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, 1998
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
non-affiliates of the registrant as of March 1, 1999 was approximately $520.0
million, based on the closing price of the registrant's common stock as reported
by the New York Stock Exchange at that date. For purposes of this computation,
affiliates of the registrant include the registrant's executive officers and
directors. As of March 1, 1999, 23,202,182 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, 1998, 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
Bally Total Fitness Holding Corporation is a Delaware corporation. Bally
is the only nationwide commercial operator of fitness centers in the United
States. It is also the largest commercial operator in terms of revenues, number
of members, and number and square footage of facilities. As of March 1, 1999, we
operated approximately 330 fitness centers and had approximately four million
members. Our fitness centers are concentrated in major metropolitan areas in 27
states and Canada, with approximately 260 fitness centers located in 23 of the
top 25 population centers in the United States representing over 50% of the
United States population. Our members made more than 100 million visits to our
fitness centers in each of the past three years.
Bally offers value to its members by providing access to state-of-the-art
fitness facilities with affordable membership programs. Our fitness centers
feature an outstanding selection of cardiovascular, conditioning and strength
equipment and offer extensive aerobic and other group fitness training programs.
In addition, many of our current fitness centers include pools, racquet courts
or other athletic facilities. Our new fitness center prototype achieves
efficiency by focusing on those fitness services our members use most
frequently. We have clustered our fitness centers in major metropolitan areas in
order to achieve marketing and operating efficiencies. Over 80% of our fitness
centers are located in markets in which we have five or more facilities, with
our largest concentrations in New York, Los Angeles, Chicago,
Baltimore/Washington D.C., Dallas, Houston, Detroit, Miami and Philadelphia.
The majority of our fitness centers use the service mark "Bally Total
Fitness[R]", including eight that are known as "Bally Sports Clubs[SM]". The
nationwide use of the service mark enhances brand identity and adds advertising
efficiencies. The prior practice of using more than 25 different regional
service marks and trade names was eliminated in 1996. As a result of
acquisitions in 1998, we also operate six fitness centers as "Pinnacle
Fitness[R]" and two as "Gorilla Sports[SM]" and plan to expand the use of these
brands.
Our primary target market for new members is the 18 to 34-year old, middle
income segments of the population, with secondary target markets including older
and higher income segments. We market ourselves to these consumer segments
through the use of a variety of membership options and payment plans. Our
membership options range from single-club memberships to our most popular
premium memberships, which provide additional amenities and access to all of our
fitness centers nationwide. Similarly, we offer a broad range of payment
alternatives. Typically, our members pay an initial membership fee which can
either be financed or paid-in-full at the time of joining. Members who choose to
finance their initial membership fee generally do so for up to 36 months,
subject to state and local regulation and minimum down payment requirements. In
addition to the initial membership fee, members are generally required to pay
monthly membership dues in order to use our fitness facilities. We believe the
various memberships and payment plans offered, in addition to our strong brand
identity and the convenience of multiple locations, constitute distinct
competitive advantages.
OPERATING STRATEGIES
In October 1996, a new management team began to implement a business
strategy designed to improve our operating results. These efforts have
contributed to recent improvements in operating results; growing net income to
$13.3 million in 1998 from losses before extraordinary items of $23.5 million
and $24.9 million in 1997 and 1996, respectively.
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In 1997, this management team identified three primary strategic
objectives to improve the overall business value. The three objectives
identified were:
o Improve the operating margins of our fitness center membership
operations, our core business.
o Increase the number of fitness centers we operate based on our
recently designed, more profitable fitness center prototype.
o Introduce new products and services to our members.
We developed and implemented a number of key strategic initiatives to meet these
objectives.
Improve Core Business Operating Margins
The primary approach to improving operating margins has been to grow and
improve the quality of revenues while leveraging the largely fixed cost
structure of our business. We focused on the following strategic initiatives:
Emphasize the Sale of Higher Margin All-Club Membership Plans. In the third
quarter of 1997 we completed a common stock offering. The proceeds provided
working capital allowing us to increase our emphasis on the sale of higher
margin all-club membership plans with greater long-term cash flows but lower
amounts of immediate cash. The previous strategy focused on near-term cash
needs, resulting in an emphasis on lower margin single-club membership plans.
Our all-club membership is historically our most popular membership plan and its
initial membership fees are typically financed, subject to down payment
requirements. This emphasis contributed to a 43% increase in the weighted
average price of memberships sold over the past two years.
Increase Dues Revenue. We believe our monthly dues are substantially less than
those charged by most of our competitors and believe we can continue to raise
monthly dues at a rate consistent with past periods without a material loss in
membership. In addition, we significantly reduced promotions offering discounted
or waived monthly dues. These initiatives contributed to a 6% annual increase in
monthly dues collected in 1997 and 1998.
Upgrade and Expand Existing Fitness Centers. In late 1997, we began to upgrade
and expand many of our existing facilities and much of our exercise equipment
beyond normal maintenance requirements. We believe these upgrades will increase
our membership base and more effectively capitalize on our streamlined marketing
and administrative functions. During 1998, we invested extensively to refurbish
and make major upgrades to approximately 25% of our fitness centers including
adding and upgrading exercise equipment and refreshing interior and exterior
finishes to improve club ambiance. Additional investments during 1998
extensively added and upgraded exercise equipment in most of our other fitness
centers.
Improve Collections of Financed Initial Membership Fees. We continue to focus on
increasing down payments on financed membership plans and securing installment
payments electronically through direct withdrawal from a member's bank account
or charge to a member's credit card. Our experience has shown that electronic
payments result in higher quality receivables. These efforts yielded a 12%
increase in the average down payment to $91 in 1998 from $81 in 1997, which had
increased 11% over the 1996 average down payment of $73. Memberships sold where
the member selected an electronic payment method have increased each of the last
three years and is now exceeding 75%. In addition, we continue to develop
improved collection practices based on information provided by "credit scoring"
and behavioral modeling, among others, which, we believe, will also improve the
yield from the receivable portfolio.
Continue to Leverage Fixed Cost Base. A significant percentage of our core
business operating costs are fixed in nature. Over the past several years, we
have significantly reduced these operating costs through aggressive cost
management.
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New Facilities Expansion
To build upon our improved core operations and accelerate the growth of
our business we have invested in facilities expansion in two ways:
Replicate the New Fitness Center Prototype. In 1998 we initiated a plan to
increase new facility openings based on our new prototype. The prototype is
designed to cost less to build and maintain than our older facilities and, on
average, provides almost 40% more useable space for our members in the same
average square footage. The new facilities are generally developed pursuant to
long-term lease arrangements and currently require, on average, approximately
$1.5 million per fitness center to fund leasehold improvements and exercise
equipment. During 1998, we invested approximately $25.0 million to develop new
facilities. Seven of these facilities opened during 1998 and a number were under
construction at the end of the year.
Selectively Acquire Fitness Center Operations. From time-to-time we identify
opportunities to acquire existing fitness center operations, at attractive
prices, that fit our strategic goals. During 1998, we acquired nine existing
fitness centers in the San Francisco area where we had no previous fitness
centers, and one additional fitness center in Chicago.
Add Products and Services
Since mid-1997 we have been successfully increasing and diversifying our
revenues by offering our members a number of new ancillary products and
services. These strategic initiatives focused primarily on products and services
delivered to members within our facilities and include:
Personal Training. We have added fee based personal training services for
members in most of our fitness centers. Since January 1997, we have added
approximately 1,600 personal trainers to our staff and grown revenues from this
service to more than $17.0 million in 1998. Our research indicates the
availability of personal training services enhances the perceived value of
membership and we believe demand for these services is growing.
Private-Label Nutritional Products. We began offering a private-label line of
Bally-branded nutritional products to our members in mid-1997. These products
currently include, among others:
o Meal replacement drinks;
o Multi-vitamins;
o Low calorie snack wafers;
o Creatine; and
o Energy bars.
Sales of these products grew to $9.3 million in 1998 and we continue to test
market other nutritional products, with plans to expand the product line to over
twenty products by mid-1999. As a policy, we require our suppliers of these
nutritional products to maintain significant amounts of product liability
insurance to minimize any liability that may arise related to these nutritional
products.
Retail Stores. Since early 1997, we have opened approximately 100 BFIT
Essentials[SM] retail stores in our fitness centers. These stores contributed
$4.2 million of revenue in 1998, selling primarily nutritional products, workout
apparel and related soft goods and accessories labeled both Bally Total Fitness
and other brand names. We plan to continue to increase the number of BFIT
Essentials retail stores in our fitness centers during 1999.
Rehabilitative and Physical Therapy Services. In late 1998, we entered into a
joint venture arrangement with Kessler Rehabilitation Corporation, a leading
provider of rehabilitation services, to open rehabilitation centers in up to 100
fitness centers during the next three years. These centers will primarily be
located in our fitness centers in the northeastern United States. As of March 1,
1999, we have opened eight rehabilitation centers including five centers with
Kessler. We have also contracted with providers of chiropractic services and as
of March 1, 1999, eleven of our fitness centers offer these services, including
nine in California. In addition, we continue to investigate similar arrangements
in other operating regions.
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MEMBERSHIP PLANS
Currently, we offer prospective members a number of membership plans that
differ primarily by the inclusion of priority access to in-club services and
access to other fitness centers we operate, either locally or nationally. From
time to time, we also offer special membership plans, which limit a member's
access to a fitness center to certain days and non-peak hours. The one-time
initial membership fees for access to our fitness center facilities, excluding
limited special offers and corporate programs, range from approximately $600 to
approximately $1,400 and can be financed for up to 36 months, subject to down
payment requirements and state and local regulations. Lower-priced initial
membership fee programs generally include higher monthly dues.
Generally, the initial membership fee is based on:
o The membership plan selected;
o The diversity of facilities and services available at the fitness
center of enrollment;
o Market conditions; and
o Seasonal promotional strategies.
In addition to one-time initial membership fees, members generally pay
monthly dues in order to maintain membership privileges. Monthly dues are
generally fixed, as to rate, while the member is paying their financed initial
membership fee and may increase thereafter, subject to stated terms and limits.
