SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number: 0-27478
BALLY TOTAL FITNESS HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3228107
(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
8700 West Bryn Mawr Avenue, Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (773) 380-3000
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Series A Junior Participating Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes: X No:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant as of February 28, 1997 was approximately $88
million, based on the closing price of the registrant's common stock as reported
by the NASDAQ National Market System at that date. For purposes of this
computation, affiliates of the registrant include the registrant's executive
officers and directors. As of February 28, 1997, 12,495,161 shares of the
registrant's common stock were outstanding.
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PART I
Except as otherwise stated, the information contained in this Form 10-K is as of
December 31, 1996, the end of the registrant's last fiscal year. The information
contained in this Form 10-K 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 registrant to be materially
different from any future results, performance or achievements expressed or
implied by such forward- looking statements. See "Forward-Looking Statements" in
Item 7 of this Form 10-K.
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
The registrant, Bally Total Fitness Holding Corporation, formerly Bally's Health
& Tennis Corporation (the "Company" or "Bally"), is incorporated in Delaware and
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
issued pursuant to a stockholder rights plan (a "Right"), for every four shares
of Entertainment common stock held on the Record Date. On January 9, 1996,
11,845,161 shares of Common Stock were distributed. Unless otherwise specified
in the text, references to the Company include the Company and its subsidiaries.
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 February 28, 1997, the
Company operated approximately 320 fitness centers concentrated in major
metropolitan areas in 27 states and Canada and had approximately 4.0 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 clubs 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.
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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 $349 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 discounting price 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. Monthly dues vary based on the type of plan
purchased by the member and the amount of initial membership fee paid in cash.
Some seasonal discounting 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. After an initial period ends (typically 36
months), renewal dues generally range from $2.00 to $24.00 per month, with
increases as contractually permitted. The Company has experienced an annual
growth rate of dues revenues of 9% from 1994 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 its belief that it can
significantly increase dues 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 electronic funds transfer ("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). In addition, the Company offers two payment methods
for financed portions of initial membership fees: coupon books and EFT, either
from a member's bank account or credit card. Management expects that
approximately 80% to 85% of all new membership contracts during 1997 will be
financed.
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 regional service center ("RSC")
responsible for administering the membership account.
Members have the option of changing their payment method.
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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 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 December 31,
1996, approximately 51% 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.
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. The Company operates 262 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
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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. The RSCs employ approximately 800 people in the account processing and
collection areas, including approximately 165 employees dedicated to customer
service, approximately 235 employees dedicated to account processing and
administration and approximately 300 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 collection activity. 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.
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
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January 1996. The Company filed a Registration Statement with the Securities and
Exchange Commission in March 1997 to offer additional shares of the Common Stock
with an aggregate offering price of approximately $35 million (the "Offering").
The Company intends to use (i) approximately $20 million to $30 million of the
proceeds of the Offering for capital expenditures to develop 15 to 25 new
facilities over the next three years and more extensively refurbish and upgrade
approximately 25% of its facilities over the next two years, (ii) as much as $3
million to support new initiatives described below and (iii) the balance for
general corporate and working capital purposes. Current management intends to
pursue a number of operating strategies, which the Company believes will improve
the results of its core business. If the Company does not complete the Offering
in the near future, implementation of the first two strategies discussed below
will be slower and take a significantly longer time to complete. Planned
operating strategies include:
- 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 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 which frequently waive dues 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 in many cases upgrade, its existing
facilities. In addition, the Company expects to invest approximately
$5 million to $10 million of the proceeds from the Offering over the
next two years to more extensively refurbish and upgrade approximately
25% of its clubs. The Company also intends to spend approximately $15
million to $25 million of the proceeds from the Offering to open 15 to
25 new facilities based on its new prototype over the next three
years. 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.
- Increase Dues Revenues-- The Company believes that its dues are
substantially less than those of its competitors and that it can
significantly increase dues 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 insurance.
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 brand identity, extensive
infrastructure (320 facilities), 4.0 million member base 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:
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- Sell Nutritional Products-- The Company has successfully concluded test
marketing certain nutritional products and is launching the sale of
these products to members through telemarketing efforts and within its
fitness centers.
- Provide Outpatient Rehabilitation Services-- The Company recently
entered into an agreement with a manager of health care programs and
services whereby certain of the Company's facilities will be used for
comprehensive outpatient rehabilitation services. The Company believes
it has opportunities to provide similar outpatient rehabilitation
services in additional fitness centers, and expects to offer these
services in up to 100 of its facilities within three years. The
Company plans to spend approximately $1 million of the proceeds from
the Offering to upgrade an initial group of its facilities to provide
rehabilitation services.
- Offer Other Goods and Services-- The Company plans to market apparel and
certain financial services to its members through in-club sales efforts
and direct marketing programs.
The Company has entered into agreements with various entities to test market the
provision of financial services to its members including the sale of credit life
insurance. 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 do not require significant capital expenditures by the Company.
Consequently, the Company expects to explore the sale of other similar or
complimentary services and expects to make those products that are most
successful available to all of its 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.
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PROPERTIES
The Company operates approximately 320 fitness centers in 27 states and Canada.
The Company owns 33 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 $86.7 million, $85.9 million and
$83.3 million for 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.
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 Hotels Corporation 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 $1.0 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 $1.0 million per year.
SEASONALITY
Historically, the Company has experienced greater revenues in the first quarter
and lower revenues 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
The Company has approximately 12,600 employees, including approximately 6,300
part-time employees. Approximately 11,540 employees are involved in club
operations, including sales personnel, instructors, supervisory or custodial
personnel, approximately 800 are involved in the operation of the RSCs and
approximately 260 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.
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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, 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.
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.
ITEM 3. 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. The
relief sought is damages equal to the alleged overpayments and statutory
remedies. The Company is vigorously defending this action and appealing the
certification of the class. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4 is inapplicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is traded on the NASDAQ National Market System ("NASDAQ") under
the symbol "BFIT." The following table sets forth, on a per share basis, the
high and low quarterly sales prices for the Common Stock as reported on NASDAQ
since trading began on January 4, 1996, the date the Company's initial
Registration Statement on Form S-1 was declared effective. The Company was a
wholly owned subsidiary of Entertainment until January 9, 1996, the date on
which 11,845,161 shares of Common Stock were distributed by Entertainment in the
Spin-off.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
1996:
First quarter (from January 4, 1996) $7 $3 3/4
Second quarter 5 3/4 3 15/16
Third quarter 5 1/8 4
Fourth quarter 9 1/16 4 1/2
</TABLE>
As of February 28, 1997, there were 11,125 holders of record of the Common
Stock.
The Company has not made cash dividend payments on the Common Stock since the
Spin-off and does not anticipate paying dividends on the Common Stock for the
foreseeable future. Currently, the Company is restricted from paying dividends
by the terms of its 13% Senior Subordinated Notes due 2003 (the "13% Notes") and
its revolving credit agreement. Specifically, the indenture governing the 13%
Notes contains a covenant that the Company currently cannot, directly or
indirectly, declare or pay any dividend on, or make any distribution to holders
of, any shares of Common Stock (other than dividends or distributions payable in
shares of Common Stock or in options, warrants or other rights to purchase
Common Stock, but excluding certain specified dividends or distributions).
Similarly, the terms of the Company's revolving credit agreement provide that
the Company is restricted from paying dividends without the consent of the
lenders during the term of the agreement and until all obligations thereunder
have been satisfied.
9
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
Years ended December 31,
------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(Dollar amounts in millions, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Net revenues $625.6 $661.7 $661.5 $694.8 $744.7
Depreciation and amortization 55.9 57.4 58.9 60.4 57.8
Operating income (loss) 3.7 7.6 (37.2) .8 24.3
Loss before extraordinary
item and cumulative
effect on prior years
of change in accounting
for income taxes (41.2)(a) (25.2) (50.8) (28.0)(b) (7.5)
Loss per common share (pro
forma for 1995 and 1994)(c) (3.38) (3.08) (6.44)
BALANCE SHEET DATA
(AT END OF YEAR)
Cash and equivalents $ 16.5 $ 21.3 $ 12.8 $ 11.0 $ 10.7
Installment contracts
receivable, net 300.2 303.4 284.1 322.7 327.8
Total assets 813.5 846.3 860.2 923.3 919.4
Long-term debt, less
current maturities 376.4 368.0 289.7 305.7 269.8
Stockholders' equity 216.5 240.3 234.3 261.3 264.5
OTHER FINANCIAL DATA
EBITDA(d) $ 59.7 $ 65.0 $ 21.6 $ 61.2 $ 82.1
Cash provided by (used in):
Operating activities (5.3) (9.9) 32.8 49.9 64.5
Investing activities (9.8) (42.1) (21.4) (36.1) (25.1)
Financing activities 10.4 60.4 (9.6) (13.6) (41.8)
</TABLE>
- - ------------
(a) Excludes 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 and
(ii) a charge (net of taxes) of $4.2 million ($.35 per share) resulting
from the refinancing of the Company's securitization facility.
(b) Excludes (i) an extraordinary loss on extinguishment of debt of $6.0
million (net of taxes) resulting from a refinancing of certain
indebtedness and (ii) a credit of $20.7 million for the cumulative effect
on prior years of a change in accounting for income taxes resulting from
the Company changing its method of accounting for income taxes effective
January 1, 1993 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 financial statements of any prior years to apply the
provisions of SFAS No. 109.
(c) The historical net loss for the years ended December 31, 1995 and 1994
reflected a federal income tax benefit arising from the Company's prior
tax sharing agreement with Entertainment of $11.3 million and $25.7
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 Common Stock to Entertainment
10
<PAGE>
stockholders as if such distribution had taken place as of the beginning
of each year.
(d) EBITDA represents operating income (loss) before depreciation and
amortization. The Company has presented EBITDA supplementally because the
Company believes it allows for a more complete analysis of its results of
operations. 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.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 the sale of financed
contracts with payments made by EFT by adjusting sales commission and member
incentives. The Company's experience indicated better collection results for
financed memberships sold under EFT plans compared to those sold with standard
coupon book payment plans. EFT contracts represent approximately 51% of the
total contracts in the receivables portfolio at December 31, 1996. Additionally,
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 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 RSCs. The consolidation of five RSCs into the 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 membership accounts
better while reducing costs.
Management also believes significant opportunities exist to increase revenues
beyond those generated by the sale of memberships without significant capital
expenditures. Because of its nationally recognized brand identity, extensive
infrastructure, 4.0 million member base and frequency of visitation, management
has begun to pursue the following growth opportunities: (i) the sale of
nutritional products to its members through telemarketing and within its fitness
centers, (ii) the provision of comprehensive outpatient rehabilitation services,
and (iii) the sale of other goods and services, including the marketing of
apparel and certain financial services to its members.
RESULTS OF OPERATIONS
Comparison of the years ended December 31, 1996 and December 31, 1995
Net revenues for 1996 were $625.6 million compared to $661.7 million in 1995.
Net revenues for the same fitness centers selling memberships throughout both
years decreased $28.5 million (5%), with the remaining decrease resulting from a
reduction in the number of fitness centers operated in 1996. The average number
of fitness centers selling memberships decreased from 332 in 1995 to 322 in
1996, reflecting the closure of 25 older, 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. New membership revenues
decreased $40.5 million (10%) 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 revenues increased $7.0
million (4%) 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 $2.1 million (12%) primarily due to
the reduction of personal trainer revenue in 1996 as a result of temporarily
12
<PAGE>
outsourcing the service and non-recurring income in 1995 pertaining to insurance
recoveries.
Operating income for 1996 was $3.7 million compared to $7.6 million in 1995. The
decrease of $3.9 million is due to the aforementioned decrease in revenues
offset, in part, by a $32.3 million (5%) reduction in operating costs and
expenses 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 the
increase in the market price of the Common Stock. Excluding the provisions for
doubtful receivables and restricted stock awards, operating costs and expenses
decreased $45.6 million (8%) in 1996 compared to 1995. This decrease was
primarily due to (i) continuing reductions in payroll and other variable costs
(including the aforementioned RSC consolidation project), (ii) lower commissions
as a result of the aforementioned decline in new membership sales and (iii) the
3% reduction in the average number of fitness centers operated in 1996 compared
to 1995.
Fitness center operating expenses for 1996 decreased $30.3 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 club
closures. In addition, insurance expenses declined due to favorable experience
in controlling general liability risks, and commissions decreased as a result of
the decline in new membership sales. As a percentage of net revenues, fitness
center operating expenses decreased from 60% in 1995 to 59% in 1996.
Member processing and collection center expenses decreased $8.2 million (15%)
primarily due to the aforementioned RSC consolidation and computer projects.
Member processing and collection center expenses as a percentage of net revenues
decreased from 8% in 1995 to 7% in 1996.
Advertising costs for 1996 decreased $2.6 million (5%) from 1995 primarily due
to decreased production costs, agency fees and media costs. Advertising costs as
a percentage of net revenues were 8% for each year.
General and administrative expenses increased $2.0 million (9%) over 1995
primarily due to certain costs associated with the accelerated vesting of the
aforementioned restricted stock awards and accruals of severance costs. As a
percentage of net revenues, general and administrative expenses increased from
3% in 1995 to 4% in 1996.
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 for those offered from time to time between July 1995
and October 1996.
Depreciation and amortization expense decreased $1.4 million (2%) from 1995 and,
as a percentage of net revenues, was 9% for each year.
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 its 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 non-deductible amortization of costs in excess of acquired
assets.
13
<PAGE>
Comparison of the years ended December 31, 1995 and December 31, 1994
Net revenues for 1995 were $661.7 million compared to $661.5 million in 1994.
Dues revenues increased by $22.1 million (14%) reflecting the Company's strategy
of increasing renewal dues. New membership revenues decreased $20.2 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. New membership revenues were also
negatively impacted by the general retail climate and increased competition. Net
revenues for the same fitness centers selling memberships throughout both years
decreased $6.5 million (1%) as a result of the aforementioned decline in the
number of contracts sold offset, in part, by an increase in the average selling
price. The average number of fitness centers selling memberships decreased from
336 in 1994 to 332 in 1995, reflecting the closure 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 $7.6 million compared to an operating loss of
$37.2 million in 1994. The improvement of $44.8 million is primarily due to a
$44.6 million (6%) reduction in operating costs and expenses. Excluding the
provisions for doubtful receivables, operating costs and expenses decreased
$12.8 million (2%) in 1995 compared to 1994. This decrease was primarily due to
reductions 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 new membership sales.
Fitness center operating expenses for 1995 decreased $11.5 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 new membership sales. As a percentage
of net revenues, fitness center operating expenses decreased from 62% in 1994 to
60% in 1995.
Member processing and collection center expenses decreased $1.9 million (4%)
primarily due to the aforementioned RSC consolidation project. Member processing
and collection center expenses as a percentage of net revenues were 8% for each
year.
Advertising costs for 1995 increased $2.5 million (5%) over 1994 primarily due
to increased media costs as a result of introducing the new company name ("Bally
Total Fitness"). Advertising costs as a percentage of net revenues increased
from 7% in 1994 to 8% in 1995.
General and administrative expenses decreased $.3 million (1%) from 1994 and, as
a percentage of net revenues, were 3% for each year.
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.
Depreciation and amortization expense decreased $1.5 million (3%) from 1994 and,
as a percentage of net revenues, was 9% for each year.
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 non-deductible amortization of costs in excess of
acquired assets.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has no scheduled principal payments under its securitization
facility and the 13% Notes until July 1999 and January 2003, respectively. The
Company's revolving credit agreement, which provides for borrowings of up to $20
million, expires in June 1998. Debt service requirements for the next twelve
months, principally for interest, are expected to be approximately $50 million.
The Company's recent losses and the terms of its revolving credit agreement have
limited the Company's ability to borrow significant amounts of additional funds.
Consequently, the Company has been dependent on availability under its revolving
credit agreement ($7.9 million at February 28, 1997) 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. Management believes use of these discounting techniques
has had a negative impact on both current and long term results and, if needed
in the future, such discounting and acceleration techniques may be increasingly
costly and less effective.
Management plans to make capital expenditures of approximately $10 million to
$12 million over the next twelve months to maintain, and in many cases upgrade,
its existing facilities. For the last three years, the Company has spent $10
million to $15 million annually, as funds were available, to open new or
replacement facilities. The Company expects to continue those expenditures as
funds are available.
The Company filed a Registration Statement with the Securities and Exchange
Commission in March 1997 to offer additional shares of the Common Stock with an
aggregate offering price of approximately $35 million. The Company intends to
use (i) approximately $20 million to $30 million of the proceeds of the Offering
for capital expenditures to develop 15 to 25 new facilities over the next three
years and more extensively refurbish and upgrade approximately 25% of its
facilities over the next two years, (ii) as much as $3 million to support the
introduction of new initiatives and (iii) the balance for general corporate and
working capital purposes. The Company expects that completion of the Offering
will alleviate the need to use the discounting techniques described above.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Form 10-K including, without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions 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; and regional weather conditions. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
CASH EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
("CASH EBITDA")
The indenture governing the 13% Notes requires the disclosure of information
with respect to Cash EBITDA (as calculated using accounting principles in effect
in January 1993, when the 13% Notes were issued) in this Form 10-K. Cash EBITDA
should not be considered as an alternative to any measure of performance or
liquidity as promulgated under generally accepted accounting principles (such as
net income/loss or cash provided by/used in operating, investing and financing
activities), nor should it be considered as an indicator of the Company's
overall financial performance.
15
<PAGE>
<TABLE>
Cash EBITDA is calculated as follows (in millions):
<CAPTION>
Years ended December 31,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
Loss before income taxes and
extraordinary item $ (43.9) $ (36.2)
Adjustments to reconcile to Cash EBITDA:
Interest expense (excluding $14.8
million and $7.3 million of interest
on the securitization facilities) 32.8 36.5
Depreciation and amortization 55.9 57.4
Provision for doubtful receivables 80.4 72.1
Other non-cash expenses .8 2.5
Increase in installment contracts
receivable (75.5) (91.4)
Decrease in deferred revenues (9.4) (18.0)
Pro forma decrease in installment
contracts receivable (related to
securitization facilities) 10.0 150.0
-------- --------
Cash EBITDA $ 51.1 $ 172.9
======== ========
</TABLE>
Cash EBITDA was $51.1 million for 1996 compared to $172.9 million for 1995, a
decrease of $121.8 million attributed to the $147.5 million net effect of the
securitization facilities offset by increased collections (due to various
operating improvements) and reduced cash expenditures. Accounting principles in
January 1993 treated this type of financing as a sale, and therefore a reduction
in receivables, rather than as indebtedness with related interest expense.
Excluding the $10.0 million and $150.0 million reductions in receivables and
adding back the related interest expense in 1996 and 1995, Cash EBITDA increased
from $30.2 million in 1995 to $55.9 million in 1996.
16
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
INDEX
<CAPTION>
Reference
---------
<S> <C>
Report of independent auditors 18
Consolidated balance sheet 19
Consolidated statement of operations 21
Consolidated statement of stockholders' equity 22
Consolidated statement of cash flows 23
Notes to consolidated financial statements 25
Supplementary data:
Quarterly consolidated financial information (unaudited) 39
</TABLE>
17
<PAGE>
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. Our audits also
included the financial statement schedule listed in the Index at Item 14(a)2.
These financial statements and the schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the schedule 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. Also, in our opinion, the related financial
statement schedule, 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
18
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
<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
Other current assets 24,075 20,216
-------- --------
Total current assets 193,844 196,983
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 15,974 2,989
Other assets 25,506 39,771
-------- --------
$813,480 $846,294
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
19
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED BALANCE SHEET-(CONTINUED)
(In thousands, except share data)
<CAPTION>
December 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,565 $ 43,740
Income taxes payable 350 2,241
Deferred income taxes 26,006 11,112
Deferred revenues 55,927 61,881
Accrued liabilities 55,063 64,978
Current maturities of long-term debt 8,401 1,481
-------- --------
Total current liabilities 187,312 185,433
Long-term debt, less current maturities 376,397 368,032
Deferred revenues 26,440 29,686
Tax obligation to Bally Entertainment Corporation 15,200
Other liabilities 6,824 7,596
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 306,811 293,062
Accumulated deficit (88,378) (52,833)
Unearned compensation (restricted stock) (2,051)
-------- --------
Total stockholders' equity 216,507 240,347
-------- --------
$813,480 $846,294
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
20
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share data)
<CAPTION>
Years ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues:
Membership revenues--
New $ 383,362 $ 423,849 $ 444,043
Dues 190,793 183,803 161,656
Finance charges earned 36,405 36,889 34,877
Fees and other 15,080 17,199 20,929
---------- ---------- ----------
625,640 661,740 661,505
Operating costs and expenses:
Fitness center operations 369,991 400,241 411,776
Member processing and collection centers 44,601 52,764 54,688
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
---------- ---------- ----------
621,896 654,149 698,753
---------- ---------- ----------
Operating income (loss) 3,744 7,591 (37,248)
Interest expense 47,644 43,750 38,556
---------- ---------- ----------
Loss before income taxes and
extraordinary item (43,900) (36,159) (75,804)
Income tax benefit (2,700) (10,999) (25,013)
---------- ---------- ----------
Loss before extraordinary item (41,200) (25,160) (50,791)
Extraordinary gain on
extinguishment of debt 5,655
---------- ---------- ----------
Net loss $ (35,545) $ (25,160) $ (50,791)
========== ========== ==========
Pro forma net loss reflecting income
taxes on a separate return basis $ (36,497) $ (76,305)
========== ==========
Per common share (pro forma for 1995
and 1994):
Loss before extraordinary item $ (3.38) $ (3.08) $ (6.44)
Extraordinary gain on
extinguishment of debt .46
---------- ---------- ----------
Net loss $ (2.92) $ (3.08) $ (6.44)
========== ========== ==========
Average common shares outstanding
(pro forma for 1995 and 1994) 12,174,601 11,845,161 11,845,161
========== ========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
21
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<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 19,000,000 $ 190 $ 238,007 $ 23,118 $ $ 261,315
Net loss (50,791) (50,791)
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 (27,673) 234,255
Net loss (25,160) (25,160)
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 (13,255) (13,255)
Reduction in number of shares
issued and outstanding (7,154,839) (72) 72 -
---------- ------ ----------- ----------- ------------ ------------
Balance at December 31, 1995 11,845,161 118 293,062 (52,833) 240,347
Net loss (35,545) (35,545)
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 $ 306,811 $ (88,378) $ (2,051) $ 216,507
========== ====== =========== =========== ============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
22
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
Years ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING:
Loss before extraordinary item $(41,200) $(25,160) $(50,791)
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
Deferred income taxes 2,075 (26,480) (10,257)
Change in operating assets and liabilities (105,536) (91,882) (72,582)
Other, net (114) 822 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
======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
23
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS-(CONTINUED)
(In thousands)
<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 accounts payable (475) (498) (85)
Increase (decrease) in income taxes
payable (4,941) 22,166 (5,800)
Increase (decrease) in accrued and other
liabilities (11,191) (5,703) 1,836
Increase (decrease) in deferred revenues (9,375) (18,014) 438
--------- -------- --------
$(105,536) $(91,882) $(72,582)
========= ======== ========
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 13,255
Reduction of intangible assets resulting
from settlement of pre-acquisition
contingency 10,331
<FN>
See accompanying notes.
</FN>
</TABLE>
24
<PAGE>
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. In addition,
certain reclassifications have been made to prior years' financial statements to
conform with the 1996 presentation.
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.
25
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
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.
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 or being current with financing
payments on initial membership fees, to maintain their membership on a
month-to-month basis as long as monthly dues payments are made. Revenue recorded
at the time memberships are sold is limited to the portion applicable to the
initial membership fee. Dues revenue is recorded as monthly services are
provided.
Occasionally, memberships are sold at a discount consisting of a waiver of dues
for periods ranging up to 36 months. Deferred revenues are established equal to
the value of dues waived and are realized over the applicable term of the
memberships. Dues, when prepaid, are recorded in a similar manner. This policy
approximates the "selling and service" method, which provides for a profit being
recognized for both the selling and service functions.
A substantial portion of new membership revenues are collected in installments
over periods ranging up to 36 months. 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.
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
26
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
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.
LOSS PER COMMON SHARE
Loss per common share was computed by dividing net loss by the weighted average
number of shares of common stock outstanding during 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 accounting and reporting standards for sales, securitizations, and
servicing of receivables and other financial assets, secured borrowing and
collateral transactions, and the extinguishments of liabilities. 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
will adopt SFAS No. 125 in the first quarter of 1997. The Company believes the
accounting required by SFAS No. 125 will reflect the sale of installment
contracts receivable, resulting in a reduction of the amount of installment
contracts receivable and long-term debt (and, as a result, also decrease related
finance charges earned and interest expense) included in its consolidated
financial statements.
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.
27
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
<TABLE>
INSTALLMENT CONTRACTS RECEIVABLE
<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.
<TABLE>
ACCRUED LIABILITIES
<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 27,285
-------- --------
$ 55,063 $ 64,978
======== ========
</TABLE>
<TABLE>
LONG-TERM DEBT
<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>
28
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
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"). The Trust includes a
portfolio of substantially all of the Company's installment contracts receivable
from membership sales and the proceeds thereof. Collections of those receivables
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 amount of certificates remains fixed through July
1999 and declines thereafter as principal is paid on the certificates. Also in
December 1996, the Company entered into an interest rate cap agreement to hedge
its exposure to higher interest rates with respect to the Floating Certificates.
The cost of the agreement, which caps the interest rate at 9.43%, is included in
interest expense ratably over the life of the agreement.
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
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.
29
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
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>
Current:
Federal $ (3,050) $ 15,600 $(14,703)
State and other (1,725) (119) (53)
-------- -------- --------
(4,775) 15,481 (14,756)
Deferred:
Federal (26,937) (11,015)
State and other 2,075 457 758
-------- -------- --------
2,075 (26,480) (10,257)
-------- -------- --------
$ (2,700) $(10,999) $(25,013)
======== ======== ========
</TABLE>
30
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
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 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 $ $ 89,847 $ $ 49,813
Expenses which are not currently
deductible for tax purposes:
Bad debts 35,541 44,565
Other 14,982 12,145
Depreciation and capitalized
costs 2,562 5,307
Tax loss carryforwards 118,313 49,817
Other, net 3,356 1,968
-------- -------- -------- --------
168,836 $ 95,765 106,527 $ 57,088
======== ========
Valuation allowance (83,103) (57,562)
-------- ---------
$ 85,733 $ 48,965
======== ========
Current $ 15,198 $ 41,204 $ 14,743 $ 25,855
Long-term 70,535 54,561 34,222 31,233
-------- -------- -------- --------
$ 85,733 $ 95,765 $ 48,965 $ 57,088
======== ======== ======== ========
</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. For financial accounting purposes, a
valuation allowance has been recorded to reduce the deferred tax assets to a
level which, more likely than not, will be realized.
31
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
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%) $(15,365) $(12,656) $(26,531)
Add (deduct):
Operating losses without a current year
tax benefit 12,082
State income taxes, net of related federal
income tax effect and valuation allowance (97) 339 204
Amortization of cost in excess of acquired
assets 1,411 1,391 1,393
Prior years' taxes (5) (336) (327)
Other, net (726) 263 248
-------- -------- --------
Income tax benefit $ (2,700) $(10,999) $(25,013)
======== ======== ========
</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
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 after the date of public
announcement
32
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
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 (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 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.
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.
33
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
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.
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>
34
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
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 $36,335 and $2.98,
respectively. 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. The effects of applying SFAS No. 123 for pro forma disclosure purposes
are not likely to be representative of the effects on results of operations for
future years 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 expense in connection therewith.
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
35
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
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 vigorously defending this action and appealing the
certification of the class. 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 on the first trading
36
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
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.
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, which the Company
reflected as an extraordinary gain. The Company also paid interest, calculated
primarily at a prime rate, on advances from Entertainment.
37
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(All dollar amounts in thousands, except share data)
Interest paid to Entertainment was $1,551, $430 and $720 for 1996, 1995 and
1994, respectively.
PRO FORMA INFORMATION (UNAUDITED)
The historical net loss for the years ended December 31, 1995 and 1994 reflected
a federal income tax benefit arising from the Company's prior tax sharing
agreement with Entertainment of $11,337 and $25,718, 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.
38
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
SUPPLEMENTARY DATA
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(All dollar amounts in millions, except share data)
<CAPTION>
Quarters Ended
-------------------------------------------------------------
March 31, June 30, September 30, December 31,
------------- ------------- ------------- -------------
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $171.1 $176.5 $158.6 $162.7 $158.8 $169.8 $137.2 $152.7
Operating income (loss) 9.6 10.2 5.2 2.1 5.3 1.9 (16.3) (6.6)
Income (loss) before
extraordinary item
(pro forma for 1995) (2.5) 0.2 (7.0) (8.7) (6.8) (9.5) (25.0) (18.5)
Extraordinary gain on
extinguishment of debt 5.7
Net income (loss)
(pro forma for 1995) (2.5) 0.2 (7.0) (8.7) (6.8) (9.5) (19.3) (18.5)
Per common share
(pro forma for 1995):
Income (loss) before
extraordinary item $(.20) $.01 $(.57) $(.73) $(.56) $(.81) $(2.05)$(1.56)
Extraordinary gain
on extinguishment
of debt .46
Net income (loss) (.20) .01 (.57) (.73) (.56) (.81) (1.59) (1.56)
<FN>
- - -------------
1. The Company's operations are subject to seasonal factors.
2. 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.
3. 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.
4. 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.
</FN>
</TABLE>
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Item 9 is inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the Restated Certificate of Incorporation of the Company (the
"Company Certificate") and the Amended and Restated By-Laws of the Company (the
"Company Bylaws"), the Board of Directors of the Company (the "Board") shall
consist of not less than three and not more than seventeen individuals divided
into three classes, with each director serving a three-year term (after the
initial term). Set forth below is certain information as to persons who
currently serve as directors and executive officers of the Company. The
directors of Class I hold office until the first annual meeting of stockholders,
currently scheduled for September 1997, the directors of Class II hold office
until the annual meeting of stockholders in 1998 and the directors of Class III
hold office until the annual meeting of stockholders in 1999. Thereafter,
stockholders will elect the directors of each class at the appropriate
succeeding annual meeting of stockholders.
DIRECTORS OF THE REGISTRANT
CLASS III
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 Managing
Partner of Arveron Investments L.P. (an investment partnership). Mr. Goldberg is
55 years of age.
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. Mr. Looloian is 74 years of age.
CLASS II
Lee S. Hillman has been a 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. Mr. Hillman is 41 years
of age.
40
<PAGE>
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. Dr.
Mc Anally is 47 years of age.
CLASS I
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. Mr. Lewis is 62 years of age.
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 and
has been a member of the firm since 1992. Ms. Walsh has also served as an
Arbitrator for the United States District Court for the District of New Jersey
since 1990. Ms. Walsh is 38 years of age.
COMPENSATION OF DIRECTORS
Members of the Board who are also employees of the Company will not receive any
additional compensation for service on the Board or any committees of the Board.
Members of the Board who are not employees of the Company will receive an annual
retainer of $22,500 plus a $1,000 stipend for each Board meeting attended. Non-
employee directors will receive additional stipends for service on committees of
the Board of $500 per year for committee members and $1,000 per year for
committee chairmen.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Lee S. Hillman, an executive officer who is also a
director of the Company, is set forth above. Certain information with respect to
other executive officers is as follows.
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. Mr.
Dwyer is 44 years of age.
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. Mr. Gaan is 51
years of age.
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. Mr. Morgan is 40 years of age.
David M. Tolmie was elected Vice President of Planning and Development of the
Company in January 1995, Senior Vice President, Operations of the Company in
September 1995 and Senior Vice President, New Business Development of the
Company in October 1996. Mr. Tolmie rejoined the Company after having served as
President of Foundation Properties, Inc. (a real estate development, property
management and sales company) from 1990 to 1994. Between 1985 and 1990, Mr.
Tolmie worked for a subsidiary of the Company. Mr. Tolmie is 41 years of age.
41
<PAGE>
John H. Wildman, Jr. 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. Mr. Wildman is 37 years of
age.
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. Ms. Adams is 51 years of age.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for each of the years indicated, the
compensation paid by the Company to its Chief Executive Officers who served
during 1996, the four other most highly compensated executive officers of the
Company as of December 31, 1996, and its former President and Chief Operating
Officer (collectively, the "Named Executive Officers"). During these years, the
Named Executive Officers were compensated in accordance with the plans and
policies of the Company. All reference to securities in the following table
relate to awards of options to purchase Common Stock.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
------------------------------------ --------------------------
Other Annual Restricted Securities All Other
Compensation Stock Awards Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($) (1) ($) (2) Options (#) ($)
- - --------------------------- ---- ---------- --------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Arthur M. Goldberg (3) 1996 22,500 - - 962,500 - -
Chairman of the Board 1995 - - - - - -
of Directors 1994 - - - - - -
Lee S. Hillman (4) 1996 34,000 - - 721,875 150,000 -
President and Chief 1995 - - - - - -
Executive Officer 1994 - - - - - -
John W. Dwyer (5) 1996 170,600 - - 288,750 35,000 -
Senior Vice President, 1995 - - - - - -
Chief Financial Officer 1994 - - - - - -
and Treasurer
Cary A. Gaan 1996 225,000 40,000 - 288,750 35,000 12,091(6)
Senior Vice President, 1995 225,000 70,000 - - - 40,263
Secretary and General 1994 225,000 93,000 - - - 8,788
Counsel
David M. Tolmie 1996 224,400 40,000 - 288,750 35,000 1,000(7)
Senior Vice President, 1995 186,800 70,000 122,880(8) - - -
New Business Development 1994 - - - - - -
John H. Wildman, Jr. 1996 200,000 40,000 - 288,750 45,000 -
Senior Vice President, 1995 175,000 70,400 - - - -
Sales and Marketing 1994 175,000 98,000 - - - -
Michael G. Lucci, Sr. (9) 1996 394,200 - 56,714(10) 721,875 150,000 836,539(11)
Former President and 1995 500,000 - 95,558 - - 57,811
Chief Operating Officer 1994 500,000 - - - - 17,308
</TABLE>
- - -------------
42
<PAGE>
(1) Certain incidental personal benefits to executive officers of the Company
may result from expenses incurred by the Company in the interest of
attracting and retaining qualified personnel. These incidental personal
benefits made available to the Named Executive Officers during 1996 are
not described herein because the incremental cost to the Company of such
benefits is below the Securities and Exchange Commission (the
"Commission") disclosure threshold.
(2) Such value was determined by the closing price of the Common Stock at the
date of grant. Restrictions 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. The number of shares of restricted stock awards held by Messrs.
Goldberg, Hillman, Dwyer, Gaan, Tolmie and Wildman as of December 31, 1996
was 200,000, 150,000, 60,000, 60,000, 60,000 and 60,000, respectively, and
the value of such restricted stock awards as determined by the closing
price of the Common Stock as of December 31, 1996 was $1,587,500,
$1,190,625, $476,250, $476,250, $476,250 and $476,250, respectively.
(3) Mr. Goldberg also served as Chief Executive Officer of the Company through
October 7, 1996. For serving in such capacities, Mr. Goldberg received an
annual base salary of $22,500 pursuant to his employment agreement with
the Company. In addition, Mr. Goldberg served as Chairman of the Board of
Directors, President and Chief Executive Officer of Entertainment until
December 18, 1996, when Entertainment merged with and into Hilton. For
serving in such capacities, Mr. Goldberg received compensation from
Entertainment and was awarded non-qualified options to purchase shares of
Entertainment common stock during 1996, 1995 and 1994. The compensation
paid to Mr. Goldberg by Entertainment for the years covered was for
services rendered to Entertainment and all of its subsidiaries.
(4) Mr. Hillman served as Executive Vice President and Treasurer of the
Company through October 7, 1996, when he became President and Chief
Executive Officer of the Company. For serving in such capacities, Mr.
Hillman received (i) an annual base salary of $22,500 through December 18,
1996 pursuant to his former employment agreement with the Company and (ii)
an annual base salary of $375,000 from December 19, 1996 pursuant to his
current employment arrangement with the Company. In addition, Mr. Hillman
served as Executive Vice President, Chief Financial Officer and Treasurer
of Entertainment until December 18, 1996. For serving in such capacities,
Mr. Hillman received compensation from Entertainment and was awarded
non-qualified options to purchase shares of Entertainment common stock
during 1996, 1995 and 1994. The compensation paid to Mr. Hillman by
Entertainment for the years covered was for services rendered to
Entertainment and all of its subsidiaries.
(5) Mr. Dwyer also served as Vice President and Corporate Controller of
Entertainment until December 18, 1996. For serving in such capacities, Mr.
Dwyer received compensation from Entertainment and was awarded
non-qualified options to purchase shares of Entertainment common stock
during 1996, 1995 and 1994. Pursuant to the Transitional Services
Agreement with Entertainment, 75% of Mr. Dwyer's salary was allocated to
the Company through December 18, 1996, at which time the Company began
paying all of Mr. Dwyer's salary.
(6) Represents amounts matched by the Company in connection with Mr. Gaan's
participation in the Company's savings plans.
(7) Represents amount matched by the Company in connection with Mr. Tolmie's
participation in one of the Company's savings plans.
(8) Represents amounts paid by the Company in connection with Mr. Tolmie's
relocation.
43
<PAGE>
(9) Mr. Lucci served as President and Chief Operating Officer of the Company
through October 7, 1996, when he resigned as an officer and employee of
the Company. At that time, Mr. Lucci's restricted stock awards and options
were forfeited.
(10) This total represents (i) $45,176 paid by the Company with respect to Mr.
Lucci's accommodations in Chicago and (ii) other perquisites totaling
$11,538.
(11) This total represents (i) $67,308 for salary continuation after Mr.
Lucci's October 7, 1996 resignation and (ii) $769,231 to be paid pursuant
to a Severance Agreement and Complete Release dated January 14, 1997
between Mr. Lucci and the Company.
EMPLOYMENT AGREEMENTS
Mr. Goldberg and the Company entered into an employment agreement effective as
of January 9, 1996. The employment agreement provides for a term of three years
as well as an annual base salary of $22,500 and a bonus payable at the
discretion of the Company. Mr. Goldberg will also be entitled to receive a bonus
in an amount to be determined by the Company if certain extraordinary events
occur, such as a public offering of securities of the Company, a sale of all or
substantially all of the assets of the Company or a merger which reflects a
value for the Company in excess of the value reflected in trading of the Common
Stock during the first month following the Distribution Date. Pursuant to the
employment agreement, Mr. Goldberg was granted 200,000 shares of restricted
stock, which shares will vest generally as follows: 33 1/3% of such shares will
vest when the closing price of the Common Stock reaches 125% of the average
daily closing price of the Common Stock for the twenty consecutive trading days
beginning on the first trading day after the Distribution Date, calculated to
the nearest cent, as determined by the Company (the "Benchmark Price"); 33 1/3%
(a total of 66 2/3%) of such shares will vest when the price of the Common Stock
reaches 150% of the Benchmark Price; and 33 1/3% (a total of 100%) of such
shares will vest when the price of the Common Stock reaches 200% of the
Benchmark Price. In the event that less than half of such shares vest within two
years after the date of grant, then after such period, such number of shares
will vest so that the total number of vested shares equals 50% of the original
grant. The employment agreement provides that the Company will also make an
excise tax cash gross-up payment to Mr. Goldberg to the extent that any
acceleration of the vesting of the restricted stock upon a "change in control"
of the Company would constitute an "excess parachute payment" under the Internal
Revenue Code of 1986, as amended (the "Code"). The employment agreement provides
that Mr. Goldberg will devote approximately 10% of regular working hours to the
Company.
Mr. Hillman and the Company reached an agreement with respect to his employment
effective as of October 7, 1996. The agreement is for a term through December
31, 1999 and provides for a base salary of $375,000 (effective December 19,
1996), participation in any Company bonus plan and a bonus payable at the
discretion of the Company. In the event a change of control of the Company
occurs and Mr. Hillman is asked to leave the employ of the Company or, absent
cause, Mr. Hillman elects to terminate his employment because he has been
constructively terminated, Mr. Hillman will be entitled to receive a lump sum
payment equal to his base salary for 36 months and two times the average of
bonuses, if any, paid to Mr. Hillman by the Company for the three prior years.
If a change of control of the Company occurred on March 20, 1997 and Mr. Hillman
were asked to leave the employ of the Company or, absent cause, constructively
terminated, he would be entitled to a payment of approximately $1,125,000 under
his employment agreement. Additionally, if a change of control occurred on March
20, 1997, Mr. Hillman could elect, at his option, to terminate his employment
agreement and receive a lump sum of six months salary or $187,500.
Mr. Dwyer, the Company and Entertainment entered into an employment agreement
effective as of January 1, 1996 for an initial term of three years after which
the agreement will continue from year to year unless terminated by any party in
his or its sole discretion on 90 days notice given prior to the expiration of
the term. The agreement provides
44
<PAGE>
for an annual base salary of $225,000 and a bonus payable at the discretion of
the Company and Entertainment.
Mr. Gaan and the Company entered into an employment agreement effective as of
March 20, 1997 for an initial term of three years after which the agreement will
continue from year to year unless terminated by either party in its discretion
on six months' notice given prior to the expiration of the term. The agreement
provides for a base salary of $225,000 per year and a bonus payable at the
discretion of the Company. In the event of a change in control of the Company
and Mr. Gaan were asked to leave the Company or, absent cause, Mr. Gaan elects
to terminate his employment because he has been constructively terminated, Mr.
Gaan will be paid a lump sum equal to 24 months base salary or an amount equal
to his base salary for the balance of the three-year term, whichever is greater,
and the greater of the average of the bonuses, if any, paid by the Company to
Mr. Gaan for the three prior years and the bonus, if any, for the prior year. In
the event a change of control occurred on March 20, 1997 and Mr. Gaan were asked
to leave the employ of the Company, Mr. Gaan would be entitled to $742,700.
Mr. Tolmie and the Company entered into a letter agreement dated as of December
28, 1994 which may be terminated by either party. The agreement provided for an
initial annual base salary of $195,000 and a bonus payable at the discretion of
the Company, which during 1995 and 1996 could not be less than $39,000 per year.
If Mr. Tolmie is terminated without cause during his first three years of
employment, he will be paid a lump sum equal to 18 months salary plus a bonus
based on the bonus for the prior year (amounting to $377,500 if Mr. Tolmie were
terminated on March 20, 1997).
Mr. Wildman and the Company entered into an employment agreement effective as of
October 7, 1996 for an initial term of two years after which the agreement will
continue from year to year unless terminated by either party in his or its sole
discretion on 60 days notice given prior to the expiration of the term. The
agreement provides for an annual base salary of $200,000 and a bonus payable at
the discretion of the Company, which shall not be less than $40,000. In the
event of a change in control of the Company and the successor in control,
without cause, terminates the agreement, Mr. Wildman will be paid a lump sum
equal to 12 months base salary or an amount equal to his base salary for the
balance of the two-year term, whichever is greater, and the greater of the
average of the bonuses, if any, paid by the Company to Mr. Wildman for the two
prior years and the bonus, if any, for the prior year. For purposes of the
agreement, if Mr. Wildman is constructively terminated by the successor in
control, the successor in control shall be deemed to have terminated Mr. Wildman
without cause. In the event a change of control occurred on March 20, 1997 and
Mr. Wildman were asked to leave the employ of the Company, Mr. Wildman would be
entitled to $365,300.
Mr. Lucci's employment with the Company terminated effective October 7, 1996 and
in connection therewith, Mr. Lucci and the Company entered into a Severance
Agreement and Complete Release dated January 14, 1997 (the "Severance
Agreement"). Pursuant to the terms of the Severance Agreement, Mr. Lucci is
entitled to $750,000, less applicable tax withholdings, to be paid out in 18
monthly installments commencing January 21, 1997. In addition, Mr. Lucci
received a payment of $19,231, less applicable tax withholdings. The Severance
Agreement also entitles Mr. Lucci to continued use of the office that he
currently uses in the Company's Southfield, Michigan facility and use of the
services of his secretary through April 14, 1997, subject to certain conditions
as set forth in the Severance Agreement.
45
<PAGE>
STOCK OPTION GRANTS
The following table sets forth information regarding options to purchase Common
Stock granted to the Named Executive Officers during 1996.
<TABLE>
OPTION/SAR(1) GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants
--------------------------------------------------- Potential Realizable
Percent of Value at Assumed
Number of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option Term (2)
Options Employees In Price Expiration ----------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- ------------ ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arthur M. Goldberg - - - - - -
Lee S. Hillman 150,000 9.4 5.125 11/19/06 483,463 1,225,190
John W. Dwyer 35,000(3) 2.2 4.125 2/28/06 90,797 230,097
Cary A. Gaan 35,000(3) 2.2 4.125 2/28/06 90,797 230,097
David M. Tolmie 35,000(3) 2.2 4.125 2/28/06 90,797 230,097
John H. Wildman, Jr. 45,000(3) 2.8 4.125 2/28/06 116,739 295,838
Michael G. Lucci, Sr.(4) 150,000 9.4 4.125 2/28/06 389,129 986,128
<FN>
- - -----------
(1) There have been no SARs granted by the Company to date.
(2) The potential realizable values represent future opportunity and have not
been reduced to present value in 1996 dollars. The dollar amounts included
in these columns are the result of calculations at assumed rates set by the
Commission for illustration purposes. These rates are not intended to be a
forecast of the Common Stock price and are not necessarily indicative of
the values that may be realized by the Named Executive Officer. The
potential realizable values are based on arbitrarily assumed annualized
rates of stock price appreciation of 5% and 10% over the full ten-year term
of the options. For example, in order for the individual named above who
received options with an exercise price of $5.125 per share to realize the
potential values set forth in the 5% and 10% columns in the table above,
the price per share of the Common Stock would have to be approximately
$8.35 and $13.29, respectively.
(3) As a result of the price of the Common Stock reaching a prescribed level
(200% of the exercise price) in December 1996, vesting of these options has
been accelerated so that one-third of the options granted may be exercised
on the first anniversary of the date of grant, two-thirds after two years
from the date of grant and 100% after three years from the date of grant.
Each grant was made on the date which is ten years prior to the date of
expiration set forth in the table.
(4) Mr. Lucci's employment with the Company terminated on October 7, 1996, at
which time his options were forfeited.
</FN>
</TABLE>
46
<PAGE>
STOCK OPTIONS AND SAR EXERCISES
The following table sets forth information concerning exercises of stock options
during 1996 by each of the Named Executive Officers and their stock options
outstanding as of December 31, 1996.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES (1)
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options Options
at Fiscal at Fiscal
Year-end(#) Year-end($) (2)
Shares ---------------- ---------------
Acquired on Value Exercisable(E)/ Exercisable(E)/
Name Exercise (#) Realized($) Unexercisable(U) Unexercisable(U)
---- ------------ ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Arthur M. Goldberg - - - (E) - (E)
- (U) - (U)
Lee S. Hillman - - 0 (E) 0 (E)
150,000 (U) 421,875 (U)
John W. Dwyer - - 0 (E) 0 (E)
35,000 (U) 133,438 (U)
Cary A. Gaan - - 0 (E) 0 (E)
35,000 (U) 133,438 (U)
David M. Tolmie - - 0 (E) 0 (E)
35,000 (U) 133,438 (U)
John H. Wildman, Jr. - - 0 (E) 0 (E)
45,000 (U) 171,563 (U)
Michael G. Lucci, Sr. - - - (E) - (E)
- (U) - (U)
- - -------------
<FN>
(1) There have been no SARs granted by the Company to date.
(2) Value is based on the closing price of a share of Common Stock as of
December 31, 1996 ($7.9375) minus the exercise price.
</FN>
</TABLE>
BENEFIT PLANS
The Company's 1996 Long-Term Incentive Plan. The Company's 1996 Long-Term
Incentive Plan (the "Incentive Plan") is intended to encourage ownership of
Common Stock by officers and other key employees of the Company, to encourage
their continued employment with the Company and to provide them with additional
incentives to promote the success of the Company.
The Incentive Plan authorizes the grant to officers and key employees of awards
("Awards") consisting of "incentive stock options," as that term is defined
under the provisions of Section 422 of the Code, non-qualified stock options and
restricted stock
47
<PAGE>
awards. There were originally 2,100,000 shares of Common Stock available for
granting Awards under the Incentive Plan. The Compensation Committee will
administer the Incentive Plan and will have sole discretion to determine those
employees to whom Awards will be granted, the number of Awards granted, the
provisions applicable to each Award and the time periods during which Awards may
be exercisable; provided, however, that no employee may receive options, and/or
restricted stock subject to performance-based vesting, to acquire more than
500,000 shares of Common Stock during any given year.
The Compensation Committee may grant incentive stock options, non-qualified
stock options, or a combination of the two. The exercise price of each incentive
stock option may not be less than the fair market value of the Common Stock at
the date of grant. Under the Incentive Plan, fair market value is generally the
closing price of the Common Stock on NASDAQ on the last business day prior to
the date on which the value is to be determined; provided, however, with respect
to options or restricted stock awards granted on or before the Distribution
Date, fair market value means the average of the daily Closing Price of the
Common Stock for the twenty consecutive trading days beginning on the first
trading day after the Distribution Date, calculated to the nearest cent, as
determined by the Company. Unless the Compensation Committee determines
otherwise, the option price per share of any non-qualified stock option shall be
the fair market value of the shares of Common Stock on the date the option is
granted. The exercise price of each incentive stock option granted to any
stockholder possessing more than 10% of the combined voting power of all classes
of capital stock of the Company, or, if applicable, a parent or subsidiary of
the Company, on the date of grant must not be less than 110% of the fair market
value on that date, and no such option may be exercisable more than five years
after the date of grant.
Options granted will be exercisable for a term of not more than ten years from
the date of grant. In addition, no employee may be granted an incentive stock
option to the extent the aggregate fair market value, as of the date of grant,
of the stock with respect to which incentive stock options are first exercisable
by such employee during any calendar year exceeds $100,000.
Restricted stock awards are rights granted by the Compensation Committee to
receive shares of Common Stock subject to forfeiture and other restrictions
determined by the Compensation Committee. Until the restrictions with respect to
any restricted stock award lapse, the shares will be held by the Company and may
not be sold or otherwise transferred by the employee. Except as otherwise
determined by the Compensation Committee, until the restrictions lapse, the
shares will be forfeited if the employee's employment is terminated for any
reason other than death, disability or retirement on or after the employee's
attainment of 65 years of age. Except as otherwise determined by the
Compensation Committee, all restrictions shall lapse upon the earliest of the
death, disability or retirement of the recipient employee on or after the
employee's attainment of 65 years of age. Unless the Compensation Committee
determines otherwise, one-third of the shares subject to a restricted stock
award will vest on each anniversary of the date of grant. Certain grants of
restricted stock awards will vest, in part or in whole, on the achievement of
specified performance targets. The Compensation Committee granted 650,000 shares
of restricted stock awards in 1996. These shares of restricted stock will vest
generally as follows: 33% of such shares will vest when the price of the Common
Stock reaches 125% of the Benchmark Price; 33% (a total of 66%) of such shares
will vest when the price of the Common Stock reaches 150% of the Benchmark
Price; and 33% (a total of 100%) of such shares will vest when the price of the
Common Stock reaches 200% of the Benchmark Price. In the event that less than
half of these shares of restricted stock vest within two years after the date of
grant, then after such period, such number of shares will vest so that the total
number of vested shares equals 50% of the original grant with respect to each
recipient.
The Company may make cash payments to an employee who receives an Award of
restricted stock in an amount equal to the aggregate amount of federal, state
and local income taxes which such employee would be required to pay as a result
of (i) the receipt or vesting of shares of Common Stock pursuant to any Award of
restricted stock and (ii) his receipt of any such cash payment. The recipients
of the restricted stock awarded in 1996 will receive such a payment.
48
<PAGE>
Awards granted under the Incentive Plan will be subject to adjustment upon a
recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend, or other similar event affecting the Common
Stock. An Award will not be transferable, other than by will or the laws of
descent and distribution or, in certain circumstances, pursuant to a qualified
domestic relations order, and an Award may be exercised, during the lifetime of
the holder of the Award, only by the holder, or the holder's personal
representative in the event of disability.
In the case of a change in control of the Company, the Board may, in its sole
discretion, determine, on a case by case basis, taking into account the purposes
of the Plan, that each Award granted under the Incentive Plan will terminate 90
days after the occurrence of such change in control, but, in the event of any
such termination (i) an option holder will generally have the right, commencing
at least five days prior to the change in control and subject to any other
limitation on the exercise of the option in effect on the date of exercise, to
immediately exercise any options in full to the extent they previously have not
been exercised and (ii) restricted stock awards will vest.
The Incentive Plan will terminate on January 3, 2006, and Awards shall not be
granted under the Incentive Plan after that date although the terms of any Award
may be amended in accordance with the Incentive Plan at any date prior to the
end of the term of such Award. Any Awards outstanding at the time of termination
of the Incentive Plan will continue in full force and effect according to the
terms and conditions of the Award and the Incentive Plan.
The Incentive Plan may be amended by the Board, provided that stockholder
approval will be necessary as required under Section 422 of the Code or Rule
16b-3 of the regulations of the Exchange Act, and provided further that no
amendment may impair any rights of any holder of an Award previously granted
under the Incentive Plan without the holder's consent. As of December 31, 1996,
125,340 shares were available for award under the Incentive Plan.
The Company's Retirement Savings Plan. The Board has adopted the Bally Total
Fitness Holding Corporation Management Retirement Savings Plan (the "Retirement
Plan"). The Retirement Plan is a deferred compensation plan designed to permit a
select group of management or highly compensated employees to enhance the
security of themselves and their beneficiaries following retirement or other
termination of their employment. The Retirement Plan is intended to be an
unfunded "employee pension benefit plan" under the Employee Retirement Income
Security Act of 1974, as amended, and is maintained by the Company. The
Retirement Plan is not intended to be qualified under the Code. The Board, in
its sole discretion, designates those members of management or highly
compensated employees who are eligible to participate in the Retirement Plan.
Effective as of January 1, 1997, the amount of compensation that may be deferred
is limited pursuant to a schedule based upon the age of the participant at the
beginning of or during the compensation year. For participants who are less than
50 years of age, a maximum of 25% of compensation may be deferred; for those who
are 50 to 54 years of age, a maximum of 50% of compensation may be deferred; for
those who are 55 to 59 years of age, a maximum of 75% of compensation may be
deferred; and for those participants who are 60 years of age or older, a maximum
of 100% of compensation may be deferred. During 1996, the Company provided a
matching contribution to its Retirement Plan as follows: 50% of the first 15% of
eligible compensation the participant defers and 0% thereafter. Effective
January 1, 1997, the Retirement Plan was amended so that the Company provides a
matching contribution of 50% of the first 10% of eligible compensation the
participant defers and 0% thereafter. Matching contributions are credited to a
participant's matching account and become vested as follows: after one but less
than two Years of Deferral they become 33 1/3% vested, after two but less than
three Years of Deferral they become 66 2/3% vested, and after more than three
Years of Deferral they become fully vested. For this purpose, a "Year of
Deferral" is credited with respect to a matching contribution for each completed
calendar year commencing after the calendar year for which the matching
contribution was made. A participant generally may elect to receive his benefits
under the Retirement Plan in a lump sum or in installments over a period of as
much as ten years. As soon as possible (but not later than five business days)
after a change in control
49
<PAGE>
of the Company, as defined in the Retirement Plan, all of the participants'
accounts will become 100% vested.
For 1996, the Company will contribute $306,396 to the accounts of all
participants in the Retirement Plan, of which $25,330 is allocated to the
accounts of all executive officers of the Company as a group. Named Executive
Officers receiving allocations are as follows: Mr. Gaan $11,091.
The Company's 1996 Non-Employee Directors' Stock Option Plan. The 1996
Non-Employee Directors' Stock Option Plan (the "Directors' Plan") is intended to
encourage non-employee directors of the Company to acquire or increase their
ownership of Common Stock on reasonable terms, and to foster a strong incentive
to put forth maximum effort for the continued success and growth of the Company.
The Directors' Plan provides for the granting of non-qualified stock options to
purchase an aggregate of 100,000 shares of the Common Stock to current and
future non-employee directors of the Company.
Each of the non-employee directors of the Company as of January 9, 1996 was
granted an option to purchase 5,000 shares of Common Stock under the Directors'
Plan. On January 9, 1998, each such director who is still a director on that
date will be granted an option to purchase an additional 5,000 shares of Common
Stock. Each director who joins the Board after the Directors' Plan is originally
adopted will be granted on the first business day following the first day of his
term, an option to purchase 5,000 shares of Common Stock. On the second
anniversary of that date, such director that is still a director on that date
will be granted an option to purchase an additional 5,000 shares of Common
Stock. If the number of shares available to grant under the Directors' Plan on a
scheduled date of grant is insufficient to make all the grants, then each
eligible director will receive an option to purchase a pro rata number of the
available shares.
The option price per share will be the fair market value of the shares of Common
Stock on the date of grant. Under the Directors' Plan, fair market value is
generally the closing price of the Common Stock on NASDAQ on the last business
day prior to the date on which the value is to be determined; provided, however,
that with respect to the initial option grants, fair market value means the
average of the daily closing price of the Common Stock for the twenty
consecutive trading days beginning on the first trading day after the
Distribution Date, calculated to the nearest cent, as determined by the Company.
The options granted under the Directors' Plan will be exercisable for a term of
ten years from the date of grant, subject to earlier termination, and may be
exercised as follows: one-third after one year from the date of grant,
two-thirds after two years from the date of grant and 100% after three years
from the date of grant.
In the event that a director ceases to be a member of the Board (other than by
reason of death or disability), an option may be exercised by the director (to
the extent the director was entitled to do so at the time he ceased to be a
member of the Board) at any time within the later of (i) three months after he
ceases to be a member of the Board and (ii) nine months after the most recent
grant of an option to such director under the Directors' Plan, but not beyond
the term of the option. If the director dies or becomes disabled while he is a
member of the Board, an option may be exercised in full by a legatee of the
director under his will, or by him or his personal representative or
distributees, as the case may be, at any time within 12 months after his death
or disability, but not beyond the term of the option; provided, that in the
event of disability, an option may not be exercised prior to the six-month
anniversary of the date the option was granted. If a director, following the
termination of his directorship, dies within the later of (i) three months after
he ceases to be a member of the Board and (ii) nine months after the most recent
grant of an option to such director under the Directors' Plan, an option may be
exercised (to the extent the director was entitled to do so at the time of his
death) by a legatee of the director under his will, or by his personal
representative or distributees, as the case may be, at any time within 12 months
after his death, but not beyond the term of the option.
Options granted under the Directors' Plan will be subject to adjustment upon a
recapitalization, stock split, stock dividend, merger, reorganization,
liquidation,
50
<PAGE>
extraordinary dividend, or other similar event affecting the Common Stock.
Options will not be transferable other than by will or pursuant to the laws of
descent and distribution or pursuant to a qualified domestic relations order,
and will be exercisable during the lifetime of an option holder only by such
holder or his personal representative in the event of disability.
Upon a change in control of the Company (as defined in the Directors' Plan),
each option granted under the Directors' Plan will terminate on the later of (i)
90 days after the occurrence of the change in control and (ii) seven months
following the date of grant of each option, and an option holder will have the
right, commencing at least five days prior to the change in control and subject
to any other limitation on the exercise of the option in effect on the date of
exercise, to immediately exercise any options in full, to the extent they
previously have not been exercised.
The Directors' Plan will terminate on January 3, 2006, and options may not be
granted under the Directors' Plan after that date, although the terms of any
option may be amended in accordance with the Directors' Plan at any date prior
to the end of the term of that option. Any options outstanding at the time of
termination of the Directors' Plan will continue in full force and effect
according to the terms and conditions of the option and the Directors' Plan.
The Directors' Plan may be amended by the Board, provided that stockholder
approval will be necessary if required under Rule 16b-3 ("Rule 16b-3") of the
General Rules and Regulations of the Exchange Act, and no amendment may impair
any of the rights of any holder of an option previously granted under the
Directors' Plan without the holder's consent, and provided that certain
provisions of the Directors' Plan may not be amended more than once every six
months.
The Directors' Plan will be administered by the Compensation Committee. The
principal terms of the option grants are fixed in the Directors' Plan.
Therefore, the Compensation Committee will have no discretion to select which
directors receive options, the number of shares of Common Stock included in any
grant, or the exercise price of options.
Benefits of Non-Employee Directors. The table below sets forth the benefits
received in 1996 by the non-employee directors of the Company. Only non-employee
directors receive grants of stock options under the Directors' Plan.
<TABLE>
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
<CAPTION>
Exercise Number of Securities
Name Price($/Sh)(1) Underlying Options Granted (#)
- - ---- -------------- ------------------------------
<S> <C> <C>
Aubrey C. Lewis 4.78 5,000
J. Kenneth Looloian 4.78 5,000
James F. Mc Anally, M.D. 4.78 5,000
Liza M. Walsh 4.78 5,000
<FN>
- - ------------
(1) The exercise price per share for the option grants under the Directors'
Plan was determined based on the average of the daily closing price of the
Common Stock for the twenty consecutive trading days beginning on the
first trading day after the Distribution Date, calculated to the nearest
cent, as determined by the Company.
</FN>
</TABLE>
The Company's Savings Plan. The Bally's Employee Savings Trust for Employees of
Bally Total Fitness Holding Corporation (the "Savings Plan") was adopted by the
Board effective as of October 1, 1996. The Savings Plan replaced two similar
plans that were sponsored by Entertainment and has been qualified under Section
401(a) of the Code and
51
<PAGE>
the regulations thereunder. Generally, the Savings Plan covers employees who
have completed one year of service. A participant may elect to contribute 0% to
10% (in 1% increments) of compensation received or made available during the
plan year (limited by tax laws to a maximum of $9,500 in 1996). The Company
provides a matching contribution in an amount equal to 50% of a participant's
contribution of the first $500 and 25% of every additional dollar contributed up
to a maximum of $3,000. Matching contributions vest immediately and are
nonforfeitable. Participant and matching contributions are invested in the
investment fund or funds selected by the participant in accordance with the
Savings Plan. For 1996, the Company will contribute $667,617 to the accounts of
all participants in the Savings Plan, of which $3,000 is allocated to the
accounts of all executive officers of the Company as a group. Named Executive
Officers receiving allocations are as follows: Mr. Gaan $1,000 and Mr.
Tolmie $1,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common Stock as
of February 28, 1997 by the Named Executive Officers and directors of the
Company and all executive officers and directors of the Company as a group, as
well as by any beneficial owner of more than 5% of the Common Stock based upon
such owner's reported ownership of Common Stock in filings made with the
Commission pursuant to Sections 13(d) and 13(g) of the Exchange Act. The
information in this table was supplied by the named individuals/companies.
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned (1)(2)(3)(4)
------------------------------------
Percent of
Name of Beneficial Owner Number of Shares Class
------------------------ ------------------- ----------
<S> <C> <C>
Arthur M. Goldberg 2,591,179 17.6%
380 Middlesex Avenue
Carteret, New Jersey 07008
Lee S. Hillman 895,701 6.8%
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
John W. Dwyer 72,087 *
Cary A. Gaan 71,937 *
David M. Tolmie 74,167 *
John H. Wildman, Jr. 82,500 *
Michael G. Lucci, Sr. (5) 83,446 *
Aubrey C. Lewis 1,667 *
J. Kenneth Looloian 4,167 *
James F. Mc Anally, M.D. 1,667 *
Liza M. Walsh 1,667 *
All executive officers and directors 3,962,607 25.5%
as a group (13 persons)
Pioneering Management Corporation 1,196,900 9.6%
60 State Street
Boston, Massachusetts 02109
<FN>
- - ------------
* Less than 1%
</FN>
</TABLE>
52
<PAGE>
(1) Includes, in certain instances, shares of Common Stock held in the name of
the director's or executive officer's spouse, minor children, or relatives
sharing his home, and in the case of Mr. Goldberg, shares held by Nugget
Partners, L.P., a New Jersey limited partnership, whose sole general
partner is Mr. Goldberg, the reporting of which is required by applicable
rules of the Commission, but as to which shares of Common Stock the
director or executive officer may have disclaimed beneficial ownership.
(2) Includes the following numbers of shares of Common Stock that the
following persons have or had, within 60 days after February 28, 1997, the
right to acquire upon the exercise of options: Mr. Dwyer, 11,667; Mr.
Gaan, 11,667; Mr. Tolmie, 11,667; Mr. Wildman, 15,000; Mr. Lewis, 1,667;
Mr. Looloian, 1,667; Dr. Mc Anally, 1,667; Ms. Walsh, 1,667; and all
current executive officers and directors (including the foregoing) as a
group, 76,670.
(3) Includes the following number of shares of Common Stock that the following
persons have or had, within 60 days after February 28, 1997, the right to
acquire upon the exercise of warrants: Mr. Goldberg, 2,207,104; Mr.
Hillman, 735,701; and all current executive officers and directors
(including the foregoing) as a group, 2,942,805.
(4) Includes the following number of shares of Common Stock subject to
restrictions that the following persons own: Mr. Goldberg, 200,000; Mr.
Hillman, 150,000; Mr. Dwyer, 60,000; Mr. Gaan, 60,000; Mr. Tolmie, 60,000;
Mr. Wildman, 60,000; and all current executive officers and directors
(including the foregoing) as a group, 650,000.
(5) Mr. Lucci's employment with the Company terminated on October 7, 1996. In
addition, Mr. Lucci resigned as a director of the Company on January 14,
1997. Based on records available to the Company, it believes Mr. Lucci
owns 3,446 shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH ENTERTAINMENT
In connection with the Spin-off, the Company and Entertainment entered into
certain agreements, described below, relating to their ongoing relationships.
These agreements were structured and negotiated while the Company was owned by
Entertainment and consequently were not the result of arms-length negotiations
between independent parties. Nonetheless, the Company believes that the terms
are fair to the parties and contain terms which are generally comparable to
those which would result from arms-length negotiations. In each case, the terms
of these agreements were reviewed by individuals who were at a senior management
level of the Company and Entertainment.
Warrant. The Company issued Entertainment 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 on the first trading day after the
Distribution Date). At the time of the Merger, Entertainment sold the Warrant to
Messrs. Goldberg and Hillman. The Warrants are exercisable until December 31,
2005.
Trademark License Agreement. 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 $1.0 million 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 $1.0 million per year.
Sale of Assets and Management Agreement. In connection with the Spin-off,
Entertainment purchased a fitness center from the Company for $6.2 million. The
53
<PAGE>
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 $279,000 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 $1.8 million.
Transitional Services Agreement. 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 $2,344,000, based on the costs incurred for such services. 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
$4,625,000 for 1996.
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 $15,200,000 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 $15,200,000 of indebtedness was forgiven, 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 $1,551,000 for 1996.
Tax Sharing Arrangement. 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, state and other
income or franchise taxes relating to Entertainment's business for tax years
prior to the Spin-off and with respect to certain tax attributes of
Entertainment after the Spin-off. In general, with respect to periods ending on
or before the last day of the year in which the Spin- off occurred,
Entertainment will continue to be responsible for (i) filing consolidated
federal tax returns for the Entertainment affiliated group, including in each
case, the Company and its subsidiaries for the relevant periods that such
companies were members of such group, and (ii) paying the taxes relating to such
returns except to the extent solely attributable to the Company's portion of the
fitness center business (including any subsequent adjustments resulting from the
redetermination of such tax liabilities by the applicable taxing authorities).
The responsibility for state and local tax returns, audits and payments for
periods prior to the Spin-off will be allocated between Entertainment and the
Company according to their respective properties and businesses as of the
Spin-off, unless otherwise specifically provided in the Tax Allocation and
Indemnity Agreement. The Company is responsible for audits, filing returns and
paying taxes relating to the Company's portion of the business for subsequent
periods. The Company and Entertainment have agreed to cooperate with each other
and to share information in preparing such tax returns and in dealing with other
tax matters. If the Spin-off were taxable, the tax would be payable by
Entertainment, except that, in certain limited circumstances, the Company has
agreed to indemnify Entertainment for such tax liability. 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 $9,360,000 were received by the Company
($6,760,000 in cash and $2,600,000 as an offset to certain indebtedness)
representing a portion of the benefit that Entertainment receives from the
utilization of the Company's loss carrybacks.
54
<PAGE>
TRANSACTIONS WITH MANAGEMENT
A partnership in which Messrs. Goldberg and Lucci are each 20% limited partners
purchased a facility in Texas from the Federal Deposit Insurance Corporation.
The Company leases this facility for one of its fitness centers. The rent did
not change as a result of this transfer pursuant to the lease for this facility.
Rent is approximately $805,000 per year and is subject to additional 15%
increases at five and ten-year intervals. The proportionate share of the 1996
rent payments for each of Messrs. Goldberg and Lucci was approximately $160,000.
Mr. Lucci has other interests in real estate, or entities owning real estate,
that are leased to the Company for fitness centers. Mr. Lucci's interests range
from approximately 17% to 25% in four locations. These arrangements were created
prior to Entertainment's acquisition of the business of the Company. The Company
believes that the terms of these leases are at least as favorable to the Company
as those which could be obtained from unrelated parties. In 1996, payments by
the Company under these leases totalled approximately $1,197,000, of which
$260,000 constituted Mr. Lucci's proportionate share. During 1996, the Company
paid approximately $451,000 for goods and services from a company which employed
a relative of Mr. Hillman. Based on the Company's receipt of competitive bids
for similar items, the Company believes that the terms of these arrangements are
at least as favorable to the Company as those which could be obtained from
unrelated parties.
55
<PAGE>
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)1. Index to Financial Statements
<TABLE>
<CAPTION>
Reference
---------
<S> <C>
Report of independent auditors 18
Consolidated balance sheet at December 31, 1996 and 1995 19
For each of the three years in the period ended December 31, 1996:
Consolidated statement of operations 21
Consolidated statement of stockholders' equity 22
Consolidated statement of cash flows 23
Notes to consolidated financial statements 25 Supplementary data:
Quarterly consolidated financial information (unaudited) 39
</TABLE>
(a)2. Index to Financial Statement Schedules
<TABLE>
<CAPTION>
Reference
---------
<S> <C>
Schedule II Valuation and qualifying accounts for each of the
three years in the period ended December 31, 1996 S-1
</TABLE>
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.
