or any
other obligor on the Securities (in the event such other obligor is obligated to
make payments in respect of the Securities), which is absolute and
unconditional, to pay the principal of, and premium, if any, and interest on,
this Security at the times, place, and rate, and in the coin or currency, herein
prescribed.
If this Series B Security is in certificated form, then as
provided in the Indenture and subject to certain limitations therein set forth,
the transfer of this Series B Security is registrable on the Security Register
of the Company, upon surrender of this Series B Security for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York or at such other office or agency of the Company as may be
maintained for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or its attorney duly authorized in
writing, and thereupon one or more new Series B Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
If this Series B Security is a U.S. Global Security, it is
exchangeable for a Series B Security in certificated form as provided in the
Indenture and in accordance with the rules and procedures of the Trustee and the
Depositary. In addition, certificated securities shall be transferred to all
beneficial holders in exchange for their beneficial interests in the U.S. Global
Security if (x) the Depository notifies the Company that it is unwilling or
unable to continue as depository for the U.S. Global Security and a successor
depositary is not appointed by the Company within 90 days or (y) there shall
have occurred and be continuing an Event of Default and the Security Registrar
has received a request from the Depositary. Upon any such issuance, the Trustee
is required to register such certificated Series B Securities in the name of,
and cause the same to be delivered to, such Person or Persons (or the nominee of
any thereof).
Series B Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series B Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security is overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
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THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF).
All terms used in this Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
[The Transferee Certificate, in the form of Appendix II
hereto, will be attached to the Series B Security.]
ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms.
----------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $225,000,000 in
principal amount of Securities, except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities pursuant to Section 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 9.6, 10.12,
10.13 or 11.8.
The Securities shall be known and designated as the "9-7/8%
Senior Subordinated Notes due 2007" of the Company. The Stated Maturity of the
Securities shall be October 15, 2007, and the Securities shall each bear
interest at the rate of 9-7/8% per annum, as such interest rate may be adjusted
as set forth in the Securities, from October 7, 1997, or from the most recent
Interest Payment Date to which interest has been paid, payable semiannually on
April 15 and October 15 in each year, commencing April 15, 1998, until the
principal thereof is paid or duly provided for. Interest on any overdue
principal, interest (to the extent lawful) or premium, if any, shall be payable
on demand.
The principal of, premium, if any, and interest on, the
Securities shall be payable and the Securities will be exchangeable and
transferable at an office or agency of the Company in The City of New York
maintained for such purposes (which initially will be the Corporate Trust Office
of the Trustee) or at such other office or agency as may be maintained for such
purpose; provided, however, that payment of interest may be made at the option
of the Company by check mailed to addresses of the Person entitled thereto as
such addresses shall appear on the Security Register.
For all purposes hereunder, the Series A Securities and the
Series B Securities will be treated as one class and are together referred to as
the "Securities." The Series A Securities rank pari passu in right of payment
with the Series B Securities.
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The Securities shall be subject to repurchase by the Company
pursuant to an Offer as provided in Section 10.12.
Holders shall have the right to require the Company to
purchase their Securities, in whole or in part, in the event of a Change of
Control pursuant to Section 10.13.
The Securities shall not be entitled to the benefits of any
sinking fund,
The Securities shall be redeemable as provided in Article XI
and in the Securities.
At the election of the Company, the entire Indebtedness on the
Securities or certain of the Company's obligations and covenants and certain
Events of Default thereunder may be defeased as provided in Article IV.
Section 3.2. Denominations.
--------------
The Securities shall be issuable only in fully registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
Section 3.3. Execution, Authentication, Delivery and Dating.
-----------------------------------------------
The Securities shall be executed on behalf of the Company by
one of its Chairman of the Board, its President, its Chief Executive Officer,
its Chief Financial Officer or one of its Vice Presidents and attested by its
Secretary or one of its Assistant Secretaries. The signatures of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and make available for delivery such
Securities as provided in this Indenture and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein duly executed by the Trustee by manual signature of
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one of its duly authorized signataries, and such certificate upon any Security
shall be conclusive evidence, and the only evidence, that such Security has been
duly authenticated and delivered hereunder and is entitled to the benefits of
this Indenture.
In case the Company or any of its Subsidiaries, pursuant to
Article VIII, shall, in a single transaction or through a series of related
transactions, be consolidated or merged with or into any other Person or shall
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person, and the successor
Person resulting from such consolidation or surviving such merger, or into which
the Company shall have been merged, or the successor Person which shall have
participated in the sale, assignment, conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article VIII, any of the Securities authenticated
or delivered prior to such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposition may, from time to time, at the request of
the successor Person, be exchanged for other Securities executed in the name of
the successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section 3.3 in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such new name.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities on behalf of the Trustee. Unless limited
by the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Security Registrar or Paying
Agent to deal with the Company and its Affiliates.
If an officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates such Security such Security
shall be valid nevertheless.
Section 3.4. Temporary Securities.
---------------------
Pending the preparation of definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities which are printed, lithographed,
typewritten or otherwise produced, in any authorized denomination, substantially
of the tenor of the definitive Securities in lieu of which they are issued and
with such appropriate insertions, omissions, substitutions and other variations
as the officers executing such Securities may determine, as conclusively
evidenced by their execution of such Securities.
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If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 10.2, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee shall authenticate and make available for delivery in exchange
therefor a like principal amount of definitive Securities of authorized
denominations. Until so exchanged the temporary Securities shall in all respects
be entitled to the same benefits under this Indenture as definitive Securities.
Section 3.5. Registration, Registration of Transfer and
------------------------------------------
Exchange.
- ---------
The Company shall cause the Trustee to keep, so long as it is
the Security Registrar, at the Corporate Trust Office of the Trustee, or such
other office as the Trustee may designate, a register (the register maintained
in such office or in any other office or agency designated pursuant to Section
10.2 being herein sometimes referred to as the "Security Register") in which,
subject to such reasonable regulations as the Security Registrar may prescribe,
the Company shall provide for the registration of Securities and of transfers of
Securities. The Trustee shall initially be the "Security Registrar" for the
purpose of registering Securities and transfers of Securities as herein
provided. The Company may change the Security Registrar or appoint one or more
co-Security Registrars without notice.
Upon surrender for registration of transfer of any Security at
the office or agency of the Company designated pursuant to Section 10.2, the
Company shall execute, and the Trustee shall authenticate and make available for
delivery, in the name of the designated transferee or transferees, one or more
new Securities of the same series of any authorized denomination or
denominations, of a like aggregate principal amount.
Furthermore, any Holder of the U.S. Global Security or the
Offshore Global Security shall, by acceptance of either such Global Security,
agree that transfers of beneficial interests in such Global Security may be
effected only through a book-entry system maintained by the Holder of such
Global Security (or its agent), and that ownership of a beneficial interest in a
Security shall be required to be reflected in a book entry.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination or denominations, of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
such office or agency. Whenever any Securities are so surrendered for exchange,
the Company shall execute, and the Trustee shall authenticate and make available
for delivery, Securities of the same series which the Holder making the exchange
is entitled to receive: provided that no exchange of Series A Securities for
Series B Securities shall occur until an Exchange Offer Registration Statement
shall have been declared effective by the SEC and that the Series A Securities
exchanged for the Series B Securities shall be canceled.
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All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same Indebtedness, and entitled to the same benefits under this Indenture,
as the Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer, or for exchange, repurchase or redemption, shall (if so required by
the Company or the Trustee) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
No service charge shall be made to a Holder for any
registration of transfer, exchange or redemption of Securities, except for any
tax or other governmental charge that may be imposed in connection therewith,
other than exchanges pursuant to Sections 3.3, 3.4, 3.5, 9.6, 10.12, 10.13 or
11.8 not involving any transfer.
The Company shall not be required (a) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of the Securities
selected for redemption under Section 11.4 and ending at the close of business
on the day of such mailing or (b) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of Securities being redeemed in part.
Every Security shall be subject to the restrictions on
transfer provided in the legend required to be set forth on the face of each
Security pursuant to Section 2.2, and the restrictions set forth in this Section
3.5, and the Holder of each Security, by such Holder's acceptance thereof (or
interest therein), agrees to be bound by such restrictions on transfer.
The restrictions imposed by this Section 3.5 upon the
transferability of any particular Security shall cease and terminate on (a) the
later of October 7, 1999 or two years after the last date on which the Company
or any Affiliate of the Company was the owner of such Security (or any
predecessor of such Security) or (b) (if earlier) if and when such Security has
been sold pursuant to an effective registration statement under the Securities
Act or transferred pursuant to Rule 144 or Rule 904 under the Securities Act (or
any successor provision), unless the Holder thereof is an affiliate of the
Company, within the meaning of Rule 144 (or such successor provisions). Any
Security as to which such restrictions on transfer shall have expired in
accordance with their terms or shall have terminated may, upon surrender of such
Security for exchange to the Security Registrar in accordance with the provision
of this Section 3.5 (accompanied, in the event that such restrictions on
transfer have terminated pursuant to Rule 144 or Rule 904 (or any successor
provision), by an Opinion of Counsel satisfactory to the Company and the
Trustee, to the effect that the transfer of such Security has been made in
compliance with Rule 144 or Rule 904 (or any such successor provision)), be
exchanged for a new Security, of like tenor and aggregate principal amount,
which shall not bear the Private Placement Legend. The
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Company shall inform the Trustee of the effective date of any Registration
Statement registering the Securities under the Securities Act no later than two
Business Days after such effective date.
Except as provided in the preceding paragraph, any Security
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, any U.S. Global Security or Offshore Global Security,
whether pursuant to this Section 3.5, Section 3.4, 3.8, 9.6 or 11.8 or
otherwise, shall also be a U.S. Global Security or Offshore Global Security, as
the case may be, and shall bear the legend specified in Section 2.2.
Section 3.6. Book-Entry Provisions for Global Securities.
--------------------------------------------
(a) The Global Securities initially shall (i) be registered in
the name of the Depositary, (ii) be deposited with, or on behalf of, the
Depositary or with the Trustee as custodian for the Depositary and (iii) bear
legends as set forth in Section 2.2.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depositary or the Trustee as its custodian,
or under the Global Security, and the Depositary may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depositary, or shall impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Security.
(b) Transfers of a Global Security shall be limited to
transfers of such Global Security in whole, but not in part, to the Depositary,
its successors or their respective nominees. Interests of beneficial owners in a
Global Security may be transferred in accordance with the rules and procedures
of the Depositary and the provisions of Section 3.7. Beneficial owners may
obtain U.S. Physical Securities in exchange for their beneficial interests in
the U.S. Global Security upon request in accordance with the Depositary's and
the Security Registrar's procedures. In addition, at any time following the
Offshore Securities Exchange Date, upon receipt by the Trustee and the Company
of a certificate substantially in the Form of Exhibit A hereto, the Company
shall execute, and the Trustee shall authenticate and deliver to beneficial
owners, in exchange for their beneficial interest in the Offshore Global
Security, Permanent Offshore Physical Securities (together with the U.S.
Physical Securities, the "Physical Securities"). In connection with the
execution, authentication and delivery of either of such Physical Securities,
the Security Registrar shall reflect on its books and records a decrease in the
principal amount of the relevant Global Security equal to the principal amount
of such Physical Securities and the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Securities having an equal
aggregate principal amount.
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In addition, Physical Securities shall be issued to all
beneficial owners in exchange for their beneficial interests in a Global
Security if (i) the Depositary notifies the Company that it is unwilling or
unable to continue as a depositary for a Global Security and a successor
depositary is not appointed by the Company within 90 days of such notice or (ii)
an Event of Default has occurred and is continuing and the Security Registrar
has received a request from the Depositary.
(c) In connection with any transfer of a portion of the
beneficial interest in a Global Security pursuant to subsection (b) of this
Section to beneficial owners who are required to hold Physical Securities, the
Security Registrar shall reflect on its books and records the date and a
decrease in the principal amount of the Global Security in an amount equal to
the principal amount of the beneficial interest in the Global Security to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver one or more Physical Securities of like tenor and amount.
(d) In connection with the transfer of an entire Global
Security to beneficial owners pursuant to subsection (b) of this Section, such
Global Security shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall authenticate
and deliver, to each beneficial owner identified by the Depositary, in exchange
for its beneficial interest in the U.S. Global Security or Offshore Global
Security, as the case may be, an equal aggregate principal amount of U.S.
Physical Securities or Permanent Offshore Physical Securities, as the case may
be, of authorized denominations.
(e) Any Physical Security delivered in exchange for an
interest in Global Securities pursuant to subsection (c) or subsection (d) of
this Section shall, except as otherwise provided by paragraph (a)(i)(x) and
paragraph (f) of Section 3.7, bear the Private Placement Legend.
(f) The registered holder of a Global Security may grant
proxies and otherwise authorize any person, including Agent Members and Persons
that may hold interests through Agent Members, to take any action which a Holder
is entitled to take under this Indenture or the Securities.
Section 3.7. Special Transfer Provisions.
----------------------------
Unless and until (i) an Initial Security is sold under an
effective Registration Statement, or (ii) an Initial Security is exchanged for a
Series B Security in connection with the Exchange Offer, in each case pursuant
to the Registration Rights Agreement, the following provisions shall apply:
(a) Transfers to non-QIB institutional "accredited investors"
(as defined in Rule 501(a) (1), (2), (3) and (7) under the Securities Act). The
following provisions shall apply with respect to the registration of any
proposed transfer of an Initial Security to an institutional
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"accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act) which is not a QIB (excluding Non-U.S.
Persons):
(i) The Security Registrar shall register the
transfer of any Initial Security whether or not such Initial
Security bears the Private Placement Legend, if (x) the
requested transfer is at least two years after the Issue Date
of the Initial Securities or (y) the proposed transferee has
delivered to the Security Registrar a certificate
substantially in the form of Exhibit B hereto.
(ii) If the proposed transferor is an Agent Member
holding a beneficial interest in a Global Security, upon
receipt by the Security Registrar of (x) the documents, if
any, required by paragraph (i) and (y) instructions given in
accordance with the Depositary's and the Security Registrar's
procedures therefor, the Security Registrar shall reflect on
its books and records the date and a decrease in the principal
amount of the applicable Global Security in an amount equal to
the principal amount of the beneficial interest in the Global
Security transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more U.S.
Physical Securities of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of an Initial Security
to a QIB (excluding Non-U.S. Persons):
(i) If the Security to be transferred consists of
Physical Securities, the Security Registrar shall register the
transfer if such transfer is being made by a proposed
transferor who has checked the box provided for on the form of
Initial Security stating, or has otherwise advised the Company
and the Security Registrar in writing, that the sale has been
made in compliance with the provisions of Rule 144A to the
transferee who has signed the certification provided for on
the form of Initial Security, stating, or has otherwise
advised the Company and the Security Registrar in writing,
that it is purchasing the Initial Security for its own account
or an account with respect to which it exercises sole
investment discretion and that it, or the person on whose
behalf it is acting with respect to any such account, is a QIB
and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant
to Rule 144A or has determined not to request such information
and that it is aware that the transferor is relying upon its
foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member,
and the Initial Security to be transferred consists of
Physical Securities which after transfer are to be evidenced
by an interest in the U.S. Global Security, upon receipt by
the
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Security Registrar of instructions given in accordance with
the Depositary's and the Security Registrar's procedures
therefor, the Security Registrar shall reflect on its books
and records the date and an increase in the principal amount
of the U.S. Global Security in an amount equal to the
principal amount of the Physical Securities to be transferred,
and the Trustee shall cancel the Physical Security so
transferred
(iii) If the Security to be transferred consists of
an interest in the U.S. Global Security, and the proposed
transferee is a Agent Member, the Security Registrar shall
reflect such transfer on its books and records.
(c) Transfers by Non-U.S. Persons on or Prior to November 17,
1997. The following provisions shall apply with respect to registration of any
proposed transfer of an Initial Security by a Non-U.S. Person on or prior to
November 17, 1997:
(i) If the proposed transferee is (x) a Non-U.S.
Person and the proposed transferor has delivered to the
Security Registrar a certificate substantially in the form of
Exhibit C hereto or (y) a QIB and the proposed transferor has
advised the Company and the Security Registrar in writing,
that the sale has been made in compliance with the provisions
of Rule 144A to a transferee who has advised the Company and
the Security Registrar in writing, that it is purchasing the
Initial Security for its own account or an account with
respect to which it exercises sole investment discretion and
that it, or the person on whose behalf it is acting with
respect to any such account, is a QIB and is aware that the
sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding
the Company as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is
aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from
registration provided by Rule 144A, upon instructions given in
accordance with the Depositary's procedures, the Security
Registrar shall register the transfer of any Initial Security
by reflecting on its books and records a decrease in the
principal amount at maturity of the Offshore Global Security
in an amount equal to the beneficial interest in such Global
Security so transferred.
(ii) If the proposed transferee is a Agent Member,
upon receipt by the Security Registrar of instructions given
in accordance with the Depositary's and the Security
Registrar's procedures therefor, the Security Registrar shall
reflect on its books and records the date and an increase in
the principal amount at maturity of the U.S. Global Security
in an amount equal to the principal amount of the beneficial
interest in the Offshore Global Security to be transferred,
and the Trustee shall decrease the principal amount at
maturity of the Offshore Global Security represented by the
beneficial interest therein so transferred.
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(d) Transfers by Non-U.S. Persons on or after November 17,
1997. The following provisions shall apply with respect to any transfer of an
Initial Security by a Non-U.S. Person on or after November 17, 1997:
(i) If the Initial Security to be transferred is a
Permanent Offshore Physical Security, the Security Registrar
shall register such transfer.
(ii) If the proposed transferee is an Agent Member,
upon receipt by the Security Registrar of instructions given
in accordance with the Depositary's and the Security
Registrar's procedures therefor, the Security Registrar shall
reflect on its books and records the date and an increase in
the principal amount of the U.S. Global Security in an amount
equal to the principal amount of the Permanent Offshore
Physical Security to be transferred, and the Trustee shall
cancel the Permanent Offshore Physical Security so
transferred.
(e) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of an Initial Security to a
Non-U.S. Person:
(i) Prior to November 17, 1997, and subject to (ii)
below, the Security Registrar shall register any proposed
transfer of an Initial Security to a Non-U.S. Person upon
receipt of a certificate substantially in the form of Exhibit
C hereto from the proposed transferor, by reflecting on its
books and records an increase in the principal amount at
maturity of the Offshore Global Security in an amount equal to
the principal amount of the Securities transferred.
(ii) If the proposed transferor is an Agent Member
holding a beneficial interest in the U.S. Global Security,
upon receipt by the Security Registrar of (x) the document, if
any, required by paragraph (i), and (y) instructions in
accordance with the Depositary's and the Security Registrar's
procedures thereof, the Security Registrar shall reflect on
its books and records the date and a decrease in the principal
amount of the U.S. Global Security in an amount equal to the
principal amount of the beneficial interest in the U.S. Global
Security transferred, and an increase in the same amount to
the principal amount at maturity of the Offshore Global
Security.
(iii) On and after November 17, 1997, and subject to
paragraph (iv) below, the Security Registrar shall register
any proposed transfer to any Non-U.S. Person (x) if the
Initial Security to be transferred is a Permanent Offshore
Physical Security, or (y) if the Initial Security to be
transferred is a U.S. Physical Security or an interest in the
U.S. Global Security, upon receipt of a certificate
substantially in the form of Exhibit C from the proposed
transferor and (z) in the case of any of clause (x) or (y),
the Company shall execute, and the Trustee shall authenticate
and
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deliver, one or more Permanent Offshore Physical Securities of
like tenor and amount.
(iv) If the proposed transferor is an Agent Member
holding a beneficial interest in the U.S. Global Security,
upon receipt by the Security Registrar of (x) the document, if
any, required by paragraph (iii), and (y) instructions in
accordance with the Depositary's and the Security Registrar's
procedures therefor, the Security Registrar shall reflect on
its books and records the date and a decrease in the principal
amount of the U.S. Global Security in an amount equal to the
principal amount of the beneficial interest in the U.S. Global
Security to be transferred and the Company shall execute, and
the Trustee shall authenticate and deliver, one or more
Permanent Offshore Physical Securities of like tenor and
amount.
(f) Private Placement Legend. Upon the registration of
transfer, exchange or replacement of Securities not bearing the Private
Placement Legend, the Security Registrar shall deliver Securities that do not
bear the Private Placement Legend. Upon the registration of transfer, exchange
or replacement of Securities bearing the Private Placement Legend, the Security
Registrar shall deliver only Securities that bear the Private Placement Legend
unless either (i) the circumstances contemplated by paragraphs (a)(i)(x), (d)(i)
or (e)(iii) of this Section 3.7 exist or (ii) there is delivered to the Security
Registrar an Opinion of Counsel reasonably satisfactory to the Company and the
Trustee to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of the
Securities Act.
(g) General. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Security Registrar shall retain copies of all letters,
notices and other written communications received pursuant to Section 3.6 or
this Section 3.7. The Company shall have the right to inspect and make copies of
all such letters, notices or other written communications at any reasonable time
upon the giving of reasonable written notice to the Security Registrar.
Section 3.8. Mutilated, Destroyed, Lost and Stolen Securities.
-------------------------------------------------
If (a) any mutilated Security is surrendered to the Trustee,
or (b) the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company, any other obligor on the Securities and the Trustee, such security or
indemnity, in each case, as may be required by them to save each of them
harmless, then, in the absence of notice to the Company, any other obligor on
the Securities or the Trustee that such Security has been acquired by a bona
fide purchaser, the Company shall execute and
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upon a Company Request the Trustee shall authenticate and make available for
delivery, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a replacement Security of like tenor and
principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a replacement Security, pay such Security.
Upon the issuance of any replacement Securities under this
Section, the Company may require the payment of a sum sufficient to pay all
documentary, stamp or similar issue or transfer taxes or other governmental
charges that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every replacement Security issued pursuant to this Section in
lieu of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company and any other obligor on the
Securities, whether or not the destroyed, lost or stolen Security shall be at
any time enforceable by anyone, and shall be entitled to all benefits of this
Indenture equally and proportionately with any and all other Securities duly
issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 3.9. Payment of Interest; Interest Rights Preserved.
-----------------------------------------------
Interest on any Security which is payable, and is punctually
paid or duly provided for, on the Stated Maturity of such interest shall be paid
to the Person in whose name the Security (or any Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
payment.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on the Stated Maturity of such interest,
and interest on such defaulted interest at the then applicable interest rate
borne by the Securities, to the extent lawful (such defaulted interest and
interest thereon herein collectively called "Defaulted Interest"), shall
forthwith cease to be payable to the Holder on the Regular Record Date, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or an relevant
Predecessor Securities) are registered at the close of business on a Special
Record Date for the Payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Security and the date
(not less than 30
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days after such notice) of the proposed payment (the "Special Payment Date"),
and at the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the Special Payment Date, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted Interest
as provided in this Subsection. Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest which shall be not more than 15
days and not less than 10 days prior to the date of the Special Payment Date and
not less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company in writing of
such Special Record Date. In the name and at the expense of the Company, the
Trustee shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder at its address as it appears in the Security Register, not less
than 10 days prior to such Special Record Date. Notice of the proposed payment
of such Defaulted Interest and the Special Record Date and Special Payment Date
therefor having been so mailed, such Defaulted Interest shall be paid to the
Persons in whose names the Securities are registered on such Special Record Date
and shall no longer be payable pursuant to the following Subsection (b).
(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, if, after written notice given by the Company to the
Trustee of the proposed payment pursuant to this Subsection, such payment shall
be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 3.9, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
Section 3.10. CUSIP Numbers.
--------------
The Company in issuing the Securities may use "CUSIP" numbers
(if then generally in use), and the Company, or the Trustee on behalf of the
Company, shall use CUSIP numbers in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice shall state that
no representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of redemption or
exchange and that reliance may be placed only on the other identification
numbers printed on the Securities; and provided further, however, that failure
to use CUSIP numbers in any notice of redemption or exchange shall not affect
the validity or sufficiency of such notice.
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Section 3.11. Persons Deemed Owners.
----------------------
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name any Security is registered as the owner of
such Security for the purpose of receiving payment of principal of, premium, if
any and (subject to Section 3.9) interest on, such Security and for all other
purposes whatsoever, whether or not such Security is overdue, and none of the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
Section 3.12. Cancellation.
-------------
All Securities surrendered for payment, purchase, redemption,
registration of transfer or exchange shall be delivered to the Trustee and, if
not already canceled, shall be promptly canceled by it. The Company may at any
time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section 3.12, except as expressly
permitted by this Indenture. If requested by the Company, all canceled
Securities held by the Trustee shall be returned to the Company. The Trustee
shall provide the Company a list of all Securities that have been canceled from
time to time as requested by the Company.
Section 3.13. Computation of Interest.
------------------------
Interest on the Securities shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
ARTICLE IV
DEFEASANCE AND COVENANT DEFEASANCE
Section 4.1. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
-----------
The Company may, at its option by Board Resolution, at any
time, with respect to the Securities, elect to have either Section 4.2 or
Section 4.3 be applied to all of the Outstanding Securities (the "Defeased
Securities"), upon compliance with the conditions set forth below in this
Article IV.
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Section 4.2. Defeasance and Discharge.
-------------------------
Upon the Company's exercise under Section 4.1 of the option
applicable to this Section 4.2, the Company and any other obligor on the
Securities, if any, shall be deemed to have been discharged from its obligations
with respect to the Defeased Securities on the date the conditions set forth in
Section 4.4 below are satisfied (hereinafter, "defeasance"). For this purpose,
such defeasance means that the Company and any other obligor on the Securities
shall be deemed to have paid and discharged the entire Indebtedness represented
by the Defeased Securities, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 4.5 and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company and upon Company
Request, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (a) the rights of Holders of Defeased Securities to receive, solely
from the trust fund described in Section 4.4 and as more fully set forth in such
Section, payments in respect of the principal of, premium, if any, and interest
on, such Securities, when such payments are due, (b) the Company's obligations
with respect to such Defeased Securities under Sections 3.4, 3.5, 3.8, 10.2 and
10.3, (c) the rights, powers, trusts, duties and immunities of the Trustee
hereunder, including, without limitation, the Trustee's rights under Section
6.7, and (d) this Article IV. Subject to compliance with this Article IV, the
Company may exercise its option under this Section 4.2 notwithstanding the prior
exercise of its option under Section 4.3 with respect to the Securities.
Section 4.3. Covenant Defeasance.
--------------------
Upon the Company's exercise under Section 4.1 of the option
applicable to this Section 4.3, the Company and any other obligor on the
Securities shall be released from its obligations under any covenant or
provision contained or referred to in Sections 10.4 through 10.18, inclusive,
and the provisions of Article VIII with respect to the Defeased Securities on
and after the date the conditions set forth in Section 4.4 below are satisfied
(hereinafter, "covenant defeasance"), and the Defeased Securities shall
thereafter be deemed to be not "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to the Defeased Securities, the Company and
any other obligor on the Securities may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
Section or Article, whether directly or indirectly, by reason of any reference
elsewhere herein to any such Section or Article or by reason of any reference in
any such Section or Article to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Sections 5.1(c), (d), (e) or (f), but, except as specified in
this Indenture, the remainder of this Indenture and such Defeased Securities
shall be unaffected thereby. In the event covenant defeasance occurs, the Events
of
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Default specified in Sections 5.1(e) and (f) will no longer constitute Events of
Default with respect to the Securities.