At December 31, 1998, approximately 90% of our members were being charged
monthly dues ranging from $3.00 to $20.00 per month, with the overall average
collected of approximately $7.00 per month. The average annual growth rate of
our monthly dues revenues was over 6% from 1992 through 1998. We expect the
annual increases in monthly dues revenues will continue due to the contractual
terms of current membership plans. Additionally, we believe we can continue to
increase monthly dues for our members who are beyond their initial financing
period without material loss in membership. Our recent experience has shown that
members faced with a membership renewal decision for the first time renewed at a
rate of approximately 62%. Members faced with a membership renewal decision for
subsequent periods renewed at a rate of approximately 85%.
Members electing to finance their one-time initial membership fees can
choose from several payment methods and down payment options. We continue to
focus on increasing down payments from members who finance their initial
membership fees and on securing installment payments electronically by direct
withdrawal from a member's bank account or charge to a member's credit card. We
believe both these strategies result in better quality receivables. See " --
Account Servicing".
FINANCING OF INITIAL MEMBERSHIP FEES
Generally, we offer financing terms of 36 months. Shorter terms are
offered on a promotional basis or as required by applicable state or local
regulation. Initial membership fees are financed at a fixed annual percentage
rate, which generally is between 16% and 18%, except where limited by applicable
state laws. Financed portions of initial membership fees may be prepaid without
penalty at any time during the financing term. Based on experience in 1998, we
expect in excess of 90% of all new memberships originated during 1999 will be
financed to some extent.
We currently use three payment methods for financed initial membership
fees and monthly dues: electronic payments, monthly statements and coupon books.
Members may change their payments to an electronic or monthly statement method
at any time. These methods are described as follows:
o Electronic Payments. This is the most popular method for payment of
financed initial membership fees and monthly dues. Under this method, on
approximately the same date each month, a fixed payment is either (a)
automatically transferred from a member's bank account, or (b)
automatically charged to a member's designated credit card. Memberships
sold where the member selected an electronic payment method has
increased each of the last three years and is now exceeding 75%.
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o Monthly Statements. We implemented a monthly statement program in
October 1998. New members electing not to pay by an electronic payment
method are sent monthly statements setting forth the amount due and
owing for their initial membership fees and monthly dues. Members then
mail checks to our regional member processing and collection center
along with the remittance portion of the monthly statement.
o Coupon Books. This mechanism requires a member to mail a check monthly
to our regional member processing and collection center accompanied by a
payment coupon. In October 1998, we replaced this payment option with
monthly statements for newly financed initial membership fees or for
converting existing accounts.
Minimum down payments are specified for financed initial membership fees
to adequately defray both the initial account set-up cost as well as collection
costs should the account become immediately delinquent. On average, we received
a down payment of $91 on financed memberships sold during 1998. As a result, we
cover the incremental cost of new membership processing and collection through
the down payment and do not perform individual credit checks on members. We
manage our credit risk by measuring, from past performance, the expected
realizable value of financed initial membership fees for members paying by
electronic methods, monthly statements or coupon books based on various
criteria. For example, our historical analysis indicates the collection
experience for electronic payments is approximately 50% better than coupon book
accounts. As of December 31, 1998, approximately 63% of financed initial
membership fees were being paid by electronic payment methods compared to 29% at
December 31, 1992, when we first started emphasizing electronic payment methods
for membership payments.
FITNESS CENTERS
Most of our fitness centers are located near regional, urban and suburban
shopping areas and in downtown areas of major cities. Fitness centers vary in
size, available facilities and types of services provided. All of our 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 group exercise programs or personal
training instruction stressing cardiovascular conditioning, strength development
or improved appearance. We require completion of a comprehensive educational
training program by our sales and service personnel. Members are offered
orientations on the recommended use of exercise equipment by our personnel.
Generally, our fitness centers constructed prior to 1980 are smaller in
size and have fewer amenities than the fitness centers constructed since. The
fitness centers we developed in the 1980's 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 or squash courts. Our current prototype fitness center
generally focuses on those fitness services our members most frequently use
rather than services that receive a lower degree of member use, such as pools,
racquet courts or other athletic facilities. Our prototype fitness center, which
tends to range from 15,000 to 35,000 square feet, has recently averaged
approximately $950,000 to construct, exclusive of purchased real estate and
exercise equipment and net of landlord contributions. The new prototype is
designed to cost less to construct and maintain than our older facilities and
has the capacity to accommodate significantly more members than older fitness
centers of the same size because they focus on the most widely used amenities.
We generally invest approximately $550,000 for exercise equipment in a prototype
fitness center, all or a portion of which may be leased or financed.
We continuously upgrade and expand our facilities in order to increase our
membership base and more effectively capitalize on our marketing and
administrative functions. Approximately $10 million to $15 million is invested
annually to maintain and make minor upgrades to our existing facilities. These
improvements include:
o Exercise equipment upgrades;
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o Heating, ventilation and air conditioning and other operating equipment
upgrades and replacements; and
o Locker room and workout area refurbishment.
In addition, during 1998 we invested approximately $17 million to
refurbish and make major upgrades to approximately 25% of our fitness centers
including adding and upgrading exercise equipment and refreshing interior and
exterior finishes to improve club ambiance. An additional $25.0 million was
invested to extensively add and upgrade exercise equipment in most of our other
fitness centers.
In recent years we have invested $6.0 million to $15.0 million annually,
as funds were available, to open new or replacement facilities. During 1998 we
invested approximately $25 million in new facilities generally based on our new
prototype. Seven of these facilities opened in 1998. In 1999, we expect to
increase our annual investment to approximately $20 million to $35 million to
open 15 to 20 new fitness centers annually based on our new prototype.
In 1997, we entered into an agreement pursuant to which three fitness
centers in Syracuse, New York, including one facility we previously owned, are
operated by a third party under the service mark "Bally Total Fitness". We plan
to seek additional franchise relationships for facilities located in smaller
markets; but expect new relationships will begin no sooner than the year 2000.
SALES AND MARKETING
We devote substantial resources to the marketing and promotion of our
fitness centers and their services because we believe strong marketing support
is critical to attracting new members both at existing and new fitness centers.
The majority of our fitness centers use the service mark "Bally Total Fitness",
including eight fitness centers that are known as "Bally Sports Clubs". The
nationwide use of the service mark enhances brand identity and adds advertising
efficiencies. The prior practice of using more than 25 different regional
service marks and trade names was eliminated in 1996. As a result of
acquisitions in 1998, we also operate six fitness centers as "Pinnacle Fitness"
and two as "Gorilla Sports" and plan to expand the use of these brands.
We cluster numerous fitness centers in major media markets in order to
increase the efficiency of our marketing and advertising programs. We operate
approximately 260 fitness centers in 23 of the top 25 population centers in the
United States representing over 50% of the United States population.
We spent approximately $45.2 million in 1998, $45.0 million in 1997 and
$47.4 million in 1996 for advertising and promotion and expect to spend similar
amounts during 1999, with some additional spending anticipated to support new
media markets. Historically, we have primarily advertised on television, and, to
a lesser extent, through newspapers, telephone directories, direct mail, radio,
outdoor signage and other promotional activities. Currently, we are placing
greater emphasis on direct mail and other promotions based on extensive research
activities we are undertaking.
Our 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. Advertisements are augmented with individual sales presentations
made by sales personnel in our fitness centers. We believe the various
membership and payment plans, in addition to our strong brand identity and the
convenience of multiple locations, constitute distinct competitive advantages.
Our 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 advertising, personal sales
presentations and targeted marketing efforts, we have increasingly used in-club
marketing programs. Open-houses and other activities 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 and enhance member loyalty.
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Direct mail reminders encourage renewal of existing memberships. We have
approximately 100 employees within our regional member processing and collection
centers dedicated primarily to inbound renewal programs and outbound
telemarketing service programs to existing members. Telemarketing is used, but
not extensively, to attract prospective new members. We also attract membership
interest from Internet visitors to our home page at www.ballyfitness.com.
We continually evaluate strategic marketing alliances to heighten public
awareness of our fitness centers. For example, in 1998 we entered into an
agreement with the owner and syndicator of the "Baywatch" television series
pursuant to which portions of an episode of the show were themed around our
fitness centers, and cast members make appearances at our fitness center events.
Recently, we introduced through major retail outlets a licensed Bally Total
Fitness line of portable exercise equipment and a home-kit of our popular
exercise program "Power-Flex[TM] by Bally Total Fitness". Strategic partnerships
with Visa, Mastercard, Time Warner, Coca Cola, Interpublic Group and Sports
Display, Inc. have been developed to grow and build brand position and develop
incremental sources of revenue.
ACCOUNT SERVICING
Membership contracts are administered and collected under uniform
procedures implemented by our two regional member processing and collection
centers. The regional centers enable us to conduct centralized data processing
of all our membership accounts. These centers employ approximately 820 people in
the account processing and collection areas, including approximately 240
employees dedicated to customer service, approximately 70 employees dedicated to
management information systems, approximately 270 employees dedicated to account
processing and administration, which includes the 100 telemarketers discussed in
"--Sales and Marketing", and approximately 240 employees dedicated to account
collections. The centers collectively receive, deposit and post more than $560
million of membership transactions annually, including the processing of down
payments and cash sales, and collections of financed initial membership fees and
monthly dues. In addition, the centers process, on average, 2,500 new membership
accounts per day. Employees at the centers also respond to and resolve member
inquiries and maintain membership data.
All collections for past-due accounts are initially handled internally by
the regional centers. We systematically pursue past-due accounts 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. At 60 days past-due, members are generally denied entry to the
fitness centers. Accounts that have not been collected for a 90-day period are
transferred to a group of the most experienced collectors. However, if the first
scheduled payment has not been received, the account is generally written-off
and any down payment received is not refunded. All remaining delinquent accounts
are written-off after 180 days without payment. Accounts that are written-off
are reported to credit reporting bureaus and selected accounts are then sold to
a third-party collection group.
We continue to investigate opportunities to enhance our collection efforts
based on information provided by credit scoring and behavioral modeling, among
others, which we believe will improve the yield from the receivables portfolio.