(a)3. Index to Exhibits
<TABLE>
<S> <C>
* 3.1 Restated Certificate of Incorporation of the Company (filed as an
exhibit to the Company's registration statement on Form S-1 filed
January 3, 1996, registration no. 33-99844).
* 3.2 Amended and Restated By-Laws of the Company (filed as an exhibit to
the Company's registration statement on Form S-1 filed January 3,
1996, registration no. 33-99844).
* 4.1 Registration Statement on Form 8-A/A dated January 3, 1996 (file no.
0-27478).
* 4.2 Form of Rights Agreement dated as of January 5, 1996 between the
Company and LaSalle National Bank (filed as an exhibit to the
Company's registration statement on Form S-1 filed January 3, 1996,
registration no.
33-99844).
* 4.3 Indenture dated as of January 15, 1993 between the Company 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 Warrant Agreement dated as of December 29, 1995 between
Entertainment and the Company (filed as an exhibit to the Company's
registration statement on Form S-1 filed January 3, 1996,
registration no. 33-99844).
* 4.5 Registration Rights Agreement dated as of December 29, 1995
between Entertainment and the Company (filed as an exhibit to the
Company's registration statement on Form S-1 filed January 3, 1996,
registration no.
33-99844).
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
*10.1 Amended and Restated Credit Agreement dated as of June 26, 1995
among the Company and a group of banks with Chemical Bank, as agent
(filed as an exhibit to the Company's Quarterly Report on Form 10-Q,
file no. 33-52868, for the quarter ended June 30, 1995).
*10.2 First Amendment dated as of June 30, 1995 to the Amended and
Restated Credit Agreement dated as of June 26, 1995 among the
Company and a group of banks with Chemical Bank, as agent (filed as
an exhibit to the Company's registration statement on Form S-1 filed
January 3, 1996, registration no. 33-99844).
*10.3 Second Amendment dated as of August 25, 1995 to the Amended and
Restated Credit Agreement dated as of June 26, 1995 among the
Company and a group of banks with Chemical Bank, as agent (filed as
an exhibit to the Company's registration statement on Form S-1 filed
January 3, 1996, registration no. 33-99844).
*10.4 Third Amendment dated as of October 24, 1995 to the Amended and
Restated Credit Agreement dated as of June 26, 1995 among the
Company and a group of banks with Chemical Bank, as agent (filed as
an exhibit to the Company's registration statement on Form S-1 filed
January 3, 1996, registration no. 33-99844).
*10.5 Fourth Amendment dated as of January 4, 1996 to the Amended and
Restated Credit Agreement dated as of June 26, 1995 among the
Company and a group of banks with Chemical Bank, as agent (filed as
an exhibit to the Company's Annual Report on Form 10-K, file no.
0-27478, for the fiscal year ended December 31, 1995).
10.6 Fifth Amendment dated as of December 2, 1996 to the Amended and
Restated Credit Agreement dated as of June 26, 1995 among the
Company and a group of banks with Chemical Bank, as agent.
10.7 Sixth Amendment dated as of February 21, 1997 to the Amended and
Restated Credit Agreement dated as of June 26, 1995 among the
Company and a group of banks with Chase Manhattan Bank (formerly
known as Chemical Bank), as agent.
*10.8 Pooling and Service Agreement dated as of June 26, 1995 among H&T
Receivable Funding Corporation, as Transferor, Bally Total Fitness
Corporation, as Servicer and Texas Commerce Bank, as Trustee (filed
as an exhibit to the Company's Quarterly Report on Form 10-Q, file
no. 33-52868,
for the quarter ended June 30, 1995).
*10.9 Series 1995-1 Supplement dated as of June 26, 1995 to the Pooling
and Service Agreement among H&T Receivable Funding Corporation, as
Transferor, Bally Total Fitness Corporation, as Servicer and Texas
Commerce Bank, as Trustee (filed as an exhibit to the Company's
Quarterly Report on Form 10- Q, file no. 33-52868, for the quarter
ended June 30, 1995).
*10.10 Back-up Servicing Agreement dated as of June 26, 1995 among H&T
Receivable Funding Corporation, as Transferor, Bally Total Fitness
Corporation, as Servicer and Texas Commerce Bank, as Trustee (filed
as an exhibit to the Company's Quarterly Report on Form 10-Q, file
no. 33-52868, for the quarter ended June 30, 1995).
10.11 Amended and Restated Pooling and Servicing Agreement dated as of
December 16, 1996 among H&T Receivable Funding Corporation, as
Transferor, Bally Total Fitness Corporation, as Servicer and Texas
Commerce Bank National Association, as Trustee.
10.12 Series 1996-1 Supplement dated as of December 16, 1996 to the
Pooling and Servicing Agreement dated as of December 16, 1996 among
H&T Receivable Funding Corporation, as Transferor, Bally Total
Fitness Corporation, as Servicer and Texas Commerce Bank National
Association, as Trustee.
</TABLE>
57
<PAGE>
<TABLE>
<S> <C>
10.13 Amended and Restated Back-up Servicing Agreement dated as of
December 16, 1996 among H&T Receivable Funding Corporation, as
Transferor, Bally Total Fitness Corporation, as Servicer and Texas
Commerce Bank National Association, as Trustee.
*10.14 Tax Sharing Agreement dated as of April 6, 1983 between the Company
and Entertainment (filed as an exhibit to the Company's registration
statement on Form S-1 filed January 15, 1993, registration no.
33-52868).
*10.15 Tax Allocation and Indemnity Agreement dated as of January 9, 1996
between Entertainment and the Company (filed as an exhibit to the
Company's Annual Report on Form 10-K, file no. 0-27478, for the
fiscal year ended December 31, 1995).
*10.16 First Amendment dated as of May 20, 1996 to the Tax Allocation and
Indemnity Agreement dated as of January 9, 1996 between
Entertainment and the Company (filed as an exhibit to the Company's
Quarterly Report on Form 10-Q, file no. 0-27478, for the quarter
ended June 30, 1996).
*10.17 Transitional Services Agreement dated as of January 9, 1996 between
Entertainment and the Company (filed as an exhibit to the Company's
Annual Report on Form 10-K, file no. 0-27478, for the fiscal year
ended December 31, 1995).
*10.18 Trademark License Agreement dated as of January 9, 1996 between
Entertainment and the Company (filed as an exhibit to the Company's
Annual Report on Form 10-K, file no. 0-27478, for the fiscal year
ended December 31, 1995).
*10.19 Asset Purchase Agreement dated as of December 29, 1995 between
Entertainment and Vertical Fitness and Racquet Club Ltd. (filed as
an exhibit to the Company's registration statement on Form S-1 filed
January 3, 1996, registration no. 33-99844).
*10.20 Management Agreement dated as of January 9, 1996 between
Entertainment and the Company (filed as an exhibit to the Company's
Annual Report on Form 10-K, file no. 0-27478, for the fiscal year
ended December 31, 1995).
*10.21 Stock Purchase Agreement dated as of December 29, 1995 between
Entertainment and the Company with respect to shares of capital
stock of Holmes Place PLC (filed as an exhibit to the Company's
registration statement on Form S-1 filed January 3, 1996,
registration no. 33-99844).
*10.22 Amended and Restated Stock Purchase Agreement dated as of December
29, 1995 between Entertainment and the Company with respect to
shares of capital stock of Holmes Place PLC (filed as an exhibit to
the Company's Annual Report on Form 10-K, file no. 0-27478, for the
fiscal year ended December 31, 1995).
*10.23 The Company's Management Retirement Savings Plan (filed as an
exhibit to the Company's Annual Report on Form 10-K, file no.
0-27478, for the fiscal year ended December 31, 1995).
10.24 First Amendment dated as of November 19, 1996 to the Company's
Management Retirement Savings Plan.
*10.25 The Company's 1996 Non-Employee Directors' Stock Option Plan (filed
as an exhibit to the Company's registration statement on Form S-1
filed January 3, 1996, registration no. 33-99844).
*10.26 The Company's 1996 Long-Term Incentive Plan (filed as an exhibit to
the Company's registration statement on Form S-1 filed January 3,
1996, registration no. 33-99844).
</TABLE>
58
<PAGE>
<TABLE>
<S> <C>
*10.27 Employment Agreement effective as of January 9, 1996 between the
Company and Arthur M. Goldberg (filed as an exhibit to the Company's
Annual Report on Form 10-K, file no. 0-27478, for the fiscal year
ended December 31, 1995).
*10.28 Employment Agreement effective as of January 9, 1996 between the
Company and Lee S. Hillman (filed as an exhibit to the Company's
Annual Report on Form 10-K, file no. 0-27478, for the fiscal year
ended December 31, 1995).
*10.29 Employment Agreement effective as of January 1, 1996 between the
Company, Entertainment and John W. Dwyer (filed as an exhibit to the
Company's Quarterly Report on Form 10-Q, file no. 0-27478, for the
quarter ended June 30, 1996).
*10.30 Employment Agreement effective as of May 4, 1992 between the Company
and Cary A. Gaan (filed as an exhibit to the Company's registration
statement on Form S-1 filed January 15, 1993, registration no.
33-52868).
10.31 Employment Agreement effective as of March 20, 1997 between the
Company and Cary A. Gaan.
10.32 Letter Agreement dated as of December 28, 1994 between the Company
and David M. Tolmie.
10.33 Employment Agreement effective as of October 7, 1996 between the
Company and John H. Wildman, Jr.
10.34 Severance Agreement and Complete Release dated as of January 14,
1997 between the Company and Michael G. Lucci, Sr.
*10.35 Employment Agreement effective as of January 1, 1996 between the
Company, Entertainment and Harold Morgan (filed as an exhibit to the
Company's Quarterly Report on Form 10-Q, file no. 0-27478, for the
quarter ended June 30, 1996).
21 List of subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule (filed electronically only).
<FN>
- - ----------
* Incorporated herein by reference as indicated.
</FN>
</TABLE>
59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALLY TOTAL FITNESS HOLDING CORPORATION
Dated: March 26, 1997 By: /s/ Lee S. Hillman
-----------------------------------------------
Lee S. Hillman
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated. This report may be signed in
multiple identical counterparts all of which, taken together, shall constitute a
single document.
Dated: March 26, 1997 By: /s/ Lee S. Hillman
-----------------------------------------------
Lee S. Hillman
President, Chief Executive Officer and Director
(principal executive officer)
Dated: March 26, 1997 By: /s/ John W. Dwyer
-----------------------------------------------
John W. Dwyer
Senior Vice President, Chief Financial Officer
and Treasurer
(principal financial officer)
Dated: March 26, 1997 By: /s/ Julie Adams
-----------------------------------------------
Julie Adams
Vice President and Controller
(principal accounting officer)
Dated: March 26, 1997 By: /s/ Arthur M. Golberg
-----------------------------------------------
Arthur M. Goldberg
Chairman of the Board of Directors
Dated: March 26, 1997 By: /s/ Aubrey C. Lewis
-----------------------------------------------
Aubrey C. Lewis
Director
Dated: March 26, 1997 By: /s/ J. Kenneth Looloian
-----------------------------------------------
J. Kenneth Looloian
Director
Dated: March 26, 1997 By: /s/ James F. Mc Anally, M.D.
-----------------------------------------------
James F. Mc Anally, M.D.
Director
Dated: March 26, 1997 By: /s/ Liza M. Walsh
-----------------------------------------------
Liza M. Walsh
Director
60
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1995 and 1994
(All dollar amounts in thousands)
<CAPTION>
Additions
--------------------
Charged Charged
Balance at to costs to other Balance
beginning and accounts Deductions at end
Description of year expenses (a) (b) of 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
========== ========= ========= ========== =========
<FN>
- - ------------
Notes:
(a) Additions charged to accounts other than costs and expenses primarily
consist of charges to revenues.
(b) Deductions include write-offs of uncollectible amounts, net of recoveries.
</FN>
</TABLE>
S-1
EXHIBIT 10.6
FIFTH AMENDMENT AND WAIVER TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT AND WAIVER, dated as of December 2, 1996
(this "Amendment"), to the Third Amended and Restated Credit Agreement, dated as
of June 26, 1995, as in effect immediately prior to the date hereof (the "Credit
Agreement"), among BALLY TOTAL FITNESS HOLDING CORPORATION (formerly known as
Bally's Health & Tennis Corporation), a Delaware corporation (the "Borrower"),
the several banks and other financial institutions (the "Banks") parties thereto
and THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), a New York
banking corporation, as agent (in such capacity, the "Agent") for the Banks.
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Agent and the Banks to
agree to amend and waive certain provisions of the Credit Agreement as set forth
in this Amendment; and
WHEREAS, the Agent and the Banks are willing to agree to such
amendments and waivers, but only on the terms and subject to the conditions set
forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein,
terms defined in the Credit Agreement are used herein as therein
defined.
2. Amendments to Section 7.09. Section 7.09 of the Credit
Agreement is hereby amended by deleting such subsection in its entirety and
substituting in lieu thereof the following:
7.09 Change in Business. Engage in any business activities or
operations substantially and materially different from or unrelated to
business activities existing on the Closing Date; provided, however,
that this Section 7.09 shall not prohibit the Borrower or its
Subsidiaries from managing non-owned fitness centers or providing
payment, processing and collection services for non-owned fitness
centers, or from commencing and operating a Franchise Program, or from
operating a captive insurance company.
509203\0069\02261\96CHJLC3.AMD
<PAGE>
3. Amendment to Subsection 7.02(i). Subsection 7.02(i) of the
Credit Agreement is hereby amended by deleting such subsection in its entirety
and substituting in lieu thereof the following:
(i) (A) Investments in health and fitness clubs not
owned by Subsidiaries or in a captive insurance company in an
aggregate amount not to exceed $5,000,000, of which no more
than $3,500,000 may represent Investments in a captive
insurance company; provided that prior to and after giving
effect to any such Investment, no Default or Event of Default
shall have occurred and be continuing; and (B) additional
Investments in Foreign Subsidiaries located in Canada up to a
maximum aggregate amount of Two Million Dollars ($2,000,000);
provided that the purchase or other acquisition of any
minority interest in the capital stock or other equity
interest of any Foreign Subsidiary shall not constitute an
Investment prohibited by this Section 7.02 or limited by
clause (B) of this paragraph (i).
4. Waiver of Subsections 3.01 and 3.04. The Banks hereby waive
the requirements of Section 3.01 of the Credit Agreement and Borrower shall not
be required to pledge the stock of Lincoln Indemnity Company ("Lincoln") to the
Agent pursuant to the Borrower Pledge Agreement, as amended. In addition, the
Banks hereby waive the requirements of Section 3.04 of the Credit Agreement and
Lincoln shall not be required to become a Guarantor or to execute any of the
Collateral Documents.
5. Representations and Warranties. The Borrower hereby
confirms that, after giving effect to the amendments and waivers provided for
herein, (i) the representations and warranties contained in Article V of the
Credit Agreement are true and correct in all material respects on and as of the
date hereof and no Default or Event of Default has occurred and is continuing,
and (ii) the Borrower has all necessary power and has taken all corporate action
necessary to approve and authorize this Amendment.
6. No Other Amendments. Except as expressly amended
or waived hereby, the Credit Agreement shall continue to be, and
shall remain, in full force and effect in accordance with its
terms.
7. Counterparts. This Amendment may be executed by the
parties hereto in any number of separate counterparts and all of
such counterparts taken together shall be deemed to constitute
one and the same instrument.
2
509203\0069\02261\96CHJLC3.AMD
<PAGE>
8. Conditions of Effectiveness. This Amendment shall
be come effective on the date on which all of the following
conditions have been met:
(a) The Borrower and the Majority Banks shall have
executed a counterpart of this Amendment and the Agent shall
have received confirmation of such execution.
(b) There shall have been delivered to the Agent
(with sufficient copies for distribution to all Banks), in
form and substance reasonably satisfactory to the Agent, a
copy of the agreement to acquire Lincoln and any other
agreements relating thereto.
(c) The Guarantor's Consent in the form of Exhibit A
attached hereto shall have been executed on behalf of each
Guarantor, and Agent shall have received confirmation of such
execution.
(d) The Agent shall have received evidence, in form
and substance satisfactory to it, of Borrower's corporate
action authorizing the execution and delivery of this
Amendment.
9. Governing Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF ILLINOIS.
10. Costs and Expenses. Borrower agrees to pay on
demand:
(a) to Agent all reasonable costs, expenses and
attorneys' fees (including allocated costs for in-house legal
services) incurred in connection with the preparation and
administration of this Amendment and any instrument or
agreement required hereunder;
(b) to Agent and to each Bank all reasonable costs,
expenses and attorney's fees (including allocated costs for
in-house legal services) incurred by Agent and each such Bank
in connection with the enforcement of this Amendment or any
instrument or agreement required hereunder; and
(c) to Agent and to each Bank all stamp, registration
and other duties and imposts to which this Amendment and any
instrument or agreement required hereunder may be subject.
Borrower shall indemnify Agent and each Bank against any and
all liabilities and penalties resulting from any delay in
paying, or failure to pay, any such duties and imposts.
3
509203\0069\02261\96CHJLC3.AMD
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the date set forth above.
BALLY TOTAL FITNESS HOLDING
CORPORATION
By:
Title:
THE CHASE MANHATTAN BANK, as Agent
By:
Title:
THE CHASE MANHATTAN BANK,
Individually
By:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
Title:
BANK OF AMERICA ILLINOIS
By:
Title:
4
509203\0069\02261\96CHJLC3.AMD
<PAGE>
FIRST UNION NATIONAL BANK
(formerly known as First
Fidelity Bank, N.A.)
By:
Title:
FIRST BANK NATIONAL ASSOCIATION
By:
Title:
MIDLANTIC BANK, N.A.
By:
Title:
LASALLE NATIONAL BANK
By:
Title:
5
509203\0069\02261\96CHJLC3.AMD
<PAGE>
Exhibit A
Form of Guarantors' Consent
as of December 2, 1996
The Chase Manhattan Bank Individually and as Agent
Bank of America National Trust
and Savings Association
Bank of America Illinois
First Union National Bank
First Bank National Association
Midlantic Bank N.A.
LaSalle National Bank
Gentlemen:
Reference is made to the Third Amended and Restated Credit
Agreement dated as of June 26, 1995 (the "Credit Agreement"), as previously
amended, among you and Bally Total Fitness Holding Corporation (formerly known
as Bally's Health & Tennis Corporation) and to the Amended and Restated Guaranty
Agreement and the New Guarantors Guaranty Agreement executed May 15, 1991, as
amended (collectively, the "Guaranty Agreements"), and the other Collateral
Documents executed by the undersigned in connection with the Credit Agreement.
Each of the undersigned hereby consents to the execution of
the attached Fifth Amendment and Waiver to Third Amended and Restated Credit
Agreement dated as of December 2, 1996, and acknowledges receipt of a copy
thereof. Each of the undersigned hereby jointly and severally, unconditionally
and irrevocably agrees that the Guaranty Agreements and other Collateral
Documents to which it is a party shall apply to the Credit Agreement as amended,
affected, or modified by said Fifth Amendment and Waiver to Third Amended and
Restated Credit Agreement.
It is hereby agreed that all of the terms and conditions of
the Guaranty Agreements and such other Collateral Documents shall continue in
full force and effect and that references in the Guaranty Agreements and such
other Collateral Documents to the Credit Agreement shall be deemed to mean the
Credit Agreement, as amended, affected or modified by the said Fifth Amendment
to Third Amended and Restated Credit Agreement.
BALLY'S FITNESS AND RACQUET CLUBS, INC.
BALLY FITNESS FRANCHISING, INC.
BALLY FRANCHISE RSC, INC.
BALLY FRANCHISING HOLDINGS, INC.
BALLY'S PACWEST, INC.
A-1
509203\0069\02261\96CHJLC3.AMD
<PAGE>
BALLY'S S.C. MANAGEMENT, INC.
BALLY TOTAL FITNESS CORPORATION
CONNECTICUT COST FITNESS CENTERS, INC.
CONNECTICUT VALLEY FITNESS CENTERS, INC.
GREATER PHILLY NO. 1 HOLDING COMPANY
GREATER PHILLY NO. 2 HOLDING COMPANY
HEALTH & TENNIS CORPORATION OF NEW YORK
HOLIDAY HEALTH & FITNESS CENTERS OF
NEW YORK INC.
HOLIDAY HEALTH CLUBS AND FITNESS
CENTERS, INC.
HOLIDAY HEALTH CLUBS OF THE EAST COAST, INC.
HOLIDAY HEALTH CLUBS OF THE SOUTHEAST, INC.
HOLIDAY/SOUTHEAST HOLDING CORP.
HOLIDAY SPA HEALTH CLUBS OF CALIFORNIA
HOLIDAY UNIVERSAL, INC.
HOUSTON HEALTH CLUBS, INC.
JACK LALANNE FITNESS CENTERS, INC.
JACK LALANNE HOLDING CORP.
MANHATTAN SPORTS CLUB, INC.
NEW FITNESS HOLDING CO., INC.
NYCON HOLDING CO., INC.
PHYSICAL FITNESS CENTERS OF PHILADELPHIA, INC.
PROVIDENCE FITNESS CENTERS, INC.
RHODE ISLAND HOLDING COMPANY
SCANDINAVIAN DEVELOPMENT COMPANY
SCANDINAVIAN HEALTH SPA, INC.
SCANDINAVIAN US SWIM & FITNESS, INC.
SO. CAL. NAUTILUS FITNESS CENTERS, INC.
TIDELANDS HOLIDAY HEALTH CLUBS, INC.
U.S. HEALTH, INC.
VERTICAL FITNESS AND RACQUET CLUB, LTD.
VIC TANNY INTERNATIONAL, INC.
VIC TANNY INTERNATIONAL OF CLEVELAND, INC.
VIC TANNY INTERNATIONAL OF MISSOURI, INC.
VIC TANNY INTERNATIONAL OF TOLEDO, INC.
VIC TANNY OF GREATER MICHIGAN, INC.
By:
Title:
A-2
509203\0069\02261\96CHJLC3.AMD
<PAGE>
PENN HILLS SPA LIMITED PARTNERSHIP
SPA ASSOCIATES LIMITED PARTNERSHIP
By: BALLY TOTAL FITNESS HOLDING
CORPORATION as General Partner
By:
Title:
A-3
509203\0069\02261\96CHJLC3.AMD
EXHIBIT 10.7
SIXTH AMENDMENT AND WAIVER TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS SIXTH AMENDMENT AND WAIVER, dated as of February 21, 1997
(this "Amendment"), to the Third Amended and Restated Credit Agreement, dated as
of June 26, 1995, as in effect immediately prior to the date hereof (the "Credit
Agreement"), among BALLY TOTAL FITNESS HOLDING CORPORATION (formerly known as
Bally's Health & Tennis Corporation), a Delaware corporation (the "Borrower"),
the several banks and other financial institutions (the "Banks") parties thereto
and THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), a New York
banking corporation, as agent (in such capacity, the "Agent") for the Banks.
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Agent and the Banks to
agree to amend and waive certain provisions of the Credit Agreement as set forth
in this Amendment; and
WHEREAS, the Agent and the Banks are willing to agree to such
amendments and waivers, but only on the terms and subject to the conditions set
forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein,
terms defined in the Credit Agreement are used herein as therein
defined.
2. Amendments to Section 1.01. Section 1.01 of the
Credit Agreement is hereby amended by:
(a) adding the following definition:
"GAAP EBITDA" means with respect to the Borrower and
its Subsidiaries on a consolidated basis, without duplication,
for any period of determination, (i) Consolidated Net Income
(loss), plus, to the extent deducted in determining
Consolidated Net Income (loss), (ii) provision for taxes,
(iii) Consolidated Net Interest, and (iv) depreciation and
amortization;
(b) changing subparagraph (b) of the definition
of "Revolving Credit Commitment Amount" by deleting
"$15,000,000" therein and inserting in lieu thereof
"$20,000,000"; and
509203\0069\02261\971VA8UV.AMD
<PAGE>
(c) changing subparagraph (c) of the definition of
"Termination Date" by deleting "1997" therein and substituting
in lieu thereof "1998".
3. Amendment to Subsection 6.01. Subsection 6.01 of the Credit
Agreement is hereby amended by deleting the dollar amount "$90,000,000" and
substituting therefor the dollar amount "$80,000,000".
4. Waiver and Amendment to Subsection 6.13. The Banks hereby
waive the requirements of Section 6.13 of the Credit Agreement for the period of
four consecutive fiscal quarters ended December 31, 1996 and Section 6.13 is
hereby amended by deleting Section 6.13 in its entirety and substituting in lieu
thereof the following:
6.13 Interest Coverage. Maintain a ratio of (i) Cash
EBITDA to (ii) Cash Interest Expense, for any period of four
consecutive fiscal quarters of the Borrower commencing with
such period ended March 31, 1997 equal to or greater than 1.15
to 1.0; provided, that, for the purpose of calculating the
ratio under this Section 6.13, Cash Interest Expenses shall
not include any amounts paid or payable constituting interest
on the Receivables Program Certificates ("Receivable Program
Interest") and Cash EBITDA shall be reduced by such
Receivables Program Interest.
5. Amendment to Article VI. Article VI of the Credit
Agreement is hereby amended by inserting at the end thereof the
following Section 6.18:
6.18 GAAP EBITDA Interest Coverage. Maintain a ratio
of (i) GAAP EBITDA to (ii) Cash Interest Expense for any
period of four consecutive fiscal quarters of the Borrower
equal to or greater than (a) 1.25 to 1.00 for all such periods
ended March 31, 1997 to and including December 30, 1997, (b)
1.50 to 1.0 for such periods ended December 31, 1997 to and
including March 30, 1998 and (c) 1.70 to 1.00 for all such
periods ended thereafter.
6. Representations and Warranties. The Borrower hereby
confirms that, after giving effect to the amendments and waivers provided for
herein, (i) the representations and warranties contained in Article V of the
Credit Agreement are true and correct in all material respects on and as of the
date hereof and no Default or Event of Default has occurred and is continuing,
and (ii) the Borrower has all necessary power and has taken all corporate action
necessary to approve and authorize this Amendment.
2
509203\0069\02261\971VA8UV.AMD
<PAGE>
7. No Other Amendments. Except as expressly amended
or waived hereby, the Credit Agreement shall continue to be, and
shall remain, in full force and effect in accordance with its
terms.
8. Counterparts. This Amendment may be executed by the
parties hereto in any number of separate counterparts and all of
such counterparts taken together shall be deemed to constitute
one and the same instrument.
9. Conditions of Effectiveness. This Amendment shall
be come effective on the date on which all of the following
conditions have been met:
(a) The Borrower and each Bank shall have executed a
counterpart of this Amendment and the Agent shall have
received confirmation of such execution.
(b) The Guarantor's Consent in the form of Exhibit A
attached hereto shall have been executed on behalf of each
Guarantor, and Agent shall have received confirmation of such
execution.
(c) The Agent shall have received evidence, in form
and substance satisfactory to it, of Borrower's corporate
action authorizing the execution and delivery of this
Amendment.
(d) The Agent shall have received (i) for each Bank
an amendment fee equal to 0.5% of each Bank's Commitment and
(ii) all other fees payable by the Borrower to the Agent or
any Bank on or prior to the effectiveness of this Amendment.
10. Extension Fee. In the event that all amounts owed under
the Credit Agreement and the other Credit Documents have not been repaid in
full, all Letters of Credit have not been terminated and returned to the Issuing
Bank, and the Commitments have not been terminated, on or before July 1, 1997,
then the Borrower shall, on July 1, 1997, pay to the Agent, for the account of
each Bank, an extension fee equal to 0.5% of each Bank's Commitment
(disregarding, for this purpose, any Default or Event of Default that may then
exist) existing on July 1, 1997.
11. Governing Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF ILLINOIS.
3
509203\0069\02261\971VA8UV.AMD
<PAGE>
12. Costs and Expenses. Borrower agrees to pay on
demand:
(a) to Agent all reasonable costs, expenses and
attorneys' fees (including allocated costs for in-house legal
services) incurred in connection with the preparation and
administration of this Amendment and any instrument or
agreement required hereunder;
(b) to Agent and to each Bank all reasonable costs,
expenses and attorney's fees (including allocated costs for
in-house legal services) incurred by Agent and each such Bank
in connection with the enforcement of this Amendment or any
instrument or agreement required hereunder; and
(c) to Agent and to each Bank all stamp, registration
and other duties and imposts to which this Amendment and any
instrument or agreement required hereunder may be subject.
Borrower shall indemnify Agent and each Bank against any and
all liabilities and penalties resulting from any delay in
paying, or failure to pay, any such duties and imposts.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the date set forth above.
BALLY TOTAL FITNESS HOLDING
CORPORATION
By: /s/ John W. Dwyer
Title: Sr. VP, CFO & Treasurer
THE CHASE MANHATTAN BANK, as Agent
By: /s/ Ann Kurinskas
Title: Managing Director
4
509203\0069\02261\971VA8UV.AMD
<PAGE>
THE CHASE MANHATTAN BANK,
Individually
By: /s/ Ann Kurinskas
Title: Managing Director
FIRST UNION NATIONAL BANK
(formerly known as First
Fidelity Bank, N.A.)
By: /s/ Robert H. Waters,Jr.
Title: Senior Vice President
FIRST BANK NATIONAL ASSOCIATION
By: /s/
Title: VP
LASALLE NATIONAL BANK
By: /s/
Title: Vice President
5
509203\0069\02261\971VA8UV.AMD
<PAGE>
Exhibit A
Form of Guarantors' Consent
as of February 21, 1997
The Chase Manhattan Bank Individually and as Agent
First Union National Bank
First Bank National Association
LaSalle National Bank
Gentlemen:
Reference is made to the Third Amended and Restated Credit
Agreement dated as of June 26, 1995 (the "Credit Agreement"), as previously
amended, among you and Bally Total Fitness Holding Corporation (formerly known
as Bally's Health & Tennis Corporation) and to the Amended and Restated Guaranty
Agreement and the New Guarantors Guaranty Agreement executed May 15, 1991, as
amended (collectively, the "Guaranty Agreements"), and the other Collateral
Documents executed by the undersigned in connection with the Credit Agreement.
Each of the undersigned hereby consents to the execution of
the attached Sixth Amendment and Waiver to Third Amended and Restated Credit
Agreement dated as of February 21, 1997, and acknowledges receipt of a copy
thereof. Each of the undersigned hereby jointly and severally, unconditionally
and irrevocably agrees that the Guaranty Agreements and other Collateral
Documents to which it is a party shall apply to the Credit Agreement as amended,
affected, or modified by said Sixth Amendment and Waiver to Third Amended and
Restated Credit Agreement.
It is hereby agreed that all of the terms and conditions of
the Guaranty Agreements and such other Collateral Documents shall continue in
full force and effect and that references in the Guaranty Agreements and such
other Collateral Documents to the Credit Agreement shall be deemed to mean the
Credit Agreement, as amended, affected or modified by the said Sixth Amendment
and Waiver to Third Amended and Restated Credit Agreement.
BALLY'S FITNESS AND RACQUET CLUBS, INC.
BALLY FITNESS FRANCHISING, INC.
BALLY FRANCHISE RSC, INC.
BALLY FRANCHISING HOLDINGS, INC.
BALLY'S PACWEST, INC.
BALLY'S S.C. MANAGEMENT, INC.
BALLY TOTAL FITNESS CORPORATION
CONNECTICUT COAST FITNESS CENTERS, INC.
CONNECTICUT VALLEY FITNESS CENTERS, INC.
A-1
509203\0069\02261\971VA8UV.AMD
<PAGE>
GREATER PHILLY NO. 1 HOLDING COMPANY
GREATER PHILLY NO. 2 HOLDING COMPANY
HEALTH & TENNIS CORPORATION OF NEW YORK
HOLIDAY HEALTH & FITNESS CENTERS OF
NEW YORK INC.
HOLIDAY HEALTH CLUBS AND FITNESS
CENTERS, INC.
HOLIDAY HEALTH CLUBS OF THE EAST COAST, INC.
HOLIDAY HEALTH CLUBS OF THE SOUTHEAST, INC.
HOLIDAY/SOUTHEAST HOLDING CORP.
HOLIDAY SPA HEALTH CLUBS OF CALIFORNIA
HOLIDAY UNIVERSAL, INC.
HOUSTON HEALTH CLUBS, INC.
JACK LALANNE FITNESS CENTERS, INC.
JACK LALANNE HOLDING CORP.
MANHATTAN SPORTS CLUB, INC.
NEW FITNESS HOLDING CO., INC.
NYCON HOLDING CO., INC.
PHYSICAL FITNESS CENTERS OF PHILADELPHIA, INC.
PROVIDENCE FITNESS CENTERS, INC.
RHODE ISLAND HOLDING COMPANY
SCANDINAVIAN DEVELOPMENT COMPANY
SCANDINAVIAN HEALTH SPA, INC.
SCANDINAVIAN US SWIM & FITNESS, INC.
SO. CAL. NAUTILUS FITNESS CENTERS, INC.
TIDELANDS HOLIDAY HEALTH CLUBS, INC.
U.S. HEALTH, INC.
VERTICAL FITNESS AND RACQUET CLUB, LTD.
VIC TANNY INTERNATIONAL, INC.
VIC TANNY INTERNATIONAL OF CLEVELAND, INC.
VIC TANNY INTERNATIONAL OF MISSOURI, INC.
VIC TANNY INTERNATIONAL OF TOLEDO, INC.
VIC TANNY OF GREATER MICHIGAN, INC.
By: /s/ John W. Dywer
Title: Senior VP, CFO & Treasurer
A-2
509203\0069\02261\971VA8UV.AMD
<PAGE>
PENN HILLS SPA LIMITED PARTNERSHIP
SPA ASSOCIATES LIMITED PARTNERSHIP
By: BALLY TOTAL FITNESS HOLDING
CORPORATION as General Partner
By: /s/ John W. Dywer
Title: Senior VP, CFO & Treasurer
A-3
509203\0069\02261\971VA8UV.AMD
EXHIBIT 10.11
- - --------------------------------------------------------------------------------
H & T RECEIVABLE FUNDING CORPORATION
Transferor
BALLY TOTAL FITNESS CORPORATION
Servicer
and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
Trustee
on behalf of Certificateholders
of the H & T Master Trust
------------------------------
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT
Dated as of December 16, 1996
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS................................................................1
Section 1.1 Definitions..................................................1
Section 1.2 Other Definitional Provisions................................1
ARTICLE II
CONVEYANCE OF CONTRACTS;
ISSUANCE OF CERTIFICATES....................................................3
Section 2.1 Conveyance of Contracts.......................................3
Section 2.2 Acceptance by Trustee.........................................3
Section 2.3 Representations and Warranties of the Transferor..............4
Section 2.4 Representations and Warranties of the Transferor
Relating to the Agreement and the Contracts...................6
Section 2.5 Covenants of the Transferor...................................9
Section 2.6 Addition of Contracts........................................10
Section 2.7 Release of Contracts Relating to Defaulted Receivables
and Ineligible Receivables...................................11
Section 2.8 Release of Contracts Relating to Included Clubs..............11
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES.............................................................12
Section 3.1 Acceptance of Appointment and Other Matters Relating
to the Servicer..............................................12
Section 3.2 Servicing Compensation.......................................13
Section 3.3 Representations, Warranties and Covenants of the Servicer....13
Section 3.4 Reports and Records for the Trustee..........................15
Section 3.5 Annual Servicer's Certificate................................16
Section 3.6 Annual Independent Accountants' Management Letter............16
Section 3.7 Tax Treatment................................................16
Section 3.8 Adjustments..................................................17
Section 3.9 Notices to BTFC..............................................18
Section 3.10 Certain Matters Affecting a Back-Up Servicer as the
Successor Servicer...........................................18
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS.............................................19
Section 4.1 Rights of Certificateholders.................................19
Section 4.2 Establishment of Accounts....................................19
Section 4.3 Collections and Allocations..................................20
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY
SUPPLEMENT WITH RESPECT TO ANY SERIES].....................................23
i
<PAGE>
ARTICLE VI
THE CERTIFICATES...........................................................24
Section 6.1 The Certificates.............................................24
Section 6.2 Authentication of Certificates...............................24
Section 6.3 Registration of Transfer and Exchange of Certificates........24
Section 6.4 Mutilated, Destroyed, Lost or Stolen Certificates............26
Section 6.5 Persons Deemed Owners........................................26
Section 6.6 Appointment of Paying Agent..................................26
Section 6.7 Access to List of Certificateholders' Names and
Addresses....................................................27
Section 6.8 Authenticating Agent.........................................27
Section 6.9 Tender of Exchangeable Transferor Certificate................28
Section 6.10 Book-Entry Certificates......................................30
Section 6.11 Notices to Clearing Agency...................................31
Section 6.12 Definitive Certificates......................................31
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR...................................32
Section 7.1 Liability of the Transferor..................................32
Section 7.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Transferor...............................32
Section 7.3 Limitation on Liability......................................32
Section 7.4 Liabilities..................................................33
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER............................................................34
Section 8.1 Liability of the Servicer....................................34
Section 8.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer.................................34
Section 8.3 Limitation on Liability of the Servicer and Others...........34
Section 8.4 Servicer Indemnification of the Transferor, the Trust,
the Trustee, the Registrar and the Paying Agent..............35
Section 8.5 The Servicer Not to Resign...................................35
Section 8.6 Access to Certain Documentation and Information Regarding
the Receivables..............................................35
Section 8.7 Delegation of Duties.........................................36
ARTICLE IX
PAY OUT EVENTS.............................................................37
Section 9.1 Pay-Out-Events...............................................37
Section 9.2 Additional Rights Upon the Occurrence of Certain Events......37
ARTICLE X
SERVICER DEFAULTS..........................................................39
Section 10.1 Servicer Defaults...........................................39
Section 10.2 Trustee to Act; Appointment of Successor....................41
Section 10.3 Notification to Certificateholders..........................42
Section 10.4 Waiver of Past Defaults.....................................42
ii
<PAGE>
ARTICLE XI
THE TRUSTEE................................................................43
Section 11.1 Duties of Trustee...........................................43
Section 11.2 Certain Matters Affecting the Trustee.......................44
Section 11.3 Trustee Not Liable for Recitals in Certificates.............45
Section 11.4 Trustee May Own Certificates................................45
Section 11.5 The Servicer to Pay Fees and Expenses.......................45
Section 11.6 Eligibility Requirements for Trustee. ......................46
Section 11.7 Resignation or Removal of Trustee...........................46
Section 11.8 Successor Trustee...........................................47
Section 11.9 Merger or Consolidation of Trustee..........................47
Section 11.10 Appointment of Co-Trustee or Separate Trustee...............47
Section 11.11 Tax Returns.................................................48
Section 11.12 Trustee May Enforce Claims Without Possession of
Certificates................................................48
Section 11.13 Suits for Enforcement.......................................48
Section 11.14 Rights of Certificateholders to Direct Trustee..............48
Section 11.15 Representations and Warranties of Trustee...................49
Section 11.16 Maintenance of Office or Agency.............................49
ARTICLE XII
TERMINATION................................................................50
Section 12.1 Termination of Trust........................................50
Section 12.2 Optional Termination........................................51
Section 12.3 Final Payment with Respect to any Series....................51
Section 12.4 Termination Rights of Holder of Exchangeable Transferor
Certificate.................................................52
ARTICLE XIII
MISCELLANEOUS PROVISIONS...................................................53
Section 13.1 Amendment...................................................53
Section 13.2 Protection of Right, Title and Interest to Trust............54
Section 13.3 Limitation on Rights of Certificateholders..................54
Section 13.4 Governing Law...............................................55
Section 13.5 Notices.....................................................55
Section 13.6 Severability of Provisions..................................55
Section 13.7 Assignment..................................................55
Section 13.8 TCB Dual Capacities.........................................56
Section 13.9 Certificates Non-Assessable and Fully Paid..................56
Section 13.10 Further Assurances..........................................56
Section 13.11 No Waiver; Cumulative Remedies..............................56
Section 13.12 Counterparts................................................56
Section 13.13 Binding Effect; Third-Party Beneficiaries...................56
Section 13.14 Actions by Certificateholders...............................56
Section 13.14A Rule 144A Information.......................................57
Section 13.15 Merger and Integration......................................57
Section 13.16 Headings....................................................57
Section 13.17 No Bankruptcy Petition Against the Transferor...............57
iii
<PAGE>
Exhibit A Form of Exchangeable Transferor Certificate
Exhibit B Form of Daily Report
Exhibit C Form of Settlement Statement
Exhibit D Form of Annual Servicer's Certificate
Exhibit E Form of Annual Opinion of Counsel
Exhibit F Form of Reconveyance of Contracts
iv
<PAGE>
This AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT (this
"Agreement"), dated as of December 16, 1996, is by and among H & T RECEIVABLE
FUNDING CORPORATION, a corporation organized and existing under the laws of the
State of Delaware (the "Transferor"), as Transferor, BALLY TOTAL FITNESS
CORPORATION, a corporation organized and existing under the laws of the State of
Delaware ("BTFC"), as Servicer, and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking association organized under the laws of the United States, as
Trustee (the "Trustee" or "TCB").
WHEREAS, the parties hereto have previously entered into a Pooling and
Servicing Agreement, dated as of June 26, 1995 (the "Original Agreement") with
respect to the initial formation of the Trust (as defined herein) and the
concurrent issuance of a Series of Investor Certificates (as defined herein);
and
WHEREAS, in connection with and concurrently with the issuance of a
Replacement Series (as defined herein), constituting Series 1996-1, for such
previously issued Series of Investor Certificates, the parties hereto desire to
amend and restate the Original Agreement as set forth herein;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, each party agrees as follows for the benefit of the other parties and
the Certificateholders that the Original Agreement is hereby amended and
restated as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used in this Agreement, the
capitalized terms used in this Agreement shall have the respective meanings
assigned to them in Appendix I, attached hereto.
Section 1.2 Other Definitional Provisions.
(a) All terms defined in any Supplement or this Agreement shall have
the defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.
(b) As used herein and in any certificate or other document made or
delivered pursuant hereto or thereto, accounting terms not defined in Appendix
I, and accounting terms partially defined in Appendix I to the extent not
defined, shall have the respective meanings given to them under generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the Closing Date with respect to Series 1996-1 ("GAAP"). To the
extent that the definitions of accounting terms herein are inconsistent with the
meanings of such terms under GAAP, the definitions contained herein shall
control.
(c) The agreements, representations and warranties of BTFC in this
Agreement and in any Supplement in its capacity as Servicer and of the
Transferor in its capacity as Transferor shall be deemed to be the agreements,
representations and warranties of BTFC and the Transferor solely in each such
capacity for so long as either of them acts in each such capacity under this
Agreement.
(d) All references herein to "this Agreement" are to this Amended and
Restated Pooling and Servicing Agreement, including any Supplement executed in
connection with the issuance of any Series, as the same may from time to time be
amended, supplemented or otherwise modified and in effect. The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement or any Supplement as a whole and not to any
particular provision of this Agreement or any Supplement; and Section,
subsection, Schedule and Exhibit references contained in this Agreement or any
Supplement are references to Sections, subsections, Schedules and Exhibits in or
to this Agreement or any Supplement unless otherwise specified.
(e) The Daily Report and Settlement Statement shall be in substantially
the forms of Exhibits B and C, with such changes as the Servicer may determine
to be necessary or desirable; provided, however, that no such change shall serve
to exclude information required by this Agreement or any Supplement and each
such change shall be reasonably acceptable to the Trustee. The Servicer shall
not change the Daily Report or the Settlement Statement to delete any category
of information
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contained therein on the Closing Date for any Series of Investor Certificates
without the consent of the Holders of at least 50% of the Invested Amount of
such Series (in each case, as such terms are defined in the Supplement for such
Series), or in accordance with such other method or standard of approval as may
be set forth in the Supplement for any such Series. The Servicer shall, upon
making such determination and receiving the consent of the Trustee to such
change, deliver to the Trustee and each Rating Agency an Officer's Certificate
to which shall be annexed the form of the related Exhibit, as so changed. Upon
the delivery of such Officer's Certificate to the Trustee, the related Exhibit,
as so changed, shall for all purposes of this Agreement constitute such Exhibit.
The Trustee may conclusively rely upon such Officer's Certificate in determining
whether the related Exhibit, as changed, conforms to the requirements of this
Agreement.
[End of Article I]
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ARTICLE II
CONVEYANCE OF CONTRACTS;
ISSUANCE OF CERTIFICATES
Section 2.1 Conveyance of Contracts. The Transferor does hereby
transfer, assign, set-over, and otherwise convey to the Trust for the benefit of
the Certificateholders, without recourse, all of its right, title and interest
in, to and under (i) the Contracts now existing and hereafter created and all
monies due or to become due with respect thereto, including, without limitation,
the Receivables and the Additional Payments, (ii) the Purchase Agreement and the
Subsidiary Purchase Agreement, (iii) Recoveries and (iv) all investments and
proceeds of the foregoing. Such property, together with all monies as are from
time to time deposited in the Collection Account, any Distribution Account, any
Series Account and the Excess Funding Account and all amounts on deposit in or
credited to such accounts (including any interest and investment earnings on any
such deposited amounts except for such amounts as are on deposit in any Series
Account if so provided in the applicable Supplement) and any other account and
the right to draw upon or claim under, and all monies as are from time to time
available under, any Enhancement for any Series for payment to
Certificateholders shall constitute the property of the Trust (the "Trust
Property"). The foregoing transfer, assignment, set-over and conveyance does not
constitute and is not intended to result in a creation or an assumption by the
Trust, the Trustee or any Investor Certificateholder of any obligation of the
Transferor, the Servicer or any other Person in connection with the Contracts,
the Receivables and the Additional Payments payable thereunder, or any agreement
or instrument relating thereto, including, without limitation, any obligation to
any Obligors or insurers, or in connection with the Purchase Agreement or the
Subsidiary Purchase Agreement.
In connection with such transfer, assignment, set-over and conveyance,
the Transferor agrees to record and file, within 10 days after the Closing Date
for Series 1996-1 (with respect to any new financing statements or amendments to
existing financing statements which may be required to be filed hereunder) (or,
in the case of any continuation statements, prior to the date required under
applicable state law), at its own expense, financing statements (including any
continuation statements with respect to such financing statements when
applicable) with respect to the Contracts and the related Receivables and the
other Trust Property now existing and hereafter created for the transfer of
accounts and general intangibles and the proceeds thereof (as defined in the UCC
as in effect in the Relevant UCC State) meeting the requirements of applicable
state law in such manner and in such jurisdictions as are necessary to perfect
the assignment of the Contracts and the related Receivables and the other Trust
Property constituting accounts and general intangibles and the proceeds thereof
to the Trust, and to deliver file-stamped copies of such financing statements or
continuation statements or other evidence of such filing (which may, for
purposes of this Section 2.1, consist of facsimile confirmation of such filing)
to the Trustee as soon as reasonably practicable following the return of such
statements to the Transferor by the respective filing offices. The foregoing
transfer, assignment, set-over and conveyance to the Trust shall be made to the
Trustee, on behalf of the Trust, and each reference in this Agreement to such
transfer, assignment, set-over and conveyance shall be construed accordingly.
To the extent that the transfer of the Trust Property or any portion
thereof from the Transferor to the Trust hereunder may be characterized as a
pledge rather than as a sale, the Transferor hereby grants and transfers to the
Trustee for the benefit of the Certificateholders a security interest in all of
the Transferor's right, title and interest in, to and under the Trust Property
to secure a loan in an amount equal to the unpaid principal amount of the
Investor Certificates issued hereunder or to be issued pursuant to this
Agreement and the interest accrued thereon at the related Certificate Rate and
to secure all of the Transferor's and Servicer's obligations hereunder,
including, without limitation, the Transferor's obligation to transfer Contracts
hereafter created to the Trust (the "Secured Obligations"), and agrees that this
Agreement shall constitute a security agreement under applicable law.
Section 2.2 Acceptance by Trustee.
(a) The Trustee hereby acknowledges its acceptance, on behalf of the
Trust, of all right, title and interest previously held by the Transferor in, to
and under the Trust Property and declares that it shall maintain such right,
title and interest, upon the Trust herein set forth, for the benefit of all
Certificateholders.
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(b) The Trustee hereby irrevocably agrees to release from the Trust
Property an amount equal to the Released Amounts immediately upon identification
thereof, which release shall be automatic and shall require no further act by
the Trustee, provided, that the Trustee shall execute and deliver such
instruments of release and assignment, or otherwise confirm the foregoing
release of any Released Amounts, as may be reasonably requested by the
Transferor. Upon such release of Released Amounts, such Released Amounts shall
not constitute and shall not be included in the Trust Property, and shall be
paid or remitted as provided in subsection 4.3(a).
(c) The Trustee shall have no power to create, assume or incur
indebtedness or other liabilities in the name of the Trust other than as
contemplated in this Agreement.
Section 2.3 Representations and Warranties of the Transferor. The
Transferor hereby represents and warrants to the Trustee, on behalf of the
Trust, as of the date hereof and, with respect to any Series of Certificates, as
of the date of the related Supplement and the related Closing Date for such
Series:
(a) Organization and Good Standing. The Transferor is a corporation
duly organized and validly existing in good standing under the laws of the State
of Delaware and has the corporate power and authority and legal right to own its
properties and conduct its business as such properties are presently owned and
such business is presently conducted, and to execute, deliver and perform its
obligations under this Agreement and the Purchase Agreement and to execute and
deliver to the Trustee the Certificates pursuant hereto.
(b) Due Qualification. The Transferor is duly qualified to do business
and is in good standing (or is exempt from such requirements) as a foreign
corporation in any state required in order to conduct its business and own its
respective properties, and has obtained all necessary licenses and approvals
with respect to the Transferor necessary for the due execution, delivery and
performance by it of this Agreement and the Purchase Agreement as required under
federal and Delaware law.
(c) Due Authorization. The execution and delivery of this Agreement
and the Purchase Agreement and the consummation of the transactions provided for
herein and therein, have been duly authorized by the Transferor by all necessary
corporate action on its part.
(d) Binding Obligation. Each of this Agreement and the Purchase
Agreement, and the consummation of the transactions provided for herein and
therein, constitutes a legal, valid, and binding obligation of the Transferor,
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereinafter in effect, affecting the enforcement of
creditors' rights in general, and as such enforceability may be limited by
general principles of equity (whether considered in a proceeding at law or in
equity).
(e) No Conflicts. The execution and delivery of this Agreement and the
Purchase Agreement and the performance of the transactions contemplated hereby
and thereby, do not (i) contravene the Transferor's charter or By-Laws, (ii)
violate any material provision of law applicable to it or require any filing
(except for the filings under the UCC), registration, consent or approval under,
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the
Transferor, except for such filings, registrations, consents or approvals as
have already been obtained and are in full force and effect.
(f) Taxes. To the best of the Transferor's knowledge, the Transferor
and each prior owner of the Contracts has filed all tax returns required to be
filed in the normal course of business through the Closing Date and has paid or
made adequate provision for the payment of all taxes, assessments and other
governmental charges due from the Transferor or such prior owner or is
contesting any such tax, assessment or other governmental charge in good faith
through appropriate proceedings and adequate reserves consistent with GAAP have
been set aside.
(g) No Violation. The execution and delivery of this Agreement and the
Purchase Agreement and the execution and delivery to the Trustee of the
Certificates, the performance of the transactions contemplated by this Agreement
and the Purchase Agreement and the fulfillment of the terms hereof and thereof
will not violate any Requirements of Law applicable to the Transferor, will not
violate, result in any breach of any of the material terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default under any
Requirement of Law applicable to the Transferor or any material
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indenture, contract, agreement, mortgage, deed of trust or other material
instrument to which the Transferor is a party or by which it or its properties
are bound.
(h) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Transferor, threatened against the Transferor,
before any Governmental Authority (i) asserting the invalidity of this Agreement
or the Purchase Agreement, (ii) seeking to prevent the consummation of any of
the transactions contemplated hereby or thereby, (iii) seeking any determination
or ruling that would materially and adversely affect the performance by the
Transferor of its obligations hereunder or thereunder, (iv) seeking any
determination or ruling that would materially and adversely affect the validity
or enforceability hereof or thereof, (v) seeking any determination or ruling
that would materially and adversely affect the payment or enforceability of the
Receivables taken as a whole or (vi) seeking to affect adversely the tax
attributes of the Trust.
(i) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Governmental Authority required in connection
with the execution and delivery of this Agreement, the Purchase Agreement and
the Certificates, the performance of the transactions contemplated by this
Agreement and the Purchase Agreement and the fulfillment of the terms hereof and
thereof, have been obtained.
(j) Bona Fide Receivables; Not Executory. Each Receivable is or will be
an "account receivable" or "general intangible" not constituting "chattel paper"
(as defined in the UCC as in effect in the Relevant UCC State) owed under the
related Contract and arising out of the sale of a membership in health clubs by
BTFC or another Originator. The Transferor has no knowledge of any fact which
should have led it to expect at the time of the classification of any Receivable
as an Eligible Receivable that such Receivable would not be paid in full when
due, and each Receivable classified as an Eligible Receivable by the Transferor
in any document or report delivered under this Agreement satisfies the
requirements of eligibility contained in the definition of Eligible Receivable
set forth in Appendix I to this Agreement. In the case of a dues-paying
membership, consistent with its accounting treatment agreed upon with the
Securities and Exchange Commission, BTFC recognizes the related income for the
membership fee (exclusive of monthly dues) in full at the inception of the
Contract for financial reporting purposes. Accordingly, at the time of the
classification of any Receivable as an Eligible Receivable, the Transferor does
not believe that such Receivable constitutes an "executory contract" within the
meaning of Section 365 of the Federal Bankruptcy Code, and the Transferor
intends to consistently treat such Receivable as non-executory for all purposes,
subject to compliance by the Transferor with the express provisions of the
Contract related to such Receivable and Requirements of Law.
(k) Place of Business. The principal executive offices of the
Transferor are in Chicago, Illinois, and the offices where the Transferor keeps
its records concerning the Receivables and related Contracts are in Huntington
Beach, California and Towson, Maryland; and there are no other such locations
other than those locations of which notice has been given in accordance with
Section 13.2(c).
(l) Use of Proceeds. No proceeds of the issuance of any Certificate
will be used by the Transferor to purchase or carry any margin security.
(m) Pay-Out-Event. No Pay-Out-Event and no condition that with the
giving of notice and/or the passage of time would constitute a Pay-Out-Event (a
"Prospective Pay-Out-Event"), has occurred and is continuing.
(n) Not an Investment Company. The Transferor is not an "investment
company" within the meaning of the Investment Company Act, or is exempt from all
provisions of such Act.
(o) Other Names. The legal name of the Transferor is as set forth in
this Agreement and within the preceding five years the Transferor has not used,
and the Transferor currently does not use, any tradenames, fictitious names,
assumed names or "doing business as" names.
(p) Subsidiaries. The Transferor has no subsidiaries.
(q) Activities. The Transferor engages in no activities other than
those permitted by its charter documents and contemplated by this Agreement and
the Purchase Agreement.
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The representations and warranties set forth in this Section
2.3 shall survive the transfer and assignment of the respective Contracts to the
Trust, and termination of the rights and obligations of the Servicer pursuant to
Section 10.1 and shall expire upon the termination of the Trust in accordance
with Article XII hereof. The Transferor hereby represents and warrants to the
Trustee, on behalf of the Trust, with respect to any Series of Certificates, as
of its Closing Date, unless otherwise stated in the related Supplement, that the
representations and warranties of the Transferor set forth in this Section 2.3
are true and correct as of such date (and for the purposes of such
representations and warranties, "Certificates" shall mean the Certificates
issued on the related Closing Date) and that each representation and warranty
set forth in this Section 2.3 and in Section 2.4(a)(i) with respect to this
Agreement shall be made at such time with respect to the applicable Supplement.
Upon discovery by the Transferor, the Servicer or a Responsible Officer of the
Trustee of a breach of any of the foregoing representations and warranties, the
party discovering such breach shall give written notice to the others
immediately upon obtaining knowledge of such breach.
Section 2.4 Representations and Warranties of the Transferor
Relating to the Agreement and the Contracts.
(a) Binding Obligation; Valid Transfer and Assignment. The Transferor
hereby represents and warrants to the Trustee, on behalf of the Trust, that, as
of the Closing Date for Series 1996-1 and, with respect to any Series of
Certificates, as of the date of the related Supplement and related Closing Date
for such Series, and on each day on which any new Contract is purchased by the
Transferor:
(i) The Agreement and the Purchase Agreement each constitutes
the legal, valid and binding obligation of the Transferor, enforceable against
the Transferor in accordance with its terms, except (A) as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect, affecting the enforcement of
creditors' rights in general, and (B) as such enforceability may be limited by
general principles of equity (whether considered in a suit at law or in equity).
(ii) The transfer of Contracts and the related Receivables by
the Transferor to the Trust under this Agreement constitutes either (A) a valid
transfer, assignment, set-over and conveyance to the Trust of all right, title
and interest of the Transferor in and to the Trust Property, and such Trust
Property will be held by the Trust free and clear of any Lien of any Person
claiming through or under the Transferor or any of its Affiliates except for (x)
Permitted Liens, (y) the interest of the Transferor as Holder of the
Exchangeable Transferor Certificate and any other Class of Certificates held by
the Transferor from time to time and (z) the Transferor's right, if any, to
interest accruing on, and investment earnings, if any, in respect of, the
Collection Account, any Distribution Account, any Series Account and the Excess
Funding Account, as provided in this Agreement or any Supplement, subject to the
release of the Released Amounts pursuant to Section 2.2(b), or (B) a grant of a
security interest (as defined in the UCC as in effect in the Relevant UCC State)
in, to and under the Trust Property, which grant is enforceable with respect to
the existing Contracts and the related Receivables and the proceeds thereof upon
execution and delivery of this Agreement, and which will be enforceable with
respect to such Contracts and the related Receivables hereafter created and the
proceeds thereof, upon such creation. If this Agreement constitutes the grant of
a security interest to the Trust in such property, upon the filing of the
financing statement described in Section 2.1 and in the case of the Contracts
and the related Receivables hereafter created and the proceeds thereof, upon
such creation, the Trust shall have a first priority perfected security interest
in such property, except for Permitted Liens, subject to the release of the
Released Amounts pursuant to Section 2.2(b). Except as contemplated in this
Agreement or any Supplement, neither the Transferor nor any Person claiming
through or under the Transferor shall have any claim to or interest in the
Collection Account, any Distribution Account, any Series Account and the Excess
Funding Account, except for the Transferor's rights to receive interest accruing
on, and investment earnings in respect of, any such account as provided in this
Agreement (or, if applicable, any Series Account as provided in any Supplement)
and, if this Agreement constitutes the grant of a security interest in such
property, except for the interest of the Transferor in such property as a debtor
for purposes of the UCC as in effect in the Relevant UCC State. The Purchase
Agreement constitutes a valid sale, transfer, assignment, set-over and
conveyance to the Transferor of all right, title and interest of BTFC in and to
the Contracts and the related Receivables purported to be sold thereunder,
whether then existing or thereafter created and the proceeds thereof, subject to
the release of the Released Amounts pursuant to Section 2.1(g) of the Purchase
Agreement. In accordance with Section 5.3 of the Purchase Agreement, the
Transferor is treating such conveyance for all purposes (including, without
limitation, tax and financial accounting purposes) as a sale to it, or to the
extent applicable, as a contribution to its capital on all relevant books,
records, tax returns, financial statements and other applicable documents.
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(iii) The Transferor is not insolvent and will not be rendered
insolvent upon the transfer of the Contracts to the Trust.
(iv) The Transferor is (or, with respect to Contracts arising
after the date hereof, will be) the legal and beneficial owner of all right,
title and interest in and to each Contract and the related Receivable and each
Contract and the related Receivable has been or will be transferred to the Trust
free and clear of any Lien other than Permitted Liens.
(v) All consents, licenses, approvals or authorizations of or
registrations or declarations with any Governmental Authority required in
connection with the transfer of Trust Property to the Trust have been obtained
and are in full force and effect.
(vi) Each Receivable classified as an "Eligible Receivable" by
the Transferor in any document or report delivered hereunder will satisfy the
requirements contained in the definition of Eligible Receivable as of the time
of such document or report.
(vii) Each Contract and the related Receivable then existing
has been conveyed to the Trust free and clear of any Lien of any Person claiming
through or under the Transferor or any of its Affiliates (other than Permitted
Liens) and in compliance, in all material respects, with all Requirements of Law
applicable to the Transferor.
(viii) Each Receivable transferred hereunder has been
originated on a Contract substantially in a form attached as Exhibit B to the
Purchase Agreement, as such form may have been modified or amended subsequent to
the date hereof in accordance with the standards set forth in subsection 2.5(c).
(b) Other Daily Representations and Warranties. On each day on which
any new Contract is purchased by the Transferor, the Transferor shall be deemed
to represent and warrant to the Trust that (A) each Contract and the related
Receivable purchased by the Transferor on such day has been conveyed to the
Trust in compliance, in all material respects, with all Requirements of Law
applicable to the Transferor and free and clear of any Lien of any Person
claiming through or under the Transferor or any of its Affiliates (other than
Permitted Liens) and (B) with respect to each such Contract, all consents,
licenses, approvals or authorizations of or registrations or declarations with,
any Governmental Authority required to be obtained, effected or given by the
Transferor in connection with the conveyance of such Contract and the related
Receivable to the Trust have been duly obtained, effected or given and are in
full force and effect.
(c) Notice of Breach. The representations and warranties set forth in
this Section 2.4 shall survive the transfer and assignment of the respective
Contracts to the Trust. Upon discovery by the Transferor, the Servicer or a
Responsible Officer of the Trustee of a breach of any of the representations and
warranties set forth in this Section 2.4, the party discovering such breach
shall give written notice to the others immediately upon obtaining knowledge of
such breach. The Transferor agrees to cooperate with the Servicer and the
Trustee in attempting to cure any such breach.
(d) Designation of Ineligible Receivables. In the event of a breach
with respect to a Contract or the related Receivable of any representations and
warranties set forth in subsection 2.3(j) or subsections 2.4(a)(iii) through
(viii) or subsection 2.4(b), or in the event that a Receivable is not an
Eligible Receivable on the date of its transfer to the Trust as a result of the
failure to satisfy the conditions set forth in the definition of Eligible
Receivable, such Receivable shall be designated an "Ineligible Receivable" and
shall be assigned an Outstanding Balance of zero for the purpose of determining
the aggregate amount of Principal Receivables on any day; provided, however,
that if such representations and warranties with respect to such Receivable
shall subsequently be true and correct in all material respects as if such
Receivable had been created on such day or such Receivable shall subsequently
satisfy the conditions set forth in the definition of Eligible Receivable, such
Receivable shall be designated an Eligible Receivable, and the Outstanding
Balance of such Receivable shall be included in determining the aggregate amount
of Principal Receivables on and after such subsequent day. On and after the date
of its designation as an Ineligible Receivable, unless it becomes an Eligible
Receivable as provided above, each Ineligible Receivable shall not be given
credit in determining the aggregate amount of Principal Receivables used in the
calculation of any Investor Percentage, the Transferor Percentage or the
Transferor Interest. In the event that on any Business Day the exclusion of an
Ineligible Receivable from the calculation of the Transferor Interest would
cause the Transferor Interest to be reduced below the Minimum Transferor
Interest, the Servicer shall not distribute to the Transferor any Shared
Principal Collections that would otherwise
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be distributed to the Transferor, and the Servicer shall immediately make a
deposit of the Shared Principal Collections that would otherwise be distributed
to the Transferor into the Excess Funding Account in immediately available funds
prior to the next succeeding Business Day in an amount equal to the amount by
which the Transferor Interest would be reduced below the Minimum Transferor
Interest as a result of the exclusion of such Ineligible Receivable. In the
event that (1) a Receivable is designated as an Ineligible Receivable because of
a breach of the representations and warranties set forth in subsection 2.3(j) or
subsections 2.4(a)(iii) through (viii) or subsection 2.4(b) with respect to such
Receivable, (2) as a result of such designation a deposit into the Excess
Funding Account is required pursuant to the preceding sentence, and (3) Shared
Principal Collections that would otherwise be distributed to the Transferor are
insufficient to make such deposit in full, then the Transferor shall make a
deposit into the Excess Funding Account in immediately available funds no later
than the next succeeding Business Day in an amount equal to the amount of such
shortfall. The portion of such deposit allocated to the Investor Certificates of
each Series shall be distributed to the Investor Certificateholders of each
Series in the manner specified in Article IV.
(e) Reassignment of Trust Portfolio. In the event of a breach of any of
the representations and warranties set forth in subsections 2.3(a), (b), (c) and
(d) and 2.4(a)(i) and (ii) with respect to any Series, either the Trustee (if it
has actual knowledge) or the Holders of Investor Certificates evidencing
Undivided Interests aggregating more than 50% of the Invested Amount of such
Series (or, in the case of a Series having more than one Class, each Class of
such Series), by notice then given in writing to the Investor Certificateholders
in accordance with Section 12.3 and the Transferor and the Servicer, if given by
the Trustee, and to the Trustee and the Servicer, if given by the Investor
Certificateholders of such Series, may direct the Transferor to accept
reassignment of Contracts and the related Receivables having Principal
Receivables in an amount equal to the face amount of the Invested Amount to be
repurchased (as specified below) within 30 days of such notice (or within such
longer period as may be specified in such notice), and the Transferor shall be
obligated to accept reassignment of such Contracts and the related Receivables
on a Distribution Date specified by the Transferor (such Distribution Date, the
"Reassignment Date") occurring within such applicable period on the terms and
conditions set forth below; provided, however, that no such reassignment shall
be required to be made, and no notice of such reassignment may be given, if, at
any time during such applicable period, the representations and warranties
contained in subsections 2.3(a), (b), (c) and (d) and subsections 2.4(a)(i) and
(ii) shall then be true and correct in all material respects. The Transferor
shall, on the Transfer Date preceding the Reassignment Date, deposit an amount
(in next day funds) equal to the reassignment deposit amount for such Series in
the related Distribution Account or Series Account, as provided in the related
Supplement, for distribution to the Investor Certificateholders pursuant to
Article XII. The reassignment deposit amount with respect to any Series, unless
otherwise stated in the related Supplement, shall be equal to (i) the then
current Invested Amount of such Series, less the amount, if any, previously
allocated and available for payment of principal to the Certificateholders of
such Series on the Reassignment Date, plus (ii) an amount equal to all interest
accrued but unpaid on the Investor Certificates of such Series at the applicable
Certificate Rate through and including the day preceding the Reassignment Date
(or, to the extent that, pursuant to the related Supplement, the Transferor
otherwise would be obligated to pay accrued interest on any portion of the
Invested Amount repaid on such Reassignment Date only through the end of a
specified interest accrual period, then interest on such portion shall be
payable only through the end of such interest accrual period), less the amount,
if any, previously allocated and available for payment of interest to the
Certificateholders of such Series on the Reassignment Date, plus (iii) any other
amounts accrued and owing as specified in the applicable Supplement. Payment of
the reassignment deposit amount with respect to any Series, and all other
amounts in the Distribution Account or the applicable Series Account in respect
of the preceding Monthly Period, shall be considered a prepayment in full of the
Receivables represented by the Investor Certificates of such Series. On the
Distribution Date following the Transfer Date on which such amount has been
deposited in full into the Distribution Account or the applicable Series
Account, the Contracts and the related Receivables and all monies due or to
become due with respect thereto and all proceeds thereof shall be released to
the Transferor after payment of all amounts otherwise due hereunder on or prior
to such dates and the Trustee shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, representation or
warranty, as shall be prepared by and as are reasonably requested by the
Transferor to vest in the Transferor, or its designee or assignee, all right,
title and interest of the Trust in, to and under such Contracts and the related
Receivables, all monies due or to become due with respect thereto and all
proceeds thereof allocated to such Series pursuant to the related Supplement. If
the Trustee or the Investor Certificateholders of any Series give notice
directing the Transferor to accept reassignment as provided above, the
obligation of the Transferor to accept reassignment of the applicable Contracts
and the related Receivables and pay the reassignment deposit amount pursuant to
this subsection 2.4(e) shall constitute the sole remedy respecting a breach of
the representations and warranties contained in subsections 2.3(a), (b), (c) and
(d) and 2.4(a)(i) and (ii) available to the Investor Certificateholders of such
Series or the Trustee on behalf of the Investor Certificateholders of such
Series. The Trustee shall have no duty to conduct any affirmative investigation
as to the occurrence of any condition
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requiring the repurchase of any Contract and the related Receivable by the
Transferor pursuant to this Agreement or any Supplement or the eligibility of
any Receivable for purposes of this Agreement or any Supplement.
Section 2.5 Covenants of the Transferor. The Transferor hereby
covenants that:
(a) Receivables to be Accounts or General Intangibles. The Transferor
will take no action to cause any Receivable to be evidenced by any "instrument"
(as defined in the UCC as in effect in the Relevant UCC State), except in
connection with the enforcement or collection of a Receivable. Except in such
circumstances, the Transferor will take no action to cause any Receivable to be
anything other than an "account" or "general intangible" not constituting
"chattel paper" (as defined in the UCC as in effect in the Relevant UCC State).
Notwithstanding the foregoing, BTFC's compliance with existing and future
statutes and regulations applicable to BTFC's business shall not constitute a
violation of this covenant, but to the extent that such compliance may result in
the characterization of any evidence of a Receivable as an instrument, the
Transferor shall cause BTFC to undertake all steps necessary to enable the
Transferor and the Trust to obtain a first priority perfected security interest
in such instrument in accordance with the Purchase Agreement and this Agreement.
(b) Security Interests. Except for the conveyances, hereunder, the
Transferor will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any Lien, on the Receivables
(other than Liens relating to the Released Amounts in favor of certain bank
lenders to Bally and its subsidiaries arising pursuant to that certain Third
Amended and Restated Credit Agreement dated as of June 26, 1995, as amended) or
the related Contracts, whether now existing or hereafter created, or any
interest therein; the Transferor will immediately notify the Trustee of the
existence of any such Lien on any Contract or the related Receivable; and the
Transferor shall defend the right, title and interest of the Trust in, to and
under the Contracts and the related Receivables, whether now existing or
hereafter created, against all claims of third parties claiming through or under
the Transferor; provided, however, that nothing in this subsection 2.5(b) shall
prevent or be deemed to prohibit the Transferor from suffering to exist upon any
of the Contracts or the related Receivables any Permitted Lien.