Section 4.4. Conditions to Defeasance or Covenant Defeasance.
------------------------------------------------
The following shall be the conditions to application of either
Section 4.2 or Section 4.3 to the Securities to be defeased:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Securities, (a) United States
dollars in an amount, (b) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in accordance
with their terms and with no further reinvestment will provide, not later than
one day before the due date of any payment, money in an amount, or (c) a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants or a nationally
recognized investment banking firm expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied by
the Trustee to pay and discharge, the principal of, premium, if any, and
interest on, the Securities to be defeased, on the Stated Maturity of such
principal or interest (or on any date after October 15, 2002 (such date being
referred to as the "Defeasance Redemption Date") if at or prior to electing to
exercise either its option applicable to Section 4.2 or its option applicable to
Section 4.3, the Company has delivered to the Trustee an irrevocable notice to
redeem all of the Outstanding Securities on the Defeasance Redemption Date). For
this purpose, "U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt;
(2) In the case of an election under Section 4.2, the Company
shall have delivered to the Trustee an Opinion of Independent Counsel in the
United States stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date
hereof, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of Independent
Counsel in
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the United States shall confirm that, the Holders of the Outstanding Securities
will not recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such defeasance had not occurred;
(3) In the case of an election under Section 4.3, the Company
shall have delivered to the Trustee an Opinion of Independent Counsel in the
United States to the effect that the Holders of the Outstanding Securities will
not recognize income, gain or loss for federal income tax purposes as a result
of such covenant defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred;
(4) No Default or Event of Default (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) shall have occurred and be continuing on the date of such deposit or
insofar as Section 5.1(g) or (h) is concerned, at any time during the period
ending on the 91st day after the date of deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such period);
(5) Such defeasance or covenant defeasance shall not cause the
Trustee for the Securities to have a conflicting interest for purposes of the
Trust Indenture Act with respect to any other securities of the Company;
(6) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, (A) this Indenture or
(B) any other agreement or instrument to which the Company or any Significant
Subsidiary is a party or by which the Company or any Significant Subsidiary is
bound, if such breach, violation, or default thereof would have a material
adverse effect on the Company and its Subsidiaries taken as a whole;
(7) Such defeasance or covenant defeasance shall not result in
the trust arising from such deposit constituting an investment company within
the meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder;
(8) The Company shall have delivered to the Trustee an Opinion
of Independent Counsel in the United States to the effect that after the 91st
day following the deposit, the trust funds will not be subject to avoidance
under Section 547 of the United States Bankruptcy Code (or any successor
provision thereto) and related judicial decisions;
(9) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of the Securities over the other creditors
of the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others;
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(10) No event or condition shall exist that would prevent the
Company from making payments of the principal of, premium, if any, and interest
on the Securities on the date of such deposit or at any time ending on the 91st
day after the date of such deposit; and
(11) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Independent Counsel, each stating that
all conditions precedent provided for relating to either the defeasance under
Section 4.2 or the covenant defeasance under Section 4.3 (as the case may be)
have been complied with.
Opinions of Counsel or Opinions of Independent Counsel
required to be delivered under this Section shall be in form and substance
reasonably satisfactory to the Trustee and may have qualifications customary for
opinions of the type required and counsel delivering such opinions may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, which certificates shall be limited as to matters
of fact, including that various financial covenants have been complied with.
Section 4.5. Deposited Money and U.S. Government Obligations
-----------------------------------------------
to Be Held in Trust; Other Miscellaneous Provisions..
- -----------------------------------------------------
Subject to the provisions of the last paragraph of Section
10.3, all United States dollars and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee pursuant to Section 4.4 in respect
of the Defeased Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (excluding the Company or
any of its Affiliates acting as Paying Agent), as the Trustee may determine, to
the Holders of such Securities of all sums due and to become due thereon in
respect of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 4.4 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is imposed, assessed or for the account of the Holders of the Defeased
Securities.
Anything in this Article IV to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any United States dollars or U.S. Government Obligations held by it as
provided in Section 4.4 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect defeasance or covenant defeasance.
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Section 4.6. Reinstatement.
--------------
If the Trustee or Paying Agent is unable to apply any United
States dollars or U.S. Government Obligations in accordance with Section 4.2 or
4.3, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated, with present and prospective effect,
as though no deposit had occurred pursuant to Section 4.2 or 4.3, as the case
may be, until such time as the Trustee or Paying Agent is permitted to apply all
such United States dollars or U.S. Government Obligations in accordance with
Section 4.2 or 4.3, as the case may be; provided, however, that if the Company
makes any payment to the Trustee or Paying Agent of principal of, premium, if
any, or interest on any Security following the reinstatement of its obligations,
the Trustee or Paying Agent shall promptly pay any such amount to the Holders of
the Securities and the Company shall be subrogated to the rights of the Holders
of such Securities to receive such payment from the United States dollars and
U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE V
REMEDIES
Section 5.1. Events of Default.
------------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) there shall be a default in the payment of any interest on
any Security when it becomes due and payable, and such default shall continue
for a period of 30 days;
(b) there shall be a default in the payment of the principal
of (or premium, if any, on) any Security at its Maturity (upon acceleration,
optional or mandatory redemption, required repurchase or otherwise);
(c) there shall be a default in the performance, or breach, of
any covenant or agreement of the Company under this Indenture (other than a
default in the performance, or breach, of a covenant or agreement which is
specifically dealt with in clauses (a), (b) or (d) of this Section 5.1) and such
default or breach shall continue for a period of 30 days after written notice
has been given, by certified mail, (x) to the Company by the Trustee or (y) to
the Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Outstanding Securities, which notice shall specify that
it is a "notice of default" and shall demand that such a default be remedied;
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(d) (i) there shall be a default in the performance or breach
of the provisions of Article VIII; (ii) the Company shall have failed to make or
consummate an Offer required in accordance with the provisions of Section 10.12;
or (iii) the Company shall have failed to make or consummate a Change of Control
Offer required in accordance with the provisions of Section 10.13;
(e) one or more defaults shall have occurred under any of the
agreements, indentures or instruments under which the Company or any Subsidiary
then has outstanding Indebtedness in excess of $10,000,000, individually or in
the aggregate, and either (a) such default results from the failure to pay such
Indebtedness at its stated final maturity or (b) such default or defaults have
resulted in the acceleration of the maturity of such Indebtedness;
(f) one or more judgments, orders or decrees for the payment
of money in excess of $10,000,000 either individually or in the aggregate, shall
be rendered against the Company or any Subsidiary or any of their respective
properties and shall not be discharged and either (a) any creditor shall have
commenced an enforcement proceeding upon such judgment, order or decree or (b)
there shall have been a period of 60 consecutive days during which a stay of
enforcement of such judgment, order or decree, by reason of an appeal or
otherwise, shall not be in effect; provided that the amount of such money
judgment, order or decree shall be calculated net of any insurance coverage that
the Company has determined in good faith is available in whole or in part with
respect to such money judgment, order or decree;
(g) there shall have been the entry by a court of competent
jurisdiction of (i) a decree or order for relief in respect of the Company or
any Significant Subsidiary in an involuntary case or proceeding under any
applicable Bankruptcy Law or (ii) a decree or order adjudging the Company or any
Significant Subsidiary bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or any
Significant Subsidiary under any applicable federal or state law, or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or any Significant Subsidiary or of any
substantial part of their respective properties, or ordering the winding up or
liquidation of their respective affairs, and any such decree or order for relief
shall continue to be in effect, or any such other decree or order shall be
unstayed and in effect for a period of 60 consecutive days; or
(h) (1) the Company or any Significant Subsidiary commences a
voluntary case or proceeding under any applicable Bankruptcy Law or any other
case or proceeding to be adjudicated bankrupt or insolvent, (2) the Company or
any Significant Subsidiary consents to the entry of a decree or order for relief
in respect of the Company or such Significant Subsidiary in an involuntary case
or proceeding under any applicable Bankruptcy Law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, (3) the Company or any
Significant Subsidiary files a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, (4) the
Company or any Significant Subsidiary (A) consents to the
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filing of such petition or the appointment of, or taking possession by, a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or such Significant Subsidiary or of any substantial
part of their respective properties, (B) makes an assignment for the benefit of
creditors or (C) admits in writing its inability to pay its debts generally as
they become due, or (5) the Company or any Significant Subsidiary takes any
corporate action in furtherance of any such actions in this paragraph (h).
Section 5.2. Acceleration of Maturity; Rescission and
----------------------------------------
Annulment.
- ----------
If an Event of Default (other than an Event of Default
specified in Sections 5.1(g) and (h) with respect to the Company) shall occur
and be continuing with respect to this Indenture, the Trustee or the Holders of
not less than 25% in aggregate principal amount of the Securities then
Outstanding may, and the Trustee at the request of such Holders shall, declare
all unpaid principal of, premium, if any, and accrued interest on all Securities
to be due and payable, by a notice in writing to the Company (and to the Trustee
if given by the Holders of the Securities) and upon any such declaration, such
principal, premium, if any, and interest shall become due and payable
immediately. If an Event of Default specified in clause (g) or (h) of Section
5.1 occurs with respect to the Company and is continuing, then all the
Securities shall ipso facto become and be due and payable immediately in an
amount equal to the principal amount of the Securities, together with accrued
and unpaid interest, if any, to the date the Securities become due and payable,
without any declaration or other act on the part of the Trustee or any Holder.
Thereupon, the Trustee may, at its discretion, proceed to protect and enforce
the rights of the Holders of the Securities by appropriate judiciary
proceedings.
After such declaration of acceleration with respect to the
Securities, but before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article provided, the
Holders of a majority in aggregate principal amount of the Securities
Outstanding, by written notice to the Company and the Trustee, may rescind and
annul such declaration and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all sums paid or advanced by the Trustee under
this Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel,
(ii) all overdue interest on all Outstanding
Securities,
(iii) the principal of and premium, if any, on any
Outstanding Securities which have become due otherwise than by
such declaration of acceleration and interest thereon at the
rate borne by the Securities, and
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(iv) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by
the Securities; and
(b) all Events of Default, other than the non-payment of
principal of the Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 5.13. No such
rescission shall affect any subsequent Default or impair any right consequent
thereon.
If payment of the Securities is accelerated because of an
Event of Default, the Company or the Trustee shall promptly notify the agent
under the Bank Credit Facility of the acceleration. If any indebtedness under
the Bank Credit Facility is outstanding, the Company may not pay the Securities
until five Business Days after the agent under the Bank Credit Facility receives
notice of such acceleration, and, thereafter, may pay the Securities only if
this Indenture otherwise permits payments at that time.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- --------
The Company covenants that if:
(a) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default continues
for a period of 30 days, or
(b) default is made in the payment of the principal of,
premium, if any, on any Security at the Stated Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and premium, if any, and interest, with interest upon
the overdue principal and premium, if any, and, to the extent that payment of
such interest shall be legally enforceable, upon overdue installments of
interest, at the rate borne by the Securities; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and unpaid
and may prosecute such proceeding to judgment or final decree, and may enforce
the same against the Company or any other obligor on the Securities and collect
the moneys adjudged or decreed to be payable in the manner provided by law out
of the property of the Company or any other obligor on the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders under this Indenture by such appropriate private or judicial
proceedings as the Trustee shall deem most effectual to
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protect and enforce such rights, subject however to Section 5.12. No recovery of
any such judgment upon any property of the Company shall affect or impair any
rights, powers or remedies of the Trustee or the Holders.
Section 5.4. Trustee May File Proofs of Claim.
---------------------------------
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor on the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal, and premium, if any, and interest owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
Section 5.5. Trustee May Enforce Claims without Possession of
------------------------------------------------
Securities.
- -----------
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name and as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
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disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
Section 5.6. Application of Money Collected.
-------------------------------
Any money collected by the Trustee pursuant to this Article or
otherwise on behalf of the Holders or the Trustee pursuant to this Article or
through any proceeding or any arrangement or restructuring in anticipation or in
lieu of any proceeding contemplated by this Article shall be applied, subject to
applicable law, in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal,
premium, if any, or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee
under Section 6.7;
SECOND: Subject to Article Thirteen, to the payment
of the amounts then due and unpaid upon the Securities for
principal, premium, if any, and interest, in respect of which
or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according
to the amounts due and payable on such Securities for
principal, premium, if any, and interest; and
THIRD: The balance, if any, to the Person or Persons
entitled thereto, including the Company, provided that all
sums due and owing to the Holders and the Trustee have been
paid in full as required by this Indenture.
Section 5.7. Limitation on Suits.
--------------------
No Holder of any Securities shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture or the
Securities, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
trustee hereunder;
(c) such Holder or Holders have offered to the Trustee an
indemnity satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request;
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(d) the Trustee for 30 days after its receipt of such notice,
request and offer (and if requested, provision) of indemnity has failed to
institute any such proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 30-day period by the Holders of a majority
in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner provided in
this Indenture and for the equal and ratable benefit of all the Holders.
Section 5.8. Unconditional Right of Holders to Receive
-----------------------------------------
Principal, Premium and Interest.
- --------------------------------
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right based on the terms stated herein,
which is absolute and unconditional, to receive payment of the principal of,
premium, if any, and (subject to Section 3.9) interest on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption or repurchase, on the Redemption Date or the repurchase date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
Section 5.9. Restoration of Rights and Remedies.
-----------------------------------
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, any
other obligor on the Securities, the Trustee and the Holders shall, subject to
any determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
Section 5.10. Rights and Remedies Cumulative.
-------------------------------
Except as provided in Section 3.8, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
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Section 5.11. Delay or Omission Not Waiver..
------------------------------
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
Section 5.12. Control by Holders.
-------------------
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, provided that
(a) such direction shall not be in conflict with any rule of
law or with this Indenture (including, without limitation, Section 5.7) or
expose the Trustee to personal liability, or be unduly prejudicial to Holders
not joining therein; and
(b) subject to the provisions of Section 315 of the Trust
Indenture Act, the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 5.13. Waiver of Past Defaults.
------------------------
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities may on behalf of the Holders of all
Outstanding Securities waive any past Default hereunder and its consequences,
except a Default
(a) in the payment of the principal of, premium, if any, or
interest on any Security; or
(b) in respect of a covenant or a provision hereof which under
this Indenture cannot be modified or amended without the consent of the Holder
of each Security Outstanding affected by such modification or amendment.
Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
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Section 5.14. Undertaking for Costs.
----------------------
All parties to this Indenture agree, and each Holder of any
Security by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant,
but the provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of, premium, if any, or interest on, any Security on or after the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on or after the Redemption Date).
Section 5.15. Waiver of Stay, Extension or Usury Laws.
----------------------------------------
Each of the Company and any other obligor on the Securities
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury or other law
wherever enacted, now or at any time hereafter in force, which would prohibit or
forgive the Company from paying all or any portion of the principal of, premium,
if any, or interest on the Securities contemplated herein or in the Securities
or which may affect the covenants or the performance of this Indenture; and each
of the Company and any other obligor on the Securities (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
Section 5.16. Remedies Subject to Applicable Law.
-----------------------------------
All rights, remedies and powers provided by this Article V may
be exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all the provisions of this Indenture are
intended to be subject to all applicable mandatory provisions of law which may
be controlling and to be limited to the extent necessary so that they will not
render this Indenture invalid, unenforceable or not entitled to be recorded,
registered or filed under the provisions of any applicable law.
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<PAGE> 86
ARTICLE VI
THE TRUSTEE
Section 6.1. Duties of Trustee.
------------------
Subject to the provisions of Trust Indenture Act Sections
315(a) through 315(d):
(a) if a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs;
(b) except during the continuance of a Default or an Event of
Default:
(1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are
adverse to the Trustee; and
(2) in the absence of bad faith or willful misconduct
on its part, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture;
(c) the Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this Subsection (c) does not limit the effect of
Subsection (b) of this Section 6.1;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless
it is proved that the Trustee was negligent in ascertaining
the pertinent facts; and
(3) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith, in
accordance with a direction of the Holders of a majority in
principal amount of Outstanding Securities relating to the
time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or
power confirmed upon the Trustee under this Indenture;
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<PAGE> 87
(d) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it;
(e) whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject to
Subsections (a), (b), (c) and (d) of this Section 6.1; and
(f) the Trustee shall not be liable for interest on any money
or assets received by it except as the Trustee may agree with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
Section 6.2. Notice of Defaults.
-------------------
Within 90 days after a Responsible Officer of the Trustee
receives notice of the occurrence of any Default, the Trustee shall transmit by
mail to all Holders and any other Persons entitled to receive reports pursuant
to Section 313(c) of the Trust Indenture Act, as their names and addresses
appear in the Security Register, notice of such Default hereunder known to the
Trustee, unless such Default shall have been cured or waived; provided, however,
that, except in the case of a Default in the payment of the principal of,
premium, if any, or interest on any Security, the Trustee shall be protected in
withholding such notice if and so long as a trust committee of Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders.
Section 6.3. Certain Rights of Trustee.
--------------------------
Subject to the provisions of Section 6.1 hereof and Trust
Indenture Act Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of Indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) the Trustee may consult with counsel of its selection and
any advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in
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respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon in accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee security or indemnity satisfactory to the
Trustee against the costs, expenses and liabilities which might be incurred
therein or thereby in compliance with such request or direction;
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture other than any
liabilities arising out of the negligence, bad faith or willful misconduct of
the Trustee;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, appraisal, bond, debenture, note, coupon, security or other paper or
document unless requested in writing to do so by the Holders of not less than a
majority in aggregate principal amount of the Securities then Outstanding;
provided that, if the payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such expenses or liabilities as
a condition to proceeding; the reasonable expenses of every such investigation
so requested by the Holders of not less than 25% in aggregate principal amount
of the Securities Outstanding shall be paid by the Company or, if paid by the
Trustee or any predecessor Trustee, shall be repaid by the Company upon demand;
provided, further, the Trustee in its discretion may make such further inquiry
or investigation into such facts or matters as it may deem fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney;
(g) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate; and
(h) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by it
hereunder.
(i) Notwithstanding anything to the contrary herein, the
Trustee shall have no duties to review any Officers' Certificates, Board
Resolutions, Opinions of Counsel, financials or
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other documents furnished to it by the Company for purposes of determining
compliance with any provisions of this Indenture.
(j) The Trustee shall have no duty to inquire as to the
performance of the Company's covenants in Article X. In addition, the Trustee
shall not be deemed to have knowledge of any Default or Event of Default except
(i) any Event of Default occurring pursuant to Sections 5.01(a), 5.01(b) and
10.1 or (ii) any Default or Event of Default to which the Trustee shall have
received written notification or obtained actual knowledge.
Section 6.4. Trustee Not Responsible for Recitals,
-------------------------------------
Dispositions of Securities or Application of Proceeds Thereof.
- --------------------------------------------------------------
The recitals contained herein and in the Securities, except
the Trustee's certificates of authentication, shall be taken as the statements
of the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and that the statements made by
it in any Statement of Eligibility and Qualification on Form T-1 supplied to the
Company are true and accurate subject to the qualifications set forth therein.
The Trustee shall not be accountable for the use or application by the Company
of Securities or the proceeds thereof nor shall the Trustee be responsible for
any statement in any registration statement for the Securities under the
Securities Act or responsible for the determination as to which beneficial
owners are entitled to receive notices hereunder.
Section 6.5. Trustee and Agents May Hold Securities;
---------------------------------------
Collections; etc.
- -----------------
The Trustee, any Paying Agent, Security Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Securities, with the same rights it would have if it were
not the Trustee, Paying Agent, Security Registrar or such other agent and,
subject to Sections 6.8 and 6.13 hereof and Trust Indenture Act Sections 310 and
311, may otherwise deal with the Company and receive, collect, hold and retain
collections from the Company with the same rights it would have if it were not
the Trustee, Paying Agent, Security Registrar or such other agent.
Section 6.6. Money Held in Trust.
--------------------
All moneys received by the Trustee shall, until used or
applied as herein provided, and subject to Article XIII, be held in trust for
the purposes for which they were received, but need not be segregated from other
funds except to the extent required by mandatory provisions of law. Except for
funds or securities deposited with the Trustee pursuant to Article IV, the
Trustee shall, upon request by the Company, invest all moneys received by the
Trustee, until used or applied as herein provided, in Temporary Cash Investments
in accordance with the directions of
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the Company. The Trustee shall be under no liability to the Company for interest
on any money received by it hereunder except as otherwise agreed in writing with
the Company.
Section 6.7. Compensation and Indemnification of Trustee and
-----------------------------------------------
Its Prior Claim.
- ----------------
The Company covenants and agrees to pay to the Trustee from
time to time, and the Trustee shall be entitled to, such compensation as the
parties shall agree in writing from time to time for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) and the Company
covenants and agrees to pay or reimburse the Trustee and each predecessor
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of the Trustee in accordance with any of the
provisions of this Indenture (including the reasonable compensation and the
expenses and disbursements of its counsel and of all agents and other persons
not regularly in its employ) except any such expense, disbursement or advance as
may arise from its negligence, bad faith or willful misconduct. The Company also
covenants and agrees to indemnify the Trustee and each predecessor Trustee for,
and to hold it harmless against, any claim, loss, liability, tax, assessment or
other governmental charge (other than taxes applicable to the Trustee's
compensation hereunder) or expense incurred without negligence, bad faith or
willful misconduct on its part, arising out of or in connection with the
acceptance or administration of this Indenture or the trusts hereunder and its
duties hereunder, including enforcement of this Section 6.7 and also including
any liability which the Trustee may incur as a result of failure to withhold,
pay or report any tax, assessment or other governmental charge, and the costs
and expenses of defending itself against or investigating any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligations of the Company under this Section 6.7 to compensate
and indemnify the Trustee and each predecessor Trustee and to pay or reimburse
the Trustee and each predecessor Trustee for reasonable expenses, disbursements
and advances shall constitute an additional obligation hereunder and shall
survive the satisfaction and discharge of this Indenture and the resignation or
removal of the Trustee and each predecessor Trustee.
Section 6.8. Conflicting Interests.
----------------------
The Trustee shall comply with the provisions of Section 310(b)
of the Trust Indenture Act.
Section 6.9. Trustee Eligibility.
--------------------
There shall at all times be a Trustee hereunder which shall be
eligible to act as trustee under Trust Indenture Act Section 310(a)(1) and which
shall have a combined capital and surplus of at least $100,000,000 or is a
member of a bank holding company with a combined capital and surplus of at least
$100,000,000, to the extent there is an institution eligible and willing to
serve. If the Trustee does not have a Corporate Trust Office in The City of New
York, the Trustee may appoint an agent in The City of New York reasonably
acceptable to the
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Company to conduct any activities which the Trustee may be required under this
Indenture to conduct in The City of New York. If such Trustee publishes reports
of condition at least annually, pursuant to law or to the requirements of
federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section 6.9, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 6.9, the Trustee shall resign immediately in the
manner and with the effect hereinafter specified in this Article.
Section 6.10. Resignation and Removal; Appointment of
---------------------------------------
Successor Trustee.
- ------------------
(a) No resignation or removal of the Trustee and no
appointment of a successor trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor trustee under
Section 6.11.
(b) The Trustee, or any trustee or trustees hereafter
appointed, may at any time, upon 30 days prior or written notice, resign by
giving written notice thereof to the Company. Upon receiving such notice or
resignation, the Company shall promptly appoint a successor trustee by written
instrument executed by authority of the Board of Directors, a copy of which
shall be delivered to the resigning Trustee and a copy to the successor trustee.
If an instrument of acceptance by a successor trustee shall not have been
delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may, or any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor trustee. Such court may thereupon, after such notice,
if any, as it may deem proper, appoint and prescribe a successor trustee.
(c) The Trustee may be removed at any time for any cause or
for no cause by an Act of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities, delivered to the Trustee and to
the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the
provisions of Trust Indenture Act Section 310(b) after written
request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months,
(2) the Trustee shall cease to be eligible under
Section 6.9 and shall fail to resign after written request
therefor by the Company or by any Holder who has been a bona
fide Holder of a Security for at least six months, or
(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be
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appointed or any public officer shall take charge or control
of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee,
or (ii) subject to Section 5.14, the Holder of any Security who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as ii may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor trustee and shall comply with the applicable requirements of Section
6.11. If, within 60 days after such resignation, removal or incapability, or the
occurrence of such vacancy, the Company has not appointed a successor Trustee, a
successor trustee shall be appointed by the Act of the Holders of a majority in
principal amount of the Outstanding Securities delivered to the Company and the
retiring Trustee. Such successor trustee so appointed shall forthwith upon its
acceptance of such appointment become the successor trustee and supersede the
successor trustee appointed by the Company. If no successor trustee shall have
been so appointed by the Company or the Holders of the Securities and accepted
appointment in the manner hereinafter provided, the Trustee or the Holder of any
Security who has been a bona fide Holder for at least six months may, subject to
Section 5.14, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities as their names and addresses appear in the Security
Register. Each notice shall include the name of the successor trustee and the
address of its Corporate Trust Office or agent hereunder.
Section 6.11. Acceptance of Appointment by Successor.
---------------------------------------
Every successor trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee as if originally named as
Trustee hereunder; but, nevertheless, on the written request of the Company or
the successor trustee, upon payment of its charges pursuant to Section 6.7 then
unpaid, such retiring Trustee shall pay over to the successor trustee all moneys
at the time held by it hereunder and shall execute and deliver an instrument
transferring to such successor trustee all such rights, powers, duties and
obligations. Upon request of any such successor trustee, the Company shall
execute any and all
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instruments for more fully and certainly vesting in and confirming to such
successor trustee all such rights and powers.
No successor trustee with respect to the Securities shall
accept appointment as provided in this Section 6.11 unless at the time of such
acceptance such successor trustee shall be eligible to act as trustee under the
provisions of Trust Indenture Act Section 310(a) and this Article VI and shall
have a combined capital and surplus of at least $100,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 6.9.
Upon acceptance of appointment by any successor trustee as
provided in this Section 6.11, the Company shall give notice thereof to the
Holders of the Securities, by mailing such notice to such Holders at their
addresses as they shall appear on the Security Register. If the acceptance of
appointment is substantially contemporaneous with the appointment, then the
notice called for by the preceding sentence may be combined with the notice
called for by Section 6.10. If the Company fails to give such notice within 10
days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be given at the expense of the Company.
Section 6.12. Merger, Conversion, Consolidation or Succession
-----------------------------------------------
to Business.
- ------------
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee (including the trust created by this
Indenture) shall be the successor of the Trustee hereunder, provided that such
corporation shall be eligible under Trust Indenture Act Section 310(a) and this
Article VI and shall have a combined capital and surplus of at least
$100,000,000 and have a Corporate Trust Office or an agent selected in
accordance with Section 6.9, without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Securities shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor Trustee and deliver
such Securities so authenticated; and, in case at that time any of the
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder or
in the name of the successor trustee; and in all such cases such certificate
shall have the full force which it is anywhere in the Securities or in this
Indenture provided that the certificate of the Trustee shall have; provided that
the right to adopt the certificate of authentication of any predecessor Trustee
or to authenticate Securities in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
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Section 6.13. Preferential Collection of Claims Against
-----------------------------------------
Company.