We prioritize our collection approach based on credit scores at various levels
of delinquency. By tailoring our collection approach to reflect a delinquent
member's likelihood of payment, we believe that we can collect more of our
receivables at a lower cost. We use a national bureau, which charges a nominal
fee per account to credit score. We also believe that other collection
techniques such as monthly statements, which have been used since October 1998
for all new members who financed their initial membership fee and did not elect
an electronic payment method, will result in better collection of our receivable
portfolio.
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COMPETITION
Bally is the only nationwide commercial operator of fitness centers in the
United States. It is also the largest commercial operator in terms of revenues,
number of members, and number and square footage of facilities.
We are the largest operator, or among the largest operators, of fitness
centers in every major market in which we operate fitness centers. Within each
market, we compete with other commercial fitness centers, physical fitness and
recreational facilities established by local governments, hospitals, and
businesses for their employees, the YMCA and similar organizations, and, to a
certain extent, with racquet, tennis and other athletic clubs, country clubs,
weight reducing salons and the home-use fitness equipment industry. We also
compete, to some extent, with entertainment and retail businesses for the
discretionary income of our target markets. However, we believe our brand
identity, operating experience, ability to allocate advertising and
administration costs over all of our fitness centers, nationwide operations,
purchasing power and account processing and collection infrastructure provide us
with distinct competitive advantages. We may not be able to continue to compete
effectively in each of our markets in the future.
We believe competition has increased to some extent in certain markets,
reflecting the public's enthusiasm for fitness and the decrease in the cost of
entry into the market due to financing available from landlords and equipment
manufacturers. We believe our brand identity is strong, membership plans are
affordable and we have the flexibility to be responsive to economic conditions.
As we pursue new business initiatives, particularly the sale of
nutritional products and apparel, we are competing against large, established
companies with more experience selling those products on a retail basis. In some
instances, our competitors for these products have substantially greater
financial resources than us. We may not be able to compete effectively against
these established companies.
PROPERTIES
We operate approximately 330 fitness centers in 27 states and Canada. At
December 31, 1998, we owned 33 fitness centers and leased either the land,
building or both for the remainder of our fitness centers. Aggregate rent
expense, including office and administrative space, was $91.4 million, $86.8
million and $85.8 million for 1998, 1997 and 1996, respectively. Most of our
leases require us 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 us from large
increases in annual rental payments. One fitness center accounted for between 1%
to 2% of our net revenues during 1998. We believe our properties are adequate
for our current membership.
The leases for fitness centers we have 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 give us at least one five-year option to renew
and often two or more such options.
Our executive offices are located in Chicago, Illinois. The lease expires
in January 2003. We also lease space in Huntington Beach, California and Towson,
Maryland for our regional member processing and collection centers.
TRADEMARKS AND TRADE NAMES
The majority of our fitness centers, use the service mark "Bally Total
Fitness" including eight fitness centers that are known as "Bally Sports Clubs".
The nationwide use of the service mark enhances brand identity and adds
advertising efficiencies. The prior practice of using more than 25 different
regional service marks or trade names was eliminated in 1996. As a result of
acquisitions in 1998, we also operate six
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fitness centers as "Pinnacle Fitness" and two as "Gorilla Sports" and plan to
expand the use of these brands.
In January 1996, we entered into a 10-year trademark license agreement
with our former parent corporation which allows us to use certain marks,
including the "Bally Total Fitness" service mark, in connection with our fitness
center business. The name "Bally Total Fitness" is a service mark of Park Place
Entertainment Corporation. We paid no royalty or license fee for 1996 and now
pay a fee of $1.0 million per year. Following the initial ten-year term, we have
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.
SEASONAL MEMBERSHIP FEE ORIGINATIONS
Historically, we experienced greater membership fee originations in the
first quarter and lower membership fee originations in the fourth quarter. Our
new products and services may have the effect of further increasing the
seasonality of our business.
EMPLOYEES
We have approximately 14,800 employees, including approximately 7,700
part-time employees. The distribution of our employees is summarized as follows:
o Approximately 13,750 employees are involved in fitness center
operations, including sales personnel, instructors, personal trainers,
supervisory and facility personnel;
o Approximately 820 employees are involved in the operation of our
regional member processing and collection centers, including management
information systems; and
o Approximately 230 employees are accounting, marketing, human resources,
real estate, new product development and operations, legal and
administrative support personnel.
We are not a party to a collective bargaining agreement with any of our
employees. Although we experience high turnover of non-management personnel,
historically we have not experienced difficulty in obtaining adequate
replacement personnel. Periodically, our sales personnel become somewhat more
difficult to replace due, in part, to increased competition for skilled retail
sales personnel.
GOVERNMENT REGULATION
Our operations and business practices are subject to regulation at
federal, state and local levels. The general rules and regulations of the
Federal Trade Commission, and of state and local consumer protection agencies,
apply to our advertising, sales and other trade practices.
State statutes and regulations affecting the fitness industry have been
enacted or proposed in all of the states in which we conduct business.
Typically, these statutes and regulations prescribe certain forms and regulate
the terms and provisions of membership contracts, including:
o Giving the member the right to cancel the contract, in most cases,
within three business days after signing;
o 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,
o Establishing maximum prices and terms for membership contracts and
limitations on the term of contracts.
In addition, we are 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. We maintain internal
review procedures in order to comply with these requirements and believe our
activities are in substantial compliance with all applicable statutes, rules and
decisions.
10
<PAGE>
Under so-called "cooling-off" statutes in most states, new 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 and are entitled to
refunds of any payment made. The amount of time new members have to cancel their
membership contract depends on the applicable state law. In addition, our
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 a Bally fitness center. In addition, 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 upon
cancellation and we may offset that amount against any refunds owed.
We are a party to several state and federal consent orders. From time to
time, we make minor adjustments to our operating procedures to comply with those
consent orders. The consent orders essentially require continued compliance with
applicable laws and require us to refrain from activities not in compliance with
applicable laws.
The provision of rehabilitative and physical therapy services is affected
by federal, state and local laws and regulations concerning the development and
operation of physical rehabilitation health programs, licensing, certification
and reimbursement and other matters, which may vary by jurisdiction and which
are subject to periodic revision. These laws and regulations are summarized as
follows:
o The opening of a rehabilitation facility may require approval from state
and/or local governments and re-licensing from time to time, both of
which may be subject to a number of conditions.
o A substantial number of recipients of rehabilitative and physical
therapy services have fees paid by governmental programs, as well as
private third-party payers. Governmental reimbursement programs such as
Medicare and Medicaid generally require facilities and services to meet
certain standards promulgated by the federal and/or state government.
Additionally, reimbursement levels by governmental and private
third-party payers are subject to change which could limit or reduce
reimbursement levels and could have a material adverse effect on the
demand for rehabilitative and physical therapy services.
o In a number of states and in certain circumstances pursuant to federal
law, the referral of patients to rehabilitative and physical therapy
services is subject to limitations imposed by law, the violation of
which may, in certain circumstances, constitute a felony.
Recently, federal and state governments have focused significant attention
on health care reform and cost control. These proposals include cut-backs to
Medicare and Medicaid programs. It is uncertain at this time what legislation
and health care reform may ultimately be enacted or whether other changes in the
administration or interpretation of government health care programs will occur.
There can be no assurance that future health care legislation or other changes
in the administration or interpretation of government health care programs will
not have a material adverse effect on our provision of rehabilitative and
physical therapy services.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various claims and lawsuits incidental to our business,
including claims arising from accidents at our fitness centers. In the opinion
of management, we are 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 our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4 is inapplicable.
11
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
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 Bally
Entertainment Corporation between November 1991 and December 1996 and Executive
Vice President of Bally Entertainment between August 1992 and December 1996.
From October 1989 to April 1991, Mr. Hillman was a partner with the accounting
firm of Ernst & Young LLP. Mr. Hillman is also a director of Holmes Place, Plc.
(an operator of fitness centers in the United Kingdom).
Mr. Hillman is 43 years of age.
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, Treasurer of the Company in October 1996 and Executive Vice President of
the Company in November 1997. Mr. Dwyer was Corporate Controller of Bally
Entertainment between June 1992 and December 1996 and a Vice President of Bally
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 46 years of age.
William G. Fanelli was elected Senior Vice President, Operations of the
Company in November 1997 and was Vice President, Strategic Operations of the
Company from November 1996 to November 1997. Mr. Fanelli was Director, Business
Development of Bally Entertainment from October 1993 to December 1996 and, for
approximately nine years prior to October 1993, was employed by the accounting
firm of Ernst & Young LLP.
Mr. Fanelli is 36 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 53
years of age.
Harold Morgan has been employed by the Company since August 1991 and 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 Bally 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 42 years of age.
Paul A. Toback was elected Senior Vice President, Corporate Development of
the Company in March 1998, Vice President, Corporate Development of the Company
in November 1997 and Vice President of the Company in September 1997. From
January 1995 to August 1997, Mr. Toback was Senior Vice President and Chief
Operating Officer of Globetrotters Engineering Corp. and from January 1993 to
December 1994, he served as Executive Assistant to the Chief of Staff at the
White House. Prior to January 1993, Mr. Toback was Director of Administration
for Mayor Daley in the City of Chicago and, prior to that, an attorney at the
law firm of Katten, Muchin & Zavis. Mr. Toback is 35 years of age.
John H. Wildman was elected Senior Vice President, Sales and Marketing of
the Company in November 1996 and Vice President, Sales and Marketing of the
Company in September 1995. For approximately four years prior thereto, Mr.
Wildman was a Senior Area Director of the Company. Mr. Wildman is 39 years of
age.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Bally common stock is currently traded on the New York Stock Exchange
("NYSE") under the symbol "BFT". Prior to commencement of trading on the NYSE on
April 2, 1998, the common stock was quoted on the NASDAQ National Market
("NASDAQ") under the symbol "BFIT". The following table sets forth, for the
periods indicated, the high and low quarterly sales prices for a share of common
stock as reported on NASDAQ or NYSE since trading began on January 4, 1996, the
date Bally's initial Registration Statement on Form S-1 was declared effective.