(c) Contracts and Credit and Collection Policies. The Transferor shall
take all actions reasonably within its control to cause BTFC to comply with and
perform its obligations under the Contracts relating to the Receivables and the
Credit and Collection Policy except insofar as any failure to comply or perform
would not materially and adversely affect the rights of the Trust or the
Certificateholders hereunder or under the Certificates. The Transferor may
change, and permit BTFC to change, the terms and provisions of the Contracts or
the Credit and Collection Policy in any respect (i) if it would not, in the
reasonable belief of the Transferor and BTFC, (A) provide for cancellation
rights under the Contracts which would represent a material addition to, or
otherwise reasonably would be viewed as being materially more favorable to the
Obligor than, those in effect on the Closing Date with respect to Series 1996-1,
(B) materially impair the collectibility of the Receivables, or (C) cause,
immediately or with the passage of time, a Pay-Out-Event to occur, unless in
each case such change is required in order to comply with Requirements of Law,
(ii) if the Transferor or BTFC owns a comparable segment of contracts, such
change is made applicable to the comparable segment of the contracts owned by
the Transferor or BTFC, if any, which have characteristics the same as, or
substantially similar to, the Contracts that are the subject of such change, and
(iii) if such change is not made with the intent to materially benefit the
Transferor or BTFC over the Investor Certificateholders or to materially
adversely affect the Investor Certificateholders, except as otherwise restricted
by an endorsement, sponsorship, or other agreement between BTFC and an unrelated
third party or by the terms of the Contracts. Notwithstanding the foregoing, the
Transferor shall not change, and shall not permit BTFC to change, the payment
terms of any Receivable, provided, that BTFC may reduce the balance of
individual Receivables from time to time through allowances (including those
offered in connection with, or otherwise resulting from, cash out programs) and
cancellations, consistent with the Credit and Collection Policies, which
reductions shall constitute Dilutions in accordance with subsection 3.8(a).
(d) [Reserved]
(e) Delivery of Collections. In the event that the Transferor receives
Collections, the Transferor agrees to deposit such Collections into the
Collection Account as soon as practicable after the receipt thereof, but in no
event later than the third Business Day following the Date of Processing
thereof.
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(f) Conveyance of Contracts. The Transferor covenants and agrees that
it will not permit BTFC to convey, assign, exchange or otherwise transfer any
Contract or the related Receivable, to any Person other than the Transferor
prior to the termination of this Agreement pursuant to Article XII; provided,
however, that the Transferor shall not be prohibited hereby from permitting BTFC
to convey, assign, exchange or otherwise transfer a Receivable in connection
with a transaction in which BTFC and its successor agree to comply with
provisions substantially similar to those of Section 7.2, or a transaction which
is effected subsequent to the date as of which BTFC terminates the sale of
Contracts and the related Receivables to the Transferor under the circumstances
provided for in the Purchase Agreement.
(g) Notice of Liens. The Transferor shall notify the Trustee promptly
after becoming aware of any Lien on any Contract or the related Receivable other
than Permitted Liens.
(h) Enforcement of Purchase Agreement. The Transferor agrees to take
all action necessary and appropriate to enforce its rights and claims under the
Purchase Agreement.
(i) Separate Business. Except in connection with the customary
operation of the cash management system as presently in effect, or such future
cash management system as BTFC may from time to time in the ordinary course of
business implement (provided, that any such cash management system shall be
operated such that all transfers of funds are properly documented and the
respective assets and liabilities of BTFC and the Transferor are ascertainable
at all times), for BTFC and its consolidated subsidiaries, the Transferor will
not permit its assets to be commingled with those of BTFC and the Transferor
shall maintain separate corporate records, books of account and banking records
from those of BTFC. The Transferor will not conduct its business in the name of
BTFC and will not permit BTFC to conduct its business in the name of the
Transferor so as not to mislead others as to the identity of the entity with
which those others are concerned. The Transferor will maintain an address and
telephone number distinguishable from those of BTFC. The Transferor will provide
for its own operating expenses and liabilities from its own funds, except for
the organizational expenses of the Transferor which were paid by BTFC. The
Transferor will not hold itself out, or permit itself to be held out, as having
agreed to pay, or as generally being liable for, the debts of BTFC. The
Transferor shall cause BTFC not to hold itself out, or permit itself to be held
out, as having agreed to pay, or as generally being liable for, the debts of the
Transferor, except that the organizational expenses of the Transferor were paid
by BTFC and that BTFC contributed to the Transferor a demand note in connection
with the issuance of Series 1995-1 pursuant to the Original Agreement. The
Transferor will cause any consolidated financial statements of BTFC and its
subsidiaries prepared for the benefit of third parties to disclose, through
appropriate footnotes or otherwise, the separate corporate existence of the
Transferor. The Transferor will not permit BTFC to be actively involved in the
day-to-day management of the Transferor. The Transferor will maintain an arm's
length relationship with BTFC with respect to any transactions between the
Transferor, on the one hand, and BTFC, on the other. The Transferor will cause
its certificate of incorporation to limit the Transferor's activities to,
generally, acquiring, owning, selling and financing receivables and activities
incidental thereto, substantially as set forth in such certificate as of the
Closing Date for Series 1996-1, and will maintain at least one independent
director as provided in such certificate. The Transferor shall otherwise operate
with respect to BTFC, and shall cause BTFC to otherwise operate with respect to
the Transferor, such that the separate corporate existence of the Transferor
would be respected and the assets and liabilities of the Transferor would not be
substantively consolidated with those of BTFC if BTFC were to become subject to
the circumstances described in subsections 10.1(d)(i) or (ii).
(j) Notices Under Purchase Agreement. The Transferor (i) shall promptly
give the Trustee copies of any notices, reports or certificates given or
delivered to the Transferor under either the Purchase Agreement or the
Subsidiary Purchase Agreement, (ii) shall not, without the consents, approvals
and opinions, if any, required by Section 13.1, as if Section 13.1 related to
the Purchase Agreement rather than this Agreement, enter into any amendment,
supplement or other modification to, or waiver of any provision of, the Purchase
Agreement and (iii) shall not permit the addition or removal of a Contract and
the related Receivable to or from the operation of the Purchase Agreement unless
there is a corresponding right or obligation of the Transferor to add or remove
such Contract and related Receivable to or from the Trust.
Section 2.6 Addition of Contracts.
(a) All retail installment sale contracts which meet the definition of
Contracts shall be included as Contracts from and after the date upon which such
Contracts are created and all such Contracts, whether such Contracts are then
existing or thereafter created, shall be transferred automatically to the Trust
upon purchase by the Transferor.
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(b) Receivables relating to Contracts transferred to the Trust shall be
Eligible Receivables if the requirements of clauses (a) through (n) of the
definition of Eligible Receivables are met.
Section 2.7 Release of Contracts Relating to Defaulted
Receivables and Ineligible Receivables. The Trustee shall and does hereby
release all right, title and interest (including without limitation the security
interest evidenced by the financing statements filed in connection with the
issuance of Series 1995-1 under the Original Agreement and additional financing
statements or amendments, if any, filed in connection with the issuance of
Series 1996-1 under this Agreement) in any Contracts (i) relating to Defaulted
Receivables to be sold or otherwise disposed of by the Servicer in accordance
with its customary procedures subsequent to the date any such related Receivable
becomes a Defaulted Receivable, provided, that amounts realized upon such sale
or other disposition shall constitute Recoveries hereunder, (ii) relating to
Ineligible Receivables as to which the Transferor has made any required payment
in respect thereof, provided, that amounts, if any, realized by the Servicer
upon the sale or other disposition of any Ineligible Receivable shall constitute
Transferor Collections hereunder, or (iii) relating to any Receivable the
Outstanding Balance of which has been reduced to zero and as to which the
Trustee has received all amounts due hereunder and under any Supplement in
respect thereof. The Trustee shall, subject to the provisions of Article XI and
without expense to the Trustee, execute such additional forms and documentation,
and perform such additional acts requested by the Servicer or the Person
acquiring such Contracts relating to Defaulted Receivables or any Ineligible
Receivables so released as shall be reasonably necessary to effect such
releases.
Section 2.8 Release of Contracts Relating to Included Clubs. In
the event that subsection 5.1(i) of the Purchase Agreement shall become
applicable in connection with the sale or other disposition of the ownership or
management of an Included Club (as defined in such subsection), and BTFC either
(a) elects to repurchase from the Transferor all Contracts and
the related Receivables owing from Obligors enrolled in such Included Club
pursuant to clause (iii) of such subsection, and in all events subject to the
prior deposit by the Transferor (or by BTFC for the account of the Transferor)
into the Collection Account of an amount equal to the sum of (i) the aggregate
Principal Balances as of the date of such deposit of all Receivables relating to
such Contracts (which shall be treated as Principal Collections), plus (ii) an
amount equal to (A) the weighted average of all interest accrued but unpaid with
respect to all Series then outstanding and allocable to such aggregate Principal
Balances, through and including the day preceding the Distribution Date which
relates to the Monthly Period in which such deposit of principal occurs (or, to
the extent that, pursuant to the related Supplement, the Transferor otherwise
would be obligated to pay accrued interest on any portion of the Invested Amount
of any Series repaid on such Distribution Date only through the end of a
specified interest accrual period, then interest on such portion shall be
payable only through the end of such interest accrual period) (which shall be
treated as Imputed Yield Collections), less (B) the amount, if any, previously
allocated and available for payment of interest to the Certificateholders of
such Series on the related Distribution Date in the Monthly Period in which such
deposit is made, plus (iii) any other amounts accrued and owing as specified in
any applicable Supplement, or
(b) delivers an Officer's Certificate pursuant to clause (iv)
of such subsection stating that, after excluding all Eligible Receivables from
members enrolled in such Included Club, the Transferor Interest (after giving
effect to any amounts excluded therefrom pursuant to any Supplement) would not
be less than the greater of (x) the Minimum Transferor Interest or (y) any
Available Subordination Amount and such action will not otherwise result in the
occurrence of a Pay-Out- Event, and requesting that the Trustee release such
Contracts and the related Receivables (or such Contracts and the Related
Receivables are to be released through a combination of the actions described in
the preceding clauses (a) and (b)),
then the Trustee shall and does hereby release all right, title and interest
(including without limitation the security interest evidenced by the financing
statements filed pursuant to Section 2.1) in any Contracts relating to an
Included Club to be sold to BTFC pursuant to clause (iii) or otherwise released
to BTFC pursuant to clause (iv) of subsection 5.1(i) of the Purchase Agreement.
The Trustee shall, subject to the provisions of Article XI and without expense
to the Trustee, execute such additional forms and documentation, and perform
such additional acts requested by the Transferor or BTFC, as shall be reasonably
necessary to effect such releases.
[End of Article II]
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ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES
Section 3.1 Acceptance of Appointment and Other Matters Relating
to the Servicer.
(a) BTFC agrees to act as the Servicer under this Agreement. The
Investor Certificateholders of each Series by their acceptance of the related
Certificates consent to BTFC acting as Servicer. Notwithstanding the foregoing
or any other provisions of this Agreement or any Supplement, the Investor
Certificateholders consent to an Affiliate of BTFC acting as Servicer hereunder,
in full substitution thereof; provided that such Affiliate shall expressly
assume in writing (unless such assumption occurs by operation of law), by an
agreement supplemental hereto, executed and delivered to the Trustee, the
performance of every covenant and obligation of the Servicer, as applicable
hereunder, and shall in all respects be designated the Servicer under this
Agreement; provided, further, that BTFC will remain jointly and severally liable
for the performance of such covenant and obligation with such Affiliate.
(b) The Servicer shall service and administer the Receivables and shall
collect payments due under the Receivables in accordance with its customary and
usual servicing procedures and, unless the Servicer is a Back-up Servicer or its
agent, the Credit and Collection Policies, and shall have full power and
authority, acting alone or through any party properly designated by it
hereunder, to do any and all things in connection with such servicing and
administration that it may deem necessary or desirable. Without limiting the
generality of the foregoing and subject to Section 10.1, the Servicer is hereby
authorized and empowered (i) unless such power and authority is revoked by the
Trustee on account of the occurrence of a Servicer Default pursuant to Section
10.1, to make payment to or for the account of the Transferor of amounts
otherwise to be deposited in the Collection Account as set forth in this
Agreement, (ii) unless such power and authority is revoked by the Trustee on
account of the occurrence of a Servicer Default pursuant to Section 10.1, to
instruct the Trustee in writing pursuant to the Daily Report or otherwise to
make withdrawals and payments from the Collection Account, any Distribution
Account, any Series Account and the Excess Funding Account, in accordance with
such instructions as set forth in this Agreement, (iii) unless such power and
authority is revoked by the Trustee on account of the occurrence of a Servicer
Default pursuant to Section 10.1, to instruct the Trustee in writing to take any
action permitted or required under any Enhancement at such time as set forth in
this Agreement and any Supplement, (iv) to execute and deliver, on behalf of the
Trust for the benefit of the Certificateholders, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Contracts or the related
Receivables and, after the delinquency of any Receivable and to the extent
permitted under and in compliance with applicable law and regulations, to
commence enforcement proceedings with respect to such Receivable or the related
Contract, (v) to make any filings, reports, notices, applications, registrations
with, and to seek any consents or authorizations from, the Securities and
Exchange Commission and any state securities authority on behalf of the Trust as
may be necessary or advisable to comply with any federal or state securities or
reporting requirements, and (vi) to delegate certain of its servicing,
collection, enforcement and administrative duties hereunder with respect to the
Contracts and the related Receivables to any Person who agrees to conduct such
duties in accordance with the requirements of this Agreement, if such delegation
shall be made by a Back-up Servicer, otherwise in accordance with the Credit and
Collection Policies; provided, however, that the Servicer shall notify the
Trustee in writing of any such delegation; and provided further that the
Servicer shall remain jointly and severally liable with such Person. So long as
the Servicer's power and authority has not been revoked and to the extent
consistent with the provisions of this Agreement, the Trustee agrees that it
shall promptly follow the instructions of the Servicer to withdraw funds from
the Collection Account, any Distribution Account, any Series Account and the
Excess Funding Account, and to take any action required under any Enhancement at
such time as required under this Agreement. The Trustee shall execute at the
Servicer's written request such documents prepared by the Transferor and
acceptable to the Trustee as the Servicer certifies are necessary or appropriate
to enable the Servicer to carry out its servicing and administrative duties
hereunder.
(c) The Servicer agrees that, with respect to all Collections,
Transferor Collections and other Trust Property or proceeds thereof from time to
time received by it, except during the period which precedes the third Business
Day following the Date of Processing with respect to any Collections or
Transferor Collections received, during which period the Servicer may commingle
such Collections and Transferor Collections with its own funds or other property
not constituting Trust Property,
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the Servicer will not commingle Collections, Transferor Collections and other
Trust Property or proceeds thereof from time to time received by it with its own
funds or other property not constituting Trust Property.
(d) The Servicer shall not be obligated to use separate servicing
procedures, offices or employees for servicing the Contracts and the related
Receivables from the procedures, offices and employees used by the Servicer in
connection with servicing other contracts and the related receivables.
Section 3.2 Servicing Compensation. As compensation for its
servicing activities hereunder and reimbursement for its expenses as set forth
in the immediately following paragraph, the Servicer shall be entitled to
receive the Servicing Fee in respect of each Monthly Period prior to the
termination of the Trust pursuant to Section 12.1, payable in arrears on each
related Distribution Date or on such other date as may be specified and in the
manner specified in the applicable Supplement. The portion of the Servicing Fee
allocable to each Series with respect to a Monthly Period shall be the amount
with respect to such Series specified in clause (a) of the definition of
Servicing Fee. The remainder of the Servicing Fee shall be the amount specified
in clause (b) of such definition and shall be paid by the Transferor, or
retained by the Servicer as provided in Article IV, and in no event shall the
Trust, the Trustee, any Enhancement Provider, or the Investor Certificateholders
be liable for the share of the Servicing Fee to be paid by the Transferor;
provided, to the extent that any portion of the Transferor Interest is
subordinated for the benefit of a Series pursuant to the related Supplement, the
Servicing Fee allocable to such subordinated portion may be combined and paid in
conjunction with the Servicing Fee allocable to such Series if so provided in
such Supplement.
The Servicer shall be responsible for its own expenses, which shall
include the amounts due to the Trustee pursuant to Section 11.5 (but only for so
long as BTFC shall be the Servicer) and the reasonable fees and disbursements of
Independent Public Accountants and all other expenses incurred by the Servicer
in connection with its activities hereunder; provided, that the Servicer shall
not be liable for any liabilities, costs or expenses of the Trust, the Investor
Certificateholders or the Certificate Owners arising under any tax law,
including without limitation any federal, state or local income or franchise
taxes or any other tax imposed on or measured by income (or any interest,
penalties or additions with respect thereto or arising from a failure to comply
therewith). The Servicer shall be required to pay such expenses for its own
account and shall not be entitled to any payment therefor other than the
Servicing Fee. In the event that BTFC or any Successor Servicer (other than a
Back-Up Servicer), while the Servicer, fails to pay any amounts due to the
Trustee pursuant to Section 11.5, the Trustee shall be entitled to deduct and
receive such amounts from the Servicing Fee prior to the payment thereof to the
Servicer (but only for so long as BTFC or any Successor Servicer other than a
Back-Up Servicer shall be the Servicer), and the obligation of the Trust to pay
any such amounts to the Servicer shall thereby be fully satisfied.
Section 3.3 Representations, Warranties and Covenants of the
Servicer. BTFC, as initial Servicer, hereby makes, and any Successor Servicer by
its appointment hereunder shall make, the following representations, warranties
and covenants on which the Trustee has relied in accepting the Contracts and the
related Receivables in trust and in authenticating Certificates issued on any
related Closing Date:
(a) Organization and Good Standing. The Servicer is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation or formation and has the power, authority and legal right to own
its properties and conduct its business as such properties are presently owned
and such business is presently conducted, and to execute, deliver and perform
its obligations under this Agreement.
(b) Due Qualification. The Servicer is duly qualified to do business
and is in good standing (or is exempt from such requirements) as a foreign
corporation (or other legal entity) in any state where such qualification is
necessary in order to service the Contracts and the related Receivables as
required by this Agreement and has obtained all necessary licenses and approvals
with respect to the Servicer necessary for the due execution, delivery and
performance by it of this Agreement as required under federal and state law in
order to service the Contracts and the related Receivables as required by this
Agreement, and if the Servicer shall be required by any Requirement of Law to so
qualify or register or obtain such license or approval, then it shall do so
except where the failure to obtain such license or approval does not materially
affect the Servicer's ability to perform its obligations hereunder or the
enforceability of the Contracts and the related Receivables; provided, however,
that, with respect to any Successor Servicer, this representation will be deemed
to be satisfied by such successor Servicer if its provisions are true and
correct within sixty (60) days of the Servicing Transfer Date.
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(c) Due Authorization. The execution and delivery of this Agreement
and the consummation of the transactions provided for herein, have been duly
authorized by the Servicer by all necessary corporate action on the part of the
Servicer.
(d) Binding Obligation. This Agreement and the consummation of the
transactions provided for herein, constitutes a legal, valid and binding
obligation of the Servicer, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect,
affecting the enforcement of creditors' rights in general and as such
enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).
(e) No Violation. The execution and delivery of this Agreement by the
Servicer, and the performance of the transactions contemplated by this Agreement
and the fulfillment of the terms hereof applicable to the Servicer, will not
violate, result in any breach of any of the material terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default under,
any Requirement of Law applicable to the Servicer or any material indenture,
contract, agreement, mortgage, deed of trust or other material instrument to
which the Servicer is a party or by which it is bound.
(f) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Servicer, threatened against the Servicer
before any Governmental Authority (i) asserting the invalidity of this
Agreement, (ii) seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by this Agreement, (iii)
seeking any determination or ruling that would materially and adversely affect
the performance by the Servicer of its obligations under this Agreement, (iv)
seeking any determination or ruling that would materially and adversely affect
the validity or enforceability of this Agreement, seeking any determination or
ruling that would materially and adversely affect the payment or enforceability
of the Receivables taken as a whole or (v) seeking to affect adversely the tax
attributes of the Trust.
(g) Compliance with Requirements of Law. The Servicer shall duly
satisfy all obligations on its part to be fulfilled under or in connection with
each Contract and the related Receivable, will maintain in effect all
qualifications required under Requirements of Law in order to service properly
each Contract and the related Receivable and will comply in all material
respects with all other Requirements of Law in connection with servicing each
Contract and the related Receivable the failure to comply with which would have
a material adverse effect on the Certificateholders or any Enhancement Provider.
(h) Protection of Certificateholders' Rights. Except as may be required
to comply with Requirements of Law, the Servicer shall take no action which, nor
omit to take any action the omission of which, would impair the rights of
Certificateholders in any Contract or the related Receivable or the rights of
any Enhancement Provider, nor shall it reschedule, revise or defer payments due
on any Contract and the related Receivable except as provided in subsection
2.5(c).
(i) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Governmental Authority required in connection
with the execution and delivery of this Agreement and the performance of the
transactions contemplated by this Agreement and the fulfillment of the terms
hereof, have been obtained; provided, however, that the Servicer makes no
representation or warranty regarding state securities or "Blue Sky" laws in
connection with the distribution of the Certificates and if TCB is the Servicer
shall additionally make no representation or warranty regarding federal
securities laws in connection with the distribution of the Certificates.
(j) Rescission or Cancellation. The Servicer shall not permit any
rescission or cancellation of any Contract or the related Receivable except as
ordered by a court of competent jurisdiction or other Governmental Authority or
in accordance with the Credit and Collection Policy or the normal operating
procedures of the Servicer.
(k) Receivables Not to Be Evidenced by Promissory Notes. Except in
connection with its enforcement or collection of a Receivable (in which case any
such promissory note is to be made in the name of the Trust on behalf of the
Certificateholders), the Servicer will take no action to cause any Receivable to
be evidenced by an instrument (as defined in the UCC as in effect in the
Relevant UCC State). Except in such circumstances, the Servicer will take no
action to cause any Receivable to be anything other than an "account" or
"general intangible" not constituting "chattel paper" (as defined in the UCC as
in effect in the Relevant UCC State). Notwithstanding the foregoing, the
Servicer's compliance with existing and future statutes and regulations
applicable to the Servicer's business shall not constitute a violation of this
covenant, but to the extent that such compliance may result in the
characterization of any evidence of a Receivable as an instrument, the Servicer
shall
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undertake all steps necessary to enable the Transferor and the Trust to obtain a
first priority perfected security interest in such instrument in accordance with
the Purchase Agreement and this Agreement.
(l) Principal Place of Business. The Servicer shall at all times
maintain its principal executive offices within the United States, and shall
provide prompt notice to the Trustee and each Rating Agency of any change in the
address of such principal executive office.
Upon discovery by the Transferor, the Servicer or a Responsible Officer
of the Trustee of a breach of any of the foregoing representations, warranties
and covenants, the party discovering such breach shall give written notice to
the others immediately upon obtaining knowledge of such breach.
Section 3.4 Reports and Records for the Trustee.
(a) Daily Records. Upon reasonable prior notice by the Trustee, the
Servicer shall make available at an office of the Servicer (or other location
designated by the Servicer if such records are not accessible by the Servicer at
an office of the Servicer) selected by the Servicer for inspection by the
Trustee or an agent thereof (reasonably acceptable to the Servicer unless
legally required in connection with regulation of the Trustee) on a Business Day
during the Servicer's normal business hours a record setting forth (i) the
Collections on the Receivables, (ii) the amount of Receivables, and (iii) such
other information relating to the Receivables as may reasonably have been
requested in such prior notice to the extent readily available to the Servicer
in the ordinary course of business, in each case for the Business Day preceding
the date of the inspection. The Servicer shall, at all times, maintain its
computer files with respect to the Contracts and the related Receivables in such
a manner so that the Receivables may be specifically identified and, upon
reasonable prior request of the Trustee, shall make available to the Trustee, at
an office of the Servicer (or other location designated by the Servicer if such
computer files are not located at an office of the Servicer) selected by the
Servicer, on any Business Day of the Servicer during the Servicer's normal
business hours, any computer programs, reports, files or data necessary to make
such identification. The Servicer, however, will not notify club members of the
transfer of the Contracts and Receivables to the Transferor or Trust.
(b) Daily Report.
(i) On each Business Day the Servicer shall prepare a
completed Daily Report substantially in the form of Exhibit B hereto.
(ii) The Servicer shall deliver to the Trustee (and
the Paying Agent if other than the Trustee) the Daily Report by 1:00
p.m. (Central Standard time) on each Business Day with respect to
Collections received and activity in the Receivables for the third
preceding Business Day (or, in the case of a Daily Report delivered on
the third Business Day following a Saturday, Sunday or other
non-Business Day, or following the first day of any calendar month if
otherwise a Business Day, the aggregate Collections received and
activity in the Receivables for the preceding Business Day and such
preceding non-Business Days or first day of the month).
(iii) Upon discovery of any error or receipt of
notice of any error in any Daily Report, the Servicer, the Transferor
and the Trustee shall arrange to confer and shall agree upon any
adjustments necessary to correct any such errors. The Servicer, the
Transferor and the Trustee shall each use its best efforts to correct
any such errors as soon as practicable, and in any event by the
Determination Date which relates to the Monthly Period with respect to
which such error occurs. If any such error is material, the Trustee
shall provide notice thereof to each Investor Certificateholder and
shall retain all Collections which would otherwise be paid from the
Trust (or, provided the Investor Certificateholders shall have been
notified of such error, such lesser amount as the Trustee and the
Servicer shall agree to be necessary to cover any such error) in the
Collection Account until such material error is corrected. Unless the
Trustee has received written notice of any error or discrepancy, the
Trustee may rely on each Daily Report delivered to it for all purposes
hereunder.
(c) Settlement Statement. On the Determination Date prior to each
Distribution Date, the Servicer shall, prior to 3:00 p.m. (New York City time)
on such day, deliver to the Trustee (and the Paying Agent if other than the
Trustee) the Settlement Statement for the related Monthly Period substantially
in the form of Exhibit C hereto, including the following
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information (which, in the case of clauses (iii), (iv) and (v) below, will be
stated on the basis of an original principal amount of $1,000 per Certificate):
(i) the aggregate amount of Collections received in the Collection Account for
the Monthly Period preceding such Determination Date and the aggregate amount of
Imputed Yield Collections and the aggregate amount of Principal Collections
processed during such Monthly Period; (ii) with respect to the preceding Monthly
Period for each Series of Certificates the aggregate amount of the applicable
Investor Percentage of Principal Collections, and the aggregate amount of the
applicable Investor Percentage of Imputed Yield Collections; (iii) for each
Series and for each Class within any such Series, the total amount to be
distributed to Investor Certificateholders on the next succeeding Distribution
Date; (iv) for each Series and for each Class within any such Series, the amount
of such distribution to Certificateholders allocable to principal; (v) for each
Series and for each Class within any such Series, the amount of such
distribution to Certificateholders allocable to interest; (vi) for each Series
and for each Class within any such Series, the Investor Default Amount for the
immediately preceding Monthly Period; (vii) for each Series and for each Class
within any such Series, the amount of the Investor Charge-Offs and the amount of
the reimbursements of Investor Charge-Offs for such Distribution Date; (viii)
for each Series, the monthly Servicing Fee for such Distribution Date; (ix) for
each Series, the existing deficit controlled amortization amount, if applicable;
(x) the Aggregate Principal Receivables in the Trust at the close of business on
the last day of the Monthly Period preceding such Distribution Date; (xi) for
each Series and for each Class within any such Series, the Invested Amount at
the close of business on the last day of the Monthly Period immediately
preceding such Distribution Date; (xii) the available amount of any Enhancement
for each Series and for each Class within any such Series, if any; (xiii) for
each Series and for each Class within any such Series, the Pool Factor as of the
end of the related Monthly Period; (xiv) whether a Pay-Out-Event or a
Prospective Pay-Out-Event with respect to any Series, or a Servicer Default,
shall have occurred during or with respect to the related Monthly Period; (xv)
the aggregate amount of Dilutions and the amount of any deposits into the Excess
Funding Account resulting therefrom for the related Monthly Period; (xvi) the
aggregate amount of such Dilutions allocated to each Series and each Class
within any such Series, if applicable; and (xvii) such other calculations as may
be required by any Supplement. The Trustee shall be under no duty to
recalculate, verify or recompute the information supplied to it under this
Section 3.4 or such other matters as are set forth in any Settlement Statement.
The Servicer shall also provide a copy of the Settlement Statement in a prompt
manner to each Rating Agency.
Section 3.5 Annual Servicer's Certificate. The Servicer will
deliver, in accordance with Section 13.5, to the Trustee, any Enhancement
Provider and each Rating Agency, within 100 days of the end of each fiscal year,
beginning with the 1996 fiscal year, an Officer's Certificate substantially in
the form of Exhibit D stating that (a) a review of the activities of the
Servicer during the preceding fiscal year and of its performance under this
Agreement was made under the supervision of the officer signing such certificate
and (b) to such officer's knowledge, based on such review, the Servicer has
fully performed all its obligations under this Agreement throughout such period,
or, if there has been a default in the performance of any such obligation,
specifying each such default known to such officer and the nature and status
thereof and remedies being pursued. A copy of such certificate may be obtained
by any Investor Certificateholder by a request in writing to the Trustee
addressed to the Corporate Trust Office. Notwithstanding the foregoing, the
requirements of this Section 3.5 shall not apply to a Back-Up Servicer which
becomes Successor Servicer hereunder.
Section 3.6 Annual Independent Accountants' Management Letter.
Within 100 days of the end of each fiscal year (beginning with the 1996 fiscal
year), the Servicer at its expense shall cause a firm of Independent Public
Accountants (who may also render other services to the Servicer or the
Transferor) to issue to Bally a "management letter" addressed to members of its
Board of Directors with respect to the prior fiscal year, a copy of which shall
be provided to the Trustee and each Rating Agency, to the effect that such firm
has considered the internal accounting controls of Bally (of which BTFC is a
subsidiary) in connection with their audit of the consolidated financial
statements of Bally for such year, which letter shall identify any internal
control weaknesses that would materially adversely affect the servicing of the
Receivables. Notwithstanding the foregoing, the requirements of this Section 3.6
shall not apply to a Back-Up Servicer which becomes Successor Servicer
hereunder.
Section 3.7 Tax Treatment. The Transferor has structured this
Agreement and the Investor Certificates intending for the Investor Certificates
to qualify under applicable federal, state, local and foreign tax law as
indebtedness. Except to the extent expressly specified to the contrary in any
Supplement, the Transferor, the Servicer, the Trustee, the Holder of the
Exchangeable Transferor Certificate, each Investor Certificateholder and each
Certificate Owner agree to treat and to take no action inconsistent with the
treatment of the Investor Certificates (or beneficial interest therein) as
indebtedness that is secured by the Trust Property for purposes of federal,
state, local and foreign income or franchise taxes and any other tax imposed on
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or measured by income. Each Investor Certificateholder and the Holder of the
Exchangeable Transferor Certificate, by acceptance of its Certificate and each
Certificate Owner, by acquisition of a beneficial interest in a Certificate,
agree to be bound by the provisions of this Section 3.7. Each Certificateholder
agrees that it will cause any Certificate Owner acquiring an interest in a
Certificate through it to agree to comply with this Agreement as to treatment as
indebtedness under applicable tax law, as described in this Section 3.7.
Furthermore, subject to Section 11.11, the Trustee shall treat the Trust as a
security device only, and shall not file tax returns or obtain an employer
identification number on behalf of the Trust.
Section 3.8 Adjustments.
(a) If the Servicer adjusts downward the amount of any Eligible
Receivable because of (i) a cancellation permitted under the terms of the
related Contract, (ii) a rebate, refund or allowance offered to Obligors in
connection with promotional or incentive programs (including without limitation
any cash out programs), (iii) its customary policy of writing off small balances
that do not justify the administrative expense of collection, or (iv) correction
of an erroneous charge to an Obligor, or if the Servicer otherwise adjusts
downward the amount of any Eligible Receivable without receiving Collections
therefor or without charging off such amount as uncollectible, or if any
Eligible Receivable is discovered as having been created fraudulently or with
respect to which the covenant contained in subsection 2.5(b) was breached, then
the amount of any such reduction in the Principal Balance of such Eligible
Receivable or, in the case of an Eligible Receivable created fraudulently or
breach of the covenant in subsection 2.5(b), the entire Principal Balance of
such Eligible Receivable, shall constitute a "Dilution" as of the effective date
of such adjustment downward or discovery. Pursuant to subsection 4.3(b), unless
otherwise specified in any Supplement pursuant to subsection 4.3(d) hereof, the
Dilutions for each Business Day during a Monthly Period shall be allocated
solely to the Holder of the Exchangeable Transferor Certificate and, in any such
case, the Transferor Interest will be reduced by the amount of such Dilutions
allocated (or, if provided in any Supplement, reallocated) to the Holder of the
Exchangeable Transferor Certificate for such Business Day. To the extent
Dilutions are allocated to any Series pursuant to the applicable Supplement, the
Invested Amount of such Series will be reduced by the amount of Dilutions
allocated to such Series for such Business Day unless otherwise paid or
reallocated to the Holder of the Exchangeable Transferor Certificate pursuant to
such Supplement. Regardless of whether Dilutions are allocated to the Holder of
the Exchangeable Transferor Certificate or to one or more Series or Classes
within any such Series, the aggregate amount of the Principal Receivables used
to calculate the Investor Percentages applicable to any Series (and allocation
percentages related to the Available Subordination Amount for such Series, if
applicable) will be reduced by the amount of Dilutions for any Business Day. Any
reduction to the Transferor Interest required by the allocation of Dilutions to
the Holder of the Exchangeable Transferor Certificate shall be made on the
effective date of each such Dilution, or as soon thereafter as reasonably
practicable, but in no event later than the end of the Monthly Period in which
such Dilution arises. In the event that, following any such allocation and
reduction, the Transferor Interest would be less than the Minimum Transferor
Interest, the Servicer shall immediately make a deposit of the Shared Principal
Collections that would otherwise be distributed to the Transferor into the
Excess Funding Account, to the extent allocable to such Series, in immediately
available funds prior to the next succeeding Business Day in an amount equal to
the amount by which the Transferor Interest would be reduced below the Minimum
Transferor Interest as a result of such allocation and reduction. In the event
that (i) following any such allocation and reduction, the Transferor Interest
would be less than the Minimum Transferor Interest, (ii) as a result thereof a
deposit into the Excess Funding Account is required pursuant to the preceding
sentence, and (iii) Shared Principal Collections that would otherwise be
distributed to the Transferor are insufficient to make such deposit in full,
then the Transferor shall make a deposit into the Excess Funding Account in
immediately available funds no later than the next succeeding Business Day in an
amount equal to the amount of such shortfall. Any amount required to be
deposited into the Excess Funding Account in connection with Dilutions (an
"Adjustment Payment") shall be applied in accordance with Article IV and the
terms of each Supplement. Any Adjustment Payment Shortfall resulting from the
failure of the Transferor to make an Adjustment Payment pursuant to this
subsection 3.8(a) shall be allocated among the Series based on the Series
Allocation Percentage.
(b) If (i) the Servicer makes a deposit into the Collection Account in
respect of a Collection of a Receivable and such Collection was received in the
form of a check or by credit card, charge card or debit card which is not
honored for any reason or (ii) the Servicer makes a mistake with respect to the
amount of any Collection and deposits an amount that is less than or more than
the actual amount of such Collection, the Servicer shall appropriately adjust
the amount subsequently deposited into the Collection Account to reflect such
dishonored check or mistake. Any Receivable in respect of which a dishonored
payment is received shall be deemed not to have been paid. Notwithstanding the
first two sentences of this paragraph, any adjustments made pursuant to this
paragraph will be reflected in a current report but will not change any amount
of Collections
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previously reported pursuant to subsection 3.4(b), provided, that if after
giving effect to any adjustment made pursuant to this subsection (b) the
Transferor Interest would be less than the Minimum Transferor Interest, the
Transferor shall deposit into the Excess Funding Account an amount equal to the
lesser of (i) the amount by which the Transferor Interest would be less than the
Minimum Transferor Interest, and (ii) the amount of any overpayment received by
the Transferor from amounts subject to such adjustment.
Section 3.9 Notices to BTFC. In the event that BTFC or any
Affiliate thereof is no longer acting as Servicer, any Successor Servicer
appointed pursuant to Section 10.2 shall deliver or make available to BTFC each
certificate and report required to be prepared, forwarded or delivered
thereafter pursuant to Sections 3.4, 3.5 and 3.6.
Section 3.10 Certain Matters Affecting a Back-Up Servicer as the
Successor Servicer. In the event that a Back-Up Servicer is appointed as
Successor Servicer hereunder, it shall be entitled to the following rights,
remedies and protections in carrying out its duties as Servicer hereunder: (i)
it shall not be liable for any act or omission in carrying out its duties
hereunder except for its own negligence, reckless disregard of its duties, bad
faith or willful misconduct; (ii) it may rely on and be fully protected in
acting or refraining from acting in accordance with any resolution, certificate,
letter, statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond, or other documents received by it which it has reason to
believe is genuine and signed or presented to it by a proper party; (iii) it may
consult with counsel, and any opinion from such counsel (so long as such counsel
is not an employee of the Successor Servicer or an employee of an Affiliate of
the Successor Servicer) shall be full and complete authorization and protection
in respect of any action taken, suffered, or omitted by the Successor Servicer
in good faith in accordance with such opinion; and (iv) it shall not be required
to expend or risk its own funds or otherwise incur financial liability in the
performance of its duties hereunder if it reasonably believes that the repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
[End of Article III]
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ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.1 Rights of Certificateholders. Each Series of Investor
Certificates shall represent Undivided Interests in the Trust, including the
benefits of any Enhancement issued with respect to such Series and the right to
receive the Collections and other amounts at the times and in the amounts
specified in this Article IV to be deposited in the Investor Accounts or to be
paid to the Investor Certificateholders of such Series; provided, however, that
the aggregate interest represented by such Certificates at any time in the
Principal Receivables and other Trust Property shall not exceed an amount equal
to the Invested Amount of such Certificates. The Exchangeable Transferor
Certificate shall represent the remaining undivided interest in the Trust,
including the right to receive the Collections, the Transferor Collections and
other amounts at the times and in the amounts specified in this Article IV to be
paid to the Holder of the Exchangeable Transferor Certificate; provided,
however, that the aggregate interest represented by such Certificate at any time
in the Principal Receivables shall not exceed the Transferor Interest at such
time and such Certificate shall not represent any interest in the Investor
Accounts, except as provided in this Agreement, or the benefits of any
Enhancement issued with respect to any Series.
Section 4.2 Establishment of Accounts.
(a) The Collection Account. The Trustee, for the benefit of the
Certificateholders, shall cause to be established and maintained in the name of
the Trustee, on behalf of the Certificateholders, a segregated trust account
(the "Collection Account") within its corporate trust department, which shall be
a Qualified Account within the meaning of clause (a) of the definition thereof,
and which shall bear a designation clearly indicating that such account is the
Collection Account and that the funds deposited therein are held in trust for
the benefit of the Certificateholders. The Trustee shall possess all right,
title and interest in all funds on deposit from time to time in the Collection
Account and in all proceeds thereof. The Collection Account shall, except as
otherwise provided herein, be under the sole dominion and control of the Trustee
for the benefit of the Certificateholders. Pursuant to subsection 3.1(b), the
Servicer shall have the power, revocable by the Trustee upon the occurrence of a
Servicer Default pursuant to Section 10.1, to make payment to or for the account
of the Transferor of amounts otherwise to be deposited in the Collection Account
as set forth in this Agreement, and to instruct the Trustee in writing pursuant
to the Daily Report or otherwise to make withdrawals and payments from the
Collection Account for the purpose of carrying out the Servicer's or the
Trustee's duties under this Agreement or any Supplement. If, at any time, the
Collection Account ceases to be a Qualified Account by reason of the Trustee
holding such account, then the Trustee shall establish within 10 Business Days a
new Collection Account as a Qualified Account (meeting the requirements of
clause (a), (b) or (c) of such definition), transfer any cash and/or investments
to such new Collection Account, and from the date such new Collection Account is
established, it shall be the "Collection Account."
(b) Distribution Accounts. The Trustee, for the benefit of the Investor
Certificateholders of each Series, shall cause to be established and maintained
in the name of the Trustee, on behalf of the Investor Certificateholders of such
Series, a segregated trust account for each Series (a "Distribution Account")
within its corporate trust department, which shall be a Qualified Account within
the meaning of clause (a) of the definition thereof, and which shall bear a
designation clearly indicating that such account is a Distribution Account and
that the funds deposited therein are held in trust for the benefit of the
Investor Certificateholders of such Series. The Trustee shall possess all right,
title and interest in all funds on deposit from time to time in each
Distribution Account and in all proceeds thereof. Each Distribution Account
shall, except as otherwise provided herein, be under the sole dominion and
control of the Trustee for the benefit of the Investor Certificateholders of the
related Series. Pursuant to the authority granted to the Paying Agent herein,
the Paying Agent shall have the power, revocable by the Trustee, to make
withdrawals and payments from each Distribution Account for the purpose of
carrying out the Paying Agent's duties hereunder. If, at any time, a
Distribution Account ceases to be a Qualified Account by reason of the Trustee
holding such account, then the Trustee shall establish within 10 Business Days a
new Distribution Account as a Qualified Account (meeting the requirements of
clause (a), (b) or (c) of such definition), transfer any cash and/or investments
to such new Distribution Account, and from the date such new Distribution
Account is established, it shall be the "Distribution Account" for the related
Series.
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(c) The Excess Funding Account. The Trustee, for the benefit of the
Certificateholders, shall cause to be established and maintained in the name of
the Trustee, on behalf of the Certificateholders, a segregated trust account
(the "Excess Funding Account") within its corporate trust department, which
shall be a Qualified Account within the meaning of clause (a) of the definition
thereof, and which shall bear a designation clearly indicating that such account
is the Excess Funding Account and that the funds deposited therein are held in
trust for the benefit of the Certificateholders. The Trustee shall possess all
right, title and interest in all funds on deposit from time to time in the
Excess Funding Account and in all proceeds thereof. The Excess Funding Account
shall, except as otherwise provided herein (including without limitation in
subsection 4.3(f)), be under the sole dominion and control of the Trustee for
the benefit of the Certificateholders. Pursuant to subsection 3.1(b), the
Servicer shall have the power, revocable by the Trustee upon the occurrence of a
Servicer Default pursuant to Section 10.1, to instruct the Trustee in writing
pursuant to the Daily Report or otherwise to make withdrawals and payments from
the Excess Funding Account for the purpose of carrying out the Servicer's or the
Trustee's duties under this Agreement or any Supplement. If, at any time, the
Excess Funding Account ceases to be a Qualified Account by reason of the Trustee
holding such account, then the Trustee shall establish within 10 Business Days a
new Excess Funding Account as a Qualified Account and otherwise meeting the
conditions specified above, transfer any cash and/or any investments to such new
Excess Funding Account and from the date such new Excess Funding Account is
established, it shall be the "Excess Funding Account."
(d) Administration of the Collection Account. Funds on deposit in the
Collection Account shall at all times be invested by the Trustee in Cash
Equivalents in accordance with written instructions from the Servicer as
provided below or, in the absence of such instructions, in the Designated Cash
Equivalent. Any such investment shall mature and such funds shall be available
for withdrawal on or prior to the Transfer Date following the Monthly Period in
which such funds were processed for collection. The Trustee shall maintain for
the benefit of the Investor Certificateholders possession of the negotiable
instruments or securities evidencing the Cash Equivalents described in clause
(a) of the definition thereof from the time of purchase thereof until the time
of sale or maturity. To the extent such Cash Equivalents are held in book-entry
form, the Trustee shall cause the book-entry registration with respect thereto
to show that the ownership of such Cash Equivalents is in the name of the
Trustee or its financial intermediary. All interest and earnings (net of losses
and investment expenses) on funds on deposit in the Collection Account shall be
retained in the Collection Account and shall be treated as Imputed Yield
Collections from the Monthly Period in which such interest and earnings were
actually deposited into the Collection Account. Subject to the restrictions set
forth above, the Servicer, or a Person designated in writing by the Servicer, of
which the Trustee shall have received written notification, shall have the
authority to instruct the Trustee with respect to the investment of funds on
deposit in the Collection Account. Any investment instructions to the Trustee
shall be in writing, and shall be given no later than 1:00 p.m. (Central
Standard Time) on a Business Day that such investment is proposed to be made.
All interest and earnings (net of losses and investment expenses) on funds on
deposit in the Collection Account, in the Excess Funding Account and, unless
otherwise provided in the applicable Supplement, on any other Investor Account
established and maintained from time to time, shall be reported for federal and
applicable state income tax purposes under the federal tax identification number
of the Transferor as income of the Transferor.
(e) Status of Certain Investments in Trust Accounts. The Transferor
agrees and acknowledges that the Trustee is to have "control" (within the
meaning of Section 8-102 of the UCC as enacted in Illinois) of investments held
in the Collection Account, any Distribution Account, the Excess Funding Account
or any Series Account, which are comprised of "Investment Property" (within the
meaning of Section 9-115 of the UCC as enacted in Illinois) for all purposes of
this Agreement.
Section 4.3 Collections and Allocations.
(a) Collections. For purposes of the deposits to the Collection Account
hereinafter provided for, the Servicer may, at its option, make net deposits
such that the Servicer need not deposit the Transferor Collections, or any other
amounts allocated to the Exchangeable Transferor Certificate into the Collection
Account unless otherwise provided in any Supplement, and if making such net
deposits shall pay, or be deemed to pay, the Transferor Collections and such
other amounts to the Holder of the Exchangeable Transferor Certificate.
Obligors shall be directed to make payments on the Receivables to the
Servicer who shall deposit all such payments, to the extent constituting either
Collections or Transferor Collections on the Receivables, in the Collection
Account no later than the third Business Day following the Date of Processing
thereof, subject to the right of the Servicer to make net deposits
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as provided above. Prior to remitting all such Collections and Transferor
Collections (as identified by the Servicer) to the Collection Account, the
Servicer shall identify the amounts included within such payments from Obligors
as constitute Released Amounts and, in accordance with subsection 2.1(h) of the
Purchase Agreement, the Transferor hereby authorizes and directs the Servicer,
for so long as BTFC shall be the Servicer, to retain all such Released Amounts
for its own account (provided, that if BTFC shall not be the Servicer, the
Servicer shall remit such Released Amounts to BTFC unless otherwise directed by
the Transferor).
The Servicer shall allocate such Collections and Transferor Collections
to each Series of Investor Certificates and to the Holder of the Exchangeable
Transferor Certificate in accordance with this Article IV and shall cause the
Trustee to withdraw the required amounts from the Collection Account or pay such
amounts to the Holder of the Exchangeable Transferor Certificate in accordance
with this Article IV. Pursuant to authority granted to it pursuant to subsection
3.1(b), the Servicer shall have the power, revocable by the Trustee, to withdraw
or pay, or to instruct the Trustee to withdraw or pay, such amounts for the
purpose of carrying out the Servicer's or the Trustee's duties hereunder. The
Servicer shall make such deposits or payments on the date indicated herein by
wire transfer or as otherwise provided in the Supplement for any Series of
Certificates with respect to such Series.
(b) Allocations for the Exchangeable Transferor Certificate. Throughout
the existence of the Trust, unless otherwise stated in any Supplement, with
respect to each Business Day the Servicer shall allocate to the Holder of the
Exchangeable Transferor Certificate an amount equal to the product of the
Transferor Percentage and each of (i) the aggregate amount of Imputed Yield
Collections which are deposited in the Collection Account with respect to such
Business Day, and shall pay such amount (together with any corresponding amount
allocable to the Holder of the Exchangeable Transferor Certificate pursuant to
subsection 4.3(c)) to the Holder of the Exchangeable Transferor Certificate on
such date of deposit, (ii) the aggregate amount of Principal Collections which
are deposited into the Collection Account with respect to such Business Day, and
shall pay such amount (together with any corresponding amount allocable to the
Holder of the Exchangeable Transferor Certificate pursuant to subsection 4.3(c))
to the Holder of the Exchangeable Transferor Certificate on such date of
deposit, and (iii) the aggregate Default Amount with respect to all Defaulted
receivables for such Business Day, and shall reduce the Transferor Interest by
such amount (together with any corresponding amount allocable to the Holder of
the Exchangeable Transferor Certificate pursuant to subsection 4.3(c)), and also
shall allocate to the Holder of the Exchangeable Transferor Certificate 100% of
the aggregate Dilutions for such Business Day, and shall reduce the Transferor
Interest by such amount as provided in subsection 3.8(a), provided, however,
that unless otherwise stated in any Supplement, amounts payable to the Holder of
the Exchangeable Transferor Certificate pursuant to either clause (i) or (ii)
above shall instead be deposited in the Excess Funding Account to the extent
necessary to prevent the Transferor Interest from being less than the Minimum
Transferor Interest. In addition, throughout the existence of the Trust, unless
otherwise stated in any Supplement, with respect to each Business Day the
Servicer shall allocate to the Holder of the Exchangeable Transferor Certificate
an amount equal to all Transferor Collections which are deposited into the
Collection Account, and shall pay such amount to the Holder of the Exchangeable
Transferor Certificate on such date of deposit.
(c) Allocations for Available Subordination Amounts. To the extent that
on any Business Day one or more outstanding Series of Certificates has the
benefit of a related Available Subordination Amount, then Principal Collections,
Imputed Yield Collections, Defaulted Receivables and, if provided in the related
Supplement, Dilutions for such Business Day shall be allocated to the Available
Subordination Amount for each such Series based on the ASA Allocation Percentage
to be used for such category of Collections or Receivables for such Business Day
as specified in the related Supplement. The amounts so allocated for each
category of Collections or Receivables shall be further allocated to the Holder
of the Exchangeable Transferor Certificate, combined with the amounts in each
such category otherwise allocated to the Holder of the Exchangeable Transferor
Certificate and treated as provided in subsection 4.3(b) with respect to each
such category on such day, except as otherwise provided in the Supplement for
any such Series.
(d) Allocation for Series. Throughout the existence of the Trust,
unless otherwise stated in any Supplement, with respect to each Business Day,
(i) the amount of Imputed Yield Collections which are deposited in the
Collection Account with respect to such Business Day and which are allocable to
each Series shall be determined by multiplying the aggregate amount of such
Imputed Yield Collections by the Floating Allocation Percentage for such Series,
(ii) the amount of Principal Collections which are deposited in the Collection
Account with respect to such Business Day and which are allocable to each Series
shall be determined by multiplying the aggregate amount of such Principal
Collections by (A) during the Revolving Period for a
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Series, the Floating Allocation Percentage for such Series and (B) during any
Amortization Period for a Series, the Fixed/Floating Allocation Percentage for
such Series, (iii) the aggregate Default Amount with respect to all Defaulted
Receivables for such Business Day which are allocable to each Series shall be
determined by multiplying such aggregate Default Amount by the Floating
Allocation Percentage for such Series, (iv) the Dilutions, if any, allocable to
each Series shall be determined in the manner stated in the related Supplement
and (v) Adjustment Payment Shortfalls, if any, shall be allocated among Series
based on the Series Allocation Percentage.
The Servicer shall, prior to the close of business on the day any
Collections are deposited in the Collection Account, cause the Trustee to
withdraw the required amounts from the Collection Account and cause the Trustee
to deposit such amounts into the Excess Funding Account or any Series Account or
pay such amounts to the Holder of the Exchangeable Transferor Certificate in
accordance with the provisions of this Article IV.
(e) Unallocated Principal Collections; Excess Funding Account. On each
Business Day, Shared Principal Collections shall be allocated to each
outstanding Series pro rata based on the Principal Shortfall, if any, for each
such Series. The Servicer shall pay any remaining Shared Principal Collections
on such Business Day to the Transferor; provided, that if the Transferor
Interest (after giving effect to any amounts excluded therefrom pursuant to any
Supplement) as determined on such Business Day does not exceed the Minimum
Transferor Interest, then such remaining Shared Principal Collections shall be
deposited in the Excess Funding Account to the extent necessary to increase the
Transferor Interest above the Minimum Transferor Interest; provided, further,
that if an Amortization Period has commenced and is continuing with respect to
more than one outstanding Series, such remaining Shared Principal Collections
shall be allocated to such Series pro rata based on the Investor Percentage for
Principal Collections applicable for such Series.
(f) Amounts in Excess Funding Account. Amounts on deposit in the Excess
Funding Account on any Business Day shall be invested by the Trustee in Cash
Equivalents in accordance with written instructions from the Servicer (which
instructions shall satisfy the requirements of subsection 4.2(d) with respect to
instructions given thereunder) or, in the absence of such instructions, in the
Designated Cash Equivalent. Any such investment shall mature and such funds
shall be available for withdrawal on or prior to the next Business Day on which
amounts may be released from the Excess Funding Account. All interest and
earnings (net of losses and investment expenses) on funds on deposit in the
Excess Funding Account shall be deposited in the Collection Account and treated
as Imputed Yield Collections, such deposit to be made no later than the last day
of the Monthly Period in which such earnings arise. If on any Business Day other
than a Business Day on which a a Pay- Out-Event or Prospective Pay-Out-Event has
occurred and is continuing, the Transferor Interest (after giving effect to any
amounts excluded therefrom pursuant to any Supplement) is greater than the
Minimum Transferor Interest, amounts on deposit in the Excess Funding Account
may, at the option of the Transferor, be released to the Holder of the
Exchangeable Transferor Certificate to the extent of such excess. On the first
Business Day of the Rapid Amortization Period for any Series, funds on deposit
in the Excess Funding Account shall be deposited into the Distribution Account
for such Series to the extent of the lesser of (i) the Invested Amount of such
Series and (ii) the amount then on deposit in the Excess Funding Account,
provided, that if any other Series is then outstanding, such deposit into the
Distribution Account shall be limited to an amount equal to the Series
Allocation Percentage (for the Series beginning its Rapid Amortization Period)
of the amount then on deposit in the Excess Funding Account if, after giving
effect to a deposit of the full amount, the Transferor Interest would be less
than the Minimum Transferor Interest. In the event that more than one Series
begins its Rapid Amortization Period at the same time, subject to the proviso to
the preceding sentence amounts shall be paid out of the Excess Funding Account
to each such Series pro rata based on the Investor Percentage for Principal
Collections applicable for such Series.
[THE REMAINDER OF ARTICLE IV IS RESERVED AND SHALL BE SPECIFIED IN
ANY SUPPLEMENT WITH RESPECT TO ANY SERIES]
[End of Article IV]
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ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY SUPPLEMENT
WITH RESPECT TO ANY SERIES]
[End of Article V]
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ARTICLE VI
THE CERTIFICATES
Section 6.1 The Certificates. Subject to Section 6.10, the
Investor Certificates of each Series and any Class shall be issued in fully
registered form (the "Registered Certificates"), and shall be substantially in
the form of the exhibits with respect thereto attached to the related
Supplement. The Exchangeable Transferor Certificate shall be substantially in
the form of Exhibit A. The Investor Certificates and the Exchangeable Transferor
Certificate shall, upon issue pursuant hereto or to Section 6.9 or Section 6.10,
be executed and delivered by the Transferor to the Trustee for authentication
and redelivery as provided in Sections 2.1 and 6.2. Any Investor Certificate
shall be issuable in a minimum denomination of $1,000,000 Undivided Interest and
integral multiples of $1,000 in excess thereof, unless otherwise specified in
any Supplement, and shall be issued upon original issuance in an original
aggregate principal amount equal to the Initial Invested Amount. The
Exchangeable Transferor Certificate shall be issued as a single certificate.
Each Certificate shall be executed by manual or facsimile signature on behalf of
the Transferor by its President or any Vice President. Certificates bearing the
manual or facsimile signature of the individual who was, at the time when such
signature was affixed, authorized to sign on behalf of the Transferor or the
Trustee shall not be rendered invalid, notwithstanding that such individual has
ceased to be so authorized prior to the authentication and delivery of such
Certificates or does not hold such office at the date of such Certificates. No
Certificate shall be entitled to any benefit under this Agreement, or be valid
for any purpose, unless there appears on such Certificate a certificate of
authentication substantially in the form provided for herein, executed by or on
behalf of the Trustee by the manual signature of a duly authorized signatory,
and such certificate upon any Certificate shall be conclusive evidence, and the
only evidence, that such Certificate has been validly issued and duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication.
Section 6.2 Authentication of Certificates. Contemporaneously
with the initial assignment and transfer of the Receivables, whether now
existing or hereafter created and the other components to the Trust, the Trustee
shall authenticate and deliver the initial Series of Investor Certificates, upon
the written order of the Transferor. Upon the issuance of such Investor
Certificates, such Investor Certificates shall be validly issued, fully paid and
non-assessable. The Trustee shall authenticate and deliver the Exchangeable
Transferor Certificate to the Transferor simultaneously with its delivery of the
initial Series of Investor Certificates. Upon an Exchange as provided in Section
6.9 and the satisfaction of certain other conditions specified therein, the
Trustee shall authenticate and deliver the Investor Certificates of additional
Series (with the designation provided in the related Supplement), upon the
written order of the Transferor. Upon the written order of the Transferor, the
Certificates of any Series shall be duly authenticated by or on behalf of the
Trustee, in authorized denominations equal to (in the aggregate) the Initial
Invested Amount of such Series of Investor Certificates. If specified in the
related Supplement for any Series, the Trustee shall authenticate Book-Entry
Certificates that are issued upon original issuance thereof, upon the written
order of the Transferor, to a Clearing Agency or its nominee as provided in
Section 6.10.
Section 6.3 Registration of Transfer and Exchange of Certificates
(a) The Trustee shall cause to be kept at the office or agency to be
maintained by a transfer agent and registrar (the "Transfer Agent and
Registrar") in accordance with the provisions of Section 11.16, a register (the
"Certificate Register") in which, subject to such reasonable regulations as it
may prescribe, the Transfer Agent and Registrar shall provide for the
registration of the Investor Certificates of each Series (unless otherwise
provided in the related Supplement) and of transfers and exchanges of the
Investor Certificates as herein provided. Whenever reference is made in this
Agreement to the transfer or exchange of the Certificates by the Trustee, such
reference shall be deemed to include the transfer or exchange on behalf of the
Trustee by a Transfer Agent and Registrar. The Trustee is hereby initially
appointed Transfer Agent and Registrar for the purposes of registering the
Investor Certificates and transfers and exchanges of the Investor Certificates
as herein provided. Any reference in this Agreement to the Transfer Agent and
Registrar shall include any co-transfer agent and co-registrar unless the
context otherwise requires. The Trustee shall be permitted to resign as Transfer
Agent and Registrar upon 30 days' written notice to the Servicer. In the event
that the Trustee shall no longer be the Transfer Agent and Registrar, the
Transferor shall appoint a successor Transfer Agent and Registrar. If any Series
with respect to which Book Entry Certificates were originally issued is no
longer issued as Book-Entry Certificates, then the Servicer may appoint a
successor Transfer Agent and Registrar.
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Upon surrender for registration of transfer of any Certificate at any
office or agency of the Transfer Agent and Registrar maintained for such
purpose, the Transferor shall execute, subject to the provisions of subsection
6.3(c), and the Trustee shall (unless the Transfer Agent and Registrar is
different than the Trustee, in which case the Transfer Agent and Registrar
shall) authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates in authorized denominations of like
aggregate Undivided Interests.
At the option of any Holder of Registered Certificates, Registered
Certificates may be exchanged for other Registered Certificates of the same
Series in authorized denominations of like aggregate Undivided Interests in the
Trust, upon surrender of the Registered Certificates to be exchanged at any
office or agency of the Transfer Agent and Registrar maintained for such
purpose.
Whenever any Investor Certificates of any Series are so surrendered for
exchange, the Transferor shall execute, and the Trustee shall (unless the
Transfer Agent and Registrar is different than the Trustee, in which case the
Transfer Agent and Registrar shall) authenticate and deliver, the Investor
Certificates of such Series which the Certificateholder making the exchange is
entitled to receive. Every Investor Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in a form satisfactory to the Trustee and the Transfer
Agent and Registrar duly executed by the Certificateholder thereof or his
attorney-in-fact duly authorized in writing.
The preceding provisions of this Section 6.3 notwithstanding, the
Trustee or the Transfer Agent and Registrar, as the case may be, shall not be
required to register the transfer of or exchange any Investor Certificate of any
Series for the period from the Record Date preceding the due date for any
payment to the Distribution Date with respect to the Investor Certificates of
such Series.
Unless otherwise provided in the related Supplement, no service charge
shall be made for any registration of transfer or exchange of Certificates, but
the Transfer Agent and Registrar may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer or exchange of Certificates.
All Investor Certificates surrendered for registration of transfer or
exchange shall be cancelled by the Transfer Agent and Registrar and disposed of
in a manner satisfactory to the Trustee.
The Transferor shall execute and deliver to the Trustee or the Transfer
Agent and Registrar, as applicable, Registered Certificates in such amounts and
at such times as are necessary to enable the Trustee to fulfill its
responsibilities under this Agreement and the Certificates.
(b) Except as provided in Section 6.9 or 7.2 or in any Supplement, in
no event shall the Exchangeable Transferor Certificate or any interest therein
be transferred, sold, exchanged, pledged, participated or otherwise assigned
hereunder, in whole or in part, unless the Transferor shall have consented in
writing to such transfer and unless the Trustee shall have received (i)
confirmation in writing that the Rating Agency Condition shall have been
satisfied with respect to such transfer and (ii) an Opinion of Counsel that such
transfer does not (A) adversely affect the conclusions reached in any of the
federal income tax opinions issued in connection with the original issuance of
any Series of Investor Certificates or (B) result in a taxable event to the
Holders of any such Series.
(c) Unless otherwise provided in the related Supplement, registration
of transfer of Registered Certificates containing a legend relating to the
restrictions on transfer of such Registered Certificates (which legend shall be
set forth in the Supplement relating to such Investor Certificates) shall be
effected only if the conditions set forth in such related Supplement are
satisfied, including without limitation the delivery of any certification or
opinion of counsel required thereunder.
(d) The Transfer Agent and Registrar will maintain at its expense in
the Borough of Manhattan, The City of New York, an office or offices or an
agency or agencies where Investor Certificates of such Series may be surrendered
for registration of transfer or exchange.
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(e) Prior to the transfer of any portion of a Transferor Retained
Class, the Trustee shall have received an Opinion of Counsel to the effect that
such proposed transfer will not adversely affect the federal or any then
Applicable Tax State income tax characterization of any outstanding Series of
Investor Certificates or the taxability (or tax characterization) of the Trust
under federal or any then Applicable Tax State income tax laws.
Section 6.4 Mutilated, Destroyed, Lost or Stolen Certificates. If
(a) any mutilated Certificate is surrendered to the Transfer Agent and
Registrar, or the Transfer Agent and Registrar receives evidence to its
satisfaction of the destruction, loss or theft of any Certificate and (b) there
is delivered to the Transfer Agent and Registrar and the Trustee such written
security or indemnity as may be required by them to hold each of them and the
Trust harmless (provided that if the Holder is a "Qualified Institutional Buyer"
within the meaning of Rule 144A under the Securities Act the Trustee may, in its
reasonable discretion, accept an unsecured indemnity), then, in the absence of
notice to the Trustee that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall (unless the Transfer Agent and Registrar is
different from the Trustee, in which case the Transfer Agent and Registrar
shall) authenticate and deliver (in compliance with applicable law), in exchange
for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a
new Certificate of like tenor and aggregate Undivided Interest. In connection
with the issuance of any new Certificate under this Section 6.4, the Trustee or
the Transfer Agent and Registrar may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Trustee
and the Transfer Agent and Registrar) connected therewith. Any duplicate
Certificate issued pursuant to this Section 6.4 shall constitute complete and
indefeasible evidence of ownership in the Trust, as if originally issued,
whether or not the lost, stolen or destroyed Certificate shall be found at any
time.
Section 6.5 Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Trustee, the Paying Agent, the
Transfer Agent and Registrar and any agent of any of them may treat the Person
in whose name any Certificate is registered as the owner of such Certificate for
the purpose of receiving distributions pursuant to Article V (as described in
any Supplement) and Article XII and for all other purposes whatsoever, and
neither the Trustee, the Paying Agent, the Transfer Agent and Registrar nor any
agent of any of them shall be affected by any notice to the contrary; provided,
however, that in determining whether the Holders of Investor Certificates
evidencing the requisite Undivided Interests have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Investor
Certificates owned by the Transferor, the Servicer or any Affiliate thereof
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
Investor Certificates which a Responsible Officer in the Corporate Trust Office
of the Trustee knows to be so owned shall be so disregarded. Investor
Certificates so owned that have been pledged in good faith shall not be
disregarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Investor Certificates
and that the pledgee is not the Transferor, the Servicer or an Affiliate
thereof.
Section 6.6 Appointment of Paying Agent.
(a) The Paying Agent shall make distributions to Investor
Certificateholders from the appropriate account or accounts maintained for the
benefit of Certificateholders as specified in this Agreement or the related
Supplement for any Series pursuant to Articles IV and V hereof. Any Paying Agent
shall have the revocable power to withdraw funds from such appropriate account
or accounts for the purpose of making distributions referred to above. The
Trustee (or the Servicer if the Trustee is the Paying Agent) may revoke such
power and remove the Paying Agent, if the Trustee (or the Servicer if the
Trustee is the Paying Agent) determines in its sole discretion that the Paying
Agent shall have failed to perform its obligations under this Agreement in any
material respect or for other good cause. The Paying Agent, unless the
Supplement with respect to any Series states otherwise, shall initially be the
Trustee. The Trustee shall be permitted to resign as Paying Agent upon 30 days'
written notice to the Servicer. Upon the resignation of the Paying Agent, if the
Paying Agent was not the Trustee, the Trustee shall be the successor Paying
Agent unless and until another successor has been appointed as Paying Agent. In
the event that the Trustee shall no longer be the Paying Agent, the Transferor
shall promptly appoint a successor to act as Paying Agent (which shall be a bank
or trust company). Any reference in this Agreement to the Paying Agent shall
include any co-paying agent unless the context requires otherwise.
(b) The Paying Agent (if other than the Trustee) shall execute and
deliver to the Trustee an instrument in which such Paying Agent shall agree with
the Trustee that such Paying Agent will hold all sums, if any, held by it for
payment to the Certificateholders in trust for the benefit of the
Certificateholders entitled thereto and waive all rights of setoff the Paying
Agent
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may have against any sums held by it until such sums shall be paid to such
Certificateholders and shall agree, and if the Trustee is the Paying Agent it
hereby agrees, that it shall comply with all requirements of the Internal
Revenue Code regarding the withholding by the Trustee of payments in respect of
federal income taxes due from Certificate Owners.
Section 6.7 Access to List of Certificateholders' Names and
Addresses. The Trustee will furnish or cause to be furnished by the Transfer
Agent and Registrar to the Servicer or the Paying Agent, within five Business
Days after receipt by the Trustee of a request therefor from the Servicer or the
Paying Agent, respectively, in writing, a list in such form as the Servicer or
the Paying Agent may reasonably require, of the names and addresses of the
Investor Certificateholders as of the most recent Record Date for payment of
distributions to Investor Certificateholders. Unless otherwise provided in the
related Supplement, Holders of Investor Certificates evidencing Undivided
Interests aggregating not less than 10% of the Invested Amount of the Investor
Certificates of any Series (the "Applicants") may apply in writing to the
Trustee, and if such application states that the Applicants desire to
communicate with other Investor Certificateholders of any Series with respect to
their rights under this Agreement or under the Investor Certificates and is
accompanied by a copy of the communication which such Applicants propose to
transmit, then the Trustee, after having been adequately indemnified by such
Applicants for its costs and expenses, shall afford or shall cause the Transfer
Agent and Registrar to afford such Applicants access during normal business
hours to the most recent list of Certificateholders held by the Trustee and
shall give the Servicer notice that such request has been made, within five
Business Days after the receipt of such application. Such list shall be as of a
date no more than 45 days prior to the date of receipt of such Applicants'
request. Every Certificateholder, by receiving and holding a Certificate, agrees
with the Trustee that neither the Trustee, the Transfer Agent and Registrar, nor
any of their respective agents shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the
Certificateholders hereunder, regardless of the source from which such
information was obtained.
Section 6.8 Authenticating Agent.
(a) The Trustee may appoint one or more authenticating agents (each, an
"Authenticating Agent") with respect to the Certificates which shall be
authorized to act on behalf of the Trustee in authenticating the Certificates in
connection with the issuance, delivery, registration of transfer, exchange or
repayment of the Certificates. The Trustee will appoint any Transfer Agent and
Registrar to be an Authentication Agent. Whenever reference is made in this
Agreement to the authentication of Certificates by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication on behalf of the Trustee by an Authenticating Agent and a
certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent must be acceptable to the
Transferor. The Trustee shall authenticate the Certificates, and initially does
not appoint any other Authenticating Agent.
(b) Any institution succeeding to the corporate agency business of an
Authenticating Agent shall continue to be an Authenticating Agent without the
execution or filing of any paper or any further act on the part of the Trustee
or such Authenticating Agent.
(c) An Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Transferor. The Trustee may at
any time terminate the agency of an Authenticating Agent by giving notice of
termination to such Authenticating Agent and to the Transferor. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
an Authenticating Agent shall cease to be acceptable to the Trustee or the
Transferor, the Trustee promptly may appoint a successor Authenticating Agent.
Any successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless acceptable to the
Trustee and the Transferor.
(d) The Servicer agrees to pay each Authenticating Agent from time to
time reasonable compensation for its services under this Section 6.8.
(e) The provisions of Sections 11.2 and 11.3 shall be applicable to any
Authenticating Agent.
(f) Pursuant to an appointment made under this Section 6.8, the
Certificates may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
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Trustee's Certificate of Authentication
This is one of the certificates described in the Pooling and Servicing
Agreement.
-----------------------------
as Authenticating Agent
for the Trustee,
By:__________________________
Authorized Signatory
Dated:
Section 6.9 Tender of Exchangeable Transferor Certificate.