- --------
If and when the Trustee shall be or become a creditor of the
Company (or other obligor on the Securities), the Trustee shall be subject to
the provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor). A Trustee who has resigned or
been removed shall be subject to Trust Indenture Act Section 311(a) to the
extent indicated therein.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of
-------------------------------------------------
Holders.
- --------
The Company will furnish or cause to be furnished to the
Trustee:
(a) semiannually, not more than 15 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request
in writing, within 30 days after receipt by the Company of any such request, a
list of similar form and content to that in Subsection (a) hereof as of a date
not more than 15 days prior to the time such list is furnished;
Section 7.2. Disclosure of Names and Addresses of Holders.
---------------------------------------------
Holders may communicate pursuant to Trust Indenture Act
Section 312(b) with other Holders with respect to their rights under this
Indenture or the Securities, and the Trustee shall comply with Trust Indenture
Act Section 312(b). The Company, the Trustee, the Registrar and any other Person
shall have the protection of Trust Indenture Act Section 312(c). Further, every
Holder of Securities, by receiving and holding the same, agrees with the Company
and the Trustee that neither the Company nor the Trustee nor any agent of either
of them shall be held accountable by reason of the disclosure of any information
as to the names and addresses of the Holders in accordance with Trust Indenture
Act Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Trust Indenture Action Section
312.
Section 7.3. Reports by Trustee.
-------------------
(a) Within 60 days after May 15 of each year commencing with
the first May 15 after the issuance of Securities, the Trustee, if so required
under the Trust Indenture Act shall transmit by mail to all Holders in the
manner and to the extent provided in Trust Indenture Act
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Section 313(c), a brief report dated as of such May 15 in accordance with and
with respect to the matters required by Trust Indenture Act Section 313(a),
provided that if no event described in Trust Indenture Act Section 313(a) has
occurred within the twelve-month period preceeding the reporting date, no such
report need be transmitted. The Trustee shall also transmit by mail to the
Holders, in the manner and to the extent provided in Trust Indenture Act Section
313(c), a brief report in accordance with and with respect to the matters
required by Trust Indenture Act Sections 313(a) and 313(b)(2).
(b) A copy of each report transmitted to Holders pursuant to
this Section 7.3 shall, at the time of such transmission, be mailed to the
Company and filed with each stock exchange, if any, upon which the Securities
are listed and also with the SEC. The Company will notify the Trustee promptly
if the Securities are listed on any stock exchange.
Section 7.4. Reports by Company.
-------------------
The Company shall:
(a) file with the Trustee, in accordance with Section 10.17
hereof, and in any event within 15 days after the Company is required to file
the same with the SEC, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may from time to time by rules and regulations prescribe) which the
Company is required to file with the SEC pursuant to Section 13 or Section 15(d)
of the Exchange Act; or, if the Company is not required to file information,
documents or reports pursuant to either of said Sections, then it shall (i)
deliver to the Trustee annual audited financial statements of the Company and
its Subsidiaries, prepared on a consolidated basis in conformity with GAAP,
within 120 days after the end of each fiscal year of the Company, and (ii) file
with the Trustee and, to the extent permitted by law, the SEC, in accordance
with rules and regulations prescribed from time to time by the SEC, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations;
(b) file with the Trustee and the SEC, in accordance with the
rules and regulations prescribed from time to time by the SEC, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants for this Indenture as are required from time
to time by such rules and regulations (including such information, documents and
reports referred to in Trust Indenture Act Section 314(a)); and
(c) within 15 days after the filing thereof with the Trustee,
transmit by mail to all Holders in the manner and to the extent provided in
Trust Indenture Act Section 313(c), such summaries of any information, documents
and reports required to be filed by the Company pursuant to Section 10.17
hereunder and subsections (a) and (b) of this Section as is required and not
prohibited by rules and regulations prescribed from time to time by the SEC. At
the
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Company's request and at the Company's expense, the Trustee shall deliver such
documents to the Holders.
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 8.1. Company May Merge, Consolidate, etc., Only on
---------------------------------------------
Certain Terms.
- --------------
The Company will not, in a single transaction or through a
series of related transactions, consolidate with or merge with or into any other
Person or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
affiliated Persons, or permit any of its Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company and its Subsidiaries on a Consolidated
basis to any other Person or group of affiliated Persons, unless at the time and
after giving effect thereto:
(i) either (a) the Company will be the continuing
corporation or (b) the Person (if other than the Company)
formed by such consolidation or into which the Company is
merged or the Person which acquires by sale, assignment,
conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of the Company
and its Subsidiaries on a Consolidated basis (the "Surviving
Entity") will be a corporation duly organized and validly
existing under the laws of the United States of America, any
state thereof or the District of Columbia and such Person
expressly assumes, by a supplemental indenture, in a form
satisfactory to the Trustee, all the obligations of the
Company under the Securities and hereunder, as the case may
be, and the Securities and this Indenture will remain in full
force and effect as so supplemented;
(ii) immediately before and immediately after giving
effect to such transaction on a pro forma basis (and treating
any Indebtedness not previously an obligation of the Company
or any of its Subsidiaries which becomes the obligation of the
Company or any of its Subsidiaries as a result of such
transaction as having been incurred at the time of such
transaction), no Default or Event of Default will have
occurred and be continuing;
(iii) immediately before and immediately after giving
effect to such transaction on a pro forma basis (on the
assumption that the transaction occurred on the first day of
the four-quarter period for which financial results are
available ending immediately prior to the consummation of such
transaction with the
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appropriate adjustments with respect to the transaction being
included in such pro forma calculation), the Company (or the
Surviving Entity if the Company is not the continuing obligor
hereunder) could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness or Permitted Subsidiary
Indebtedness) under Section 10.8; and
(iv) at the time of the transaction the Company or
the Surviving Entity will have delivered, or caused to be
delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officer's Certificate and an
Opinion of Counsel, each to the effect that such
consolidation, merger, transfer, sale, assignment, conveyance,
transfer, lease or other transaction and the supplemental
indenture in respect thereof comply with this Indenture and
that all conditions precedent herein provided for relating to
such transaction have been complied with;
provided, however, that the foregoing prohibition shall not prohibit any merger
between or among Subsidiaries or between a Subsidiary and the Company, provided
the Company is the continuing corporation.
Section 8.2. Successor Substituted.
----------------------
Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company in accordance with Section 8.1, the
successor Person formed by such consolidation or into which the Company is
merged or the successor Person to which such sale, assignment, conveyance,
transfer, lease or disposition is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture,
with the same effect as if such successor had been named as the Company herein.
When a successor assumes all the obligations of its predecessor under this
Indenture or the Securities, the predecessor shall be released from such assumed
obligations and covenants under the indenture and the Securities, as the case
may be; provided that in the case of a transfer by lease, the predecessor shall
not be released from the payment of principal and interest on the Securities.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures and Agreements without
----------------------------------------------
Consent of Holders.
- -------------------
Without the consent of any Holders, the Company and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto in form and substance satisfactory to the
Trustee, for any of the following purposes:
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(a) to evidence the succession of another Person to the
Company or any other obligor on the Securities, and the assumption by any such
successor of the covenants of the Company or obligor herein and in the
Securities in accordance with Article VIII;
(b) to add to the covenants of the Company or any other
obligor on the Securities for the benefit of the Holders, or to surrender any
right or power conferred on the Company or any other obligor on the Securities,
as applicable, herein or in the Securities;
(c) to cure any ambiguity, or to correct or supplement any
provision herein or in any supplemental indenture or the Securities which may be
defective or inconsistent with any other provision herein or in the Securities
or to make any other provisions with respect to matters or questions arising
under this Indenture or the Securities; provided that, in each case, such
provisions shall not adversely affect the interest of the Holders;
(d) to comply with the requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act, as contemplated by Section 9.5 or otherwise;
(e) to evidence and provide the acceptance of the appointment
of a successor trustee hereunder; or
(f) to mortgage, pledge, hypothecate or grant a security
interest in favor of the Trustee for the benefit of the Holders as additional
security for the payment and performance of the Company's Indenture Obligations,
in any property, or assets, including any of which are required to be mortgaged,
pledged or hypothecated, or in which a security interest is required to be
granted to the Trustee pursuant to this Indenture or otherwise.
Section 9.2. Supplemental Indentures and Agreements with
-------------------------------------------
Consent of Holders.
- -------------------
Except as permitted by Section 9.1, with the consent of the
Holders of at least a majority in aggregate principal amount of the Outstanding
Securities, by Act of said Holders delivered to the Company and the Trustee, the
Company when authorized by Board Resolutions, and the Trustee may (i) enter into
an indenture or indentures supplemental hereto in form and substance
satisfactory to the Trustee, for the purpose of adding any provisions to or
amending, modifying or changing in any manner or eliminating any of the
provisions of this Indenture or the Securities (including, but not limited to,
for the purpose of modifying in any manner the rights of the Holders under this
Indenture or the Securities) or (ii) waive compliance with any provision in this
Indenture or the Securities (other than waivers of past Defaults covered by
Section 5.13 and waivers of covenants which are covered by Section 10.19);
provided, however, that no such supplemental indenture, agreement or instrument
shall, without the consent of the Holder of each Outstanding Security affected
thereby:
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(a) change the Stated Maturity of the principal of, or any
installment of interest on, or change to an earlier date any redemption date of,
or waive a default in the payment of the principal or interest on, any such
Security or reduce the principal amount thereof or the rate of interest thereon
or any premium payable upon the redemption thereof, or change the coin or
currency in which the principal of any Security or any premium or the interest
thereon is payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date);
(b) amend, change or modify the obligation of the Company to
make and consummate an Offer with respect to any Asset Sale or Asset Sales in
accordance with Section 10.12 or the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control in
accordance with Section 10.13, including, in each case, amending, changing or
modifying any definitions relating thereto;
(c) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver or compliance with certain provisions of this Indenture;
(d) modify any of the provisions of this Section 9.2 or
Section 5.13 or 10.19, except to increase the percentage of such Outstanding
Securities required for any such actions or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each such Security affected thereby;
(e) except as otherwise permitted under Article VIII, consent
to the assignment or transfer by the Company of any of its rights and
obligations hereunder; or
(f) amend or modify any of the provisions of Article XIII of
this Indenture in any manner adverse to the Holders.
Upon the written request of the Company accompanied by a copy
of Board Resolutions authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the consent of
Holders as aforesaid, the Trustee shall join with the Company in the execution
of such supplemental indenture.
It shall not be necessary for any Act of Holders under this
Section 9.2 to approve the particular form of any proposed supplemental
indenture but it shall be sufficient if such Act shall approve the substance
thereof.
Section 9.3. Execution of Supplemental Indentures and
----------------------------------------
Agreements.
- -----------
In executing, or accepting the additional trusts created by,
any supplemental indenture, agreement, instrument or waiver permitted by this
Article IX or the modifications thereby of the trusts created by this Indenture,
the Trustee shall be entitled to receive, and (subject
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to Trust Indenture Act Sections 315(a) through 315(d) and Section 6.2 hereof)
shall be fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate stating that the execution of such supplemental indenture, agreement
or instrument is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture, agreement
or instrument which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 9.4. Effect of Supplemental Indentures.
----------------------------------
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby
Section 9.5. Conformity with Trust Indenture Act.
------------------------------------
Every supplemental indenture executed pursuant to this Article
IX shall conform to the requirements of the Trust Indenture Act as then in
effect.
Section 9.6. Reference in Securities to Supplemental
---------------------------------------
Indentures.
- -----------
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article IX may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any such supplemental indenture may be
prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities.
Section 9.7. Notice of Supplemental Indentures.
----------------------------------
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of Section 9.2, the
Company shall give notice thereof to the Holders of each Outstanding Security
affected, in the manner provided for in Section 1.7, setting forth in general
terms the substance of such supplemental indenture. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture.
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ARTICLE X
COVENANTS
Section 10.1. Payment of Principal, Premium and Interest.
-------------------------------------------
The Company shall duly and punctually pay the principal of,
premium, if any, and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
Section 10.2. Maintenance of Office or Agency.
--------------------------------
The Company shall maintain an office or agency where
Securities may be presented or surrendered for payment. The Company also will
maintain in The City of New York an office or agency where Securities may be
surrendered for registration of transfer, redemption or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The office of the Trustee, at its Corporate Trust
Office, will be such office or agency of the Company, unless the Company shall
designate and maintain some other office or agency for one or more of such
purposes. The Company will give prompt written notice to the Trustee of the
location and any change in the location of any such offices or agencies. If at
any time the Company shall fail to maintain any such required offices or
agencies or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
office of the Trustee and the Company hereby appoints the Trustee such agent as
its agent to receive all such presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes, and may from time
to time rescind such designation. The Company will give prompt written notice to
the Trustee of any such designation or rescission and any change in the location
of any such office or agency.
The Trustee shall initially act as Paying Agent for the
Securities.
Section 10.3. Money for Security Payments to Be Held in Trust.
------------------------------------------------
If the Company or any of its Affiliates shall at any time act
as Paying Agent, it will, on or before each due date of the principal of,
premium, if any, or interest on any of the Securities, segregate and hold in
trust for the benefit of the Holders entitled thereto a sum sufficient to pay
the principal, premium, if any, or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
will promptly notify the Trustee of its action or failure so to act.
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If the Company or any of its Affiliates is not acting as
Paying Agent, the Company will, on or before each due date of the principal of,
premium, if any, or interest on any of the Securities, deposit with a Paying
Agent a sum in same day funds sufficient to pay the principal, premium, if any,
or interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of such
action or any failure so to act.
If the Company is not acting as Paying Agent, the Company will
cause each Paying Agent other than the Trustee to execute and deliver to the
Trustee an instrument in which such Paying Agent shall agree with the Trustee,
subject to the provisions of this Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of, premium, if any, or interest on the Securities in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company (or
any other obligor upon the Securities) in the making of any payment of
principal, premium, if any, or interest on the Securities;
(c) at any time during the continuance of any such Default,
upon the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects
with the provisions of this Indenture relating to the duties, rights and
disabilities of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
if any, or interest on any Security and remaining unclaimed for two years after
such principal and premium, if any, or interest has become due and payable shall
promptly be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the
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Company cause to be published once, in the NEW YORK TIMES and THE WALL STREET
JOURNAL (national edition), and mail to each such Holder, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification, publication and mailing,
any unclaimed balance of such money then remaining will promptly be repaid to
the Company.
Section 10.4. Corporate Existence.
--------------------
Subject to Article VIII, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence and related rights and franchises (charter and statutory) of
the Company and each Subsidiary; provided, however, that the Company shall not
be required to preserve any such right or franchise or the corporate existence
of any such Subsidiary if the Board of Directors shall determine that the
preservation thereof is no longer necessary or desirable in the conduct of the
business of the Company and its Subsidiaries as a whole; and provided, further,
however, that the foregoing shall not prohibit a sale, transfer or conveyance of
a Subsidiary or any of its assets in compliance with the terms of this
Indenture.
Section 10.5. Payment of Taxes and Other Claims.
----------------------------------
The Company shall pay or discharge or cause to be paid or
discharged, on or before the date the same shall become due and payable, (a) all
taxes, assessments and governmental charges levied or imposed upon the Company
or any of its Subsidiaries shown to be due on any return of the Company or any
of its Subsidiaries or otherwise assessed or upon the income, profits or
property of the Company or any of its Subsidiaries if failure to pay or
discharge the same could reasonably be expected to have a material adverse
effect on the ability of the Company to perform its obligations hereunder and
(b) all lawful claims for labor, materials and supplies, which, if unpaid, would
by law become a Lien upon the property of the Company or any of its
Subsidiaries, except for any Lien permitted to be incurred under Section 10.11,
if failure to pay or discharge the same could reasonably be expected to have a
material adverse effect on the ability of the Company to perform its obligations
hereunder; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings properly instituted and diligently conducted and in
respect of which appropriate reserves (in the good faith judgment of management
of the Company) are being maintained in accordance with GAAP.
Section 10.6. Maintenance of Properties.
--------------------------
The Company shall cause all material properties owned by the
Company or any of its Subsidiaries or used or held for use in the conduct of its
business or the business of any of its Subsidiaries to be maintained and kept in
good condition, repair and working order (ordinary wear and tear excepted) and
supplied with all necessary equipment and will cause to be made all
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necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the reasonable judgment of the Company may be consistent with sound
business practice and necessary so that the business carried on in connection
therewith may be properly conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
maintenance of any of such properties if such discontinuance is, in the
reasonable judgment of the Company, desirable in the conduct of its business or
the business of any of its Subsidiaries; and provided, further, however, that
the foregoing shall not prohibit a sale, transfer or conveyance of a Subsidiary
or any of its properties or assets in compliance with the terms of this
Indenture.
Section 10.7. Insurance.
----------
The Company shall at all times keep all of its and its
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company in good faith to be financially sound and responsible,
against loss or damage to the extent that property of similar character is
usually so insured by corporations similarly situated and owning like properties
in the same general geographic areas in which the Company and its Subsidiaries
operate, except where the failure to do so could not reasonably be expected to
have a material adverse effect on the condition (financial or otherwise),
earnings, business affairs or prospects of the Company and its Subsidiaries,
taken as a whole.
Section 10.8. Limitation on Indebtedness.
---------------------------
The Company will not create, issue, incur, assume, guarantee
or otherwise in any manner become directly or indirectly liable for the payment
of or otherwise suffer to exist (collectively, "incur"), any Indebtedness
(including any Acquired Indebtedness), other than Permitted Indebtedness, unless
such Indebtedness is incurred by the Company and the Company's Consolidated
Fixed Charge Coverage Ratio for the four full fiscal quarters for which
financial results are available immediately preceding the date of incurrence of
such Indebtedness (the "Incurrence Date"), taken as one period (and after giving
pro forma effect to: (i) the incurrence of such Indebtedness and (if applicable)
the application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, at the beginning of such four-quarter period; (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Company
since the first day of such four-quarter period as if such Indebtedness was
incurred, repaid or retired at the beginning of such four-quarter period (except
that, in making such computation, the amount of Indebtedness under any revolving
credit facility shall be computed based upon the average daily balance of such
Indebtedness during such four-quarter period); (iii) in the case of Acquired
Indebtedness, the related acquisition; and (iv) any acquisition or disposition
by the Company and its Subsidiaries of any company or any business or any assets
out of the ordinary course of business, or any related repayment of
Indebtedness, in each case since the first day of such four-quarter period,
assuming such acquisition or disposition and any such related payments had been
consummated on the first day of such four-quarter period), would be at least
1.8:1 from the date hereof to and including
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December 31, 1998, and 2.0:1 thereafter. The Company will not permit any of its
Subsidiaries to incur any Indebtedness (other than Permitted Subsidiary
Indebtedness).
Section 10.9. Limitation on Restricted Payments.
----------------------------------
(a) The Company will not, and will not permit any Subsidiary
to, directly or indirectly:
(i) declare or pay any dividend on, or make any
distribution to holders of, any shares of the Company's
Capital Stock (other than dividends or distributions payable
solely in shares of its Qualified Capital Stock or in options,
warrants or other rights to acquire shares of such Qualified
Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire
for value, directly or indirectly, the Company's Capital Stock
or any Capital Stock of any Affiliate of the Company (other
than Capital Stock of any Wholly Owned Subsidiary of the
Company);
(iii) prior to any scheduled principal payment,
sinking fund payment or maturity of any Subordinated
Indebtedness, make any principal payment on, or repurchase,
redeem, defease, retire or otherwise acquire for value, such
Subordinated Indebtedness (other than any such Indebtedness
owed to the Company or a Wholly Owned Subsidiary);
(iv) declare or pay any dividend or distribution on
any Capital Stock of any Subsidiary to any Person (other than
to the Company or any of its Wholly Owned Subsidiaries) or
purchase, redeem or otherwise acquire or retire for value any
Capital Stock of any Subsidiary held by any person (other than
the Company or any of its Wholly Owned Subsidiaries);
(v) incur, create, or assume, any guarantee of
Indebtedness of any Affiliate of the Company (other than a
Wholly Owned Subsidiary of the Company); or
(vi) make any Investment in any Person
(other than, in the case of clauses (ii) through (vi) above, Permitted
Investments) (any of the foregoing actions described in clauses (i) through
(vi), other than any such action that is a Permitted Payment (as defined below),
collectively, a "Restricted Payment") (the amount of any such Restricted
Payment, if other than cash, being determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution); unless
(1) immediately before and immediately after giving effect to such proposed
Restricted Payment on a pro forma basis, no Default or Event of Default shall
have occurred and be continuing and such Restricted
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Payment shall not be an event which is, or after notice or lapse of time or
both, would be, an "event of default" under the terms of any Indebtedness of the
Company or its Subsidiaries; (2) immediately before and immediately after giving
effect to such Restricted Payment on a pro forma basis, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness or Permitted
Subsidiary Indebtedness) under the provisions of Section 10.8; and (3) after
giving effect to the proposed Restricted Payment, the aggregate amount of all
such Restricted Payments declared or made after the date hereof plus the
Permitted Payments made under clause (b)(vi), do not exceed $5,000,000 plus the
sum of:
(A) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on
January 1, 1998 and ending on the last day of the Company's last fiscal
quarter ending prior to the date of the Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus
100% of such loss); plus
(B) the aggregate Net Cash Proceeds received after the date
hereof by the Company either (x) as capital contributions in the form
of common equity to the Company or (y) from the issuance or sale (other
than to any of its Subsidiaries) of Qualified Capital Stock of the
Company or any options, warrants or rights to purchase such Qualified
Capital Stock of the Company (except, in each case, to the extent such
proceeds are used to purchase, redeem or otherwise retire Capital Stock
or Subordinated Indebtedness as set forth in clause (ii) or (iii) of
paragraph (b) below), in each case, other than Net Cash Proceeds
received from the issuance or sale of Qualified Capital Stock or
options, warrants or rights to purchase Qualified Capital Stock in, or
otherwise received in connection with, the Refinancing; plus
(C) the aggregate Net Cash Proceeds received after the date
hereof by the Company (other than from any of its Subsidiaries) upon
the exercise of any options, warrants or rights to purchase Qualified
Capital Stock of the Company; plus
(D) the aggregate Net Cash Proceeds received after the date
hereof by the Company from the conversion or exchange, if any, of debt
securities or Redeemable Capital Stock of the Company or its
Subsidiaries into or for Qualified Capital Stock of the Company plus,
to the extent such debt securities or Redeemable Capital Stock were
issued after the date hereof, the aggregate of Net Cash Proceeds from
their original issuance; plus
(E) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the date
hereof, an amount equal to the lesser of the return of capital with
respect to such Investment and the initial amount of such Investment,
in either case, less the cost of the disposition of such Investment.
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(b) Notwithstanding the foregoing, and in the case of clauses
(ii) through (vii) below, so long as there is no Default or Event of Default
continuing, the foregoing provisions shall not prohibit the following actions
(each of clauses (i) through (vii) being referred to as a "Permitted Payment"):
(i) the payment of any dividend within 60 days after
the date of declaration thereof if at the date of declaration
thereof such other dividend (A) would be permitted by the
provisions of paragraph (a) of this Section and (B) shall be
deemed to have been paid on such date of declaration for
purposes of the calculation required by paragraph (a) of this
Section;
(ii) the repurchase, redemption, or other acquisition
or retirement for value of any shares of any class of Capital
Stock of the Company in exchange for (including any such
exchange pursuant to the exercise of a conversion right or
privilege in connection with which cash is paid in lieu of the
issuance of fractional shares or scrip), or out of the Net
Cash Proceeds of a substantially concurrent issue and sale for
cash (other than to a Subsidiary) of, other shares of
Qualified Capital Stock of the Company; provided that the Net
Cash Proceeds from the issuance of such shares of Qualified
Capital Stock are, to the extent so used, excluded from clause
(3) (B) of paragraph (a) of this Section;
(iii) the repurchase, redemption, defeasance,
retirement or acquisition for value or payment of principal of
any Subordinated Indebtedness or Redeemable Capital Stock in
exchange for, or in an amount not in excess of the Net Cash
Proceeds of, a substantially concurrent issuance and sale for
cash (other than to any Subsidiary) of any Qualified Capital
Stock of the Company, provided that the Net Cash Proceeds from
the issuance of such shares of Qualified Capital Stock are, to
the extent so used, excluded from clause (3)(B) of paragraph
(a) of this Section;
(iv) the repurchase, redemption, defeasance,
retirement, refinancing, acquisition for value or payment of
principal of any Subordinated Indebtedness (other than
Redeemable Capital Stock) (a "refinancing") through the
substantially concurrent issuance of new Subordinated
Indebtedness of the Company, provided that any such new
Subordinated Indebtedness (1) shall be in a principal amount
that does not exceed the principal amount so refinanced (or,
if such Subordinated Indebtedness provides for an amount less
than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, then such lesser amount
as of the date of determination), plus the lesser of (I) the
stated amount of any premium or other payment required to be
paid in connection with such a refinancing pursuant to the
terms of the Indebtedness being refinanced, or (II) the amount
of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount
of expenses of the Company incurred in connection with such
refinancing; (2) has an Average Life to Stated
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Maturity greater than the remaining Average Life to Stated
Maturity of the Securities; (3) has a Stated Maturity for its
final scheduled principal payment later than the Stated
Maturity for the final scheduled principal payment of the
Securities; and (4) is expressly subordinated in right of
payment to the Securities at least to the same extent as the
Subordinated Indebtedness to be refinanced;
(v) the repurchase, redemption, defeasance,
retirement, refinancing, acquisition for value or payment of
any Redeemable Capital Stock through the substantially
concurrent issuance of new Redeemable Capital Stock of the
Company, provided that any such new Redeemable Capital Stock
(1) shall have an aggregate liquidation preference that does
not exceed the aggregate liquidation preference of the amount
so refinanced; (2) has an Average Life to Stated Maturity
greater than the remaining Average Life to Stated Maturity of
the Securities; and (3) has a Stated Maturity later than the
Stated Maturity for the final scheduled principal payment of
the Securities;
(vi) the repurchase of shares of, or options or
warrants to purchase shares of, common stock of the Company or
any of its Subsidiaries from employees, former employees,
directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees,
former employees, directors or former directors), pursuant to
the terms of the agreements (including employment agreements)
or plans (or amendments thereto) approved by the Board of
Directors under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such common
stock; and
(vii) the repurchase, redemption, defeasance,
retirement or acquisition for value of the 13% Notes on or
prior to their scheduled maturity.
Section 10.10. Limitation on Transactions with Affiliates.
-------------------------------------------
The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, enter into any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with or for the benefit of
any Affiliate of the Company (other than the Company or a Subsidiary) unless
such transaction or series of related transactions is entered into in good faith
and (a) such transaction or series of related transactions is on terms that are
no less favorable to the Company or such Subsidiary, as the case may be, than
those that would be available in a comparable transaction in arm's-length
dealings with an unrelated third party, (b) with respect to any transaction or
series of related transactions involving aggregate value in excess of
$1,000,000, the Company delivers an Officers' Certificate to the Trustee
certifying that such transaction or series of related transactions complies with
clause (a) above, and (c) with respect to any transaction or series of related
transactions involving aggregate value in excess of $10,000,000, either (A) such
transaction or series of related transactions has been approved by a majority of
the Disinterested Directors of the
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Company, or in the event there is only one Disinterested Director, by such
Disinterested Director, or (B) the Company delivers to the Trustee a written
opinion of an investment banking firm of national standing or other recognized
independent expert with experience appraising the terms and conditions of the
type of transaction or series of related transactions for which an opinion is
required stating that the transactions or series of related transactions are
fair to the Company or such Subsidiary from a financial point of view; provided,
however, that clauses (a) through (c) above shall not apply to (i) any
transaction with an employee or director of the Company or any of its
Subsidiaries entered into in the ordinary course of business (including
compensation and employee benefit arrangements with any officer, director or
employee of the Company or any Subsidiary, including under any stock option or
stock incentive plans), (ii) Restricted Payments made in accordance with Section
10.9 or Permitted Payments, (iii) any transactions related to the Securitization
Facility, (iv) management agreements or similar agreements between (A) the
Company or any Subsidiary and (B) Affiliates in which the Company or any
Subsidiary has made an Investment, and (v) contributions by the Company or any
Subsidiary to a real estate investment trust pursuant to clause (ix) of the
definition of Permitted Investments.