Bally was a wholly owned subsidiary of Bally Entertainment until January 9,
1996, when Bally Entertainment spun-off Bally and distributed 11,845,161 shares
of Bally common stock to its stockholders.
<TABLE>
<CAPTION>
High Low
---------- ----------
<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
1997:
First quarter $ 8 13/16 $ 6
Second quarter 10 7/16 5 5/8
Third quarter 17 1/2 8 1/2
Fourth quarter 22 14 3/4
1998:
First quarter $31 9/16 $19 1/16
Second quarter 36 13/16 28
Third quarter 37 9/16 14 9/16
Fourth quarter 25 3/8 10 1/2
</TABLE>
As of March 1, 1999, there were 9,655 holders of record of Bally common stock.
Bally has not paid a cash dividend on its common stock since it was
spun-off and does not anticipate paying dividends in the foreseeable future. The
terms of Bally's revolving credit agreement restrict Bally from paying dividends
without the consent of the lenders during the term of the agreement. In
addition, the indentures for the 9 7/8% Series B and Series C Senior
Subordinated Notes due 2007 generally limit dividends paid by Bally to the
aggregate of 50% of consolidated net income, as defined, earned after January 1,
1998 and the net proceeds to Bally from any stock offerings and the exercise of
outstanding stock options and warrants.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
During several years, Bally has experienced extraordinary gains and
losses. In 1997, Bally recognized an extraordinary loss on extinguishment of
debt of $21.4 million ($1.37 per share) resulting from a refinancing of Bally's
subordinated debt and revolving credit facility. In 1996, Bally recognized a net
extraordinary gain on extinguishment of debt consisting of (1) a gain of $9.9
million ($.81 per share) from a $15.2 million tax obligation to Bally
Entertainment which was forgiven as part of the December 1996 merger of Bally
Entertainment with and into Hilton Hotels Corporation and (2) a charge of $4.2
million ($.35 per share) from a refinancing of Bally's securitization facility.
EBITDA is defined as operating income (loss) before depreciation and
amortization. Bally has presented EBITDA supplementally because management
believes this information is useful given the significance of Bally's
depreciation and amortization and because of its highly leveraged financial
position. This 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 Bally's overall financial performance. Also, the EBITDA definition
used herein may not be comparable to similarly titled measures reported by other
companies.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollar amounts in millions, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues $742.5 $661.0 $639.2 $653.4 $682.0
Depreciation and amortization 48.3 52.9 55.9 57.4 58.9
Operating income (loss) 52.8 19.9 19.1 5.0 (16.1)
Income/(loss) before
extraordinary items 13.3 (23.5) (24.9) (31.4) (39.5)
Basic earnings (loss) per
common share (pro forma for
1995) (a) .59 (1.51) (2.04) (3.25)
Diluted earnings (loss) per
common share (pro forma for
1995)(a) .51 (1.51) (2.04) (3.25)
BALANCE SHEET DATA
(AT END OF YEAR)
Cash and equivalents $ 64.4 $ 61.7 $ 16.5 $ 21.3 $ 12.8
Installment contracts
receivable, net 422.1 343.6 300.2 303.4 284.1
Total assets 1,128.8 967.6 893.3 936.5 951.0
Long-term debt, less
current maturities 482.2 405.4 376.4 368.0 289.7
Stockholders' equity 161.8 70.3 24.2 31.7 34.8
OTHER FINANCIAL DATA
EBITDA $101.1 $ 72.8 $ 75.0 $ 62.4 $ 42.8
Cash provided by (used in):
Operating activities (32.0) (35.9) (5.3) (9.9) 32.8
Investing activities (79.0) (16.1) (9.8) (42.1) (21.4)
Financing activities 113.7 97.2 10.4 60.4 (9.6)
</TABLE>
14
<PAGE>
(a) The net loss for 1995 reflects a federal income tax benefit arising from
Bally's prior tax sharing agreement with Bally Entertainment of $7.1
million. Pro forma loss per common share for 1995 (which is unaudited) has
been determined giving effect to (1) adjustments made to reflect the income
tax benefit as if Bally had filed its own separate consolidated income tax
return for the year, which results in a pro forma net loss of $38.5
million, and (2) the distribution of 11,845,161 shares of Bally common
stock to Bally Entertainment stockholders as if such distribution had taken
place as of the beginning of the year.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
During 1997 and 1998, our three primary strategic objectives were to
improve the operating margins of our fitness center membership operations, our
core business; increase the number of fitness centers we operate based on our
recently designed more profitable fitness center prototype; and introduce new
products and services to our members. The strategic initiatives we developed and
implemented to meet these objectives are summarized as follows:
Improve Core Business Operating Margins. The primary approach to improving the
operating margins was to grow and improve the quality of revenues while
leveraging the largely fixed cost structure of our business. In late 1997, we
increased our emphasis on the sale of higher margin all-club memberships, which
are typically financed, rather than the sale of lower margin single-club
memberships. In late 1998, we significantly increased the monthly charge to new
members for dues. We also continued our focus on increasing down payments on
financed membership plans and securing installment payments electronically. This
resulted in approximately a 12% growth in average down payments during 1998 to
$91 and, as of December 31, 1998, approximately 63% of the financed initial
membership fees in our receivables portfolio using an electronic payment method.
In addition, we reduced core business operating costs, including personnel
costs, advertising expenses and other operating expenses. We believe that all of
these actions, some of which reduced new membership unit sales and revenues,
will ultimately improve cash flows and operating income.
New Facilities Expansion. In 1998, we initiated a plan to increase new facility
openings of our recently designed more profitable fitness center prototype.
Seven of these facilities were opened during 1998 and a number were under
construction at the end of the year. Due to deferral accounting, new fitness
centers generally require nearly a full year before generating incremental
earnings before interest, taxes, depreciation and amortization and operating
income and require, on average, three or more years to approach maturity. From
time-to-time we identify opportunities to acquire existing fitness center
operations, at attractive prices, that fit our strategic goals. Recently
acquired fitness center operations generally were immediately additive on a per
share basis in terms of earnings before interest, taxes, depreciation and
amortization and operating income. During 1998 we acquired nine existing fitness
centers in the San Francisco area where we had no previous fitness centers, and
one additional fitness center in Chicago.
Add Products and Services. We also believe significant opportunities exist to
increase revenues beyond those generated by the sale of membership plans and
receipt of monthly dues. These additional revenues do not require significant
capital investment. Beginning in mid-1997, we implemented and greatly expanded
during 1998, our new product and service offerings including:
o Personal training services are now offered at most of our fitness
centers;
o An exclusive line of Bally-branded nutritional products sold to our
members; and
o BFIT Essentials retail stores, which sell nutritional products,
workout apparel and related soft goods, are currently located in
approximately 100 of our fitness centers.
We expect the benefits from these new products and services to continue to grow
in 1999.
16
<PAGE>
RESULTS OF OPERATIONS
Comparison of the years ended December 31, 1998 and December 31, 1997
Net revenue for 1998 were $742.5 million compared to $661.0 million in
1997, an increase of $81.5 million (12%). Net revenue from comparable fitness
centers increased 11%. This significant increase in net revenues resulted from
the following:
o The weighted average price of memberships sold increased 21% over the
prior year. As a result, membership fees originated increased $33.7
million (8%), consisting of a $61.5 million (17%) increase in
financed memberships originated offset, in part, by a $27.8 million
(48%) decrease in paid-in-full memberships originated. Total
membership units sold during 1998 declined slightly compared to the
prior year period reflecting the planned curtailment of sales of the
lower priced, lower margin, single-club and discounted upgrade and
add-on membership plans in 1998. Unit sales of all other memberships
increased year over year by 11%.
o As a result of our long-term strategy to improve the total yield from
individual membership plans, including the monthly dues component,
the slight decline in the number of individual memberships during
1998 consisted entirely of memberships with monthly dues of less than
$3. This strategy to continually improve membership yield, combined
with significantly lower member attrition, improved monthly dues
collected $11.0 million (6%) from 1997.
o Finance charges earned increased $11.0 million (28%) in 1998 due to
the growth in size and improved quality of the receivables portfolio.
Receivables written off in 1998, as a percent of average receivables,
improved 10% compared to the prior year. Additionally, the percentage
of accounts current with all contractual payments improved to 85% as
of December 31, 1998 from 83% as of December 31, 1997. The average
interest rate for finance charges to members was substantially
unchanged during the periods.
o Fees and other revenues increased $23.6 million (148%) over 1997,
primarily reflecting the increased sale of personal training services
and nutritional and other retail products.
o Deferral accounting increased revenues by $2.2 million more in 1998
than in 1997.
The weighted average number of fitness centers increased to 320 during
1998 from 317 during 1997, less than a 1% increase. During 1998, we closed 6
older, typically smaller and less profitable facilities while opening 7 new,
larger facilities, based on our new fitness center prototype. In addition,
during 1998 we acquired 10 fitness centers, 9 located in the San Francisco area
and 1 in Chicago.
Operating income for 1998 was $52.8 million compared to $19.9 million in
1997. The increase of $32.9 million (165%) was due to the increase in revenues
partially offset by a $48.6 million (8%) increase in operating costs and
expenses, which included a $22.5 million increase in the provision for doubtful
receivables. Excluding the provision for doubtful receivables and the effect of
deferral accounting, operating costs and expenses increased $32.7 million (6%)
from 1997. Fitness center operating expenses increased $39.4 million (10%) due,
in part, to increased spending to improve fitness center operations and
appearance, additional commissions from the growth in initial membership fees
originated, operating costs associated with the new products and services and
the incremental cost of operating new fitness centers. A substantial portion of
commission expense is deferred through deferral accounting. Deferral accounting
decreased expenses by $6.6 million more in 1998 than in 1997. General and
administrative expenses decreased $2.9 million (10%) reflecting that the 1997
period included changes related to vesting of 1996 restricted stock awards.
Member processing and collection center expenses increased $.6 million (1%). In
addition, advertising
17
<PAGE>
expenses remained substantially unchanged and depreciation and amortization
expense, as expected, declined $4.6 million largely as the result of
amortization in 1997 related to the 1996 restricted stock awards.