(a) Upon any Exchange, the Transferor shall deliver to the Trustee for
authentication under Section 6.2, one or more new Series of Investor
Certificates. Any such Series of Investor Certificates shall be substantially in
the form specified in the related Supplement and shall bear, upon its face, the
designation for such Series to which it belongs, as selected by the Transferor.
Except as specified in any Supplement for a related Series, all Investor
Certificates of any Series shall rank pari passu and be equally and ratably
entitled as provided herein to the benefits hereof (except that the Enhancement
provided for any Series shall not be available for any other Series) without
preference, priority or distinction on account of the actual time or times of
authentication and delivery, all in accordance with the terms and provisions of
this Agreement and the related Supplement.
(b) The Holder of the Exchangeable Transferor Certificate may (i)
tender the Exchangeable Transferor Certificate to the Trustee in exchange for
(A) one or more newly issued Series of Investor Certificates or, with respect to
any prefunded Series, interests therein and (B) a reissued Exchangeable
Transferor Certificate, (ii) request the Trustee to issue to it one or more
Classes of any newly issued Series of Investor Certificates (which may include
one or more Replacement Series to the extent permitted for any Series (or, if
permitted in the related Supplement, Class) of Investor Certificates as
specified in the related Supplement) which upon payment by the purchaser thereof
of the Initial Invested Amount of such Certificates to a Defeasance Account,
will represent an interest in the Trust equal to such Initial Invested Amount
(an "Unfunded Certificate") or (iii) take a combination of the actions specified
in clauses (i) and (ii), provided that (A) the sum of the amount of Transferor
Interest which is tendered under clause (i) and the amount to be paid to the
Defeasance Account under clause (ii) equals the Initial Invested Amount of the
Investor Certificates delivered to the Holder of the Exchangeable Transferor
Certificate and (B) in the event the Series to be issued is a Replacement
Series, the sum of the amount to be paid to the Defeasance Account under clause
(ii) (which shall not be less than the Invested Amount of the Series or Class to
be replaced) and the amount deposited by the Transferor into the Distribution
Account for any Series (or, if authorized in the related Supplement, Class) so
replaced upon issuance of such Replacement Series is not less (after taking
account of any other amounts then held on deposit for application to final
payment of any Series so replaced) than the amount required to be distributed in
final payment to any Series so replaced pursuant to the related Supplement (any
such event under clauses (i), (ii) or (iii), a "Transferor Exchange"). In
addition, to the extent permitted for any Series (or if applicable, Class) of
Investor Certificates as specified in the related Supplement, the Investor
Certificateholders of such Series may tender their Investor Certificates and the
Holder of the Exchangeable Transferor Certificate may tender the Exchangeable
Transferor Certificate to the Trustee pursuant to the terms and conditions set
forth in such Supplement in exchange for (i) one or more newly issued Series of
Investor Certificates and (ii) a reissued Exchangeable Transferor Certificate
(an "Investor Exchange"). Notwithstanding anything to the contrary herein, the
Transferor shall not be permitted to deposit money into any Defeasance Account.
The Transferor Exchange and Investor Exchange are referred to collectively
herein as an "Exchange."
The Holder of the Exchangeable Transferor Certificate may perform an
Exchange by notifying the Trustee, in writing, at least five Business Days in
advance (an "Exchange Notice") of the date upon which the Exchange is to occur
(an "Exchange Date"). Any Exchange Notice shall state the designation of any
Series to be issued on the Exchange Date and, with respect to each such Class or
Series: (a) its Initial Invested Amount (or the method for calculating such
Initial Invested Amount), which
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at any time may not be greater than the current principal amount of the
Exchangeable Transferor Certificate at such time (or, (i) in the case of a
Replacement Series, the sum of the Invested Amount of any Series (or, if
applicable, Class) to be replaced plus the current principal amount of the
Exchangeable Transferor Certificate and (ii) in the case of an Investor
Exchange, the sum of the Invested Amount of any Class or Series of Investor
Certificates to be exchanged plus the current principal amount of the
Exchangeable Transferor Certificate) taking into account any Receivables
transferred to the Trust simultaneous with such Exchange, (b) its Certificate
Rate (or the method for allocating interest payments or other cash flows to such
Series), if any, (c) the Enhancement Provider, if any, with respect to such
Series and (d) the CUSIP Numbers for such Series or, in the case of a Series
having more than one Class, the CUSIP Numbers for each Class of such Series. On
the Exchange Date, the Trustee shall authenticate and deliver any such Class or
Classes of Series of Investor Certificates only upon delivery to it of the
following: (a) a Supplement satisfying the criteria set forth in subsection
6.9(c) and in form reasonably satisfactory to the Trustee executed by the
Transferor and the Servicer and specifying the Principal Terms of such Series,
(b) the applicable Enhancement, if any, (c) the agreement, if any, pursuant to
which the Enhancement Provider agrees to provide the Enhancement, if any, (d) an
Opinion of Counsel to the effect that (i) any Class of the newly issued Series
of Investor Certificates sold to third parties should be characterized as either
indebtedness or partnership interests for federal or any then Applicable Tax
State income tax purposes and (ii) that the issuance of the newly issued Series
of Investor Certificates will not adversely affect the federal or any then
Applicable Tax State income tax characterization of any outstanding Series of
Investor Certificates or the taxability of the Trust under federal or any then
Applicable Tax State income tax laws, (e) that the Rating Agency Condition shall
have been satisfied with respect to such Exchange, (f) an Officer's Certificate
of the Transferor, that on the Exchange Date after giving effect to such
Exchange (and, in the case of a Replacement Series, assuming the payment in full
of the Series (or, if applicable, Class) being replaced) (i) the Transferor
Interest (after giving effect to any amounts excluded therefrom pursuant to any
Supplement) would be at least equal to the Minimum Transferor Interest, (ii) the
Retained Interest would be at least equal to the Minimum Retained Interest,
(iii) the sum of the Aggregate Principal Receivables and the principal amount on
deposit in the Excess Funding Account and other specified accounts, if
applicable pursuant to the related Supplement, would be at least equal to the
Minimum Aggregate Principal Receivables, and (iv) a Pay-Out-Event would not
otherwise occur with respect to any outstanding Series, (g) the existing
Exchangeable Transferor Certificate or applicable Investor Certificates, as the
case may be, and (h) such other documents, certificates and Opinions of Counsel
as may be required by the applicable Supplement. Upon satisfaction of such
conditions, the Trustee shall cancel the existing Exchangeable Transferor
Certificate or applicable Investor Certificates, as the case may be, and issue,
as provided above, such Series of Investor Certificates and a new Exchangeable
Transferor Certificate, dated the Exchange Date. In the case of a Replacement
Series, the Trustee shall provide the notice of final distribution to the Series
(or, if applicable, Class) so replaced in accordance with Section 12.3, stating
that the Invested Amount of such Series or Class is to be repaid from proceeds
obtained through the issuance of a Replacement Series. Amounts deposited into a
Defeasance Account upon issuance of the Replacement Series shall be transferred
(to the extent required) to the Distribution Account for the Series or Class so
replaced, and final payment of such Series or Class otherwise shall be effected
in accordance with Section 12.3. There is no limit to the number of Exchanges
that may be performed under this Agreement.
(c) In conjunction with an Exchange, the parties hereto shall execute a
Supplement, which shall specify the relevant terms with respect to any newly
issued Series of Investor Certificates, which may include without limitation:
(i) its name or designation, (ii) the Initial Invested Amount or the method of
calculating the Initial Invested Amount, (iii) the Certificate Rate (or formula
for the determination thereof), (iv) the Closing Date, (v) the rating agency or
agencies rating such Series, (vi) the name of the Clearing Agency, if any, (vii)
the rights of the Holder of the Exchangeable Transferor Certificate that have
been transferred to the Holders of such Series pursuant to such Exchange
(including any rights to allocations of Collections of Imputed Yield Receivables
and Principal Receivables), (viii) the interest payment date or dates and the
date or dates from which interest shall accrue, (ix) the method of allocating
Principal Collections for such Series and the method by which the principal
amount of Investor Certificates of such Series shall amortize or accrete and the
method for allocating Imputed Yield Collections and Defaulted Receivables, (x)
the names of any accounts to be used by such Series and the terms governing the
operation of any such account, (xi) the Series Servicing Fee Percentage, (xii)
the Minimum Transferor Interest, (xiii) the Series Termination Date, (xiv) the
terms of any Enhancement with respect to such Series, (xv) the Enhancement
Provider, if applicable, (xvi) the base rate applicable to such Series, (xvii)
the terms on which the Certificates of such Series may be repurchased or
remarketed to other investors, (xviii) any deposit into any account provided for
such Series, (xix) the number of Classes of such Series and, if more than one
Class, the rights and priorities of each such Class, (xx) whether any fees will
be included in the funds available to be paid for such Series, (xxi) the
subordination of such Series to any other Series, (xxii) the Pool Factor,
(xxiii) the Minimum Aggregate Principal Receivables, (xxiv) whether such Series
will be a part of a
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group or subject to being paired with any other Series, (xxv) whether such
Series will be prefunded, and (xxvi) any other relevant terms of such Series
(including whether or not such Series will be pledged as collateral for an
issuance of any other securities, including commercial paper) (all such terms,
the "Principal Terms" of such Series). The terms of such Supplement may modify
or amend the terms of this Agreement solely as applied to such new Series. If on
the date of the issuance of such Series there is issued and outstanding one or
more Series of Investor Certificates and no Series of Investor Certificates is
currently rated by a Rating Agency, then as a condition to such Exchange a
nationally recognized investment banking firm or commercial bank shall also
deliver to the Trustee an officer's certificate stating, in substance, that the
Exchange will not have an adverse effect on the timing or distribution of
payments to such other Series of Investor Certificates then issued and
outstanding.
(d) The Transferor may surrender the Exchangeable Transferor
Certificate to the Trustee in exchange for a newly issued Exchangeable
Transferor Certificate and a second certificate (a "Supplemental Certificate"),
the terms of which shall be defined in a supplement to this Agreement (which
supplement shall be subject to Section 13.10 hereof to the extent that it amends
any of the terms of this Agreement), to be delivered to or upon the order of the
Transferor (or a Person designated by the Transferor, in the case of the
transfer or exchange thereof, as provided below), upon satisfaction of the
following conditions: (i) following such exchange, the Transferor Interest (less
any interest therein represented by any Supplemental Certificates) in the
Principal Receivables in the Trust equals or exceeds the greater of the Minimum
Transferor Interest and the Minimum Retained Interest following such exchange,
(ii) following such exchange the sum of (a) the Transferor Interest (less any
interest therein represented by any Supplemental Certificates) in the Principal
Receivables and (b) the interest in Principal Receivables represented by the
Transferor Retained Certificates equals or exceeds, on the day following such
exchange, 20% of the sum of (x) the Transferor Interest (including any interest
therein represented by any Supplemental Certificate) and (y) the interest in
Principal Receivables represented by the Transferor Retained Certificates on
such date, and (iii) the Trustee received prior to such exchange (A) written
confirmation that the Rating Agency Condition shall have been satisfied with
respect to the issuance of such Supplemental Certificate and (B) an Opinion of
Counsel to the effect that (i) such Supplemental Certificate should be
characterized as either indebtedness or a partnership interest for federal and
any then Applicable Tax State income tax purposes or (ii) that such Supplemental
Certificate will not adversely affect the federal or any then Applicable Tax
State income tax characterization of any outstanding Series of Investor
Certificates or the taxability of the Trust under federal or any then Applicable
Tax State income tax laws.
Section 6.10 Book-Entry Certificates. If so provided in the
related Supplement, the Investor Certificates of any Series, upon original
issuance, may be issued in the form of typewritten Certificates representing the
Book-Entry Certificates, to be delivered to the depositary specified in such
Supplement (the "Depositary") which shall be the Clearing Agency, by or on
behalf of such Series. The Investor Certificates of any such Series shall,
unless otherwise provided in the related Supplement, initially be registered on
the Certificate Register in the name of the nominee of the Clearing Agency. No
Certificate Owner will receive a definitive certificate representing such
Certificate Owner's interest in the related Series of Investor Certificates,
except as provided in Section 6.12. Unless and until definitive, fully
registered Investor Certificates of any Series ("Definitive Certificates") have
been issued to such Certificate Owners pursuant to Section 6.12:
(i) the provisions of this Section 6.10 shall be in full force
and effect with respect to each such Series;
(ii) the Transferor, the Servicer, the Paying Agent, the
Transfer Agent and Registrar and the Trustee may deal with the Clearing Agency
and the Clearing Agency Participants for all purposes (including the making of
distributions on the Investor Certificates of each such Series) as the
authorized representatives of the Certificate Owners;
(iii) to the extent that the provisions of this Section 6.10
conflict with any other provisions of this Agreement, the provisions of this
Section 6.10 shall control with respect to each such Series; and
(iv) the rights of Certificate Owners of Investor Certificates
of each such Series shall be exercised only through the Clearing Agency and the
applicable Clearing Agency Participants and shall be limited to those
established by law and agreements between such Certificate Owners and the
Clearing Agency and/or the Clearing Agency Participants. Pursuant to the
Depositary Agreement applicable to a Series, unless and until Definitive
Certificates of such Series are issued pursuant to Section 6.12, the initial
Clearing Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit distributions of principal and interest on
the Investor Certificates to such Clearing Agency Participants.
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Section 6.11 Notices to Clearing Agency. With respect to any
Series of Investor Certificates which has been issued as Book-Entry Certificates
pursuant to Section 6.10, whenever notice or other communication to the
Certificateholders is required under this Agreement, unless and until Definitive
Certificates shall have been issued to Certificate Owners pursuant to Section
6.12, the Trustee shall give all such notices and communications specified
herein to be given to Holders of such Investor Certificates to the Clearing
Agency.
Section 6.12 Definitive Certificates. Unless otherwise specified
in the related Supplement, Series of Investor Certificates shall be issued as
Definitive Certificates. With respect to any Series of Investor Certificates
which has been issued as Book-Entry Certificates pursuant to Section 6.10, if
(i) (A) the Transferor advises the Trustee in writing that the Clearing Agency
is no longer willing or able to discharge properly its responsibilities under
the applicable Depositary Agreement, and (B) the Transferor is unable to locate
a qualified successor, (ii) the Transferor, at its option, advises the Trustee
in writing that it elects to terminate the book-entry system through the
Clearing Agency with respect to any such Series of Certificates or (iii) after
the occurrence of a Servicer Default, Certificate Owners of a Series
representing beneficial interests aggregating not less than 50% of the Invested
Amount of such Series advise the Trustee and the applicable Clearing Agency
through the applicable Clearing Agency Participants in writing that the
continuation of a book-entry system through the applicable Clearing Agency is no
longer in the best interests of the Certificate Owners, the Trustee shall notify
all Certificate Owners of such Series, through the applicable Clearing Agency
Participants, of the occurrence of any such event and of the availability of
Definitive Certificates to Certificate Owners of such Series requesting the
same. Upon surrender to the Trustee of the Investor Certificates of such Series
by the applicable Clearing Agency for registration, accompanied by registration
instructions from the applicable Clearing Agency, the Trustee shall issue the
Definitive Certificates of such Series. Neither the Transferor nor the Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Certificates of such Series, all references
herein to obligations imposed upon or to be performed by the applicable Clearing
Agency shall be deemed to be imposed upon and performed by the Trustee, to the
extent applicable with respect to such Definitive Certificates, and the Trustee
shall recognize the Holders of the Definitive Certificates of such Series as
Certificateholders of such Series hereunder.
[End of Article VI]
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ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR
Section 7.1 Liability of the Transferor. The Transferor shall be
liable in accordance herewith solely to the extent of the obligations
specifically undertaken by the Transferor.
Section 7.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Transferor.
(a) The Transferor shall not consolidate with or merge into any other
business entity or convey or transfer its properties and assets substantially as
an entirety to any Person, unless:
(i) the business entity formed by such consolidation or into
which the Transferor is merged or the Person which acquires by
conveyance or transfer the properties and assets of the Transferor
substantially as an entirety shall be, if the Transferor is not the
surviving entity, organized and existing under the laws of the United
States of America or any state or the District of Columbia and shall
expressly assume, by an agreement supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the
performance of every covenant and obligation of the Transferor, as
applicable hereunder and shall benefit from all the rights granted to
the Transferor, as applicable hereunder. To the extent that any right,
covenant or obligation of the Transferor, as applicable hereunder, is
inapplicable to the successor entity, such successor entity shall be
subject to such covenant or obligation, or benefit from such right, as
would apply, to the extent practicable, to such successor entity. In
furtherance hereof, in applying this Section 7.2 to a successor entity,
Section 9.2 hereof shall be applied by reference to events of
involuntary liquidation, receivership or conservatorship applicable to
such successor entity as shall be set forth in the officer's
certificate described in subsection 7.2(a)(ii);
(ii) the Transferor shall have delivered to the Trustee an
Officer's Certificate signed by a Vice President (or any more senior
officer) of the Transferor stating that such consolidation, merger,
conveyance or transfer and such supplemental agreement comply with this
Section 7.2 and that all conditions precedent herein provided for
relating to such transaction have been complied with and an Opinion of
Counsel that such supplemental agreement is legal, valid and binding
and that the entity surviving such consolidation, conveyance or
transfer is organized and existing under the laws of the United States
of America or any State or the District of Columbia and, subject to
customary limitations and qualifications, such entity will not be
substantively consolidated with BTFC or the Servicer;
(iii) the Transferor shall have delivered notice to each
Rating Agency of such consolidation, merger, conveyance or transfer and
the Rating Agency Condition shall have been satisfied with respect
thereto;
(iv) the successor entity shall be a special purpose
bankruptcy remote entity; and
(v) if the Transferor is not the surviving entity, the
surviving entity shall file new UCC-1 financing statements with respect
to the interest of the Trust in the Receivables.
(b) The obligations of the Transferor hereunder shall not be assignable
nor shall any Person succeed to the obligations of the Transferor hereunder
except for mergers, consolidations, assumptions or transfers in accordance with
the provisions of the foregoing paragraph.
Section 7.3 Limitation on Liability. The directors, officers,
employees or agents of the Transferor shall not be under any liability to the
Trust, the Trustee, the Certificateholders, any Enhancement Provider or any
other Person hereunder or pursuant to any document delivered hereunder, it being
expressly understood that all such liability is expressly waived and released as
a condition of, and as consideration for, the execution of this Agreement and
any Supplement and the issuance of the Certificates; provided, however, that
this provision shall not protect the officers, directors, employees, or agents
of the Transferor against any liability which would otherwise be imposed upon
them by reason of willful misfeasance, bad faith or negligence in the
performance of obligations or duties or by reason of reckless disregard of
obligations or duties hereunder. Except as provided in Sections 7.1 and 7.4 with
respect to the Trust and the Trustee and its officers, directors, employees and
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agents, the Transferor shall not be under any liability to the Trust, the
Trustee, its officers, directors, employees and agents, the Certificateholders,
any Enhancement Provider or any other Person for any action taken or for
refraining from the taking of any action in its capacity as Transferor pursuant
to this Agreement or any Supplement whether arising from express or implied
duties under this Agreement or any Supplement or otherwise; provided, however,
that this provision shall not protect the Transferor against any liability which
would otherwise be imposed upon it by reason of willful misfeasance, bad faith
or negligence in the performance of obligations or duties or by reason of
reckless disregard of obligations or duties hereunder. The Transferor and any
director, officer, employee or agent may rely in good faith on any document of
any kind prima facie properly executed and submitted by any Person respecting
any matters arising hereunder.
Section 7.4 Liabilities. Notwithstanding Section 7.3, by entering
into this Agreement, the Transferor agrees to be liable, directly to the injured
party, for the entire amount of any losses, claims, damages, penalties or
liabilities (other than those incurred by a Certificateholder in the capacity of
an investor in the Investor Certificates as a result of the performance of the
Contracts or the related Receivables, market fluctuations, a shortfall or
failure by the Enhancement Provider to make payment under any Enhancement or
other similar market or investment risks associated with ownership of the
Investor Certificates) arising out of or based on the arrangement created by
this Agreement and the actions of the Servicer taken pursuant hereto as though
this Agreement created a partnership under the Revised Uniform Limited
Partnership Act, in which the Transferor is a general partner. The Transferor
agrees to pay, indemnify and hold harmless each Investor Certificateholder
against and from any and all such losses, claims, damages and liabilities (other
than those incurred by a Certificateholder in the capacity of an investor in the
Investor Certificates as a result of the performance of the Contracts or the
related Receivables, market fluctuations, a shortfall or failure by an
Enhancement Provider to make payment under an Enhancement or other similar
market or investment risks) except to the extent that they arise from any action
by such Investor Certificateholder. To the extent any property taxes are imposed
by any jurisdiction on the Receivables or other Trust assets, the Transferor
will bear the liability for such taxes under this Section 7.4. Subject to
Sections 8.3 and 8.4, in the event of a Service Transfer, the Successor Servicer
will indemnify and hold harmless the Transferor for any losses, claims, damages
and liabilities of the Transferor as described in this Section 7.4 arising from
the actions or omissions of such Successor Servicer.
[End of Article VII]
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ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER
Section 8.1 Liability of the Servicer. The Servicer shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer in such capacity herein.
Section 8.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer. Subject to subsection 3.1(a) and the last sentence
of this Section 8.2, the Servicer shall not consolidate with or merge into any
other corporation or convey or transfer its properties and assets substantially
as an entirety to any Person, unless:
(i) the corporation formed by such consolidation or into which
the Servicer is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Servicer substantially as an
entirety shall be a corporation organized and existing under the laws
of the United States of America or any state or the District of
Columbia and, if the Servicer is not the surviving entity, shall
expressly assume, by an agreement supplemental hereto, executed and
delivered to the Trustee in form satisfactory to the Trustee, the
performance of every covenant and obligation of the Servicer hereunder
(to the extent that any right, covenant or obligation of the Servicer,
as applicable hereunder, is inapplicable to the successor entity, such
successor entity shall be subject to such covenant or obligation, or
benefit from such right, as would apply, to the extent practicable, to
such successor entity); and
(ii) the Servicer shall have delivered to the Trustee an
Officer's Certificate that such consolidation, merger, conveyance or
transfer and such supplemental agreement comply with this Section 8.2
and that all conditions precedent herein provided for relating to such
transaction have been complied with and an Opinion of Counsel that such
supplemental agreement is legal, valid and binding with respect to the
Servicer and that the entity surviving such consolidation, conveyance
or transfer is organized and existing under the laws of the United
States of America or any State or the District of Columbia; and
(iii) the Servicer shall have delivered notice to each Rating
Agency of such consolidation, merger, conveyance or transfer.
Notwithstanding the foregoing, it is expressly understood and agreed by
the parties hereto that the restrictions imposed by this Section 8.2 shall not
be applied to prevent a Back-Up Servicer which becomes Successor Servicer from
consolidating with or merging into a Person not organized and existing under the
laws of the United States, or from conveying or transferring its properties and
assets substantially as an entirety to such a Person, or as to which such
Successor Servicer would otherwise be unable to satisfy the provisions of this
Section 8.3, provided that, in such event, such Successor Servicer shall comply
with the resignation provisions of Section 8.5.
Section 8.3 Limitation on Liability of the Servicer and Others.
The directors, officers, employees or agents of the Servicer shall not be under
any liability to the Trust, the Trustee, the Certificateholders, any Enhancement
Provider or any other Person hereunder or pursuant to any document delivered
hereunder, it being expressly understood that all such liability is expressly
waived and released as a condition of, and as consideration for, the execution
of this Agreement and any Supplement and the issuance of the Certificates;
provided, however, that this provision shall not protect the directors,
officers, employees and agents of the Servicer against any liability which would
otherwise be imposed upon them by reason of willful misfeasance, bad faith or
negligence in the performance of obligations or duties or by reason of reckless
disregard of obligations or duties hereunder. Except as provided in Sections 8.1
and 8.4, the Servicer shall not be under any liability to the Trust, the
Trustee, its officers, directors, employees and agents, the Certificateholders,
any Enhancement Provider or any other Person for any action taken or for
refraining from the taking of any action in its capacity as Servicer pursuant to
this Agreement or any Supplement; provided, however, that this provision shall
not protect the Servicer against any liability which would otherwise be imposed
upon it by reason of willful misfeasance, bad faith or negligence in the
performance of obligations or duties or by reason of its reckless disregard of
its obligations or duties hereunder or under any Supplement. The Servicer may
rely in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder. The Servicer
shall not be under any obligation to appear in, prosecute or defend any legal
action which is not
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incidental to its duties to service the Receivables in accordance with this
Agreement which in its reasonable opinion may involve it in any expense or
liability. Notwithstanding the preceding sentence, a Back-Up Servicer which
becomes Successor Servicer hereunder shall not be under any obligation to appear
in, prosecute or defend any legal action, including without limitation any such
legal action which ordinarily is or may be considered incidental to its duties
to service the Receivables in accordance with this Agreement, which in its
reasonable opinion may involve it in any expense or liability.
Section 8.4 Servicer Indemnification of the Transferor, the
Trust, the Trustee, the Registrar and the Paying Agent. Subject to the
limitations on liability set forth in Section 8.3, the Servicer shall indemnify
and hold harmless the Transferor, the Trust, the Trustee, the Registrar and the
Paying Agent (each, an "Indemnified Party") from and against any loss,
liability, reasonable expense, damage or injury, including, but not limited to,
any judgment, award, settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim, suffered or sustained by reason of any acts or
omissions or alleged acts or omissions of the Servicer with respect to matters
arising under this Agreement or any Supplement for which the Servicer is
responsible pursuant to this Agreement or such Supplement; provided, however,
that the Servicer shall not indemnify or hold harmless an Indemnified Party if
such acts, omissions or alleged acts or omissions constitute or are caused by
fraud, negligence, or willful misconduct by such Indemnified Party (or any of
such Indemnified Party's officers, directors, employees or agents) or the
Investor Certificateholders; provided further, that the Servicer shall not
indemnify or hold harmless the Trust, the Investor Certificateholders or the
Certificate Owners for any losses, liabilities, expenses, damages or injuries
suffered or sustained by any of them with respect to any action taken by the
Trustee at the request of the Investor Certificateholders; provided further,
that the Servicer shall not indemnify or hold harmless the Trust, the Investor
Certificateholders or the Certificate Owners as to any losses, liabilities,
expenses, damages or injuries suffered or sustained by any of them in their
capacities as investors, including without limitation losses incurred as a
result of Defaulted Receivables; provided further, that the Servicer shall not
indemnify or hold harmless the Transferor, the Trust, the Investor
Certificateholders or the Certificate Owners for any losses, liabilities,
expenses, damages or injuries suffered or sustained by the Trust, the Investor
Certificateholders or the Certificate Owners arising under any tax law,
including without limitation, any federal, state, local or foreign income or
franchise taxes or any other tax imposed on or measured by income (or any
interest, penalties or additions with respect thereto or arising from a failure
to comply therewith) required to be paid by the Trust, the Investor
Certificateholders or the Certificate Owners in connection herewith to any
taxing authority; and, provided further, that in no event will the Servicer be
liable, directly or indirectly, for or in respect of any indebtedness or
obligation evidenced or created by any Certificate, recourse as to which shall
be limited solely to the assets of the Trust allocated for the payment thereof
as provided in this Agreement and any applicable Supplement. Any such
indemnification shall not be payable from the assets of the Trust, but the
Servicer shall be subrogated to the rights of the Trust with respect to the
foregoing matters if and to the extent that the Servicer shall have indemnified
the Trust with respect thereto. The Servicer (if other than TCB) shall indemnify
and hold harmless the Trustee and its officers, directors, employees or agents
from and against any loss, liability, reasonable expense (including reasonable
attorneys' fees), damage or injury suffered or sustained by reason of the
acceptance of this Trust by the Trustee, the issuance by the Trust of the
Certificates or any of the other matters contemplated herein or in any
Supplement; provided, however, that the Servicer shall not indemnify the Trustee
or its officers, directors, employees or agents for any loss, liability,
expense, damage or injury caused by the fraud, negligence or willful misconduct
of any of them. The provisions of this indemnity shall run directly to and be
enforceable by an injured party subject to the limitations hereof and shall
survive the resignation or removal of the Servicer, the resignation or removal
of the Trustee and/or the termination of the Trust and shall survive the
termination of this Agreement.
Section 8.5 The Servicer Not to Resign. Subject to subsection
3.1(a), the Servicer shall not resign from the obligations and duties hereby
imposed on it except upon determination that (i) the performance of its duties
hereunder is no longer permissible under applicable law and (ii) there is no
reasonable action which the Servicer could take to make the performance of its
duties hereunder permissible under applicable law. Any such determination
permitting the resignation of the Servicer shall be evidenced as to clause (i)
above by an Opinion of Counsel to such effect delivered to the Trustee. No such
resignation shall become effective until the Trustee or a Successor Servicer
shall have assumed the responsibilities and obligations of the Servicer in
accordance with Section 10.2 hereof. If the Trustee is unable within 120 days of
the date of delivery to it of such Opinion of Counsel to appoint a Successor
Servicer, the Trustee shall serve as Successor Servicer hereunder (but shall
have continued authority to appoint another qualified Person as Successor
Servicer).
Section 8.6 Access to Certain Documentation and Information
Regarding the Receivables. The Servicer shall provide to the Trustee and its
agents (who shall be reasonably acceptable to the Servicer) access to the
documentation regarding
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the Receivables in such cases where the Trustee is required in connection with
the enforcement of the rights of the Investor Certificateholders, or by
applicable statutes or regulations, to review such documentation, such access
being afforded without charge but only (i) upon reasonable request, (ii) during
normal business hours, (iii) subject to the Servicer's normal security and
confidentiality procedures and (iv) at offices designated by the Servicer.
Nothing in this Section 8.6 shall derogate from the obligation of the
Transferor, the Trustee or the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Obligors and the failure of
the Servicer to provide access as provided in this Section 8.6 as a result of
such obligations shall not constitute a breach of this Section 8.6.
Section 8.7 Delegation of Duties. In the ordinary course of
business, the Servicer may at any time delegate any duties hereunder to any
Person who agrees to conduct such duties in accordance with the Credit and
Collection Policies provided, that if such delegation is made by TCB, the Person
to which any such duties are delegated shall conduct such duties in accordance
with this Agreement, and not the Credit and Collection Policies. Any such
delegations shall not relieve the Servicer of its liability and responsibility
with respect to such duties, and shall not constitute a resignation within the
meaning of Section 8.5 hereof and the Servicer will remain jointly and severally
liable with such Person for any amounts which would otherwise be payable
pursuant to this Article VIII as if the Servicer had performed such duty;
provided, however, that in the case of any significant delegation to a Person
other than an Affiliate of BTFC, such Person shall satisfy the requirements
applicable to a Successor Servicer as provided in Section 10.2 and written
notice shall be given to the Trustee and to each Rating Agency of such
delegation.
[End of Article VIII]
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ARTICLE IX
PAY OUT EVENTS
Section 9.1 Pay-Out-Events. If any one of the following events
(each, a "Trust Pay-Out-Event") shall occur:
(a) a decree or order is entered by a court having competent
jurisdiction (i) for relief in respect of the Transferor, BTFC or Bally in an
involuntary case or proceeding under the Federal Bankruptcy Code or any other
federal or state bankruptcy, insolvency, reorganization or similar law or (ii)
adjudging the Transferor, BTFC or Bally as bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Transferor, BTFC or Bally under the Federal
Bankruptcy Code or any other similar applicable federal or state law for the
relief of debtors, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Transferor, BTFC or
Bally or of any substantial part of their respective properties, or ordering the
winding up or liquidation of any of their respective affairs, and any such
decree or order remains unstayed and in effect for a period of 60 consecutive
days; or
(b) the Transferor, BTFC or Bally institutes a voluntary case or
proceeding under the Federal Bankruptcy Code or any other similar applicable
federal or state law for the relief of debtors or any other case or proceedings
to be adjudicated as bankrupt or insolvent, or the Transferor, BTFC or Bally
consents to the entry of a decree or order for relief in respect of the
Transferor, BTFC or Bally in any involuntary case or proceeding under the
Federal Bankruptcy Code or any other similar applicable federal or state law for
the relief of debtors or to the institution of bankruptcy or insolvency
proceedings against the Transferor, BTFC or Bally, or the Transferor, BTFC or
Bally files a petition or answer or consent seeking reorganization or relief
under the Federal Bankruptcy Code or any other similar applicable federal or
state law for the relief of debtors, or consents to the filing of any such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Transferor, BTFC or Bally or of any substantial part of their respective
properties, or makes an assignment for the benefit of creditors, or is unable to
pay debts generally as they come due, or admits in writing its inability to pay
its debts generally as they become due or takes corporate action in furtherance
of any such action;
(c) the Trust shall become subject to regulation by the Securities and
Exchange Commission as an "investment company" within the meaning of the
Investment Company Act;
then a Pay-Out-Event with respect to all Series of Certificates shall occur
without any notice or other action on the part of the Trustee or the Investor
Certificateholders immediately upon the occurrence of such event. The Trustee
shall provide notice of a Pay-Out-Event in a prompt manner to each Rating
Agency.
Section 9.2 Additional Rights Upon the Occurrence of Certain
Events.
(a) If (x) the Transferor shall consent to the appointment of a
bankruptcy trustee or receiver or liquidator for the winding-up or liquidation
of its affairs, or a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
bankruptcy trustee or receiver or liquidator for the winding-up or liquidation
of its affairs shall have been entered against the Transferor (an "Insolvency
Event"), on the day of such Insolvency Event (the "Appointment Day") or (y) the
Retained Percentage shall at any time be equal to or less than 2% (a "Trigger
Event"), the following actions shall be taken and processes begun:
(i) If an Insolvency Event shall have occurred, the Transferor
shall immediately cease to transfer Contracts and the related
Receivables to the Trust and shall promptly give written notice to the
Trustee of such Insolvency Event. Notwithstanding any cessation of the
transfer to the Trust of additional Contracts and the related
Receivables, Collections with respect thereto shall continue to be
allocated and paid in accordance with Article IV.
(ii) If an Insolvency Event or a Trigger Event shall have
occurred this Agreement and the Trust shall be deemed to have
terminated, subject to the liquidation, winding-up and dissolution
procedures described below; provided, however, that within 15 days of
the date of written notice to the Trustee, the Trustee shall (i)
publish a notice in an Authorized Newspaper that an Insolvency Event or
a Trigger Event has occurred, that the Trust has terminated,
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and that the Trustee intends to sell, dispose of or otherwise liquidate
the Contracts and the related Receivables pursuant to this Agreement in
a commercially reasonable manner and on commercially reasonable terms,
which shall include the solicitation of competitive bids (a
"Disposition"), and (ii) send written notice to the Investor
Certificateholders describing the provisions of this Section 9.2 and
requesting each Investor Certificateholder to advise the Trustee in
writing that it elects one of the following options: (A) the Investor
Certificateholder wishes the Trustee to instruct the Servicer not to
effectuate a Disposition, or (B) the Investor Certificateholder refuses
to advise the Trustee as to the specific action the Trustee shall
instruct the Servicer to take or (C) the Investor Certificateholder
wishes the Servicer to effect a Disposition. If after 90 days from the
day notice pursuant to clause (i) above is first published (the
"Publication Date"), the Trustee shall not have received the written
instruction described in clause (A) above from Holders of Investor
Certificates representing Undivided Interests aggregating in excess of
50% of the related Invested Amount of each Series (or, in the case of a
Series having more than one Class, each Class of such Series, provided
Class voting is mandated pursuant to the related Series Supplement) and
the holders of any Supplemental Certificates or any other interest in
the Exchangeable Transferor Certificate other than the Transferor as
provided in Section 6.3(b) (for each Series, a "Holders' Majority"),
the Trustee shall instruct the Servicer to effectuate a Disposition,
and the Servicer shall proceed to consummate a Disposition. If,
however, with respect to the portion of the Contracts and the related
Receivables allocable to any outstanding Series, a Holders' Majority
instruct the Trustee not to effectuate a Disposition of the portion of
the Contracts and the related Receivables allocable to such Series, the
Trust shall be reconstituted and continue with respect to such Series
pursuant to the terms of this Agreement and the applicable Supplement
(as amended in connection with such reconstitution). The portion of the
Contracts and the related Receivables allocable to any Series shall be
equal to the sum of (1) the product of (A) the Transferor Percentage,
(B) the aggregate outstanding Principal Receivables and (C) a fraction
the numerator of which is the Invested Amount of such Series on the
date of determination and the denominator of which is the sum of all
Invested Amounts for all Series then outstanding and (2) the Invested
Amount of such Series. The Transferor or any of its Affiliates shall be
permitted to bid for the Contracts and the related Receivables. In
addition, the Transferor or any of its Affiliates shall have the right
to match any bid by a third person and be granted the right to purchase
the Contracts and the related Receivables at such matched bid price.
The Trustee may obtain a prior determination from any such bankruptcy
trustee, receiver or liquidator that the terms and manner of any
proposed Distribution are commercially reasonable. The provisions of
Sections 9.1 and 9.2 shall not be deemed to be mutually exclusive.
(b) The proceeds from the Disposition pursuant to subsection (a) above
shall be treated as Collections on the Receivables and shall be allocated and
deposited in accordance with the provisions of Article IV; provided, however,
that the proceeds from a Disposition with respect to any Series shall be applied
solely to make payments to such Series; provided further, that the Trustee shall
determine conclusively in its sole discretion, but in a manner consistent with
the determination of the Principal Balances of the Receivables subject to such
Disposition to the extent use of such methodology is practicable under the then
existing facts and circumstances, the amount of such proceeds that are allocable
to Imputed Yield Collections and the amount of such proceeds that are allocable
to Collections of Principal Receivables. Unless the Trustee receives written
instructions from Investor Certificateholders of one or more Series to continue
the Trust with respect to such Series as provided in subsection 9.2(a) above, on
the day following the last Distribution Date in the Monthly Period during which
such proceeds are distributed to the Investor Certificateholders of each Series,
the Trust shall terminate.
(c) The Trustee may appoint an agent or agents to assist with its
responsibilities pursuant to this Article IX with respect to competitive bids.
[End of Article IX]
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ARTICLE X
SERVICER DEFAULTS
Section 10.1 Servicer Defaults. If any one of the following
events (a "Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to make any payment, transfer or
deposit or to give instructions or notice to the Trustee pursuant to Article IV
or to instruct the Trustee to make any required drawing, withdrawal, or payment
under any Enhancement on or before the date such payment, transfer, deposit,
withdrawal or drawing or such instruction or notice is required to be made or
given, as the case may be, under the terms of this Agreement; provided, however,
that any such failure caused by a non-willful act of the Servicer shall not
constitute a Servicer Default if the Servicer promptly remedies such failure
within five Business Days after receiving notice of such failure or otherwise
becoming aware of such failure; or
(b) failure on the part of the Servicer duly to observe or perform in
any respect any other covenants or agreements of the Servicer set forth in this
Agreement, which has a material adverse effect on the Investor
Certificateholders of any Series and which continues unremedied for a period of
30 days after the date on which either the Servicer obtains actual knowledge of
such failure or written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee, or to the
Servicer and the Trustee by the Holders of Investor Certificates evidencing
Undivided Interests aggregating not less than 50% of the Invested Amount of any
Series materially adversely affected thereby, and continues to materially
adversely affect such Investor Certificateholders for such period; provided,
that if prior to the end of the 30 day period specified above, the Servicer
shall have commenced actions reasonably designed to cure such failure and, at
the end of such 30 day period is engaged diligently and in good faith in
effecting such cure, then such 30 day period shall be extended by such
additional period of time as may reasonably be required to effect such cure, but
not in excess of an additional 30 days, unless the Trustee shall agree that a
longer extension is appropriate under the circumstances and shall consent
thereto; or the Servicer shall delegate its duties under this Agreement, except
as permitted by subsection 3.1(a) or Section 8.7; or
(c) any representation, warranty or certification made by the Servicer
in this Agreement or in any certificate delivered pursuant to this Agreement
shall prove to have been incorrect when made, which has a material adverse
effect on the Investor Certificateholders of any Series and which continues to
be incorrect in any material respect for a period of 30 days after the date on
which the Servicer obtains actual knowledge of such failure or written notice of
such failure, requiring the same to be remedied, shall have been given to the
Servicer by the Trustee, or to the Servicer and the Trustee by the Holders of
Investor Certificates evidencing Undivided Interests aggregating not less than
50% of the Invested Amount of any Series materially adversely affected thereby
and continues to materially adversely affect such Investor Certificateholders
for such period; provided, that if prior to the end of the 30 day period
specified above, the Servicer shall have commenced actions reasonably designed
to cure such failure and, at the end of such 30 day period is engaged diligently
and in good faith in effecting such cure, then such 30 day period shall be
extended by such additional period of time as may reasonably be required to
effect such cure, but not in excess of an additional 30 days, unless the Trustee
shall agree that a longer extension is appropriate under the circumstances and
shall consent thereto; or
(d) (i) a decree or order is entered by a court having competent
jurisdiction (x) for relief in respect of the Servicer or Bally (for so long as
the Servicer is an Affiliate of Bally) in an involuntary case or proceeding
under the Federal Bankruptcy Code or any other federal or state bankruptcy,
insolvency, reorganization or similar law or (y) adjudging the Servicer or Bally
(for so long as the Servicer is an Affiliate of Bally) as bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Servicer or Bally under the
Federal Bankruptcy Code or any other similar applicable federal or state law for
the relief of debtors, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Servicer or
Bally (for so long as the Servicer is an Affiliate of Bally) or of any
substantial part of their respective properties, or ordering the winding up or
liquidation of any of their respective affairs, and any such decree or order
remains unstayed and in effect for a period of 60 consecutive days; or
(ii) the Servicer or Bally (for so long as the Servicer is an
Affiliate of Bally) institutes a voluntary case or proceeding under the Federal
Bankruptcy Code or any other similar applicable federal or state law for the
relief of debtors or any other case or proceedings to be adjudicated as bankrupt
or insolvent, or the Servicer or Bally (for so long as the Servicer
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is an Affiliate of Bally) consents to the entry of a decree or order for relief
in respect of the Servicer or Bally (for so long as the Servicer is an Affiliate
of Bally) in any involuntary case or proceeding under the Federal Bankruptcy
Code or any other similar applicable federal or state law for the relief of
debtors or to the institution of bankruptcy or insolvency proceedings against
the Servicer or Bally (for so long as the Servicer is an Affiliate of Bally), or
the Servicer or Bally (for so long as the Servicer is an Affiliate of Bally)
files a petition or answer or consent seeking reorganization or relief under the
Federal Bankruptcy Code or any other similar applicable federal or state law for
the relief of debtors, or consents to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Servicer or
Bally (for so long as the Servicer is an Affiliate of Bally) or of any
substantial part of their respective properties, or makes an assignment for the
benefit of creditors, or is unable to pay debts generally as they come due, or
admits in writing its inability to pay its debts generally as they become due or
takes corporate action in furtherance of any such action;
then, so long as such Servicer Default shall not have been remedied, either the
Trustee (if it has actual knowledge), or the Holders of Investor Certificates
evidencing Undivided Interests aggregating more than 50% of the Aggregate
Invested Amount, by notice then given in writing to the Servicer (and to the
Trustee if given by the Investor Certificateholders) (a "Termination Notice"),
may terminate all of the rights and obligations of the Servicer as Servicer
under this Agreement. After receipt by the Servicer of such Termination Notice,
and on the date that a Successor Servicer shall have been appointed by the
Trustee pursuant to Section 10.2, all authority and power of the Servicer under
this Agreement shall pass to and be vested in a Successor Servicer; and, without
limitation, the Trustee is hereby authorized and empowered (upon the failure of
the Servicer to cooperate) to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, all documents and other instruments upon the
failure of the Servicer to execute or deliver such documents or instruments, and
to do and accomplish all other acts or things necessary or appropriate to effect
the purposes of such transfer of servicing rights and obligations. The Servicer
agrees to cooperate with the Trustee and such Successor Servicer in effecting
the termination of the responsibilities and rights of the Servicer to conduct
servicing hereunder including, without limitation, the transfer to such
Successor Servicer of all authority of the Servicer to service the Receivables
provided for under this Agreement, including, without limitation, all authority
over all Collections which shall on the date of transfer be held by the Servicer
for deposit, or which have been deposited by the Servicer, in the Collection
Account, any Distribution Account, any Series Account and the Excess Funding
Account, or which shall thereafter be received with respect to the Receivables.
The Servicer shall promptly transfer its electronic records or electronic copies
thereof relating to the Receivables to the Successor Servicer in such electronic
form as the Successor Servicer may reasonably request and shall promptly
transfer to the Successor Servicer all other records, correspondence and
documents necessary for the continued servicing of the Receivables in the manner
and at such times as the Successor Servicer shall reasonably request. Effective
as of the appointment of the Successor Servicer, the Servicer hereby grants to
the Successor Servicer a nonexclusive license or sublicense, as applicable, to
use all computer software either owned or licensed to the Servicer to the extent
required to service and collect Receivables, provided, that such sublicense by
the Servicer shall not apply to any software licensed by others to the Servicer
as to which a sublicense in favor of or use by the Successor Servicer would be
in violation of an express contractual restriction or otherwise illegal, or
would require the Servicer to incur any license fee or other cost or expense. To
the extent that compliance with this Section 10.1 shall require the Servicer to
disclose to the Successor Servicer information of any kind which the Servicer
deems to be confidential, the Successor Servicer shall be required to enter into
such customary licensing and confidentiality agreements as the Servicer shall
deem necessary to protect its interests. The Servicer shall, on the date of any
servicing transfer, transfer all of its rights and obligations under the
Enhancement with respect to any Series to the Successor Servicer. In connection
with any service transfer, all reasonable costs and expenses (including
reasonable attorneys' fees) incurred in connection with transferring the
records, electronic records and related copies, correspondence and other
documents with respect to the Receivables and the other Trust Property to the
Successor Servicer, securing the license or sub-license to computer software
either owned or used by BTFC as original Servicer and amending this Agreement to
reflect such succession as Successor Servicer pursuant to this Section 10.1 and
Section 10.2 shall be paid by the Servicer (unless the Trustee is acting as the
Servicer on a temporary basis, in which case the original Servicer shall be
responsible therefor) upon presentation of reasonable documentation of such
costs and expenses.
Notwithstanding the foregoing, a delay in or failure of performance
referred to in subsection 10.1(a) which continues for a period in excess of the
five Business Days provided for a cure thereunder, or under subsection 10.1(b)
or (c) which continues for a period in excess of the 30 days (as extended for up
to 30 days or more, if applicable) provided for a cure thereunder, shall not
constitute a Servicer Default if such delay or failure could not be prevented by
the exercise of reasonable diligence by the Servicer and such delay or failure
was caused by an act of God or the public enemy, acts of declared or
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undeclared war, public disorder, rebellion, riot or sabotage, epidemics,
landslides, lightning, fire, hurricanes, tornadoes, earthquakes, nuclear
disasters or meltdowns, floods, power outages, bank closings, communications
outages (beyond the reasonable control of the Servicer), computer failure
(beyond the reasonable control of the Servicer) or similar causes. The preceding
sentence shall not relieve the Servicer from using its best efforts to perform
its obligations in a timely manner in accordance with the terms of this
Agreement and the Servicer shall provide the Trustee, any Enhancement Provider,
the Transferor and the Holders of Investor Certificates with an Officer's
Certificate giving prompt notice of such failure or delay by it, together with a
description of the cause of such failure or delay and its efforts so to perform
its obligations.
Section 10.2 Trustee to Act; Appointment of Successor.
(a) On and after the receipt by the Servicer of a Termination Notice
pursuant to Section 10.1, the Servicer shall continue to perform all servicing
functions under this Agreement until the date specified in the Termination
Notice or as otherwise specified by the Trustee in writing or, if no such date
is specified in such Termination Notice, or otherwise specified by the Trustee,
until a date mutually agreed upon by the Servicer and Trustee. The Trustee shall
notify each Rating Agency of such removal of the Servicer. The Trustee shall, as
promptly as possible after the giving of a Termination Notice, appoint a
successor servicer (the "Successor Servicer"), and such Successor Servicer shall
accept its appointment by a written assumption in a form acceptable to the
Trustee. If such Successor Servicer is unable to accept such appointment, the
Trustee may obtain bids from any potential Successor Servicer. If the Trustee is
unable to obtain any bids from any potential successor servicer and the Servicer
delivers an Officer's Certificate to the effect that it cannot in good faith
cure the Servicer Default which gave rise to a transfer of servicing, and if the
Trustee is legally unable to act as Successor Servicer, then the Trustee shall
offer the Transferor the right to accept reassignment of all of the Receivables
for an amount equal to the sum of (i) the Aggregate Invested Amount on the date
of such purchase, less the amount, if any, previously allocated and available
for payment of principal to Certificateholders on the Distribution Date which
relates to the Monthly Period in which such purchase occurs, plus (ii) all
interest accrued but unpaid on all of the outstanding Investor Certificates at
the applicable Certificate Rate through and including the day preceding the
Distribution Date which relates to the Monthly Period in which such purchase
occurs (or, to the extent that, pursuant to the related Supplement, the
Transferor otherwise would be obligated to pay accrued interest on any portion
of the Invested Amount of any Series repaid on such Distribution Date only
through the end of a specified interest accrual period, then interest on such
portion shall be payable only through the end of such interest accrual period),
less the amount, if any, previously allocated and available for payment of
interest to the Certificateholders on such Distribution Date, plus (iii) any
other amounts accrued and owing as specified in any applicable Supplement;
provided, however, that no such purchase by the Transferor shall occur unless
the Transferor shall deliver an Opinion of Counsel reasonably acceptable to the
Trustee that such purchase would not constitute a fraudulent conveyance by the
Transferor. The proceeds of such sale shall be deposited in the Distribution
Account or any Series Account, as provided in the related Supplement, for
distribution to the Investor Certificateholders of each outstanding Series
pursuant to Section 12.3 of this Agreement. In the event that a Successor
Servicer has not been appointed or has not accepted its appointment at the time
when the Servicer ceases to act as Servicer, the Trustee without further action
shall automatically be appointed the Successor Servicer (but shall have
continued authority to appoint another Person as Successor Servicer). The
Trustee may delegate any of its servicing obligations to an affiliate or agent
of the Trustee in accordance with Article III hereof. Any such delegations shall
not relieve the Trustee of its liability and responsibility with respect to such
servicing duties. Notwithstanding the above, the Trustee shall, if it is legally
unable to act, petition a court of competent jurisdiction to appoint any
established financial institution or other entity having, in the case of an
entity that is subject to risk-based capital adequacy requirements, risk-based
capital of at least $50,000,000 or, in the case of an entity that is not subject
to risk-based capital requirements, having a tangible net worth of not less than
$50,000,000 and whose regular business includes the servicing of contracts and
receivables similar to the Contracts and the related Receivables as the
Successor Servicer hereunder.
(b) Upon its appointment, the Successor Servicer shall be the successor
in all respects to the Servicer with respect to servicing functions under this
Agreement and shall be subject to all the rights, responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
hereof, and all references in this Agreement to the Servicer shall be deemed to
refer to the Successor Servicer, unless otherwise expressly provided herein. Any
Successor Servicer, by its acceptance of its appointment, will automatically
agree to be bound by the terms and provisions of each Enhancement.
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(c) In connection with such appointment and assumption, the Trustee
shall be entitled to such compensation, or may make such arrangements for the
compensation of the Successor Servicer out of Collections, as it and such
Successor Servicer shall agree; provided, however, that no such compensation
shall be in excess of the Servicing Fee permitted to the Servicer pursuant to
Section 3.2. The Transferor agrees that if the Servicer is terminated hereunder,
it will agree to deposit a portion of the Collections in respect of Imputed
Yield Receivables that it is entitled to receive pursuant to Article IV to pay
its ratable share of the compensation of the Successor Servicer.
(d) All authority and power granted to the Successor Servicer under
this Agreement shall automatically cease and terminate upon termination of the
Trust pursuant to Section 12.1 and shall pass to and be vested in the Transferor
and, without limitation, the Transferor is hereby authorized and empowered to
execute and deliver, on behalf of the Successor Servicer, as attorney-in-fact or
otherwise, all documents and other instruments, and to do and accomplish all
other acts or things necessary or appropriate to effect the purposes of such
transfer of servicing rights. The Successor Servicer agrees to cooperate with
the Transferor in effecting the termination of the responsibilities and rights
of the Successor Servicer to conduct servicing on the Contracts and the related
Receivables. The Successor Servicer shall transfer its electronic records
relating to the Contracts and the related Receivables to the Transferor in such
electronic form as the Transferor may reasonably request and shall transfer all
other records, correspondence and documents to the Transferor in the manner and
at such times as the Transferor shall reasonably request. To the extent that
compliance with this Section 10.2 shall require the Successor Servicer to
disclose to the Transferor information of any kind which the Successor Servicer
deems to be confidential, the Transferor shall be required to enter into such
customary licensing and confidentiality agreements as the Successor Servicer
shall deem necessary to protect its interests.
(e) Notwithstanding any other provision of this Agreement, any
Successor Servicer shall service and administer the Receivables in accordance
with applicable law and customary and usual servicing procedures for other
institutional servicers engaged in servicing receivables substantially similar
to the Receivables, and to the extent not inconsistent with the foregoing, shall
exercise that degree of skill and care it uses in servicing assets held for its
own account.
Section 10.3 Notification to Certificateholders. Within five
Business Days of the Servicer becoming aware of any Servicer Default, the
Servicer shall provide written notice thereof to the Trustee, each Rating Agency
and any Enhancement Provider and, upon receipt of such written notice or upon
the Trustee's actual knowledge, the Trustee shall give notice to the Investor
Certificateholders at their respective addresses appearing in the Certificate
Register. Upon any termination or appointment of a Successor Servicer pursuant
to this Article X, the Trustee shall give prompt written notice thereof to
Investor Certificateholders at their respective addresses appearing in the
Certificate Register and to each Rating Agency.
Section 10.4 Waiver of Past Defaults. The Holders of Investor
Certificates evidencing Undivided Interests aggregating not less than 66-2/3% of
the Invested Amount of each Series materially adversely affected by any default
by the Servicer or Transferor may, on behalf of all Certificateholders of such
Series, waive any default by the Servicer or Transferor in the performance of
its obligations hereunder and its consequences, except a default in the failure
to make any required deposits or payments of interest or principal relating to
such Series pursuant to Article IV, which default does not result from the
failure of the Paying Agent to perform its obligations to make any required
deposits or payments of interest and principal in accordance with Article IV.
Upon any such waiver of a past default, such default shall cease to exist, and
any default arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereon except to the extent
expressly so waived.
[End of Article X]
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ARTICLE XI
THE TRUSTEE
Section 11.1 Duties of Trustee.
(a) The Trustee, prior to the occurrence of any Servicer Default (as to
which the Trustee has received written notice or of which a Responsible Officer
of the Trustee otherwise has actual knowledge) and after the curing of all
Servicer Defaults which may have occurred, undertakes to perform such duties and
only such duties as are specifically set forth in this Agreement, and no implied
covenants or duties shall be read into this Agreement against the Trustee. If
the Trustee receives written notice or a Responsible Officer of the Trustee
otherwise has actual knowledge that a Servicer Default has occurred (and such
Servicer Default has not been cured or waived), the Trustee shall exercise such
of the rights and powers vested in it by this Agreement, and use the same degree
of care and skill in its exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs; provided,
however, that if the Trustee shall assume the duties of the Servicer pursuant to
Section 8.5 or 10.2, the Trustee in performing such duties shall use the degree
of skill and attention customarily exercised by a servicer with respect to
comparable contracts and receivables that it services for itself or others.
(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee that are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform on their face to the requirements of this Agreement. The Trustee shall
retain all such items for at least one year after receipt and shall make such
items available for inspection by any Investor Certificateholder at the
Corporate Trust Office, such inspection to be made during regular business hours
and upon reasonable prior written notice to the Trustee.
(c) Subject to subsection 11.1(a), no provision of this Agreement shall
be construed to relieve the Trustee from liability for its own negligent action,
its own negligent failure to act or its own misconduct; provided, however, that:
(i) the Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;
(ii) the Trustee shall not be personally liable with respect
to any action taken, suffered or omitted to be taken by it in good
faith in accordance with the direction of the Holders of Investor
Certificates evidencing Undivided Interests in the amounts described in
Section 11.14 hereof relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee with
respect to such Series, or exercising any trust or power conferred upon
the Trustee with respect to such Series, under this Agreement; and
(iii) the Trustee shall not be charged with knowledge of any
failure by the Servicer referred to in clauses (a) and (b) of Section
10.1, or of any breach by the Servicer contemplated by clause (c) of
Section 10.1, or of the occurrence of any event contemplated by clauses
(d)(i) or (d)(ii) of Section 10.1, or of any Pay-Out-Event unless a
Responsible Officer of the Trustee obtains actual knowledge of such
failure, breach or Pay-Out-Event or the Trustee receives written notice
of such failure, breach or Pay-Out-Event. To the extent not otherwise
provided for in this Agreement or any Supplement, the Trustee agrees
that upon obtaining knowledge of any Servicer Default or Pay-Out- Event
with respect to the Trust or any Series in accordance with the
preceding sentence, the Trustee will promptly provide written notice
thereof to each Rating Agency. To the extent expressly requested by any
Rating Agency, the Trustee will provide such Rating Agency with notice,
no more frequently than monthly, to the effect that the Trustee has not
obtained actual knowledge of any Servicer Default or Pay-Out-Event with
respect to the Trust or any Series in accordance with the second
preceding sentence during or with respect to the period specified in
any such notice.
(d) The Trustee shall not be required to expend or risk its own funds
or otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of, any
of the obligations of the Servicer under this Agreement except during such time,
if any, as
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the Trustee shall be the successor to, and be vested with the rights, duties,
powers and privileges of, the Servicer in accordance with the terms of this
Agreement.
(e) Except for actions expressly authorized or required by this
Agreement or under Requirements of Law, the Trustee shall take no action
reasonably likely to release from the lien of the Trust or otherwise materially
impair the interests of the Trust in any Contract or the related Receivable now
existing or hereafter created or to materially impair the value of any Contract
or the related Receivable now existing or hereafter created.
(f) Except as provided in this Agreement, the Trustee shall have no
power to vary the corpus of the Trust.
(g) If a Responsible Officer of the Trustee, has received written
notice that the Paying Agent or the Transfer Agent and Registrar shall fail to
perform any obligation, duty or agreement in the manner or on the day required
to be performed by the Paying Agent or the Transfer Agent and Registrar, as the
case may be, under this Agreement, the Trustee shall be obligated promptly upon
its obtaining knowledge thereof by a Responsible Officer of the Trustee to
perform such obligation, duty or agreement in the manner so required.
(h) If the Transferor has agreed to transfer any of its contracts or
receivables (other than the Contracts and the related Receivables) to another
Person, upon the written request of the Transferor, the Trustee on behalf of the
Trust will enter into such intercreditor agreements with the transferee of such
contracts or receivables as are customary and necessary to identify separately
the rights, if any, of the Trust and such other Person in the Transferor's
contracts and receivables; provided, however, that the Trust shall not be
required to enter into any intercreditor agreement that could adversely affect
the interests of the Certificateholders or the Trustee and, upon the request of
the Trustee, the Transferor will deliver an Opinion of Counsel on any matters
relating to such intercreditor agreement, reasonably requested by the Trustee.
Section 11.2 Certain Matters Affecting the Trustee. In acting
hereunder:
(a) the Trustee may rely on and shall be protected in acting on, or in
refraining from acting in accordance with, the initial report, the Daily Report,
the Settlement Statement, the annual Servicer's certificate, the monthly payment
instructions and notification to the Trustee, the monthly Certificateholder's
statement, any resolution, Officer's Certificate, certificate of auditors or any
other certificate, statement, instrument, opinion, report, notice, request,
consent, order, appraisal, bond or other paper or document believed by it to be
genuine and to have been signed or presented to it pursuant to this Agreement by
the proper party or parties;
(b) the Trustee may consult with counsel, and the advice or any Opinion
of Counsel shall be full and complete authorization and protection in respect of
any action taken or suffered or omitted by it hereunder in good faith and in
accordance with such advice or Opinion of Counsel;
(c) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement or any Enhancement, or to,
institute, conduct or defend any litigation hereunder or in relation hereto, at
the request, order or direction of any of the Certificateholders or any
Enhancement Provider, pursuant to the provisions of this Agreement, unless such
Certificateholders or Enhancement Provider shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby; nothing contained herein shall,
however, relieve the Trustee of the obligations, upon the occurrence of any
Servicer Default (which has not been cured or waived) of which a Responsible
Officer of the Trustee has knowledge, to exercise such of the rights and powers
vested in it by this Agreement and any Enhancement, and to use the same degree
of care and skill in its exercise as a prudent person would exercise or use
under the circumstances in the conduct of his own affairs;
(d) the Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Agreement;
(e) the Trustee shall not be bound to make any investigation into the
facts of matters stated in the initial report, the Daily Report, the Settlement
Statement, the annual Servicer's certificate, the monthly payment instructions
and notification to the Trustee, the monthly Certificateholders statement, any
resolution, certificate, statement, instrument, opinion, report,
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notice, request, consent, order, approval, bond or other paper or document,
unless requested in writing so to do by Holders of Investor Certificates
evidencing Undivided Interests aggregating more than 50% of the Invested Amount
of any Series which could be adversely affected if the Trustee does not perform
such acts;
(f) 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 or a custodian, and the Trustee shall not be responsible for any
misconduct or negligence on the part of any such agent, attorney or custodian
appointed with due care by it hereunder;
(g) except as may otherwise be required pursuant to subsection 11.1(a),
the Trustee shall not be required to make any initial or periodic examination of
any documents or records related to the Contracts or the related Receivables for
the purpose of establishing the presence or absence of defects, the compliance
by the Transferor with its representations and warranties or for any other
purpose;
(h) whenever in the administration of this Agreement 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 Officer's Certificate; and
(i) the right of the Trustee to perform any discretionary act
enumerated in this Agreement or any Supplement shall not be construed as a duty,
and the Trustee shall not be answerable for performance of any such act.
Section 11.3 Trustee Not Liable for Recitals in Certificates. The
Trustee assumes no responsibility for the correctness of the recitals contained
herein and in the Certificates (other than the certificate of authentication on
the Certificates). Except as set forth in Section 11.15, the Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Certificates (other than the certificate of authentication on the Certificates)
or of any Contract and the related Receivable or related document. The Trustee
shall not be accountable for the use or application by the Transferor of any of
the Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Transferor in respect of the Contracts and
the related Receivables or deposited in or withdrawn from the Collection
Account, any Distribution Account, any Series Account or the Excess Funding
Account or other accounts now or hereafter established to effectuate the
transactions contemplated herein and in accordance with the terms hereof. The
Trustee shall have no responsibility for filing any financing or continuation
statement in any public office at any time or to otherwise perfect or maintain
the perfection of any security interest or Lien granted to it hereunder (unless
the Trustee shall have become the Successor Servicer) or to prepare or file any
Securities and Exchange Commission filing for the Trust or to record this
Agreement or any Supplement.
Section 11.4 Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of Investor
Certificates and may deal with the Transferor, the Servicer or any Enhancement
Provider with the same rights as it would have if it were not the Trustee. The
Trustee in its capacity as Trustee shall exercise its duties and
responsibilities hereunder independent of and without reference to its
investment, if any, in Investor Certificates.
Section 11.5 The Servicer to Pay Fees and Expenses. The Servicer
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to receive, reasonable compensation (which shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust) for all services rendered by the Trustee in the execution of the
trust hereby created and in the exercise and performance of any of the powers
and duties hereunder of the Trustee. Subject to Section 8.4, the Servicer will
pay or reimburse the Trustee (without reimbursement from any Investor Account,
any Series Account or otherwise) upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Agreement (including the reasonable fees and
expenses of its agents and counsel) except any such expense, disbursement or
advance as may arise from its own negligence or bad faith and except as provided
in the following sentence; provided, that if BTFC is not then the Servicer, or
if BTFC fails to make any such payment or reimbursement duly owing and such
amount cannot be paid from the Servicing Fee otherwise payable to BTFC as
provided in Section 3.2, then the Transferor shall pay (or shall cause the
Servicer to pay) such amounts to the Trustee from amounts that otherwise would
not be subject to the claims of Investor Certificateholders under this Agreement
or any Supplement and would be available free and clear for payment and release
to the Transferor pursuant to Article IV hereof; provided, further, that if,
with respect to any Series of Investor Certificates, either (i) a scheduled
distribution of interest shall
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not have been made in full when due (after giving effect to any grace period
allowed under the related Supplement), (ii) a charge-off of any portion of the
Invested Amount shall have occurred, or (iii) the Series Termination Date shall
have occurred and such Certificates shall not have been paid in full, then the
Trustee shall have a first lien on the Trust Property, including without
limitation the Collections and other proceeds thereof, allocable pursuant to
this Agreement and the related Supplement(s) to the Transferor Interest and to
any and each such Series as to which any of the events described in the
preceding clauses (i), (ii) and (iii) shall have occurred, in order to secure
payment and reimbursement to the Trustee of all amounts payable or reimbursable
to it as provided above or as otherwise provided in this Agreement or the
Supplement related to any such Series, to the extent such amounts are expended
or incurred, on or after the date on which any of the events described in the
preceding clauses (i), (ii) and (iii) shall have occurred, either for the
benefit of any Series affected thereby or as a result of or in connection with
the occurrence of such event. If the Trustee is appointed Successor Servicer
pursuant to Section 10.2, the provisions of this Section 11.5 shall not apply to
expenses, disbursements and advances made or incurred by the Trustee in its
capacity as Successor Servicer (which shall be paid out of the Servicing Fee).
The obligations of the Servicer under this Section 11.5 shall survive
the termination of the Trust and the resignation or removal of the Trustee.
Section 11.6 Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times (a) be a corporation organized and doing business
under the laws of the United States of America or any state thereof authorized
under such laws to exercise corporate trust powers, having, in the case of an
entity that is subject to risk-based capital adequacy requirements, risk-based
capital of at least $50,000,000 or, in the case of an entity that is not subject
to risk-based capital adequacy requirements, having a combined capital and
surplus of at least $50,000,000 and subject to supervision or examination by
federal or state authority and (b) not be a Related Person. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purpose of this Section 11.6, 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. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 11.6, the Trustee shall resign immediately in the manner and with the
effect specified in Section 11.7.
Section 11.7 Resignation or Removal of Trustee.
(a) The Trustee may at any time resign and be discharged from the Trust
hereby created by giving written notice thereof to the Servicer. Upon receiving
such notice of resignation, the Servicer shall promptly appoint a successor
trustee by written instrument, in duplicate, one copy of which instrument shall
be delivered to the resigning Trustee and one copy to the successor trustee. If
no successor trustee shall have been so appointed and have accepted such
appointment within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 11.6 hereof and shall fail to resign after
written request therefor by the Transferor, or if at any time the Trustee shall
be legally unable to act, or shall be adjudged bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be 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 the
Transferor may, but shall not be required to, remove the Trustee and promptly
appoint a successor trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the Trustee so removed and one copy to
the successor trustee.
(c) If (i) the Trustee shall fail to perform any of its obligations
hereunder (a notice of failure shall be promptly provided to all
Certificateholders by the Trustee describing such failure), (ii) a
Certificateholder shall deliver written notice of such failure to the Trustee,
and (iii) the Trustee shall not have corrected such failure for 60 days
thereafter, then the Holders of Investor Certificates representing more than 50%
of the Aggregate Invested Amount shall have the right to remove the Trustee and
(with the consent of the Transferor, which shall not be unreasonably withheld)
promptly appoint a successor trustee by written instrument, in duplicate, one
copy of which instrument shall be delivered to the Trustee so removed and one
copy to the successor trustee.
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(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 11.7 shall
not become effective until acceptance of appointment by the successor trustee as
provided in Section 11.8 hereof and any liability of the Trustee arising
hereunder shall survive such appointment of a successor trustee. Notice of any
resignation or removal of the Trustee and appointment of a successor trustee
shall be provided to each Rating Agency by the Servicer in a prompt manner.
Section 11.8 Successor Trustee.
(a) Any successor trustee appointed as provided in Section 11.7 hereof
shall execute, acknowledge and deliver to the Transferor and to its predecessor
Trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as Trustee
herein. The predecessor Trustee shall deliver to the successor trustee all
documents and statements held by it hereunder, and the Transferor and the
predecessor Trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for fully and certainly vesting and
confirming in the successor trustee all such rights, powers, duties and
obligations.
(b) No successor trustee shall accept appointment as provided in this
Section 11.8 unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 11.6 hereof.
(c) Upon acceptance of appointment by a successor trustee as provided
in this Section 11.8, such successor trustee shall mail notice of such
succession hereunder to all Certificateholders at their addresses as shown in
the Certificate Register.
Section 11.9 Merger or Consolidation of Trustee. Any Person into
which the Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
all or substantially all of the corporate trust business of the Trustee, shall
be the successor of the Trustee hereunder, provided such corporation shall be
eligible under the provisions of Section 11.6 hereof, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
Section 11.10 Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Agreement, at any
time, for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Trust may at the time be located, the Trustee shall have
the power and may execute and deliver all instruments to appoint one or more
Persons to act as a co-trustee or co-trustees, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person or
Persons, in such capacity and for the benefit of the Certificateholders, such
title to the trust, or any part thereof, and, subject to the other provisions of
this Section 11.10, such powers, duties, obligations, rights and trusts as the
Trustee may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 11.6 and no notice to Certificateholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 11.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any laws of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the Servicer
hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust or any portion
thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the
direction of the Trustee;
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(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article XI. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer.
(d) Any separate trustee or co-trustee may at any time constitute the
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect to this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
Section 11.11 Tax Returns. Consistent with Section 3.7, the Trustee
shall not file any federal tax returns on behalf of the Trust or seek an
Employer Identification Number unless otherwise notified by the Internal Revenue
Service.
Section 11.12 Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement or any Series
of Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee. Any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of any Series of Certificateholders in respect of which such
judgment has been obtained.
Section 11.13 Suits for Enforcement. If a Servicer Default of which
a Responsible Officer of the Trustee has knowledge shall occur and be
continuing, the Trustee, in its discretion may, subject to the provisions of
Section 10.1, proceed to protect and enforce its rights and the rights of any
Series of Certificateholders under this Agreement by a suit, action or
proceeding in equity or at law or otherwise, whether for the specific
performance of any covenant or agreement contained in this Agreement or in aid
of the execution of any power granted in this Agreement or for the enforcement
of any other legal, equitable or other remedy as the Trustee, being advised by
counsel, shall deem most effectual to protect and enforce any of the rights of
the Trustee or any Series of Certificateholders.