Section 10.11. Limitation on Liens.
--------------------
The Company will not, and will not permit any Subsidiary to,
directly or indirectly, create or incur any Lien of any kind securing any Pari
Passu Indebtedness or Subordinated Indebtedness (including any assumption,
guarantee or other liability with respect thereto by any Subsidiary) upon any
property or assets (including any intercompany notes) of the Company or any
Subsidiary owned on the date hereof or acquired after the date hereof, or any
income or profits therefrom, unless the Securities are directly secured equally
and ratably with (or, in the case of Subordinated Indebtedness, prior or senior
thereto, with the same relative priority as the Securities shall have with
respect to such Subordinated Indebtedness) the obligations or liability secured
by such Lien except for Liens (A) securing any Indebtedness which became
Indebtedness pursuant to a transaction permitted under Section 8.1 or securing
Acquired Indebtedness which, in each case, were created prior to (and not
created in connection with, or in contemplation of) the incurrence of such Pari
Passu Indebtedness or Subordinated Indebtedness (including any assumption,
guarantee or other liability with respect thereto by any Subsidiary) and which
Indebtedness is permitted under the provisions of Section 10.8, (B) securing any
Indebtedness incurred in connection with any refinancing, renewal, substitutions
or replacements of any such Indebtedness described in clause (A), so long as the
aggregate principal amount of Indebtedness represented thereby is not increased
by such refinancing by an amount greater than the lesser of (i) the stated
amount of any premium or other payment required to be paid in connection with
such a refinancing pursuant to the terms of the Indebtedness being refinanced,
or (ii) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of expenses of the
Company incurred in connection with such refinancing, provided, however, that in
the case of clauses (A) and (B), any such Lien only extends to the assets that
were subject to such Lien securing such Indebtedness prior to the related
acquisition by the Company or its Subsidiaries, or (C) securing Indebtedness
incurred to effect a defeasance of the Securities pursuant to Article IV.
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Section 10.12. Limitation on Sale of Assets..
------------------------------
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, consummate an Asset Sale unless (i) at
least 75% of the consideration from such Asset Sale is received in cash or Cash
Equivalents, and (ii) the Company or such Subsidiary receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the
shares or assets subject to such Asset Sale (as determined by the Board of
Directors and evidenced in a Board Resolution).
(b) If all or a portion of the Net Cash Proceeds of any Asset
Sale are not required to be applied to repay permanently any Senior Indebtedness
then outstanding as required by the terms thereof, or the Company determines not
to apply such Net Cash Proceeds to the permanent prepayment of such Senior
Indebtedness, or if no such Senior Indebtedness is then outstanding, then the
Company or a Subsidiary may, within 360 days of the Asset Sale, invest the Net
Cash Proceeds in properties and other assets that (as determined by the Board of
Directors) replace the properties and assets that were the subject of the Asset
Sale or in properties and assets that will be used in the businesses of the
Company or its Subsidiaries existing on the date hereof or in businesses
reasonably related or complementary thereto. The amount of such Net Cash
Proceeds not applied to repay Senior Indebtedness or used or invested within 360
days of the Asset Sale as set forth in this paragraph constitutes "Excess
Proceeds".
(c) When the aggregate amount of Excess Proceeds exceeds
$15,000,000, the Company will apply the Excess Proceeds to the repayment of the
Securities and any other Pari Passu Indebtedness outstanding with provisions
requiring the Company to make an offer to purchase or to purchase or redeem such
Indebtedness with the proceeds from any Asset Sale as follows: (A) the Company
will make an offer to purchase (an "Offer") from all holders of the Securities
in accordance with the procedures set forth in this Indenture in the maximum
principal amount (expressed as a multiple of $1,000) of Securities that may be
purchased out of an amount (the "Securities Amount") equal to the product of
such Excess Proceeds multiplied by a fraction, the numerator of which is the
outstanding principal amount of the Securities, and the denominator of which is
the sum of the outstanding principal amount of the Securities and such Pari
Passu Indebtedness (subject to proration in the event such amount is less than
the aggregate Offered Price (as defined herein) of all Securities tendered), and
(B) to the extent required by such Pari Passu Indebtedness to permanently reduce
the principal amount of such Pari Passu Indebtedness, the Company will make an
offer to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a
"Pari Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the
excess of the Excess Proceeds over the Securities Amount; provided that in no
event will the Company be required to make a Pari Passu Offer in a Pari Passu
Debt Amount exceeding the principal amount of such Pari Passu Indebtedness plus
the amount of any premium required to be paid to repurchase such Pari Passu
Indebtedness. The offer price for the Securities will be payable in cash in an
amount equal to 100% of the principal amount of the Securities plus accrued and
unpaid interest, if any, to the date (the "Offer Date") such Offer is
consummated (the "Offered Price"), in accordance with the procedures set forth
in this Indenture. To the extent that
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the aggregate Offered Price of the Securities tendered pursuant to the Offer is
less than the Securities Amount relating thereto or the aggregate amount of Pari
Passu Indebtedness that is purchased in a Pari Passu Offer is less than the Pari
Passu Debt Amount, the Company will use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Securities and
Pari Passu Indebtedness surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Securities to be purchased on a
pro rata basis. Upon the completion of the purchase of all the Securities
tendered pursuant to an Offer and the completion of a Pari Passu Offer, the
amount of Excess Proceeds, if any, shall be reset at zero.
(d) If the Company becomes obligated to make an Offer pursuant
to clause (c) above, the Securities and the Pari Passu Indebtedness shall be
purchased by the Company, at the option of the holders thereof, in whole or in
part in integral multiples of $1,000, on a date that is not earlier than 30 days
and not later than 60 days from the date the notice of such Offer is given to
holders, or such later date as may be necessary for the Company to comply with
the requirements under the Exchange Act.
(e) The Company will comply with the applicable tender offer
rules, including Rule 14e-l under the Exchange Act, and any other applicable
securities laws or regulations in connection with an Offer.
Section 10.13. Purchase of Securities upon a Change of
---------------------------------------
Control.
- --------
(a) If a Change of Control shall occur at any time, then each
Holder shall have the right to require that the Company purchase such Holder's
Securities in whole or in part in integral multiples of $1,000 at a purchase
price (the "Change of Control Purchase Price") in cash in an amount equal to
101% of the principal amount of such Securities, plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date"), pursuant to the offer described below in this Section 10.13 (the "Change
of Control Offer") and in accordance with the other procedures set forth in
subsections (b), (c), (d) and (e) of this Section 10.13.
(b) Within 30 days following any Change of Control, the
Company shall notify the Trustee thereof and give written notice (a "Change of
Control Purchase Notice") of such Change of Control to each Holder by
first-class mail, postage prepaid, at his address appearing in the Security
Register, stating among other things:
(1) that a Change of Control has occurred, the date
of such event, and that such Holder has the right to require
the Company to repurchase such Holder's Securities at the
Change of Control Purchase Price;
(2) the circumstances and relevant facts regarding
such Change of Control (including but not limited to, if
applicable, information with respect to pro forma historical
income, cash flow and capitalization after giving effect to
such Change of Control);
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(3) (i) the most recently filed Annual Report on Form
10-K (including audited consolidated financial statements) of
the Company, the most recent subsequently filed Quarterly
Report on Form 10-Q, as applicable, and any Current Report on
Form 8-K of the Company filed subsequent to such Quarterly
Report (or in the event the Company is not required to prepare
any of the foregoing Forms, the comparable information
required to be prepared by the Company pursuant to Section
10.17), (ii) a description of material developments, if any,
in the Company's business subsequent to the date of the latest
of such reports and (iii) such other information, if any,
concerning the business of the Company which the Company in
good faith believes will enable such Holders to make an
informed investment decision regarding the Change of Control
Offer;
(4) that the Change of Control Offer is being made
pursuant to this Section 10.13 and that all Securities
properly tendered pursuant to the Change of Control Offer will
be accepted for payment at the Change of Control Purchase
Price;
(5) the Change of Control Purchase Date, which shall
be a Business Day no earlier than 30 days nor later than 60
days from the date such notice is mailed, or such later date
as is necessary to comply with requirements under the Exchange
Act;
(6) the Change of Control Purchase Price;
(7) the names and addresses of the Paying Agent and
the offices or agencies referred to in Section 10.2;
(8) that Securities must be surrendered not later
than one Business Day prior to the Change of Control Purchase
Date to the Paying Agent at the office of the Paying Agent or
to an office or agency referred to in Section 10.2 to collect
payment;
(9) that the Change of Control Purchase Price for any
Security which has been properly tendered and not withdrawn
will be paid promptly following the Change of Control Offer
Purchase Date;
(10) the procedures that a Holder must follow to
accept a Change of Control Offer or to withdraw such
acceptance;
(11) that any Security not tendered will continue to
accrue interest; and
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<PAGE> 113
(12) that, unless the Company defaults in the payment
of the Change of Control Purchase Price, any Securities
accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control
Purchase Date.
(c) Upon receipt by the Company of the proper tender of
Securities, the Holder of the Security in respect of which such proper tender
was made shall (unless the tender of such Security is properly withdrawn)
thereafter be entitled to receive solely the Change of Control Purchase Price
with respect to such Security. Upon surrender of any such Security for purchase
in accordance with the foregoing provisions, such Security shall be paid by the
Company at the Change of Control Purchase Price; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Change of
Control Purchase Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such on the relevant Regular
Record Dates according to the terms and the provisions of Section 3.9. Holders
electing to have Securities purchased will be required to surrender such
Securities to the Paying Agent at the address specified in the Change of Control
Purchase Notice at least one Business Day prior to the Change of Control
Purchase Date. Any Security that is to be purchased only in part shall be
surrendered to a Paying Agent at the office of such Paying Agent (with, if the
Company, the Security Registrar or the Trustee so requires, due endorsement by,
or a written instrument of transfer in form satisfactory to the Company and the
Security Registrar or the Trustee, as the case may be, duly executed by, the
Holder thereof or such Holder's attorneys duly authorized in writing), and the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Security, without service charge, one or more new Securities of
any authorized denomination as requested by such Holder in an aggregate
principal amount equal to, and in exchange for, the portion of the principal
amount of the Security so surrendered that is not purchased.
(d) The Company shall (i) not later than the Change of Control
Purchase Date, accept for payment Securities or portions thereof tendered
pursuant to the Change of Control Offer, (ii) not later than 10:00 a.m. (New
York time) on the Change of Control Purchase Date, deposit with the Trustee or
with a Paying Agent an amount of money in same day funds (or New York Clearing
House funds if such deposit is made prior to the Change of Control Purchase
Date) sufficient to pay the aggregate Change of Control Purchase Price of all
the Securities or portions thereof which are to be purchased as of the Change of
Control Purchase Date and (iii) not later than 10:00 a.m. (New York time) on the
Change of Control Purchase Date, deliver to the Paying Agent an Officers'
Certificate stating the Securities or portions thereof accepted for payment by
the Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the Change of Control
Purchase Price of the Securities purchased from each such Holder, and the
Company shall execute and the Trustee shall promptly authenticate and mail or
deliver to such Holders a new Security equal in principal amount to any
unpurchased portion of the Security surrendered. Any Securities not so accepted
shall be promptly mailed or delivered by the Paying Agent at the Company's
expense to the Holder thereof. The Company will publicly announce the results of
the Change of Control Offer on the
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Change of Control Purchase Date. For purposes of this Section 10.13, the Company
shall choose a Paying Agent which shall not be the Company.
(e) A tender made in response to a Change of Control Purchase
Notice may be withdrawn if the Company receives, not later than one Business Day
prior to the Change of Control Purchase Date, a telegram, telex, facsimile
transmission or letter, specifying, as applicable:
(1) the name of the Holder;
(2) the certificate number of the Security in respect
of which such notice of withdrawal is being submitted;
(3) the principal amount of the Security (which shall
be $1,000 or an integral multiple thereof) delivered for
purchase by the Holder as to which such notice of withdrawal
is being submitted;
(4) a statement that such Holder is withdrawing his
election to have such principal amount of such Security
purchased; and
(5) the principal amount, if any, of such Security
(which shall be $1,000 or an integral multiple thereof) that
remains subject to the original Change of Control Purchase
Notice and that has been or will be delivered for purchase by
the Company.
(f) Subject to applicable escheat laws, the Trustee and the
Paying Agent shall return to the Company any cash that remains unclaimed,
together with interest or dividends, if any, thereon, held by them for the
payment of the Change of Control Purchase Price; provided, however, that, (x) to
the extent that the aggregate amount of cash deposited by the Company pursuant
to clause (ii) of paragraph (d) above exceeds the aggregate Change of Control
Purchase Price of the Securities or portions thereof to be purchased, then the
Trustee shall hold such excess for the Company and (y) unless otherwise directed
by the Company in writing, promptly after the Business Day following the Change
of Control Purchase Date the Trustee shall return any such excess to the Company
together with interest, if any, thereon.
(g) The Company shall comply, to the extent applicable, with
the applicable tender offer rules, including Rule 14e-1 under the Exchange Act,
and any other applicable securities laws or regulations in connection with a
Change of Control Offer.
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Section 10.14. Limitation on Preferred Stock of Subsidiaries.
----------------------------------------------
The Company will not permit (a) any Subsidiary of the Company
to issue any Preferred Stock, except for (i) Preferred Stock issued to the
Company or a Wholly-Owned Subsidiary and (ii) Preferred Stock issued by a Person
prior to the time (A) such Person becomes a Subsidiary, (B) such Person merges
with or into a Subsidiary or (C) a Subsidiary merges with or into such Person;
provided that such Preferred Stock referred to in clause (ii) above was not
issued or incurred by such Person in anticipation of the type of transaction
contemplated by subclause (A), (B) or (C), or (b) any Person (other than the
Company, or a Wholly-Owned Subsidiary) to acquire Preferred Stock of any
Subsidiary from the Company or any Subsidiary, except, in the case of clause (a)
or (b), upon the acquisition of all the outstanding Preferred Stock of such
Subsidiary in accordance with the terms hereof.
Section 10.14A. Limitation on Senior Subordinated
---------------------------------
Indebtedness.
- -------------
The Company will not, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise in any manner become directly or
indirectly liable for or with respect to or otherwise permit to exist any
Indebtedness that is subordinate in right of payment to any Indebtedness of the
Company unless such Indebtedness is also pari passu with the Securities or
subordinate in right of payment to the Securities at least to the same extent as
the Securities are subordinate in right of payment to Senior Indebtedness.
Section 10.15. Limitation on Dividends and Other Payment
-----------------------------------------
Restrictions Affecting Subsidiaries.
- ------------------------------------
The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or suffer to exist any
consensual encumbrance or restriction on the ability of any Subsidiary to (i)
pay dividends or make any other distribution on its Capital Stock, (ii) pay any
Indebtedness owed to the Company or any other Subsidiary, (iii) make any
Investment in the Company or any other Subsidiary or (iv) transfer any of its
properties or assets to the Company or any other Subsidiary, except for: (a) any
encumbrance or restriction pursuant to any agreement in effect on the date
hereof; (b) any encumbrance or restriction, with respect to a Subsidiary that is
not a Subsidiary of the Company on the date hereof, in existence at the time
such Person becomes a Subsidiary of the Company and not incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary; (c) customary
non-assignment or subletting provisions of any lease, license or other contract;
(d) any restriction entered into in the ordinary course of business contained in
any lease of any Subsidiary or any security agreement or mortgage securing
Indebtedness of any Subsidiary to the extent such restriction restricts the
transfer of property subject to such security agreement, mortgage or lease; (e)
any restriction contained in an agreement pursuant to which Permitted Subsidiary
Indebtedness is incurred; and (f) any encumbrance or restriction existing under
any agreement that amends, substitutes, restructures, supplements, extends,
renews, refinances or replaces or otherwise modifies the agreements containing
the encumbrances or restrictions in the foregoing clauses (a), (b), (c), (d) or
(e), or in
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this clause (f); provided that the terms and conditions of any such encumbrances
or restrictions are no more restrictive in any material respect than those under
or pursuant to the agreement evidencing the Indebtedness so amended,
substituted, restructured, supplemented, extended, renewed, refinanced, replaced
or modified.
Section 10.16. Limitations on Unrestricted Subsidiaries.
-----------------------------------------
The Company will not make, and will not permit its
Subsidiaries to make, an Investment in Unrestricted Subsidiaries unless, at the
time thereof, (a) the aggregate amount of such Investments would not exceed the
amount of Restricted Payments then permitted to be made pursuant to the
provisions of Section 10.9 or (b) such Investment is a Permitted Investment.
Except for Permitted Investments, any Investment in Unrestricted Subsidiaries
permitted to be made pursuant to this covenant (i) must be permitted to be made
pursuant to the provisions of Section 10.9 and will be treated as a Restricted
Payment in calculating the amount of Restricted Payments made by the Company,
and (ii) may be made in cash or property.
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Section 10.17. Provision of Financial Statements.
----------------------------------
After the earlier to occur of the consummation of the Exchange
Offer and the 120th calendar day following the date of original issue of the
Securities, whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, the Company will, to the extent permitted under the Exchange
Act, file with the SEC the annual reports, quarterly reports and other documents
which the Company would have been required to file with the SEC pursuant to
Sections 13(a) or 15(d) of the Exchange Act if the Company were so subject, such
documents to be filed with the SEC on or prior to the date (a "Required Filing
Date") by which the Company would have been required so to file such documents
if the Company were so subject. The Company will also in any event (x) within 15
days of each Required Filing Date occurring after the issuance of the Securities
(i) transmit by mail to all Holders, as their names and addresses appear in the
Security Register, without cost to such holders and (ii) file with the Trustee
copies of the annual reports, quarterly reports and other documents which the
Company would have been required to file with the SEC pursuant to Sections 13(a)
or 15(d) of the Exchange Act if the Company were subject to either of such
Sections and (y) if filing such documents by the Company with the SEC is not
permitted under the Exchange Act, promptly upon written request and payment of
the reasonable cost of duplication and delivery, supply copies of such documents
to any prospective Holder at the Company's cost. So long as any of the
Securities remain Outstanding, the Company will make available to any
prospective purchaser of Securities or beneficial owner of Securities in
connection with any sale thereof the information required by Rule 144A(d)(4)
under the Securities Act, until such time as the Company has either exchanged
the Securities for securities identical in all material respects which have been
registered under the Securities Act or until such time as the Holders thereof
have disposed of such Securities pursuant to an effective registration statement
under the Securities Act.
Section 10.18. Statement by Officers as to Default.
------------------------------------
(a) The Company will deliver to the Trustee, on or before a
date not more than 120 days after the end of each fiscal year of the Company
ending after the date hereof, a written statement signed by two executive
officers of the Company, one of whom shall be the principal executive officer,
principal financial officer or principal accounting officer of the Company, as
to compliance herewith, including whether or not, after a review of the
activities of the Company during such year and of the Company's performance
under this Indenture, to the best knowledge, based on such review, of the
signers thereof, the Company has fulfilled all of its respective obligations and
is in compliance with all conditions and covenants under this Indenture
throughout such year and, if there has been a Default specifying each Default
and the nature and status thereof and any actions being taken by the Company
with respect thereto.
(b) When any Default or Event of Default has occurred and is
continuing, or if the Trustee or any Holder or the trustee for or the holder of
any other evidence of Indebtedness of the Company or any Subsidiary gives any
notice or takes any other action with respect to a claimed default the Company
shall deliver to the Trustee by registered or certified mail or
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facsimile transmission followed by hard copy of an Officers' Certificate
specifying such Default, Event of Default, notice or other action, the status
thereof and what actions the Company is taking or proposes to take with respect
thereto, within ten Business Days of becoming aware of its occurrence.
Section 10.19. Waiver of Certain Covenants.
----------------------------
The Company may omit in any particular instance to comply with
any covenant or condition set forth in Sections 10.6 through 10.11 and 10.14
through 10.18, if, before or after the time for such compliance, the Holders of
not less than a majority in aggregate principal amount of the Securities at the
time Outstanding shall, by Act of such Holders, waive such compliance in such
instance with such covenant or provision, but no such waiver shall extend to or
affect such covenant or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such covenant or condition shall remain
in full force and effect.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Rights of Redemption.
---------------------
(a) The Securities are subject to redemption at any time on or
after October 15, 2002, at the option of the Company, in whole or in part,
subject to the conditions, and at the Redemption Prices, specified in the form
of Security, together with accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on relevant Regular
Record Dates and Special Record Dates to receive interest due on relevant
Interest Payment Dates and Special Payment Dates).
(b) In addition, at any time on or prior to October 15, 2000,
the Company may, at its option, use the net proceeds of one or more Public
Equity Offerings to redeem up to an aggregate of 35% of the aggregate principal
amount of Securities originally issued under this Indenture at a redemption
price equal to 109.875% of the aggregate principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the Redemption Date; provided that at
least $146,250,000 aggregate principal amount of Securities remains outstanding
immediately after the occurrence of such redemption. In order to effect the
foregoing redemption, the Company must mail a notice of redemption no later than
60 days after the related Public Equity Offering and must consummate such
redemption within 90 days of the closing of the Public Equity Offering.
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Section 11.2. Applicability of Article.
-------------------------
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article XI.
Section 11.3. Election to Redeem; Notice to Trustee.
--------------------------------------
The election of the Company to redeem any Securities pursuant
to Section 11.1 shall be evidenced by a Company Order and an Officers'
Certificate. In case of any redemption at the election of the Company, the
Company shall, not less than 45 nor more than 60 days prior to the Redemption
Date fixed by the Company (unless a shorter notice period shall be satisfactory
to the Trustee), notify the Trustee in writing of such Redemption Date and of
the principal amount of Securities to be redeemed.
Section 11.4. Selection by Trustee of Securities to Be
----------------------------------------
Redeemed.
- ---------
If less than all the Securities are to be redeemed, the
particular Securities or portions thereof to be redeemed shall be selected not
more than 45 days prior to the Redemption Date. The Trustee shall select the
Securities or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable. The amounts to be redeemed
shall be equal to $1,000 or any integral multiple thereof.
If requested by the Company, the Trustee shall promptly notify
the Company and the Security Registrar in writing of the Securities selected for
redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part, to
the portion of the principal amount of such Security which has been or is to be
redeemed.
Section 11.5. Notice of Redemption.
---------------------
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 30 days nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at its address
appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
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(c) if less than all Outstanding Securities are to be
redeemed, the identification of the particular Securities to be redeemed;
(d) in the case of a Security to be redeemed in part, the
principal amount of such Security to be redeemed and that after the Redemption
Date upon surrender of such Security, new Security or Securities in the
aggregate principal amount equal to the unredeemed portion thereof will be
issued;
(e) that Securities called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security or portion thereof to be
redeemed, and that (unless the Company shall default in payment of the
Redemption Price) interest thereon shall cease to accrue on and after said date;
(g) the names and addresses of the Paying Agent and the
offices or agencies referred to in Section 10.2 where such Securities are to be
surrendered for payment of the Redemption Price;
(h) the CUSIP number, if any, relating to such Securities; and
(i) the procedures that a Holder must follow to surrender the
Securities to be redeemed.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
written request, by the Trustee in the name and at the expense of the Company.
If the Company elects to give notice of redemption, it shall provide the Trustee
with a certificate stating that such notice has been given in compliance with
the requirements of this Section 11.5.
The notice if mailed in the manner herein provided shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
Section 11.6. Deposit of Redemption Price.
----------------------------
On or prior to 10:00 a.m., New York time, on any Redemption
Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if
the Company or any of its Affiliates is acting as Paying Agent, segregate and
hold in trust as provided in Section 10.3) an
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amount of money in same day funds sufficient to pay the Redemption Price of, and
(except if the Redemption Date shall be an Interest Payment Date or Special
Payment Date) accrued interest on, all the Securities or portions thereof which
are to be redeemed on that date. The Paying Agent shall promptly mail or deliver
to Holders of Securities so redeemed payment in an amount equal to the
Redemption Price of the Securities purchased from each such Holder. All money,
if any, earned on funds held in trust by the Trustee or any Paying Agent shall
be remitted to the Company. For purposes of this Section 11.6, the Company shall
choose a Paying Agent which shall not be the Company.
Section 11.7. Securities Payable on Redemption Date.
--------------------------------------
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified and from and after such date
(unless the Company shall default in the payment of the Redemption Price and
accrued interest) such Securities shall cease to bear interest. Holders will be
required to surrender the Securities to be redeemed to the Paying Agent at the
address specified in the notice of redemption at least one Business Day prior to
the Redemption Date. Upon surrender of any such Security for redemption in
accordance with said notice, such Security shall be paid by the Company at the
Redemption Price together with accrued interest to the Redemption Date;
provided, however, that installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders of such Securities,
or one or more Predecessor Securities, registered as such on the relevant
Regular Record Dates and Special Record Dates according to the terms and the
provisions of Section 3.9.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate borne by such
Security.
Section 11.8. Securities Redeemed or Purchased in Part.
-----------------------------------------
Any Security which is to be redeemed or purchased only in part
shall be surrendered to the Paying Agent at the office or agency maintained for
such purpose pursuant to Section 10.2 (with, if the Company, the Security
Registrar or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company, the Security
Registrar or the Trustee, as the case may be, duly executed by, the Holder
thereof or such Holder's attorney duly authorized in writing), and the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder of
such Security without service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder in aggregate principal
amount equal to, and in exchange for, the unredeemed portion of the principal of
the Security so surrendered that is not redeemed or purchased.
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ARTICLE XII
SATISFACTION AND DISCHARGE
Section 12.1. Satisfaction and Discharge of Indenture.
----------------------------------------
This Indenture shall be discharged and shall cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Securities as expressly provided for herein) as to all Outstanding
Securities hereunder, and the Trustee, upon Company Request and at the expense
of the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) either
(1) all the Securities theretofore authenticated and
delivered (other than (i) lost, stolen or destroyed Securities
which have been replaced or paid as provided in Section 3.8 or
(ii) all Securities for whose payment United States dollars
have theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the
Company or discharged from such trust as provided in Section
10.3) have been delivered to the Trustee for cancellation; or
(2) all such Securities not theretofore delivered to
the Trustee for cancellation (i) have become due and payable,
(ii) will become due and payable at their Stated Maturity
within one year or (iii) are to be called for redemption
within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company; and the Company has
irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust an amount in United States
dollars sufficient to pay and discharge the entire
Indebtedness on the Securities not theretofore delivered to
the Trustee for cancellation, including the principal of,
premium, if any, and accrued interest on, such Securities at
such Maturity, Stated Maturity or Redemption Date;
(b) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Independent Counsel, in form and substance
reasonably satisfactory to the Trustee, each stating that (i) all conditions
precedent herein relating to the satisfaction and discharge hereof have been
complied with and (ii) such satisfaction and discharge will not result in a
breach or violation of, or constitute a default under, this Indenture or any
other material agreement or instrument to which the Company or any Subsidiary is
a party or by which the Company or any Subsidiary is bound.