The provision for doubtful receivables, included in operating costs and
expenses, was $118.6 million in 1998 compared to $96.1 million in 1997, an
increase of $22.5 million (23%), due to the increase in initial membership fees
on financed memberships originated. The total provision rate, including the
provision for canceled financed membership plans which are reflected in the
financial statements as a direct reduction of initial membership revenue, was
41% of gross financed initial membership fees during each of 1998 and 1997.
Interest expense was $41.5 million in 1998 compared to $45.0 million in
1997. The decrease of $3.5 million (8%) was primarily due to lower average
interest rates offset, in part, by a higher average level of debt.
Comparison of the years ended December 31, 1997 and December 31, 1996
Net revenues for 1997 were $661.0 million compared to $639.2 million in
1996, an increase of $21.8 million (3%). Net revenue from comparable fitness
centers increased 4%. This increase in net revenues resulted from the following:
o The weighted average price of memberships sold increased 18% over the
prior year. As a result, membership fees originated increased $34.8
million (9%), consisting of a $62.3 million (21%) increase in
financed memberships originated offset, in part, by a $27.5 million
(32%) decrease in paid-in-full memberships originated. Total
membership units sold during 1997 decreased 10% from the prior year
reflecting the planned curtailment of sales of the lower priced,
lower margin, single-club and discounted upgrade and add-on
membership plans in 1997. Unit sales for these memberships decreased
32% while the unit sales of all other memberships increased year over
year by 1%.
o Dues collected increased $11.2 million (6%) over 1996, reflecting our
continuing strategy of increasing monthly dues.
o Finance charges earned increased $2.8 million (8%) in 1997 due
primarily to the increase in the size of the receivables portfolio.
o Fees and other revenues increased $1.9 million (14%) over 1996,
primarily reflecting an introduction of personal training services
into the fitness centers. The sale of nutritional and other retail
products also began in mid-1997 in some fitness centers.
o Deferral accounting added $28.8 million less to revenues in 1997 than
in 1996.
The weighted average number of fitness centers selling memberships
decreased from 322 in 1996 to 317 in 1997, reflecting our continuing strategy to
improve the quality of our fitness facilities. During 1997 and 1996, we closed
19 older, typically smaller and less profitable facilities and sold a fitness
center to a franchisee while opening 8 new, larger facilities, generally based
on our new prototype.
Operating income for 1997 was $19.9 million compared to $19.1 million in
1996. The increase of $.8 million (4%) was due to the increase in revenues
partially offset by a $21.0 million (3%) increase in operating costs and
expenses, which included a $15.7 million increase in the provision for doubtful
receivables. Operating expenses include charges of $5.9 million and $5.1 million
in 1997 and 1996, respectively, relating to restricted stock awards for which
restrictions lapsed in 1997 and 1996 and final vesting occurred in August 1997.
Included in these amounts were $2.1 million and $2.3 million of amortization of
unearned compensation in 1997 and 1996, respectfully. Excluding the provision
for doubtful receivables and charges related to restricted stock awards,
operating costs and expenses increased $4.5 million (1%) from 1996. Fitness
center operating expenses increased $17.7 million (5%) due, in part, to
increased spending to improve fitness center operations and appearance,
additional
18
<PAGE>
commissions from the growth in initial membership fees originated, and operating
costs associated with the new products and services. A substantial portion of
commission expense is deferred through the change in deferred membership
origination costs. Deferral accounting decreased expenses by $8.7 million more
in 1997 than in 1996. General and administrative expenses increased $5.4 million
(23%) and primarily reflects fees paid to Hilton Hotels Corporation in 1997
under a license agreement to use the name "Bally Total Fitness", an increase of
tax gross-up expense in 1997 from 1996 relating to the restricted stock awards
and increased corporate personnel and other overhead incurred in 1997 relating
principally to the new products and services. Member processing and collection
center expenses decreased $3.6 million (9%), reflecting decreases in telephone
expenses, printing expense and equipment rental costs. The decrease in telephone
expenses resulted from renegotiated rates and fewer member service calls.
Advertising expenses decreased $2.4 million (5%) due to reduced spending on
television advertisements and the elimination of some agency fees in 1997
offset, in part, by increases in production costs and local promotional
activities.
The provision for doubtful receivables for 1997 was $96.1 million compared
to $80.4 million in 1996, an increase of $15.7 million (20%) primarily due to
the increase in financed memberships originated.
Interest expense was $45.0 million in 1997 compared to $47.6 million in
1996. The decrease of $2.6 million (5%) was primarily due to lower average
interest rates and an increase in the amount of capitalized interest offset, in
part, by a higher average level of debt.
Income Taxes
The income tax provisions for 1998, 1997, and 1996 reflect state income
taxes only. The federal provision for 1998 was offset by the utilization of
prior years' net operating losses. No federal tax benefit was provided in 1997
due to the uncertainty that we would ultimately be able to use additional
deferred tax assets. The income tax benefit for 1996 reflects a benefit equal to
the federal provision allocated to an extraordinary item. The federal provision
benefit was limited to the extraordinary item in 1996 due to uncertainty related
to the eventual use of additional deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
We are continuously upgrading and expanding our facilities in order to
increase our membership base and more effectively capitalize on our marketing
and administrative functions. We invest approximately $10.0 million to $15.0
million annually to maintain and make minor upgrades to our existing facilities.
In addition, during 1998 we invested approximately $17.0 million to refurbish
and make major upgrades to approximately 25% of our fitness centers including
adding and upgrading exercise equipment and refreshing interior and exterior
finishes to improve club ambiance. An additional $25.0 million was invested to
extensively add and upgrade exercise equipment in most of our other fitness
centers.
In recent years we have invested $6.0 million to $15.0 million annually,
as funds were available, to open new or replacement facilities. During 1998 we
invested approximately $25.0 million in new facilities generally based on our
new prototype. Seven of these facilities opened in 1998 and a number were under
construction at the end of the year. In 1999, we expect to increase our annual
investment to approximately $20.0 million to $35.0 million to open 15 to 20 new
fitness centers annually based on our new prototype. The prototype fitness
center ranges in size from approximately 15,000 to 35,000 square feet. The
prototype is designed to cost less to construct and maintain than our older
facilities and has the capacity to accommodate significantly more members than
the older fitness centers of the same size because they generally focus on the
most widely used amenities.
In May 1998, we sold 2,800,000 shares of our common stock to the public
for net proceeds of $82.7 million and in December 1998, we completed a $75.0
million private placement of 9 7/8% Series C senior subordinated notes due
October 15, 2007. We are using these proceeds to fund our growth strategies to
open new fitness centers, to acquire fitness center operations in strategic
geographic markets and to selectively acquire club-related real estate. We will
allocate these proceeds among the contemplated uses based on available business
opportunities and prevailing market
19
<PAGE>
conditions. We are currently engaged in various stages of discussions to acquire
regional fitness centers operators. None of the individual negotiations are for
a material acquisition of fitness centers or club-related real estate.
In August 1998, we announced our intention to repurchase up to 1,500,000
shares of our common stock on the open market from time to time. As of March 1,
1999, we have repurchased 554,800 shares at an average price of $17 per share.
No purchases have been made since September 1998.
In November 1998, we amended our three-year revolving credit facility to
provide up to $100.0 million of credit. The maximum amount currently available
under this credit facility is $90.0 million. The amount available under the
credit line is reduced by any outstanding letters of credit, which cannot exceed
$30.0 million. At December 31, 1998, the credit line was unused except for
outstanding letters of credit totaling $3.7 million.
We have no scheduled principal payments under our subordinated debt until
October 2007 and the principal amount of the certificates under our
securitization facility remains fixed at $160.0 million through July 1999 at, or
prior to, which time the entire securitization facility will be refinanced or
the 1999 principal maturities will be funded with borrowings from the existing
revolving credit facility. Our debt service requirements, including interest,
but excluding principal payments under the securitization, during 1999 are
approximately $52.0 million. We believe that we will be able to satisfy our 1999
requirements for debt service, capital expenditures and any stock repurchases,
out of available cash balances, cash flow from operations and if necessary,
borrowings on the revolving credit facility.
Cash used in operating activities during 1998 was $32.0 million compared
to $35.9 million in 1997. Net installment contracts receivable grew $78.4
million during 1998 compared to $44.0 million in 1997. Excluding the growth in
receivables, operating activities for 1998 provided cash of $46.4 million
compared to $8.1 million for 1997. The year over year improvement of $38.3
million principally reflects the $36.8 million increase in profitability for
1998 compared to 1997.
Prior to completing public offerings of 8,000,000 shares of common stock
in August 1997 and 2,800,000 shares in May 1998, which provided aggregate net
proceeds totaling $171.0 million, we depended on availability under our
revolving credit facility and operations to provide for cash needs. We managed
liquidity requirements in past years by emphasizing the sale of lower margin
paid-in-full membership plans and accelerating collections through promotional
discounting of financed memberships and monthly dues to increase available cash.
We believe the use of these techniques negatively impacted our operating results
and improved near-term operating cash flows while negatively affecting future
periods. The availability of working capital substantially reduced the need for
these techniques to be continued beyond mid-1997. By the end of 1998, monthly
cash flows from collections, from financed memberships and from monthly dues had
grown to levels that substantially eliminated the negative impact from prior
years discounting activities.
YEAR 2000
We have completed an assessment of whether our systems and those of third
parties which could have a material impact on our business will function
properly with respect to dates in 2000 and thereafter. We have determined that
our payroll applications require modification. The necessary modifications are
expected to be completed in early to mid-1999 at an aggregate cost of less then
$.1 million. We believe the only third parties that could have a material impact
on our business are the major financial institutions that process our
collections of installment receivables and monthly dues by electronic payment
method. We believe these financial institutions are currently working on
modifications to their internal systems to insure those systems will function
properly with respect to dates in 2000 and thereafter and expect these
modifications will be completed in 1999. We do not anticipate that
noncompliance, if any, with Year 2000 of any of our non-information technology
systems, such as embedded microcontrollers, will materially or adversely affect
our business. We are currently undertaking an analysis of worst-case scenarios
and developing contingency plans to deal with these scenarios.