Section 11.14 Rights of Certificateholders to Direct Trustee.
Holders of Investor Certificates evidencing Undivided Interests aggregating more
than 66-2/3% of the Aggregate Invested Amount (or, with respect to any remedy,
trust or power that does not relate to all Series, 66-2/3% of the Aggregate
Invested Amount of the Investor Certificates of all Series to which such remedy,
trust or power relates) shall have the right to direct the time, method, and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee; provided, however, that
Holders of Investor Certificates aggregating more than 66-2/3% of the Aggregate
Invested Amount of any Class may direct the Trustee to exercise its rights under
Section 8.6; provided, further, that, subject to Section 11.1, the Trustee shall
have the right to decline to follow any such direction if the Trustee being
advised by counsel determines that the action so directed may not lawfully be
taken, or if the Trustee in good faith shall, by a Responsible Officer or
Responsible Officers of the Trustee, determine that the proceedings so directed
would be illegal or involve it in personal liability or be unduly prejudicial to
the rights of Certificateholders not parties to such direction; and provided,
further, that nothing in this Agreement shall impair the right of the Trustee to
take any action deemed proper by the Trustee and which is not inconsistent with
such direction of such Holders of Investor Certificates.
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Section 11.15 Representations and Warranties of Trustee. The
Trustee represents and warrants that:
(i) the Trustee is a corporation organized, existing and
authorized to engage in the business of banking under the laws of the
United States of America;
(ii) the Trustee is an entity that satisfies the eligibility
requirements of Section 11.6;
(iii) the Trustee has full power, authority and right to
execute, deliver and perform this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance
by it of this Agreement; and
(iv) this Agreement has been duly executed and delivered by
the Trustee.
Section 11.16 Maintenance of Office or Agency. The Trustee will
maintain at its expense an office or offices, or agency or agencies, where
notices and demands to or upon the Trustee in respect of the Certificates and
this Agreement may be served. The Trustee initially appoints its Corporate Trust
Office as its office for such purposes. The Trustee will give prompt written
notice to the Servicer and to Certificateholders of any change in the location
of the Certificate Register or any such office or agency.
[End of Article XI]
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ARTICLE XII
TERMINATION
Section 12.1 Termination of Trust.
(a) The respective obligations and responsibilities of the Transferor,
the Servicer and the Trustee created hereby (other than the obligation of the
Trustee to make payments to Certificateholders as hereafter set forth) shall
terminate, except with respect to the duties described in Section 8.4 and 11.5
and subsection 12.3(b), on the Trust Termination Date; provided, however, that
the Trust shall not terminate on the date specified in clause (i) of the
definition of "Trust Termination Date" if each of the Servicer and the Holder of
the Exchangeable Transferor Certificate notify the Trustee in writing, not later
than five Business Days preceding such date, that they desire that the Trust not
terminate on such date, which notice (such notice, a "Trust Extension") shall
specify the date on which the Trust shall terminate (such date, the "Extended
Trust Termination Date"); provided, however, that in no event shall the trust
created by this Agreement (and the Extended Trust Termination Date) continue
beyond the expiration of 21 years from the death of the last survivor of the
descendants of George Herbert Walker Bush, formerly President of the United
States, living on the date of this Agreement. The Servicer and the Holder of the
Exchangeable Transferor Certificate may, on any date following the Trust
Extension, so long as no Series of Certificates is outstanding, deliver a notice
in writing to the Trustee changing the Extended Trust Termination Date.
(b) In the event that (i) the Trust has not terminated by the
Distribution Date occurring in the second month preceding the Trust Termination
Date, and (ii) the Invested Amount of any Series, exclusive of any Transferor
Retained Class (after giving effect to all transfers, withdrawals, deposits and
drawings to occur on such date and the payment of principal on any Series of
Certificates to be made on the related Distribution Date during such month
pursuant to Article IV), would be greater than zero, the Servicer shall sell
within 30 days after such Transfer Date an amount of Contracts and the related
Receivables up to the remaining Invested Amount if it can do so in a
commercially reasonable manner. The Servicer shall notify each Enhancement
Provider of the proposed sale of the Contracts and the related Receivables and
shall provide each Enhancement Provider an opportunity to bid on the Contracts
and the related Receivables. The Transferor shall have the right of first
refusal to purchase the Contracts and the related Receivables on terms
equivalent to the best purchase offer as determined by the Trustee in its sole
discretion. The proceeds of any such sale shall be treated as Collections on the
Receivables and shall be allocated and deposited in accordance with Article IV;
provided, however, that the Trustee shall determine conclusively in its sole
discretion the amount of such proceeds which are allocable to Imputed Yield
Collections and the amount of such proceeds which are allocable to Principal
Collections. During such 30 day period, the Servicer shall continue to collect
payments on the Receivables and allocate and deposit such payments in accordance
with the provisions of Article IV.
(c) All principal or interest with respect to any Series of Investor
Certificates shall be due and payable no later than the Series Termination Date
with respect to such Series. Unless otherwise provided in a Supplement, in the
event that the Invested Amount of any Series of Certificates is greater than
zero, exclusive of any Class held by the Transferor, on its Series Termination
Date (the "Affected Series"), after giving effect to all transfers, withdrawals,
deposits and drawings to occur on such date and the payment of principal to be
made on such Series on such date, then the Trustee will sell or cause to be
sold, and the Trustee will pay the proceeds to all Certificateholders of such
Series pro rata in final payment of all principal of and accrued interest on
such Series of Certificates or, if any Class of such Series is subordinated, in
order of their respective seniorities, an amount of Contracts and the related
Principal Receivables and the related Imputed Yield Receivables (or interests
therein) up to 110% of the Invested Amount of such Series at the close of
business on such date (but the amount of such Principal Receivables not to be
more than an amount of Receivables equal to the sum of (1) the product of (A)
the Transferor Percentage, (B) the Aggregate Principal Receivables and (C) a
fraction the numerator of which is the Invested Amount of such Series on such
date and the denominator of which is the sum of the Invested Amounts of all
Series on such date and (2) the Invested Amount of such Series). Receivables on
which the Obligor has not made the full monthly payment for the prior months
shall be deemed to be in default for purposes of this Section 12.1(c) to the
extent that the cash allocated to any Class of Transferor Retained Certificates
of such Series pursuant to a sale under Section 12.1(c) is less than the amount
that would have been allocated to the Exchangeable Transferor Certificate and
the Transferor Retained Certificates had the proceeds from such sale been
allocated pursuant to Section 4.3. The Servicer shall notify each Enhancement
Provider of the proposed sale of
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such Contracts and the related Receivables and shall provide each Enhancement
Provider an opportunity to bid on such Contracts and the related Receivables.
The Transferor shall be permitted to purchase such Contracts and the related
Receivables in such case and shall have a right of first refusal with respect
thereto to the extent of a bona fide offer by an unrelated third party or to the
extent the Receivables represent Defaulted Receivables. Any proceeds of such
sale in excess of such principal and interest paid shall be paid to the Holder
of the Exchangeable Transferor Certificate. Upon such Series Termination Date
with respect to the applicable Series of Certificates, final payment of all
amounts allocable to any Investor Certificates of such Series shall be made in
the manner provided in Section 12.3.
Section 12.2 Optional Termination. (a) If so provided in any
Supplement, the Transferor may, but shall not be obligated to, cause a final
distribution to be made in respect of the related Series of Certificates on a
Distribution Date specified in such Supplement by depositing into the
Distribution Account or the applicable Series Account, not later than the
Transfer Date preceding such Distribution Date, for application in accordance
with Section 12.3, the amount specified in such Supplement.
(b) The amount deposited pursuant to subsection 12.2(a) shall be paid
to the Investor Certificateholders of the related Series pursuant to Section
12.3 on the related Distribution Date following the date of such deposit. All
Certificates of a Series with respect to which a final distribution has been
made pursuant to subsection 12.2(a) shall be delivered by the Holder to, and be
canceled by, the Transfer Agent and Registrar and be disposed of in a manner
satisfactory to the Trustee and the Transferor. The Invested Amount of each
Series with respect to which a final distribution has been made pursuant to
subsection 12.2(a) shall, for the purposes of the definition of "Transferor
Interest," be deemed to be equal to zero on the Distribution Date following the
making of the deposit, and the Transferor Interest shall thereupon be deemed to
have been increased by the Invested Amount of such Series.
Section 12.3 Final Payment with Respect to any Series.
(a) Written notice of any termination, specifying the Distribution Date
upon which the Investor Certificateholders of any Series may surrender their
Certificates for payment of the final distribution with respect to such Series
and cancellation, shall be given (subject to at least five Business Days' prior
notice from the Servicer to the Trustee) by the Trustee to Investor
Certificateholders of such Series mailed not later than the fifth day of the
month of such final distribution (or in the manner provided by the Supplement
relating to such Series) specifying (i) the Distribution Date (which shall be
the Distribution Date in the month (x) in which the deposit is made pursuant to
subsection 2.4(e), 9.2(a), 10.2(a), or 12.2(a) of the Agreement or such other
section as may be specified in the related Supplement, or (y) in which the
related Series Termination Date occurs) upon which final payment of such
Investor Certificates will be made upon presentation and surrender of such
Investor Certificates at the office or offices therein designated, (ii) the
amount of any such final payment and (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made only
upon presentation and surrender of the Investor Certificates at the office or
offices therein specified. The Servicer's notice to the Trustee in accordance
with the preceding sentence shall be accompanied by an Officers' Certificate
setting forth the information specified in Article V of this Agreement covering
the period during the then current calendar year through the date of such notice
and setting forth the date of such final distribution. The Trustee shall give
such notice to the Transfer Agent and Registrar and the Paying Agent at the time
such notice is given to such Investor Certificateholders.
(b) Notwithstanding the termination of the Trust pursuant to subsection
12.1(a) or the occurrence of the Series Termination Date with respect to any
Series, all funds then on deposit in the Collection Account, the Excess Funding
Account, the Distribution Account or any Series Account applicable to the
related Series shall continue to be held in trust for the benefit of the
Certificateholders of the related Series and the Paying Agent or the Trustee
shall pay such funds to the Certificateholders of the related Series upon
surrender of their Certificates. In the event that all of the Investor
Certificateholders of any Series shall not surrender their Certificates for
cancellation within six months after the date specified in the above-mentioned
written notice, the Trustee shall give a second written notice to the remaining
Investor Certificateholders of such Series upon receipt of the appropriate
records from the Transfer Agent and Registrar to surrender their Certificates
for cancellation and receive the final distribution with respect thereto. If
within one and one half years after the second notice with respect to a Series,
all the Investor Certificates of such Series shall not have been surrendered for
cancellation, the Trustee may take appropriate steps or may appoint an agent to
take appropriate steps, to contact the remaining Investor Certificateholders of
such Series concerning surrender of their Certificates, and the cost thereof
shall be paid out of the funds in the Distribution Account or any Series
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Account held for the benefit of such Investor Certificateholders. The Trustee
and the Paying Agent shall pay to the Transferor upon request any monies held by
them for the payment of principal or interest which remains unclaimed for two
years. After payment to the Transferor, Investor Certificateholders entitled to
the money must look to the Transferor for payment as general creditors unless an
applicable abandoned property law designates another Person.
(c) All Certificates surrendered for payment of the final distribution
with respect to such Certificates and cancellation shall be canceled by the
Transfer Agent and Registrar and be disposed of in a manner satisfactory to the
Trustee and the Transferor.
Section 12.4 Termination Rights of Holder of Exchangeable
Transferor Certificate. Upon the termination of the Trust pursuant to Section
12.1, and after payment of all amounts due hereunder on or prior to such
termination and the surrender of the Exchangeable Transferor Certificate, the
Trustee shall execute a written reconveyance substantially in the form of
Exhibit F pursuant to which it shall reconvey to the Holder of the Exchangeable
Transferor Certificate (without recourse, representation or warranty) all right,
title and interest of the Trust in the Contracts and the related Receivables,
whether then existing or thereafter created, all moneys due or to become due
with respect thereto (including all amounts theretofore posted as Imputed Yield
Receivables) allocable to the Trust pursuant to any Supplement, except for
amounts held by the Trustee pursuant to subsection 12.3(b). The Trustee shall
execute and deliver such instruments of transfer and assignment, in each case
prepared by the Transferor and without recourse, representation or warranty
(other than a warranty that such property is conveyed free and clear of any Lien
of any Person claiming by or through the Trustee) as shall be reasonably
requested by the Holder of the Exchangeable Transferor Certificate to vest in
such Holder all right, title and interest which the Trust had in the Contracts
and the related Receivables and other Trust Property.
[End of Article XII]
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ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Amendment.
(a) This Agreement (including any Supplement) may be amended from time
to time by the Servicer, the Transferor and the Trustee, without the consent of
any of the Certificateholders, (i) to cure any ambiguity, to revise any exhibits
or Schedules, to correct or supplement any provisions herein or thereon which
may be inconsistent with any other provisions herein or thereon, (ii) to add any
other provisions with respect to matters or questions raised under this
Agreement which shall not be inconsistent with the provisions of this Agreement,
or (iii) to add to or change any of the provisions of this Agreement to permit
the issuance of Certificates in uncertificated form; provided, that (x) each of
the Transferor and the Servicer shall have delivered to the Trustee an Officer's
Certificate to the effect that the Transferor or the Servicer, as the case may
be, reasonably believes that such amendment shall not adversely affect in any
material respect the interests of any Investor Certificateholder and (y) the
Servicer shall have provided at least ten Business Days' prior written notice to
each Rating Agency of such amendment and the Rating Agency Condition shall have
been satisfied with respect thereto.
This Agreement (including any Supplement), and any schedule or exhibit
thereto may also be amended from time to time by the Servicer, the Transferor
and the Trustee, without the consent of any of the Certificateholders, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement, or of modifying in any manner the rights of
the Holders of Certificates; provided, however, that (i) each of the Transferor
and the Servicer shall have delivered to the Trustee an Officer's Certificate to
the effect that the Transferor or the Servicer, as the case may be, reasonably
believes that such amendment shall not adversely affect in any material respect
the interests of any Investor Certificateholder, (ii) such amendment shall not,
as evidenced by an Opinion of Counsel, cause the Trust to be characterized for
federal income tax purposes as an association taxable as a corporation or
otherwise have any material adverse impact on the Federal income taxation of any
outstanding Series of Investor Certificates or any Certificate Owner, and (iii)
the Servicer shall have provided at least ten Business Days' prior written
notice to each Rating Agency of such amendment and the Rating Agency Condition
shall have been satisfied with respect thereto; provided, further, that such
amendment shall not reduce in any manner the amount of, or delay the timing of,
distributions which are required to be made on any Investor Certificate of such
Series without the consent of the related Investor Certificateholder, change the
definition of or the manner of calculating the interest of any Investor
Certificateholder of such Series without the consent of the related Investor
Certificateholder or reduce the percentage pursuant to Subsection 13.1(b)
required to consent to any such amendment, in each case without the consent of
all such Investor Certificateholders.
(b) This Agreement and any Supplement may also be amended from time to
time by the Servicer, the Transferor and the Trustee with the consent of the
Holders of Investor Certificates evidencing Undivided Interests aggregating not
less than 66-2/3% of the Invested Amount of each and every Series adversely
affected, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Investor Certificateholders of any Series then issued
and outstanding; provided, however, that no such amendment under this subsection
shall (i) reduce in any manner the amount of, or delay the timing of,
distributions which are required to be made on any Investor Certificate of such
Series without the consent of all of the related Investor Certificateholders;
(ii) change the definition of or the manner of calculating the interest of any
Investor Certificateholder of such Series without the consent of the related
Investor Certificateholder or (iii) reduce the aforesaid percentage required to
consent to any such amendment, in each case without the consent of all such
Investor Certificateholders.
(c) Notwithstanding anything in this Section 13.1 to the contrary, the
Supplement with respect to any Series may be amended on the terms and in
accordance with the procedures provided in such Supplement.
(d) Promptly after the execution of any such amendment (other than an
amendment pursuant to paragraph (a)), the Trustee shall furnish notification of
the substance of such amendment to each Investor Certificateholder of each
Series adversely affected and ten Business Days prior to the proposed effective
date for such amendment the Servicer shall furnish notification of the substance
of such amendment to each Rating Agency providing a rating for such Series.
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(e) It shall not be necessary to obtain the consent of Investor
Certificateholders under this Section 13.1 to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Investor Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
(f) Any Supplement executed and delivered pursuant to Section 6.9,
executed in accordance with the provisions hereof, shall not be considered
amendments to this Agreement for the purpose of subsections 13.1(a) and (b).
(g) In connection with any amendment, the Trustee may request an
Opinion of Counsel from the Transferor or Servicer to the effect that the
amendment complies with all requirements of this Agreement. The Trustee may, but
shall not be obligated to, enter into any amendment which affects the Trustee's
rights, duties or immunities under this Agreement or otherwise.
Section 13.2 Protection of Right, Title and Interest to Trust.
(a) The Servicer shall cause this Agreement, all amendments hereto
and/or all financing statements and continuation statements and any other
necessary documents covering the Certificateholders and the Trustee's right,
title and interest to the Trust to be promptly recorded, registered and filed,
and at all times to be kept recorded, registered and filed, all in such manner
and in such places as may be required by law fully to preserve and protect the
right, title and interest of the Certificateholders or the Trustee, as the case
may be, hereunder to all property comprising the Trust. The Servicer shall
deliver to the Trustee file-stamped copies of, or filing receipts for, any
document recorded, registered or filed as provided above, as soon as available
following such recording, registration or filing. The Transferor shall cooperate
fully with the Servicer in connection with the obligations set forth above and
will execute any and all documents reasonably required to fulfill the intent of
this subsection 13.2(a).
(b) Within 30 days after the Transferor makes any change in its name,
identity or corporate structure which would make any financing statement or
continuation statement filed in accordance with paragraph (a) above materially
misleading within the meaning of Section 9-402(7) of the UCC as in effect in the
Relevant UCC State, the Transferor shall give the Trustee written notice of any
such change and shall file such financing statements or amendments as may be
necessary or advisable to continue the perfection of the Trust's security
interest in the Contracts and the related Receivables and the proceeds thereof.
(c) Each of the Transferor and the Servicer will give the Trustee
prompt written notice of any relocation of any office from which it services
Contracts or the related Receivables or keeps records concerning the Contracts
or the related Receivables or of its principal executive office and whether, as
a result of such relocation, the applicable provisions of the UCC would require
or make advisable the filing of any amendment of any previously filed financing
or continuation statement or of any new financing statement and shall file such
financing statements or amendments as may be necessary to continue the
perfection of the Trust's security interest in the Contracts and the related
Receivables and the proceeds thereof. Each of the Transferor and the Servicer
will at all times maintain each office from which it services Contracts or the
related Receivables and its principal executive office within the United States
of America, provided, that neither the Transferor nor the Servicer shall
relocate its principal executive office to within the jurisdiction of the Court
of Appeals of the United States for the 10th Circuit unless the Rating Agency
Condition shall have been satisfied with respect thereto.
(d) The Servicer will deliver to the Trustee on or before March 31 of
each year, beginning with March 31, 1998, an Opinion of Counsel, substantially
in the form of Exhibit E.
Section 13.3 Limitation on Rights of Certificateholders.
(a) The death or incapacity of any Investor Certificateholder shall not
operate to terminate this Agreement or the Trust, nor shall such death or
incapacity entitle such Certificateholder's legal representatives or heirs to
claim an accounting or to take any action or commence any proceeding in any
court for a partition or winding up of the Trust, nor otherwise affect the
rights, obligations and liabilities of the parties hereto or any of them.
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(b) No Investor Certificateholder shall have any right to vote (except
with respect to the Investor Certificateholders as provided in Section 13.1
hereof) or in any manner otherwise control the operation and management of the
Trust, or the obligations of the parties hereto, nor shall anything herein set
forth, or contained in the terms of the Certificates, be construed so as to
constitute the Certificateholders from time to time as members of an
association; nor shall any Investor Certificateholder be under any liability to
any third person by reason of any action taken by the parties to this Agreement
pursuant to any provision hereof.
(c) No Certificateholder shall have any right by virtue of any
provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Certificateholder previously shall have given written notice to the Trustee, and
unless the Holders of Certificates evidencing Undivided Interests aggregating
more than 50% of the Invested Amount of any Series which may be adversely
affected but for the institution of such suit, action or proceeding, shall have
made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby, and the Trustee, for 60 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding; it being
understood and intended, and being expressly covenanted by each
Certificateholder with every other Certificateholder and the Trustee, that no
one or more Certificateholders shall have the right in any manner whatever by
virtue or by availing itself or themselves of any provisions of this Agreement
to affect, disturb or prejudice the rights of the Certificateholders of any
other of the Certificates, or to obtain or seek to obtain priority over or
preference to any other such Certificateholder, or to enforce any right under
this Agreement, except in the manner herein provided and for the equal, ratable
and common benefit of all Certificateholders. For the protection and enforcement
of the provisions of this Section 13.3, each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
Section 13.4 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, PROVIDED,
HOWEVER, THE LAWS OF THE STATE OF NEW YORK SHALL CONTINUE TO GOVERN THE
FORMATION OF THE TRUST.
Section 13.5 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at, sent by facsimile to, sent by courier at or mailed by
registered mail, return receipt requested, to (a) in the case of the Transferor,
H & T Receivable Funding Corporation, 8700 West Bryn Mawr, Chicago, Illinois
60631, Attention: Box HTRFC, with a copy to the Servicer as provided below, (b)
in the case of the Servicer, Bally Total Fitness Corporation, 8700 West Bryn
Mawr, Chicago, Illinois 60631, Attention: General Counsel, (c) in the case of
the Trustee, to the Corporate Trust Office, (d) in the case of the Enhancement
Provider for a particular Series, the address, if any, specified in the
Supplement relating to such Series and (e) in the case of the Rating Agency for
a particular Series, the address, if any, specified in the Supplement relating
to such Series; or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party. Unless
otherwise provided with respect to any Series in the related Supplement any
notice required or permitted to be mailed to a Certificateholder shall be given
by first class mail, postage prepaid, at the address of such Certificateholder
as shown in the Certificate Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Certificateholder receives such notice.
Section 13.6 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or rights of the Certificateholders thereof.
Section 13.7 Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Section 8.2, this Agreement may not be
assigned by the Servicer without the prior consent of Holders of Investor
Certificates evidencing Undivided Interests aggregating not less than 66-2/3% of
the Invested Amount of each Series on a Series by Series basis.
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Section 13.8 TCB Dual Capacities. The parties expressly
acknowledge and consent to TCB acting in the possible dual capacity of Back-Up
Servicer or Successor Servicer and in the capacity as Trustee. TCB may, in such
dual capacity, discharge its separate functions fully, without hindrance or
regard to conflict of interest principles, duty or loyalty principles or other
breach of fiduciary duties, all of which defenses, claims or assertions are
hereby expressly waived by the other parties hereto. It is expressly
acknowledged, consented and agreed that TCB may discharge its respective Back-Up
Servicing and Trustee obligations to the full in accord with the appropriate
documents and to the extent it is performing its functions in accordance with
the terms of such documents, shall be fully protected and shall be indemnified
against any such claim, assertion or lawsuit alleging breach of fiduciary duty,
conflict of interest or similar defense or claim.
Section 13.9 Certificates Non-Assessable and Fully Paid. Except to
the extent otherwise expressly provided in Section 7.4 with respect to the
Transferor, it is the intention of the parties to this Agreement that the
Investor Certificateholders shall not be personally liable for obligations of
the Trust, that the Undivided Interests represented by the Certificates shall be
non-assessable for any losses or expenses of the Trust or for any reason
whatsoever, and that Certificates upon authentication thereof by the Trustee
pursuant to Sections 2.1 and 6.2 are and shall be deemed fully paid.
Section 13.10 Further Assurances. The Transferor and the Servicer
agree to do and perform, from time to time, any and all acts and to execute any
and all further instruments required or reasonably requested by the Trustee more
fully to effect the purposes of this Agreement, including, without limitation,
the execution of any financing statements or continuation statements relating to
the Contracts and the related Receivables and the other Trust Property for
filing under the provisions of the UCC of any applicable jurisdiction.
Section 13.11 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Trustee, any Enhancement
Provider or the Investor Certificateholders, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exhaustive of any rights, remedies, powers and privileges
provided by law.
Section 13.12 Counterparts. This Agreement may be executed in two
or more counterparts (and by different parties on separate counterparts), each
of which shall be an original, but all of which together shall constitute one
and the same instrument.
Section 13.13 Binding Effect; Third-Party Beneficiaries. This
Agreement shall inure to the benefit of and the obligations hereunder shall be
binding upon the parties hereto, the Certificateholders and, to the extent
provided in the related Supplement, to the Enhancement Provider named therein,
and their respective successors and permitted assigns. Except as otherwise
provided in this Article XIII, no other Person will have any right or obligation
hereunder.
Section 13.14 Actions by Certificateholders.
(a) Wherever in this Agreement a provision is made that an action may
be taken or a notice, demand or instruction given by Investor
Certificateholders, such action, notice or instruction may be taken or given by
any Investor Certificateholder, unless such provision requires a specific
percentage of Investor Certificateholders.
(b) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Certificateholder shall bind such Certificateholder and
every subsequent holder of such Certificate issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done or omitted to be done by the Trustee or the Servicer in reliance
thereon, whether or not notation of such action is made upon such Certificate.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement or any Supplement to be given
or taken by Certificateholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Certificateholders in
person or by 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, when required, to the Transferor
or the Servicer. Proof of execution of any such instrument or
56
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of a writing appointing any such agent shall be sufficient for any purpose of
this Agreement or any Supplement and conclusive in favor of the Trustee, the
Transferor and the Servicer, if made in the manner provided in this Section.
(d) The fact and date of the execution by any Certificateholder of any
such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
Section 13.14A Rule 144A Information. For so long as any of the
Investor Certificates of any Series or any Class are "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act, each of the
Transferor, the Servicer, the Trustee and the Enhancement Provider for such
Series agree to cooperate with each other to provide to any Investor
Certificateholders of such Series or Class and to any prospective purchaser of
Certificates designated by such an Investor Certificateholder upon the request
of such Investor Certificateholder or prospective purchaser, any information
required to be provided to such Investor Certificateholder or prospective
purchaser to satisfy the condition set forth in Rule 144A(d)(4) under the
Securities Act.
Section 13.15 Merger and Integration. Except as specifically stated
otherwise herein, this Agreement sets forth the entire understanding of the
parties relating to the subject matter hereof, and all prior understandings,
written or oral (including the Original Agreement), are superseded by this
Agreement. This Agreement may not be modified, amended, waived or supplemented
except as provided herein.
Section 13.16 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
Section 13.17 No Bankruptcy Petition Against the Transferor. The
Trustee, the Transfer Agent and Registrar and Paying Agent and the Servicer each
hereby covenants and agrees that, prior to the day which is one year and one day
after the payment in full of all Invested Amounts, it will not institute
against, or join any other Person in instituting against the Transferor any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
or other similar proceeding under the laws of the United States or any state of
the United States.
[End of Article XIII]
57
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IN WITNESS WHEREOF, the Transferor, the Servicer and the Trustee have
caused this Agreement to be duly executed by their respective officers as of the
day and year first above written.
H & T RECEIVABLE FUNDING
CORPORATION
Transferor
By: /s/ John W. Dywer
Printed Name: John W. Dwyer
Title: Senior Vice President
BALLY TOTAL FITNESS
CORPORATION
Servicer
By: /s/ John W. Dywer
Printed Name: John W. Dwyer
Title: Senior Vice President
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
not individually but solely
as Trustee
By: /s/ Eric C. Lokker
Printed Name: Eric C. Lokker
Title: Assistant Vice President
58
EXHIBIT 10.12
- - --------------------------------------------------------------------------------
H & T RECEIVABLE FUNDING CORPORATION
Transferor
BALLY TOTAL FITNESS CORPORATION
Servicer
and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
Trustee
on behalf of the Series 1996-1 Certificateholders
------------------------------------
SERIES 1996-1 SUPPLEMENT
Dated as of December 16, 1996
to
POOLING AND SERVICING AGREEMENT
Dated as of December 16, 1996
------------------------------------
H & T MASTER TRUST
$145,500,000 8.43% Accounts Receivable Trust
Certificates, Series 1996-1, Class A-1
$14,500,000 Floating Rate Accounts Receivable Trust
Certificates, Series 1996-1, Class A-2
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Designation......................................................1
Section 2. Definitions......................................................1
Section 3. Delivery and Payment for the Series 1996-1 Certificates.........12
Section 4. Form of Delivery of Series 1996-1 Certificates..................12
Section 5. Article IV of Agreement.........................................12
ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS.......................14
Section 4.4 Rights of Series 1996-1 Certificateholders......................14
Section 4.5 Collections and Allocations; Payments on Exchangeable
Transferor Certificate; Dilutions...............................15
Section 4.6 Determination of Monthly Interest for the Series 1996-1
Certificates....................................................18
Section 4.7 Determination of Principal Amounts..............................19
Section 4.8 Shared Principal Collections....................................19
Section 4.9 Application of Funds on Deposit in the Collection Account
for the Certificates............................................19
Section 4.10 The Reserve Fund............................................. ..23
Section 4.11 Payment of Monthly Interest.....................................24
Section 4.12 Payment of Principal............................................25
Section 4.13 Investor Charge-Offs............................................25
Section 4.14 Determination of LIBOR..........................................25
Section 6. Article V of the Agreement......................................26
ARTICLE V DISTRIBUTIONS AND REPORTS TO INVESTOR
CERTIFICATEHOLDERS..............................................26
Section 5.1 Distributions...................................................26
Section 5.2 Certificateholders' Statement...................................26
Section 5.3 SEC Filings.....................................................28
Section 5.4 [Reserved]......................................................28
Section 5.5 Delivery of Documents to the Series 1996-1 Certificateholders...28
Section 7. Series 1996-1 Pay-Out-Events....................................29
Section 8. [Reserved]......................................................32
Section 9. [Reserved]......................................................32
Section 10. Replacement Series; Make Whole Payments.........................32
Section 11. Reassignment Terms..............................................32
Section 12. Mandatory Prepayment............................................32
Section 13. Partial Redemption of Series 1996-1 Certificates................33
Section 14. Series 1996-1 Termination.......................................33
Section 15. Transfer and Exchange; Restrictions on Transfer of Series
1996-1 Certificates; Tax Treatment; Legends.....................33
Section 16. Back-Up Servicer................................................35
Section 17. Additional Consent Rights; Modifications to Agreement...........35
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Section 18. Issuance of Additional Series of Investor Certificates..........37
Section 19. Closed and Sold Clubs...........................................37
Section 20. Right to Visit Servicer and Review Receivables..................40
Section 21. Interest Rate Cap Reductions....................................40
Section 22. Ratification of Agreement.......................................41
Section 23. Counterparts....................................................41
Section 24. GOVERNING LAW...................................................41
Section 25. Instructions in Writing.........................................41
Section 26. Post Closing Searches...........................................41
Section 27. Series 1995-1 Replacement Series Conditions.....................41
Section 28. Amendment or Release of Interest Rate Cap.......................41
EXHIBIT A-1 Form of Class A-1 Investor Certificate
EXHIBIT A-2 Form of Class A-2 Investor Certificate
EXHIBIT B Form of Monthly Certificateholder's Statement
EXHIBIT C Form of Investment Letter - Qualified Institutional Buyer
EXHIBIT D Form of Investment Letter - Institutional Accredited Investor
SCHEDULE I Principal and Interest Payment Stream
ANNEX 1 Confidentiality Requirements
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SERIES 1996-1 SUPPLEMENT, dated as of December 16, 1996 (this "Series
Supplement") by and among H & T RECEIVABLE FUNDING CORPORATION, a corporation
organized and existing under the laws of the State of Delaware, as Transferor
(the "Transferor"), BALLY TOTAL FITNESS CORPORATION, a corporation organized and
existing under the laws of the State of Delaware, as Servicer (the "Servicer"),
and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association
organized and existing under the laws of the United States, as Trustee (together
with its successors in trust thereunder as provided in the Agreement referred to
below, the "Trustee") under the Amended and Restated Pooling and Servicing
Agreement, dated as of December 16, 1996 (the "Agreement") by and among the
Transferor, the Servicer and the Trustee.
Section 6.9 of the Agreement provides, among other things, that the
Transferor, the Servicer and the Trustee may at any time and from time to time
enter into a Supplement to the Agreement for the purpose of authorizing the
issuance by the Trustee to the Transferor, for execution and redelivery to the
Trustee for authentication, of one or more Series of Investor Certificates.
Pursuant to this Series Supplement, the Transferor, the Servicer and
the Trustee shall create a new Series of Investor Certificates and shall specify
the Principal Terms thereof.
Section 1. Designation. There is hereby created a Series of Investor
Certificates to be issued pursuant to the Agreement and this Series Supplement
to be known generally as the "Series 1996-1 Certificates." The Series 1996-1
Certificates shall be issued in two Classes, which shall be designated generally
as the 8.43% Accounts Receivable Trust Certificates, Series 1996-1, Class A-1
(the "Class A-1 Certificates") and the Floating Rate Accounts Receivable Trust
Certificates, Series 1996-1, Class A-2 (the "Class A-2 Certificates").
Section 2. Definitions. In the event that any term or provision
contained herein shall conflict with or be inconsistent with any provision
contained in the Agreement, the terms and provisions of this Series Supplement
shall govern with respect to the Series 1996-1 Certificates. All Article,
Section or subsection references herein shall mean Article, Section or
subsections of the Agreement, as amended or supplemented by this Series
Supplement, except as otherwise provided herein. All capitalized terms not
otherwise defined herein are defined in the Agreement. Each capitalized term
defined herein shall relate only to the Series 1996-1 Certificates and no other
Series of Investor Certificates issued by the Trust.
"Adjusted Net Revenues-Membership Revenues" shall mean, as of the end
of the last Business Day of any Monthly Period, the average of the aggregate Net
Revenues-Membership Revenues of Bally and its subsidiaries for such Monthly
Period and the two previous Monthly Periods, in each case to the extent that
such amounts were derived from health clubs operated by Bally and its
subsidiaries as of the end of such Monthly Periods.
"Amortization Period" shall mean the period beginning on the earlier of
the Pay-Out Commencement Date or on the day following the last day of the
Revolving Period, and ending on the earlier of the date on which funds
sufficient for the payment in full of the Series 1996-1 Certificates have been
deposited in the Distribution Account or on the Series 1996-1 Termination Date.
For purposes of the Agreement not specific to this Series Supplement, an
Amortization Period commencing with the Pay-Out Commencement Date shall
constitute a "Rapid Amortization Period" for Series 1996-1.
"Amortization Period Commencement Date" shall mean the earlier of (a)
the first day of the July 1999 Monthly Period and (b) the Pay-Out Commencement
Date.
"ASA Default Amount" shall mean, with respect to any Business Day, an
amount equal to the product of (a) the Default Amount identified since the prior
reporting date, and (b) the ASA Floating Allocation Percentage with respect to
such Business Day.
"ASA Dilution Amount" shall mean, with respect to any Business Day, an
amount equal to the product of (a) the aggregate amount of Dilutions identified
since the prior reporting date (excluding all Dilutions attributable to any
Credit Card Program), and (b) the ASA Floating Allocation Percentage with
respect to such Business Day.
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"ASA Floating Allocation Percentage" shall mean, with respect to any
Business Day, the percentage equivalent of a fraction, the numerator of which is
the Available Subordination Amount as of the end of the preceding Business Day
and the denominator of which is (a) the sum of the Aggregate Principal
Receivables plus the principal amount, if any, on deposit in the Excess Funding
Account, each as of the end of the preceding Business Day or (b) when used with
respect to Principal Collections only, the denominator shall be the greater of
(i) such amount set forth in clause (a), and (ii) the sum of the numerators used
to calculate the allocation percentages with respect to Principal Collections
for all outstanding Series and related Available Subordination Amounts (as
defined in the Agreement), if any, on such day.
"ASA Principal Allocation Amount" shall mean (a) with respect to any
Business Day during the Revolving Period, an amount equal to the product of (i)
the ASA Floating Allocation Percentage, and (ii) Principal Collections, in each
case with respect to such Business Day, and (b) with respect to any Business Day
on and after the Amortization Period Commencement Date, an amount equal to the
product of (i) the ASA Principal Allocation Percentage, and (ii) Principal
Collections, in each case with respect to such Business Day.
"ASA Principal Allocation Percentage" shall mean, with respect to any
Business Day on and after the Amortization Period Commencement Date, the
percentage equivalent of a fraction, (a) the numerator of which is (i) if such
Business Day occurs during the Amortization Period and a Pay-Out-Event shall not
have occurred, the Available Subordination Amount as of the end of the preceding
Business Day, or (ii) if such Business Day occurs during the Amortization Period
and a Pay-Out-Event shall have occurred, the Available Subordination Amount as
of the end of the last Business Day preceding the commencement of such
Pay-Out-Event, and (b) the denominator of which is the greater of (i) the sum of
the Aggregate Principal Receivables plus the principal amount, if any, on
deposit in the Excess Funding Account, each as of the end of the preceding
Business Day, and (ii) the sum of the numerators used to calculate the
allocation percentages with respect to Principal Collections for all outstanding
Series and related Available Subordination Amounts (as defined in the
Agreement), if any, on such day.
"Available Imputed Yield Collections" shall mean, with respect to any
Business Day or Monthly Period, as applicable, the sum of (a) Available Series
1996-1 Imputed Yield Collections, (b) Available Transferor Imputed Yield
Collections, (c) interest earnings on the amount on deposit in the Collection
Account and the Excess Funding Account, in each case with respect to such
Business Day or Monthly Period, as the case may be (provided, that if one or
more other Series are issued and outstanding while any Series 1996-1
Certificates remain outstanding, then interest earnings under this clause (c)
shall be limited to Series 1996-1's Series Allocation Percentage of such
amounts), and (d) during any Amortization Period, the Floating Allocation
Percentage and the ASA Floating Allocation Percentage of all Recoveries.
"Available Series 1996-1 Imputed Yield Collections" shall mean, with
respect to any Business Day, the product of (a) the Floating Allocation
Percentage and (b) Imputed Yield Collections received with respect to such
Business Day.
"Available Subordination Amount" shall mean an amount equal to the
following (but in no event less than zero):
(a) with respect to any Business Day during the Revolving Period, the
lesser of
(i) $121,000,000 (or, in the event a Replacement Series is
issued in respect of a Class as provided in Section 10 of this
Supplement, the lesser of (x) $121,000,000, and (y) an amount equal to
the product of $121,000,000 times a fraction, the numerator of which is
the Invested Amount of the remaining Class as of the date of repayment
of the replaced Class, and the denominator of which is the Initial
Invested Amount), and
(ii) the amount of the Transferor Interest;
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(b) with respect to any Business Day during the Amortization Period
(including the Amortization Period Commencement Date), the Available
Subordination Amount as of the end of the prior Business Day, minus
(i) the sum of the Investor Default Amount, the ASA Default
Amount, and Series 1996-1's Series Allocation Percentage of Adjustment Payment
Shortfalls, in each case as calculated on such day; and further, if the date of
determination pursuant to this clause (b) is a Determination Date, minus
(ii) the Monthly ASA Reduction Amount, plus (if the date
of determination pursuant to this clause (b) is a Determination Date),
(iii) the amount, if any, to be reinstated with respect to the
Available Subordination Amount (as determined on that day through
application of Available Imputed Yield Collections, Excess Imputed
Yield Collections, amounts drawn from the Reserve Fund and Transferor
Principal Collections, in accordance with subsections 4.5(b)(ii)(A)(3)
and 4.5(b)(ii) (B)).
The computations described in this clause (b) shall not be in addition
to those computations described in Section 4.5(b)(ii)(A)(3) and Section
4.5(b)(ii)(B).
"Available Transferor Imputed Yield Collections" shall mean, with
respect to any Business Day, the product of (a) the ASA Floating Allocation
Percentage and (b) the Imputed Yield Collections received with respect to such
Business Day.
"Back-Up Servicer" shall mean Texas Commerce Bank National Association
and its successors and any Person resulting from or surviving any consolidation
or merger to which it or its successors may be a party, and any successor
back-up servicer appointed as provided in the Back-Up Servicing Agreement.
"Back-Up Servicing Agreement" shall mean the Amended and Restated
Back-Up Servicing Agreement, dated as of December 16, 1996 by and among the
Transferor, the Servicer, the Trustee and the Back-Up Servicer.
"Back-Up Servicer Standby Fee" shall mean the fee payable to the
Back-Up Servicer pursuant to Section 8 of the Back-Up Servicing Agreement, which
is $150,000 per annum ($12,500 per month), until such time as the Back-Up
Servicer shall become the Successor Servicer under the Agreement or the Back-Up
Servicing Agreement shall be terminated in accordance with its terms.
"Base Rate" shall mean, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which is the
sum of (a) the Class A-1 Interest and the Class A-2 Interest due on the
Distribution Date which occurs in the succeeding Monthly Period and (b) any
Class A-1 Carryover Interest and any Class A-2 Carryover Interest due on the
Distribution Date which occurs in the succeeding Monthly Period, and the
denominator of which is the sum of (a) the Invested Amount as of the
Distribution Date which occurs in such Monthly Period (after giving effect to
any distributions of Principal on such Distribution Date) and (b) the Available
Subordination Amount as of the end of the preceding Monthly Period. For purposes
of this definition, any calculation of Class A-2 Interest or Class A-2 Carryover
Interest shall be made based on a Class A-2 Certificate Rate for any applicable
period equal to the lesser of (i) the Class A-2 Certificate Rate actually in
effect for such period, or (ii) 12.0% per annum.
"Carryover Interest" shall mean the sum of (a) any Class A-1 Carryover
Interest and (b) any Class A-2 Carryover Interest.
"Cash Out Program" shall mean any offer made by the Servicer to
selected Obligors, pursuant to which such Obligors are permitted to satisfy the
principal amount outstanding under their respective Eligible Receivables at a
specified discount by making payment in full of such discounted balance.
"Class A-1 Additional Interest" shall have the meaning specified in
subsection 4.6(a) of the Agreement.
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"Class A-1 Carryover Interest" shall mean the sum of (a) any Class A-1
Interest Shortfall remaining unpaid plus (b) any Class A-1 Additional Interest.
"Class A-1 Certificateholder" shall mean the Person in whose name a
Class A-1 Certificate is registered in the Certificate Register.
"Class A-1 Certificate Rate" shall mean 8.43% per annum.
"Class A-1 Certificates" shall mean any of the certificates executed by
the Transferor and authenticated by or on behalf of the Trustee, substantially
in the form of Exhibit A-1 hereto.
"Class A-1 Initial Invested Amount" shall mean the aggregate initial
principal amount of the Class A-1 Certificates, which is $145,500,000.
"Class A-1 Interest" shall mean, with respect to each Distribution
Date, the interest distributable in respect of the Class A-1 Certificates as
calculated in accordance with subsection 4.6(a) of the Agreement.
"Class A-1 Interest Accrual Period" shall mean, with respect to each
Distribution Date, the Monthly Period immediately preceding the Monthly Period
in which such Distribution Date occurs.
"Class A-1 Interest Shortfall" shall have the meaning specified in
subsection 4.6(a) of the Agreement.
"Class A-1 Investor Charge-Offs" shall have the meaning specified in
subsection 4.13(b) of the Agreement.
"Class A-1 Invested Amount" shall mean, with respect to any Business
Day, an amount equal to (a) the Class A-1 Initial Invested Amount, minus (b) the
aggregate amount of principal payments actually distributed to Class A-1
Certificateholders prior to such Business Day, minus (c) the aggregate amount of
Class A-1 Investor Charge-Offs for all prior Distribution Dates, plus (d) the
aggregate amount of Available Imputed Yield Collections and amounts drawn from
the Reserve Fund which were applied pursuant to subsection 4.9(a)(v) (and
subsection 4.9(d), in the case of the Reserve Fund) of the Agreement on all
prior Distribution Dates for the purpose of reimbursing amounts deducted
pursuant to the foregoing clause (c).
"Class A-1 Make Whole Determination Date" means two (2) Business Days
prior to the Distribution Date on which the relevant prepayment is to be made.
"Class A-1 Make Whole Payment" shall mean, as of any Class A-1 Make
Whole Determination Date, to the extent that the Reinvestment Yield on such
Class A-1 Make Whole Determination Date is lower than the Class A-1 Certificate
Rate, the excess of (a) the present value of the payments of the Outstanding
Certificate Amount of the Class A-1 Certificates (or portion thereof being
prepaid) and interest payments thereon (exclusive of accrued interest through
the date of prepayment) that would have been payable in respect of the Class A-1
Certificates (or portion thereof) in accordance with Schedule I hereto if the
prepayment in question had not been made, determined by discounting
(semi-annually on the basis of a 360-day year of twelve 30-day months), such
payments at a rate that is equal to the Reinvestment Yield over (b) the
Outstanding Certificate Amount of the Class A-1 Certificates (or portion thereof
being prepaid) and interest payments due to Class A-1 Certificateholders then to
be prepaid. To the extent that the Reinvestment Yield on any Class A-1 Make
Whole Determination Date is equal to or higher than the Class A-1 Certificate
Rate, the Make-Whole Amount is zero.
"Class A-1 Percentage" shall mean, with respect to any Business Day,
the percentage equivalent of a fraction, the numerator of which is the Class A-1
Invested Amount and the denominator of which is the Invested Amount, in each
case as of the end of the preceding Business Day.
"Class A-2 Additional Interest" shall have the meaning specified in
subsection 4.6(b) of the Agreement.
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"Class A-2 Carryover Interest" shall mean the sum of (a) any Class A-2
Interest Shortfall remaining unpaid plus (b) any Class A-2 Additional Interest.
"Class A-2 Certificateholder" shall mean the Person in whose name a
Class A-2 Certificate is registered in the Certificate Register.
"Class A-2 Certificate Rate" shall mean 2.57% per annum above LIBOR
determined on December 12, 1996 for the period from December 16, 1996 through
January 14, 1997, and with respect to each Class A-2 Interest Accrual Period
thereafter, a per annum rate 2.57% in excess of LIBOR, as determined on the
related LIBOR Determination Date.
"Class A-2 Certificates" shall mean any of the certificates executed by
the Transferor and authenticated by the Trustee, substantially in the form of
Exhibit A-2 hereto.
"Class A-2 Initial Invested Amount" shall mean the aggregate initial
principal amount of the Class A-2 Certificates, which is $14,500,000.
"Class A-2 Interest" shall mean, with respect to each Distribution
Date, the interest distributable in respect of the Class A-2 Certificates as
calculated in accordance with subsection 4.6(b) of the Agreement.
"Class A-2 Interest Accrual Period" shall mean, with respect to each
Distribution Date, the period from and including the preceding Distribution Date
to and excluding such Distribution Date; provided, however, that the initial
Class A-2 Interest Accrual Period shall be the period from the Closing Date to
and excluding the first Distribution Date.
"Class A-2 Interest Shortfall" shall have the meaning specified in
subsection 4.6(b) of the Agreement.
"Class A-2 Invested Amount" shall mean, with respect to any Business
Day, an amount equal to (a) the Class A-2 Initial Invested Amount, minus (b) the
aggregate amount of principal payments actually distributed to Class A-2
Certificateholders prior to such Business Day, minus (c) the aggregate amount of
Class A-2 Investor Charge-Offs for all prior Distribution Dates, plus (d) the
aggregate amount of Available Imputed Yield Collections and amounts drawn from
the Reserve Fund which were applied pursuant to subsection 4.9(a)(v) (and
subsection 4.9(d), in the case of the Reserve Fund) of the Agreement on all
prior Distribution Dates for the purpose of reimbursing amounts deducted
pursuant to the foregoing clause (c).
"Class A-2 Investor Charge-Offs" shall have the meaning specified in
subsection 4.13(b) of the Agreement.
"Class A-2 Percentage" shall mean, with respect to any Business Day,
the percentage equivalent of a fraction, the numerator of which is the Class A-2
Invested Amount and the denominator of which is the Invested Amount, in each
case as of the end of the preceding Business Day.
"Closing Date" shall mean December 16, 1996.
"Coupon Contract" shall mean a Contract which by its then applicable
terms requires the related Obligor to remit payments by check in an amount
specified in a coupon payment book or other billing statement prepared and sent
to the Obligor by BTFC.
"Credit Card Program" shall mean a BTFC-sponsored program with a major
bank issuer providing for the issuance of a credit card.
"Designated Maturity" means one month.
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"Distribution Date" shall mean January 15, 1997 and the 15th day of
each month thereafter, or if such day is not a Business Day, the next succeeding
Business Day. For the purposes of this definition, clause (ii) of the definition
of Business Day shall not be operative.
"EFT Account" shall have the meaning specified in subsection 4.2(e) of
the Agreement.
"EFT Contract" shall mean a Contract which by its then current terms
provides for a predetermined amount to be automatically transferred from the
related Obligor's checking or savings account to BTFC or for a regularly
scheduled monthly charge to be made to the Obliger's designated credit card on
the same day of each month.
"Enhancement" shall mean, with respect to Series 1996-1, the
subordination of the Transferor Interest to the extent and in the manner
provided for in Article IV of the Agreement as supplemented by this Series
Supplement, and the benefit of amounts on deposit and held in the Reserve Fund,
and all rights and benefits under the Interest Rate Cap.
"Excess Imputed Yield Collections" shall mean, with respect to any
Business Day or Monthly Period, as applicable, either (a) the amount described
in subsection 4.9(a)(viii) of the Agreement allocated to the Series 1996-1
Certificates but available to cover shortfalls in amounts paid from Imputed
Yield Collections for other Series, if any, or (b) the aggregate amount of
Imputed Yield Collections allocable to other Series in excess of the amounts
necessary to make required payments with respect to such other Series, if any,
and available to cover shortfalls in amounts paid from Imputed Yield Collections
for the Series 1996-1 Certificates pursuant to subsection 4.9(c) of the
Agreement.
"Excluded Amount" shall mean, for purposes of the Settlement Statement
delivered by the Servicer on any Determination Date, and for purposes of
calculating and reporting the Transferor Interest in the Daily Report delivered
by the Servicer on each Business Day subsequent to the Determination Date on
which such Settlement Statement is delivered through, and including, the next
succeeding Determination Date, and for the purposes of determining Aggregate
Principal Receivables, the sum of Excluded Amount - Clubs and Excluded Amount -
Delinquency for the corresponding period.
"Excluded Amount - Clubs" shall have the meaning specified in Section
19 of this Series Supplement.
"Excluded Amount - Delinquency" shall mean, for purposes of the
Settlement Statement delivered by the Servicer on any Determination Date, and
for purposes of calculating and reporting the Transferor Interest in the Daily
Report delivered by the Servicer on each Business Day subsequent to the
Determination Date on which such Settlement Statement is delivered through, and
including, the next succeeding Determination Date, and for purposes of
determining the Aggregate Principal Receivables on any such Business Day, the
product of the amounts described in clauses (a), (b) and (c) below:
(a) the percentage equivalent of a fraction, the numerator of which is
the aggregate Principal Balances of Qualifying Gross Receivables and
the denominator of which is the aggregate amount of Qualifying Gross
Receivables, in each case as of the end of the last Business Day of the
Monthly Period to which such Settlement Statement relates, times
(b) the sum of:
(i) the difference, if positive, between (A) the sum of the
60-89 Delinquency Percentages for the Monthly Period to which
such Settlement Statement relates and for the two prior
Monthly Periods, divided by three, minus (B) 6.5%; plus
(ii) the difference, if positive, between (A) the sum of the
90-119 Delinquency Percentages for the Monthly Period to which
such Settlement Statement relates and for the two prior
Monthly Periods, divided by three, minus (B) 5.0%; plus
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<PAGE>
(iii) the difference, if positive, between (A) the sum of the
120-179 Delinquency Percentages for the Monthly Period to
which such Settlement Statement relates and for the two prior
Monthly Periods, divided by three, minus (B) 7.0%; times
(c) the aggregate amount of Qualifying Gross Receivables as of the end
of the last Business day of the Monthly Period to which such Settlement
Statement relates.
For purposes of this definition:
"60-89 Delinquency Percentage" shall mean, for any Monthly
Period, the percentage equivalent of a fraction, the numerator of which
is the aggregate amount of Qualifying Gross Receivables which are 60 to
89 days delinquent on a contractual basis and the denominator of which
is the aggregate amount of Qualifying Gross Receivables, in each case
as of the end of the last Business Day of such Monthly Period;
"90-119 Delinquency Percentage" shall mean, for any Monthly
Period, the percentage equivalent of a fraction, the numerator of which
is the aggregate amount of Qualifying Gross Receivables 90 to 119 days
delinquent on a contractual basis and the denominator of which is the
aggregate Qualifying Gross Receivables, in each case as of the end of
the last Business Day of such Monthly Period; and
"120-179 Delinquency Percentage" shall mean, for any Monthly
Period, the percentage equivalent of a fraction, the numerator of which
is the aggregate amount of Qualifying Gross Receivables which are 120
to 179 days delinquent on a contractual basis and the denominator of
which is the aggregate amount of Qualifying Gross Receivables, in each
case as of the end of the last Business Day of such Monthly Period.
"Expected Series 1996-1 Termination Date" shall mean the August, 2002
Distribution Date.
"Gross Receivables" shall mean the total of payments due in respect of
the Receivables, pursuant to Contracts that have not been written off in
accordance with the Servicer's Credit and Collection Policy.
"Initial Invested Amount" shall mean, with respect to the Series 1996-1
Certificates, the sum of (a) the Class A-1 Initial Invested Amount and (b) the
Class A-2 Initial Invested Amount.
"Intangible Assets" shall mean any asset which is treated as an
intangible asset in conformity with GAAP, including but not limited to, any
write-up in the book value of any asset resulting from a revaluation thereof
subsequent to the Closing Date and any deferred charges.
"Interest Accrual Period" shall mean, with respect to each Distribution
Date, the Class A-1 Interest Accrual Period or the Class A-2 Interest Accrual
Period, as applicable.
"Interest Rate Cap" shall mean that certain agreement dated as of
December 16, 1996 between the Transferor and the Interest Rate Cap Provider,
obtained by the Transferor for the benefit of the Series 1996-1
Certificateholders and naming the Trustee as the party entitled to receive
payments made thereunder, pursuant to which the Interest Rate Cap Provider will
be obligated to pay to the Trust an amount equal to all interest accrued on the
Class A-2 Certificates which is allocable to LIBOR being in excess of 9.43%.
"Interest Rate Cap Provider" shall mean The Chase Manhattan Bank.
"Interest Subaccount" shall mean a subaccount of the Collection Account
established and maintained by the Trustee, for purposes of administering certain
of the allocations and payments provided for under the Agreement, to which
amounts constituting Available Imputed Yield Collections which are deposited in
the Collection Account shall be credited until withdrawn from the Collection
Account.
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"Invested Amount" shall mean, with respect to any Business Day, an
amount equal to the sum of (a) the Class A-1 Invested Amount and (b) the Class
A-2 Invested Amount.
"Investor Charge-Off" shall mean the reduction of the Invested Amount
equal to the excess of the sum of the Investor Default Amount and the aggregate
Adjustment Payment Shortfalls (if any) allocated to the Certificates as further
described in Section 4.13(a) hereof.
"Investor Default Amount" shall mean, with respect to any Business Day,
an amount equal to the product of the Default Amount identified since the prior
reporting date and the Floating Allocation Percentage applicable for such
Business Day.
"Investor Dilution Amount" shall mean, with respect to any Business
Day, an amount equal to the product of the aggregate amount of Dilutions
identified since the prior reporting date (excluding all Dilutions attributable
to the Credit Card Program) and the Floating Allocation Percentage applicable
for such Business Day.
"LIBOR" shall mean, for any Class A-2 Interest Accrual Period, the rate
determined by the Trustee for each Class A-2 Interest Accrual Period in
accordance with the provisions of Section 4.14 of the Agreement.
"LIBOR Determination Date" shall mean the second Business Day prior to
the commencement of the second and each subsequent Class A-2 Interest Accrual
Period. For purposes of this definition, a Business Day is any day on which
banks in London are open for the transaction of international business.
"London Business Day" shall mean any day on which banks are open for
business in London and on which dealings in deposits in U.S. dollars are
transacted in the London interbank market.
"Minimum Retained Percentage" shall mean 2%.
"Minimum Transferor Interest" shall mean, with respect to any Business
Day during the Revolving Period, $121,000,000, and shall have no application
during the Amortization Period (except as described in the next sentence).
For all purposes of the Agreement not specific to this Series Supplement
(including, without limitation, subsection 2.4(d) and Section 3.8 of the
Agreement), any reference in the Agreement to the Minimum Transferor Interest
shall, in the context of an Amortization Period, be deemed to be a reference to
the Available Subordination Amount as defined in this Series Supplement.
"Monthly ASA Reduction Amount" shall mean, with respect to a Monthly
Period during any Amortization Period, the sum of the ASA Dilution Amount and
the Investor Dilution Amount for such Monthly Period as reported by the Servicer
on the Daily Report delivered with respect to the last Business Day of such
Monthly Period, which Monthly ASA Reduction Amount shall be applied to reduce
the Available Subordination Amount as of the end of such last Business Day;
provided, the Monthly ASA Reduction Amount shall not be applied to reduce the
Available Subordination Amount to the extent that the Available Subordination
Amount would be less than the greater of (i) the product of (x) $121,000,000 and
(y) a fraction, the numerator of which is the Invested Amount on such Business
Day reduced by amounts which are held in an Investor Account at the end of such
Business Day to the extent allocable to principal and scheduled to be
distributed to the Series 1996-1 Certificateholders in reduction of the Invested
Amount, and the denominator of which is the Initial Invested Amount, and (ii) an
amount equal to (A) $10,000,000 minus (B) the amount on deposit in the Reserve
Fund as of the end of such last Business Day; further provided, however, that to
the extent the Available Subordination Amount may not be reduced as of the end
of the last Business Day of a Monthly Period during the Amortization Period by
the full Monthly ASA Reduction Amount by reason of the limitation in the
preceding proviso, the Monthly ASA Reduction Amount for the succeeding Monthly
Period shall be increased by the amount of such reduction not effected by reason
of such limitation. Notwithstanding the foregoing, upon the occurrence of a
Pay-Out-Event which is continuing, or for so long as any Adjustment Payment
Shortfall remains unpaid, the Monthly ASA Reduction Amount shall be $0.
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"Monthly Back-Up Servicer Standby Fee" shall mean, for any Distribution
Date and the Monthly Period to which it relates, an amount equal to one-twelfth
of the Back-Up Servicer Standby Fee, which is $12,500, provided, however, that
(i) in the case of the first Distribution Date, the Monthly Back-Up Servicer
Standby Fee shall be an amount equal to the product of $12,500 and a fraction,
the numerator of which shall be the number of days from and including the
Closing Date to and including the last day of the initial Monthly Period and the
denominator of which shall be 30 and (ii) in the event the Back-Up Servicer
becomes the Successor Servicer, the Monthly Back-Up Servicer Standby Fee for the
Monthly Period in which such transfer of servicing occurs shall be an amount
equal to the product of $12,500 and a fraction, the numerator of which shall be
the number of days in such Monthly Period preceding the date on which the
appointment of the Back-Up Servicer as Successor Servicer is deemed effective
and the denominator of which shall be 30.
"Monthly Interest" shall mean, with respect to any Distribution Date,
the sum of (a) the Class A-1 Interest and (b) the Class A-2 Interest for such
Distribution Date.
"Monthly Period" shall have the meaning specified in the Agreement,
except that the first Monthly Period with respect to the Series 1996-1
Certificates shall begin on and include the Closing Date and shall end on and
include December 31, 1996.
"Monthly Servicing Fee" shall mean, for any Distribution Date and the
Monthly Period to which it relates, the portion of the Servicing Fee allocable
to the Series 1996-1 Certificates, which shall be an amount equal to one-twelfth
of the product of (a) the Series 1996-1 Servicing Fee Percentage and (b) the sum
of (i) the sum of the Invested Amount as of the end of the last Business Day of
the preceding Monthly Period and as of the end of the last Business Day of such
Monthly Period divided by two, and (ii) the sum of the Available Subordination
Amount as of the end of the last Business Day of the preceding Monthly Period
and as of the end of the last Business Day of such Monthly Period divided by
two, provided, however, that in the case of the first Distribution Date, the
Monthly Servicing Fee shall be an amount equal to one-twelfth of the product of
(a) the Series 1996-1 Servicing Fee Percentage, (b) the sum of the Initial
Invested Amount and the initial Available Subordination Amount, and (c) a
fraction, the numerator of which shall be the number of days from and including
the Closing Date to and including the last day of the initial Monthly Period and
the denominator of which shall be 30.
"Net Revenues-Membership Revenues" means the sum of membership
revenues-new and membership revenues-dues and renewals as reported in the
consolidated financial statements of Bally prepared in accordance with GAAP.
"NRMR Pay-Out-Event Trigger" shall mean, as of the end of the initial
Monthly Period, $35,000,000 and, as of the end of each subsequent Monthly
Period, the product of (a) the NRMR Pay-Out-Event Trigger as of the end of the
prior monthly Period and (b) (i) one minus (ii) a fraction, (A) the numerator of
which is the average of the aggregate Net Revenues-Membership Revenues for the
three Monthly Periods ending with the prior Monthly Period of any health clubs
sold or transferred by Bally or a subsidiary of Bally during such period, and
(B) the denominator of which is the average of the Net Revenues-Membership
Revenues of Bally and its subsidiaries for the corresponding three calendar
months exclusive of the Net Revenues-Membership Revenues of Bally and its
subsidiaries derived from health clubs sold or transferred at any time during
such three calendar months.
"NRMR Reserve Fund Trigger" shall mean, as of the end of the initial
Monthly Period, $40,000,000 and, as of the end of each subsequent Monthly
Period, the product of (a) the NRMR Reserve Fund Trigger as of the end of the
prior Monthly Period and (b) (i) one minus (ii) a fraction, (A) the numerator of
which is the average of the aggregate Net Revenues-Membership Revenues for the
three Monthly Periods ending with the prior Monthly Period of any health clubs
sold or transferred by Bally or a subsidiary of Bally during such period, and
(B) the denominator of which is the average of the Net Revenues-Membership
Revenues of Bally and its subsidiaries for the corresponding three calendar
months exclusive of the Net Revenues-Membership Revenues of Bally and its
subsidiaries derived from health clubs sold or transferred at any time during
such three calendar months.
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"Pay-Out Commencement Date" shall mean the date on which a Trust
Pay-Out-Event occurs or is deemed to occur pursuant to Section 9.1 of the
Agreement or a Series 1996-1 Pay-Out-Event occurs or is deemed to occur pursuant
to Section 7 of this Series Supplement.
"Portfolio Yield" shall mean, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which is an
amount equal to the aggregate Available Imputed Yield Collections for such
Monthly Period, and the denominator of which is an amount equal to the sum of
(a) the Invested Amount as of the Distribution Date which occurs in such Monthly
Period (after giving effect to any distributions of Principal on such
Distribution Date) and (b) the Available Subordination Amount as of the end of
the last day of the preceding Monthly Period.
"Principal" shall mean the principal distributable in respect of the
Series 1996-1 Certificates as calculated in accordance with Section 4.7 of the
Agreement.
"Principal Subaccount" shall mean a subaccount of the Collection
Account established and maintained by the Trustee, for purposes of administering
certain of the allocations and payments provided for under the Agreement, to
which amounts constituting Principal Collections which are deposited in the
Collection Account shall be credited until withdrawn from the Collection
Account.
"Qualifying Gross Receivables" shall mean Gross Receivables as to which
the related Obligors have each made a qualifying first payment.
"Rating Agency" shall mean each of Standard & Poor's Ratings Group, a
division of McGraw-Hill; Fitch Investors Service, L.P.; and Duff & Phelps Credit
Rating Co.
"Reinvestment Yield" means (i) 1% plus the yield reported at 10:00 A.M.
(Chicago time) on the Class A-1 Make Whole Determination Date on the display
designated as "Page 500" on the Telerate Service, (or such other display as may
replace Page 500 of the Telerate Service; either being referred to herein as
"Telerate") for actively traded U.S. Treasury securities having a maturity equal
to the Weighted Average Life to Maturity of the Class A-1 Certificates then
being prepaid as of the date of prepayment, rounded to the nearest month, or
(ii) if such yields shall not be reported as of such time or the yields reported
as of such time are not ascertainable in accordance with the preceding clause,
then the Reinvestment Yield shall be 1% plus the arithmetic mean of the yields
published in the statistical release designated H.15(519) of the Board of
Governors of the Federal Reserve System under the caption "U.S. Government
Securities -- Treasury Constant Maturities" (the "statistical release") for the
maturity corresponding to the remaining Weighted Average Life to Maturity of the
Class A-1 Certificates then being prepaid as of the date of such prepayment,
rounded to the nearest month. If no maturity exactly corresponding to, such
rounded Weighted Average Life to Maturity shall appear in either Telerate or the
statistical release, as the case may be, (a) if necessary, U.S. Treasury bill
quotations shall be converted to bond-equivalent yields in accordance with
accepted financial practice and (b) yields for the two most closely
corresponding published maturities (one of which occurs prior and the other
subsequent to the Weighted Average Life to Maturity) shall be calculated
pursuant to the foregoing sentence and the Reinvestment Yield shall be
interpolated from such yields on a straight-line basis (rounding, in each of
such relevant periods, to the nearest month). In all instances, the
"Reinvestment Yield" shall be adjusted to a monthly equivalent rate. For purpose
of calculating the Reinvestment Yield pursuant to clause (ii) above, the most
recent weekly statistical release published prior to the applicable Make Whole
Class A-1 Determination Date shall be used.
"Reserve Fund" shall mean a segregated trust account maintained by the
Trustee for the benefit of the Series 1996-1 Certificateholders and administered
in accordance with Section 4.10 of the Agreement.
"Reserve Fund Amount" shall mean an amount equal to the following: (a)
during the Revolving Period, $10,000,000 (or, in the event a Replacement Series
has been issued in repayment of a Class, such number multiplied by a fraction,
the numerator of which is the Invested Amount of the remaining Class and the
denominator of which is the Invested Amount as of the Business Day prior to the
distribution made in repayment of such replaced Class),
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or $15,000,000 in the event that Adjusted Net Revenues-Membership Revenues as of
the end of any Monthly Period shall have fallen below the NRMR Reserve Fund
Trigger for such Monthly Period (or, in the event a Replacement Series has been
issued in repayment of a Class, such number multiplied by a fraction, the
numerator of which is the Invested Amount of the remaining Class and the
denominator of which is the Invested Amount as of the Business Day prior to the
distribution made in repayment of such replaced Class); and (b) upon the
commencement of and during the Amortization Period, the result of (i) an amount
equal to the Reserve Fund Amount as of the last day of the Revolving Period (or,
in the event a Replacement Series has been issued in repayment of a Class, such
number multiplied by a fraction, the numerator of which is the Invested Amount
of the remaining Class and the denominator of which is the Invested Amount as of
the Business Day prior to the distribution made in repayment of such replaced
Class), minus (ii) the aggregate amount of withdrawals from the Reserve Fund
after the commencement of the Amortization Period; provided, however, that the
Reserve Fund Amount amounts described above shall never exceed the Outstanding
Certificate Amount.
"Reset Date" means December 12, 1996 and the first day of each
subsequent Class A-2 Interest Accrual Period.
"Revolving Period" shall mean the period from and including the Closing
Date to, but not including, the Amortization Period Commencement Date.
"SEC" shall mean the Securities and Exchange Commission.
"Series 1996-1" shall mean the Series of the H & T Master Trust
represented by the Series 1996-1 Certificates.
"Series 1996-1 Certificateholder" shall mean the Holder of record of
any Series 1996-1 Certificate.
"Series 1996-1 Certificateholders' Interest" shall have the meaning
specified in Section 4.4 of the Agreement.
"Series 1996-1 Certificates" shall mean any of the certificates
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A-1 or A-2 hereto.
"Series 1996-1 Pay-Out-Event" shall have the meaning specified in
Section 8 of this Series Supplement.
"Series 1996-1 Termination Date" shall mean the earlier to occur of (i)
the Distribution Date on which the Series 1996-1 Certificates are paid in full,
or (ii) the Expected Series 1996-1 Termination Date.
"Series 1996-1 Servicing Fee Percentage" shall mean 5% per annum.
"Shared Principal Collections" shall mean, as the context requires,
either (a) the amount allocated to the Series 1996-1 Certificates which, in
accordance with subsections 4.5(b)(i)(B)(1) and (ii)(B)(1), 4.9(a)(iii) and (iv)
and Section 4.12 of the Agreement, may be applied in accordance with subsection
4.3(e) of the Agreement or (b) the amounts allocated to the Investor
Certificates (other than Transferor Retained Certificates) of other Series which
the applicable Supplements for such other Series specify are to be treated as
"Shared Principal Collections" and which, to the extent such amounts exist, may
be applied to cover Principal Shortfalls with respect to the Series 1996-1
Certificates as provided in the Agreement.
"Tangible Net Worth" shall mean as of any date, the stockholders'
equity of Bally (or for purposes of Section 17(a) of this Series Supplement,
BTFC) reported in the consolidated balance sheet of Bally (or BTFC) minus the
Intangible Assets of Bally (or BTFC).
"Telerate Page 3750 Screen" means the display designated as "Page 3750"
on the Telerate Service (or such other page as may replace Page 3750 on that
service or such other service as may be nominated by the British Bankers'
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Association as the information vendor for the purpose of displaying British
Bankers' Association Interest Settlement Rates for U.S. Dollar deposits).
"Termination Payment Date" shall mean the earlier of (a) the first
Distribution Date following the liquidation or sale of the Receivables as a
result of an Insolvency Event, or a Trigger Event and (b) the Expected Series
1996-1 Termination Date.
"Transferor Principal Collections" shall mean, with respect to any
Business Day, the Transferor Percentage of Principal Collections received with
respect to such Business Day.