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Notwithstanding the satisfaction and discharge hereof, the
obligations of the Company to the Trustee under Section 6.6 and, if United
States dollars shall have been deposited with the Trustee pursuant to subclause
(2) of subsection (a) of this Section 12.1, the obligations of the Trustee under
Section 12.2 and the last paragraph of Section 10.3 shall survive.
Section 12.2. Application of Trust Money.
---------------------------
Subject to the provisions of the last paragraph of Section
10.3, all United States dollars deposited with the Trustee pursuant to Section
12.1 shall be held in trust and applied by it, in accordance with the provisions
of the Securities and this Indenture, to the payment, either directly or through
any Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal of,
premium, if any, and interest on, the Securities for whose payment such United
States dollars have been deposited with the Trustee.
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinate to Senior Indebtedness.
----------------------------------------------
Anything in this Indenture or the Securities to the contrary
notwithstanding, the Company covenants and agrees, and each Holder of a
Security, by his acceptance thereof, likewise covenants and agrees, that, to the
extent and in the manner hereinafter set forth in this Article, the Indebtedness
represented by the Securities and the payment of the principal of, premium, if
any, and interest on (including any payment required under any provision of this
Indenture and the Securities, including Sections 10.12 and 10.13), each and all
of the Securities and the other Indenture Obligations are hereby expressly made
subordinate and subject in right of payment as provided in this Article to the
prior payment in full, in cash or Cash Equivalents or, as acceptable to the
holders of Senior Indebtedness, in any other manner, of the Senior Indebtedness
(including any interest accruing after the occurrence of an Event of Default
under Section 5.1(g) or (h), whether or not such interest is an allowed claim
enforceable against the debtor in a case brought under the Bankruptcy Law).
As used in this Indenture and the Securities, "paying the
Securities", "payment of the Securities" and similar phrases mean any direct or
indirect payment or distribution by or on behalf of the Company on account of
principal of (or premium, if any) or interest on the Securities, the Indenture
Obligations or other amounts owed by the Company under this Indenture and the
Securities (other than amounts owing to the Trustee pursuant to Section 6.7
hereof) or to acquire or repurchase pursuant to the provisions of this Indenture
or redeem, retire or defease all or any portion of the Securities or to make any
deposit, payment or transfer in furtherance of the foregoing.
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This Article Thirteen shall constitute a continuing offer to
all Persons who, in reliance upon such provisions, become holders or continue to
hold Senior Indebtedness; and such provisions are made for the benefits of the
holders of Senior Indebtedness; and such holders are made obligees hereunder and
they or each of them may enforce such provisions.
Section 13.2. Payment Over of Proceeds Upon Dissolution, etc.
-----------------------------------------------
In the event of (a) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relative to the Company or to its
creditors, as such, or to its assets, or (b) any liquidation, dissolution or
other winding up of the Company, whether voluntary or involuntary, or whether or
not involving insolvency or bankruptcy, or (c) any assignment for the benefit of
creditors or any other marshaling of assets or liabilities of the Company,
whether voluntary or involuntary, or whether or not involving insolvency or
bankruptcy, then and in any such event:
(1) the holders of Senior Indebtedness shall be entitled to
receive payment in full in cash or Cash Equivalents or, as acceptable to the
holders of Senior Indebtedness, in any other manner, of all amounts due on or in
respect of Senior Indebtedness before the Holders of the Securities are entitled
to receive any payment or distribution of any kind or character (excluding
securities of the Company or any other corporation that are equity securities or
are subordinate in right of payment to all Senior Indebtedness, that may be
outstanding, to substantially the same extent as, or to a greater extent than,
the Securities are so subordinated as provided in this Article ("Permitted
Junior Securities")) on account of the principal of, premium, if any, or
interest on the Securities or other Indenture Obligations or on account of the
purchase, redemption, defeasance or other acquisition of , or in respect of, the
Securities or other Indenture Obligations (other than amounts previously set
aside with the Trustee, or payments previously made, in either case, in
accordance with the provisions of Sections 4.2 and 4.3 of this Indenture); and
(2) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (excluding
Permitted Junior Securities), by set-off or otherwise, to which the Holders or
the Trustee would be entitled but for the provisions of this Article shall be
paid by the liquidating trustee or agent or the Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise, directly to the holders of Senior Indebtedness or their
representative or representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, ratably according to the aggregate amounts remaining
unpaid on account of the Senior Indebtedness held or represented by each, to the
extent necessary to make payment in full in cash or Cash Equivalents or, as
acceptable to the holders or Senior Indebtedness, in any other manner, of all
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness; and
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(3) in the event that, notwithstanding the foregoing
provisions of this Section, the Trustee or the Holder of any Security shall have
received any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (excluding Permitted Junior
Securities), in respect of principal, premium, if any, and interest on the
Securities or other Indenture Obligations before all Senior Indebtedness is paid
in full, in cash or Cash Equivalents or, as acceptable to the holder of Senior
Indebtedness, in any other manner, then and in such event such payment or
distribution (excluding Permitted Junior Securities) shall be paid over or
delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payments or distributions of
assets of the Company for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full
in cash or Cash Equivalents or, as acceptable to the holders of Senior
Indebtedness, in any other manner, after giving effect to any concurrent payment
or distribution to or for the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the
Company with or into, another Person or the liquidation or dissolution of the
Company following the sale, assignment, conveyance, transfer, lease or other
disposal of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a dissolution, winding up, liquidation, reorganization, assignment for
the benefit of creditors or marshaling of assets and liabilities of the Company
for the purposes of this Section if the Person formed by such consolidation or
the surviving entity of such merger or the Person which acquires by sale,
assignment, conveyance, transfer, lease or other disposal of such properties and
assets substantially as an entirety, as the case may be, shall, as a part of
such consolidation, merger, sale, assignment, conveyance, transfer, lease or
other disposal, comply with the conditions set forth in Article Eight.
Section 13.3. Suspension of Payment When Designated Senior
--------------------------------------------
Indebtedness in Default.
- ------------------------
(a) Upon the occurrence and during the continuance of any
default in the payment of any Designated Senior Indebtedness beyond any
applicable grace period ( a "Payment Default"), no payment (other than amounts
previously set aside with the Trustee or payments previously made, in either
case, in accordance with Section 4.2 and 4.3 in this Indenture) or distribution
of any assets of the Company or any Subsidiary of any kind or character
(excluding Permitted Junior Securities) may be made by the Company or any
Subsidiary on account of the principal of, premium, if any, or interest on, the
Securities or other Indenture Obligations, or on account of the purchase,
redemption, defeasance or other acquisition of or in respect of, the Securities
or other Indenture Obligations unless and until such Payment Default shall have
been cured or waived or shall have ceased to exist or the Designated Senior
Indebtedness shall have been discharged or paid in full, in cash or Cash
Equivalents or, as acceptable to the holders of Senior Indebtedness, in any
other manner, after which the Company shall (subject to the other provisions of
this Article Thirteen) resume making any and all required payments in respect of
the Securities, including any missed payments.
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(b) (1) Upon the occurrence and during the continuance of any
non-payment default with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may then be accelerated immediately (a
"Non-payment Default") and (2) after the receipt by the Trustee and the Company
from a Senior Representative of any Designated Senior Indebtedness of written
notice of such Non-payment Default, no payment (other than any amounts
previously set aside with the Trustee, or payments previously made, in either
case, in accordance with the provisions of Sections 4.2 or 4.3 in this
Indenture) or distribution of any assets of the Company of any kind or character
(excluding Permitted Junior Securities) may be made by the Company or any
Subsidiary on account of the principal of, premium, if any, or interest on, the
Securities or other Indenture Obligations, or on account of the purchase,
redemption, defeasance or other acquisition of, or in respect of, the Securities
or other Indenture Obligations for the period specified below ("Payment Blockage
Period").
(c) A Payment Blockage Period shall commence upon the receipt
of notice of the Non-payment Default by the Trustee and the Company from a
Senior Representative and shall end on the earliest of (i) the 179th day after
such commencement, (ii) the date on which such Non-payment Default (and all
Non-payment Defaults as to which notice is given after such Payment Blockage
Period is initiated) is cured, waived or ceases to exist or on which such
Designated Senior Indebtedness is discharged or paid in full, in cash or Cash
Equivalents or, as acceptable to the holders of Senior Indebtedness, in any
other manner, or (iii) the date on which such Payment Blockage Period (and all
Non-payment Defaults as to which notice is given after such Payment Blockage
Period is initiated) shall have been terminated by written notice to the Company
or the Trustee from the Senior Representative initiating such Payment Blockage
Period, after which, in the case of clauses (i), (ii) and (iii), the Company
shall promptly resume making any and all required payments in respect of the
Securities, including any missed payments. In no event will a Payment Blockage
Period extend beyond 179 days from the date of the receipt by the Company and
the Trustee of the notice initiating such Payment Blockage Period (such 179-day
period referred to as the "Initial Period"). Any number of notices of
Non-payment Defaults may be given during the Initial Period; provided that
during any period of 365 consecutive days only one Payment Blockage Period,
during which payment of principal of, premium, if any, or interest on, the
Securities may not be made, may commence and the duration of such period may not
exceed 179 days. No Non-payment Default with respect to any Designated Senior
Indebtedness that existed or was continuing on the date of the commencement of
any Payment Blockage Period will be, or can be, made the basis for the
commencement of a second Payment Blockage Period, whether or not within a period
of 365 consecutive days, unless such default has been cured or waived for a
period of not less than 90 consecutive days. The Company shall deliver a notice
to the Trustee promptly after the date on which any Non-payment Default is cured
or waived or ceases to exist or on which the Designated Senior Indebtedness
related thereto is discharged or paid in full, in cash or Cash Equivalents or,
as acceptable to the holders of Senior Indebtedness, in any other manner, and
the Trustee is authorized to act in reliance on such notice.
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(d) In the event that, notwithstanding the foregoing, the
Company or any Subsidiary shall make any payment or distribution to or for the
benefit of the Trustee or the Holder of any Security prohibited by the foregoing
provisions of this Section, then and in such event such payment or distribution
shall be paid over and delivered forthwith to a Senior Representative of the
holders of the Designated Senior Indebtedness or as a court of competent
jurisdiction shall direct.
Section 13.4. Payment Permitted if No Default.
--------------------------------
Nothing contained in this Article, elsewhere in this Indenture
or in any of the Securities shall prevent the Company, at any time except during
the pendency of any case, proceeding, dissolution, liquidation or other
winding-up, assignment for the benefit or creditors or other marshaling of
assets and liabilities of the Company referred to in Section 13.2 or under the
conditions described in Section 13.3, from making payments at any time of
principal of, premium, if any, or interest on the Securities.
Section 13.5. Subrogation to Rights of Holders of Senior
------------------------------------------
Indebtedness.
- -------------
After the payment in full, in cash or Cash Equivalents or, as
acceptable to the holders of Senior Indebtedness, in any other manner, of all
Senior Indebtedness, the Holders of the Securities shall be subrogated to the
rights of the holders of such Senior Indebtedness to receive payments and
distributions of cash, property and securities applicable to the Senior
Indebtedness until the principal of, premium, if any, and interest on, the
Securities shall be paid in full, in cash or Cash Equivalents or, as acceptable
to the holders of Securities, in any other manner. For purposes of such
subrogation, no payments or distributions to the holders of Senior Indebtedness
of any cash, property or securities to which the Holders of the Securities or
the Trustee would be entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the holders of
Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among
the Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Securities, be deemed to be a payment or distribution by the
Company to or account of the Senior Indebtedness.
Section 13.6. Provisions Solely to Define Relative Rights.
--------------------------------------------
The provisions of this Article are and are intended solely for
the purpose of defining the relative rights of the Holders of the Securities on
the one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders of
the Securities the principal of, and premium, if any, and interest on, the
Securities as and when the same shall become due and payable in accordance with
their terms; or (b) affect the relative rights against the Company or the
Holders of the Securities and creditors of the Company other than the
-121-
<PAGE> 128
holders of the Senior Indebtedness; or (c) prevent the Trustee or the Holder of
any Security from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article of the holders of Senior Indebtedness (1) in any case, proceeding,
dissolution, liquidation or other winding up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the Company referred
to in Section 13.2, to receive, pursuant to and in accordance with such Section,
cash, property and securities otherwise payable or deliverable to the Trustee or
such Holder, (2) under the conditions specified in Section 13.3, to prevent any
payment prohibited by such Section or enforce their rights pursuant to Section
13.3(d), or (3) as specified in Section 5.2.
Section 13.7. Trustee to Effectuate Subordination.
------------------------------------
Each Holder of a Security by his acceptance thereof authorizes
and directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company whether in bankruptcy, insolvency, receivership
proceedings, or otherwise, the timely filing of a claim for the unpaid balance
of the indebtedness of the Company owing to such Holder in the form required in
such proceedings and the causing of such claim to be approved. If the Trustee
does not file such a claim prior to 30 days before the expiration of the time to
file a claim, the holders of Senior Indebtedness, or any Senior Representative,
may file such a claim on behalf of the Holders of the Securities.
Section 13.8. No Waiver of Subordination Provisions.
--------------------------------------
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section, the holders of Senior Indebtedness may at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (1) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter or
increase, Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding; (2) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Indebtedness; (3) release any Person liable in any manner for
the collection or payment of Senior Indebtedness; and (4) exercise or refrain
from exercising any rights against the Company
-122-
<PAGE> 129
and any other Person; provided, however, that in no event shall any such actions
limit the right of the Holders of the Securities to take any action to
accelerate the maturity of the Securities pursuant to Article Five of this
Indenture or to pursue any rights or remedies hereunder or under applicable laws
if the taking of such actions does not otherwise violate the terms of this
Indenture.
(c) The provisions of this Article Thirteen shall be
reinstated if at any time any payment of any of the Senior Indebtedness is
rescinded or must otherwise be returned by any holder of Senior Indebtedness
upon the insolvency, bankruptcy or reorganization of the Company or otherwise.
Section 13.9. Notice to Trustee.
------------------
(a) The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would prohibit the making of any
payment to or by the Trustee in respect of the Securities. Notwithstanding the
provisions of this Article or any other provision of this Indenture, the Trustee
shall not be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until the Trustee shall have received written notice
thereof from the Company or a holder of Senior Indebtedness or from a Senior
Representative or any trustee, fiduciary or agent therefor; and, prior to the
receipt of any such written notice, the Trustee shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section by Noon,
Eastern Time, on the Business Day prior to the date upon which by the terms
hereof any money may become payable for any purpose (including, without
limitation, the payment of the principal of, premium, if any, or interest on any
Security), then, anything herein contained to the contrary notwithstanding but
without limiting the rights and remedies of the holders of Senior Indebtedness,
a Senior Representative or any trustee, fiduciary or agent thereof, the Trustee
shall have full power and authority to receive such money and to apply the same
to the purpose for which such money was received and shall not be affected by
any notice to the contrary which may be received by it after such date; nor
shall the Trustee be charged with knowledge of the curing of any such default or
the elimination of the act or condition preventing any such payment unless and
until the Trustee shall have received an Officers' Certificate to such effect.
(b) The Trustee shall be entitled to rely on the delivery to
it of a written notice to the Trustee and the Company by a Person representing
himself to be a Senior Representative or a holder of Senior Indebtedness (or a
trustee, fiduciary or agent therefor) to establish that such notice has been
given by a Senior Representative or a holder of Senior Indebtedness (or a
trustee, fiduciary or agent therefor); provided, however, that failure to give
such notice to the Company shall not affect in any way the ability of the
Trustee to rely on such notice. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article, the Trustee may request such Person to furnish
evidence to the reasonable
-123-
<PAGE> 130
satisfaction of the Trustee as to the amount of Senior Indebtedness held by such
Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article, and if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
Section 13.10. Reliance on Judicial Orders or Certificates.
--------------------------------------------
Upon any payment or distribution of assets of the Company
referred to in this Article, the Trustee and the Holders of the Securities shall
be entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other person
making such payment or distribution, or a certificate of a Senior
Representative, delivered to the Trustee or to the Holders of the Securities for
the purpose of ascertaining the Persons entitled to participate in such payment
or distribution, the holders of Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article,
provided that the foregoing shall apply only if such court has been fully
appraised of the provisions of this Article.
Section 13.11. Rights of Trustee as a Holder of Senior
---------------------------------------
Indebtedness; Preservation of Trustee's Rights.
- -----------------------------------------------
The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder. Nothing in this Article shall apply to claims
of, or payments to, the Trustee under or pursuant to Section 6.7.
Section 13.12. Article Applicable to Paying Agents.
------------------------------------
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting under this
Indenture, the term "Trustee" as used in this Article shall in such case (unless
the context otherwise requires) be construed as extending to and including such
Paying Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article in addition to or in place of the
Trustee; provided, however, that Section 13.11 shall not apply to the Company or
any Affiliate of the Company if it or such Affiliate acts as Paying Agent.
-124-
<PAGE> 131
Section 13.13. No Suspensions of Remedies.
---------------------------
Nothing contained in this Article shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article Five of this Indenture or to
pursue any rights or remedies hereunder or under applicable law, subject to the
rights, if any, under this Article of the holders, from time to time, of Senior
Indebtedness to receive the cash, property or securities receivable upon the
exercise of such rights or remedies.
Section 13.14. Trustee's Relation to Senior Indebtedness.
------------------------------------------
With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligation as are specifically set forth in this Article, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Article against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness and the
Trustee shall not be liable to any holder of Senior Indebtedness if it shall in
good faith mistakenly (absent negligence or willful misconduct or violation of
Section 13.9(a)) pay over or deliver to Holders, the Company or any other Person
moneys or assets to which any holder of Senior Indebtedness shall be entitled by
virtue of this Article or otherwise.
-125-
<PAGE> 132
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the day and year first above written.
BALLY TOTAL FITNESS HOLDING CORPORATION
By: /s/ John W. Dwyer
---------------------------
Name: John W. Dwyer
Title: Senior Vice President and
Chief Financial Officer
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By: /s/ Kathe Barrett
---------------------------
Name: Kathe Barrett
Title: Trust Officer
-126-
<PAGE> 133
STATE OF NEW YORK )
)ss:
COUNTY OF NEW YORK )
On the 7th day of October, 1997, before me personally came
John W. Dwyer, to me known, who, being by me duly sworn, did depose and say
that he resides at Illinois; that he is an authorized officer of Bally
Total Fitness Holding Corporation, one of the corporations described in and
which executed the foregoing instrument; that he knows the corporate seal of
such corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed pursuant to authority of the Board of Directors of
such corporation; and that he signed his name thereto pursuant to like
authority.
(NOTARIAL SEAL)
/s/ Nikos Buxeda
---------------------
-----------------------
Notary Public, State of New York
No. __________
Qualified in ___________ County
Commission Expires __________
NIKOS BUXEDA
Notary Public, State of New York
No. 02BU5070321
Qualified in Kings County
Certificate filed in New York County
Commission Expires December 9, 1998
<PAGE> 134
STATE OF NEW YORK )
)ss:
COUNTY OF NEW YORK )
On the 7th day of October, 1997, before me personally came
Kathe Barrett, to me known, who, being by me duly sworn, did depose and say
that she resides at Minnesota; that she is an authorized officer of First Trust
National Association, one of the corporations described in and which executed
the foregoing instrument; that she knows the corporate seal of such corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed pursuant to authority of the Board of Directors of such corporation; and
that she signed her name thereto pursuant to like authority.
(NOTARIAL SEAL)
/s/ Nikos Buxeda
---------------------
-----------------------
Notary Public, State of New York
No. __________
Qualified in ___________ County
Commission Expires ___________
NIKOS BUXEDA
Notary Public, State of New York
No. 02BU5070321
Qualified in Kings County
Certificate filed in New York County
Commission Expires December 9, 1998
<PAGE> 135
SCHEDULE I
Existing Indebtedness
<PAGE> 136
BALLY TOTAL FITNESS HOLDING CORPORATION
DEBT SCHEDULE
OCTOBER 7, 1997
<TABLE>
<CAPTION>
Original Maturity
Date of Loan Date of
Lender Borrower Agreement Loan
- --------------------------------------------- --------------------------------------- ------------ --------
<S> <C> <C> <C>
NON-SUBORDINATED DEBT:
Chase Manhattan Revolving Credit Bally Total Fitness Holding Corporation 6/26/95 6/26/98
Mortgage Notes (secured by real property):
Ohio Savings Bank I (Beachwood) Spa Associates Limited Partnership 7/1/87 10/14/97
Ohio Savings Bank II (Cleveland) Spa Associates Limited Partnership 11/1/87 11/30/97
Union Bank and Trust Bally Total Fitness Corporation 4/15/93 3/31/00
NCB Term Scandinavian Health Spa, Inc. 7/1/86 12/31/02
NCB Scandinavian Health Spa, Inc. 11/1/92 12/31/02
NCB IRB Scandinavian Health Spa, Inc. 12/1/94 12/1/97
Boatmen's Bank (Hilltop) Bally Total Fitness Corporation 8/1/88 7/31/08
Other Secured Debt (secured
by assets other than real property):
Spa Liquidating Trust Holiday Health Clubs of the Southeast, Inc. 10/1/81 3/30/98
Lyon Credit Corporation Bally Total Fitness Holding Corporation 7/29/96 7/29/99
Lyon Credit Corporation Bally Total Fitness Holding Corporation 2/1/97 1/1/00
State of Maryland (Econ Dev Opp) Bally Total Fitness Corporation 1/16/96 1/16/03
A/R Securitization Facility H&T Receivable Funding Corporation 12/16/96 11/15/00
Unsecured Debt:
Vic Tanny One Vic Tanny International of Cleveland, Inc. 11/1/81 4/30/98
Federal Realty Holiday Universal, Inc. 10/1/83 9/30/98
Gerald Hines Houston Health Clubs, Inc. 9/1/80 6/30/99
Equitable Life Assurance Holiday Health Clubs, Inc. 7/1/97 6/1/12
</TABLE>
<PAGE> 137
BALLY TOTAL FITNESS HOLDING CORPORATION
ANALYSIS OF LONG-TERM DEBT
OCTOBER 7, 1997
<TABLE>
<CAPTION>
Original Maturity
Date of Loan Date of
Lender Borrower Agreement Loan
- --------------------------- ----------------------------------------- -------------- --------------
<S> <C> <C> <C>
Capital Leases: Bally Total Fitness Holding Corporation
Life Fitness 1/1/96 12/31/98
Information Leasing Corp 2/1/96 1/31/99
Life Fitness 3/14/96 2/14/99
Life Fitness 4/3/96 3/3/99
Life Fitness 5/4/96 4/4/99
Life Fitness 6/5/96 5/5/99
Life Fitness 6/10/96 5/10/99
Life Fitness 6/18/96 5/18/99
Life Fitness 6/19/96 5/19/99
Life Fitness 6/25/96 5/25/99
Unisys 11/1/95 6/30/99
IBM 8/30/96 9/1/99
Life Fitness 11/1/96 10/1/99
Life Fitness 11/25/96 10/25/99
Life Fitness 12/14/96 11/14/99
Life Fitness 1/1/97 12/1/99
Life Fitness 1/4/97 12/4/99
Life Fitness 1/8/97 12/8/99
Life Fitness 1/16/97 12/16/99
AT&T Capital Corp 2/1/97 1/1/00
Life Fitness 2/4/97 1/4/00
Life Fitness 2/9/97 1/9/00
Life Fitness 2/26/97 1/26/00
Life Fitness 2/27/97 1/27/00
AT&T Riverside 3/1/97 2/1/00
AT&T Galleria 3/15/97 2/15/00
Life Fitness 3/16/97 2/16/00
Life Fitness 3/31/97 2/28/00
Information Leasing Corp 4/1/96 3/31/00
BankVest Capital 4/1/97 4/1/00
Life Fitness 4/10/97 4/10/00
Information Leasing Corp 6/1/97 5/1/00
BankVest Capital 5/1/97 5/1/00
BankVest Capital 5/20/97 5/20/00
BankVest Capital 6/1/97 6/1/00
BankVest Capital 6/10/97 6/10/00
Life Fitness 7/15/97 6/15/00
BankVest Capital 6/20/97 6/20/00
Life Fitness 7/24/97 6/24/00
</TABLE>
<PAGE> 138
BALLY TOTAL FITNESS HOLDING CORPORATION
ANALYSIS OF LONG-TERM DEBT
OCTOBER 7, 1997
<TABLE>
<CAPTION>
Maturity
Date of Loan Date of
Lender Borrower Agreement Loan
- ---------------------------------------------- ------------------------------- ----------- -----------
<S> <C> <C> <C>
Capital Leases (continued)
Life Fitness 7/25/97 6/25/00
Information Leasing Corp. 8/1/97 7/1/00
BankVest Capital 7/10/97 7/10/00
BankVest Capital 8/1/97 8/1/00
BankVest Capital 8/10/97 8/10/00
Life Fitness 9/24/97 8/24/00
Life Fitness 10/25/97 9/25/00
Life Fitness 10/26/97 9/26/00
Life Fitness 10/27/97 9/27/00
Life Fitness 10/28/97 9/28/00
Cybex 4/1/96 11/15/00
Federal Signs I 12/1/95 11/30/00
Federal Signs II 3/1/96 2/28/01
Federal Signs III 9/1/96 8/1/01
Cybex 12/15/96 10/15/01
Cybex 11/15/96 11/15/01
Cybex 1/15/97 11/15/01
Cybex 2/15/97 12/15/01
G&L Management Company 3/1/97 2/1/02
Cybex 4/15/97 2/15/02
Federal Signs IV 5/1/97 4/1/02
SUBORDINATED DEBT:
Sr. Subordinated Debentures Bally Total Fitness Holding Corp. 1/20/93 1/25/03
INTERCOMPANY LOANS:
Bally Total Fitness Holding Corporation Subsidiaries Various Various
Subsidiaries Bally Total Fitness Holding Corp. Various Various
Subsidiaries Subsidiaries Various Various
</TABLE>
* Indicates rate is based on a floating rate.