20
<PAGE>
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Form 10-K including, without
limitation, statements relating to our 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 that may cause our actual results, performance or achievements
to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. These factors include,
among others, the following: general economic and business conditions;
competition; success of operating initiatives, advertising and promotional
efforts; existence of adverse publicity or litigation; acceptance of new product
offerings; changes in business strategy or plans; quality of management;
availability, terms, and development of capital; business abilities and judgment
of personnel; changes in, or the failure to comply with, government regulations;
regional weather conditions; failure of entities that provide goods and services
to us to be year 2000 compliant; and other factors described in this Form 10-K
or in other of our filings with the Securities and Exchange Commission. We are
under no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A is inapplicable.
21
<PAGE>
<TABLE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<CAPTION>
INDEX
<S> <C>
Report of independent auditors 23
Consolidated balance sheets 24
Consolidated statements of operations 26
Consolidated statements of stockholders' equity 27
Consolidated statements of cash flows 28
Notes to consolidated financial statements 30
Supplementary data:
Quarterly consolidated financial information (unaudited) 46
</TABLE>
22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Bally Total Fitness Holding Corporation
We have audited the accompanying consolidated balance sheets of Bally Total
Fitness Holding Corporation as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, 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 11, 1999
23
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in thousands, except share data)
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 64,382 $ 61,679
Installment contracts receivable, net 199,979 168,011
Other current assets 34,212 31,743
---------- ----------
Total current assets 298,573 261,433
Installment contracts receivable, net 222,147 175,575
Property and equipment, at cost:
Land 24,588 21,667
Buildings 112,094 109,613
Leasehold improvements 437,978 402,503
Equipment and furnishings 127,342 91,958
---------- ----------
702,002 625,741
Accumulated depreciation and amortization (340,702) (314,544)
---------- ----------
Net property and equipment 361,300 311,197
Intangible assets, less accumulated
amortization of $58,844 and $54,124 101,815 101,220
Deferred income taxes 17,430 4,171
Deferred membership origination costs 97,901 86,737
Other assets 29,679 27,233
---------- ----------
$1,128,845 $ 967,566
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
24
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS-(CONTINUED)
(All dollar amounts in thousands, except share data)
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 40,957 $ 36,908
Income taxes payable 2,608 2,342
Deferred income taxes 18,919 5,660
Accrued liabilities 48,596 50,464
13% Senior Subordinated Notes due 2003 22,555
Other current maturities of long-term debt 5,799 4,590
Deferred revenues 282,806 270,853
---------- ----------
Total current liabilities 399,685 393,372
Long-term debt, less current maturities 482,199 405,425
Other liabilities 6,226 7,459
Deferred revenues 78,952 90,989
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; 23,917,132 and
20,575,092 shares issued 239 206
Contributed capital 488,046 392,718
Accumulated deficit (309,306) (322,603)
Unearned compensation (restricted stock) (7,978)
Common stock in treasury, at cost, 543,739 shares (9,218)
---------- ----------
Total stockholders' equity 161,783 70,321
---------- ----------
$1,128,845 $ 967,566
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
25
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(All dollar amounts in thousands, except share data)
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues:
Membership revenues--
Initial membership fees on financed
memberships originated $ 414,190 $ 352,661 $ 290,378
Initial membership fees on
paid-in-full memberships originated 30,318 58,117 85,624
Dues collected 205,104 194,084 182,909
Change in deferred revenues 3,122 961 29,791
---------- ---------- ----------
652,734 605,823 588,702
Finance charges earned 50,160 39,218 36,405
Fees and other 39,631 15,996 14,092
---------- ---------- ----------
742,525 661,037 639,199
Operating costs and expenses:
Fitness center operations 423,502 384,120 366,466
Member processing and collection centers 39,185 38,627 42,257
Advertising 45,244 45,042 47,428
General and administrative 26,097 28,952 23,586
Provision for doubtful receivables 118,604 96,078 80,350
Depreciation and amortization 48,255 52,878 55,940
Change in deferred membership
origination costs (11,164) (4,597) 4,113
---------- ---------- ----------
689,723 641,100 620,140
---------- ---------- ----------
Operating income 52,802 19,937 19,059
Interest income 2,514 1,928 988
Interest expense (41,494) (45,021) (47,644)
---------- ---------- ----------
Income (loss) before income taxes and
extraordinary items 13,822 (23,156) (27,597)
Income tax provision (benefit) 525 300 (2,700)
---------- ---------- ----------
Income (loss) before extraordinary items 13,297 (23,456) (24,897)
Extraordinary gain (loss) on
extinguishment of debt (21,414) 5,655
---------- ---------- ----------
Net income (loss) $ 13,297 $ (44,870) $ (19,242)
========== ========== ==========
Earnings (loss) per common share:
Income (loss) before extraordinary items $ .59 $ (1.51) $ (2.04)
Extraordinary gain (loss) on
extinguishment of debt (1.37) .46
---------- ---------- ----------
Net income (loss) per common share $ .59 $ (2.88) $ (1.58)
========== ========== ==========
Average common shares outstanding 22,424,172 15,557,491 12,174,601
Earnings (loss) per common share - assuming
dilution:
Income (loss) before extraordinary items $ .51 $ (1.51) $ (2.04)
Extraordinary gain (loss) on
extinguishment of debt (1.37) .46
---------- ---------- ----------
Net income (loss) per common share -
assuming dilution $ .51 $ (2.88) $ (1.58)
========== ========== ==========
Average diluted common shares outstanding
(includes 3,747,232 common equivalent
shares in 1998) 26,171,404 15,557,491 12,174,601
<FN>
See accompanying notes.
</FN>
</TABLE>
26
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(All dollar amounts in thousands, except share data)
<CAPTION>
UNEARNED
COMPENSATION COMMON TOTAL
COMMON CONTRIBUTED ACCUMULATED (RESTRICTED STOCK IN STOCKHOLDERS'
SHARES STOCK CAPITAL DEFICIT STOCK) TREASURY EQUITY
---------- ------ ----------- ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 11,845,161 $ 118 $ 290,062 $ (258,491) $ $ $ 31,689
Net loss (19,242) (19,242)
Common stock issued under long-term
incentive plan 650,000 7 4,389 (4,396) -
Capital contributions by Bally
Entertainment Corporation 9,360 9,360
Amortization of unearned compensation 2,345 2,345
---------- ------ ----------- ---------- ----------- ------- -----------
Balance at December 31, 1996 12,495,161 125 303,811 (277,733) (2,051) 24,152
Net loss (44,870) (44,870)
Issuance of common stock through
public offering 8,000,000 80 88,310 88,390
Issuance of common stock upon
exercise of stock options and other 79,931 1 597 598
Amortization of unearned compensation 2,051 2,051
---------- ------ ----------- ---------- ----------- ------- -----------
Balance at December 31, 1997 20,575,092 206 392,718 (322,603) 70,321
Net income 13,297 13,297
Issuance of common stock through
public offering 2,800,000 28 82,716 82,744
Issuance of common stock for
acquisition of business 230,769 2 3,423 3,425
Acquisition of businesses with
treasury stock 11,061 42 310 352
Issuance of common stock under
stock purchase and option plans 121,271 1 1,169 1,170
Issuance of common stock under
long-term incentive plan 190,000 2 7,978 (7,978) 2
Purchases of common stock (554,800) (9,528) (9,528)
---------- ------ ----------- ---------- ------------ ------- -----------
Balance at December 31, 1998 23,373,393 $ 239 $ 488,046 $ (309,306) $ (7,978) $(9,218) $ 161,783
========== ====== =========== ========== ============ ======= ===========
<FN>
See accompanying notes.
</FN>
</TABLE>
27
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in thousands)
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING:
Income (loss) before extraordinary items $ 13,297 $ (23,456) $ (24,897)
Adjustments to reconcile to cash used -
Depreciation and amortization, including
amortization included in interest
expense 50,585 55,287 59,124
Provision for doubtful receivables 118,604 96,078 80,350
Change in operating assets and
liabilities (214,486) (163,770) (119,764)
Other, net (75) (114)
---------- ---------- ----------
Cash used in operating activities (32,000) (35,936) (5,301)
INVESTING:
Purchases and construction of property and
equipment (76,432) (27,065) (20,612)
Proceeds from sale of property and
equipment 10,946
Acquisitions of businesses (2,521)
Reserve fund deposit refunded pursuant
to securitization facility 10,000
Other, net 833
---------- ---------- ----------
Cash used in investing activities (78,953) (16,119) (9,779)
FINANCING:
Debt transactions -
Proceeds from long-term borrowings 73,501 225,052 162,318
Repayments of long-term debt (30,871) (208,034) (155,912)
Debt issuance costs (3,362) (8,466) (2,815)
---------- ---------- ----------
Cash provided by debt transactions 39,268 8,552 3,591
Equity transactions -
Proceeds from issuance of common stock
through public offering 82,744 88,390
Proceeds from issuance of common stock
upon exercise of stock options and
stock purchase plans 1,172 258
Capital contribution by Bally
Entertainment Corporation 6,760
Purchases of common stock for treasury (9,528)
---------- ---------- ----------
Cash provided by financing activities 113,656 97,200 10,351
---------- ---------- ----------
Increase (decrease) in cash and equivalents 2,703 45,145 (4,729)
Cash and equivalents, beginning of year 61,679 16,534 21,263
---------- ---------- ----------
Cash and equivalents, end of year $ 64,382 $ 61,679 $ 16,534
========== ========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
28
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS-(CONTINUED)
(All dollar amounts in thousands)
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<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 $ (196,990) $ (140,096) $ (75,491)
Increase in other current and
other assets (3,765) (8,402) (4,063)
Increase (decrease) in deferred
membership origination costs (11,164) (4,597) 4,113
Increase (decrease) in accounts payable 3,689 (4,657) (475)
Increase (decrease) in income taxes
payable 607 84 (2,866)
Decrease in accrued and other
liabilities (3,741) (5,141) (11,191)
Decrease in deferred revenues (3,122) (961) (29,791)
---------- ---------- ----------
$ (214,486) $ (163,770) $ (119,764)
========== ========== ==========
Cash payments for interest and income
taxes were as follows-
Interest paid $ 40,029 $ 48,427 $ 44,604
Interest capitalized (540) (511) (236)
Income taxes paid (refunded), net (83) 216 166
Investing and financing activities exclude
the following non-cash transactions-
Acquisition of property and equipment
through capital leases/borrowings $ 9,968 $ 14,044 $ 5,266
Acquisition of business with common
stock 3,425
Acquisition of businesses with treasury
stock 352
Forgiveness of income tax obligations by
Bally Entertainment Corporation/Hilton
Hotels Corporation 15,200
Common stock issued under long-term
incentive plan 7,978 4,396
Capital contribution by Bally
Entertainment Corporation 2,600
<FN>
See accompanying notes.