"Weighted Average Life to Maturity" means with respect to the Class A-1
Certificates, as of the relevant Distribution Date, the number of years obtained
by dividing the then Remaining Dollar-Years by the outstanding Invested Amount
of the Class A-1 Certificates on such relevant Distribution Date. The term
"Remaining Dollar- Years" shall mean the amount obtained by (i) multiplying (x)
the principal amount of the outstanding Invested Amount of the Class A-1
Certificates set forth in respect of each payment date provided for on Schedule
I hereto, by (y) the number of years (calculated to the nearest one-twelfth)
which will elapse between the relevant Distribution Date and such payment date
set forth on said Schedule I, and (ii) totaling the products obtained in (i).
Section 3. Delivery and Payment for the Series 1996-1 Certificates. The
Transferor shall execute and deliver the Series 1996-1 Certificates to the
Trustee for authentication in accordance with Section 6.1 of the Agreement. The
Trustee shall deliver the Series 1996-1 Certificates to or upon the order of the
Transferor when authenticated in accordance with Section 6.2 of the Agreement.
Section 4. Form of Delivery of Series 1996-1 Certificates. The Series
1996-1 Certificates shall be delivered as Registered Certificates as provided in
Section 6.1 of the Agreement.
Section 5. Article IV of Agreement.
(a) Section 4.1 of the Agreement shall read in its entirety as
provided in the Agreement.
(b) Section 4.2 of the Agreement shall read in its entirety as
provided in the Agreement, except that,
(i) the following paragraph shall be added at the end of
subsection 4.2(a):
For purposes of administering the allocations and
payments in respect of the Series 1996-1 Certificates in
accordance with Article IV of the Agreement, the Trustee and
the Servicer shall establish and maintain, on a pro forma
basis only, the Interest Subaccount and the Principal
Subaccount, to which amounts deposited in the Collection
Account with respect to any Monthly Period shall be credited
as provided herein.
(ii) the following new subsection (e) shall be added to
Section 4.2:
(e) The EFT Accounts. The Trustee, for the
benefit of the Certificateholders, shall cause to be
established and maintained in the name of the Trustee, on
behalf of the Certificateholders, one or more demand deposit
accounts (the "EFT Accounts"), each of which shall be a
Qualified Account within the meaning of clause (b) of the
definition thereof, and each of which shall bear a
designation clearly indicating that such account is an EFT
Account and that the funds deposited therein are held for
the benefit of the Certificateholders. Except as provided in
subsection 4.3(a), each EFT Account shall be under the sole
dominion and control of the Trustee for the benefit of the
Certificateholders. Pursuant to the authority granted to the
Servicer herein, the Servicer shall have the power,
revocable by the Trustee, to make withdrawals and payments
from the EFT Accounts for the purpose of carrying out the
Servicer's or the Trustee's duties
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hereunder, and for the purpose of making adjustments to
payments made in respect of EFT Contracts consistent with the
Credit and Collection Policies and its customary servicing
procedures. If, at any time, any EFT Account ceases to be a
Qualified Account by reason of the institution holding such
account, the Servicer shall direct the Trustee to establish
within 45 Business Days a new EFT Account as a Qualified
Account and otherwise meeting the conditions specified above,
transfer any cash and/or any investments to such new EFT
Account and from the date such new EFT Account is established,
it shall be an "EFT Account." Notwithstanding the foregoing,
if the institution holding an EFT Account shall be the
Trustee, and such EFT Account ceases to be a Qualified Account
by reason of the Trustee holding such account, then the
Trustee shall establish such new EFT Account within such 45
Business Day period and the Servicer shall not be required to
deliver the aforesaid direction to the Trustee.
(c) Section 4.3 of the Agreement shall read in its entirety as provided
in the Agreement, except that subsection (a) shall be deemed deleted and
replaced by the following new subsection (a):
(a) Collections. For purposes of the deposits to the
Collection Account hereinafter provided for, the Servicer may, at its
option, make net deposits such that the Servicer need not deposit the
Transferor Collections, or any other amounts allocated to the
Exchangeable Transferor Certificate into the Collection Account and in
making such net deposits shall pay, or be deemed to pay, the Transferor
Collections and such other amounts to the Holder of the Exchangeable
Transferor Certificate.
Obligors shall make payments on all Coupon Contracts and the
related Receivables to the Servicer who shall deposit all such
payments, to the extent constituting either Collections or Transferor
Collections on the Receivables, in the Collection Account no later than
the third Business Day following the Date of Processing thereof,
subject to the right of the Servicer to make net deposits as provided
above. Prior to remitting all such Collections and Transferor
Collections (as identified by the Servicer) to the Collection Account,
the Servicer shall identify the amounts included within such payments
from Obligors as constitute Additional Payments and, in accordance with
subsection 2.1(h) of the Purchase Agreement, the Transferor hereby
authorizes and directs the Servicer, for so long as BTFC shall be the
Servicer, to retain all such Additional Payments for its own account
(provided, that if BTFC shall not be the Servicer, the Servicer shall
remit such Additional Payments to BTFC unless otherwise directed by the
Transferor).
From and after the Closing Date, the Servicer shall cause the
payments on all EFT Contracts and the related Receivables to be
remitted directly to an EFT Account. Unless the Servicer's authority to
deposit and withdraw amounts from the EFT Accounts shall have been
revoked as described below, the Servicer shall have the right to
transfer amounts remitted to each EFT Account to one or more
concentration accounts maintained by BTFC in accordance with the
Servicer's customary and usual servicing and intercompany cash
management procedures, pending the required deposit of any such amounts
to the Collection Account, provided, however, that the Servicer shall
not have the right to transfer amounts from any EFT Account to any such
concentration account (and hereby agrees that it shall not seek to
transfer such amounts) on any Business Day on which the Transferor
Interest, as reported in the Daily Report to be delivered by the
Servicer on such Business Day, does not exceed the Minimum Transferor
Interest (during the Revolving Period) or the Available Subordination
Amount during the Amortization Period or a Pay- Out-Event (other than,
in the case of the Amortization Period, a Pay-Out-Event described in
clause (f) of Section 7 hereof) shall have occurred. The Servicer shall
deposit or shall direct the Trustee to deposit all such payments, to
the extent constituting either Collections or Transferor Collections on
the Receivables, in the Collection Account no later than the third
Business Day following the Date of Processing thereof, subject to the
right of the Servicer to make net deposits as provided above. Prior to
depositing all such Collections and Transferor Collections (as
identified by the
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Servicer) to the Collection Account, the Servicer shall identify the
amounts included within such payments from Obligors as constitute
Additional Payments and, in accordance with subsection 2.1(h) of the
Purchase Agreement, the Transferor hereby authorizes and directs the
Servicer, for so long as BTFC shall be the Servicer, to retain all such
Additional Payments for its own account (provided, that if BTFC shall
not be the Servicer, the Servicer shall remit such Additional Payments
to BTFC unless otherwise directed by the Transferor). Notwithstanding
the preceding sentence, BTFC, the Transferor and the Trustee each
expressly acknowledges and agrees that (i) the Trustee shall
immediately revoke all further authority of BTFC to withdraw any
amounts from all EFT Accounts (in accordance with the procedures agreed
upon with the institutions maintaining such EFT Accounts) upon the
occurrence of a Pay-Out-Event (other than, in the case of the
Amortization Period, a Pay-Out-Event described in clause (f) of Section
7 hereof)(unless and until such time as such revocation shall be waived
by the Holders of Series 1996-1 Certificates evidencing Undivided
Interests aggregating more than 66-2/3% of the Invested Amount), but
shall not revoke such authority unless and until such a Pay-Out-Event
shall have occurred, and (ii) the Trustee shall have a continuing right
to set off and apply all Additional Payments and all Transferor
Collections, to the extent attributable to EFT Contracts and remitted
at any time to any EFT Account, upon any failure by BTFC to timely
remit Collections and Transferor Collections attributable to Coupon
Contracts to the Collection Account as required in accordance with the
preceding paragraph. In the event the Transferor issues other Series of
Investor Certificates pursuant to the Agreement while the Series 1996-1
Certificates remain outstanding, each Series 1996-1 Certificateholder
shall be deemed to have acknowledged and agreed that, unless not
required under the Supplement for any other Series, amounts realized by
the Trustee in effecting any setoff against Additional Payments and
Transferor Collections pursuant to the preceding sentence shall be
deemed deposited in the Collection Account in lieu of the Collections
not remitted by BTFC, and shall be shared on a pari passu basis with
the Certificateholders of other Series in a manner consistent with the
allocation of Collections pursuant to the Agreement and the applicable
Supplements otherwise in effect; provided, however, in no event shall
amounts realized by the Trustee in effecting any such setoff be shared
with the Holder of the Exchangeable Transferor Certificate, and the
Holder of the Exchangeable Transferor Certificate shall have no right
or entitlement thereto (without regard to the allocation of Collections
pursuant to the Agreement and the applicable Supplements otherwise in
effect), unless and until all amounts owing to Investor
Certificateholders in respect of Investor Certificates shall have been
paid in full (or amounts sufficient to make such payments in full shall
have been deposited with the Trustee).
The Servicer shall allocate such Collections and Transferor
Collections to each Series of Investor Certificates and to the Holder
of the Exchangeable Transferor Certificate in accordance with this
Article IV and shall cause the Trustee to withdraw the required amounts
from the Collection Account or pay such amounts to the Holder of the
Exchangeable Transferor Certificate in accordance with this Article IV.
Pursuant to subsection 3.1(b), the Servicer shall have the power,
revocable by the Trustee upon the occurrence of a Servicer Default
pursuant to Section 10.1 or upon the occurrence of a Pay-Out-Event, to
instruct the Trustee in writing pursuant to the Daily Report or
otherwise to instruct the Trustee to make withdrawals and payments from
the Collection Account, the Distribution Account, the Excess Funding
Account and the Reserve Fund for the purpose of carrying out the
Servicer's or the Trustee's duties hereunder. The Servicer shall make
deposits or payments on the dates indicated herein by wire transfer or
as otherwise provided in the Supplement for any Series of Certificates
with respect to such Series.
(b) Article IV of the Agreement (except for Sections 4.1, 4.2 and 4.3
thereof) shall read in its entirety as follows and shall be applicable only to
the Series 1996-1 Certificates.
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
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ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.4 Rights of Series 1996-1 Certificateholders. The
Series 1996-1 Certificates shall represent Undivided Interests in the
Trust, consisting of the right to receive, to the extent necessary to
make the required payments with respect to such Series 1996-1
Certificates at the times and in the amounts specified in this
Agreement, (a) the Fixed/Floating Allocation Percentage and/or the
Floating Allocation Percentage (as provided in subsection 4.3(d) of the
Agreement) of Collections available in the Collection Account, (b)
funds allocable to the Series 1996-1 Certificates on deposit in the
Excess Funding Account and (c) funds on deposit in the Distribution
Account for such Series (the "Series 1996-1 Certificateholders'
Interest"). The Transferor Interest shall be subordinated to the Series
1996-1 Certificates, to the extent and in the manner provided in this
Article IV. The Series 1996-1 Certificates also shall have the right to
receive amounts deposited and held in the Reserve Fund in accordance
with the Agreement and the right to amounts, if any, payable under the
Interest Rate Cap. The Class A-1 Certificates and the Class A-2
Certificates shall rank pari passu and be equally and ratably entitled
to the benefits hereof without preference, priority or distinction,
except as otherwise expressly provided in the Agreement or the Series
1996-1 Supplement.
Section 4.5 Collections and Allocations; Payments on
Exchangeable Transferor Certificate; Dilutions.
(a) Collections. The Servicer shall apply, or shall instruct
the Trustee to apply, all funds on deposit in the Collection Account
and the Excess Funding Account allocable to the Series 1996-1
Certificates, all funds on deposit in the Distribution Account
maintained for this Series, and all funds on deposit in the Reserve
Fund or paid under the Interest Rate Cap as described in this Article
IV.
(b) Allocations; Payments to the Holder of the Exchangeable
Transferor Certificate. With respect to each Business Day, the Servicer
shall determine whether a Pay-Out-Event is deemed to have occurred with
respect to the Series 1996-1 Certificates, and the Servicer shall
allocate and pay Collections and Transferor Collections, and shall
allocate and reallocate Default Amounts and Dilutions (and Adjustment
Payment Shortfalls, if applicable), in accordance with the Daily Report
with respect to such Business Day, to the Holder of the Exchangeable
Transferor Certificate and to the Series 1996-1 Certificateholders as
provided in Section 4.3 of the Agreement, except as modified by the
provisions of this subsection 4.5(b).
(i) With respect to each Business Day during the
Revolving Period,
(A) Allocations and payments to the Holder of the
Exchangeable Transferor Certificate provided for in subsection
4.3(b) of the Agreement shall be modified in accordance with
this subsection 4.5(b)(i)(A) as follows:
(1) Available Transferor Imputed Yield
Collections shall be deposited into the Collection Account for
credit to the Interest Subaccount; and
(2) The ASA Principal Allocation Amount shall be
(x) deposited into the Excess Funding
Account, to the extent the Transferor
Interest otherwise would be less than
the Minimum Transferor Interest (after
giving effect to the deposit of Shared
Principal Collections therein on such
day); and
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(y) then, to the extent any such amount
remains after making the deposit
required in clause (x), deposited into
the Reserve Fund, up to the amount
necessary to cause the amount in the
Reserve Fund to equal the then current
Reserve Fund Amount, and any excess then
shall be treated as Shared Principal
Collections and paid on such date of
deposit to the Holder of the
Exchangeable Transferor Certificate to
the extent provided in subsection 4.3(e)
of the Agreement.
(B) Allocations to the Series 1996-1
Certificateholders provided for in subsection 4.3(d) of the
Agreement shall be modified in accordance with this subsection
4.5(b)(i)(2) as follows:
(1) Principal Collections allocated to the Series
1996-1 Certificateholders pursuant to clause (ii) of
subsection 4.3(d) of the Agreement shall be treated as Shared
Principal Collections and paid on the date of deposit with
respect to such Business Day to the Holder of the Exchangeable
Transferor Certificate to the extent provided in subsection
4.3(e) of the Agreement; and
(2) The Investor Default Amount allocated to the
Series 1996-1 Certificateholders pursuant to clause (iii) of
subsection 4.3(d) of the Agreement shall instead be allocated
to the Holder of the Exchangeable Transferor Certificate.
(ii) With respect to each Business Day during the
Amortization Period:
(A) Allocations and payments to the Holder of the
Exchangeable Transferor Certificate provided for in subsection
4.3(b) of the Agreement shall be modified in accordance with
this subsection 4.5(b)(ii)(A) as follows:
(1) Available Transferor Imputed Yield
Collections shall be deposited into the Collection Account for
credit to the Interest Subaccount;
(2) (x) If the Amortization Period has commenced but
subclause (y) immediately below does not apply, then (i) the
ASA Principal Allocation Amount shall be deposited into the
Collection Account for credit to the Principal Subaccount, and
(ii) the Series Allocation Percentage of the Transferor
Principal Collection (net of the ASA Principal Allocation
Amount) shall be deposited into the Collection Account in
satisfaction of the Series Allocation Percentage of any
outstanding Adjustment Payment Shortfalls (after giving effect
to the application of Imputed Yield Collections provided for
in Subsection 4.9(a)(iv)), to be paid as a distribution of
Principal on the next succeeding Distribution Date to the
Series 1996-1 Certificateholders; and
(y) (i) the ASA Principal Allocation Amount
shall be deposited into the Collection Account for credit to
the Principal Subaccount, and (ii) if the Amortization Period
has commenced due to the occurrence of a Pay-Out-Event, the
Series Allocation Percentage of the Transferor Principal
Collections (net of the ASA Principal Allocation Amount) shall
be deposited into the Collection Account for credit to the
Principal Subaccount and applied, to the extent necessary,
first, in satisfaction of the Series Allocation Percentage of
any outstanding Adjustment Payment Shortfalls (after giving
effect to the application of Imputed Yield Collections
provided for in Subsection 4.9(a)(iv)), to be paid as a
distribution of Principal on the next succeeding Distribution
Date to the Series 1996-1 Certificateholders, and second, to
pay any Class A-1 Make
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Whole Payments which remain unpaid after giving effect to
Subsection 4.9(a)(viii)(B); and
(3) The ASA Default Amount shall be allocated to the
Available Subordination Amount so long as the Available
Subordination Amount would not be reduced to less than zero
thereby, provided, however, to the extent that either
Available Imputed Yield Collections are applied and paid out
in respect of the ASA Default Amount pursuant to subsection
4.9(a)(iii) of the Agreement, or Excess Imputed Yield
Collections are applied pursuant to Section 4.9(c) of the
Agreement or amounts are withdrawn from the Reserve Fund and
are applied and paid out in respect of such ASA Default Amount
pursuant to subsection 4.9(d) of the Agreement, the amounts so
paid shall be deemed reallocated to the Series 1996-1
Certificateholders upon such payment and the Available
Subordination Amount shall be increased, in accordance with
and to the extent provided in clause (b)(iii) of the
definition thereof, by any ASA Default Amount so reallocated.
(B) Allocations and payments to the Series 1996-1
Certificateholders provided for in subsection 4.3(d) of the
Agreement shall be modified in accordance with this subsection
4.5(b)(ii)(B) as follows:
(1) The Investor Default Amount and any Adjustment
Payment Shortfalls allocated to the Series 1996-1
Certificateholders pursuant to clauses (iii) and (v) of
subsection 4.3(d) of the Agreement shall instead be allocated
to the Available Subordination Amount so long as the Available
Subordination Amount would not be reduced to less than zero
thereby, provided, however, to the extent that either
Available Imputed Yield Collections are applied and paid out
in respect of such Investor Default Amount or Adjustment
Payment Shortfalls pursuant to subsections 4.9(a)(iii) or (iv)
of the Agreement, or amounts are withdrawn from the Reserve
Fund and are applied and paid out in respect of such Investor
Default Amount or Adjustment Payment Shortfalls pursuant to
subsection 4.9(c) of the Agreement, or Transferor Principal
Collections are applied and paid out in respect of Adjustment
Payment Shortfalls pursuant to subsection 4.5(b)(ii)(A)(2) the
amounts so paid shall be deemed reallocated to the Series
1996-1 Certificateholders upon such payment and the Available
Subordination Amount shall be increased, in accordance with
and to the extent provided in clause (b)(iii) of the
definition thereof, by any Investor Default Amount or
Adjustment Payment Shortfalls so reallocated.
The allocations to be made pursuant to this
subsection 4.5(b) also apply to deposits into the Collection Account
that are treated as Collections, including payment of the reassignment
price pursuant to Section 2.4(d) of the Agreement and proceeds from the
sale, disposition or liquidation of the Contracts and the related
Receivables pursuant to Section 9.2, 10.2, 12.1 or 12.2 of the
Agreement and Section 11 of this Series Supplement. Such deposits to be
treated as Collections will be allocated as Imputed Yield Collections
or Principal Collections as provided in the Agreement.
(c) Dilutions Attributable to a Credit Card Program. During
any Amortization Period, Contracts and the related Receivables may not
be satisfied at a discount through a Credit Card Program, and the
Trustee shall not release the Trust's claim to the full Principal
Balance of a Receivable for such partial payment, unless either (i) it
shall receive a certification from the Servicer that after applying the
resulting Dilution against the Transferor Interest, the remaining
Transferor Interest would not be less than the Available Subordination
Amount, or (ii) the Transferor makes a payment, to be applied as a
Principal Collection, in conjunction with the Trustee's acceptance of
such partial payment. The Servicer acknowledges that it is not
authorized to accept or otherwise effect such a partial payment in
connection with a Credit Card Program except as expressly provided in
this subsection 4.5(c), and covenants and agrees that it will take no
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action pursuant to the authority otherwise granted to it under the
Agreement, including without limitation pursuant to subsections 3.1(b)
and 3.3(h) and (j), that would result in the release of the Trust's
claim to the full Principal Balance of any such Receivable, unless the
requirements of this subsection 4.5(c) shall have been satisfied.
(d) Limitations on Cash Out Programs. The Servicer shall not
be permitted to run Cash Out Programs, unless in each case (i) there
will be only one Cash Out Program in effect at any one time, (ii) each
Cash Out Program so offered must be accepted by the Obligor and all
payments related thereto must be due within 120 days from the date
first offered, (iii) the principal discount offered pursuant to a Cash
Out Program shall not exceed 20%, and (iv) the Tangible Net Worth of
Bally as of the end of the calendar quarter immediately preceding the
commencement of any Cash Out Program shall not have been less than
$70,000,000. Notwithstanding the foregoing, if each of the conditions
specified in clauses (i) through (iv) above is not satisfied, or if a
Pay-Out-Event has occurred and is continuing, the Servicer shall not be
permitted to offer any Cash Out Program without first obtaining the
prior written consent thereto from Holders of Series 1996-1
Certificates evidencing Undivided Interests aggregating more than
66-2/3% of the Invested Amount of the Series 1996-1 Certificates. The
Servicer covenants and agrees that with respect to any Cash Out Program
otherwise permitted under this subsection 4.5(d), the Obligors will not
be selected and such Cash Out Program will not be offered in any manner
materially different from past practices.
Section 4.6 Determination of Monthly Interest for the
Series 1996-1 Certificates.
(a) The amount of monthly interest (the "Class A-1 Interest")
payable with respect to the Class A-1 Certificates on any Distribution
Date and allocable to the related Class A-1 Interest Accrual Period
shall be an amount equal to the product of (i) the Class A-1
Certificate Rate and (ii) 1/12 and (iii) the Class A-1 Invested Amount
as of the preceding Distribution Date (after giving effect to any
distributions of Principal on such preceding Distribution Date);
provided, that with respect to the first Distribution Date and the
initial Class A-1 Interest Accrual Period commencing on the Closing
Date, the Class A-1 Interest payable on the first Distribution Date
shall be $511,069.75.
On the Determination Date preceding each Distribution Date,
the Servicer shall determine an amount (the "Class A-1 Interest
Shortfall") equal to the excess, if any, of (x) the Class A-1 Interest
for the Class A-1 Interest Accrual Period applicable to such
Distribution Date over (y) the amount available to be paid to the Class
A-1 Certificateholders in respect of interest on such Distribution
Date, subject to the allocation between the Class A-1
Certificateholders and the Class A-2 Certificateholders provided for in
subsection 4.6(c) of the Agreement. If there is a Class A-1 Interest
Shortfall with respect to any Distribution Date, an additional amount
("Class A-1 Additional Interest") shall be payable as provided herein
with respect to the Class A-1 Certificates on each Distribution Date
following such Distribution Date, to and including the Distribution
Date on which such Class A-1 Interest Shortfall is paid to the Class
A-1 Certificateholders, equal to the product of (i) the Class A-1
Certificate Rate, (ii) such Class A-1 Interest Shortfall remaining
unpaid and (iii) 1/12. Notwithstanding anything to the contrary herein,
Class A-1 Additional Interest shall be payable or distributed to Class
A-1 Certificateholders only to the extent permitted by applicable law.
(b) The amount of monthly interest (the "Class A-2 Interest")
payable with respect to the Class A-2 Certificates on any Distribution
Date and allocable to the related Class A-2 Interest Accrual Period
shall be an amount equal to the product of (i) the Class A-2
Certificate Rate and (ii) a fraction the numerator of which is the
actual number of days in the related Class A-2 Interest Accrual Period
and the denominator of which is 360 and (iii) the Class A-2 Invested
Amount as of the preceding Distribution Date (after giving effect to
any distributions of Principal on such preceding Distribution Date);
provided, that with respect to the first Distribution Date and the
initial
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Class A-2 Interest Accrual Period commencing on the Closing Date, the
Class A-2 Interest payable on the first Distribution Date shall be
$98,786.93.
On the Determination Date preceding each Distribution Date,
the Servicer shall determine an amount (the "Class A-2 Interest
Shortfall") equal to the excess, if any, of (x) the Class A-2 Interest
for the Class A-2 Interest Accrual Period applicable to such
Distribution Date over (y) the amount available to be paid to the Class
A-2 Certificateholders in respect of interest on such Distribution
Date, subject to the allocation between the Class A-1
Certificateholders and the Class A-2 Certificateholders provided for in
subsection 4.6(c) of the Agreement. If there is a Class A-2 Interest
Shortfall with respect to any Distribution Date, an additional amount
("Class A-2 Additional Interest") shall be payable as provided herein
with respect to the Class A-2 Certificates on each Distribution Date
following such Distribution Date, to and including the Distribution
Date on which such Class A-2 Interest Shortfall is paid to the Class
A-2 Certificateholders, equal to the product of (i) the Class A-2
Certificate Rate, (ii) such Class A-2 Interest Shortfall remaining
unpaid and (iii) a fraction the numerator of which is the actual number
of days in the related Class A-2 Interest Accrual Period and the
denominator of which is 360. Notwithstanding anything to the contrary
herein, (i) any calculation of the Class A-2 Interest Shortfall or
Class A-2 Additional Interest pursuant hereto shall be made based on a
Class A-2 Certificate Rate for any applicable period equal to the
lesser of (A) the Class A-2 Certificate Rate actually in effect for
such period, or (B) 12.0% per annum, and (ii) Class A-2 Additional
Interest shall be payable or distributed to Class A-2
Certificateholders only to the extent permitted by applicable law.
(c) In the event that the amount available to be paid to the
Class A-1 and Class A-2 Certificateholders in respect of interest on
any Distribution Date shall be less than the full amount of Class A-1
Interest and Class A-2 Interest due on such Distribution Date, such
deficiency shall be allocated, and the "Class A-1 Interest Shortfall"
and the "Class A-2 Interest Shortfall" shall be determined, based on
the ratio of the Class A-1 Interest and the Class A-2 Interest due on
such Distribution Date.
Section 4.7 Determination of Principal Amounts. (a) During the
Revolving Period, Principal Collections otherwise allocable to the
Series 1996-1 Certificateholders pursuant to clause (ii) of subsection
4.3(d) of the Agreement shall instead be treated as Shared Principal
Collections pursuant to subsection 4.5(b)(i)(B)(1) of the Agreement,
and no principal payments shall be made with respect to the Series
1996-1 Certificates.
(b) During the Amortization Period, the Principal
distributable from the Distribution Account on each related
Distribution Date shall be the sum of (i) Principal Collections for the
preceding Monthly Period allocated to the Series 1996-1 Certificates
pursuant to subsection 4.3(d)(ii), (ii) Principal Collections for the
preceding Monthly Period allocated to the Available Subordination
Amount pursuant to subsection 4.5(b)(ii)(A)(2), and (iii) payments made
from Available Imputed Yield Collections pursuant to subsections
4.9(a)(iii), (iv) and (v) of the Agreement and the Reserve Fund
pursuant to subsection 4.9(d) of the Agreement.
(c) Principal distributable to the Series 1996-1 Certificates
pursuant to subsection (b) above shall be further allocated to the
Class A-1 Certificates based on the Class A-1 Percentage and to the
Class A-2 Certificates based on the Class A-2 Percentage.
(d) [Reserved]
(e) Notwithstanding the foregoing, with respect to any
Distribution Date, Principal may not exceed the Invested Amount, and
with respect to the Expected Series 1996-1 Termination Date, Principal
shall be an amount equal to the Invested Amount.
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Section 4.8 Shared Principal Collections. With respect to any
Business Day during either the Revolving Period or the Amortization
Period, Shared Principal Collections allocated to the Series 1996-1
Certificates shall be zero.
Section 4.9 Application of Funds on Deposit in the Collection
Account for the Certificates.
(a) On each Determination Date, the Servicer shall determine
the Available Imputed Yield Collections credited to the Interest
Subaccount with respect to the prior Monthly Period, and shall direct
the Trustee to distribute such amounts from the Collection Account on
the related Transfer Date pursuant to subsections 4.9(a)(i) through
(vii) below, and on the related Distribution Date pursuant to
subsection 4.9(a)(viii) below, and in such order of priority as set
forth below, in accordance with the Settlement Statement delivered on
such Determination Date.
(i) Monthly Interest. An amount equal to the lesser
of (A) the Available Imputed Yield Collections and (B) the sum
of Monthly Interest plus Carryover Interest, shall be
deposited into the Distribution Account for distribution on
the next succeeding Distribution Date to the Series 1996-1
Certificateholders in accordance with Section 4.6, provided,
that
(A) for purposes of amounts allocated pursuant to
this subsection 4.9(a)(i), any calculation of Class A-2
Interest and Class A-2 Carryover Interest included in Monthly
Interest hereunder shall be made based on a Class A-2
Certificate Rate for any applicable period equal to the lesser
of (A) the Class A-2 Certificate Rate actually in effect for
such period, or (ii) 12.0% per annum, and
(B) the Class A-2 Certificates may receive shortfalls
because of a default by the Cap Provider to the extent that
such unreimbursed shortfalls, together with Class A-2 Interest
and Class A-2 Carryover Interest, would not exceed the amount
of Class A-2 Interest that would have been payable had the
Class A-2 Certificate Rate been equal to 12.0% for the related
Class A-2 Interest Accrual Period.
(ii) Investor Servicing Fee. An amount equal to
the lesser of
(A) any Available Imputed Yield Collections
remaining after giving effect to the withdrawal pursuant to
subsection 4.9(a)(i), and
(B) the aggregate of (x) either (1) if the Back-Up
Servicer or another Person other than BTFC or an Affiliate of
BTFC is the Servicer, the Monthly Servicing Fee for such
Monthly Period plus any unpaid Monthly Servicing Fees from
prior Monthly Periods, or (2) if BTFC or an Affiliate of BTFC
is the Servicer and the Back-Up Servicing Agreement remains in
effect, the Monthly Back-Up Servicer Standby Fee for such
Monthly Period plus any unpaid Monthly Back-Up Servicer
Standby Fees from prior Monthly Periods, and (y) if the base
annual fee to the Trustee is not otherwise being paid or
provided for pursuant to Sections 3.2 and 11.5, then the
monthly portion of such base annual fee and expenses which
shall not exceed $5,000 per annum (commencing on the Closing
Date),
shall be distributed in each case to the Servicer, Back-Up
Servicer or Trustee, as applicable.
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(iii) Investor Default Amount; ASA Default Amount.
During any Amortization Period, an amount equal to the lesser
of
(A) any Available Imputed Yield Collections
remaining after giving effect to the withdrawals pursuant to
subsections 4.9(a)(i) and (ii), and
(B) the sum of (1) the Investor Default Amount for
the related Monthly Period (notwithstanding any initial
reallocation of such Investor Default Amount to either the
Transferor Interest or the Available Subordination Amount
pursuant to subsections 4.5(b)(i)(B)(2) or (ii)(B)(1) of the
Agreement), plus (2) the ASA Default Amount for the related
Monthly Period (notwithstanding any initial reallocation of
such Investor Default Amount to either the Transferor Interest
or the Available Subordination Amount pursuant to subsection
4.5(b)(ii)(A)(2) of the Agreement),
shall be deposited in the Distribution Account for
distribution as Principal on the next succeeding Distribution
Date to the Series 1996-1 Certificateholders.
(iv) Adjustment Payment Shortfalls. During any
Amortization Period, an amount equal to the lesser of
(A) any Available Imputed Yield Collections remaining
after giving effect to the withdrawals pursuant to subsections
4.9(a)(i) through (iii), and
(B) the Series Allocation Percentage of any
Adjustment Payment Shortfalls in accordance with subsection
4.3(d),
shall be deposited into the Distribution Account for
distribution as Principal on the next succeeding Distribution
Date to the Series 1996-1 Certificateholders.
(v) Reimbursement of Investor Charge-Offs. An amount
equal to the lesser of
(A) any Available Imputed Yield Collections remaining
after giving effect to the withdrawals pursuant to subsections
4.9(a)(i) through (iv), and
(B) the unreimbursed Investor Charge-Offs, if any,
shall be applied to reimburse Investor Charge-Offs; and such
amount (1) during the Revolving Period, shall be treated as
Shared Principal Collections, and (2) during any Amortization
Period, shall be deposited into the Distribution Account for
distribution as Principal on the next succeeding Distribution
Date to the Series 1996-1 Certificateholders.
(vi) Reserve Fund. An amount equal to the lesser of
(A) any Available Imputed Yield Collections remaining
after giving effect to the withdrawals pursuant to subsections
4.9(a)(i) through (v), and
(B) the amount necessary to cause the amount on
deposit in the Reserve Fund to equal the then current Reserve
Fund Amount,
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shall be deposited into the Reserve Fund.
(vii) Investor Servicing Fee. If BTFC or an
Affiliate of BTFC is the Servicer, an amount equal to the
lesser of
(A) any Available Imputed Yield Collections remaining
after giving effect to the withdrawals pursuant to subsections
4.9(a)(i) through (vi), and
(B) the Monthly Servicing Fee for such Monthly Period
plus any unpaid Servicing Fees from prior Monthly Periods,
shall be distributed to the Servicer.
(viii) Excess Imputed Yield Collections. Any
Available Imputed Yield Collections remaining after giving
effect to the withdrawals pursuant to subsections 4.9(a)(i)
through (vii) shall be held until the Distribution Date, and
shall be applied as follows:
(A) to pay any Class A-2 Interest which is to be
distributed on such Distribution Date, for which sufficient
funds are not available due to a failure by the Interest Rate
Cap Provider to timely pay amounts required to be paid under
the Interest Rate Cap on such Distribution Date,
(B) if an Amortization Period due to the occurrence
of a Pay-Out- Event shall have occurred, (1) to pay any Class
A-1 Make Whole Payments which remain unpaid, and (2) such
remaining funds shall be deposited into the Distribution
Account for distribution as Principal on the next succeeding
Distribution Date,
(C) deposited in the Excess Funding Account to the
extent necessary to prevent the Transferor Interest from being
less than the Minimum Transferor Interest (during the
Revolving Period) or the Available Subordination Amount
(during the Amortization Period), and
(D) treated as Excess Imputed Yield Collections which
shall be available to pay to Certificateholders of other
Series to the extent of shortfalls, if any, in amounts payable
to such Certificateholders from Imputed Yield Collections
allocated to such other Series; and then any remainder shall
be distributed to the Transferor.
(b) On each Distribution Date, the Trustee shall cause a
payment to be made under the Interest Rate Cap if amounts are due
thereunder with respect to the related Class A-2 Interest Accrual
Period, and shall cause all amounts paid thereunder to be deposited
into the Distribution Account and then be distributed in respect of the
Class A-2 Interest on such Distribution Date. If the Cap Provider
defaults in the payment of amounts due under the Interest Rate Cap, the
Class A-2 Certificateholders will be entitled to recoup any shortfall
in accordance with subsections 4.9(a)(i) and (viii). If the Cap
Provider shall subsequently pay any such defaulted amounts, such
amounts shall be distributed first to the Class A-2 Certificateholders
in an amount equal to the amount of any shortfalls resulting from such
prior default, which were not recouped by the Class A-2
Certificateholders and then the excess shall be deposited into the
Collection Account for credit to the Interest Subaccount and shall be
treated as Available Imputed Yield Collections from the Monthly Period
in which such Distribution Date occurs.
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(c) To the extent that, with respect to any Determination
Date, distributions are to be made on the related Transfer Date
pursuant to any of subsections 4.9(a)(i) through (vii), (viii)(A) and
(viii)(B)(1), respectively, and the full amount to be distributed
pursuant to any such subsection is not covered by the amounts otherwise
available therefor pursuant to subsections 4.9(a) and (b), the Servicer
shall allocate to the Series 1996-1 Certificates, to the extent the
amounts are available as set forth below, the Excess Imputed Yield
Collections from other Series with respect to the Monthly Period to
which such distributions relate, in an amount up to the above-described
shortfalls under the applicable subsections (to be applied to such
shortfalls in the priority of such subsections). Excess Imputed Yield
Collections available for such allocation to the Series 1996-1
Certificates for any Monthly Period shall be in an amount equal to the
product of (i) Excess Imputed Yield Collections available from all
other Series for such Monthly Period and (ii) a fraction, the numerator
of which is the shortfall in the amounts required to be distributed
from Imputed Yield Collections with respect to the Series 1996-1
Certificates and the denominator of which is the aggregate amount of
shortfalls in amounts required to be distributed from Imputed Yield
Collections for all Series for such Monthly Period.
(d) On each Transfer Date during the Revolving Period, after
giving effect to all amounts available pursuant to subsections 4.9(a),
(b) and (c), the Trustee shall draw on the Reserve Fund to fund
shortfalls, if any, in the withdrawals from the Collection Account made
pursuant to subsections 4.9(a)(i), (ii) and (vii), and shall deposit or
distribute any amounts so drawn from the Reserve Fund in accordance
with such subsections (and in the priority thereof). On each Transfer
Date during the Amortization Period, after giving effect to all amounts
available pursuant to subsections 4.9(a), (b) and (c), the Trustee
shall draw on the Reserve Fund to cover shortfalls, if any, in the
withdrawals from the Collection Account made pursuant to subsections
4.9(a)(i), (ii), (iii), (iv), (v) and (vii). For purposes of this
subsection 4.9(d), no shortfall shall be deemed to exist with respect
to Class A-2 Interest under subsection 4.9(a) so long as Class A-2
Interest accrued at a rate of 12.0% per annum would be covered by
amounts available pursuant to subsection 4.9(a)(i).
(e) On the first Business Day of the Amortization Period,
funds on deposit in the Excess Funding Account shall be deposited into
the Collection Account for credit to the Principal Subaccount, subject
to subsection 4.3(f).
(f) On each Determination Date with respect to any
Amortization Period, the Servicer shall determine the Principal
Collections credited to the Principal Subaccount with respect to the
prior Monthly Period, and shall direct the Trustee to withdraw from the
Principal Subaccount of the Collection Account and deposit in the
Distribution Account on the related Transfer Date, to the extent of
funds available, an amount equal to the Principal for the related
Distribution Date, in accordance with the Settlement Statement
delivered on such Determination Date and the Daily Report delivered on
the related Transfer Date (provided, that if the Daily Report is not
timely delivered on such Transfer Date, the Trustee shall make such
withdrawal from the Collection Account in reliance on the Settlement
Statement).
Section 4.10 The Reserve Fund. (a) The Trustee, for the
benefit of the Series 1996-1 Certificateholders, shall cause to be
established and maintained in the name of the Trustee, on behalf of the
Series 1996-1 Certificateholders, a segregated trust account (the
"Reserve Fund") within its corporate trust department, which shall be a
Qualified Account within the meaning of clause (a) of the definition
thereof, and which shall bear a designation clearly indicating that
such account is the Reserve Fund and that the funds deposited therein
are held in trust for the benefit of the Series 1996-1
Certificateholders. The Transferor does hereby transfer, assign,
set-over, and otherwise convey to the Trust, for the benefit of the
Series 1996-1 Certificateholders, without recourse, all of its right,
title and interest in, to and under the Reserve Fund, including without
limitation (i) all monies, funds and amounts deposited into or credited
to the Reserve Fund from time to time, (ii) all Cash Equivalents in
which amounts in the Reserve Fund are invested or which
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are otherwise credited to the Reserve Fund, (iii) any interest and
investment earnings on any such deposited or credited amounts, and (iv)
all proceeds of the foregoing. The Trustee shall possess all right,
title and interest in, to and under all property described in the
preceding sentence. The Reserve Fund shall, except as otherwise
provided herein, be under the sole dominion and control of the Trustee
for the benefit of the Series 1996-1 Certificateholders. Pursuant to
subsection 3.1(b) of the Agreement, the Servicer shall have the power,
revocable by the Trustee upon the occurrence of a Servicer Default
pursuant to Section 10.1 of the Agreement or upon the occurrence of a
Pay- Out-Event, to instruct the Trustee in writing pursuant to the
Daily Report or otherwise to make withdrawals from the Reserve Fund for
the purpose of carrying out the Servicer's or the Trustee's duties
under the Agreement and this Series Supplement. If, at any time, the
Reserve Fund ceases to be a Qualified Account by reason of the Trustee
holding such account, then the Trustee shall establish within 10
Business Days a new Reserve Fund as a Qualified Account and otherwise
meeting the conditions specified above, transfer any cash and/or any
investments to such new Reserve Fund, and from the date such new
Reserve Fund is established, it shall be the "Reserve Fund."
(b) With respect to each Business Day during the Revolving
Period, the Servicer shall deposit the ASA Principal Allocation Amount
in the Reserve Fund in accordance with, and to the extent provided in,
subsections 4.5(b)(i)(A)(2) of the Agreement for the related Monthly
Period. On each Distribution Date related to the Revolving Period or
any Amortization Period, after giving effect to the deposit of the ASA
Principal Allocation Amount as described in the preceding sentence, as
applicable, and the addition of any net interest and investment
earnings as provided in subsection 4.10(c), the Servicer shall deposit
in the Reserve Fund to the extent available as provided in subsection
4.9(a)(vi), Available Imputed Yield Collections, up to the amount
necessary to cause the amount on deposit in the Reserve Fund to equal
the then current Reserve Fund Amount.
(c) Funds on deposit in the Reserve Fund shall at all times be
invested by the Trustee in Cash Equivalents in accordance with written
instructions from the Servicer as provided below or, in the absence of
such instructions, in the Designated Cash Equivalent. Any such
investment shall mature and such funds shall be available for
withdrawal on or prior to the next succeeding Transfer Date. The
Trustee shall maintain for the benefit of the Series 1996-1
Certificateholders possession of the negotiable instruments or
securities evidencing the Cash Equivalents described in clause (a) of
the definition thereof from the time of purchase thereof until the time
of sale or maturity. All interest and earnings (net of losses and
investment expenses) on funds on deposit in the Reserve Fund shall be
retained in the Reserve Fund unless and until such amounts are
available for release to the Transferor pursuant to subsection 4.10(d).
Subject to the restrictions set forth above, the Servicer, or a Person
designated in writing by the Servicer, of which the Trustee shall have
received written notification, shall have the authority to instruct the
Trustee with respect to the investment of funds on deposit in the
Reserve Fund. Any investment instructions to the Trustee shall be in
writing and shall be given no later than 1:00 P.M. Central Standard
time on a Business Day that such investment is proposed to be made. The
Transferor agrees and acknowledges that the Trustee is to have
"control" (within the meaning of Section 8-102 of the UCC as enacted in
Illinois) of investments held in the Reserve Fund comprised of
"Investment Property" (within the meaning of Section 9-115 of the UCC
as enacted in Illinois) for all purposes of this Agreement.
(d) Amounts in the Reserve Fund in excess of the Reserve Fund
Amount shall be released from the Reserve Fund and paid to the
Transferor on each Transfer Date.
(e) The Servicer shall withdraw amounts on deposit in the
Reserve Fund on each Transfer Date pursuant to subsection 4.9(d) to the
extent Available Imputed Yield Collections are insufficient to make
payment of the amounts specified.
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Section 4.11 Payment of Monthly Interest. On each Distribution
Date, the Paying Agent shall pay in accordance with Section 5.1 of the
Agreement to the Series 1996-1 Certificateholders from the Distribution
Account the amount in respect of Monthly Interest and Carryover
Interest deposited into the Distribution Account on the related
Transfer Date.
Section 4.12 Payment of Principal. On each Distribution Date
with respect to any Amortization Period, the Paying Agent shall pay in
accordance with Section 5.1 of the Agreement to the Series 1996-1
Certificateholders from the Distribution Account the amount in respect
of Principal deposited into the Distribution Account on the related
Transfer Date.
Any amounts remaining in the Collection Account and allocable
to the Series 1996-1 Certificates, after the Invested Amount has been
paid in full, shall be treated as Shared Principal Collections and
applied in accordance with Section 4.3(e) of the Agreement.
Section 4.13 Investor Charge-Offs. (a) If, on any
Determination Date which relates to any Amortization Period, (1) the
Available Subordination Amount shall have been reduced to zero and (2)
the aggregate Investor Default Amount with respect to each Business Day
in the preceding Monthly Period within such Amortization Period, to the
extent not allocated to the Available Subordination Amount pursuant to
subsection 4.5(b)(ii)(B)(1) of the Agreement, together with the
aggregate Adjustment Payment Shortfalls (if any) allocated to the
Series 1996-1 Certificates based on the Series Percentage with respect
to each Business Day in the preceding Monthly Period within such
Amortization Period, exceeds the aggregate Available Imputed Yield
Collections, Excess Imputed Yield Collections and amounts available for
withdrawal from the Reserve Fund, the Invested Amount shall be reduced
by the amount by which the remaining aggregate Investor Default Amount
and aggregate Adjustment Payment Shortfalls (if any) allocated to the
Series 1996- 1 Certificates exceed the foregoing funds available for
payment thereof (an "Investor Charge-Off"). The Invested Amount
thereafter shall be increased (but not in excess of the Outstanding
Certificate Amount of the Series 1996-1 Certificates) on any Business
Day by the sum of the aggregate amount of Available Imputed Yield
Collections, Excess Imputed Yield Collections and amounts available for
withdrawal from the Reserve Fund allocated with respect to Investor
Charge-Offs pursuant to subsection 4.9(a)(v) of the Agreement for the
purpose of reimbursing amounts reduced pursuant to the preceding
sentence (including any such amounts treated as Shared Principal
Collections during the Revolving Period) to the extent not previously
reimbursed from such amounts.
(b) The amount of any Investor Charge-Off shall be allocated
to the Class A-1 Certificateholders (as so allocated, the "Class A-1
Investor Charge-Offs") and to the Class A-2 Certificateholders (as so
allocated, the "Class A-2 Investor Charge-Offs"), and any amounts
available for reimbursement of any Investor Charge-Off shall be
allocated to the Class A-1 Certificateholders and the Class A-2
Certificateholders, based on the Class A-1 Percentage and the Class A-2
Percentage.
Section 4.14 Determination of LIBOR. (a) On each LIBOR
Determination Date, the Trustee shall determine LIBOR.
"LIBOR" means, with respect to a Reset Date within each Class
A-2 Interest Accrual Period, the rate for deposits in U.S. Dollars for
a period of the Designated Maturity which appears on the Telerate Page
3750 Screen as of 11:00 a.m., London time on the day that is two London
Business Days preceding that Reset Date (rounded upwards, if necessary,
to the nearest 1/100,000 of 1%); provided, however, in the event such
rate is not provided, LIBOR shall mean the rate as determined in the
Interest Rate Cap.
(b) On each LIBOR Determination Date, the Trustee shall send
to the Servicer and to each Class A-2 Certificateholder by facsimile,
notification of LIBOR for the following Class A-2
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Interest Accrual Period and, based on the Class A-2 Invested Amount
which will remain outstanding after giving effect to any distribution
of Principal to be made to the Class A-2 Certificateholders on the next
succeeding Distribution Date as shown on the Settlement Statement
delivered on the related Determination Date, the amount of Class A-2
Interest which will accrue during such following Class A-2 Interest
Accrual Period.
(c) The Class A-2 Certificate Rate applicable to the then
current and immediately preceding Class A-2 Interest Accrual Periods
may be obtained by any Class A-2 Certificateholder by telephoning the
Trustee at its Corporate Trust Office at (713) 216-4181.
Section 6. Article V of the Agreement. Article V of the Agreement shall
read in its entirety as follows and shall be applicable only to the Series
1996-1 Certificates:
ARTICLE V
DISTRIBUTIONS AND REPORTS TO INVESTOR
CERTIFICATEHOLDERS
Section 5.1 Distributions. (a) On each Distribution Date, the
Paying Agent shall distribute (in accordance with the Daily Report
delivered on such Distribution Date and the Settlement Statement
delivered on the related Determination Date, provided, that if the
Daily Report is not timely delivered on such Distribution Date, the
Paying Agent shall make such distributions from the Distribution
Account in reliance on the Settlement Statement) to each Class A-1 and
Class A-2 Certificateholder of record on the preceding Record Date
(other than as provided in subsection 2.4(e) or in Section 12.3
respecting a final distribution) such Certificateholder's pro rata
share (based on the aggregate Undivided Interests represented by Class
A-1 or Class A-2 Certificates held by such Certificateholder) of
amounts on deposit in the Distribution Account as are payable to the
Class A-1 and Class A-2 Certificateholders pursuant to Sections 4.11
and 4.12 of the Agreement by check mailed to each Class A-1 and Class
A-2 Certificateholder at such Certificateholder's address as it appears
on the Certificate Register or, in the case of Class A-1 or Class A-2
Certificateholders holding Series 1996-1 Certificates having an
aggregate Outstanding Certificate Amount of not less than $1,000,000,
by wire transfer, at the expense of the Paying Agent, to an account or
accounts designated by such Series 1996-1 Certificateholder by written
notice given to the Paying Agent not less than five days prior to the
related Distribution Date; provided, however, that the final payment in
retirement of the Class A-1 and Class A-2 Certificates will be made
only upon presentation and surrender of the Class A-1 and Class A-2
Certificates at the office or offices specified in the notice of such
final distribution delivered by the Trustee pursuant to Section 12.3.
The Trustee shall make the final payment on any Series 1996-1
Certificate prior to surrender of such Certificate if such Series
1996-1 Certificateholder agrees to indemnify and hold harmless the
Trustee satisfactory to it in its sole discretion to the extent of any
liability the Trustee may incur for final distribution on such Series
1996-1 Certificates caused by the failure of the Series 1996-l
Certificateholder to deliver such Series 1996-1 Certificates to the
Trustee prior to such final distribution being made to the Series
1996-1 Certificateholder. With respect to distributions to be made on
Distribution Dates, the Trustee agrees to use its best efforts to
initiate wire transfers of such distribution on the Business Day
preceding the Distribution Date, but in no event later than 9:00 a.m.
(Central Standard time) on the Distribution Date.
Section 5.2 Certificateholders' Statement. (a) On each
Determination Date, the Servicer shall deliver to the Trustee (and the
Paying Agent if other than the Trustee) and shall forward to each
Certificateholder (and their respective agents as they may designate in
writing) and the Rating Agencies a statement substantially in the form
of Exhibit C, prepared by the Servicer, setting forth the following
information (which, in the case of (i), (ii) and (iii) below, shall be
stated on the basis
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of an original principal amount of $1,000 per Certificate and, in the
case of (xiv), shall be stated on an aggregate basis and on the basis
of an original principal amount of $1,000 per Certificate):
(i) the total amount distributed;
(ii) the amount of such distribution allocable to
Principal for Class A-1 and Class A-2;
(iii) the amount of such distribution allocable to Class
A-1 and Class A-2 Interest;
(iv) the amount of Principal Collections received during
the preceding Monthly Period and allocated in respect of the
Series 1996-1 Certificates and, during any Amortization
Period, further allocated in respect of the Class A-1 and
Class A-2 Certificates;
(v) the Initial Invested Amount and the current Invested
Amount;
(vi) the amount of Imputed Yield Collections received
during the preceding Monthly Period and allocated in respect
of the Series 1996-1 Certificates;
(vii) the aggregate amount of Principal Receivables, the
Invested Amount, the Floating Allocation Percentage and,
during any Amortization Period, the Fixed/Floating Allocation
Percentage, with respect to the Principal Receivables in the
Trust as of the close of business on the last day of the
preceding Monthly Period;
(viii) the size of the Transferor Interest in its entirety
(as well as the component represented by the Available
Subordination Amount, and the component not so represented);
(ix) the aggregate outstanding balance of Qualifying Gross
Receivables which are current, and those between 30 and 59
days, 60 and 89 days, 90 and 119 days, 120 and 149 days, 150
and 179 days and 180 or more days delinquent on a contractual
basis, in each case as of the close of business on the last
day of the preceding Monthly Period;
(x) Net charge-offs for all Eligible Receivables;
(xi) the aggregate Investor Default Amount for the
preceding Monthly Period, and the portion thereof allocated to
the Class A-1 and the Class A-2 Certificates, if any;
(xii) the aggregate amount of Dilutions for the preceding
Monthly Period, the amount thereof allocable to a Credit Card
Program, if any, and, during any Amortization Period, the
aggregate Investor Dilution Amount and ASA Dilution Amount for
the preceding Monthly Period, and the amount of Adjustment
Payment Shortfalls (if any) allocated to the Class A-1 and the
Class A-2 Certificates;
(xiii) the Available Subordination Amount which remains
available as of the related Determination Date and, during any
Amortization Period, the amount of any reduction to such
Available Subordination Amount to be effected as of such
Distribution Date together with the cumulative ASA Reduction
Amount, if any, which will remain unapplied after giving
effect to reductions in the Available Subordination Amount as
of such Distribution Date;
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(xiv) the aggregate amount of Investor Charge-Offs for the
preceding Monthly Period, and the amount thereof allocated to
the Class A-1 and the Class A-2 Certificates;
(xv) the amount of the Monthly Servicing Fee for the
preceding Monthly Period;
(xvi) the Pool Factor as of the close of business on the
last day of the preceding Monthly Period; and
(xvii) the aggregate amount of funds in the Excess Funding
Account as of the close of business on the last day of the
preceding Monthly Period.
(b) Annual Certificateholders' Tax Statement. On or before
January 31 of each calendar year, beginning with calendar year 1997,
the Servicer shall distribute to each Person who at any time during the
preceding calendar year was a Series 1996-1 Certificateholder, a
statement prepared by the Servicer containing the information required
to be contained in the regular report to Series 1996-1
Certificateholders, as set forth in subclauses (i), (ii) and (iii)
above, aggregated for such calendar year or the applicable portion
thereof during which such Person was a Series 1996-1 Certificateholder,
together with, on or before January 31 of each year, beginning in 1997,
such other customary information (consistent with the treatment of the
Certificates as debt) or the Servicer deems necessary or desirable to
enable the Series 1996-1 Certificateholders to prepare their tax
returns. The obligation, if any, of the Trustee to provide such
information shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Trustee
or the Servicer pursuant to any requirements of the Internal Revenue
Code as from time to time in effect.
Section 5.3 SEC Filings. The Transferor and BTFC shall
provide, or shall cause Bally to provide, to the Trustee and to each
Rating Agency copies of (a) Bally's annual report on Form 10-K as filed
with the SEC, within 100 days of the end of the year covered thereby
(commencing with the 10-K filed with respect to 1996), (b) Bally's
quarterly reports on Form 10-Q as filed with the SEC, within 60 days of
the end of the quarter covered thereby (commencing with the quarter
ending March 31, 1997), and (c) and reports on Form 8-K as filed by
Bally with the SEC, within 15 days of any such filing.
Section 5.4 [Reserved].
Section 5.5 Delivery of Documents to the Series 1996-1
Certificateholders. (a) A copy of the following reports, notices,
documents and certificates required to be delivered under the Agreement
to the Trustee shall be contemporaneously delivered by the Servicer (at
its sole expense) to the Series 1996-1 Certificateholders or their
respective agents as they may designate in writing:
(i) the Settlement Statement to be delivered by the
Servicer pursuant to subsection 3.4(c);
(ii) the Annual Servicer's Certificate to be delivered by
the Servicer pursuant to Section 3.5;
(iii) the Annual Independent Accountants' Management Letter
to be delivered by the Servicer pursuant to Section 3.6;
(iv) the SEC filings to be delivered by the Transferor or
the Servicer pursuant to Section 5.3;
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(v) any Exchange Notice delivered by the Transferor
pursuant to subsection 6.9(b);
(vi) in the event an Exchange is to be effected, the
Supplement, Opinion of Counsel and Officer's Certificate to be
delivered pursuant to clauses (a), (d) and (f) of subsection
6.9(b);
(vii) any notice relating to a delegation of its duties to
be delivered by the Servicer pursuant to Section 8.7;
(viii) notice of any amendment to the Purchase Agreement, or
of any assignment thereof, to be delivered by BTFC pursuant to
Section 9.1 or 9.5 of the Purchase Agreement;
(ix) notice of any amendment to the Subsidiary Purchase
Agreement, or of any assignment thereof, to be delivered by
BTFC pursuant to Section 9.1 or 9.5 of the Subsidiary Purchase
Agreement;
(x) any certificate or legal opinion delivered to the
Trustee pursuant to subsection 5.1(k) of the Purchase
Agreement;
(xi) notice of any Lien in accordance with subsections
2.5(b) or 2.5(g);
(xii) notice of any change in a depository maintaining a
Qualified Account;
(xiii) notice of any delegation of servicing functions in
accordance with subsection 3.1(b);
(xiv) in the event of any merger or other event with
respect to the Servicer contemplated by Section 8.2, the
Officer's Certificate and Opinion of Counsel to be delivered
by BTFC pursuant to Section 8.2(ii); and
(xv) promptly after January 1, 1998 and promptly after
each anniversary of such date, a copy of the Credit and
Collection Policy as then in effect.
Each Series 1996-1 Certificateholder agrees, by its acceptance of a
Series 1996-1 Certificate, that any information obtained by it pursuant
to this subsection or otherwise in its capacity as a Series 1996-1
Certificateholder shall be subject to the terms and conditions
described in Annex 1 hereto.
(b) The Transferor shall provide, or shall cause the Servicer
to provide, notice to the Series 1996-1 Certificateholders or their
respective agents as they may designate in writing, and to the Trustee,
of a change to the cancellation provisions set forth in the printed
form of Contract utilized by BTFC or any other Originator within 30
days of implementing such change.
(c) The Trustee shall provide a written statement to the
Series 1996-1 Certificateholders or their respective agents as they may
designate in writing, no later than the Distribution Date related to
any Monthly Period, to the effect that the Trustee has no actual
knowledge that an event has occurred which with the passage of time or
the giving of notice or both, would constitute a Servicer Default or a
Pay-Out-Event, provided, that the Trustee shall have no obligation to
make any independent investigation in connection with delivering such
statement.
(d) The Trustee shall provide each Series 1996-1
Certificateholder with a copy of all written notices of any breach by
the Transferor, the Servicer, BTFC or any Originator of any
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representation, warranty or obligation contained herein, in the
Agreement, the Purchase Agreement or the Subsidiary Purchase Agreement
promptly upon the Trustee's receipt thereof.
(e) Any notices provided to the Trustee, the Servicer or the
Series 1996-1 Certificateholders shall also be provided to the Rating
Agencies (without duplication) except for the Daily Reports (unless
specifically requested).
Section 7. Series 1996-1 Pay-Out-Events. If any one of the following
events shall occur with respect to the Series 1996-1 Certificates:
(a) failure on the part of the Transferor (i) to make any payment or
deposit required to be made by the Transferor by the terms of the Agreement or
this Series Supplement on the date such payment or deposit is required to be
made, provided, however, that any such failure caused by a nonwillful act of the
Transferor shall not constitute a Series 1996-1 Pay-Out-Event pursuant to this
subsection 9(a) if the Transferor promptly remedies such failure within five
Business Days after receiving notice of such failure or otherwise becoming aware
of such failure, (ii) to perform in all material respects the Transferor's
covenant not to sell, pledge, assign, or transfer to any person, or grant any
unpermitted lien on, any Receivable, or (iii) to observe or perform in any
material respect any other covenants or agreements of the Transferor set forth
in the Agreement or this Series Supplement, which failure to observe or perform
has a material adverse effect on the Series 1996-1 Certificateholders and which
continues unremedied for a period of 30 days after the date on which the
Transferor obtains actual knowledge of such failure or written notice of such
failure, requiring the same to be remedied, shall have been given to the
Transferor by the Trustee, or to the Transferor and the Trustee by the Holders
of Series 1996-1 Certificates evidencing more than 50% of the Invested Amount,
and continues to materially and adversely affect the interests of the Series
1996-1 Certificateholders for such period; provided, that if prior to the end of
the 30 day period specified above, the Transferor shall have commenced actions
reasonably designed to cure such failure and, at the end of such 30 day period
is engaged diligently and in good faith in effecting such cure and shall have
given not less than 7 days notice to the Series 1996-1 Certificateholders
requesting an additional period of 30 days to effect such cure, and unless the
Holders of Series 1996-1 Certificates evidencing more than 50% of the Invested
Amount shall have responded indicating their refusal to grant such extension,
then such 30 day period shall be extended by such additional period of time as
may reasonably be required to effect such cure, but not in excess of an
additional 30 days, unless Holders of Series 1996-1 Certificates evidencing more
than 50% of the Invested Amount shall agree that a longer extension is
appropriate under the circumstances and shall consent thereto;
(b) any representation or warranty made by the Transferor in the
Agreement or this Series Supplement, (i) shall prove to have been incorrect in
any material respect when made, which continues to be incorrect in any material
respect for a period of 30 days after the date on which the Transferor obtains
actual knowledge of such failure or written notice of such failure, requiring
the same to be remedied, shall have been given to the Transferor by the Trustee,
or to the Transferor and the Trustee by the Holders of the Series 1996-1
Certificates evidencing Undivided Interests aggregating more than 50% of the
Invested Amount of this Series 1996-1, and (ii) as a result of which the
interests of the Series 1996-1 Certificateholders are materially and adversely
affected and continue to be materially and adversely affected for such period;
provided, however, that a Series 1996-1 Pay-Out-Event pursuant to this
subsection 9(b) shall not be deemed to have occurred hereunder if the Transferor
has accepted reassignment of the related Receivable, or all of such Receivables,
if applicable, during such period (or such longer period as the Trustee may
specify) in accordance with the provisions of the Agreement; and further
provided, that if prior to the end of the 30 day period specified above, the
Transferor shall have commenced actions reasonably designed to cure such failure
and, at the end of such 30 day period is engaged diligently and in good faith in
effecting such cure, and shall have given not less than 7 days notice to the
Series 1996-1 Certificateholders requesting an additional period of 30 days to
effect such cure, and unless the Holders of Series 1996-1 Certificates
evidencing more than 50% of the Invested Amount shall have responded indicating
their refusal to grant such extension, then such 30 day period shall be extended
by such additional period of time as may reasonably be required to effect such
cure, but not in excess of an additional 30 days, unless Holders of Series
1996-1 Certificates evidencing more than 50% of the Invested Amount shall agree
that a longer extension is appropriate under the circumstances and shall consent
thereto;
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(c) the Portfolio Yield is less than the Base Rate plus 1.0% for any
three consecutive Monthly Periods, commencing with the fourth Monthly Period
that would include the second, third and fourth Monthly Periods;
(d) the Transferor Interest shall be less than the Minimum Transferor
Interest for a period of 15 consecutive days;
(e) the sum of the Aggregate Principal Receivables and the principal
amount on deposit in the Excess Funding Account shall be less than the Minimum
Aggregate Principal Receivables for a period of 15 consecutive days;
(f) as of the end of the last Business Day of any month, (i) the
three-month rolling average of the percentage equivalent of a fraction, the
numerator of which is the amount of Qualifying Gross Receivables that are 180 or
more days delinquent on a contractual basis and the denominator of which is the
aggregate amount of Qualifying Gross Receivables, exceeds 6%, or (ii) the
percentage equivalent of a fraction, the denominator of which is the amount of
Qualifying Gross Receivables and the numerator of which is the amount of
Qualifying Gross Receivables that are (A) 60 or more days delinquent on a
contractual basis, exceeds 25%, (B) 90 or more days delinquent on a contractual
basis, exceeds 18%, (C) 120 or more days delinquent on a contractual basis,
exceeds 14%, or (D) 180 or more days delinquent on a contractual basis, exceeds
9%;
(g) any Servicer Default shall occur which would have a material
adverse effect on the Series 1996-1 Certificateholders;
(h) as of the end of the last Business Day of any month, commencing
with the last Business Day of the third Monthly Period, the three-month rolling
average of the principal amount on deposit in the Excess Funding Account at the
end of the last Business Day of each such Monthly Period as a percentage of the
sum of the Aggregate Principal Receivables and the principal amount on deposit
in the Excess Funding Account at the end of such Business Day, shall equal or
exceed 30%;
(i) the Transferror shall for any reason become unable to transfer
Receivables to the Trust in accordance with the Agreement or this Series
Supplement;
(j) the Adjusted Net Revenues-Membership Revenues as of the end of any
Monthly Period falls below the NRMR Pay-Out-Event Trigger for such Monthly
Period, which amounts for each Monthly Period shall be calculated by the
Servicer and reported to the Trustee within 60 days of the end of such Monthly
Period;
(k) the Tangible Net Worth of Bally falls below $60,000,000 as of the
end of any calendar quarter, which amount for each calendar quarter shall be
calculated by the Servicer and reported to the Trustee within 60 days of the end
of such calendar quarter;
(l) the number of health clubs operated by Bally and its subsidiaries
falls below 260 clubs;
(m) a Pay-Out-Event occurs with respect to any other Series; or
(n) a default or event of default by Bally or any of its subsidiaries
under or with respect to any one or more agreement, note, instrument or other
document governing or evidencing any obligation of Bally or such subsidiary, as
the case may be, to repay money borrowed, and such default or event of default
continues after any applicable grace period, and as a result any such
indebtedness shall be required to be paid prior to the scheduled maturity
thereof (whether by acceleration, required prepayment or otherwise), or Bally or
any of its subsidiaries shall fail to pay any such indebtedness at maturity and
any applicable grace period and waivers shall have expired; provided, however,
that (i) no Pay-Out-Event under this clause shall occur unless the sum of any
such indebtedness required to be prepaid or indebtedness which Bally or any of
its subsidiaries fails to pay at maturity, is greater than or equal to
$10,000,000, and (ii) this clause is not intended to and shall not be applicable
to any "default" in respect of the Series 1996-1 Certificates;
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then, in the case of any event described in subparagraph (b),
(g) or (l) above after the applicable grace period, if any, set forth in such
subparagraphs, the Holders of Series 1996-1 Certificates evidencing Undivided
Interests aggregating more than 50% of the Invested Amount of this Series 1996-1
by notice then given in writing to the Trustee, the Transferor and the Servicer
may declare that a Pay-Out-Event (a "Series 1996-1 Pay-Out-Event") has occurred
as of the date of such notice;
in the case of any event described in subparagraph (f)(ii),
(h), (j) or (k) above, a Series 1996-1 Pay- Out-Event shall occur without any
notice or other action on the part of the Trustee or the Series 1996-1
Certificateholders immediately upon the occurrence of such event, provided that
such Series 1996-1 Pay-Out-Event will not be deemed to have occurred if such
event is waived by written notice to the Transferor, the Trustee and the
Servicer by Holders of Series 1996-1 Certificates evidencing Undivided Interests
aggregating more than 50% of the Invested Amount of this Series 1996-1 on or
before the Distribution Date relating to the Monthly Period in which such event
occurs;
and in the case of any event described in subparagraph (a),
(c), (d), (e), (f)(i), (i), (m) or (n) above, a Series 1996-1 Pay-Out-Event
shall occur without any notice or other action on the part of the Trustee or the
Series 1996-1 Certificateholders immediately upon the occurrence of such event,
provided that such Series 1996-1 Pay-Out- Event will not be deemed to have
occurred if such event is waived by written notice to the Transferor, the
Trustee and the Servicer by each Holder of a Series 1996-1 Certificate on or
before the Distribution Date relating to the Monthly Period in which such event
occurs.
The Trustee shall provide notice of any waiver of a
Pay-Out-Event to each Rating Agency.
Section 8. [Reserved]
Section 9. [Reserved]
Section 10. Replacement Series; Make Whole Payments.
(a) Subject to satisfaction of the conditions set forth in Section 6.9
of the Agreement and in this Section 10, the Transferor shall have the right to
issue one or more Replacement Series with respect to the Series 1996-1
Certificates (or any Class thereof). As a condition to the replacement of the
Series 1996-1 Certificates (or Class A-1 thereof, if applicable) with any
Replacement Series, the Class A-1 Certificateholders shall be entitled to
receive the Class A-1 Make Whole Payment (if any) in addition to the final
payment otherwise required under the Agreement.
(b) The Class A-1 Make Whole Payment (if any) shall be payable to the
Class A-1 Certificateholders, to the extent of any prepayment which results from
either (i) an Amortization Period which commences prior to the scheduled
Amortization Period due to the occurrence of a Pay-Out-Event, or (ii) a partial
redemption effected pursuant to Section 13 of this Series Supplement.
Section 11. Reassignment Terms. The Series 1996-1 Certificates shall be
subject to termination by the Transferor at its option, in accordance with the
terms specified in subsection 12.2(a) of the Agreement, on any Distribution Date
on or after the Distribution Date on which the Invested Amount is reduced to an
amount less than or equal to 10% of the Initial Invested Amount. The deposit
required in connection with any such termination and final distribution shall be
equal to the Outstanding Certificate Amount of the Series 1996-1 Certificates
plus accrued and unpaid interest on the Series 1996-1 Certificates through the
last day of the Class A-1 Interest Accrual Period or the Class A-2 Interest
Accrual Period, as applicable, preceding and relating to the Distribution Date
on which the final distribution occurs. No notice of such termination and final
distribution shall be given unless the funds to pay all amounts required with
respect thereto shall be available as of the end of the Monthly Period preceding
the Monthly Period in which such notice is given.
Section 12. Mandatory Prepayment. If on any Distribution Date the
amount on deposit in the Reserve Fund is equal to or greater than the Invested
Amount, the amount on deposit in the Reserve Fund (not to exceed the Invested
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Amount) shall be deposited in the Distribution Account and distributed to
Certificateholders on such day, together with the Class A-1 and Class A-2
Interest due on such Distribution Date, and shall constitute final payment of
the Series 1996-1 Certificates. Not later than the Determination Date preceding
such Distribution Date, the Trustee shall provide the notice of final
distribution to the Series 1996-1 Certificateholders in accordance with Section
12.3 of the Agreement. No notice of such final distribution shall be given
unless the funds to pay all amounts required with respect thereto shall be
available as of the end of the Monthly Period preceding the Monthly Period in
which such notice is given.
Section 13. Partial Redemption of Series 1996-1 Certificates. If, on
the last day of any Monthly Period, (a) the amount on deposit in the Excess
Funding Account as a percentage of the sum of (i) the Aggregate Principal
Receivables plus (ii) the amount on deposit in the Excess Funding Account, shall
exceed (b) 15%, then, so long as no Pay-Out-Event would result, the Transferor
may elect to distribute such amount on deposit on the related Distribution Date
as a partial redemption of the Invested Amount of the Series 1996-1 Certificates
and any other Series then outstanding. The Transferor may request that each
Class A-1 Certificateholder waive any right to a Class A-1 Make Whole Payment,
as a condition to effecting any partial redemption pursuant to this Section 13.
Such amount shall be treated as Principal Collections, transferred to the
Collection Account in accordance with written instructions from the Servicer,
and allocated to the Series 1996-1 Certificates and each such other outstanding
Series based on the Floating Allocation Percentage for distribution on such
Distribution Date. No notice of such partial redemption shall be given unless
the funds to pay all amounts required with respect thereto shall be available as
of the end of the Monthly Period preceding the Monthly Period in which such
notice is given.