<PAGE> 139
SCHEDULE II
Existing Unrestricted Subsidiaries
<PAGE> 140
Exhibit A
---------
Form of Certificate
to be Delivered upon
Termination of Restricted Period
--------------------------------
On or after __________, 1997
[Trustee Name and Address]
Attention:
Re: Bally Total Fitness Holding Corporation (the "Company")
9-7/8% Senior Subordinated Notes due 2007 (the "Securities")
------------------------------------------------------------
Ladies and Gentlemen:
This letter relates to U.S. $_________ principal amount of
Securities represented by the global note certificate (the "Offshore Global
Security"). Pursuant to Section 3.6 of the Indenture dated as of October 7, 1997
relating to the Securities (the "Indenture"), we hereby certify that (1) we are
the beneficial owner of such principal amount of Securities represented by the
Offshore Global Security and (2) we are a person outside the United States to
whom the Securities could be transferred in accordance with Rule 904 of
Regulation S promulgated under the United States Securities Act of 1933, as
amended. Accordingly, you are hereby requested to issue a certificated Security
representing the undersigned's interest in the principal amount of Securities
represented by the Global Security, all in the manner provided by the Indenture.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:_________________________
Authorized Signature
A-1
<PAGE> 141
Exhibit B
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors
---------------------------------------------
------------, ------
Bally Total Fitness Holding Corporation
c/o [Trustee Name and Address]
Attention: Corporate Trust Division
Re: Bally Total Fitness Holding Corporation (the "Company")
9-7/8% Senior Subordinated Notes due 2007 (the "Securities")
------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of $__________
aggregate principal amount of the Securities:
1. We understand that the Securities have not been registered
under the United States Securities Act of 1933, as amended (the "Securities
Act"), and may not be sold within the United States or to, or for the benefit
of, U.S. Persons except as permitted in the following sentence. We agree on our
own behalf and on behalf of any investor account for which we are purchasing the
Securities to offer, resell, pledge or otherwise transfer such Securities prior
to the date which is two years after the later of the date of original issue and
the last date on which the Company or any affiliate of the Company was the owner
of such Securities, or any predecessor thereto (the "Resale Restriction
Termination Date") only (a) to the Company, (b) pursuant to a registration
statement which has been declared effective under the Securities Act, (c) for so
long as the Securities are eligible for resale pursuant to Rule 144A under the
Securities Act ("Rule 144A"), inside the United States to a person we reasonably
believe is a qualified institutional buyer under Rule 144A (a "QIB") that
purchases for its own account or for the account of a QIB to whom notice is
given that the transfer is being made in reliance on Rule 144A, (d) outside the
United States pursuant to offers and sales to non-U.S. Persons in an Offshore
Transaction within the meaning of Regulation S under the Securities Act, (e)
inside the United States to an institutional "accredited investor" within the
meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities
Act that is acquiring the Securities for its own account or for the account of
such an institutional "accredited investor" for investment purposes and not with
a view to, or for offer or sale in connection with, any distribution thereof in
violation
B-1
<PAGE> 142
of the Securities Act or (f) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
and the property of such investor account or accounts be at all times within our
or their control and to compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Securities
is proposed to be made pursuant to clause (e) above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from the
transferee substantially in the form of this letter to the Trustee, which shall
provide, among other things, that the transferee is an institutional "accredited
investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501
under the Securities Act and that it is acquiring such Securities for investment
purposes and not for distribution in violation of the Securities Act. We
acknowledge that the Company and the Trustee reserve the right prior to any
offer, sale or other transfer prior to the Resale Restriction Termination Date
of the Securities pursuant to clauses (d), (e) and (f) above to require the
delivery of an opinion of counsel, certifications and/or other information
satisfactory to the Company and the Trustee. As used herein, the terms "United
States", "Offshore Transaction", and "U.S. Person" have the respective meanings
given to them by Regulation S under the Securities Act.
2. We are an institutional "accredited investor" (as defined
in Rule 501 (a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
purchasing for our own account or for the account of such an institutional
"accredited investor," and we are acquiring the Securities for investment
purposes and not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act or the securities laws of any
state of the United States or any other applicable jurisdiction, provided that
the disposition of our property and the property of any accounts for which we
are acting as fiduciary shall remain at all times within our and their control;
and we have such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able to
bear the economic risk of our or its investment.
3. We are acquiring the Securities purchased by us for our own
account or for one or more accounts as to each of which we exercise sole
investment discretion.
4. We understand that the Trustee will not be required to
accept for registration of transfer any Securities acquired by us, except upon
presentation of evidence satisfactory to the Company and the Trustee that the
foregoing restrictions on transfer have been complied with. We further
understand that the Securities purchased by us will be in the form of definitive
physical certificates and that such certificates will bear a legend reflecting
the substance of this paragraph. We further agree to provide to any person
acquiring any of the Securities from us a notice advising such person that
resales of the Securities are restricted as stated herein and that certificates
representing the Notes will bear a legend to that effect.
B-2
<PAGE> 143
5. We acknowledge that you, the Company, the Trustee and
others will rely upon our acknowledgments, representations and agreements set
forth herein, and we agree to notify you promptly in writing if any of our
acknowledgments, representations or agreements herein cease to be accurate and
complete.
6. We represent to you that we have full power to make the
foregoing acknowledgments, representations and agreements on our own behalf and
on behalf of any investor account for which we are acting as a fiduciary or
agent.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
By:
-------------------------------
(Name of Purchaser)
Date:
------------------------------
B-3
<PAGE> 144
Upon transfer, the Securities should be registered in the name
of the new beneficial owner as follows:
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Taxpayer ID Number:
-------------------------------------------------------------
B-4
<PAGE> 145
Exhibit C
---------
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
---------------------------
---------------, -------
[Trustee Name and Address]
Attention:
Re: Bally Total Fitness Holding Corporation (the "Company")
9-7/8% Senior Subordinated Notes due 2007 (the "Securities")
------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____________
aggregate principal amount of the Securities, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S ("Regulation S") under
the United States Securities Act of 1933, as amended, and, accordingly, we
represent that:
(1) the offer of the Securities was not made to a
person in the United States;
(2) either (a) at the time the buy order was
originated, the transferee was outside the United States or we
and any person acting on our behalf reasonably believed that
the transferee was outside the United States or (b) the
transaction was executed in, on or through the facilities of a
designated off-shore securities market and neither we nor any
person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the
United States in contravention of the requirements of Rule
903(b) or Rule 904(b) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme
to evade the registration requirements of the United States
Securities Act of 1933, as amended.
In addition, if the sale is made during a restricted period
and the provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are
applicable thereto, we confirm that such sale has
C-1
<PAGE> 146
been made in accordance with the applicable provisions of Rule 903(c)(2) or Rule
904(c)(1), as the case may be.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
----------------------------------
Authorized Signature
C-2
<PAGE> 147
APPENDIX I
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- -----------------------------
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- ---------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing
- ---------------------------------------------------------------------
attorney to transfer such Security on the books of the Company with full power
of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES FOR SERIES A SECURITIES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Security occurring
prior to the date which is the earlier of the date of an effective Registration
Statement or October 7, 1999, the undersigned confirms that without utilizing
any general solicitation or general advertising that:
[Check One]
[ ] (a) this Security is being transferred in compliance with the
exemption from registration under the United States Securities Act
of 1993, as amended, provided by Rule 144A thereunder.
or
--
I-1
<PAGE> 148
[ ] (b) Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the
Indenture.
If none of the foregoing boxes is checked, the Trustee or other Security
Registrar shall not be obligated to register this Security in the name of any
Person other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 3.7 of the Indenture
shall have been satisfied.
Date:
-------------------
----------------------------------------
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
Signature Guarantee:
-----------------------
[Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Securities Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Securities Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act.]
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A ("Rule 144A")
under the United States Securities Act of 1933, as amended, and is aware that
the sale to it is being made in reliance on Rule 144A and acknowledges that it
has received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
------------------ ----------------------------------------------------
NOTICE: To be executed by an authorized signatory
I-2
<PAGE> 149
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Security to:
- ---------------------------------------------
Please insert social security or other identifying number of assignee
- ---------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Print or type name, address and zip code of assignee and irrevocably appoint
- -----------------------------------------------------------------------------
[Agent], to transfer this Security on the books of the Company. The Agent may
substitute another to act for him.
Dated Signed
---------------- -----------------------------------
(Sign exactly as name appears on the other side of this Security)
[Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Securities Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Securities Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act.]
II-1
<PAGE> 150
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of October 7, 1997
Trust Indenture Indenture
Act Section Section
- --------------- ---------
Section 310 (a)(1)......................................................6.9
(a)(2)......................................................6.9
(a)(5)......................................................6.9
(b)...................................................6.7, 6.10
Section 311 (a)........................................................6.13
(b)........................................................6.13
Section 312 (a).........................................................7.1
(b).........................................................7.2
(c).........................................................7.2
Section 313 (a).........................................................7.3
(b).........................................................7.3
(c).........................................................7.3
(d).........................................................7.3
Section 314 (a)(1)......................................................7.4
(a)(2)......................................................7.4
(a)(3)......................................................7.4
(a)(4) ...................................................10.18
(c)(1)......................................................1.3
(c)(2)......................................................1.3
(e).........................................................1.3
Section 315 (a).........................................................6.1
(b).........................................................6.2
(c).........................................................6.1
(d)....................................................6.1, 6.3
(e)........................................................5.14
Section 316 (a) (last sentence).........................1.1 ("Outstanding")
(a)(1)(A)..................................................5.12
(a)(2)(B)..................................................5.13
(b).........................................................5.8
(c).........................................................1.5
Section 317 (a)(1)......................................................5.3
(a)(2)......................................................5.4
(b)........................................................10.3
Section 318 (a).........................................................1.8
- -------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of this Indenture.
II-2
<PAGE> 1
Exhibit 4.2
===================================
REGISTRATION RIGHTS AGREEMENT
Dated as of October 7, 1997
among
Bally Total Fitness Holding Corporation
and
Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Chase Securities Inc.,
Societe Generale Securities Corporation
and
Ladenburg Thalmann & Co. Inc.
===================================
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") made and entered into
this 7th day of October, 1997 among Bally Total Fitness Holding Corporation, a
Delaware corporation (the "Company"), and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Chase Securities Inc., Societe Generale
Securities Corporation and Ladenburg Thalmann & Co. Inc. (collectively, the
"Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated
September 29, 1997, (the "Purchase Agreement"), among the Company and the
Initial Purchasers which provides for, among other things, the sale by the
Company to the Initial Purchasers of an aggregate of $225,000,000 aggregate
principal amount of the Company's 9-7/8% Senior Subordinated Notes due 2007 (the
"Securities"). In order to induce the Initial Purchasers to enter into the
Purchase Agreement, the Company has agreed to provide to the Initial Purchasers
and their direct and indirect transferees the registration rights set forth in
this Agreement. The execution of this Agreement is a closing condition under the
Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"CLOSING DATE" shall mean the Closing Time as defined in the Purchase
Agreement.
"COMPANY" shall have the meaning set forth in the preamble and shall
also include the Company's successors.
"DEPOSITARY" shall mean The Depository Trust Company, or any other
depositary appointed by the Company; PROVIDED, HOWEVER, that such depositary
must have an address in the Borough of Manhattan in the City of New York.
" EXCHANGE ACT" shall mean the United States Securities Exchange Act of
1934, as amended from time to time.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2.1 hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the
Securities Act effected pursuant to Section 2.1 hereof.
<PAGE> 3
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form), and all amendments and supplements to such registration statement, in
each case including the Prospectus contained therein, all exhibits thereto and
all documents incorporated by reference therein.
"EXCHANGE PERIOD" shall have the meaning set forth in Section 2.1
hereof.
"EXCHANGE SECURITIES" shall mean the 9-7/8% Senior Subordinated Notes
due 2007 issued by the Company under the Indenture containing terms identical to
the Securities in all material respects (except for references to certain
interest rate provisions, restrictions on transfers and restrictive legends), to
be offered to Holders of Securities in exchange for Registrable Securities
pursuant to the Exchange Offer.
"HOLDER" shall mean an Initial Purchaser, for so long as it owns any
Registrable Securities, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable Securities
under the Indenture.
"INDENTURE" shall mean the Indenture dated as of October 7, 1997,
between the Company and First Trust National Association, as trustee, relating
to the Securities as the same may be amended, supplemented, waived or otherwise
modified from time to time in accordance with the terms thereof.
"INITIAL PURCHASER" or "INITIAL PURCHASERS" shall have the meaning set
forth in the preamble.
"ISSUE DATE" shall mean the date on which the Securities are originally
issued under the Indenture.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of Outstanding (as defined in the Indenture)
Registrable Securities; PROVIDED, that whenever the consent or approval of
Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company and other obligors on the
Securities or any Affiliate (as defined in the Indenture) of the Company shall
be disregarded in determining whether such consent or approval was given by the
Holders of such required percentage amount.
"PARTICIPATING BROKER-DEALER" shall mean, collectively, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Chase Securities Inc., Societe Generale
Securities Corporation and Ladenburg Thalmann & Co. Inc. and any other
broker-dealer which both makes a market in the Securities and exchanges
Registrable Securities in the Exchange Offer for Exchange Securities.
2
<PAGE> 4
"PERSON" shall mean an individual, partnership (general or limited),
corporation, limited liability company, trust or unincorporated organization, or
a government or agency or political subdivision thereof.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Securities covered by a Shelf Registration Statement, and by
all other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"PURCHASE AGREEMENT" shall have the meaning set forth in the preamble.
"REGISTRABLE SECURITIES" shall mean the Securities; PROVIDED, HOWEVER,
that Securities shall cease to be Registrable Securities when (i) a Registration
Statement with respect to such Securities shall have been declared effective
under the Securities Act and such Securities shall have been disposed of
pursuant to such Registration Statement, (ii) such Securities have been sold to
the public pursuant to Rule 144 (or any similar provision then in force, but not
Rule 144A) under the Securities Act, (iii) such Securities shall have ceased to
be outstanding, (iv) the Securities have been exchanged for Exchange Securities
upon consummation of the Exchange Offer and are thereafter freely tradeable by
the holder thereof or (v) the Securities can be sold by the holders thereof
without limitation as to holding period or volume.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. (the "NASD") registration and filing fees, (ii) all
fees and expenses incurred in connection with compliance with state securities
or blue sky laws and compliance with the rules of the NASD (including reasonable
fees and disbursements of counsel for any underwriters or Holders in connection
with blue sky qualification of any of the Exchange Securities or Registrable
Securities and any filings with the NASD), (iii) all expenses of any Persons in
preparing or assisting in preparing, word processing, printing and distributing
any Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements and other
documents relating to the performance of and compliance with this Agreement,
(iv) all fees and expenses incurred in connection with the listing, if any, of
any of the Registrable Securities on any securities exchange or exchanges, (v)
all rating agency fees, (vi) the fees and disbursements of counsel for the
Company and of the independent public accountants of the Company, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, (vii) the fees and expenses of the Trustee,
and any escrow agent or custodian, (viii) the reasonable fees and disbursements
of Morgan, Lewis & Bockius LLP, special counsel representing the Holders of
Registrable Securities and (ix) any fees and disbursements of the underwriters
customarily required to be paid by issuers or sellers of securities and the
reasonable fees and expenses of any special experts retained by the Company
3
<PAGE> 5
in connection with any Registration Statement, but excluding underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of Registrable Securities by a Holder.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company which covers any of the Exchange Securities or Registrable Securities
pursuant to the provisions of this Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SEC" shall mean the United States Securities and Exchange Commission
or any successor agency or government body performing the functions currently
performed by the United States Securities and Exchange Commission.
"SECURITIES" shall have the meaning set forth in the preamble.
" SECURITIES ACT" shall mean the United States Securities Act of 1933,
as amended from time to time.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2.2 hereof.
"SHELF REGISTRATION STATEMENT" shall mean a shelf registration
statement of the Company pursuant to the provisions of Section 2.2 of this
Agreement which covers all of the Registrable Securities on an appropriate form
under Rule 415 under the Securities Act, or any similar rule that may be adopted
by the SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"TRUSTEE" shall mean the trustee with respect to the Securities under
the Indenture.
2. REGISTRATION UNDER THE SECURITIES ACT.
2.1 EXCHANGE OFFER. The Company shall use its best efforts to (A)
prepare and, as soon as practicable but not later than 30 days following the
Closing Date, file with the SEC an Exchange Offer Registration Statement on an
appropriate form under the Securities Act with respect to a proposed Exchange
Offer and the issuance and delivery to the Holders, in exchange for the
Registrable Securities, of a like principal amount of Exchange Securities, (B)
cause the Exchange Offer Registration Statement to be declared effective under
the Securities Act no later than 90 days following the Closing Date, (C) keep
the Exchange Offer Registration Statement effective until the closing of the
Exchange Offer and (D) cause the Exchange Offer to be consummated not later than
120 days following the Closing Date. The Exchange Securities will be issued
under the Indenture. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Exchange Offer, it being the
objective of
4
<PAGE> 6
such Exchange Offer to enable each Holder eligible and electing to exchange
Registrable Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Company within the meaning of Rule 405 under the
Securities Act, (b) is not a broker-dealer tendering Registrable Securities
acquired directly from the Company for its own account, (c) acquired the
Exchange Securities in the ordinary course of such Holder's business and (d) at
the time of the commencement of the Exchange Offer has no arrangements or
understandings with any person to participate in the "distribution" (within the
meaning of the Securities Act) of the Exchange Securities) to transfer such
Exchange Securities from and after their receipt without any volume or holding
period limitations or restrictions under the Securities Act and without material
restrictions under the securities laws of a substantial proportion of the
several states of the United States.
In connection with the Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Exchange Offer open for acceptance for a period
of not less than 30 days after the date notice thereof is mailed to the
Holders (or longer if required by applicable law) (such period referred
to herein as the "Exchange Period");
(c) utilize the services of the Depositary for the Exchange
Offer;
(d) permit Holders to withdraw tendered Registrable Securities
at any time prior to 5:00 p.m. (Eastern Standard Time), on the last
business day of the Exchange Period, by sending to the institution
specified in the notice, a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of
Registrable Securities delivered for exchange, and a statement that
such Holder is withdrawing his election to have such Securities
exchanged;
(e) notify each Holder that any Registrable Security not
tendered will remain outstanding and continue to accrue interest, but
will not retain any rights under this Agreement (except in the case of
the Initial Purchasers and Participating Broker-Dealers as provided
herein); and
(f) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer, the
Company shall:
(i) accept for exchange all Registrable Securities duly
tendered and not validly withdrawn pursuant to the Exchange Offer in
accordance with the terms of the
5
<PAGE> 7
Exchange Offer Registration Statement and the letter of transmittal
which shall be an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Securities to each Holder of Registrable Securities so
accepted for exchange in a principal amount equal to the principal
amount of the Registrable Securities of such Holder so accepted for
exchange.
Interest on each Exchange Security will accrue from the last date on
which interest was paid on the Registrable Securities surrendered in exchange
therefor or, if no interest has been paid on the Registrable Securities, from
the Issue Date. The Exchange Offer shall not be subject to any conditions, other
than (i) that the Exchange Offer, or the making of any exchange by a Holder,
does not violate applicable law or any applicable interpretation of the staff of
the SEC, (ii) the due tendering of Registrable Securities in accordance with the
Exchange Offer, and (iii) that each Holder of Registrable Securities exchanged
in the Exchange Offer shall have made certain customary representations,
including representations that such Holder is not an affiliate of the Company
within the meaning of Rule 405 under the Securities Act, that all Exchange
Securities to be received by it shall be acquired in the ordinary course of its
business and that at the time of the consummation of the Exchange Offer it shall
have no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange
Securities, and any such other representations as may be reasonably necessary
under applicable SEC rules, regulations or interpretations to render the use of
Form S-4 or other appropriate from under the Securities Act available. To the
extent permitted by law, the Company shall inform the Initial Purchasers of the
names and addresses of the Holders to whom the Exchange Offer is made, and the
Initial Purchasers shall have the right to contact such Holders and otherwise
facilitate the tender of Registrable Securities in the Exchange Offer.
2.2 SHELF REGISTRATION. In the event that (i) any changes in law, SEC
rules or regulations or applicable interpretations thereof by the staff of the
SEC do not permit the Company to effect the Exchange Offer as contemplated by
Section 2.1 hereof, (ii) if for any other reason the Exchange Offer Registration
Statement is not declared effective within 90 days following the original issue
of the Registrable Securities or the Exchange Offer is not consummated within
120 days after the original issue of the Registrable Securities, (iii) upon the
request of the Initial Purchasers acquiring a majority of the initial aggregate
principal amount of the Securities with respect to any Registrable Securities
which it acquired directly from the Company and, with respect to other
Registrable Securities held by it, if such Initial Purchaser is not permitted,
in the reasonable opinion of counsel to such Initial Purchaser, pursuant to
applicable law or applicable interpretations of the staff of the SEC, to
participate in the Exchange Offer or otherwise receive securities that are
freely tradeable without restriction or limitation as
6
<PAGE> 8
to holding period or volume under the Securities Act and applicable blue sky or
state securities laws or (iv) if a Holder is not permitted by applicable law to
participate in the Exchange Offer based upon advice of counsel to the effect
that such Holder may not be legally able to participate in the Exchange Offer or
does not receive Exchange Securities pursuant to the Exchange Offer which are
fully tradeable by the Holder without restriction or limitation as to holding
period or volume under the Securities Act and under applicable blue sky or state
securities laws, then in case of each of clauses (i) through (iv) the Company
shall, at its cost:
(a) As promptly as practicable, file with the SEC, and
thereafter shall use its best efforts to cause to be declared effective
as promptly as practicable but no later than 120 days after the Issue
Date (or, in the case of a request by the Initial Purchasers acquiring
a majority of the initial aggregate principal amount of the Securities,
within 30 days of such request), a Shelf Registration Statement
relating to the offer and sale of the Registrable Securities by the
Holders from time to time in accordance with the methods of
distribution elected by the Majority Holders participating in the Shelf
Registration and set forth in such Shelf Registration Statement.
(b) Subject to Section 2.4(b), use its best efforts to keep
the Shelf Registration Statement continuously effective in order to
permit the Prospectus forming part thereof to be usable by Holders for
a period of two years after its effective date (or one year after its
effective date in the case of a request solely by an Initial Purchaser)
from the date the Shelf Registration Statement is declared effective by
the SEC, or for such shorter period that will terminate when all
Registrable Securities covered by the Shelf Registration Statement have
been sold pursuant to the Shelf Registration Statement or cease to be
outstanding or otherwise to be Registrable Securities.
(c) Notwithstanding any other provisions hereof, use its best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any
supplement thereto complies in all material respects with the
Securities Act and the rules and regulations thereunder, (ii) any Shelf
Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any
Prospectus forming part of any Shelf Registration Statement, and any
supplement to such Prospectus (as amended or supplemented from time to
time), does not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements, in
light of the circumstances under which they were made, not misleading.
The Company further agrees, if necessary, to supplement or amend the
Shelf Registration Statement, as required by Section 3(b) below, and to furnish
to the Holders of Registrable Securities copies of any such supplement or
amendment promptly after its being used or filed with the SEC.
7
<PAGE> 9
The Company shall not be required to include any Registrable Securities
of a Holder in any Shelf Registration Statement pursuant to this Agreement
unless such Holder furnishes to the Company, within 5 business days after
receipt by such Holder of a request therefor, such information as the Company
may reasonably request for use in connection with such Shelf Registration
Statement.
2.3 EXPENSES. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2.1 or 2.2 hereof. Except
as provided herein, each Holder shall pay all expenses of its counsel,
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to the
Shelf Registration Statement.
2.4 EFFECTIVENESS. (a) The Company will be deemed not to have used its
best efforts to cause the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, to become, or to remain, effective
during the requisite period if the Company voluntarily takes any affirmative
action that would, or omits to take any action which omission would, result in
any such Registration Statement not being declared effective or in the holders
of Registrable Securities covered thereby not being able to exchange or offer
and sell such Registrable Securities during that period as and to the extent
contemplated hereby, unless (i) such action is reasonably believed by the
Company to be required by applicable law or (ii) with respect to the
effectiveness of a Shelf Registration Statement, such action or omission is
taken or made by the Company in good faith and for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company complies with the
requirements of Section 3(k) hereof, if applicable.
(b) The Company may suspend the availability of the Shelf Registration
Statement and the use of any Prospectus which is a part thereof (i) for one
period not to exceed 60 days in any six month period or (ii) for up to four
periods not to exceed an aggregate of 90 days in any 12 month period, if such
suspension is effected in good faith and for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company promptly complies
with the requirements of Section 3(k) hereof, if applicable.
(c) An Exchange Offer Registration Statement pursuant to Section 2.1
hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not
be deemed to have become effective unless it has been declared effective by the
SEC; PROVIDED, HOWEVER, that if, after it has been declared effective, the
offering of Registrable Securities pursuant to a Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference, until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume.
8
<PAGE> 10
2.5 INTEREST. In the event that (a) the Exchange Offer Registration
Statement is not filed with the SEC on or prior to the 30th day following the
Issue Date, (b) the Exchange Offer Registration Statement has not been declared
effective on or prior to the 90th day following the Issue Date, or (c) the
Exchange Offer is not consummated on or prior to the 120th day following the
Issue Date or a Shelf Registration Statement is not declared effective on or
prior to the 120th day following the Issue Date (or, if a Shelf Registration
Statement is required to be filed because of the request of the Initial
Purchasers acquiring a majority of the initial aggregate principal amount of the
Securities, 30 days following such request by such Initial Purchasers that the
Company file the Shelf Registration Statement) (each such event referred to in
clauses (a) through (c) above, a "Registration Default"), the interest rate
borne by the Securities (except in the case of clause (c), in which case only
the Securities which have not been exchanged in the Exchange Offer) shall be
increased by an amount equal to one-quarter of one percent (0.25 %) per annum
upon the occurrence of any Registration Default, which rate (as increased as
aforesaid) will increase by an additional one quarter of one percent (0.25%)
each 90-day period that such additional interest continues to accrue under any
such circumstance, with an aggregate maximum increase in the interest rate equal
to one percent (1%) per annum. Following the cure of all Registration Defaults
the accrual of additional interest will cease and the interest rate will revert
to the original rate. Upon (w) the filing of the Exchange Offer Registration
Statement after the 30-day period described in clause (a) above, (x) the
effectiveness of the Exchange Offer Registration Statement after the 90-day
period described in clause (b) above, or (y) the consummation of the Exchange
Offer after the 120-day period or the effectiveness of a Shelf Registration
Statement after the 120-day period (or the 30-day period), as the case may be,
described in clause (c) above, and provided that none of the conditions set
forth in clauses (a), (b) and (c) above continues to exist, a Registration
Default will be deemed to be cured.
2.6 SPECIFIC ENFORCEMENT. Without limiting the remedies available to
the Initial Purchasers and the Holders, the Company acknowledges that any
failure by the Company to comply with its obligations under Section 2.1 and
Section 2.2 hereof may result in material irreparable injury to the Initial
Purchasers or the Holders for which there is no adequate remedy at law, that it
would not be possible to measure damages for such injuries precisely and that,
in the event of any such failure, the Initial Purchasers or any Holder may
obtain such relief as may be required to specifically enforce the Company's
obligations under Section 2.1 and Section 2.2 hereof.