</FN>
</TABLE>
29
<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 330 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 "Stockholder 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.
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 (including assets under
capital leases) 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 useful
lives of the improvements or the lease periods. Depreciation and amortization of
property and equipment was $41,788, $45,739 and $48,444 for 1998, 1997 and 1996,
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, 1998
and 1997 were deferred finance costs of $10,872 and $9,828, respectively, net of
accumulated amortization of $3,710 and $2,511, respectively.
INTANGIBLE ASSETS
Intangible assets consist principally of cost in excess of net assets of
acquired businesses (goodwill), which is being amortized on the straight-line
method over periods ranging up to forty years from dates of acquisition, and
amounts assigned to acquired operating lease rights, which are being amortized
on the straight-line method over the remaining lease periods.
30
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
The Company evaluates annually whether the remaining estimated useful life of
goodwill may warrant revision or the remaining balance of goodwill may not be
recoverable, generally considering expectations of future profitability and cash
flows (undiscounted and without interest charges) on a consolidated basis. If
the sum of the Company's expected future cash flows were 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, 1998. 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 an initial membership fee, which may be financed, to
maintain their membership on a month-to-month basis as long as monthly dues
payments are made. Initial membership fees may be paid-in-full when members join
or may be financed via installment contracts over periods ranging up to 36
months. Revenues from initial membership fees (net of any related allowances)
are deferred and recognized ratably over the weighted average expected life of
the memberships, which for paid-in-full memberships and financed memberships
sold have been calculated to be 36 months and 22 months, respectively. Costs
directly related to the origination of memberships (substantially all of which
are sales commissions paid, which are included in "Fitness center operations")
are also deferred and are amortized using the same methodology as for initial
membership fees described above. The allowance for cancellations of memberships
under so-called "cooling-off" statutes in most states, contractually permitted
cancellations and first payment defaults is charged directly against membership
revenue. The provision for doubtful receivables represents the allowance for all
other uncollectible memberships. Dues revenue is recorded as monthly services
are provided. Accordingly, when dues are prepaid, the prepaid portion is
deferred and recognized over the applicable term. Installment contracts bear
interest at, or are adjusted for financial accounting purposes at the time the
contracts are sold to, rates for comparable consumer financing contracts.
Unearned finance charges are amortized over the term of the contracts on the
sum-of-the-months-digits method, which approximates the interest method.
31
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
<TABLE>
Components of deferred revenues as of December 31, 1998 and 1997 are as follows:
<CAPTION>
1998 1997
---------------------------- ----------------------------
CURRENT LONG-TERM TOTAL CURRENT LONG-TERM TOTAL
-------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Financed initial
membership fees
deferred $201,988 $ 48,050 $250,038 $169,298 $ 43,901 $213,199
Paid-in-full initial
membership fees
deferred 39,818 19,875 59,693 61,453 36,703 98,156
Prepaid dues 41,000 11,027 52,027 40,102 10,385 50,487
-------- -------- -------- -------- -------- --------
$282,806 $ 78,952 $361,758 $270,853 $ 90,989 $361,842
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
Components of the change in deferred revenues for the years ended December 31,
1998, 1997 and 1996 are as follows:
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Financed initial membership fees:
Originating $(414,190) $(352,661) $(290,378)
Less provision for doubtful
receivables 118,604 96,078 80,350
--------- --------- ---------
Originating, net (295,586) (256,583) (210,028)
Recognized 258,748 223,270 228,681
--------- --------- ---------
Decrease (increase) in deferral (36,838) (33,313) 18,653
Paid-in-full initial memberships fees:
Originating (30,318) (58,117) (85,624)
Recognized 68,780 90,666 94,870
--------- --------- ---------
Decrease in deferral 38,462 32,549 9,246
Decrease in prepaid dues, exclusive
of dues related to acquired businesses 1,498 1,725 1,892
--------- --------- ---------
Change in deferred revenues $ 3,122 $ 961 $ 29,791
========= ========= =========
</TABLE>
<TABLE>
Components of the change in deferred membership origination costs for the years
ended December 31, 1998, 1997 and 1996 are as follows:
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Incurred $ (99,302) $ (84,104) $ (77,257)
Amortized 88,138 79,507 81,370
--------- --------- ---------
Change in deferred membership
origination costs $ (11,164) $ (4,597) $ 4,113
========= ========= =========
</TABLE>
32
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
INCOME TAXES
For tax periods after January 9, 1996, the Company files its own separate
consolidated federal income tax return. For tax periods prior to and including
January 9, 1996, taxable income or loss of the Company was included in the
consolidated federal income tax return of Entertainment. Pursuant to a tax
sharing agreement with Entertainment, income taxes were allocated to the Company
based on amounts the Company would pay or receive if it filed a separate
consolidated federal income tax return, except that the Company received from
Entertainment an amount equal to the tax benefit of the Company's net operating
losses and tax credits, if any, that could be utilized in Entertainment's
consolidated federal income tax return, whether or not such losses or credits
could be utilized by the Company on a separate return basis. As a result of the
Spin-off, the Company and Entertainment entered into the Tax Allocation and
Indemnity Agreement that defines the parties' rights and obligations with
respect to deficiencies and refunds of federal income taxes for tax periods
through January 9, 1996. In connection therewith, Entertainment assumed
substantially all responsibility for any federal income tax adjustments related
to the Company for tax periods through January 9, 1996. The Tax Allocation and
Indemnity Agreement was amended in 1996 to include a portion of the Company's
losses in Entertainment's consolidated federal income tax return. As a result,
capital contributions totaling $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.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share is computed by dividing income (loss)
before extraordinary item, extraordinary gain (loss), and net income (loss) by
the weighted average number of shares of common stock outstanding during each
year, which totaled 22,424,172 shares, 15,557,491 shares and 12,174,601 shares
for 1998, 1997 and 1996 respectively. Diluted earnings (loss) per common share
is computed by dividing income (loss) before extraordinary item, extraordinary
gain (loss), and net income (loss) by the weighted average number of shares of
common stock and common stock equivalents outstanding during each year, which
totaled 26,171,404 shares, 15,557,491 shares and 12,174,601 shares for 1998,
1997 and 1996, respectively. Common stock equivalents represent the dilutive
effect of the assumed exercise of outstanding warrants and stock options. Common
stock equivalents increased the weighted average number of shares outstanding
for diluted earnings per common share by 3,747,232 shares for 1998. The assumed
exercise of outstanding warrants and stock options for diluted loss per common
share was not applicable in 1997 and 1996 because their effect was
anti-dilutive.
EXTRAORDINARY ITEMS
The extraordinary loss on extinguishment of debt for 1997 of $21,414 ($1.37 per
share) results from a refinancing of the Company's subordinated debt and credit
facility.
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 a refinancing of the Company's
securitization facility.
33
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
<TABLE>
INSTALLMENT CONTRACTS RECEIVABLE
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current:
Installment contracts receivable $294,880 $239,448
Unearned finance charges (35,792) (27,709)
Allowance for doubtful receivables
and cancellations (59,109) (43,728)
-------- --------
$199,979 $168,011
======== ========
Long-term:
Installment contracts receivable $287,443 $226,735
Unearned finance charges (18,104) (14,357)
Allowance for doubtful receivables and
cancellations (47,192) (36,803)
-------- --------
$222,147 $175,575
======== ========
</TABLE>
The carrying amount of installment contracts receivable at December 31, 1998 and
1997 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>
1998 1997
-------- --------
<S> <C> <C>
Payroll and benefit-related liabilities $ 17,908 $ 19,530
Interest 6,254 6,603
Taxes other than income taxes 6,045 3,922
Other 18,389 20,409
-------- --------
$ 48,596 $ 50,464
======== ========
</TABLE>
34
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
<TABLE>
LONG-TERM DEBT
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Nonsubordinated:
Securitization facility $160,000 $160,000
Capital lease obligations 18,759 13,126
Other secured and unsecured obligations 10,726 11,889
Subordinated:
9 7/8% Series B Senior Subordinated Notes due 2007 225,000 225,000
9 7/8% Series C Senior Subordinated Notes due 2007,
less unamortized discount of $1,487 73,513
13% Senior Subordinated Notes due 2003 22,555
-------- --------
Total long-term debt 487,998 432,570
13% Senior Subordinated Notes due 2003 (22,555)
Other current maturities of long-term debt (5,799) (4,590)
-------- --------
Long-term debt, less current maturities $482,199 $405,425
========= =========
</TABLE>
In November 1998, the Company amended its three-year revolving credit facility
to provide up to $100,000 of credit. The maximum amount currently available
under this credit facility is $90,000. The amount available under the credit
line is reduced by any outstanding letters of credit, which cannot exceed
$30,000. At December 31, 1998, the revolving credit agreement was unused except
for outstanding letters of credit totaling $3,713. The rate of interest on
borrowings is at the Company's option, generally based upon either the agent
bank's prime rate plus 1.75% or a Eurodollar rate plus 2.75%. A fee of 2.00% on
outstanding letters of credit is payable quarterly. A commitment fee of one-half
of 1% is payable quarterly on the unused portion of the revolving credit
facility. The revolving credit agreement is secured by substantially all real
and personal property (excluding installment contracts receivable) of the
Company.