Section 14. Series 1996-1 Termination. The right of the Series 1996-1
Certificateholders to receive payments from the Trust will terminate on the
first Business Day following the Series 1996-1 Termination Date unless such
Series is an Affected Series as specified in Section 12.1(c) of the Agreement
and the sale contemplated therein has not occurred by such date, in which event
the Series 1996-1 Certificateholders shall remain entitled to receive proceeds
of such sale when such sale occurs. No notice of termination and final
distribution pursuant to Section 12.3 of the Agreement shall be given unless the
funds to pay all amounts required with respect thereto shall be available as of
the end of the Monthly Period preceding the Monthly Period in which such notice
is given.
Section 15. Transfer and Exchange; Restrictions on Transfer of Series
1996-1 Certificates; Tax Treatment; Legends.
(a) The Series 1996-1 Certificates have not been and will not be
registered under the Securities Act or any other applicable securities law and
may not be reoffered, resold, pledged or otherwise transferred except (i) to a
person whom the seller reasonably believes is a QIB in a transaction meeting the
requirements of Rule 144A, subject to the receipt by the Transferor and the
Trustee of a letter substantially in the form attached as Exhibit C hereto, (ii)
pursuant to an exemption from registration under the Securities Act provided by
Rule 144 thereunder (if available) subject to the receipt by the Transferor and
the Trustee of such evidence acceptable to the Transferor and the Trustee that
such reoffer, resale, pledge or transfer is in compliance with the Securities
Act and other applicable laws, (iii) to an Institutional Accredited Investor
pursuant to any other exemption from the registration requirements of the
Securities Act, subject to (A) the receipt by the Transferor and the Trustee of
a letter substantially in the form attached as Exhibit D hereto and (B) the
receipt by the Transferor and the Trustee of such other evidence acceptable to
the Transferor and the Trustee that such reoffer, resale, pledge or transfer is
in compliance with the Securities Act and other applicable laws or (iv) to the
Transferor, in each case in accordance with any applicable securities and blue
sky laws of any State of the United States or any other applicable jurisdiction.
(b) The Transferor shall make available to the prospective transferee
information requested to satisfy the requirements of paragraph (d)(4) of Rule
144A (the "Rule 144A Information"). The Rule 144A Information shall include any
or all of the following items requested by the prospective transferee:
(i) the private placement memorandum relating to the
Series 1996-1 Certificates dated December 13, 1996, and any supplements
or amendments thereto;
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(ii) copies of each statement delivered to Series 1996-1
Certificateholders pursuant to Section 5.2 on each Distribution Date
preceding such request; and
(iii) such other information as is reasonably available to
the Transferor in order to comply with requests for information
pursuant to Rule 144A under the Securities Act.
(c) Each Series 1996-1 Certificate will bear a legend substantially in
the following form:
"THIS CERTIFICATE (OR ITS PREDECESSOR) HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER ANY STATE SECURITIES OR BLUE SKY LAW OF ANY
STATE OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING THIS
CERTIFICATE, AGREES FOR THE BENEFIT OF THE TRANSFEROR THAT THIS
CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS
AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A") TO AN INSTITUTIONAL INVESTOR THAT THE HOLDER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER, WITHIN THE MEANING OF RULE 144A (A
"QIB"), PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB,
WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE,
PLEDGE, OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
SUBJECT TO RECEIPT BY THE TRANSFEROR AND THE TRUSTEE OF A LETTER
SUBSTANTIALLY IN THE FORM ATTACHED AS EXHIBIT A TO THE PRIVATE
PLACEMENT MEMORANDUM, (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) SUBJECT TO
RECEIPT BY THE TRANSFEROR AND THE TRUSTEE OF SUCH EVIDENCE ACCEPTABLE
TO THE TRANSFEROR AND THE TRUSTEE THAT SUCH REOFFER, RESALE, PLEDGE OR
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE
LAWS, (3) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
THEREOF IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT PURSUANT TO ANY OTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO (A) THE RECEIPT BY THE
TRANSFEROR AND THE TRUSTEE OF A LETTER SUBSTANTIALLY IN THE FORM
ATTACHED AS EXHIBIT B TO THE PRIVATE PLACEMENT MEMORANDUM AND (B) THE
RECEIPT BY THE TRANSFEROR AND THE TRUSTEE OF SUCH OTHER EVIDENCE
ACCEPTABLE TO THE TRANSFEROR AND THE TRUSTEE THAT SUCH REOFFER, RESALE,
PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER
APPLICABLE LAWS, OR (4) TO THE TRANSFEROR, IN EACH CASE IN ACCORDANCE
WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES AND SECURITIES
AND BLUE SKY LAWS OF THE STATES OF THE UNITED STATES."
(d) Upon surrender for registration of transfer of a Series 1996-1
Certificate at the office of the Transfer Agent and Registrar, accompanied by a
certification by the Series 1996-1 Certificateholder substantially in the form
attached as Exhibit D if the new purchaser is a QIB and by a written instrument
of transfer in the form approved by the Transferor and the Trustee (it being
understood that, until notice to the contrary is given to Series 1996-1
Certificateholders, the Transferor and the Trustee shall each be deemed to have
approved the form of instrument of transfer, if any, printed on any definitive
Series 1996-1 Certificate), executed by the registered owner, in person or by
such Series 1996-1 Certificateholder's attorney thereunto duly authorized in
writing, such Series 1996-1 Certificate shall be transferred upon the register,
and the Transferor shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferees one or more new registered
Series 1996-1 Certificates of any authorized denominations and of a like
aggregate principal amount and tenor. Transfers and exchanges of Series 1996-1
Certificates shall be subject to such restrictions as shall be set forth in the
text of the Series 1996-1 Certificates and such reasonable regulations as may be
prescribed by the Transferor. Successive registrations and registrations of
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transfers as aforesaid may be made from time to time as desired, and each such
registration shall be noted on the register.
(e) H & T Receivable Funding Corporation shall be prohibited from
Transferring any interest in or portion of the Exchangeable Transferor
Certificate to the extent that after giving effect to any such Transfer the
amount of the Exchangeable Transferor Certificate held solely by the Transferor
would be less than the Minimum Retained Interest unless, prior to such Transfer,
it shall have delivered to the Trustee an Opinion of Counsel to the effect that
such proposed Transfer will not adversely affect the federal or any then
Applicable Tax State income tax characterization of any outstanding Series of
Investor Certificates or the taxability (or tax characterization) of the Trust
under federal or any then Applicable Tax State income tax laws. In no event
shall any interest in or portion of the Exchangeable Transferor Certificate be
transferred to BTFC. As a condition to transfer of an interest in or portion of
the Exchangeable Transferor Certificate the transferee shall be required to
agree not to institute against, or join any other Person in instituting against,
the Transferor or the Trust any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding, or other proceeding under any federal or
state bankruptcy or similar law, for one year and one day after all Investor
Certificates are paid in full. The Transferor shall provide prompt written
notice to each Rating Agency of any such transfer.
(f) No transfer of a Series 1996-1 Certificate will be permitted to be
made to a benefit plan except through an insurance company general account. Each
Series 1996-1 Certificate will bear a legend substantially in the following
form:
"EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF THE
TRANSFEROR THAT EITHER (I) IT IS NOT, AND IS NOT PURCHASING DIRECTLY OR
INDIRECTLY ON BEHALF OF, AN EMPLOYEE BENEFIT PLAN AS DEFINED IN SECTION
3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), THAT IS SUBJECT TO TITLE I OF ERISA OR A PLAN DESCRIBED IN
SECTION 4975(E)(1) OF THE CODE OR (II) THE SOURCE OF THE FUNDS USED TO
PURCHASE AND HOLD THE CERTIFICATES PURCHASED HEREUNDER WILL BE AN
"INSURANCE COMPANY GENERAL ACCOUNT" WITHIN THE MEANING OF DEPARTMENT OF
LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 95-60 AND THE
ACQUISITION AND HOLDING OF THE CERTIFICATES WILL BE EXEMPT UNDER PTCE
95-60.
(g) The Series 1996-1 Certificateholders shall comply with their
obligations under Section 3.7 of the Agreement with respect to the tax treatment
of the Series 1996-1 Certificates, except to the extent that a relevant taxing
authority has disallowed such treatment.
Section 16. Back-Up Servicer. The Transferor, the Servicer and the
Trustee have entered into the Back-Up Servicing Agreement with the Back-Up
Servicer, and each covenants and agrees for the benefit of the Series 1996-1
Certificateholders to perform all of its respective obligations thereunder, and
otherwise to take all reasonable actions required to maintain the Back-Up
Servicing Agreement in effect for so long as any of the Series 1996-1
Certificates shall remain outstanding. The Trustee shall not agree to any
amendment of the Back-Up Servicing Agreement unless the Holders of Series 1996-1
Certificates evidencing more than 50% of the Series 1996-1 Invested Amount shall
consent thereto. The Trustee shall not consent to any termination of the Back-Up
Servicing Agreement without the consent of each Holder of the Series 1996-1
Certificates. If so directed by each Holder of the Series 1996-1 Certificates,
the Trustee (together with the Transferor and BTFC) shall terminate the Back-Up
Servicing Agreement in accordance with the terms thereof. If the Back-Up
Servicer shall become legally unable to perform the obligations of Back-Up
Servicer or the Back-Up Servicing Agreement otherwise shall be terminated while
any Series 1996-1 Certificates remain outstanding, the Trustee covenants and
agrees that it will assume and perform the duties of Back-Up Servicer as
provided in the Back-Up Servicing Agreement until a replacement Back-Up Servicer
shall have entered into a new Back-Up Servicing Agreement, substantially in the
form of the Back-Up Servicing Agreement unless otherwise approved in writing by
Holders of Series 1996-1 Certificates evidencing more than 50% of the Series
1996-1 Invested Amount, for the benefit of the Series 1996-1 Certificateholders.
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Section 17. Additional Consent Rights; Modifications to Agreement.
(a) Notwithstanding anything to the contrary in Section 8.2 of the
Agreement, the Servicer, if other than Texas Commerce Bank National Association,
shall not consolidate with or merge into any other corporation or convey or
transfer its assets substantially as an entirety to any Person unless, in each
case, either (i) the corporation formed by such consolidation or into which the
Servicer is merged or the Person which acquired by conveyance or transfer the
properties of the Servicer substantially as an entirety has a tangible net worth
immediately after giving effect to such consolidation, merger, conveyance or
transfer, of not less than the Tangible Net Worth of the Servicer immediately
prior to giving effect to such consolidation, merger, conveyance or transfer, as
confirmed in an Officer's Certificate delivered by the Servicer to the Trustee,
or (ii) consent thereto has been obtained from the Holders of Series 1996-1
Certificates evidencing Undivided Interests aggregating not less than 66-2/3% of
the Invested Amount.
(b) Notwithstanding anything to the contrary in subsection 13.1(a) of
the Agreement, the Transferor, the Servicer and the Trustee shall not enter into
any amendment otherwise permitted pursuant to clause (ii) of such subsection, or
pursuant to the second paragraph of such subsection, unless, in each case,
consent thereto has been obtained from the Holders of Series 1996-1 Certificates
aggregating not less than 66-2/3% of the Invested Amount. The Servicer shall
provide to each Series 1996-1 Certificateholder a copy of each amendment to the
Agreement and this Series 1996-1 Supplement at least three Business Days prior
to the effective date thereof.
(c) Notwithstanding anything to the contrary in Section 6.9 of the
Agreement, if (i) the percentage equivalent of a fraction, (A) the numerator of
which is the sum of the Dilutions (excluding all Dilutions attributable to a
Credit Card Program) as reported by the Servicer on the monthly Settlement
Statement for the three Monthly Periods preceding the Monthly Period in which
the Transferor proposes to issue a Series of Investor Certificates other than a
Replacement Series divided by three, and (B) the denominator of which is the
average monthly Aggregate Principal Receivables for such three Monthly Periods,
exceeds (ii) 1.6%, then the Transferor, the Servicer and the Trustee shall not
issue such Series of Investor Certificates (other than a Replacement Series)
unless consent thereto has been obtained from the Holders of Series 1996-1
Certificates aggregating not less than 50% of the Series 1996-1 Invested Amount.
(d) Notwithstanding anything to the contrary in subsection 10.1(b) of
the Agreement, with respect to the Series 1996-1 Certificates (a) there shall be
added to such subsection, immediately following the phrase "and in good faith in
effecting such cure" which appears after the proviso therein, the phrase "and
shall have given not less than 7 days notice to the Series 1996-1
Certificateholders requesting an additional period of 30 days to effect such
cure, and unless the Holders of Series 1996-1 Certificates evidencing more than
50% of the Invested Amount shall have responded indicating their refusal to
grant such extension", and (b) the phrase "unless the Trustee shall agree that a
longer extension is appropriate under the circumstances" shall be replaced by
the phrase "unless Holders of Series 1996-1 Certificates evidencing more than
50% of the Invested Amount shall agree that a longer extension is appropriate
under the circumstances".
(e) Notwithstanding anything to the contrary in subsection 10.1(c) of
the Agreement, with respect to the Series 1996-1 Certificates (a) there shall be
added to such subsection, immediately following the phrase "and in good faith in
effecting such cure" which appears after the proviso therein, the phrase "and
shall have given not less than 7 days notice to the Series 1996-1
Certificateholders requesting an additional period of 30 days to effect such
cure, and unless the Holders of Series 1996-1 Certificates evidencing more than
50% of the Invested Amount shall have responded indicating their refusal to
grant such extension", and (b) the phrase "unless the Trustee shall agree that a
longer extension is appropriate under the circumstances" shall be replaced by
the phrase "unless Holders of Series 1996-1 Certificates evidencing more than
50% of the Invested Amount shall agree that a longer extension is appropriate
under the circumstances".
(f) For purposes of applying the consent restrictions of subsection
13.3(c) to the Series 1996-1 Certificateholders, the percentage specified
therein shall be deemed to be 25% and not 50%.
(g) [Reserved.]
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(h) BTFC agrees that it shall not change its policies, in effect on the
Closing Date, of denying access (to the extent reasonably practicable under the
circumstances) to Obligors whose obligations in respect of Receivables are past
due more than 60 days.
(i) Neither the Trustee, the Transferor nor BTFC shall agree to any
amendment or modification of the Purchase Agreement or the Subsidiary Purchase
Agreement without either the prior consent of Holders of Series 1996-1
Certificates evidencing more than 50% of the Invested Amount or the Rating
Agency Condition being satisfied, provided that the foregoing shall not apply
with respect to any amendment or modification (i) to cure any ambiguity, to
revise any exhibits or Schedules (other than Schedule I to the Purchase
Agreement and Schedule II to the Subsidiary Purchase Agreement), to correct or
supplement any provisions therein or thereon which may be inconsistent with any
other provisions therein or thereon, or (ii) to add any other provisions with
respect to matters or questions raised thereunder which shall not be
inconsistent with the provisions of such agreement provided the conditions of
Section 13.1 of the Agreement have been satisfied.
Section 18. Issuance of Additional Series of Investor Certificates.
(a) If the Transferor proposes to issue a Series of Investor
Certificates other than a Replacement Series, the Transferor (at its sole
expense) shall provide or cause to be provided to the Series 1996-1
Certificateholders or their respective agents as they may designate in writing,
copies of (i) all documentation relating to such additional Series to which any
of the Transferor, the Servicer or the Trustee would be a party (provided, that
the Transferor shall not be required to provide any underwriting or placement
agent agreement, or any certificate purchase agreement, as part of such
documentation), (ii) all legal opinions to be delivered to either the Trustee or
any Rating Agency, and (iii) the private placement memorandum or other offering
materials to be used in connection with such Series (collectively, the "Series
Documentation"); provided, that information identifying any proposed investor in
such Series may be deleted from all Series Documentation provided pursuant to
this subsection (a) if requested by such proposed investor. The then current
drafts of all Series Documentation shall be provided to the Series 1996-1
Certificateholders no later than 30 days prior to the anticipated closing date
for such Series (which anticipated closing date, and any subsequent changes
thereto, shall be identified to the Series 1996-1 Certificateholders), unless
the initial draft of any Series Documentation is first prepared later than 30
days prior to such anticipated closing date. Thereafter, an initial draft of any
Series Documentation which is first prepared later than 30 days prior to such
anticipated closing date, and subsequent drafts of all Series Documentation (or
changed pages, if applicable) shall be provided to the Series 1996-1
Certificateholders as contemporaneously as reasonably practicable with the
distribution of such Series Documentation to the proposed investors, Rating
Agencies or other Persons having an interest in such Series. Notwithstanding the
Transferor's obligation to provide the Series Documentation pursuant to this
subsection (a), nothing contained in this subsection (a) shall be deemed or
construed to grant to the Series 1996-1 Certificateholders any right of consent
with respect to any such Series Documentation unless the consent right provided
for in Section 17(c) of this Series Supplement is otherwise applicable. In
receiving any Series Documentation pursuant to this subsection (a), each Series
1996-1 Certificateholder shall be deemed to have acknowledged and agreed that
such Series Documentation has been provided solely for purposes of review by
such Series 1996-1 Certificateholder in order to determine the effect, if any,
of the issuance of such Series on the Series 1996-1 Certificates, and that such
Series Documentation will be treated as confidential and will not be disclosed
to third parties for purposes unrelated to such review.
(b) The Transferor agrees that while the Series 1996-1 Certificates
remain outstanding, no other Series of Investor Certificates will provide for an
allocation of the Default Amount against the Available Subordination Amount with
respect to such other Series in an amount greater than that provided for
pursuant to Sections 4.3(d) and 4.5 (as set forth in this Series Supplement) of
the Pooling and Servicing Agreement.
(c) If the Transferor proposes to issue a Series of Investor
Certificates other than a Replacement Series, then for purposes of the
requirement in subsection 6.9(b) of the Agreement that the Rating Agency
Condition be satisfied in connection with the Exchange related to issuance of
such Series, the rating to be applicable with respect to the Series 1996-1
Certificates shall be at least BBB+, whether or not the then current rating of
the Series 1996-1 Certificates is BBB+.
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Section 19. Closed and Sold Clubs.
(a) Definitions. For purposes of this Section 19,
"Category I - Closed Clubs" shall mean each health club which
has been closed on or after the Closing Date, and the memberships with
respect to which have been transferred to and assumed by a Qualifying
Replacement Club located more than five (5) miles, but not more than
twenty (20) miles, from such closed club.
"Category II - Closed Clubs" shall mean each health club which
has been closed on or after the Closing Date, and the memberships with
respect to which have been transferred to and assumed by a Qualifying
Replacement Club located not more than five (5) miles from such closed
club, and which is not a club which has been specifically constructed
as a new replacement club to be owned and operated by BTFC or another
Originator.
"Category III - Sold Clubs" shall mean each health club the
ownership of which has been sold by BTFC or another Originator on or
after the Closing Date, and which is not to be operated, following
consummation of such sale, under a franchise agreement between BTFC (or
such other Originator, if applicable) and the new owner of such sold
club providing that such sold club is to be operated in a manner
consistent with the standards that BTFC (or such other Originator, if
applicable) would require for a club owned by it.
"Qualifying Replacement Club" shall mean a health club which
is either (i) owned by BTFC or another Originator, (ii) operated by the
owner thereof under a franchise agreement between BTFC (or another
Originator or a wholly-owned Subsidiary of BTFC, if applicable) and
such owner providing that such club is to be operated in a manner
consistent with the standards that BTFC (or such other Originator or a
wholly-owned Subsidiary of BTFC, if applicable) would require for a
club owned by it, or (iii) a club formerly owned by BTFC or another
originator which has been sold to a Qualifying Purchaser.
"Qualifying Purchaser" shall mean a purchaser of a health club
from BTFC or another Originator who has entered into an agreement with
BTFC (or such other Originator, if applicable) providing (i) for the
continued servicing of the Contracts and related Receivables with
respect to such sold club by BTFC, (ii) that such sold club is to be
operated in a manner consistent with the standards that BTFC (or such
other Originator, if applicable) would require for a club owned by it,
and (iii) that BTFC (or such other Originator, if applicable) shall
have the right to repurchase such sold club or assume management
control thereof if such sold club is not operated in accordance with
clause (ii) above.
(b) Designation of Receivables as Ineligible.
(i) In the event any health club is closed on or after the
Closing Date, each Eligible Receivable, the Obligor on which was a
member of such closed club, shall be designated as an Ineligible
Receivable as of the date such club is closed, unless and until the
membership of such Obligor is transferred to and assumed by a
Qualifying Replacement Club located within twenty (20) miles of such
closed club.
(ii) In the event any health club is sold by BTFC or another
Originator on or after the Closing Date, each Eligible Receivable, the
Obligor on which was a member of such sold club, shall be designated as
an Ineligible Receivable as of the date such club is sold, unless and
until the membership of such Obligor is assumed by a Qualifying
Purchaser.
(c) Calculation of Excluded Amount - Clubs. With respect to any health
club which is closed or sold on or after the Closing Date, and as to which the
related Eligible Receivables would not be designated as Ineligible Receivables
under either clause (i) or (ii) of subsection (b) above, the Servicer shall
determine whether such club constitutes a Category I - Closed Club, a Category
II - Closed Club, or a Category III - Sold Club. If such club
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constitutes a Category I - Closed Club, a Category II - Closed Club, or a
Category III - Sold Club, the Servicer shall identify each Eligible Receivable,
the Obligor on which was a member of such club, for purposes of calculating the
Excluded Amount - Clubs.
The "Excluded Amount - Clubs" shall mean, for purposes of the
Settlement Statement delivered by the Servicer on any Determination Date
occurring after the number of health clubs owned or operated by Originators has
fallen and remains below 300 clubs, and for purposes of calculating and
reporting the Transferor Interest in the Daily Report delivered by the Servicer
on each Business Day subsequent to the Determination Date on which such
Settlement Statement is delivered through, and including, the next succeeding
Determination Date, and for purposes of determining the Aggregate Principal
Receivables on any such Business Day, the greater of the amounts described in
clauses (i) and (ii) below:
(i) the sum of:
(A) the difference, if positive, between (x) the aggregate Principal
Balance of all Eligible Receivables (as of the last Business Day of the
Monthly Period to which such Settlement Statement relates) of Obligors
who were members of a Category I - Closed Club that was closed during
the preceding 6 months, minus (y) 1% of the Aggregate Principal
Receivables (without giving effect to any reduction thereto in respect
of Excluded Amount-Clubs) as of the end of the last Business Day of the
Monthly Period to which such Settlement Statement relates; plus
(B) the difference, if positive, between (x) the aggregate Principal
Balance of all Eligible Receivables (as of the last Business Day of the
Monthly Period to which such Settlement Statement relates) of Obligors
who were members of a Category II - Closed Club that was closed during
the preceding 6 months, minus (y) 3% of the Aggregate Principal
Receivables (without giving effect to any reduction thereto in respect
of Excluded Amount-Clubs) as of the end of the last Business Day of the
Monthly Period to which such Settlement Statement relates; plus
(C) the difference, if positive, between (x) the aggregate Principal
Balance of all Eligible Receivables (as of the last Business Day of the
Monthly Period to which such Settlement Statement relates) of Obligors
who were members of a Category III - Sold Club which was sold during
the preceding 6 months, minus (y) 2% of the Aggregate Principal
Receivables (without giving effect to any reduction thereto in respect
of Excluded Amount Clubs) as of the end of the last Business Day of the
Monthly Period to which such Settlement Statement relates; or
(ii) the difference, if positive, between (I) the sum of the
amounts described in subclause (x) of each of clauses (A), (B) and (C)
above, minus (II) 5% of the Aggregate Principal Receivables (without
giving effect to any reduction thereto in respect of Excluded Amount
Clubs) as of the end of the last Business Day of the Monthly Period to
which such Settlement Statement relates.
Notwithstanding the foregoing, the Servicer shall not be obligated to calculate
and report the Excluded Amount Clubs on the Daily Report until such time as the
Officer's Certificate delivered pursuant to subsection (d) below indicates that
such club closing or sale would result in an Excluded Amount - Clubs
(d) Conditions to Closing or Selling a Club. BTFC covenants and agrees
that it will not (and that it will not permit any other Originator to)
consummate a closing or sale of any health club unless (i) BTFC shall have first
delivered to the Trustee and the designated representatives of the Class A-1 and
the Class A-2 Certificateholders an Officer's Certificate identifying (A)
whether such closed or sold club would be subject to subsection (b)(i) or (ii)
above, or would be a Category I - Closed Club, a Category II - Closed Club or a
Category III - Sold Club, (B) the aggregate amount of Eligible Receivables which
would either be designated as Ineligible Receivables pursuant to the Purchase
Agreement or subsection (b) above or would be included for purposes of
calculating the Excluded Amount - Clubs upon consummating such closing or sale,
and (C) whether such closing or sale would cause the Transferor Interest to fall
below the Minimum Transferor Interest (during the Revolving Period) or the
Available Subordination
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Amount (during the Amortization Period), and if so, the Transferor shall be
obligated to make a payment (to be treated as an Adjustment Payment for all
purposes hereunder) in an amount equal to the amount by which the Transferor
Interest would have been reduced below the Minimum Transferor Interest or
Available Subordination Amount, as applicable, and (ii) the Transferor shall
have deposited the amount of any such Adjustment Payment so required into the
Excess Funding Account; provided, that compliance with this subsection (d) shall
not be a precondition to closing any club upon the expiration of the lease of
the premises (although such closed club shall otherwise be subject to the
provisions of this Section 19). Notwithstanding the foregoing, the covenants and
agreements of this subsection (d) shall be applicable to BTFC only in the event
the number of health clubs operated by Bally and its subsidiaries has fallen
below 300 clubs; additionally, compliance with this subsection (d) may be waived
in individual instances by the Holders of the Series 1996-1 Certificates
aggregating not less than 50% of the Invested Amount. For purposes of this
Section 19, references to sold clubs shall be deemed to include (i) clubs, the
management or supervision of operations of which have been contracted to a
Person not an Originator and (ii) clubs of Originators which have been
terminated as parties to the Subsidiary Purchase Agreement pursuant to
subsection 5.1(j) of the Purchase Agreement.
Section 20. Right to Visit Servicer and Review Receivables. Any Series
1996-1 Certificateholder holding Certificates with an initial aggregate
Certificate Balance of at least $5,000,000 shall have the right, upon reasonable
prior notice to the Servicer (the "Proposing Certificateholder"), not more than
once every six month period (i) to visit the Servicer, to discuss the affairs,
finances and accounts of the Servicer with, and to be advised as to the same by,
its officers, and to examine the books of account and records (including,
without limitation, computer files, tapes and disks and microfiche lists) of the
Servicer to the extent reasonably related to the Receivables, and to make or be
provided with copies and extracts therefrom, and to discuss the affairs,
finances and accounts therefrom, and (ii) to discuss the affairs, finances and
accounts of the Servicer with, and to be advised as to the same by, the
Independent Accountants of the Servicer (and the Servicer agrees that it will
use its best efforts, upon request pursuant hereto, to cause the Independent
Accountants to meet with such Series 1996-1 Certificateholders, provided,
however, that no such discussion shall take place without a representative of
the Servicer present, and the Servicer provides no assurance that such
accountants will in fact be willing to engage in such discussions). Unless there
shall have occurred a Servicer Default, a Pay-Out-Event or a Discrepancy Event,
or the Servicer shall have advised the Series 1996-1 Certificateholder that a
Servicer Default, or Pay-Out-Event is likely to occur, the Proposing
Certificateholder shall provide the Servicer at least fifteen (15) days notice
with respect to the proposed date of visitation and contemporaneously therewith
shall provide the Trustee a copy of the same. The Trustee will provide all other
Certificateholders a copy of such notice within two (2) Business Days of its
receipt of the same, and Certificateholders will provide notice to the Servicer
within nine (9) days of the proposed visitation date acknowledgment of whether
or not they will join the Proposing Certificateholder on the proposed visitation
date. All information obtained by any Series 1996-1 Certificateholder pursuant
to this Section 20 shall be treated as confidential and subject to the terms and
conditions described in Annex 1 hereto. Each Series 1996-1 Certificateholder
shall pay its own expenses incurred in connection with the inspection activities
contemplated hereunder; provided, however, that the Servicer shall pay the
reasonable out-of-pocket expenses of one representative designated by the Series
1996-1 Certificateholders in making an initial visit and inspection pursuant to
this Section 20 at any time on or after the occurrence of a Servicer Default,
Pay-Out-Event or Discrepancy Event, or if the Servicer shall have advised the
Series 1996-1 Certificateholders that a Servicer Default or Pay-Out-Event is
likely to occur. Notwithstanding the foregoing, the event that there shall have
occurred a Servicer Default, a Pay-Out-Event or a Discrepancy Event, or the
Servicer shall have advised the Series 1996-1 Certificateholders that a Servicer
Default or Pay-Out-Event is likely to occur, there shall be no limit upon the
number of visits or discussions which are the subject of this Section 20 and the
notice requirement set forth above shall not apply; provided, however, that the
Servicer shall not be required to pay any expenses of the Series 1996-1
Certificateholders in connection with such visits or discussions except as
provided in the immediately preceding sentence. For purposes of this Section, a
"Discrepancy Event" shall mean the inability of the Servicer and the Back-Up
Servicer or the Independent Accountants, as applicable, to resolve an error or
discrepancy in a Daily Report or Settlement Statement which involves an amount
in excess of $500,000. The rights of any Series 1996-1 Certificateholder under
this Section 20 may be delegated, on a non-exclusive basis, to a representative
provided, however, that the rights of said representative under this Section 20
shall be subject to the same limitations as are the rights of the Series 1996-1
Certificateholders and shall be subject to the condition described in Annex I
hereto.
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Section 21. Interest Rate Cap Reductions. At any time that the notional
amount of the Interest Rate Cap is greater than the aggregate outstanding
principal amount of the Class A-2 Certificates, the Transferor may, upon written
notice, direct the Trustee to designate an early termination date with respect
to any part or all of the Interest Rate Cap provided that the remaining notional
amount of the Interest Rate Cap (after giving effect to any such early
termination) shall at least be equal to the aggregate outstanding principal
amount of the Class A-2 Certificates.
Section 22. Ratification of Agreement. (a) As supplemented by this
Series Supplement, the Agreement is in all respects ratified and confirmed and
the Agreement as so supplemented by this Series Supplement shall be read,
taken, and construed as one and the same instrument.
(b) For so long as any of the Series 1996-1 Certificates are
outstanding, each of the Transferor, the Servicer and the Trustee agree to
cooperate with each other to provide to any Series 1996-1 Certificateholders and
to any prospective purchaser of Series 1996-1 Certificates designated by such a
Series 1996-1 Certificateholder upon the request of such Series 1996-1
Certificateholder or prospective purchaser, any information required to be
provided to such holder or prospective purchaser to satisfy the condition set
forth in Rule 144A(d)(4) under the Securities Act.
Section 23. Counterparts. This Series Supplement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute but one and the
same instrument.
SECTION 24. GOVERNING LAW. THIS SERIES SUPPLEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 25. Instructions in Writing. All instructions or other
communications given by the Servicer or any other person to the Trustee pursuant
to this Series Supplement shall be in writing, and, with respect to the
Servicer, may be included in a Daily Report or Settlement Statement.
Section 26. Post Closing Searches. The Servicer agrees to obtain, or
cause to be obtained, searches of all applicable UCC financing statement records
to verify the existence of all required UCC filings provided for herein as in
the Agreement within forty-five (45) days of the Closing Date.
Section 27. Series 1995-1 Replacement Series Conditions. The Transferor
represents and warrants that the conditions relating to the issuance of a
Replacement Series provided for in the Series 1995-1 Supplement dated as of June
26, 1996 by and among the Transferor, the Series and the Trustee have been met.
Section 28. Amendment or Release of Interest Rate Cap. The Trustee
covenants not to amend any provision of, or release all or any portion of the
notional amount, of the Interest Rate Cap without Rating Agency consent.
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IN WITNESS WHEREOF, the Transferor, the Servicer and the
Trustee have caused this Series 1996-1 Supplement to be duly executed by their
respective officers as of the day and year first above written.
H & T RECEIVABLE FUNDING CORPORATION
Transferor
By: /s/ John W. Dwyer
Printed Name: John W. Dwyer
Title: Senior Vice President
BALLY TOTAL FITNESS CORPORATION
Servicer
By: /s/ John W. Dwyer
Printed Name: John W. Dwyer
Title: Senior Vice President
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
not individually but solely
as Trustee
By: /s/ Eric C. Lokker
Printed Name: Eric C. Lokker
Title: Assistant Vice President
42
EXHIBIT 10.13
AMENDED AND RESTATED BACK-UP SERVICING AGREEMENT
Amended and Restated Back-Up Servicing Agreement, dated as of December
16, 1996 (the "Back-Up Servicing Agreement"), by and among H & T Receivable
Funding Corporation, a corporation organized and existing under the laws of the
State of Delaware (the "Transferor"), Bally Total Fitness Corporation, a
corporation organized and existing under the laws of the state of Delaware
("BTFC"), and Texas Commerce Bank National Association, a national banking
association organized and existing under the laws of the United States ("TCB"),
in its capacity as Trustee (together with its successors in trust, the
"Trustee") under the Pooling and Servicing Agreement (the " Pooling and
Servicing Agreement") and the Series 1996-1 Supplement thereto, each dated as of
December 16, 1996 (together, the " Pooling and Servicing Agreement"), by and
among the Transferor, BTFC and the Trustee, and as Back-Up Servicer hereunder.
WHEREAS, pursuant to the Pooling and Servicing Agreement, BTFC is
appointed servicer (in such capacity, the "Servicer") of a portfolio of retail
installment sales contracts and the receivables arising thereunder, for the sale
of memberships in health clubs owned by BTFC or certain direct or indirect
subsidiaries thereof;
WHEREAS, pursuant to the Pooling and Servicing Agreement, the
Transferor will issue the H & T Master Trust Accounts Receivable Trust
Certificates, Series 1996-1 (the "Series 1996-1 Certificates");
WHEREAS, pursuant to Section 8.5 of the Pooling and Servicing
Agreement, BTFC is permitted, under certain circumstances, to resign as the
Servicer thereunder;
WHEREAS, pursuant to section 10.1 of the Pooling and Servicing
Agreement and Section 8 of the Series 1996-1 Supplement, upon the occurrence of
certain events of default by BTFC as Servicer, either the Trustee or the holders
of Series 1996-1 Certificates evidencing a specified percentage may terminate
all of the rights and obligations of BTFC as the Servicer under the Pooling and
Servicing Agreement;
WHEREAS, pursuant to section 10.2 of the Pooling and Servicing
Agreement, upon the resignation or termination of BTFC as Servicer, the Trustee
is required to appoint a successor servicer which shall assume all of the rights
and obligations of the Servicer under the Pooling and Servicing Agreement (the
"Successor Servicer");
WHEREAS, to provide for the performance of certain supervisory
servicing functions by a supervisory servicer while BTFC acts as Servicer, and
to provide assurances to the Holders of the Series 1996-1 Certificates that a
standby servicer will be ready, willing and able to assume all of the rights and
obligations of the Servicer under the Pooling and Servicing Agreement upon any
resignation or termination of BTFC as Servicer, the Transferor and BTFC desire
to obtain the agreement of TCB to act as Back-Up Servicer as hereinafter
provided, including the commitment of TCB to act as Successor Servicer upon any
such resignation or termination of BTFC as Servicer; and
WHEREAS, in consideration for the fees provided for herein, TCB is
willing to perform certain supervisory servicing functions and to commit itself
to act as Successor Servicer upon any resignation or termination of BTFC as
Servicer, and to otherwise act as Back-Up Servicer as hereinafter provided;
NOW, THEREFORE, In consideration of the mutual agreements herein
contained, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used but not otherwise defined
herein shall have the respective meanings assigned thereto in the Pooling and
Servicing Agreement.
2. Term. This Back-Up Servicing Agreement shall remain in effect
through and including the Series 1996-1 Termination Date, unless terminated
earlier in accordance with Section 14 hereof.
3. Agreement to Act as Back-Up Servicer; Commitment to Act as
Successor Servicer.
(a) On the terms and subject to the conditions set forth herein, the
Transferor and BTFC, with the acknowledgment and consent of the Trustee and the
Certificateholders, hereby engage TCB as the Back-Up Servicer,
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and TCB hereby agrees to accept such engagement as Back-Up Servicer, and to
perform the services set forth herein during the term of this Back-Up Servicing
Agreement. Without limiting the foregoing, TCB hereby agrees that upon any
resignation or termination of BTFC as Servicer under the Pooling and Servicing
Agreement and receipt by TCB of notice of such resignation or the Termination
Notice from the Trustee, TCB shall immediately assume all of the rights and
obligations of a Successor Servicer thereunder, and shall undertake the
servicing of the Receivables pursuant to Section 7 hereof. The agreement by TCB
to act as Back-Up Servicer hereunder, including without limitation the foregoing
commitment by TCB to act as Successor Servicer, shall remain in effect unless
and until this Back-Up Servicing Agreement shall be terminated in accordance
with Section 14 hereof or TCB shall be entitled to resign in accordance with
Section 17 hereof and TCB agrees that it shall not otherwise be relieved of its
obligations hereunder, including without limitation, by reason of any failure to
receive the full Back-Up Servicer Standby Fee provided for in Section 8 hereof.
The date upon which the Back-Up Servicer becomes obligated to provide for
servicing of the Receivables as the Successor Servicer under the Pooling and
Servicing Agreement (referred to herein as a "Servicing Transfer") is referred
to herein as the "Servicing Transfer Date."
(b) Except as expressly provided in Section 6 hereof with respect to
the supervisory duties of the Back-Up Servicer, the Back-Up Servicer shall (i)
be entitled to assume for all purposes that the information contained in any
reports and data received by it from BTFC is complete, true and correct, unless
such information, reports and data shall be patently wrong on their face, (ii)
be fully protected in relying upon such reports and data without any independent
investigation or audit to prove the facts stated therein, (iii) have no duty to
supervise, investigate, or audit any records or activities of BTFC with respect
to the servicing of the Receivables, (iv) have no responsibility or liability
for any acts or omissions of BTFC with respect to the servicing of the
Receivables, (v) not otherwise be responsible for supervising, or liable for, in
any respect, the actions, activities or conduct of BTFC as Servicer or any
Successor Servicer (other than the Back-Up Servicer as Successor Servicer), and
(vi) not guaranty or otherwise provide any assurances as to the collectibility
of the Receivables.
(c) Nothing set forth herein shall constitute, or be construed as
creating, an employment relationship, a partnership, a joint venture, or any
other kind of relationship or association between or among the Back-Up Servicer
and any other Person party hereto. Except as expressly provided herein, no
Person party hereto has any authority, express or implied, to bind, or to incur
liabilities on behalf or in the name of, any other Person party hereto.
(d) Notwithstanding anything to the contrary contained herein, nothing
in this Back-Up Servicing Agreement shall be deemed to limit or impair any
right, duty, obligation or liability to which TCB may be subject pursuant to the
express terms of the Pooling and Servicing Agreement or any Supplement thereto
(including without limitation the Series 1996-1 Supplement) when acting in its
capacity as Trustee thereunder.
(e) The parties expressly acknowledge and consent to TCB acting in the
possible dual capacity of Back-Up Servicer or Successor Servicer and in the
capacity as Trustee. TCB may, in such dual capacity, discharge its separate
functions fully, without hindrance or regard to conflict of interest principles,
duty of loyalty principles or other breach of fiduciary duties, all of which
defenses, claims or assertions are hereby expressly waived by the other parties
hereto. It is expressly acknowledged, consented and agreed that TCB may
discharge its respective Back-Up Servicing and Trustee obligations to the full
in accord with the appropriate document and to the extent it is performing its
functions in accordance with the terms of such document, shall be fully
protected and shall be indemnified against any such claim, assertion or lawsuit
alleging breach of fiduciary duty, conflict of interest or similar defense or
claim.
(f) In connection with the performance of its obligations under this
Agreement, the Back-Up Servicer may at any time delegate any or all of its
duties hereunder to any Person who agrees to conduct such duties in accordance
with this Agreement and, in the event of any such delegation, BTFC will
cooperate directly with such Person in the performance of any duties so
delegated. Any such delegations shall not relieve the Back-Up Servicer of its
liability and responsibility with respect to such duties, and the Back-Up
Servicer will remain jointly and severally liable with such Person as if the
Back-Up Servicer had performed such duty; provided, however, that from and after
the Servicing Transfer Date, any such delegation of duties shall be subject to
the requirements of the Pooling and Servicing Agreement.
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4. Preparation for Servicing Transfer. The Back-Up Servicer, as standby
servicer, acting in cooperation with BTFC, has developed, and throughout the
term of this Back-Up Servicing Agreement shall maintain, the capability to
process and collect the Receivables in order to become and act as Successor
Servicer pursuant to the terms of this Back-Up Servicing Agreement.
(a) BTFC and the Back-Up Servicer hereby confirm that prior to the
Closing Date, BTFC has provided the Back-Up Servicer with such access to the
premises from which it services the Receivables together with such information
and materials as the Back-Up Servicer may reasonably have requested (including
without limitation the layout of the respective fields for purposes of the
magnetic tapes or other magnetic storage medium on which information relating to
the Receivables is stored), or such additional information and materials as BTFC
may otherwise have believed were reasonably required, to familiarize the Back-Up
Servicer with the computer hardware, software and related systems utilized by
BTFC, such that the Back-Up Servicer could reasonably undertake collection of
the Receivables in the manner contemplated in Section 7(a) hereof (assuming the
Back-Up Servicer takes the other actions contemplated by Section 7(a) to be
taken by it at such time). Throughout the term of this Back-Up Servicing
Agreement, BTFC shall continue to provide such access to its premises together
with such information and materials as the Back-Up Servicer may reasonably
request, or such additional information and materials as BTFC may otherwise
believe are reasonably required, such that the Back-Up Servicer maintains such
capability. BTFC shall provide the Back-Up Servicer with reasonable notice (but
in any event within 10 Business Days) of material changes to its computer
hardware, software and related systems, such that the Back-Up Servicer may
maintain its familiarity therewith.
(b) BTFC and the Back-Up Servicer hereby confirm that prior to the
Closing Date, BTFC has provided the Back-Up Servicer with the current version of
its disaster recovery plan ("DRP"), as maintained in effect with Comdisco
(together with any other provider from time to time of a DRP to BTFC, the "DRP
Provider"), pursuant to which it has access to alternative computer hardware
substantially configured in the same manner as BTFC's current computer hardware.
BTFC and the Back-Up Servicer additionally confirm hereby that prior to the
Closing Date BTFC has provided the Back-Up Servicer with written authorization
to access BTFC's offsite storage facility wherein it maintains continuously
updated copies of all software currently in use from time to time in servicing
the Receivables as well as continuously updated copies of the magnetic tapes (or
other electronic storage medium) storing information relating to the Receivables
at the location(s) identified therein (each, an "Offsite Storage Facility"), and
that the scope of the materials maintained in each Offsite Storage Facility, and
the other provisions of the DRP, are sufficient such that the Back-Up Servicer
could reasonably undertake collection of the Receivables in the manner
contemplated in Section 7(b) hereof (assuming the Back-Up Servicer takes the
other actions contemplated by Section 7(b) to be taken by it at such time). BTFC
shall provide the Back-Up Servicer with reasonable notice (but in any event
within 10 Business Days) of material changes to its DRP or its offsite storage
facility, such that the Back-Up Servicer may maintain its familiarity therewith
and access thereto, respectively.
(c) BTFC hereby confirms that it has provided its current DRP Provider
with written notice of the Back-Up Servicer's rights under this Back-Up
Servicing Agreement, and has authorized and directed the offsite storage
facility Provider to provide access to each Offsite Storage Facility, and the
right to obtain the software, magnetic tapes (or other electronic storage
medium) and other records relating to the Receivables maintained from time to
time therein pursuant to the DRP, to the Back-Up Servicer in accordance with
Section 7(b) hereof, and will obtain the written acknowledgment and agreement of
the DRP Provider and the offsite storage provider with respect thereto for the
benefit of the Back-Up Servicer. BTFC has provided such acknowledgment to the
Back-Up Servicer. From and after the Closing Date, upon reasonable prior notice
and during normal business hours, BTFC and the DRP Provider and the Offsite
Storage Facility Provider shall provide the Back-Up Servicer with reasonable
access to any and all alternative Computer hardware facilities and Offsite
Storage Facilities at which BTFC and/or its subsidiaries maintain alternative
computer hardware and software, magnetic tapes (or other electronic storage
medium) or other records relating to the Receivables. BTFC shall remain
responsible for all costs and expenses (including rent and taxes) associated
with the maintenance of such Offsite Storage Facilities. BTFC shall not, without
the consent of the Back-Up Servicer, remove records relating to the Receivables
from such Offsite Storage Facilities except to the extent done in the ordinary
course of business in connection with restoring and updating software, magnetic
tapes (or other electronic medium) or other records relating to the Receivables
as contemplated by the DRP, or in connection with a material change to the DRP
as to which the Back-Up Servicer has received notice as provided above.
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(d) BTFC has provided to the Back-Up Servicer (i) a full
backup of its software and data and (ii) multiple magnetic tape cartridges
containing all the data necessary as determined by the Back-Up Servicer, based
on certain representations made by BTFC, to be sufficient to enable the Back-Up
Servicer to service and collect the Receivables as contemplated hereunder for
each Receivable (i) as of the end of the last Business Day of each Monthly
Period, to be provided on or before the related Determination Date until the
Servicing Transfer Date, and (ii) on and as of the Business Day before the
actual commencement of servicing functions by the Back-Up Servicer following the
occurrence of the Servicing Transfer Date provided however that BTFC and the
Back-Up Servicer shall have the right to modify the medium by which the Back-Up
Servicer obtains the software and data it needs to service and collect the
Receivables as contemplated hereunder.
(e) If requested by the Back-Up Servicer, BTFC shall provide, within a
reasonable period, personnel and employees or agents of the Back-Up Servicer
with the opportunity to participate in the training which BTFC offers to its own
personnel and employees in the use of BTFC's hardware, software and related
systems to the extent applicable to servicing and collecting the Receivables (or
BTFC may, at its election, offer comparable training to such personnel and
employees of the Back-Up Servicer), provided that the Back-Up Servicer shall
reimburse BTFC for any additional cost incurred by BTFC in providing such
training.
5. Notices, Reports, Statements, Etc. The Trustee shall provide to the
Back-Up Servicer all notices, reports, statements and other written
communications delivered by the Trustee to BTFC under the Pooling and Servicing
Agreement, and BTFC shall provide to the Back-Up Servicer all notices, reports,
statements and other written communications delivered by BTFC to the Trustee
under the Pooling and Servicing Agreement. For so long as TCB shall be both the
Trustee and the Back-Up Servicer (or if at any other time the same Person shall
be acting in both such capacities), all notices, reports, statements and other
written communications which are either delivered by the Trustee to BTFC or by
BTFC to the Trustee, shall be deemed also to have been delivered to the Back-Up
Servicer.
6. Supervisory Functions of Back-Up Servicer. Prior to a Servicing
Transfer, the Back-Up Servicer shall perform the following supervisory
functions, provided that the Back-Up Servicer shall be entitled to request of
and receive from the Trustee and BTFC, as appropriate, access to all information
or to any premises of BTFC necessary to conduct tests or make reports in a
timely manner as specified below.
(a) The Back-Up Servicer shall review the monthly Settlement Statements
provided by BTFC on each Determination Date, and shall review the monthly
Certificateholders Statements provided to Series 1996-1 Certificateholders on
each Determination Date, and, within five days of the corresponding
Determination Date, shall verify the calculations set forth in such statements
(based on the information contained therein). If it shall appear to the Back-Up
Servicer that any such statement contains a material error, irregularity or
discrepancy, then the Back-Up Servicer shall first consult with BTFC to confirm
such findings. If following such consultation with BTFC the Back-Up Servicer
continues to believe that such material error, irregularity or discrepancy
exits, then the Back-Up Servicer shall provide the Transferor, BTFC, the Trustee
(which shall provide copies to each Series 1996-1 Certificateholder) and each
Rating Agency with written notice thereof. In addition, the Back-Up Servicer
shall confirm with the Trustee that the balances shown on the Settlement
Statement with respect to each account set forth thereon conform to the
corresponding balances shown on the Trustee's internal records with respect to
such accounts.
(b) Within 15 days following the end of the six-month period ending
June 30 and December 31 of each year (beginning with the six-month period ending
June 30, 1997), the Back-Up Servicer shall (i) randomly select one Monthly
Period (hereinafter, the "Monthly Period Reviewed") from the preceding six
Monthly Periods, (ii) randomly select three Daily Reports relating to three days
within the Monthly Period Reviewed from those provided by BTFC, and with respect
to each such Daily Report perform the review specified in paragraph (A) below,
(iii) select the monthly Settlement Statement and Certificateholder's Statement
relating to the Monthly Period Reviewed, and with respect to such Settlement
Statement perform the review specified in paragraph (B) below, and with respect
to the Certificateholder's Statement perform the review specified in paragraph
(C) below, (iv) randomly select five (5) Contracts identified on BTFC's accounts
receivable aging report and with respect to each such Contract selected perform
the review specified in paragraph (D) below, and (v) provide the Transferor,
BTFC, the Trustee (which shall provide copies to each Series 1996-1
Certificateholder) and each Rating Agency with a certificate stating that each
of the amounts to be
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compared pursuant to paragraphs (A) and (B) below was found to be consistent or,
if applicable, setting forth any material discrepancies found in comparing such
amounts.
(A) With respect to each of the three Daily Reports selected,
(i) the Back-Up Servicer shall compare the amounts
set forth thereon representing Collections, Principal Collections,
Imputed Yield Collections, new Principal Receivables, Defaulted
Receivables, Dilutions, and the beginning and ending Eligible
Receivables balances with the corresponding amounts set forth in, or
determined based on other amounts set forth in, the summary report
source documents used by BTFC in preparing such Daily Report;
(ii) the Back-Up Servicer shall compare the
Collections, the Principal Collections and the Imputed Yield
Collections together with the amounts, if any, representing deposits to
the Excess Funding Account and the Reserve Fund set forth on each of
the three Daily Reports tested with the Trustee's applicable deposit
records to determine if the appropriate amounts were deposited to the
Collection Account and the Principal Subaccount and the Interest
Subaccount thereof, the Excess Funding Account and the Reserve Fund, as
the case may be; and
(iii) the Back-Up Servicer shall recalculate the
allocation of Principal Collections and Imputed Yield Collections among
the Exchangeable Transferor Certificate, the Series 1996-1 Certificates
and any other Series of Investor Certificates then outstanding by
multiplying the allocation percentage(s) applicable to the Transferor
Interest, the Series 1996-1 Certificates and any such other Series of
Investor Certificates then outstanding shown on the Servicer's Report
first by the Principal Collections and then by the Imputed Yield
Collections, and shall confirm the calculation of each such allocation
percentage with reference to the Transferor Interest, the Series 1996-1
Invested Amount, and the Invested Amount(s) of any such other Series of
Investor Certificates then outstanding.
(B) With respect to the monthly Settlement Statement,
(i) the Back-Up Servicer shall compare the aggregate
Eligible Principal Receivables and Qualifying Gross Receivables balance
in each of the aging categories set forth thereon with the
corresponding amounts set forth in the summary report source documents
of BTFC as of the end of the last Business Day of the Monthly Period
Reviewed; and
(ii) the Back-Up Servicer shall compare the amounts
set forth thereon representing Collection, Principal Collections,
Imputed Yield Collections, new Principal Receivables, Defaulted
Receivables and Dilutions to the aggregate of such information
appearing in each of the Daily Reports provided with respect to the
Monthly Period Reviewed.
(C) With respect to the Monthly Certificateholder's Statement,
the Back-Up Servicer shall verify the calculable Pay-Out-Event triggers
set forth thereon (based solely on the information contained therein).
(D) With respect to the five (5) Contracts selected, the
Back-Up Servicer shall review BTFC's member profile screen and verify
that, with respect to the related Obligor, the number of days elapsed
since the most recent payment due date for that Obligor is consistent
with the corresponding information set forth for such Obligor on BTFC's
account receivable aging report.
(c) Representative examples of the summary report source
documents used by BTFC in preparing the Daily Reports are attached hereto as
Exhibit A. In case of a material change to such summary report source documents,
BTFC will provide notice thereof to the Back-Up Servicer, which notice shall
include representative examples of such new summary report source documents if
appropriate.
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(d) The performance by the Back-Up Servicer of the supervisory
functions provided for in this Section 6 shall not constitute or be construed as
an assessment of the creditworthiness or as a credit analysis of BTFC or any
Obligor. The Back-Up Servicer shall have no liability to BTFC, the Trustee or
any third party in connection with the performance of its duties hereunder,
except to the extent expressly provided for herein, and to the extent of its own
negligence or willful misconduct.
7. Servicing Transfer. Upon the occurrence of the Servicing Transfer
Date, the Back-Up Servicer may assume and undertake the obligations of Successor
Servicer by electing at such time, in its sole discretion, to service the
Receivables from the premises of BTFC pursuant to subsection 7(a) hereunder, to
obtain the current software and current magnetic tape (or other electronic
medium) and other records relating to the Receivables from the Offsite Storage
Facility pursuant to the DRP then in effect and, thereafter, service the
Receivables from premises and through computer systems and related facilities
otherwise arranged by it pursuant to subsection (b), or by a combination of the
actions contemplated in (a) and (b) if appropriate. The Back-Up Servicer shall
use its best efforts to establish its servicing operations in the premises of
BTFC, or in such locations as may otherwise be arranged by the Back-Up Servicer,
as the case may be, so as to effect an expeditious and orderly transfer of
servicing such that the Back-Up Servicer, as Successor Servicer, shall itself
have commenced servicing and collecting the Receivables within five Business
Days of the Servicing Transfer Date, provided, that the Back-Up Servicer shall
not be responsible for delays attributable to BTFC's failure to deliver
information, monies or other materials required to be delivered hereunder, or
under the Pooling and Servicing Agreement, upon a Servicing Transfer, defects in
the information supplied by BTFC, or other circumstances beyond the reasonable
control of the Back-Up Servicer. Prior to the Servicing Transfer Date, the
Back-Up Servicer shall make diligent efforts to identify and avert problems
which may cause delays in effecting a Servicing Transfer, subject to BTFC's
performance of its obligations to cooperate and to provide information hereunder
upon reasonable request.
(a) As of the Servicing Transfer Date, the Back-Up Servicer shall have
the right (i) to enter and operate any and all business premises of BTFC where
records or other information relating to the Receivables may be maintained or as
may otherwise be deemed necessary by the Back-Up Servicer, in its sole
discretion, in order to exercise the rights and perform the obligations of
Successor Servicer, including without limitation any "Regional Servicing
Centers" then in use, (ii) to assume full control of the computer, software and
other information management systems of BTFC to the extent use of such computer,
software and other information management systems is required to service and
collect Receivables, (iii) to otherwise utilize all facilities, equipment and
related supplies within any such premises, and (iv) to utilize the services of
all personnel and employees of BTFC, or if so desired by the Back-Up Servicer in
its sole discretion, to utilize its own personnel, employees, and agents in such
premises to the extent such personnel, employees, and agents of the Back-Up
Servicer are properly trained and otherwise able to utilize the systems and
facilities of BTFC without unreasonable risk of damage thereto, loss or
impairment of information processed thereon, or disruption of BTFC's continuing
use of the same systems and facilities for tasks unrelated to servicing and
collecting the Receivables (and subject to Section 13 hereof). In the event the
Back-Up Servicer elects to conduct all or any part of its servicing operations
as Successor Servicer from premises of BTFC, then the Back-Up Servicer shall pay
to (or for the account of) BTFC the portion of the actual costs of operating
such premises, including without limitation the actual cost of providing and
maintaining the computer, software and other information management systems of
BTFC referred to in (ii) above, the actual cost of the other facilities,
equipment and related supplies referred to in (iii) above, and the actual cost
of the personnel and employees of BTFC referred to in (iv) above, which is
fairly and reasonably allocable to the servicing operations conducted by the
Back-Up Servicer relative to the servicing and other membership-related
operations being conducted by BTFC from such premises at such time, promptly
upon submission of invoices by BTFC with reasonable substantiation of such costs
and the basis for the allocation thereof, provided, however, in no event shall
such allocated costs for any month exceed 90% of the Servicing Fee payable to a
Successor Servicer for such month.
(b) As of the Servicing Transfer Date, upon delivery to the related DRP
Provider or offsite storage facility provider of notice executed by the Trustee,
to the effect that a Servicing Transfer has occurred and the Back-Up Servicer
has been appointed as Successor Servicer, the Back-Up Servicer shall be entitled
to take possession of all computer software and data on magnetic tapes (or other
electronic medium) on which information relating to the Receivables is stored,
and any other records in any Offsite Storage Facility relating to the
Receivables, which materials are nevertheless acknowledged to be and shall
remain the property of BTFC. Upon electing not to service the Receivables from
the premises of BTFC in accordance with subsection 7(a) hereof, the Back-Up
Servicer shall be responsible for managing
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other premises, computer systems and other facilities, and for engaging
personnel or employees or agents capable of performing the servicing functions,
at the sole cost and expense of the Back-Up Servicer, in order to process such
information and service the Receivables.
(c) In the event the Back-Up Servicer obtains any computer software or
data on magnetic tapes (or other electronic medium) or other records relating to
the Receivables from any Offsite Storage Facility, or otherwise obtains such
materials from BTFC or its agents (whether or not the Back-Up Servicer elects to
conduct all or any part of its servicing operations as Successor Servicer from
premises of BTFC), then the Back-Up Servicer covenants and agrees for the
benefit of BTFC, but only to the extent not in contravention of its express
obligations hereunder or under the Pooling and Servicing Agreement, that (i) the
Back-Up Servicer will access all such materials in a manner that will not impair
the continued efficacy of BTFC's DRP and Offsite Storage Facility as it affects
the other aspects of BTFC's business which remain ongoing at such time or as
would reasonably be required upon a resumption of servicing by BTFC, and that it
will return either the originals or exact duplicates of all materials removed
from any Offsite Storage Facility (or otherwise provided by BTFC or its agents)
as expeditiously as reasonably practicable, so that such materials will be and
remain available to BTFC and its Affiliates as contemplated by the DRP and
Offsite Storage Facility, (ii) unless BTFC and the Back-Up Servicer shall
mutually agree at the time of a Servicing Transfer that the Back-Up Servicer
shall continue to utilize the DRP or Offsite Storage Facility established and
maintained by BTFC, the Back-Up Servicer shall establish and maintain its own
offsite storage facility with respect to all materials generated or processed by
it while acting as Successor Servicer which are comparable to the materials
maintained offsite by BTFC pursuant to BTFC's Offsite Storage Facility, so that
such materials will be and remain available to both it and BTFC in comparable
offsite storage facilities, and (iii) the Back-Up Servicer shall provide BTFC
with reasonable access to, and if requested by BTFC at the expense of BTFC
copies of, materials generated and processed by it while acting as Successor
Servicer, so that BTFC may properly maintain its membership files in accordance
with its customary procedures, may properly service and collect those
Receivables which are not being serviced by the Successor Servicer, and may
resume servicing the Receivables as contemplated by subsection (j) below.
(d) In furtherance of, and without limiting, the provisions of
subsections (a) or (b) above or of Section 10.1 of the Pooling and Servicing
Agreement, BTFC irrevocably constitutes and appoints the Back-Up Servicer, upon
the occurrence of the Servicing Transfer Date, as BTFC's true and lawful
attorney, with full power of substitution, (i) to take and perform each and
every action referred to in subsections (a) and (b) above, (ii) to exercise
control over all bank accounts in which Collections may be received or held and,
in connection therewith, to make any necessary endorsements, including without
limitation, in the name of BTFC, upon any and all checks or other instruments
remitted by or on behalf of the Obligors on the Receivables, provided, that all
amounts included within any of the foregoing which are not Collections (or
otherwise subject to retention by the Trustee or the Servicer pursuant to the
Pooling and Servicing Agreement) shall be remitted to or as directed by BTFC
promptly upon identification thereof, and (iii) to take such other action,
including without limitation in the name of BTFC, as the Back-Up Servicer, in
its sole discretion, believes necessary for the Back-Up Servicer to perform its
obligations as Successor Servicer. BTFC and the Back-Up Servicer hereby agree
that the appointment of the Back-Up Servicer as attorney-in-fact pursuant to
this Section 7(d) is coupled with an interest. The Back-Up Servicer covenants
and agrees for the benefit of BTFC, that in taking any action in the name or for
the account of BTFC or any Affiliate thereof, whether under or pursuant to the
power of attorney granted in this subsection (d) or otherwise, the Back-Up
Servicer shall service and collect the Receivables in compliance with all
Requirements of Law.
(e) In the event of a Servicing Transfer, then effective as of the
Servicing Transfer Date, BTFC hereby grants to the Back-Up Servicer a
non-exclusive license or sublicense, as applicable, to use all computer software
either owned by or licensed to BTFC to the extent required to service and
collect Receivables, provided that such sublicense by BTFC shall not apply to
any software licensed by others to BTFC as to which a sublicense in favor of or
use by the Back-Up Servicer would be in violation of an express contractual
restriction or otherwise illegal, provided further, however, that BTFC shall
advise the Back-Up Servicer of any such required computer software subject to
such restrictions or as to which a sublicense in favor of or use by the Back-Up
Servicer would otherwise be illegal, and will use its best efforts to obtain for
the Back-Up Servicer the right to use such software. If BTFC shall be unable to
obtain assurance reasonably satisfactory to the Back-Up Servicer that such
computer software is legally available for use by it upon a Servicing Transfer,
then BTFC shall seek to develop or obtain substitute software that would be
available for
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use by the Back-Up Servicer, provided, that BTFC shall not be required to incur
any material expense in developing or obtaining such substitute software unless
the Back-Up Servicer shall have agreed to reimburse BTFC for such amounts, and
any fees payable to licensors of software in connection with obtaining
sublicenses or other consents to usage of such software by the Back-Up Servicer
shall be an expense of the Back-Up Servicer and shall not be separately
reimbursable under the Pooling and Servicing Agreement. If, notwithstanding the
foregoing, the Back-Up Servicer shall be unable to use such software, then the
Back-Up Servicer shall use its best efforts, with the cooperation of BTFC, to
migrate to different computer software which shall be sufficient to enable the
Back-Up Servicer to perform its obligations with respect to servicing and
collecting the Receivables.
(f) In the event of a Servicing Transfer, to the extent requested by
the Back-Up Servicer, BTFC shall make arrangements for the prompt and safe
transfer to the Back-Up Servicer, of all necessary servicing files and records,
including (as deemed necessary by the Back-Up Servicer at such time): (i)
microfiche loan documentation, (ii) servicing system tapes, (iii) loan payment
history, (iv) collections history, and (v) the trial balances, as of the close
of business on the day immediately preceding the Servicing Transfer Date (or
such later date on which the Successor Servicer actually begins to process
Collections), reflecting all applicable information with respect to the
Receivables.
(g) If not servicing from BTFC's premises, in the event of a Servicing
Transfer, the Back-Up Servicer may, at its option and expense if deemed by it
appropriate for collection of the Receivables, send notice to each Obligor
(which may be sent in the name of BTFC if elected by the Back-Up Servicer), in
the form of Exhibit B hereto containing the following information: (i) the
Servicing Transfer Date, (ii) the address, telephone number and department of
the Successor Servicer which is able to answer questions regarding billing,
(iii) notification that the legal terms and conditions of the Obligor's
obligations in respect of the Receivables will not be affected by the Servicing
Transfer, and (iv) any other information deemed necessary or desirable by the
Back-Up Servicer at such time to assure collection of the Receivables; provided,
that the form and substance of any such notice shall be subject to the prior
consent of BTFC, which consent shall not be unreasonably withheld or delayed;
provided further that the Back-Up Servicer and BTFC each agree that a notice
substantially in the form of Exhibit B hereto would be acceptable to each for
purposes of this subsection 7(b).
(h) In the event of a Servicing Transfer, BTFC covenants and agrees
that it will cooperate in good faith with the Back-Up Servicer, and will provide
to the Back-Up Servicer on an ongoing basis such materials and information as
the Back-Up Servicer may reasonably request, as well as any such materials and
information as BTFC may reasonably determine should be provided to the Back-Up
Servicer, in order to provide for an orderly transition of the servicing
responsibility in a manner least likely to materially adversely affect the
interests of the Certificateholders and the performance of the Back-Up Servicer
as Successor Servicer on their behalf.
(i) In the event of a Servicing Transfer, the Back-Up Servicer agrees
that it will cooperate in good faith with BTFC, in requesting materials and
information from BTFC, will seek to minimize the burdensomeness of such
requests, and to the extent actually conducting servicing operations from
premises of BTFC, will seek to use such premises, as well as the computer
hardware, software and systems, any other facilities, equipment and related
supplies, and any personnel and employees of BTFC used by it to carry on such
servicing operation, in the manner that will be least disruptive to the other
aspects of BTFC's business which remain ongoing at such time and are otherwise
conducted from such premises, and in a manner intended to minimize any adverse
impact on the continuing relationship between BTFC and the memberships of the
various health clubs owned and operated by BTFC and its subsidiaries, subject to
BTFC's compliance with its obligations to cooperate and provide information
hereunder in response to reasonable requests.
(j) In the event of a Servicing Transfer, then upon the Series 1996-1
Termination Date, or at such other time as the Back-Up Servicer shall no longer
be acting as the Successor Servicer under the Pooling and Servicing Agreement,
the Back-Up Servicer shall cooperate in good faith with BTFC, in returning to
BTFC all materials and information initially provided by BTFC (subject to such
modifications thereto as may have occurred in the normal course of servicing the
Receivables by the Back-Up Servicer), and to the extent the Successor Servicer
shall have been conducting servicing operations from premises of BTFC, will
return possession and control of such premises, as well as the computer
hardware, software and systems, any other facilities, equipment and related
supplies, and any personnel
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and employees of BTFC used by it to carry on such servicing operation, so as to
effect an expeditious and orderly transfer of servicing in the manner that,
without placing unreasonable burdens or expense on the Back-Up Servicer, will be
most conducive to the resumption of such servicing activity by BTFC and least
disruptive to the other aspects of BTFC's business which remain ongoing at such
time and are otherwise conducted from such premises, and in a manner intended to
minimize any adverse impact on the continuing relationship between BTFC and the
memberships of the various health clubs owned and operated by BTFC and its
subsidiaries.
(k) It is expressly understood and agreed that if a Servicing Transfer
shall occur, upon effecting such Servicing Transfer pursuant to the provisions
of this Section 7 and Sections 10.1 and 10.2 of the Pooling and Servicing
Agreement, as applicable, notwithstanding any other provision of this Back-Up
Servicing Agreement, the responsibilities, duties and liabilities of the
Successor Servicer to the Trustee, the Holder of the Exchangeable Transferor
Certificate and the Holders of the Series 1996-1 Certificates with respect to
servicing and collecting the Receivables shall be as set forth in the Pooling
and Servicing Agreement, and the Successor Servicer shall be entitled to the
rights, benefits, limitations and disclaimers provided for therein. This
Agreement is not intended to require and shall not be construed as requiring the
Successor Servicer to take extraordinary actions, make unreasonable efforts,
commit or expend extraordinary resources or otherwise service and collect the
Receivables in a manner other than that required of a prudent institutional
servicer acting in good faith to realize collections on such Receivables in
accordance with the requirements and standards provided for in the Pooling and
Servicing Agreement, provided, that this subsection (k) shall not relieve the
Back-Up Servicer of any obligation expressly provided for in this Back-Up
Servicing Agreement.
(l) If the Back-Up Servicer shall become the Successor Servicer, then:
(i) BTFC shall indemnify and hold harmless the Back-Up
Servicer from and against any loss, liability, reasonable expense,
damage or injury, including, but not limited to, any judgment, award,
settlement, reasonable attorneys' and accountants, fees and other costs
or expenses incurred in connection with the defense of any actual or
threatened action, proceeding or claim, suffered or sustained by reason
of (A) any acts or omissions or alleged acts or omissions of BTFC in
its capacity as Servicer prior to the Servicing Transfer Date,
including without limitation, in servicing and collecting the
Receivables in violation, or alleged violation, of Requirements of Law,
(B) any claims by any consumers or third parties arising out of
information provided, or directions given, to Back-Up Servicer by BTFC
or by officers, directors, employees or authorized agents of BTFC, or
(C) any acts or omissions or alleged acts or omissions of BTFC with
respect to matters arising under this Back-Up Servicing Agreement for
which BTFC is responsible pursuant to this Back-Up Servicing Agreement;
provided, however, that BTFC shall not indemnify or hold harmless the
Back-Up Servicer if such acts, omissions or alleged acts or omissions,
or use of such information or directions provided, constituted or are
caused by fraud, negligence, or willful misconduct by the Back-Up
Servicer (or any of the Back-Up Servicer's officers, directors,
employees or authorized agents);
(ii) The Back-Up Servicer shall indemnify and hold harmless BTFC
from and against any loss, liability, reasonable expense, damage or
injury, including, but not limited to, any judgment, award, settlement,
reasonable attorneys' and accountants' fees and other costs or expenses
incurred in connection with the defense of any actual or threatened
action, proceeding or claim, suffered or sustained by reason of (A) any
acts or omissions or alleged acts or omissions of the Back-Up Servicer
in its capacity as Successor Servicer on and after the Servicing
Transfer Date, including without limitation, in servicing and
collecting the Receivables in violation, or alleged violation, of
Requirements of Law, (B) any claims by any consumers or third parties
arising out of information provided, or directions given, to BTFC by
the Back-Up Servicer or by officers, directors, employees or authorized
agents of the Back-Up Servicer, or (C) any acts or omissions or alleged
acts or omissions of the Back-Up Servicer with respect to matters
arising under this Back-Up Servicing Agreement for which the Back-Up
Servicer is responsible pursuant to this Back-Up Servicing Agreement;
provided, however, that the Back-Up Servicer shall not indemnify or
hold harmless BTFC if such acts, omissions or alleged acts or
omissions, or use of such information or directions provided,
constituted or are caused by fraud, negligence, or willful misconduct
by BTFC (or any of BTFC's officers, directors, employees or authorized
agents); and
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(iii) The provisions of this indemnity shall run directly to and be
enforceable by an injured party subject to the limitations hereof and
shall survive the resignation or removal of BTFC as Servicer, the
resignation or removal of Back-Up Servicer and/or the termination of
the Trust and shall survive any Servicing Transfer Date, the
termination of the Pooling and Servicing Agreement and this Back-Up
Servicing Agreement.