9
<PAGE> 11
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to
Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company
shall:
(a) prepare and file with the SEC a Registration Statement,
within the relevant time period specified in Section 2, on an
appropriate form under the Securities Act, which form (i) shall be
selected by the Company, (ii) shall, in the case of a Shelf
Registration, be available for the sale of the Registrable Securities
by the selling Holders thereof, (iii) shall comply as to form in all
material respects with the requirements of the applicable form and
include or incorporate by reference all financial statements required
by the SEC to be filed therewith or incorporated by reference therein,
and (iv) shall comply in all respects with the applicable requirements
of Regulation S-T under the Securities Act, and use its best efforts to
cause such Registration Statement to become effective and remain
effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement as may be
necessary under applicable law to keep such Registration Statement
effective for the applicable period; and cause each Prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in effect) under the Securities Act and comply with the
provisions of the Securities Act applicable to it with respect to the
disposition of such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by
the selling Holders thereof described in this Agreement (including
sales by any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each
Holder of Registrable Securities, at least five days prior to filing,
that a Shelf Registration Statement with respect to the Registrable
Securities is being filed and advising such Holders that the
distribution of Registrable Securities will be made in accordance with
the method selected by the Majority Holders participating in the Shelf
Registration, (ii) furnish to each Holder of Registrable Securities and
to each underwriter of an underwritten offering of Registrable
Securities, if any, without charge, as many copies of each Prospectus,
including each preliminary Prospectus, and any amendment or supplement
thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and,
if the Holder so requests, all exhibits in order to facilitate the
public sale or other disposition of the Registrable Securities; and
(iii) subject to the last paragraph of this Section 3, hereby consent
to the use of the Prospectus or any amendment or supplement thereto by
each of the selling Holders of Registrable Securities in connection
with the offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto;
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(d) use its best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue
sky" laws of such jurisdictions as any Holder of Registrable Securities
covered by a Registration Statement and each underwriter of an
underwritten offering of Registrable Securities shall reasonably
request by the time the applicable Registration Statement is declared
effective by the SEC, and do any and all other acts and things which
may be reasonably necessary or advisable to enable each such Holder and
underwriter to consummate the disposition in each such jurisdiction of
such Registrable Securities owned by such Holder; PROVIDED, HOWEVER,
that the Company shall not be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d),
or (ii) take any action which would subject it to general service of
process or taxation in any such jurisdiction where it is not then so
subject;
(e) notify promptly each Holder of Registrable Securities
under a Shelf Registration or any Participating Broker-Dealer who has
notified the Company that it is utilizing the Exchange Offer
Registration Statement as provided in paragraph (f) below and, if
requested by such Holder or Participating Broker-Dealer, confirm such
notice in writing promptly (i) when a Registration Statement has become
effective and when any post-effective amendments and supplements
thereto become effective, (ii) of any request by the SEC or any state
securities authority for post-effective amendments and supplements to a
Registration Statement and Prospectus or for additional information
after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) in the case of a
Shelf Registration, if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Securities covered
thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and
correct in all material respects, (v) of the happening of any event or
the discovery of any facts during the period a Shelf Registration
Statement is effective which makes any statement made in such
Registration Statement or the related Prospectus untrue in any material
respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements
therein not misleading and (vi) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities or the Exchange Securities, as the case may be,
for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose;
(f) (A) in the case of the Exchange Offer Registration
Statement, (i) include in the Exchange Offer Registration Statement a
section entitled "Plan of Distribution" which section shall be
reasonably acceptable to the Initial Purchasers acquiring a majority of
the initial aggregate principal amount of the Securities, and which
shall contain a
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summary statement of the positions taken or policies made by the staff
of the SEC with respect to the potential "underwriter" status of any
broker-dealer that holds Registrable Securities acquired for its own
account as a result of market-making activities or other trading
activities and that will be the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of Exchange Securities to be received by
such broker-dealer in the Exchange Offer, whether such positions or
policies have been publicly disseminated by the staff of the SEC or
such positions or policies, in the reasonable judgment of the Initial
Purchasers and its counsel, represent the prevailing views of the staff
of the SEC, including a statement that any such broker-dealer who
receives Exchange Securities for Registrable Securities pursuant to the
Exchange Offer may be deemed a statutory underwriter and must deliver a
prospectus meeting the requirements of the Securities Act in connection
with any resale of such Exchange Securities, (ii) furnish to each
Participating Broker-Dealer who has delivered to the Company the notice
referred to in Section 3(e), without charge, as many copies of each
Prospectus included in the Exchange Offer Registration Statement,
including any preliminary prospectus, and any amendment or supplement
thereto, as such Participating Broker-Dealer may reasonably request,
(iii) subject to the last paragraph of this Section 3, hereby consent
to the use of the Prospectus forming part of the Exchange Offer
Registration Statement or any amendment or supplement thereto, by any
person subject to the prospectus delivery requirements of the SEC,
including all Participating Broker-Dealers, in connection with the sale
or transfer of the Exchange Securities covered by the Prospectus or any
amendment or supplement thereto, (iv) use its best efforts to keep the
Exchange Offer Registration Statement effective and to amend and
supplement the Prospectus contained therein in order to permit such
Prospectus to be lawfully delivered by all Persons subject to the
prospectus delivery requirements of the Securities Act for such period
of time as such Persons must comply with such requirements in order to
resell the Exchange Securities and (v) include in the transmittal
letter or similar documentation to be executed by an exchange offeree
in order to participate in the Exchange Offer (x) the following
provision:
"If the exchange offeree is a broker-dealer holding
Registrable Securities acquired for its own account as a
result of market-making activities or other trading
activities, it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any
resale of Exchange Securities received in respect of such
Registrable Securities pursuant to the Exchange Offer;" and
(y) a statement to the effect that by a broker-dealer making
the acknowledgment described in clause (x) and by delivering a
Prospectus in connection with the exchange of Registrable Securities,
the broker-dealer will not be deemed to admit that it is an underwriter
within the meaning of the Securities Act; and
(B) in the case of any Exchange Offer Registration
Statement, the Company agrees to deliver to the Initial Purchasers
on behalf of the Participating Broker-
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<PAGE> 14
Dealers upon the effectiveness of the Exchange Offer Registration
Statement (i) an opinion of Benesch, Friedlander, Coplan & Aronoff LLP
substantially in the form attached hereto as Exhibit A, (ii) an
officers' certificate substantially in the form customarily delivered
in a public offering of debt securities and (iii) a comfort letter or
comfort letters in customary form if permitted by Statement on Auditing
Standards No. 72 of the American Institute of Certified Public
Accountants (or if such a comfort letter is not permitted, an agreed
upon procedures letter in customary form) at least as broad in scope
and coverage as the comfort letter or comfort letters delivered to the
Initial Purchasers in connection with the initial sale of the
Securities to the Initial Purchasers;
(g) (i) in the case of an Exchange Offer, furnish counsel for
the Initial Purchasers and (ii) in the case of a Shelf Registration,
furnish counsel for the Holders of Registrable Securities copies of any
comment letters received from the SEC or any other request by the SEC
or any state securities authority for amendments or supplements to a
Registration Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement at
the earliest possible moment;
(i) in the case of a Shelf Registration, furnish to each
selling Holder of Registrable Securities, and each underwriter, if any,
without charge, at least one conformed copy of each Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules (without documents incorporated therein by
reference and all exhibits thereto, unless requested);
(j) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends; and
enable such Registrable Securities to be in such denominations
(consistent with the provisions of the Indenture) and registered in
such names as the selling Holders or the underwriters, if any, may
reasonably request at least two business days prior to the closing of
any sale of Registrable Securities;
(k) in the case of a Shelf Registration, upon the occurrence
of any event or the discovery of any facts, each as contemplated by
Sections 3(e)(ii), 3(e)(iii), 3(e)(v) and 3(e)(vi) hereof, use its best
efforts to prepare a supplement or post-effective amendment to the
Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable
Securities or Participating Broker-Dealers, such Prospectus will not
contain at the time of such delivery any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading or will remain so qualified;
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<PAGE> 15
(l) obtain a CUSIP number for all Exchange Securities not
later than the effective date of a Registration Statement, and provide
the Trustee with printed certificates for the Exchange Securities in a
form eligible for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Securities or Registrable Securities, as
the case may be, (ii) cooperate with the Trustee and the Holders to
effect such changes to the Indenture as may be required for the
Indenture to be so qualified, as necessary, in accordance with the
terms of the TIA and (iii) execute, and use its best efforts to cause
the Trustee to execute, all documents as may be required to effect such
changes, and all other forms and documents required to be filed with
the SEC to enable the Indenture to be so qualified, as necessary, in a
timely manner;
(n) in the case of a Shelf Registration, enter into agreements
(including customary underwriting agreements) and take all other
customary and appropriate actions in order to expedite or facilitate
the disposition of such Registrable Securities and in such connection
whether or not an underwriting agreement is entered into and whether or
not the registration is an underwritten registration:
(i) make such representations and warranties to the
Holders of such Registrable Securities and the underwriters,
if any, in form, substance and scope as are customarily made
by issuers to underwriters in similar underwritten offerings
as may be reasonably requested by them;
(ii) obtain opinions of counsel to the Company and
updates thereof (which opinions (in form, scope and substance)
and counsel shall be reasonably satisfactory to the managing
underwriters, if any, and the Holders of a majority in
principal amount of the Registrable Securities being sold)
addressed to each selling Holder and the underwriters, if any,
covering the matters customarily covered in opinions requested
in sales of securities or underwritten offerings and such
other matters as may be reasonably requested by such Holders
and underwriters;
(iii) obtain "cold comfort" letters and updates
thereof from the Company's independent certified public
accountants addressed to the underwriters, if any, and use
reasonable efforts to have such letters addressed to the
selling Holders of Registrable Securities (to the extent
consistent with Statement on Auditing Standards No. 72 of the
American Institute of Certified Public Accounts), such letters
to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters
in connection with similar underwritten offerings and such
other matters as reasonably requested by such selling Holders
and any underwriters;
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<PAGE> 16
(iv) enter into a securities sales agreement with the
Holders and an agent of the Holders providing for, among other
things, the appointment of such agent for the selling Holders
for the purpose of soliciting purchases of Registrable
Securities, which agreement shall be in form, substance and
scope customary for similar offerings;
(v) if an underwriting agreement is entered into,
cause the same to set forth indemnification provisions and
procedures substantially equivalent to the indemnification
provisions and procedures set forth in Section 4 hereof with
respect to the underwriters and all other parties to be
indemnified pursuant to said Section or, at the request of any
underwriters, in the form customarily provided to such
underwriters in similar types of transactions; and
(vi) deliver such documents and certificates as may
be reasonably requested and as are customarily delivered in
similar offerings to the Holders of a majority in principal
amount of the Registrable Securities being sold and the
managing underwriters, if any.
The above shall be done at (i) the effectiveness of such Registration Statement
(and each post- effective amendment thereto) and (ii) each closing under any
underwriting or similar agreement as and to the extent required thereunder;
(o) in the case of a (i) Shelf Registration, or (ii)
Prospectus contained in an Exchange Offer pursuant to Section 2.1 which
is required to be delivered under the Securities Act by a Participating
Broker-Dealer who seeks to sell Exchange Securities, make available for
inspection by representatives of the Holders of the Registrable
Securities and any such Participating Broker-Dealer, as the case may
be, and any underwriters participating in any disposition pursuant to a
Shelf Registration Statement and any counsel or accountant retained by
such Holders, Participating Broker Dealers or underwriters, all
pertinent financial and other records, pertinent corporate documents
and properties of the Company reasonably requested by any such persons,
and cause the respective officers, directors, employees, and any other
agents of the Company to supply all information reasonably requested by
any such representative, underwriter, counsel or accountant in
connection with a Registration Statement or Prospectus, and make such
representatives of the Company available for discussion of such
documents as shall be reasonably requested by the Initial Purchasers;
PROVIDED, that any such records, documents, properties and such
information that is designated in writing by the Company, in good
faith, as confidential at the time of delivery of such records,
documents, properties or information shall be kept confidential by any
such representative, underwriter, counsel or accountant and shall be
used only in connection with such Registration Statement or Prospectus,
unless such information has become available (not in violation of this
Agreement) to the public generally or through a third party without an
accompanying obligation of confidentiality, and except that such
15
<PAGE> 17
representative, underwriter, counsel or accountant shall have no
liability, and shall not be in breach of this provision, if disclosure
of such confidential information required by law or pursuant to a
subpoena, court order or regulatory or agency requirement, and the
Company shall be entitled to request that such representative,
underwriter, counsel or accountant sign a confidentiality agreement to
the foregoing effect;
(p) (i) in the case of an Exchange Offer Registration
Statement, a reasonable time prior to the filing of any Exchange Offer
Registration Statement, any Prospectus forming a part thereof, any
amendment to an Exchange Offer Registration Statement or amendment or
supplement to such Prospectus, provide copies of such document to the
Initial Purchasers and make such changes in any such document prior to
the filing thereof as the Initial Purchasers may reasonably request
within five business days after receipt of such document, and make the
representatives of the Company available for discussion of such
document as shall be reasonably requested by the Initial Purchasers;
and
(ii) in the case of a Shelf Registration, a reasonable
time prior to filing any Shelf Registration Statement, any Prospectus
forming a part thereof, any amendment to such Shelf Registration
Statement or amendment or supplement to such Prospectus, provide copies
of such document to the Holders of Registrable Securities who are then
to be a seller of Registrable Securities thereunder, to the Initial
Purchasers, to counsel on behalf of the Holders and to the underwriter
or underwriters of an underwritten offering of Registrable Securities,
if any, make such changes in any such document prior to the filing
thereof as the Initial Purchasers, the counsel to the Holders or the
underwriter or underwriters reasonably request within 5 business days
after receipt of such document and make the representatives of the
Company available for discussion of such document as shall be
reasonably requested by the Holders of Registrable Securities, the
Initial Purchasers on behalf of such Holders, or any underwriter;
(q) in the case of a Shelf Registration, use its best efforts
to cause all Registrable Securities to be listed on any securities
exchange on which similar debt securities issued by the Company are
then listed if requested by the Majority Holders; or if requested by
the underwriter or underwriters of an underwritten offering of
Registrable Securities, if any;
(r) in the case of a Shelf Registration, use its best efforts
to cause the Registrable Securities to be rerated by the appropriate
rating agencies, if so requested by the Majority Holders, or if
requested by the underwriter or underwriters of an underwritten
offering of Registrable Securities, if any;
(s) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering at least 12 months which shall satisfy the
provisions of Section 11 (a) of the Securities Act and Rule 158
thereunder;
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<PAGE> 18
(t) cooperate and assist in any filings required to be made
with the NASD and, in the case of a Shelf Registration, in the
performance of any due diligence investigation by any underwriter and
its counsel (including any "qualified independent underwriter" that is
required to be retained in accordance with the rules and regulations of
the NASD); and
(u) upon consummation of an Exchange Offer, obtain a customary
opinion of counsel to the Company addressed to the Trustee for the
benefit of all Holders of Registrable Securities participating in the
Exchange Offer, and which includes an opinion that (i) the Company has
duly authorized, executed and delivered the Exchange Securities and the
related indenture, and (ii) each of the Exchange Securities and related
indenture constitute a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its
respective terms (with customary exceptions).
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Securities to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Securities as the Company may from time to time reasonably request
in writing.
For so long as the Company fails to timely effect the Exchange Offer or
file any Shelf Registration Statement and maintain the effectiveness of any
Shelf Registration Statement as provided herein, the Company shall not file any
Registration Statement with respect to any securities (within the meaning of
Section 2(l) of the Securities Act) of the Company other than Registrable
Securities.
If any of the Registrable Securities covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the underwriter or
underwriters and manager or managers that will manage such offering will be
selected by the Majority Holders of such Registrable Securities included in such
offering and shall be acceptable to the Company. No Holder of Registrable
Securities may participate in any underwritten registration hereunder unless
such Holder (a) agrees to sell such Holder's Registrable Securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event or the
discovery of any facts, each of the kind described in Sections 3(e)(ii),
3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to a Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(k) hereof, and, if so directed by the Company, such
Holder will deliver to the Company (at its expense) all copies in such Holder's
possession, other than permanent file copies
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<PAGE> 19
then in such Holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. If the Company shall
give any such notice to suspend the disposition of Registrable Securities
pursuant to a Shelf Registration Statement as a result of the happening of any
event or the discovery of any facts, each of the kind described in Sections
3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, the Company shall be deemed to
have used its best efforts to keep the Shelf Registration Statement effective
during such period of suspension provided that the Company shall use its best
efforts to file and have declared effective (if an amendment) as soon as
practicable an amendment or supplement to the Shelf Registration Statement and
shall extend the period during which the Shelf Registration Statement shall be
maintained effective pursuant to this Agreement by the number of days during the
period from and including the date of the giving of such notice to and including
the date when the Holders shall have received copies of the supplemented or
amended Prospectus necessary to resume such dispositions.
4. INDEMNIFICATION, CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the Initial
Purchasers, each Holder, each Participating Broker-Dealer, each Person who
participates as an underwriter (any such Person being an "Underwriter'), their
respective affiliates, and each Person, if any, who controls any of such parties
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act and each of their respective directors, officers, employees and
agents, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment or supplement thereto)
pursuant to which Exchange Securities or Registrable Securities were
registered under the Securities Act, including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading, or arising out of any
untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; PROVIDED
that (subject to Section 4(d) below) any such settlement is effected
with the written consent of the Company; and
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<PAGE> 20
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by any
indemnified party, except to the extent otherwise expressly provided in
Section 4(c) hereof), reasonably incurred in investigating, preparing
or defending against any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that any
such expense is not paid under subparagraph (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense whatsoever to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by the Initial Purchasers, such Holder, Participating Broker-Dealer or
Underwriter (or any person controlling such Initial Purchaser, Holder,
Participating Broker-Dealer or Underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) expressly for use in a
Registration Statement (or any amendment or supplement thereto) or any
Prospectus (or any amendment or supplement thereto); PROVIDED, FURTHER, that
such indemnity with respect to any preliminary prospectus shall not inure to the
benefit of any Initial Purchaser, Holder, Participating Broker-Dealer or
Underwriter (or any persons controlling such Initial Purchaser, Participating
Broker-Dealer, Holder or Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) (i) from whom the person
asserting such loss, claim, damage or liability purchased the Securities which
are the subject thereof if such person did not receive a copy of the final
Prospectus (or the final Prospectus as amended or supplemented) at or prior to
the confirmation of the sale of such Securities to such person in any case where
the Company complied with its obligations under Sections 3(c) and 3(f)(A)(ii)
hereof and any such untrue statement or omission or alleged untrue statement or
omission of a material fact contained in such preliminary prospectus (or any
amendment or supplement thereto) was corrected in the final Prospectus (or the
final Prospectus as amended or supplemented) or (ii) if it resulted from the use
of the Prospectus during a period when the use of the Prospectus has been
suspended in accordance with Section 2.4(b) or Sections 3(e)(ii), 3(e)(iii),
3(e)(v) and 3(e)(vi) hereof; PROVIDED, in each case, that Holders received prior
notice of such suspension.
(b) Each Holder severally, but not jointly, agrees to indemnify and
hold harmless the Company, the Initial Purchasers, each Underwriter and the
other selling Holders, and each of their respective directors, officers,
employees and agents, and each Person, if any, who controls the Company, the
Initial Purchasers, any Underwriter or any other selling Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in Section 4(a) hereof, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Shelf Registration Statement (or any amendment thereto) or any
Prospectus included therein (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to the Company
expressly for use in
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<PAGE> 21
the Shelf Registration Statement (or any amendment thereto) or such Prospectus
(or any amendment or supplement thereto); PROVIDED, HOWEVER, that no such Holder
shall be liable for any claims hereunder in excess of the amount of net proceeds
received by such Holder from the sale of Registrable Securities pursuant to such
Shelf Registration Statement.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action or proceeding commenced
against it in respect of which indemnity may be sought hereunder, but failure so
to notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such action;
PROVIDED, HOWEVER, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
Notwithstanding the foregoing, if it so elects within a reasonable time after
receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties
defendant in such action (which approval shall not be unreasonably withheld),
unless such indemnified parties reasonably object to such assumption on the
ground that there may be legal defenses available to them which are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying party
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action. In no event shall
the indemnifying party or parties be liable for the fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 4 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement
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<PAGE> 22
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement.
(e) If the indemnification provided for in this Section 4 is for any
reason unavailable to, or insufficient to hold harmless, an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand, the
Holders on another hand, and the Initial Purchasers on another hand, from the
offering of the Securities, the Exchange Securities and the Registrable
Securities (taken together) included in such offering or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand, the
Holders on another hand and the Initial Purchasers on another hand in connection
with the statements or omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Company from the offering of the
Securities, the Exchange Securities and the Registrable Securities (taken
together) included in such offering shall in each case be deemed to include the
proceeds received by the Company in connection with the offering of the
Securities pursuant to the Purchase Agreement. The parties hereto agree that any
underwriting discount or commission or reimbursement of fees paid to the Initial
Purchasers pursuant to the Purchase Agreement shall not be deemed to be a
benefit received by the Initial Purchasers in connection with the offering of
the Exchange Securities or Registrable Securities included in such offering.
The relative fault of the Company on the one hand, the Holders on
another hand, and the Initial Purchasers on another hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company, the Holders or the Initial
Purchasers and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Holders and the Initial Purchasers agree that it would
not be just and equitable if contribution pursuant to this Section 4 were
determined by pro rata allocation (even if the Initial Purchasers were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 4. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
4 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
21
<PAGE> 23
Notwithstanding the provisions of this Section 4, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities sold by it were offered exceeds the amount
of any damages which such Initial Purchaser has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 1 l(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4, each Person, if any, who controls an
Initial Purchaser or Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act shall have the same rights to contribution
as such Initial Purchaser or Holder, and each director of the Company, each
officer of the Company who signed the Registration Statement and each Person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act shall have the same rights to contribution
as the Company. The Initial Purchasers' respective obligations to contribute
pursuant to this Section 4 are several in proportion to the principal amount of
Securities set forth opposite their respective names in Schedule A to the
Purchase Agreement and not joint.
5. MISCELLANEOUS.
5.1 RULE 144 AND RULE 144A. For so long as the Company is subject to
the reporting requirements of Section 13 or 15 of the Exchange Act, the Company
covenants that it will file the reports required to be filed by it under the
Securities Act and Section 13(a) or 15(d) of the Exchange Act and the rules and
regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, the Company covenants that it will upon the
request of any Holder of Registrable Securities (a) make publicly available such
information as is necessary to permit sales pursuant to Rule 144 under the
Securities Act, (b) deliver such information to a prospective purchaser as is
necessary to permit sales pursuant to Rule 144A under the Securities Act and it
will take such further action as any Holder of Registrable Securities may
reasonably request, and (c) take such further action that is reasonable in the
circumstances, in each case, to the extent required from time to time to enable
such Holder to sell its Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144
under the Securities Act, as such rule may be amended from time to time, (ii)
Rule 144A under the Securities Act, as such rule may be amended from time to
time, or (iii) any similar rules or regulations hereafter adopted by the SEC.
Upon the request of any Holder of Registrable Securities, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
5.2 NO INCONSISTENT AGREEMENTS. The Company has not entered into and
the Company will not after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise
22
<PAGE> 24
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with the rights granted to the holders of
the Company's other issued and outstanding securities under any such agreements.
5.3 AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of Holders of at least
a majority in aggregate principal amount of the outstanding Registrable
Securities affected by such amendment, modification, supplement, waiver or
departure.
5.4 NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, facsimile, telecopier, or any courier guaranteeing
overnight delivery (a) if to a Holder, at the most current address given by such
Holder to the Company by means of a notice given in accordance with the
provisions of this Section 5.4, which address initially is the address set forth
in the Purchase Agreement with respect to the Initial Purchasers; and (b) if to
the Company, initially at the Company's address set forth in the Purchase
Agreement, and thereafter at such other address of which notice is given in
accordance with the provisions of this Section 5.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; two business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; when receipt is acknowledged, if telecopied or facsimiled; and
on the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee under the
Indenture, at the address specified in such Indenture.
5.5 SUCCESSOR AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement. If any transferee of any
Holder shall acquire Registrable Securities, in any manner, whether by operation
of law or otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding such Registrable
Securities such person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement, including
the restrictions on resale set forth in this Agreement and, if applicable, the
Purchase Agreement, and such person shall be entitled to receive the benefits
hereof.
23
<PAGE> 25
5.6 THIRD PARTY BENEFICIARIES. The Initial Purchasers (even if the
Initial Purchasers are not Holders of Registrable Securities) shall be third
party beneficiaries to the agreements made hereunder between the Company, on the
one hand, and the Holders, on the other hand, and shall have the right to
enforce such agreements directly to the extent they deem such enforcement
necessary or advisable to protect their rights or the rights of Holders
hereunder. Each Holder of Registrable Securities shall be a third party
beneficiary to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights hereunder. Other than the foregoing
sentences, nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person, firm or corporation, other than the Initial
Purchasers, the Holders, including Participating Broker-Dealers, each
underwriter who participates in an offering of Registrable Securities, their
respective affiliates, and the Company and their respective successors and the
controlling persons, directors, officers, employees, and agents referred to in
Section 4 and their heirs and legal representatives, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole benefit of the Initial Purchasers, the Holders and
the Company and the other persons referenced by the preceding sentences and
their heirs and legal representatives, and for the benefit of no other person,
firm or corporation.
5.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
5.8 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
5.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.10 SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
5.11 ENTIRE AGREEMENT. This Agreement constitutes the entire contract
between the parties hereto relative to the subject matter hereof. Any previous
agreement among the parties hereto relative to the subject matter hereof is
superseded by this Agreement.
24
<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
BALLY TOTAL FITNESS HOLDING CORPORATION
By: /s/ John W. Dwyer
-------------------------
Name: John W. Dwyer
Title:
Confirmed and accepted as
of the date first above
written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
CHASE SECURITIES INC.
SOCIETE GENERALE SECURITIES CORPORATION
LADENBURG THALMANN & CO. INC.
BY: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Christopher G. Turner
---------------------------
Name: Christopher G. Turner
Title: Vice President
<PAGE> 27
Exhibit A to
Registration Rights Agreement
-----------------------------
FORM OF OPINION OF COUNSEL
--------------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Chase Securities Inc.,
Societe Generale Securities Corporation
Ladenburg Thalmann & Co. Inc.
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1209
RE: Bally Total Fitness Holding Corporation 9-7/8% Senior
Subordinated Notes due 2007
Ladies and Gentlemen:
We have acted as counsel for Bally Total Fitness Holding Corporation, a
Delaware corporation (the "Company"), in connection with the sale by the Company
to the Initial Purchasers (as defined below) of $225,000,000 aggregate principal
amount of 9-7/8% Senior Subordinated Notes due 2007 (the "Notes") of the Company
pursuant to the Purchase Agreement dated September 29, 1997 (the "Purchase
Agreement") among the Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Chase Securities Inc., Societe Generale Securities Corporation
and Ladenburg Thalmann & Co. Inc. (collectively, the "Initial Purchasers") and
the filing by the Company of an Exchange Offer Registration Statement (the
"Registration Statement") in connection with an Exchange Offer to be effected
pursuant to the Registration Rights Agreement, dated October 7, 1997 (the
"Registration Rights Agreement") between the Company and the Initial Purchasers.
This opinion is furnished to you pursuant to Section 3(f)(B) of the Registration
Rights Agreement. Unless otherwise defined herein, capitalized terms used in
this opinion that are defined in the Registration Rights Agreement are used
herein as so defined.
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion. In rendering this opinion, as to
all matters of fact relevant to this opinion, we have assumed the completeness
and accuracy of, and are relying solely upon, the representations, warranties
and agreements of the Company and the Initial Purchasers set forth in the
Purchase Agreement and the statements set forth in certificates of public
officials and officers of the Company, without making any independent
investigation or inquiry with respect
<PAGE> 28
to the completeness or accuracy of such representations, warranties, agreements
or statements. This opinion is limited to the laws of the United States of
America and the laws of the State of Delaware.
Based on and subject to the foregoing, we are of the opinion that the
Exchange Offer Registration Statement and the Prospectus (other than the
financial statements, notes or schedules thereto and other financial data and
supplemental schedules included therein or omitted therefrom and the Form T-1,
as to which we need express no opinion), comply as to form in all material
respects with the requirements of the Securities Act and the applicable rules
and regulations promulgated under the Securities Act.
In addition, although we have not undertaken to determine
independently, and do not assume any responsibility for, the accuracy or
completeness of the statements in the Registration Statement and the Prospectus,
we have participated in conferences with officers and other representatives of
the Company and representatives of the independent public accountants of the
Company at which the contents of the Registration Statement and Prospectus were
discussed and we have reviewed certain other documents. Because the primary
purpose of our professional engagement was not to establish or confirm factual
matters or financial, accounting or statistical matters and because of the
wholly or partially non-legal character of many of the matters and statements
contained in the Registration Statement and the Prospectus, we are not passing
upon and do not assume any responsibility for the accuracy, completeness or
fairness of such statements contained in the Registration Statement and the
Prospectus, and we make no representation that we have independently verified
the accuracy, completeness or fairness of such statements. Without limiting the
foregoing, we assume no responsibility for, and have not independently verified,
the accuracy, completeness or fairness of the financial and statistical data
included in or excluded from the Registration Statement and the Prospectus, and
we have not examined the accounting, financial or statistical records from which
such financial statements, schedules and data are derived. Although certain
portions of the Registration Statement and the Prospectus (including financial
statements) have been included therein on the authority of "experts" within the
meaning of the Securities Act, we are not such experts with respect to any
portion of the Registration Statement and the Prospectus, including, without
limitation, such financial statements or schedules or the other financial or
statistical data included therein.
On the basis of the foregoing, we confirm to you that no information
has come to our attention that would cause us to believe that the Registration
Statement, at the time it became effective or as of the date hereof, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement thereto, at the
time the Prospectus was issued, at the time any such amended or supplemented
Prospectus was issued or upon consummation of the Exchange Offer, included or
includes an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
2
<PAGE> 29
This opinion is being furnished to you solely for your benefit in
connection with the transaction contemplated by the Registration Rights
Agreement, and may not be used for any other purpose or relied upon by any
person other than you. Except with our prior written consent, the opinions
herein expressed are not to be used, circulated, quoted or otherwise referred to
in connection with any transactions other than those contemplated by the
Registration Rights Agreement by or to any other person.
Very truly yours,
<PAGE> 1
Exhibit 4.4
================================================================================
BALLY TOTAL FITNESS HOLDING CORPORATION
AS ISSUER
-----------------------------
$200,000,000
13% SENIOR SUBORDINATED NOTES DUE 2003
------------------------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of September 24, 1997
amending and supplementing the
Indenture dated as of January 15, 1993
------------------------------------
AMALGAMATED BANK OF CHICAGO
as Trustee
------------------------------------
================================================================================
<PAGE> 2
THIS SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as
of September 24, 1997, between BALLY TOTAL FITNESS HOLDING CORPORATION (f/k/a
Bally's Health & Tennis Corporation), a corporation duly organized and existing
under the laws of the State of Delaware, as issuer (the "Company") and
AMALGAMATED BANK OF CHICAGO, an Illinois banking corporation, as trustee (the
"Trustee").
WHEREAS, the Company and the Trustee are parties to an Indenture dated
as of January 15, 1993 (the "Original Indenture"), regarding the Company's 13%
Senior Subordinated Notes due 2003 (the "Securities");
WHEREAS, the Company has commenced a tender offer (the "Tender Offer")
for the Securities and, in connection therewith, has solicited consents (the
"Solicitation") from the holders of the Securities (the "Holders") to certain
amendments to the Original Indenture, as set forth in the Offer to Purchase and
Consent Solicitation Statement of the Company dated September 3, 1997; and
WHEREAS, pursuant to the Solicitation, the Holders of at least a
majority in aggregate principal amount of the outstanding Securities (excluding
for this purpose any Securities held by the Company, or any Affiliate of the
Company) have consented to the amendments effected by this Supplemental
Indenture in accordance with the provisions of the Original Indenture.
NOW THEREFORE, in consideration of the foregoing and mutual premises
and covenants contained herein and for other good and valuable consideration,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; AMENDMENTS TO ORIGINAL INDENTURE; WAIVER
SECTION 1.01 DEFINITIONS.
Capitalized terms used but not defined in this Supplemental Indenture
shall have the specified meanings therefor set forth in the Original Indenture.
SECTION 1.02 AMENDMENTS TO ORIGINAL INDENTURE.
(a) The amendments set forth in this Supplemental Indenture
shall become operative on the date that the Company notifies The Bank of New
York, in its capacity as Depositary in connection with the Tender Offer, that
the Securities tendered are accepted for purchase and payment pursuant to the
Tender Offer and shall be deemed effective as of September 24, 1997. If the
Securities so tendered are not accepted for payment by the Company for any
reason, the amendments set forth herein will not become operative.
(b) Sections 515, 703, 801, 1005, 1006, 1007, 1008, 1009,
1010, 1011, 1012, 1013, 1017, 1018 and 1020 of the Original Indenture shall be
deleted.
(c) Section 501 of the Original Indenture shall be amended by
deleting Paragraphs (c), (d) and (e) thereof and inserting "[intentionally
omitted]" in lieu thereof and by deleting the last paragraph of Section 501.
<PAGE> 3
(d) Section 802 of the Original Indenture shall be amended and
restated so as to read in its entirety as follows:
Section 802. Successor Substituted.
Upon any consolidation or merger or any sale, assignment,
transfer, lease or conveyance or other disposition of all or
substantially all of the assets of the Company, the successor
corporation formed by such consolidation or into which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance
or other disposition is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under this
Indenture with the same effect as if such successor corporation had
been named as the Company herein. When a successor assumes all the
obligations of its predecessor under this Indenture and the Securities,
the predecessor will be released from those obligations, provided that,
in the case of a transfer by lease, the predecessor corporation shall
not be released from the payment of the principal of and interest on
the Securities and amounts due to the Trustee up to the date of such
transfer by lease under Section 606 hereof.
(e) All references in the Original Indenture and the
Securities to the sections, subsections and clauses of the Original
Indenture and the Securities deleted or amended by the foregoing
paragraphs (b) through (d) shall be void and of no further force and
effect.
(f) All defined terms used in Section 101 of the Original
Indenture that are used solely in the sections, subsections and clauses
deleted by the foregoing paragraphs (b) through (d) shall be void and
of no further force and effect.
ARTICLE II
MISCELLANEOUS
SECTION 2.01 INSTRUMENTS TO BE READ TOGETHER.
This Supplemental Indenture is an indenture supplemental to the
Original Indenture; and, as such, said Original Indenture and this Supplemental
Indenture shall henceforth be read together. To the extent that the Securities
conflict with or are inconsistent with the terms of this Supplemental Indenture,
the terms of this Supplemental Indenture shall govern.
SECTION 2.02 CONFIRMATION.
The Original Indenture as amended and supplemented by this Supplemental
Indenture is in all respects confirmed and preserved.
2
<PAGE> 4
SECTION 2.03 HEADINGS.
The headings of the Articles and Sections of this Supplemental
Indenture have been inserted for convenience of reference only, and are not to
be considered a part hereof and shall in no way modify or restrict any of the
terms and provisions hereof.
SECTION 2.04 GOVERNING LAW.
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS SUPPLEMENTAL
INDENTURE AND THE SECURITIES.
SECTION 2.05 COUNTERPARTS.
This Supplemental Indenture may be executed in any number of
counterparts notwithstanding that all parties named herein may not be
signatories to the same counterpart, each of which so executed shall be deemed
to be an original, but all such counterparts shall together constitute but one
and the same instrument.
SECTION 2.06 EFFECTIVENESS.
The provisions of this Supplemental Indenture will become effective
according to its terms immediately upon its execution and delivery by the
Company and the Trustee.
SECTION 2.08 ACCEPTANCE BY TRUSTEE.
The Trustee accepts the amendments to the Original Indenture effected
by this Supplemental Indenture and agrees to execute the trusts created by the
Indenture as hereby amended, but only upon the terms and conditions set forth in
the Indenture. Without limiting the generality of the foregoing, the Trustee
assumes no responsibility for the correctness of the recitals contained herein,
which shall be taken as the statements of the Company and, except as provided in
the Original Indenture, the Trustee shall not be responsible or accountable in
any manner whatsoever for or with respect to the validity or execution or
sufficiency of this Supplemental Indenture.
SECTION 2.08 TRUST INDENTURE ACT CONTROLS.
If any provision of this Supplemental Indenture limits, qualifies or
conflicts with another provision that is required to be included in this
Supplemental Indenture by the Trust Indenture Act, the required provision shall
control.
3
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, as of the date first written above.
ATTEST: BALLY TOTAL FITNESS HOLDING
CORPORATION
/s/
- -------------------------
By /s/ Harold Morgan
------------------------------------------
Name: Harold Morgan
Title: Senior Vice President, Human Resources
ATTEST: AMALGAMATED BANK OF CHICAGO
(TRUSTEE)
/s/ By /s/ C. Linde
- ------------------------- ------------------------------------------
Name: C. Linde
Title: Assistant Vice President
4
<PAGE> 6
STATE OF )
) ss:
COUNTY OF )
On the 24th day of September, 1997, before me personally came Harold
Morgan, to me known, who, being by me duly sworn, did depose and say that he
resides at ___________________, _____________________; that he is Senior Vice
President of Bally Total Fitness Holding Corporation, one of the corporations
described in and which executed the above instrument; that he knows the
corporate seal of such corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed pursuant to authority of the Board
of Directors of such corporation; and that he signed his name thereto pursuant
to like authority.
/s/
------------------------------
Notary Public
(NOTARIAL SEAL)
STATE OF )
) ss:
COUNTY OF )
On the 24th day of September, 1997, before me personally came C. Linde,
to me known, who, being by me duly sworn, did depose and say that he/she resides
at One West Monroe, Chicago, IL; that he/she is Assistant Vice President of
Amalgamated Bank of Chicago, one of the corporations described in and which
executed the above instrument; that he/she knows the corporate seal of such
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed pursuant to authority of the Board of Directors of such
corporation; and that he/she signed his/her name thereto pursuant to like
authority.
/s/
------------------------------
Notary Public
(NOTARIAL SEAL)
5
<PAGE> 1
Exhibit 4.5
[Each global security, whether or not an initial security,
shall also bear the following legend on the face thereof:]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A
SUCCESSOR DEPOSITORY. TRANSFERS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES
OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTIONS 3.6 AND 3.7 OF THE
INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A
NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
<PAGE> 2
BALLY TOTAL FITNESS HOLDING CORPORATION
---------------------
9-7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
CUSIP NO. __________
No. ________________ $___________________
Bally Total Fitness Holding Corporation, a Delaware
corporation (herein called the "Company," which term includes any successor
Person under the Indenture hereinafter referred to), for value received, hereby
promises to pay to _____________ or registered assigns, the principal sum of
______ United States dollars on October 15, 2007, at the office or agency of the
Company referred to below, and to pay interest thereon from October 7, 1997, or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semiannually on April 15 and October 15 in each year,
commencing April 15, 1998 at the rate of 9-7/8% per annum, in United States
dollars, until the principal hereof is paid or duly provided for; provided that
to the extent interest has not been paid or duly provided for with respect to
the Series A Security exchanged for this Series B Security, interest on this
Series B Security shall accrue from the most recent Interest Payment Date to
which interest on the Series A Security which was exchanged for this Series B
Security has been paid or duly provided for. Interest shall be computed on the
basis of a 360-day year comprised of twelve 30-day months.
This Series B Security was issued pursuant to the Exchange
Offer pursuant to which the Company's 9-7/8% Senior Subordinated Notes due 2007,
Series A (herein called the "Series A Securities") in like principal amount were
exchanged for the Series B Securities. The Series B Securities rank pari passu
in right of payment with the Series A Securities.
In addition, for any period in which the Series A Security
exchanged for this Series B Security was outstanding, in the event that (a) the
Exchange Offer Registration Statement was not filed with the SEC on or prior to
the 30th day following the date of original issue of the Series A Security, (b)
the Exchange Offer Registration Statement was not declared effective on or prior
to the 90th day following the date of original issue of the Series A Security,
or (c) the Exchange Offer was not consummated on or prior to the 120th day
following the date of original issue of the Series A Security or a Shelf
Registration Statement was not declared effective on or prior to the 120th day
following the date of original issue of the Series A Security (or, a Shelf
Registration Statement was required to be filed 30 days following a request by
an Initial Purchaser) (each such event referred to in clauses (a) through (c)
above, a "Registration Default"), the interest rate borne by the Series A
Securities (except in the case of clause (c), in which case only the Series A
Securities which have not been exchanged in the Exchange Offer) was increased by
one-quarter of one percent (0.25%) per annum upon the occurrence of the
Registration Default, which rate (as increased as aforesaid) will increase by an
additional one-quarter of one percent (0.25%) each 90-day period that such
additional interest continues to accrue under any such circumstance, with an
<PAGE> 3
aggregate maximum increase in the interest rate equal to one percent (1%) per
annum. Following the cure of all Registration Defaults the accrual of additional
interest will cease and the interest rate will revert to the original rate;
provided that, to the extent interest at such increased interest rate has been
paid or duly provided for with respect to the Series A Security, interest at
such increased interest rate, if any, on this Series B Security shall accrue
from the most recent Interest Payment Date to which such interest on the Series
A Security has been paid or duly provided for; provided, however, that, if after
any such reduction in interest rate, a different event specified in clause (a),
(b) or (c) above occurs, the interest rate shall again be increased pursuant to
the foregoing provisions.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Security (or any Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the April 1 or October 1 (whether or not a Business
Day), as the case may be, immediately preceding such Interest Payment Date. Any
such interest not so punctually paid, or duly provided for, and interest on such
defaulted interest at the interest rate borne by the Series B Securities, to the
extent lawful, shall forthwith cease to be payable to the Holder on such Regular
Record Date, and may either be paid to the Person in whose name this Security
(or any Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such defaulted interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture.
Payment of the principal of, premium, if any, and interest on,
this Security, and exchange or transfer of the Security, will be made at the
office or agency of the Company in The City of New York maintained for such
purpose (which initially will be the Corporate Trust Office of the Trustee), or
at such other office or agency as may be maintained for such purpose, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the address of the Person entitled thereto as such address shall appear on the
Security Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Security shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
<PAGE> 4
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by the manual or facsimile signature of its authorized officers
and its corporate seal to be affixed or reproduced hereon.
BALLY TOTAL FITNESS HOLDING CORPORATION
By:
--------------------------------
Title:
----------------------------
Attest:
- --------------------------
Authorized Officer
<PAGE> 5
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 9-7/8% Senior Subordinated Notes due 2007,
Series B referred to in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By:
-------------------------------
Authorized Signer
Dated:
<PAGE> 6
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company
pursuant to Section 10.12 or Section 10.13, as applicable, of the Indenture,
check the Box: [ ]
If you wish to have a portion of this Security purchased by
the Company pursuant to Section 10.12 or Section 10.13 as applicable, of the
Indenture, state the amount (in original principal amount): $___________
Date:____________ Your Signature:__________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:________________________________
[Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Securities Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Securities Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act.]
<PAGE> 7
The form of the reverse of the Series B Securities shall
be substantially as follows:
BALLY TOTAL FITNESS HOLDING CORPORATION
9-7/8% Senior Subordinated Notes due 2007, Series B
This Security is one of a duly authorized issue of Securities
of the Company designated as its 9-7/8% Senior Subordinated Notes due 2007,
Series B (herein called the "Securities"), limited (except as otherwise provided
in the Indenture referred to below) in aggregate principal amount limited to
$225,000,000, issued under and subject to the terms of an indenture (herein
called the "Indenture") dated as of October 7, 1997, between the Company and
First Trust National Association, as trustee (herein called the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the Securities, and of
the terms upon which the Securities are, and are to be, authenticated and
delivered.
The Indenture contains provisions for defeasance at any time
of (a) the entire Indebtedness on the Securities and (b) certain restrictive
covenants and related Defaults and Events of Default, in each case upon
compliance with certain conditions set forth therein.
The Securities are subject to redemption at any time on or
after October 15, 2002, at the option of the Company, in whole or in part, on
not less than 30 nor more than 60 days' prior notice to the Holders by
first-class mail, in amounts of $1,000 or an integral multiple
<PAGE> 8
thereof, at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning October 15
of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002...................................... 104.938%
2003...................................... 103.292%
2004...................................... 101.646%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant Regular Record Dates or Special Record
Dates to receive interest due on an Interest Payment Date).
If less than all of the Securities or Series A Securities are
to be redeemed, the Trustee shall select the Securities and Series A Securities
or portions thereof to be redeemed pro rata, by lot or by any other method the
Trustee shall deem fair and reasonable.
Upon the occurrence of a Change of Control, each Holder may
require the Company to purchase such Holder's Securities in whole or in part in
integral multiples of $1,000, at a purchase price in cash in an amount equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase, pursuant to a Change of Control Offer and in accordance
with the procedures set forth in the Indenture.
In addition, at any time on or prior to October 15, 2000, the
Company may, at its option, use the net proceeds of one or more Public Equity
Offerings to redeem up to an aggregate of 35% of the aggregate principal amount
of Securities originally issued under the Indenture at a redemption price equal
to 109.875% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Redemption Date; provided that at least
$146,250,000 aggregate principal amount of Securities and Series A Securities
remains outstanding immediately after the occurrence of such redemption. In
order to effect the foregoing redemption, the Company must mail a notice of
redemption no later than 60 days after the related Public Equity Offering and
must consummate such redemption within 90 days of the closing of the Public
Equity Offering.
Under certain circumstances, in the event the Net Cash
Proceeds received by the Company from any Asset Sale (which proceeds are not
used to permanently repay any Senior Indebtedness or invested in properties or
other assets that replace the properties and assets that were the subject of the
Asset Sale or which will be used in the businesses of the Company or its
Subsidiaries existing on the date of the Indenture or in businesses reasonably
related or complementary thereto) exceeds a specified amount, the Company will
be required to set aside such proceeds in a separate account pending an offer by
the Company to apply such proceeds to
<PAGE> 9
the repayment of the Securities and certain Indebtedness ranking pari passu in
right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal amount of all the Securities may be declared due and payable in the
manner and with the effect provided in the Indenture. The Securities are not
entitled to the benefit of any sinking fund.
The Indenture permits, with certain exceptions (including
certain amendments permitted without the consent of any Holders) as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders under the Indenture and
the Securities at any time by the Company and the Trustee with the consent of
the Holders of a specified percentage in aggregate principal amount of the
Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Securities and Series A Securities at the time Outstanding, on behalf of the
Holders of all the Securities and Series A Securities, to waive compliance by
the Company with certain provisions of the Indenture and the Securities and
certain past Defaults under the Indenture and their consequences. Any such
consent or waiver by or on behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security.
The Securities are subordinated in right of payment, in the manner and
to the extent set forth in the Indenture, to the prior payment in full in cash
or Cash Equivalents or, as acceptable to the holders of Senior Indebtedness, in
any other manner, of all Senior Indebtedness of the Company whether outstanding
on the date hereof or thereafter created, incurred, assumed or guaranteed. Each
Holder by his acceptance hereof agrees to be bound by such provisions and
authorizes and expressly directs the Trustee, on his behalf, to take such action
as may be necessary or appropriate to effectuate the subordination provided for
in the Indenture and appoints the Trustee his attorney-in-fact for such purpose.
<PAGE> 10
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company or any
other obligor on the Securities (in the event such other obligor is obligated to
make payments in respect of the Securities), which is absolute and
unconditional, to pay the principal of, and premium, if any, and interest on,
this Security at the times, place, and rate, and in the coin or currency, herein
prescribed.
If this Series B Security is in certificated form, then as
provided in the Indenture and subject to certain limitations therein set forth,
the transfer of this Series B Security is registrable on the Security Register
of the Company, upon surrender of this Series B Security for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York or at such other office or agency of the Company as may be
maintained for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or its attorney duly authorized in
writing, and thereupon one or more new Series B Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
If this Series B Security is a U.S. Global Security, it is
exchangeable for a Series B Security in certificated form as provided in the
Indenture and in accordance with the rules and procedures of the Trustee and the
Depositary. In addition, certificated securities shall be transferred to all
beneficial holders in exchange for their beneficial interests in the U.S. Global
Security if (x) the Depository notifies the Company that it is unwilling or
unable to continue as depository for the U.S. Global Security and a successor
depositary is not appointed by the Company within 90 days or (y) there shall
have occurred and be continuing an Event of Default and the Security Registrar
has received a request from the Depositary. Upon any such issuance, the Trustee
is required to register such certificated Series B Securities in the name of,
and cause the same to be delivered to, such Person or Persons (or the nominee of
any thereof).
Series B Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series B Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security is overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
<PAGE> 11
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF).
All terms used in this Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
<PAGE> 1
Exhibit 5.1
October 30, 1997
Board of Directors
Bally Total Fitness Holding Corporation
8700 West Bryn Mawr
Chicago, Illinois 60631
Re: Registration Statement on Form S-4
Exchange Offer Registration Statement
Gentlemen:
It is our understanding that Bally Total Fitness Holding Corporation, a
Delaware corporation (the "Company"), intends to file with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, a
Registration Statement on Form S-4 (the "Registration Statement"), which
Registration Statement relates to a proposed public offering of $225,000,000
aggregate principal amount of 9 7/8% Series B Senior Subordinated Notes due 2007
(the "New Notes") to be issued by the Company in exchange for $225,000,000
aggregate principal amount of 9 7/8% Series A Senior Subordinated Notes due 2007
(the "Old Notes"). The Old Notes were issued pursuant to an Indenture (the
"Indenture") dated as of October 7, 1997 between the Company and First Trust
National Association, as trustee (the "Trustee"). The New Notes will also be
issued pursuant to the Indenture.
You have requested our opinion in connection with the Company's filing
of the Registration Statement. In this regard, we have examined and relied on
originals or copies, certified or otherwise identified to our satisfaction as
being true copies, of all such records of the Company, all such agreements,
certificates of officers of the Company and others, and such other documents,
certificates and corporate or other records as we have deemed necessary as a
basis for the opinion expressed in this letter including, without limitation,
the Indenture, the Company's Restated Certificate of Incorporation and the
Registration Statement.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals and the conformity to original documents of all
documents submitted to us as certified or photostatic copies. As to facts
material to the opinions expressed in this letter, we have relied on statements
and certificates of officers of the Company and of state authorities.
<PAGE> 2
Board of Directors
Bally Total Fitness Holding Corporation
October 30, 1997
Page 2
We have investigated such questions of law for the purpose of rendering
the opinion in this letter as we have deemed necessary. We express no opinion in
this letter concerning any law other than the law of the State of New York.
The opinion expressed herein assumes that there is no change in the
facts, circumstances and law in effect on the date of this opinion, particularly
as they relate to corporate authority and the Company's good standing under New
York law.
On the basis of and in reliance on the foregoing, we are of the opinion
that the New Notes, when duly executed and delivered to, and authenticated by,
the Trustee and exchanged for the Old Notes in accordance with the procedures
specified in the Registration Statement, will be valid and binding obligations
of the Company and will be entitled to the benefits of the Indenture.
The opinion in this letter is rendered in connection with the filing of
the Registration Statement. We hereby consent to the filing of this letter as an
exhibit to the Registration Statement and to being named in the Registration
Statement under the heading "Legal Matters" as counsel to the Company.
Very truly yours,
BENESCH, FRIEDLANDER,
COPLAN & ARONOFF LLP
<PAGE> 1
Exhibit 12.1
BALLY TOTAL FITNESS HOLDING CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30, Years ended December 31,
---------------------- -------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Loss before income taxes,
extraordinary item and
cumulative effect on prior
years of change in accounting
for income taxes ............. $ (12,780) $ (19,645) $ (27,597) $ (38,588) $ (54,693) $ (57,165) $ (51,192)
Add:
Interest expense(a) .......... 22,423 23,900 47,644 43,750 38,556 39,071 31,884
Amortization of capitalized
interest .................... 723 839 1,622 1,790 1,859 1,881 1,802
Interest component of rent
expense(b) .................. 15,153 14,363 28,906 28,619 27,763 26,629 25,298
--------- --------- --------- --------- --------- --------- ---------
Earnings available for fixed
charges ...................... $ 25,519 $ 19,457 $ 50,575 $ 35,571 $ 13,485 $ 10,416 $ 7,792
========= ========= ========= ========= ========= ========= =========
Fixed charges:
Interest expense(a) .......... $ 22,423 $ 23,900 $ 47,644 $ 43,750 $ 38,556 $ 39,071 $ 31,884
Capitalized interest ......... 892 163 236 278 253 604 358
Interest component of rent
expense(b) .................. 15,153 14,363 28,906 28,619 27,763 26,629 25,298
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges ........... $ 38,468 $ 38,426 $ 76,786 $ 72,647 $ 66,572 $ 66,304 $ 57,540
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed
charges ...................... (c) (c) (c) (c) (c) (c) (c)
========= ========= ========= ========= ========= ========= =========
</TABLE>
- ---------------
(a) Includes amortization of debt issuance costs.
(b) Interest component estimated to be one-third of rent expense.
(c) Earnings were insufficient to cover fixed charges by $12,949, $18,969,
$26,211, $37,076, $53,087, $55,888 and $49,748 for the six months ended
June 30, 1997 and 1996 and for the years ended December 31, 1996, 1995,
1994, 1993 and 1992, respectively.
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use and incorporation by reference of our reports dated February 25, 1997,
except for the "Summary of significant accounting policies - Restatement,
Membership revenue recognition and Impact of recently issued accounting
standards" and "Income Taxes" notes, as to which the date is July 14, 1997, in
the Registration Statement (Form S-4) and related Prospectus of Bally Total
Fitness Holding Corporation for the registration of $225,000,000 of 9 7/8%
Senior Subordinated Notes due 2007.
Chicago, Illinois
October 29, 1997
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
FIRST TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer Identification No.)
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
BALLY TOTAL FITNESS HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 36-3228107
(State of Incorporation) (I.R.S. Employer Identification No.)
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
(Address of Principal Executive Offices) (Zip Code)
9 7/8% Senior Subordinated Notes Due 2007
(Title of the Indenture Securities)
<PAGE> 2
GENERAL
1. GENERAL INFORMATION. Furnish the following information as to the Trustee.
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS. If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe
each such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS. List below all exhibits filed as a part of this
statement of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority is incorporated by reference to Registration Number
333-34585.
*Incorporated by reference to Registration Number 22-27000.
<PAGE> 3
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligor within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligor, or affiliates, are based
upon information furnished to the Trustee by the obligors. While the Trustee has
no reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, First Trust National Association, an Association organized and existing
under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Saint Paul and State of Minnesota on the 30th day of October,
1997.
FIRST TRUST NATIONAL ASSOCIATION
/s/ Kathe M. Barrett
---------------------
Kathe M. Barrett
Trust Officer
/s/ Eve D. Kaplan
- -------------------
Eve D. Kaplan
Assistant Secretary
<PAGE> 4
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned, FIRST TRUST NATIONAL ASSOCIATION hereby consents that reports of
examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: October 30, 1997 FIRST TRUST NATIONAL ASSOCIATION
/s/ Kathe M. Barrett
----------------------
Kathe M. Barrett
Trust Officer