8. Back-Up Servicer Standby Fee. Except as provided in Section 9
hereof, the Transferor, BTFC and the Trustee on behalf of the Certificateholders
agree that the Back-Up Servicer shall be entitled to receive compensation (the
"Back-Up Servicer Standby Fee") for all services rendered by the Back-Up
Servicer hereunder and for its commitment to act as Successor Servicer in the
event of any resignation or termination of BTFC as Servicer, in the amount of
One Hundred Fifty Thousand Dollars ($150,000) per year during the term of this
Back-Up Servicing Agreement, payable in installments of Twelve Thousand Five
Hundred Dollars ($12,500) monthly in arrears pursuant to Section 4.9(a)(ii) of
the Pooling and Servicing Agreement, commencing on the Distribution Date
occurring during January 1997, provided, that the Back-Up Servicer Standby Fee
shall be payable on a pro-rated basis to the extent applicable to a Monthly
Period that is less than a full calendar month, based on actual days elapsed in
a month of 30 days. The Back-Up Servicer shall not be relieved of its
obligations under this Back-Up Servicing Agreement by reason of any failure to
receive the full Back-Up Servicer Standby Fee pursuant to Section 4.9(a)(ii) of
the Pooling and Servicing Agreement as provided herein. The Back-Up Servicer
shall be responsible for any costs, expenses or other disbursements incurred by
it in the ordinary course of performing its obligations as Back-Up Servicer. The
Back-Up Servicer shall pay any and all such amounts for its own account and
shall not be entitled to any reimbursement or payment therefor other than the
Back-Up Servicer Standby Fee.
9. Fees Payable to Back-Up Servicer Upon Becoming the Successor
Servicer. Effective with the date (if any) upon which the Back-Up Servicer
becomes the Successor Servicer under the Pooling and Servicing Agreement, the
Back-Up Servicer shall be paid the Servicing Fee provided for in Section 3.2 of
the Pooling and Servicing Agreement, and the Back-Up Servicer Standby Fee
provided for in Section 8 hereof shall no longer be payable to the Back-Up
Servicer with respect to any period after such date. Upon the occurrence of a
Servicing Transfer, the Back-Up Servicer in its capacity as Successor Servicer
shall be responsible for any costs, expenses, or other disbursements incurred by
it in the ordinary course of performing its obligations as Successor Servicer in
accordance with Section 3.2 of the Pooling and Servicing Agreement, and shall
not be entitled to receive payment or reimbursement therefor unless expressly
provided for in the Pooling and Servicing Agreement, the Pooling and Servicing
Supplement or the Back-Up Servicing Agreement.
10. Representations and Warranties of the Back-Up Servicer. TCB, as
Back-Up Servicer, hereby makes, and any Successor Back-Up Servicer by its
appointment hereunder shall make, the following representations, warranties and
covenants on which the Transferor, BTFC and the Trustee have each relied:
(a) Rights and Obligations Under Agreement. BTFC has delivered to the
Back-Up Servicer a copy of the Pooling and Servicing Agreement and all
supplements thereto, and the Back-Up Servicer has reviewed and understands the
transactions contemplated therein, including without limitation all of the
rights and obligations of a Successor Servicer thereunder.
(b) Organization and Good Standing. The Back-Up Servicer is a national
banking association duly organized, validly existing and in good standing under
the laws of the United States and has the power and authority, corporate or
otherwise, and the legal right to own its properties and conduct its business as
such properties are presently owned and such business is presently conducted,
and to execute, deliver and perform its obligations under this Back-Up Servicing
Agreement.
(c) Due Qualification. The Back-Up Servicer is duly qualified to do
business and is in good standing (or is exempt from such requirements) as a
foreign legal entity in any state where such qualification is necessary in order
to service the Contracts and the related Receivables as required by the Pooling
and Servicing Agreement and has obtained all necessary licenses and approvals
with respect to the Back-Up Servicer necessary for the due execution, delivery
and performance by it of this Back-Up Servicing Agreement and the Pooling and
Servicing Agreement as required under federal and state law in order to service
the Contracts and the related Receivables as required by this
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Back-Up Servicing Agreement and the Pooling and Servicing Agreement, and if the
Back-Up Servicer shall be required by any Requirement of Law to so qualify or
register or obtain such license or approval, then it shall do so except where
the failure to obtain such license or approval does not materially affect the
Back-Up Servicer's ability to perform its obligations hereunder or under the
Pooling and Servicing Agreement or the enforceability of the Contracts and the
related Receivables; provided, however, that other than with respect to the due
execution, delivery and performance by it of this Back-Up Servicing Agreement,
this representation shall be deemed to be satisfied by the Back-Up Servicer if
its provisions are true and correct within sixty (60) days of the Servicing
Transfer Date.
(d) Due Authorization. The execution and delivery of this Back-Up
Servicing Agreement and the consummation of the transactions provided for
herein, have been duly authorized by the Back-Up Servicer by all necessary
action, corporate or otherwise, on the part of the Back-Up Servicer.
(e) Binding Obligation. This Back-Up Servicing Agreement and the
consummation of the transactions provided for herein, constitutes a legal, valid
and binding obligation of the Back-Up Servicer, enforceable in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereinafter
in effect, affecting the enforcement of creditors, rights in general, and as
such enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).
(f) No Violation. The execution and delivery of this Back-Up Servicing
Agreement by the Back-Up Servicer, and the performance of the transactions
contemplated by this Back-Up Servicing Agreement and the Pooling and Servicing
Agreement and the fulfillment of the terms hereof and thereof applicable to the
Back-Up Servicer, will not violate, result in any breach of any of the material
terms and provisions of, or constitute (with or without notice or lapse of time
or both) a default under, any Requirement of Law applicable to the Back-Up
Servicer or any material indenture, contract, agreement, mortgage, deed of trust
or other material instrument to which the Back-Up Servicer is a party or by
which it is bound.
(g) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Back-Up Servicer, threatened against the
Back-Up Servicer before any Governmental Authority (i) asserting the invalidity
of this Back-Up Servicing Agreement, (ii) seeking to prevent the issuance of the
Certificates or the consummation of any of the transactions contemplated by this
Back-Up Servicing Agreement or the Pooling and Servicing Agreement, (iii)
seeking any determination or ruling that would materially and adversely affect
the performance by the Back-Up Servicer of its obligations under this Back-Up
Servicing Agreement or the Pooling and Servicing Agreement, (iv) seeking any
determination or ruling that would materially and adversely affect the validity
or enforceability of this Back-Up Servicing Agreement or the Pooling and
Servicing Agreement, (v) seeking any determination or ruling that would
materially and adversely affect the payment or enforceability of the Receivables
taken as a whole, or (vi) seeking to affect adversely the tax attributes of the
Trust.
(h) Compliance with Requirements of Law. The Back-Up Servicer shall
maintain in effect all qualifications required under Requirements of Law in
order to service properly each Contract and the related Receivable and will
comply in all material respects with all other Requirements of Law in connection
with servicing each Contract and the related Receivable, the failure to maintain
or to comply with which would have a material adverse effect on the
Certificateholders or any Enhancement Provider.
(i) Protection of Certificateholders' Rights. Except as otherwise
required to comply with any Requirements of Law, the Back-Up Servicer shall take
no action which, nor omit to take any action the omission of which, would impair
the rights of Certificateholders in any Contract or the related Receivable or
the rights of any Enhancement Provider.
(j) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Governmental Authority required in connection
with the execution and delivery of this Back-Up Servicing Agreement by the
Back-Up Servicer and the performance by it of the transactions contemplated by
this Back-Up Servicing Agreement and the Pooling and Servicing Agreement and the
fulfillment of the terms hereof and thereof, have been obtained or, if not yet
obtained, will be obtained upon the occurrence of a Servicing Transfer and the
Back-Up Servicer
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<PAGE>
has no reason to believe that any such required consents would not be obtainable
at such time in a timely manner; provided, however, that the Back-Up Servicer
makes no representation or warranty regarding federal or state securities or
"Blue Sky" laws in connection with the distribution of the Certificates.
11. Representations and Warranties of BTFC. BTFC hereby represents and
warrants to, and acknowledges and agrees with, the Back-Up Servicer as follows:
(a) BTFC has delivered to the Back-Up Servicer a true, complete
and correct copy of the Pooling and Servicing Agreement.
(b) The execution, performance and delivery of this Back-Up
Servicing Agreement by BTFC have been duly authorized by all
necessary corporate action.
(c) This Back-Up Servicing Agreement and the consummation of the
transactions contemplated herein, constitute a legal, valid
and binding obligation of BTFC, enforceable in accordance with
its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereinafter in effect, affecting
the enforcement of creditor's rights in general, and as such
enforceability may be limited by general principals of equity
(whether considered in a proceeding at law or in equity).
(d) BTFC has no knowledge of any approvals, authorizations,
consents, orders, licenses, or other actions of any
Governmental Authority required in connection with the
execution and delivery of this Back-Up Servicing Agreement and
the transactions contemplated hereby and the fulfillment of
the terms hereof that have not been obtained.
(e) As of the date hereof, no Servicer Default has occurred.
12. Confidentiality. In furtherance of, and without limiting, the
provisions of Section 10.1 of the Pooling and Servicing Agreement, the Back-Up
Servicer hereby agrees that it will not disclose, directly or indirectly, to any
Person or use for its own benefit any trade secrets or other proprietary
information relating to the business of BTFC (including without limitation any
such secrets or information derived from or related to software and computer
systems, manuals, training materials and any other materials related to
servicing and collecting Receivables or otherwise related to the operating
procedures of BTFC and its Affiliates) learned or acquired by the Back-Up
Servicer during the term of this Back-Up Servicing Agreement or on and after the
assumption by the Back-Up Servicer of the rights and obligations of Successor
Servicer, unless the Back-Up Servicer shall be legally required to make such
disclosure.
13. Retention of BTFC Employees by Successor Servicer. In the event the
Back-Up Servicer shall become the Successor Servicer, the Back-Up Servicer may,
in its sole discretion, offer to employ and may employ, any current or former
employee of BTFC or any Affiliate of BTFC, including by reason of the
arrangement contemplated in Section 7(a) hereof, provided that any offers of
such employment are extended by the Back-Up Servicer solely for the purpose of
enabling the Back-Up Servicer to fulfill its obligations as Successor Servicer,
are understood and acknowledged by both the Back-Up Servicer and any such
employee to be temporary in nature, are not undertaken in an attempt to enable
the Back-Up Servicer to compete on a going forward basis with BTFC in servicing
receivables such as the Receivables, and are not intended or reasonably likely
to result in such employees being unavailable to BTFC upon a resumption of
servicing by BTFC. BTFC hereby agrees that, if the conditions set forth in the
proviso to the preceding sentence are satisfied, then the acceptance of such
employment by any current or former employee of BTFC or Affiliate thereof shall
not be a violation of any confidentiality or non-competition agreement between
BTFC or any Affiliate thereof and such current or former employee.
Notwithstanding the foregoing, it is understood and agreed that the Back-Up
Servicer shall have no obligation whatsoever to employ or otherwise compensate
any current or former employee of BTFC or any Affiliate thereof.
14. Termination. BTFC may terminate this Back-Up Servicing
Agreement upon 30 days prior written notice to the Back-Up Servicer, the Trustee
and the Transferor; provided, however, that no such termination of this
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Back-Up Servicing Agreement by BTFC shall be effective without the prior written
consent of the Trustee, which shall include a certification that this Back-Up
Servicing Agreement is being terminated in accordance with the requirements of
Section 16 of the Series 1996-1 Supplement. The Trustee may terminate this
Back-Up Servicing Agreement upon 30 days prior written notice to the Back-Up
Servicer and BTFC, which notice shall include a statement that this Back-Up
Servicing Agreement is being terminated in accordance with the requirements of
Section 16 of the Series 1996-1 Supplement.
15. Back-Up Servicer Not Responsible for Fees Payable to Sub-Servicers.
In the event that prior to any resignation or termination of BTFC as Servicer,
BTFC shall have appointed one or more Persons to act as Sub-Servicers, the
Back-Up Servicer shall have no obligation with respect to any fees or other
amounts owed to such sub-Servicers by BTFC and shall have no obligation to
maintain in effect any agreement with any such Sub-Servicer.
16. No Amendment to the Pooling and Servicing Agreement. BTFC hereby
agrees that it will not amend the Pooling and Servicing Agreement in any manner
that may have a material adverse affect on the rights or obligations to be
assumed by the Back-Up Servicer as Successor Servicer without the prior written
consent of the Back-Up Servicer thereto.
17. Back-Up Servicer Not to Resign; Trustee to Act; Appointment of
Successor.
(a) The Back-Up Servicer shall not resign from the obligations and
duties hereby imposed on it except upon determination that (i) the performance
of its duties hereunder is no longer permissible under applicable law and (ii)
there is no reasonable action which the Back-Up Servicer could take to make the
performance of its duties hereunder permissible under applicable law. Any such
determination permitting the resignation of the Back-Up Servicer shall be
evidenced as to clause (i) above by an Opinion of Counsel to such effect
delivered to the Trustee if not the Back-Up Servicer, and if the Trustee is the
Back-Up Servicer, to the Transferor. No such resignation shall become effective
until the Trustee (if not the Back-Up Servicer) or a Successor Back-Up Servicer
shall have assumed in writing the responsibilities and obligations of the
Back-Up Servicer hereunder.
(b) The Trustee shall notify each Holder of Series 1996-1 Certificates
and each Rating Agency of any resignation of the Back-Up Servicer pursuant to
this Section 17. The Trustee shall, as promptly as possible after any
resignation of the Back-Up Servicer, appoint a successor back-up servicer (the
"Successor Back-Up Servicer"), provided, that in connection with any such
appointment, BTFC shall have the right within the first 60 days following notice
from the Back-Up Servicer of such intended resignation to propose initially one
or more financial institutions that would be acceptable to it as such a
Successor Back-Up Servicer, and the Trustee shall notify each Holder of Series
1996-1 Certificateholders and each Rating Agency of any financial institution(s)
so proposed by BTFC. If the Rating Agency Condition would be satisfied with
respect to any such appointment, and the engagement of any such proposed
financial institution is acceptable to the Holders of Series 1996-1 Certificates
evidencing at least 50% of the Series 1996-1 Invested Amount as set forth in
written notice from such Holders given to the Trustee within 10 Business Days
following the Trustee's notice of the proposed Successor, then the Trustee shall
appoint the institution selected by BTFC, or if more than one institution was
proposed, the institution preferred by BTFC. If BTFC fails to propose any
financial institutions to act as such Successor Back-Up Servicer, or if no
institution proposed by BTFC has satisfied the Rating Agency Condition or is
acceptable to the Certificateholders as aforesaid, then the Trustee may appoint
a Successor Back-Up Servicer selected by it or, if the Trustee is otherwise
unable within 120 days of the date of delivery to it of such Opinion of Counsel
to appoint a Successor Back-Up Servicer, the Trustee (if not the Back-Up
Servicer) shall serve as Successor Back-Up Servicer hereunder (but shall have
continued authority to appoint another Person as Successor Back-Up Servicer).
Notwithstanding the foregoing, the Trustee shall, if it is legally unable to act
or is otherwise unable to appoint a Successor Back-Up Servicer, petition a court
of competent jurisdiction to appoint any established financial institution
having, in the case of an entity that is subject to risk-based capital adequacy
requirements, risk-based capital of at least $50,000,000 or, in the case of an
entity that is not subject to risk-based capital requirements, having a tangible
net worth of not less than $50,000,000 and whose regular business includes the
servicing of contracts and receivables similar to the Contracts and the related
Receivables as the Successor Back-Up Servicer hereunder.
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(c) Upon its appointment, the Successor Back-Up Servicer shall be the
successor in all respects to the Back-Up Servicer with respect to back-up
servicing functions under this Back-Up Servicing Agreement and shall be subject
to all the rights, responsibilities, duties and liabilities relating thereto
placed on the Back-Up Servicer by the terms and provisions hereof, and all
references in this Back-Up Servicing Agreement to the Back-Up Servicer shall be
deemed to refer to the Successor Back-Up Servicer. Any Successor Back-Up
Servicer, by its acceptance of its appointment, will automatically agree to be
bound by the terms and provisions of this Back-Up Servicing Agreement and any
Enhancement.
(d) In connection with such appointment and assumption, the Trustee
shall be entitled to make such arrangements for the compensation of the
Successor Back-Up Servicer, as it and such Successor Back-Up Servicer shall
agree, subject to the consent of BTFC, which consent shall not be unreasonably
withheld or delayed; provided that any such compensation shall be paid by BTFC
from its own assets and not from assets of the Trust.
18. Right of Trustee to Enforce this Back-Up Servicing Agreement. It is
understood and agreed that the Trustee, on behalf of the Holders of the Series
1996-1 Certificates, shall have the right to enforce this Back-Up Servicing
Agreement against BTFC and the Back-Up Servicer.
19. Counterparts. This Back-Up Servicing Agreement may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute but one and the
same instrument.
20. GOVERNING LAW. THIS BACK-UP SERVICING AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
21. Amendment. This Back-Up Servicing Agreement and the rights and
obligations of the parties hereunder may not be changed orally, but only by an
instrument in writing signed by each of the parties hereto provided, that the
Trustee shall not agree to any amendment hereto unless the consents required
pursuant to Section 16 of the Series 1996-1 Supplement have been obtained.
22. Notices. All demands, notices and communications hereunder shall
be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by registered mail, return receipt requested, to:
(a) in the case of the Transferor, to
H & T Receivable Funding Corporation
8700 West Bryn Mawr
Chicago, Illinois 60631
Attention: Box HTRFC
(b) in the case of BTFC, to:
Bally Total Fitness Corporation
8700 West Bryn Mawr,
Chicago, Illinois 60631
Attention: General Counsel
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<PAGE>
(c) in the case of the Trustee and the Back-Up
Servicer, to:
Texas Commerce Bank National Association
600 Travis Street, 8th Floor
Houston, Texas 77002
Attention: Global Trust Services -- Bally's 1996-1
or, as to each such Person, at such other address as shall be designated by such
Person in a written notice to each other Persons.
23. Binding Effect. This Agreement shall inure to the benefit of, and
the obligations hereunder shall be binding upon, the parties hereto and their
respective successors and assigns.
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IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands as of the date and year first above written.
H & T RECEIVABLE FUNDING CORPORATION
By: /s/ John W. Dywer
Printed Name: John W. Dywer_
Title: Senior Vice President
BALLY TOTAL FITNESS CORPORATION
as Servicer
By: /s/ John W. Dywer
Printed Name: John W. Dywer_
Title: Senior Vice President
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
not individually but solely as Trustee
By: /s/ Eric C. Lokker
Printed Name: Eric C. Lokker
Title: Assistant Vice President
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
not individually but solely
as Back-Up Servicer
By: /s/ Eric C. Lokker
Printed Name: Eric C. Lokker
Title: Assistant Vice President
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EXHIBIT 10.24
FIRST AMENDMENT
TO THE
BALLY TOTAL FITNESS HOLDING CORPORATION
MANAGEMENT RETIREMENT SAVINGS PLAN
This FIRST AMENDMENT to the Bally Total Fitness Holding Corporation
Management Retirement Savings Plan (the "Plan") is made by Bally Total Fitness
Holding Corporation (the "Company") on this 19th day of November, 1996 and
effective for all purposes as of January 1, 1997.
This Plan is amended as follows:
1. A new paragraph is added to the end of Section 4.2 of the Plan as
follows:
"Notwithstanding the foregoing, the amount of a Participant's
Base and/or Bonus Compensation that can be deferred for a Compensation
Year shall not exceed the percentage of such Base and/or Bonus
Compensation applicable to the Participant as follows:
Age at Beginning
of or During Maximum
Compensation Year Percentage
----------------- ----------
less than 50 25%
50 through 54 50%
55 through 59 75%
60 and over 100%
2. The term "15%" appearing in the first two sentences of Section 4.3 of
the Plan is deleted and replaced with the term "10%."
The portions of the Plan unaffected by this FIRST AMENDMENT shall remain in
full force and effect.
The undersigned has executed this FIRST AMENDMENT on the date first written
above.
BALLY TOTAL FITNESS HOLDING
CORPORATION
By: /s/ Harold Morgan
Its: VP Human Resources
EXHIBIT 10-31
EMPLOYMENT AGREEMENT
THE EMPLOYMENT AGREEMENT made and entered into as of March 20, 1997,
among Bally Total Fitness Holding Corporation, a Delaware corporation
("Employer") and Cary Gaan ("Employee").
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements herein contained, the parties agree as follows:
1. Employment.
(a) Employer hereby employs Employee as a senior executive
whose duties shall include those of Senior Vice President, Secretary
and General Counsel. Employer may employ Employee in such other
capacities of equal status and responsibility as the Chief Executive
Officer of Employer, or his designated representative, shall reasonably
determine, and Employee hereby accepts such employment upon the terms
and conditions herein set forth.
(b) During the term of his employment, Employee will devote
his best efforts to his employment and perform such duties consistent
with his status as a senior executive in such capacities as the Chief
Executive Officer of Employer shall reasonably assign to him. Employee
will devote his entire working time and attention to the business and
related interests of, and will be loyal to, Employer, and Employee
agrees to render service on behalf of Employer and its subsidiaries or
affiliates.
(c) Employee shall not, without prior written consent of
Employer, directly or indirectly, during the term of this Employment
Agreement:
(i) Other than in the performance of duties naturally
inherent to Employer's business and in furtherance thereof,
render services of a business, professional or commercial
nature to any other person or firm, whether for compensation
or otherwise, but this shall not be construed as preventing
the Employee from investing his assets in such form or manner
as will not require any services on the part of the Employee
in the operation of the affairs of the companies in which such
investments are made and which are not in violation of
subparagraph (ii) below or from engaging in charitable
activities so long as such activities do not interfere with
the performance of Employee's duties hereunder;
<PAGE>
(ii) Engage in any activity competitive with or adverse
to Employer's business or welfare, whether alone, as a
partner, or as an officer, director, employee or shareholder
of any other corporation, or otherwise, directly or
indirectly, except that the ownership of not more than one
percent (1%) of the stock of any publicly traded corporation
shall not be deemed violative of this subparagraph (ii);
(iii) Be engaged by any entity which conducts business
with or acts as consultant or advisor to Employer, whether
alone, as a partner, or as an officer, director, employee or
shareholder, or otherwise, directly or indirectly, except that
ownership of not more than one percent (1%) of the stock of
any publicly traded corporation shall not be deemed violative
of this subparagraph (iii).
2. Term. The term of this Employment Agreement shall begin on the
effective date stated above ("commencement date") and shall continue for three
(3) years from such date and shall continue thereafter from year to year (each
such year a "Renewal Term") unless (i) terminated by either party in his or its
sole discretion upon written notice ("Non-Renewal Notice") given, on or prior to
September 22 of the year prior to the expiration of the term or any Renewal Term
or (ii) pursuant to paragraphs 7 or 8.
3. Compensation.
(a) In consideration of the services to be rendered by the
Employee hereunder, Employer agrees to pay to the Employee, and the
Employee agrees to accept, as compensation, the sum of Two Hundred
Twenty-Five Thousand Dollars ($225,000) (the "Base Salary") for each
twelve month period following the effective date of this Employment
Agreement, which shall be paid on the regularly recurring pay periods
established by Employer. The Base Salary shall be subject to periodic
review for consideration of increase by Employer.
(b) It is further understood by the parties that, pursuant to
the policies of Employer, discretionary bonus payments may be made in
addition to the Base Salary above provided.
4. Vacation and Other Benefits. Employee shall be entitled to a
reasonable vacation each year of his employment with Employer as well as other
employment benefits, including hospitalization, life insurance, death and
retirement plans, an automobile allowance or the use of an automobile, and the
like, afforded to senior executives of Employer of comparable status and tenure
and consistent with that afforded under Employer's policies.
2
<PAGE>
5. Expenses. Employer shall pay all reasonable expenses incurred
by Employee in the performance of his responsibilities and duties for Employer.
Employee shall submit to Employer periodic statements of all expenses so
incurred. Subject to such audits Employer may deem necessary, Employer shall
reimburse Employee the full amount of any such expenses advanced by Employee
promptly in the ordinary course.
6. Covenants and Confidential Information.
(a) Employee agrees that for the applicable period
specified below, he will not, directly or indirectly, do any
of the following:
(i) Induce any person who is an employee, officer,
or agent of Employer to terminate said relationship.
(ii) Employ, assist in employing or otherwise associate
in business with any present, former or future employee or
officer of Employer.
(iii) Disclose, divulge, discuss, copy or otherwise use
or suffer to be used in any manner, in competition with, or
contrary to the interests of Employer, the customer lists,
inventions, ideas, discoveries, manufacturing methods, product
research or engineering data or other trade secrets of
Employer, it being acknowledged by Employee that all such
information regarding the business of Employer compiled or
obtained by, or furnished to, Employee while he shall have
been employed by or associated with Employer is confidential
information and the exclusive property of Employer.
(b) The provisions of subparagraphs 6(a)(i) + 6(a)(ii) shall
only be operative during the term and any Renewal Term hereof. In the
event of a "Change in Control", the provisions of subparagraphs 6(a)(i)
+ 6(a)(ii) shall be operative only so long as Employee remains in the
employ of Employer. All other obligations created by the terms of this
paragraph 6 are of a continuing nature and shall remain in full effect
at all times during and beyond Employee's period of employment.
(c) Employee expressly agrees and understands that the remedy
at law for any breach by him of this paragraph 6 will be inadequate and
that the damages flowing from such breach are not readily susceptible
to being measured in monetary terms. Accordingly, it is acknowledged
that Employer shall be entitled to immediate injunctive relief and if
the court so permits, may obtain a temporary order restraining any
threatened or further breach. Nothing contained in this paragraph 6
shall be deemed to limit Employer's remedies at law or in equity for
any breach by Employee of the provisions
3
<PAGE>
of this paragraph 6 which may be pursued or availed of by Employer. Any
covenant on Employee's part contained hereinabove, which may not be
specifically enforceable, shall nevertheless, if breached, give rise to
a cause of action for monetary damages.
(d) Employee has carefully considered the nature and extent of
the restrictions upon him and the rights and remedies conferred upon
Employer under this paragraph 6, and hereby acknowledges and agrees
that the same are reasonable in time and territory, are designed to
eliminate competition which otherwise would be unfair to Employer, do
not stifle the inherent skill and experience of Employee, would not
operate as a bar to Employee's sole means of support, are fully
required to protect the legitimate interests of Employer and do not
confer a benefit upon Employer disproportionate to the detriment to
Employee.
(e) For the purposes of this paragraph 6, the term "Employer"
shall be deemed to include Employer and its subsidiaries and affiliates
and the successors and assigns of it and its subsidiaries and
affiliates, involved in the operation or management of a fitness
center.
(f) The covenants contained in this paragraph 6 shall be
construed to extend to separate counties and adjacent counties, if
applicable, of the states of the United States in which Employer and
its subsidiaries, affiliates and its and their successors and assigns
has a fitness center, and to the extent that any such covenant shall be
illegal and/or unenforceable with respect to any one of said counties,
said covenants shall not be affected thereby with respect to each other
county, such covenants with respect to each county being construed as
severable and independent.
7. Illness, Incapacity or Death During Employment.
(a) If the Employee is unable to perform his services by
reason of illness or incapacity resulting in a failure to discharge his
duties under this Employment Agreement for six (6) or more consecutive
months, then upon three (3) days notice, Employer may terminate the
employment of Employee under this Employment Agreement and Employee,
upon such termination, shall be paid his Base Salary on a pro-rata
basis to the date of termination through the three (3) day notice
period.
4
<PAGE>
In the event of such termination, the Employee shall have the
right to the assignment of any and all insurance policies or health
protection plans if said policies and plans permit assignment out of
the group to the individual Employee.
(b) In the event that Employer elects to terminate this
Employment Agreement by reason of illness or incapacity, then Employee
shall be entitled to the greater of long-term disability (LTD) benefits
provided to senior officers by Employer but in any event at no less
than sixty percent (60%) of Base Salary as of the date of termination,
without reference to set-off or caps existing in any LTD plan. The
benefit that the employee shall receive from this LTD plan shall be
off-set by any benefits obtained through Social Security, Medicare,
and/or Medicaid.
(c) In the event of Employee's death, all obligations of
Employer under this Employment Agreement shall terminate other than the
payment of that portion of his Base Salary on a pro-rata basis accrued
to the date of death, plus reimbursement of all expenses reasonably
incurred by Employee in performing his responsibilities and duties for
Employer prior to and including such date.
8. Termination.
(a) The employment of Employee under this Employment
Agreement, and the term hereof, may be terminated by Employer for cause
at any time. For purposes hereof, the term "cause" means:
(i) Employee's fraud, dishonesty, willful misconduct or
gross negligence in the performance of his duties hereunder,
including willful failure to perform such duties as may
properly be assigned him hereunder; or
(ii) Employee's material breach of any provision of
this Employment Agreement.
(b) Any termination shall not be in limitation of any other
right or remedy Employer or Employee may have under this Employment
Agreement or otherwise.
9. Optional Termination Upon Change of Control.
(a) In the event that there is a change in control of Employer
and the successor in control, without cause, terminates this Employment
Agreement, Employee shall be paid a lump sum equal to twenty-four (24)
months Base Salary or an amount equal to his Base Salary for the
balance of the three year term, whichever is greater, and the greater
of the average of the bonuses, if any, paid to Employee by Employer
5
<PAGE>
for the three (3) prior years and the bonus, if any, for the prior
year. If the successor in control changes Employee's title or
substantially changes his duties or functions from those which he
previously performed hereunder or requires Employee to perform the
majority of his duties at a location outside of the metropolitan area
of Chicago, Illinois, the successor in control shall be deemed to have
constructively terminated Employee's services without cause and
Employee shall be entitled to payment set forth in the first sentence
of this paragraph.
A "Change in Control" shall, except as provided below, mean a
change in control of Employer of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934 (as in effect on
the effective date of this Employment Agreement, the "Exchange Act"),
whether or not Employer is then subject to such reporting requirement;
provided that, without limitation, such a Change in Control shall be
deemed to have occurred if:
(i) any "person" (as defined in subsections 13(d) and
14(d) of the Exchange Act), other than a person with which
Arthur Goldberg is affiliated or of which he is a part, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), of securities of Employer representing
twenty percent (20%) or more of the combined voting power of
Employer's then outstanding securities;
(ii) during any period of two (2) consecutive years or
less (not including any period prior to the effective date of
this Employment Agreement) there shall cease to be a majority
of the Board of Directors of Employer comprised of Continuing
Directors (as defined below); or
(iii) the stockholders of Employer approve (1) a merger
or consolidation of Employer with any other corporation, other
than a merger or consolidation that would result in the voting
securities of Employer outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving
entity) at least 80% of the combined voting power of the
voting securities of Employer or such surviving entity
outstanding immediately after such merger or consolidation, or
(2) a plan of complete liquidation of Employer or an agreement
for the sale or disposition by Employer of all or
substantially all of its assets.
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<PAGE>
Notwithstanding anything else contained herein to the
contrary, the acquisition of Employer securities from Employer which
issuance was approved by the Continuing Directors (as defined below)
shall not, either on its own or in connection with any other
acquisition of Employer securities prior thereto, be deemed to be a
Change in Control for purposes of this Agreement.
The term "Continuing Directors" shall mean individuals who
constitute the Board of Directors of Employer as of the effective date
of this Employment Agreement and any new director(s) whose election by
such Board or nomination for election by Employer's stockholders was
approved by a vote of at least two-thirds of the directors then in
office who either were directors as of the effective date of this
Employment Agreement or whose election or nomination for election was
previously so approved.
(b) If it shall be determined that any payment or distribution
to or for the benefit of Employee pursuant to this Section 9
("Severance Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code (the "Excise Tax"), then
Employee shall be entitled to receive from Employers an additional
payment (the "Excise Tax Gross-Up Payment") in an amount such that the
net amount retained by Employee, after the calculation and deduction of
any Excise Tax on the Severance Payments and any federal, state and
local income taxes and Excise Tax on the Gross-Up Payment provided for
in this Section 9, shall be equal to the Severance Payments. In
determining this amount, the amount of the Excise Tax Gross-Up Payment
attributable to federal income taxes shall be reduced by the maximum
reduction in federal income taxes that could be obtained by the
deduction of the portion of the Excise Tax Gross-Up Payment
attributable to state and local income taxes. Finally, the Excise Tax
Gross- Up Payment shall be reduced by income or excise tax withholding
payments made by Employer to any federal, state or local taxing
authority with respect to the Excise Tax Gross-Up Payment that was not
deducted from compensation payable to Employee.
10. Severable Provisions. The provisions of this Employment
Agreement are severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable, in whole or in part, the remaining
provisions, and any partially unenforceable provision to the extent enforceable
in any jurisdiction, shall nevertheless be binding and enforceable.
11. Binding Agreement. The rights and obligations of Employer
under this Employment Agreement shall inure to the benefit
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<PAGE>
of and shall be binding upon the respective successors and assigns of Employer.
12. Attorneys' Fees. In the event Employee is required to commence
legal action to enforce the provisions of this Employment Agreement and Employee
prevails in such action, Employer shall pay Employee's costs and expenses,
including reasonable attorneys' fees, incurred in such action.
13. Notices. Any notice to be given to Employer under the terms of
this Employment Agreement shall be addressed to Employer at the address of its
principal places of business, and any notice to be given to Employee shall be
addressed to him at his home address last shown on the records of the Employer,
or at such other address as the parties may hereafter designate in writing to
the other. Any such notice shall have been duly given when enclosed in a
properly sealed envelope addressed as aforesaid, postage prepaid, registered or
certified, return receipt requested, and deposited in a post office or branch
post office regularly maintained by the United States Government.
14. Waiver. Either party's failure to enforce any provision or
provisions of this Employment Agreement shall not in any way be construed as a
waiver of any such provision or provisions as to any future violations thereof,
nor prevent that party thereafter from enforcing each and every other provision
of this Employment Agreement. The rights granted the parties herein are
cumulative and the waiver by a party of any single remedy shall not constitute a
waiver of such party's right to assert all other legal remedies available to him
or it under the circumstances.
15. Governing Law. This Employment Agreement shall be governed by
and construed and interpreted according to the internal laws of the State of
Illinois without reference to principles of conflict of laws.
16. Miscellaneous. Captions and headings used herein are for
convenience only and are not a part of this Employment Agreement and shall not
be used in construing it. This Employment Agreement constitutes the entire
agreement between Employer and Employee with respect to the subject matter
hereof and may not be modified or terminated orally. No modification,
termination or attempted waiver of this Employment Agreement shall be valid
unless in writing and signed by the party against whom the same is sought to be
enforced.
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<PAGE>
17. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Rules of the American Arbitration Association
then pertaining in Chicago, Illinois and judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. The arbitrator or arbitrators shall be deemed to possess the powers to
issue mandatory orders and restraining orders in connection with such
arbitration; provided, however, that nothing in this paragraph 17 shall be
construed so as to deny the Employer's right and power to seek and obtain
injunctive relief in a court of equity for any breach or threatened breach of
Employee of any of his covenants contained in subparagraph 6(a) hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly elected as of the day and year first above written.
BALLY TOTAL FITNESS HOLDING
CORPORATION
ATTEST:
-------------------------- ------------------------------------
"Employer"
------------------------------------
Cary Gaan "Employee"
Approved by the Compensation Committee of Bally Total Fitness Holding
Corporation on _______________, 1996.
------------------------------------
Chairman, Compensation
Committee - Bally Total
Fitness Holding
Corporation
9
EXHIBIT 10.32
BALLY'S HEALTH & TENNIS CORPORATION
8700 W. Bryn Mawr, 2nd Floor
Chicago, Illinois 60631
Phone 312 399-1300
Fax 312-380-7679
December 28, 1994
Mr. Dave Tolmie
11639 Saint David's Lane
Lutherville, MD 21093
(410) 561-3402
Dear Dave,
This letter is to formally offer you the position of Vice President of Planning
and Development. You should know that everyone with whom you have spoken is
enthusiastic about the prospect of your joining Bally. We believe your
background, qualifications and enthusiasm will contribute immensely to our
business and, in return, your experience with Bally will serve you well in the
future.
In your position as Vice President of Planning and Development, you will report
to Mike Lucci, President of Bally's Health & Tennis Corporation. Your primary
duty's will be the following:
- Strategic Planning
- Real Estate Site Selection and Demographic Analysis
- Negotiations
- Property Disposal and Integration of Disposals with Franchising
- Franchising
- New Business Ventures
- Special Projects as Assigned
In terms of the compensation package, you will receive an initial base monthly
salary of $ 16,250 which would total $ 195,000 on an annualized basis. In
addition, you will receive a $ 1,041 monthly car allowance which would total $
12,500 on an annualized basis.
You will be eligible for up to a 40% year-end discretionary bonus. Please keep
in mind that this bonus is completely discretionary and will be decided based on
Company performance and individual merit. It is possible that due to poor
company performance, you may receive no bonus and therefore you should plan
accordingly.
<PAGE>
BALLY'S HEALTH & TENNIS CORPORATION
Mr. Dave Tolmie
December 28, 1994
Page 2
Nevertheless, during your first two (2) years of employment, 1995 and 1996, you
will be guaranteed 50% of this bonus ($ 39,000). In order to receive this
guarantee, you must be on the payroll for the entire calendar year. If your
employment ends prior to the end of 1995, or prior to the end of 1996 you will
not be eligible for any partial or pro-rated payouts for that partial employment
year.
In addition, we will offer you an additional incentive plan based on company
performance. The following grid shall apply:
Company Achievement Bonus Accumulated
------------------- ----- -----------
Profit & Loss Bonus
------------- -----
To be determined $ 25,000 $ 25,000
? 25,000 50,000
? 25,000 75,000
? 25,000 100,000
You will have full participation in the following Bally Health & Benefits plans:
- Bally Health Care, including Dental, Life and Disability
- Participation in a 401K Plan
- Participation in a Stock Option and Stock Purchase Plan
- Participation in a Deferred Compensation Plan
- Bally's Executive Medical Plan
Please understand, however, that there may be waiting periods for various plans,
and there also is an exclusion under the Health Insurance Plan concerning
certain pre-existing conditions.
Bally will pay for any COBRA costs incurred during this waiting period. Bally's
Benefit Booklet will provide a more detailed review of the Fringe Benefit
Program.
<PAGE>
BALLY'S HEALTH & TENNIS CORPORATION
Mr. Dave Tolmie
December 28, 1994
Page 3
While it is our sincere hope that our relationship will be a long one, please
understand that Bally's does not offer employment on a fixed term basis, and the
representations in this letter and from our various meetings should not be
construed in any manner as a proposed contract for any fixed term. Employment at
Bally remains terminable at will at the option of Bally or the employee.
Nevertheless, any time during your first three (3) years of employment we will
offer the following Severance Package. If your employment is terminated by the
company for any reason other than cause, you will be paid eighteen (18) months
of your base salary plus a bonus (based on the prior year bonus).
In addition, if during your first three (3) years of employment, Mike Lucci
leaves the employment of Bally's for any reason, you may resign from the company
with a guarantee of one (1) year at full pay including bonus (based on the prior
year bonus).
If you have any questions about this offer, please let me know. Otherwise, we
look forward to your signing and returning a copy of this letter to confirm your
acceptance of our offer. As we discussed, we would like for you to begin work,
if possible, the week of January 9, 1995.
We hope to hear from you soon.
Very truly yours,
/s/ Harold Morgan
Harold Morgan
Vice President of Human Resources
I hereby accept employment based on the conditions described in this offer
letter.
Dec. 30, 1994 /s/ Dave Tolmie
- - -------------------- -------------------------------------------
Date Signature
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THE EMPLOYMENT AGREEMENT made and entered into the 7th day of October,
1996, and effective as of October 7, 1996, by and between Bally Total Fitness
Holding Corporation, a Delaware corporation ("BTF" or "Employer") and John
Wildman ("Employee").
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements herein contained, the parties agree as follows:
1. Employment
(a) BTF hereby employs Employee in the capacity of Senior Vice
President of Sales and Marketing. Employer may employ Employee in such other
capacities of equal status and responsibility as the Chairman of the Board and
Chief Executive Officer of BTF or his designated representative, shall
reasonably determine, and Employee hereby accepts such employment upon the terms
and conditions herein set forth.
(b) During the term of his employment, Employee will devote
his best efforts to his employment and perform such duties consistent with his
capacity as Senior Vice President of Sales and Marketing and such other
capacities as the Chairman of the Board and Chief Executive Officer of BTF shall
determine, as are reasonably assigned to him by Employer. Employee will devote
his entire working time and attention to the business and related interests of,
and will be loyal to, Employer, and Employee agrees to render service on behalf
of Employer and their subsidiaries or affiliates.
(c) Employee shall not, without prior written consent of
Employer, directly or indirectly, during the term of this Employment Agreement:
(i) Other than in the performance of duties
naturally inherent to Employer's business and in furtherance thereof, render
services of a business, professional or commercial nature to any other person or
firm, whether for compensation or otherwise, but this shall not be construed as
preventing the Employee from investing his assets in such form or manner as will
not require any services on the part of the Employee in the operation of the
affairs of the companies in which such investments are made and which are not in
violation of subparagraph (ii) below or from engaging in charitable activities
so long as such activities do not interfere with the performance of Employee's
duties hereunder;
<PAGE>
(ii) Engage in any activity competitive with or
adverse to Employer's business or welfare, whether alone, as a partner, or as an
officer, director, employee or shareholder of any other corporation, or
otherwise, directly or indirectly, except that the ownership of not more than
one percent (1%) of the stock of any publicly traded corporation shall not be
deemed violative of this subparagraph (ii);
(iii) Be engaged by any entity which conducts
business with or acts as consultant or advisor to Employer, whether alone, as a
partner, or as an officer, director, employee or shareholder, or otherwise,
directly or indirectly, except that ownership of not more than one percent (1%)
of the stock of any publicly traded corporation shall not be deemed violative of
this subparagraph (iii).
2. Term
(a) The term of this Employment Agreement shall begin on the
effective date stated above ("commencement date") and shall continue for two (2)
years from such date and shall continue thereafter from year-to-year unless
terminated by any party in his or its sole discretion upon sixty (60) days
written notice given prior to the expiration of a term.
(b) If this contract is terminated or not renewed for any
reason other than a change of control (section 9) or cause (section 8) the
Employee shall be entitled to a year (12 months) of base salary to be paid in
the regular recurring pay periods established by the Employer, subject to the
provisions of 2 (c).
(c) Consistent with section 6, "Covenants and Confidential
Information", the 12 months of pay that the employee shall be eligible for under
2 (b) shall be payable provided the employee adheres to the restrictions imposed
by section 6. If the employee does not adhere to the restrictions imposed by
section 6, then, the one year (12 months) of base salary shall be reduced to one
half year (6 months) of base salary.
3. Compensation
(a) In consideration of the services to be rendered by the
Employee hereunder, Employer agrees to pay to the Employee, and the Employee
agrees to accept, as compensation, the sum of Two Hundred Thousand Dollars
($200,000) (the "Base Salary") for each twelve month period following the
effective date of this Employment Agreement, which shall be paid on the
regularly recurring pay periods established by Employer. The Base Salary shall
be subject to periodic increases by Employer.
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<PAGE>
(b) In addition, the Employer shall pay Forty Thousand Dollars
($40,000) which shall be considered as a "draw against" any discretionary bonus.
In the event that the year-end bonus is less than the Forty Thousand Dollar
($40,000) "draw against" the bonus, the Forty Thousand Dollars ($40,000) shall
convert to cash compensation and will not be recoverable by the Company.
(c) It is further understood by the parties that, pursuant to
the policies of Employer, discretionary bonus payments may be made in addition
to the Base Salary above provided.
4. Vacation and Other Benefits
Employee shall be entitled to a reasonable vacation each year
of his employment with Employer as well as all other employment related
benefits, including, but not limited to hospitalization, life insurance, death
and retirement plans, an automobile allowance, and stock plans afforded to
senior executives of Employer of comparable status and tenure and consistent
with that afforded under Employer's policies. Employer may in its sole
discretion change such policies.
5. Expenses
Employer shall pay all reasonable expenses incurred by
Employee in the performance of his responsibilities and duties for and the
promotion of Employer. Employee shall submit to Employer periodic statements of
all expenses so incurred. Subject to such audits as Employer may deem necessary,
Employer shall reimburse Employee the full amount of any such expenses advanced
by Employee promptly in the ordinary course.
6. Covenants and Confidential Information
(a) During the term of this agreement, any extension of this
agreement, or any pay out under this agreement, the employee agrees that he will
not, directly or indirectly, do any of the following:
(i) Own, manage, control, or participate in the
ownership, management, or control of, or be employed or engaged by or otherwise
affiliated or associated as a consultant, independent contractor or otherwise,
with any other corporation, partnership, proprietorship, firm, association or
other business entity, or otherwise engage in any business which is engaged in
any manner in, the operation of fitness centers as a significant part of its
business (a "Facility") operates such fitness center(s) within ten (10) miles of
any fitness center owned, managed or under development to be owned or managed by
BTF, its subsidiaries, affiliates and/or its or their successors and assigns (as
conducted
-3-
<PAGE>
on the date mployee ceases to be employed hereunder); provided, however, that
the ownership of not more than one percent (1%) of the stock of any publicly
traded corporation shall not be deemed a violation of this covenant;
(ii) Induce any person who is an employee,
officer, or agent of Employer to terminate said relationship.
(iii) Employ, assist in employing or otherwise
associate in business with any present, former or future employee
or officer of Employer.
(iv) Disclose, divulge, discuss, copy or otherwise
use or suffer to be used in any manner, in competition with, or contrary to the
interests of Employer, the customer lists, inventions, ideas, discoveries,
manufacturing methods, product research or engineering data or other trade
secrets of Employer, it being acknowledged by Employee that all such information
regarding the business of Employer compiled or obtained by, or furnished to,
Employee while he shall have been employed by or associated with Employer is
confidential information and the exclusive property of Employer.
(b) Employee expressly agrees and understands that the remedy at law
for any breach by him of this paragraph 6 will be inadequate and that the
damages flowing from such breach are not readily susceptible to being measured
in monetary terms. Accordingly, it is acknowledged that Employer shall be
entitled to immediate injunctive relief and if the court so permits, may obtain
a temporary order restraining any threatened or further breach. Nothing
contained in this paragraph 6 shall be deemed to limit Employer's remedies at
law or in equity for any breach by Employee of the provisions of this paragraph
6 which may be pursued or availed of by Employer. Any covenant on Employee's
part contained hereinabove, which may not be specifically enforceable, shall
nevertheless, if breached, give rise to a cause of action for monetary damages.
(c) Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon Employer under
this paragraph 6, and hereby acknowledges and agrees that the same are
reasonable in time and territory, are designed to eliminate competition which
otherwise would be unfair to Employer, do not stifle the inherent skill and
experience of Employee, would not operate as a bar to Employee's sole means of
support, are fully required to protect the legitimate interests of Employer and
do not confer a benefit upon Employer disproportionate to the detriment to
Employee.
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<PAGE>
(d) The covenants contained in this paragraph 6 shall be construed to
extend to separate counties and adjacent counties, if applicable, of the states
of the United States in which BTF and its subsidiaries, affiliates and its and
their successors and assigns has a Facility, and to the extent that any such
covenant shall be illegal and/or unenforceable with respect to any one of said
counties, said covenants shall not be affected thereby with respect to each
other county, such covenants with respect to each county being construed as
severable and independent.
7. Illness, Incapacity or Death During Employment
a) If the Employee is unable to perform his services by reason
of illness or incapacity resulting in a failure to discharge his duties under
this Employment Agreement for six (6) or more consecutive months, then upon
thirty (30) days notice, Employer may terminate the employment of Employee under
this Employment Agreement and Employee, upon such termination, shall be paid his
Base Salary on a pro-rata basis to the date of termination for the thirty (30)
day notice period.
In the event of such termination, the Employee shall have the
right to the assignment of any and all insurance policies or health protection
plans if said policies and plans permit assignment out of the group to the
individual Employee.
(b) In the event that Employer elects to terminate this
Employment Agreement by reason of illness or incapacity, then Employee shall be
entitled to the greater of long-term disability (LTD) benefits provided to
senior officers by Employer but in any event at no less than no less than sixty
percent (60%) of Base Salary as of the date of termination, without reference to
set-off or caps existing in any LTD plan.
(c) In the event of Employee's death, all obligations of
Employer under this Employment Agreement shall terminate other than the payment
of that portion of his Base Salary on a pro-rata basis accrued to the date of
death, plus reimbursement of all expenses reasonably incurred by Employee in
performing his responsibilities and duties for Employer prior to and including
such date.
8. Termination
(a) The employment of Employee under this Employment
Agreement, and the term hereof, may be terminated by Employer for cause at any
time. For purposes hereof, the term "cause" means:
(i) Employee's fraud, dishonesty, willful
misconduct or gross negligence in the performance of his duties
-5-
<PAGE>
hereunder, including willful failure to perform such duties as may properly be
assigned him hereunder;
(ii) Employee's material breach of any provision of
this Employment Agreement which is not cured within thirty (30) days notice from
the Employer of such breach.
9. Optional Termination Upon Change of Control
a) In the event that there is a change in control of BTF and
the successor in control, without cause, terminates this Employment Agreement,
Employee shall be paid in lump sum twelve (12) months Base Salary or an amount
equal to his Base Salary for the balance of the twenty-four (24) month term,
whichever is greater, and the greater of the average of the bonuses, if any,
paid to Employee by Employer for the two (2) prior years and the bonus, if any,
for the prior year. If the successor in control changes Employee's title or
substantially changes his duties or functions from those which he previously
performed hereunder or requires Employee to perform the majority of his duties
at a location outside of the metropolitan area of Chicago, Illinois, the
successor in control shall be deemed to have terminated Employee's services
without cause.
A "Change in Control" shall mean a change in control
of BTF of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934 (as in effect on the effective date of this Employment Agreement,
the "Exchange Act"), whether or not BTF is then subject to such reporting
requirement; provided that, without limitation, such a Change in Control shall
be deemed to have occurred if:
(i) any "person" (as defined in subsections
13(d) and 14(d) of the Exchange Act), other than a person with which Arthur
Goldberg is affiliated or of which he is a part, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), of securities of BTF
representing twenty percent (20%) or more of the combined voting power of BTF's
then outstanding securities;
(ii) during any period of two (2) consecutive
years or less (not including any period prior to the effective date of this
Employment Agreement) there shall cease to be a majority of the Board of
Directors of BTF comprised of Continuing Directors (as defined below); or
(iii) the stockholders of BTF approve (1) a
merger or consolidation of BTF with any other corporation, other than a merger
or consolidation that would result in the voting securities
-6-
<PAGE>
of BTF outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of BTF or such surviving entity outstanding immediately after such
merger or consolidation, or (2) a plan of complete liquidation of BTF or an
agreement for the sale or disposition by BTF of all or substantially all of its
assets.
The term "Continuing Directors" shall mean
individuals who constitute the Board of Directors of BTF as of the effective
date of this Employment Agreement and any new director(s) whose election by such
Board or nomination for election by BTF's stockholders was approved by a vote of
at least two-thirds of the directors then in office who either were directors as
of the effective date of this Employment Agreement or whose election or
nomination for election was previously so approved.
10. Severable Provisions
The provisions of this Employment Agreement are severable, and
if any one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions, and any partially
unenforceable provision to the extent enforceable in any jurisdiction, shall
nevertheless be binding and enforceable.
11. Binding Agreement
The rights and obligations of Employer under this Employment
Agreement shall inure to the benefit of and shall be binding upon the respective
successors and assigns of Employer.
12. Attorneys' Fees
In the event Employee is required to commence legal action to
enforce the provisions of this Employment Agreement and Employee prevails in
such action, any of the Employer who have been found not to comply with this
Employment Agreement shall pay Employee's costs and expenses, including
reasonable attorneys' fees, incurred in such action.
13. Notices
Any notice to be given to Employer under the terms of this
Employment Agreement shall be addressed to both Employer at the address of their
respective principal places of business, and any notice to be given to Employee
shall be addressed to him at his home address last shown on the records of the
Employer giving the
-7-
<PAGE>
notice, or at such other address as the parties may hereafter designate in
writing to the other. Any such notice shall have been duly given when enclosed
in a properly sealed envelope addressed as aforesaid, postage prepaid,
registered or certified, return receipt requested, and deposited in a post
office or branch post office regularly maintained by the United States
Government.
14. Waiver
Any party's failure to enforce any provision or provisions of
this Employment Agreement shall not in any way be construed as a waiver of any
such provision or provisions as to any future violations thereof, nor prevent
that party thereafter from enforcing each and every other provision of this
Employment Agreement. The rights granted the parties herein are cumulative and
the waiver by a party of any single remedy shall not constitute a waiver of such
party's right to assert all other legal remedies available to him or it under
the circumstances.
15. Governing Law
This Employment Agreement shall be governed by and construed
and interpreted according to the internal laws of the State of Illinois without
reference to principles of conflict of laws.
16. Captions and Paragraph Headings
Captions and paragraph headings used herein are for
convenience only and are not a part of this Employment Agreement and shall not
be used in construing it.
17. Entire Agreement
This Employment Agreement constitutes the entire agreement
between Employer and Employee with respect to the subject matter hereof and may
not be modified or terminated orally. No modification, termination or attempted
waiver of this Employment Agreement shall be valid unless in writing and signed
by the party against whom the same is sought to be enforced.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed as of the day and year first above written.
BALLY TOTAL FITNESS HOLDING
CORPORATION
ATTEST: By: /s/ Harold Morgan
-------------------------------------
"BTF"
/s/ John Wildman
-------------------------------------
John Wildman "Employee"
/s/ Arthur M. Goldberg
- - -----------------------------------------------
Arthur Goldberg "Chairman of the Board"
-9-
EXHIBIT 10.34
SEVERANCE AGREEMENT AND COMPLETE RELEASE
This Severance Agreement and Complete Release ("Agreement") is entered
into this 14th day of January, 1997, by and between Michael G. Lucci, Sr.
("Lucci") and Bally Total Fitness Holding Corporation ("BTFHC").
WHEREAS, Lucci was employed by BTFHC as President and Chief Operating
Officer pursuant to an Employment Agreement dated May 13, 1994 as amended on
March 13, 1996;
WHEREAS, Lucci and BTFHC have mutually agreed to terminate the existing
employment relationship; and
WHEREAS, Lucci and BTFHC desire to resolve any and all actual or
potential claims, differences, and disputes relating to Lucci's relationship
with BTFHC through the Effective Date of this Agreement (as defined below)
without the burden and expense of litigation.
THEREFORE, in consideration for the mutual promises and covenants set
forth below, the sufficiency and receipt of which are hereby acknowledged, Lucci
and BTFHC acknowledge and voluntarily agree as follows:
1. The termination of Lucci's employment with BTFHC is effective
October 7, 1996. Further, Lucci hereby acknowledges his resignation as an
officer and that he will resign as a director of BTFHC and hereby resigns as an
officer and employee of any and all of BTFHC's subsidiaries effective as of
October 7, 1996.
2. BTFHC shall provide Lucci with the total sum of Seven Hundred Fifty
Thousand and 06/100 Dollars ($750,000.06), less applicable tax withholdings, to
be paid out in monthly payments of Forty-One Thousand Six Hundred Sixty-Six and
67/100 ($41,666.67), less applicable tax withholdings, the first monthly payment
on which will be paid on the Effective Date of this
1
<PAGE>
Agreement (as defined below) to Lucci at his home address set forth in paragraph
14. Each monthly payment thereafter will be made on the first of the month to
Lucci at the location for notices as set forth in paragraph 14; provided,
however, that if such payment is not made by the sixth of the month, BTFHC must
pay to Lucci an additional one percent (1%) of the basic monthly payment (Four
Hundred Sixteen and 67/100 Dollars ($416.67)) as a penalty. In addition, BTFHC
shall deliver to Lucci, on the Effective Date, a payment of $10,889.46 which is
based on a gross payment of $19,230.76 which amount shall not be credited
against the payments referred to in the first sentence of this paragraph.
3. Lucci shall be entitled, through April 14, 1997, to the use of the
office he currently uses in BTFHC's facility in Southfield, Michigan and the
services of his secretary, Nora Moretz; provided, however, that Lucci's right to
use the office and secretary shall terminate prior to that date (i) if the
facility is sold, leased to an unaffiliated third party or ceases to be used as
a fitness center or (ii) if Lucci competes with BTFHC or any of its subsidiaries
in any fashion. Nothing contained in this Agreement shall effect Lucci's ability
to withdraw funds from BTFHC's Management Retirement Savings Plan or Bally's
Employee Savings Trust for employees of BTFHC.
4. Lucci acknowledges and agrees that he is not entitled to any
payments, bonuses, grants or benefits under any stock option plans or incentive
compensation plans in existence during or otherwise covering any time period
while he was employed by BTFHC or any other compensation, reimbursement, or
other consideration, benefits, or payments from BTFHC or any of its
subsidiaries.
5. Lucci, on behalf of himself, his heirs, executors, and assigns,
hereby completely and irrevocably discharges and releases BTFHC, its officers,
directors, employees, agents, shareholders, parent corporations, subsidiary
corporations, affiliate entities, successors, and assigns from any and
2
<PAGE>
all claims, demands, actions, causes of action, and/or liability of any nature
whatsoever related, directly or indirectly, to Lucci's employment with BTFHC or
any of its subsidiaries, compensation therefor (including, but not limited to,
any bonus or stock option plans), or termination thereof (other than under this
Agreement and under that certain Indemnification Agreement between BTFHC and
Lucci dated January 3, 1996 (which agreement is currently in effect)),
including, but not limited to, any claim of wrongful discharge, breach of
contract, promissory estoppel, infliction of emotional distress, and/or
employment discrimination in violation of the Age Discrimination in Employment
Act, 29 U.S.C. ss.621 et seq., Title VII of the Civil Rights Act of 1964, 42
U.S.C. ss.2000e et seq., the Americans with Disabilities Act, 42 U.S.C. ss.12101
et seq., and/or any other state or local laws of a similar nature, arising at
any time prior to and including the Effective Date of this Agreement (as defined
below). In addition, Lucci waives his right to seek reinstatement or
re-employment with BTFHC or any affiliate thereof at any time in the future.
BTFHC hereby completely and irrevocably discharges and releases Lucci from any
and all claims, demands, actions, causes of action, and/or liability of any
nature whatsoever which arose in the scope of Lucci's employment or as acting as
a director with BTFHC or any of its subsidiaries occurring at any time prior to
and including the Effective Date of this Agreement.
6. The terms of this Agreement are and shall remain confidential.
Lucci and BTFHC agree not to disclose such terms to any person (other than their
respective counsel or accountants), unless required to do so by subpoena or
applicable laws, including, but not limited to, federal securities laws. Lucci
further agrees not to make any statements orally, in writing, or otherwise,
concerning BTFHC, BTFHC's products, services, or business or any of BTFHC's
employees or representatives which is in any way harmful or disparaging to
BTFHC, its employees or goodwill or
3
<PAGE>
to their reputation or standing in the business community or the community as a
whole. BTFHC further agrees not to make any statements orally, in writing, or
otherwise concerning Lucci's performance as an employee, officer or director of
BTFHC or any of its subsidiaries which are in any way harmful or disparaging to
Lucci. BTFHC acknowledges that nothing in this Agreement is or shall be
construed as an admission by Lucci of any breach of any agreement or any
intentional or unintentional wrongdoing of any nature.
7. Lucci further agrees that, during the duration of the period during
which he receives payments under this Agreement, he will not attempt to solicit,
induce, or otherwise cause or encourage any employees of BTFHC or any of its
subsidiaries (other than Michael Lucci, Jr. and Rebecca Lucci) to terminate
their employment with BTFHC.
8. Lucci acknowledges that he has information regarding several
matters which are currently or may in the future be the subject of litigation in
which BTFHC or its subsidiaries are or will be parties. Lucci further
acknowledges that his assistance and cooperation regarding such litigation is
vital to BTFHC's interests. Lucci, therefore, agrees, subject to reasonable
other commitments and obligations, to cooperate with BTFHC and any of its
subsidiaries in the course of such litigation, including, without limitation,
being reasonably available to meet and confer with employees, representatives,
and counsel of BTFHC and any of its subsidiaries regarding any matters relating
to such litigation, providing deposition testimony, and/or appearing on behalf
of BTFHC or any of its subsidiaries at any trial, hearing, or other proceeding.
BTFHC will reimburse Lucci for any and all out-of-pocket expenses he may incur
in fulfilling his obligations under this paragraph 8.
4
<PAGE>
9. Lucci acknowledges and represents that he has returned or will
promptly return to BTFHC all keys, credit cards, access or key cards, and all
other physical property of any kind which is the property of BTFHC or any of its
subsidiaries.
10. Lucci hereby further acknowledges:
a. That he was advised in writing to seek legal counsel regarding
this Agreement and is represented by Howard J. Gourwitz with
respect to this Agreement;
b. That he has been afforded the opportunity to review and
consider the terms of this Agreement for a period of twenty-one
(21) days;
c. That he fully understands, and did receive counsel from Howard
J. Gourwitz regarding, his rights, obligations, and liabilities
hereunder;
d. That nothing in this Agreement is or shall be construed as an
admission by BTFHC of any breach of any agreement or any
intentional or unintentional wrongdoing of any nature; and
e. That the payments and benefits provided for herein are in
excess of that to which Lucci would otherwise be entitled were
he not to enter into this Agreement.
11. This Agreement may be revoked by Lucci within seven (7) days after
his execution hereof; therefore, this Agreement shall not be enforceable or
effective until the expiration of such seven (7) day period ("Effective Date").
12. This Agreement shall be binding upon and accrue to the benefit of
Lucci, his heirs, executors, and assigns and BTFHC, its officers, directors,
employees, parent and subsidiary corporations, affiliate entities, and its
successors and assigns.
13. This Agreement shall be governed by and construed and interpreted
according to the laws of the State of Illinois, without reference to principles
of conflict of laws.
5
<PAGE>
14. Any notice to be given to Lucci shall be addressed to Lucci at 49
Spanish River Drive, Ocean Ridge, Florida 33435, with a copy to Howard J.
Gourwitz, Esq., 2000 Town Center, Suite 1400, Southfield, Michigan 48075-1147,
or at such other address as Lucci may hereafter designate in writing to BTFHC.
Any notice to be given to BTFHC shall be addressed to BTFHC at 8700 West Bryn
Mawr Avenue, Chicago, Illinois 60631, Attention: General Counsel, or at such
other address as BTFHC may hereafter designate in writing to Lucci. Any such
notice shall be deemed given when actually delivered by a recognized overnight
courier.
IN WITNESS WHEREOF, the parties have executed multiple copies of this
Agreement, each of which shall constitute an original, but all of which taken
together shall constitute the same document.
/s/ Michael G. Lucci, Sr.
------------------------------------------
Michael G. Lucci, Sr.
Date of Execution: Jan. 12 1997
---------------------
BALLY TOTAL FITNESS
HOLDING CORPORATION
By: /s/ Cary A. Gaan
-------------------------------------
Date of Execution: 1-14-97
---------------------
6
EXHIBIT 21
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
LIST OF SUBSIDIARIES
<CAPTION>
Place of Incorporation
----------------------
<S> <C>
Bally Total Fitness Corporation Delaware
Nycon Holding Co., Inc. (a) New York
Rhode Island Holding Co. (b) Rhode Island
Providence Fitness Centers, Inc. (c) Rhode Island
New Fitness Holding Co., Inc. (d) New York
Holiday Health & Fitness Centers of New York, Inc. (e) New York
Connecticut Valley Fitness Centers, Inc. (f) Connecticut
Connecticut Coast Fitness Centers, Inc. (g) Connecticut
Scandinavian Health Spa, Inc. Ohio
Scandinavian U. S. Swim & Fitness, Inc. Ohio
Scandinavian Development Company Illinois
Spa Associates Limited Partnership (h) Ohio
Penn Hills Spa Limited Partnership (h) Ohio
H & T Receivable Funding Corporation Delaware
BFIT Rehabilitation Services, Inc. Delaware
Bally Matrix Fitness Centre, Ltd. (i) Ontario, Canada
C.Z.W. Health Limited Ontario, Canada
Greater Philly No. 1 Holding Company (j) Pennsylvania
Greater Philly No. 2 Holding Company (k) Pennsylvania
Physical Fitness Centers of Philadelphia, Inc. (l) Pennsylvania
Vic Tanny International of Greater Michigan, Inc. Michigan
Vic Tanny International of Cleveland, Inc. Ohio
Holiday Spa Health Clubs of California California
Vic Tanny International of Toledo, Inc. Ohio
Bally's PacWest, Inc. Washington
Health & Tennis Corporation of New York, Inc. Delaware
U.S. Health, Inc. Delaware
Holiday Universal, Inc. Delaware
Bally's S.C. Management, Inc. California
So. Cal. Nautilus Fitness Center, Inc. California
Holiday Health Clubs of the East Coast, Inc. (m) Delaware
Holiday/Southeast Holding Corp. (n) Delaware
Tidelands Holiday Health Clubs, Inc. (o) Virginia
Holiday Health Clubs of the Southeast, Inc. (o) South Carolina
Houston Health Clubs, Inc. Texas
Holiday Health Clubs and Fitness Centers, Inc. Colorado
Jack LaLanne Holding Corp. New York
Vertical Fitness and Racquet Club, Ltd. New York
Jack LaLanne Fitness Centers, Inc. New York
Manhattan Sports Club,Inc. New York
Vic Tanny International, Inc. Michigan
Vic Tanny International of Missouri, Inc. Missouri
Health & Tennis (U.K.) Limited United Kingdom
Bally's Fitness & Racquet Clubs, Inc. Florida
Bally Franchising Holdings, Inc. Illinois
Bally Fitness Franchising, Inc. Illinois
Bally Franchise RSC, Inc. Illinois
Lincoln Indemnity Company Vermont
</TABLE>
<PAGE>
EXHIBIT 21
BALLY TOTAL FITNESS HOLDING CORPORATION
LIST OF SUBSIDIARIES
NOTES:
Subsidiaries of subsidiary companies are indented and follow the respective
companies by which they are controlled. With the exception of the following,
percentage of ownership is 100%.
(a) 85% of outstanding stock owned by Bally Total Fitness Corporation.
(b) 80% of outstanding stock owned by Nycon Holding Co., Inc. and 7.5% owned by
Bally Total Fitness Corporation.
(c) 80% of outstanding stock owned by Rhode Island Holding Co.
(d) 80% of outstanding stock owned by Nycon Holding Co., Inc. and 13.5% owned by
Bally Total Fitness Corporation.
(e) 80% of outstanding stock owned by New Fitness Holding Co., Inc. and 3% owned
by Bally Total Fitness Corporation.
(f) 80% of outstanding stock owned by New Fitness Holding Co., Inc. and 7% owned
by Bally Total Fitness Corporation.
(g) 80% of outstanding stock owned by New Fitness Holding Co., Inc. and 18%
owned by Bally Total Fitness Corporation.
(h) 50% of outstanding stock owned by Scandinavian Development Company and 50%
owned by Bally Total Fitness Holding Corporation.
(i) 88.6% of outstanding stock owned by Bally Total Fitness Corporation.
(j) 80% of outstanding stock owned by Bally Total Fitness Corporation and 5%
owned by Bally Total Fitness Holding Corporation.
(k) 80% of outstanding stock owned by Greater Philly No. 1 Holding Company and
20% owned by Bally Total Fitness Corporation.
(l) 80% of outstanding stock owned by Greater Philly No. 2 Holding Company and
20% owned by Bally Total Fitness Corporation.
(m) 50% of outstanding stock owned by U.S. Health, Inc. and 50% owned by Bally
Total Fitness Corporation.
(n) 80% of outstanding stock owned by Holiday Health Clubs of the East Coast,
Inc. and 20% owned by Bally Total Fitness Corporation.
(o) 80% of outstanding stock owned by Holiday/Southeast Holding Corp. and 20%
owned by Bally Total Fitness Corporation.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333- ) of Bally Total Fitness Holding Corporation and in
the related Prospectus of our report dated February 25, 1997, with respect to
the consolidated financial statements and schedule of Bally Total Fitness
Holding Corporation included in this Form 10-K for the year ended December 31,
1996.
ERNST & YOUNG LLP
Chicago, Illinois
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996, THE CONSOLIDATED STATEMENT
OF OPERATIONS AND THE CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,534
<SECURITIES> 0
<RECEIVABLES> 422,151<F1>
<ALLOWANCES> 86,095<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 193,844
<PP&E> 630,324
<DEPRECIATION> 304,865
<TOTAL-ASSETS> 813,480
<CURRENT-LIABILITIES> 187,312
<BONDS> 376,397
0
0
<COMMON> 125
<OTHER-SE> 216,382
<TOTAL-LIABILITY-AND-EQUITY> 813,480
<SALES> 0
<TOTAL-REVENUES> 625,640
<CGS> 0
<TOTAL-COSTS> 417,419<F2>
<OTHER-EXPENSES> 44,601<F3>
<LOSS-PROVISION> 80,350
<INTEREST-EXPENSE> 47,644
<INCOME-PRETAX> (43,900)
<INCOME-TAX> (2,700)
<INCOME-CONTINUING> (41,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 5,655
<CHANGES> 0
<NET-INCOME> (35,545)
<EPS-PRIMARY> (2.92)
<EPS-DILUTED> 0
<FN>
<F1>THESE AMOUNTS REFLECT SHORT-TERM AND LONG-TERM BALANCES AS DISCLOSED IN
THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<F2>THIS AMOUNT IS INCLUDED IN THE FITNESS CENTER OPERATIONS LINE AND THE
ADVERTISING LINE IN THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1996.
<F3>THIS AMOUNT IS INCLUDED IN THE MEMBER PROCESSING AND COLLECTION CENTERS
LINE ON THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1996.
</FN>
</TABLE>