In December 1996, the Company refinanced its 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 (8.11% and 8.55% at December
31, 1998 and 1997, respectively) at 2.57% above the London Interbank Offer Rate
("LIBOR"), with the interest rate on the Floating Certificates capped at 9.43%
pursuant to an interest rate cap agreement. The Trust was created for the
issuance of asset-backed securities and was formed pursuant to a pooling and
servicing agreement. The Trust includes a portfolio of substantially all of the
Company's installment contracts receivable from membership sales and the
proceeds thereof. The amount by which installment contracts receivable in the
Trust exceeds the $160,000 principal amount of certificates issued by the Trust
is generally retained by the Company.
The Company services the installment contracts receivable held by the Trust and
earns a servicing fee which approximates the servicing costs incurred by the
Company. Through July 1999, the principal amount of the certificates remains
fixed and collections of installment contracts receivable flow through to the
Company in exchange for the securitization of additional installment contracts
receivable, except that collections are first used to fund interest
requirements. The amortization period commences in August 1999, after which
collections of installment contracts receivable will be used first to fund
interest requirements and then to repay principal on the certificates. The
amortization period ends upon the earlier to occur of the certificates being
repaid in full or August 2002. At or prior to July 1999, the entire
35
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
securitization facility will be refinanced or the 1999 principal maturities will
be funded with borrowings from the existing revolving credit facility.
The Company leases certain fitness center facilities and equipment under capital
leases expiring in periods ranging from one to twenty years. Included in
"Property and equipment" at December 31, 1998 and 1997 were assets under capital
leases of $24,118 and $18,194, respectively, net of accumulated amortization of
$4,640 and $1,751, respectively.
In October 1997, the Company refinanced its subordinated debt by issuing
$225,000 aggregate principal amount of 9 7/8% Senior Subordinated Notes due 2007
(the "Series B Notes") and completing a tender offer and consent solicitation
(the "Tender Offer") with respect to its $200,000 aggregate principal amount of
13% Senior Subordinated Notes (the "13% Notes"). Pursuant to the Tender Offer,
the Company purchased $177,445 aggregate principal amount of the 13% Notes,
substantially all at a price of 108.3% of the principal amount, together with
accrued and unpaid interest. In January 1998, the Company redeemed the remaining
$22,555 aggregate principal amount of the 13% Notes not tendered in the Tender
Offer at a price of 106.5% of the principal amount, together with accrued and
unpaid interest.
In December 1998, the Company, through a private placement, issued $75,000
aggregate principal amount of 9 7/8% Series C Senior Subordinated Notes due 2007
(the "Series C Notes") at a discount to yield an interest rate of 10.2%. The
Series C Notes are pari passu with the $225,000 Series B Notes issued in 1997.
The Series B and Series C Notes are not subject to any sinking fund requirement,
but may be redeemed beginning in October 2002, in whole or in part, with
premiums ranging from 4.9% in 2002 to zero in 2005 and thereafter. The payment
of the Series B and Series C Notes is subordinated to the payment in full of all
senior indebtedness of the Company, as defined (approximately $186,000 at
December 31, 1998).
The revolving credit agreement and the indenture for the 9 7/8% Series B and
Series C Notes contain covenants that, among other things and subject to certain
exceptions, restrict the ability of the Company to incur additional
indebtedness, pay dividends, prepay certain indebtedness, dispose of certain
assets, create liens and make certain investments or acquisitions. The revolving
credit agreement also requires the maintenance of certain financial covenants.
36
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
<TABLE>
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,
1998 are as follows:
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES TOTAL
--------- ------- --------
<S> <C> <C> <C>
1999 $ 1,989 $ 5,693 $ 7,682
2000 2,005 4,539 6,544
2001 66,559 3,150 69,709
2002 98,081 2,543 100,624
2003 301 2,771 3,072
Thereafter 300,304 13,908 314,212
--------- ------- --------
469,239 32,604 501,843
Less amount representing interest (13,845) (13,845)
--------- ------- --------
$ 469,239 $18,759 $487,998
========= ======= ========
</TABLE>
The fair value of the Company's long-term debt at December 31, 1998 and 1997
approximates its carrying amount except for the Company's subordinated debt,
which had a fair market value (based on quoted market prices) of $294,000 and
$251,666 at December 31, 1998 and 1997, 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
<TABLE>
The income tax provision (benefit) applicable to income (loss) before income
taxes and extraordinary item consists of the following:
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Deferred $ 6,180 $ $
Reversal of valuation allowance (6,180)
Federal (all current) (3,050)
State and other (all current) 525 300 350
-------- -------- --------
$ 525 $ 300 $ (2,700)
======== ======== ========
</TABLE>
37
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
<TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial accounting
and income tax purposes. Significant components of the Company's deferred tax
assets and liabilities as of December 31, 1998 and 1997, along with their
classification, are as follows:
<CAPTION>
1998 1997
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Installment contract revenues $ $ 37,521 $ 1,677 $
Amounts not yet deducted for
tax purposes:
Bad debts 45,604 33,259
Other 9,600 13,079
Amounts not yet deducted for
book purposes:
Deferred membership
origination costs 41,595 36,042
Depreciation and capitalized
costs 5,315 2,439
Tax loss carryforwards 208,083 174,105
Other, net 11,895 2,359
-------- -------- -------- --------
268,602 $ 91,011 224,559 $ 38,401
======== ========
Valuation allowance (179,080) (187,647)
-------- --------
$ 89,522 $ 36,912
======== ========
Current $ 18,974 $ 37,893 $ 19,538 $ 25,198
Long-term 70,548 53,118 17,374 13,203
-------- -------- -------- --------
$ 89,522 $ 91,011 $ 36,912 $ 38,401
======== ======== ======== ========
</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, 1998, estimated federal
AMT credit and tax loss carryforwards of $2,987 and $462,553, respectively, have
been recorded by the Company. The AMT credits can be carried forward
indefinitely, while the tax loss carryforwards expire through 2018. In addition,
the Company has substantial state tax loss carryforwards which begin to expire
in 1999 and fully expire through 2013. Based upon the Company's past performance
and the expiration dates of its carryforwards, the ultimate realization of all
of the Company's deferred tax assets cannot be assured. Accordingly, a valuation
allowance has been recorded to reduce deferred tax assets to a level which, more
likely than not, will be realized.
38
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
<TABLE>
A reconciliation of the income tax provision (benefit) with amounts determined
by applying the U.S. statutory tax rate to income (loss) before income taxes and
extraordinary item is as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Provision (benefit) at U.S. statutory tax
rate (35%) $ 4,838 $(8,105) $(9,659)
Add (deduct):
Provision (benefit) for change in
valuation allowance (6,180) 6,748 5,509
State income taxes, net of related federal
income tax effect and valuation allowance 341 195 770
Amortization of cost in excess of acquired
assets 1,419 1,412 1,411
Other, net 107 50 (731)
-------- -------- --------
Income tax provision (benefit) $ 525 $ 300 $ (2,700)
======== ======== ========
</TABLE>
STOCKHOLDERS' EQUITY
The Series A Junior Participating Preferred Stock, $.10 par value (the "Series A
Junior Stock"), if issued, will have a minimum preferential quarterly dividend
payment equal to the greater of (i) $1.00 per share and (ii) an amount equal to
100 times the aggregate dividends declared per share of Common Stock during the
related quarter. In the event of liquidation, the holders of the shares of
Series A Junior Stock will be entitled to a preferential liquidation payment
equal to the greater of (a) $100 per share and (b) an amount equal to 100 times
the liquidation payment made per share of Common Stock. Each share of Series A
Junior Stock will have 100 votes, voting together with the shares of Common
Stock. Finally, in the event of any merger, consolidation or other transaction
in which shares of Common Stock are exchanged, each share of Series A Junior
Stock will be entitled to receive 100 times the amount received per share of
Common Stock. These rights are protected by customary antidilution provisions.
The Board of Directors of the Company adopted the Stockholder Rights Plan and
issued and distributed a Right for each share of Common Stock distributed to
Entertainment stockholders pursuant to the Spin-off. Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share of
Series A Junior Stock at a price of $40.00 per one one-hundredth of a share of
Series A Junior Stock, subject to adjustment (the "Purchase Price").
The Rights are not exercisable or transferable apart from the Common Stock until
the occurrence of one of the following: (i) ten days (or such later date as may
be determined by action of the Board of Directors of the Company prior to such
time as any person or group of affiliated persons becomes an Acquiring Person)
after the date of public announcement that a person (other than an Exempt
Person, as defined below) or group of affiliated or associated persons has
acquired, or obtained the right to acquire, beneficial ownership of 10% or more
of the Common Stock (an "Acquiring Person"), or (ii) ten days after the date of
the commencement of a tender offer or exchange offer by a person (other than an
Exempt Person) or group of affiliated or associated persons, the consummation of
which would result in beneficial ownership by such person or group of 20% or
more of the outstanding shares of Common Stock. "Exempt Persons" include the
Company, any subsidiary of the Company, employee benefit plans of the Company,
directors of the Company on January 5, 1996 who are also officers of the
Company, Entertainment and any person holding the warrant to purchase 2,942,805
shares of Common Stock initially issued to Entertainment.
39
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
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, 1998, 6,121,603 shares of Common Stock were reserved for future
issuance (3,192,805 shares in connection with outstanding warrants and 2,928,798
shares in connection with certain stock plans).
WARRANTS
In July 1997, in connection with a $7,500 bridge loan provided to the Company by
an affiliate of an underwriter of the August 1997 public offering of Common
Stock, the Company issued warrants entitling the affiliate to acquire 250,000
shares of Common Stock at an exercise price of $10.05 per share, expiring in
July 2002.
In connection with the Spin-off, the Company issued a 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), expiring in December 2005. At the time
of the Merger, Entertainment sold the warrant to the Chairman of the Board of
Directors and the President and Chief Executive Officer of the Company.
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, 1998, 60,000 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
40
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
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. In 1997, the Incentive Plan was
amended to increase the aggregate number of shares of Common Stock which may be
granted under the Incentive Plan to 3,600,000 shares. At December 31, 1998,
192,599 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"), generally in three equal
annual installments commencing one year from the date of grant. Option grants in
1998, 1997 and 1996 have a 10-year term.
<TABLE>
A summary of 1996, 1997 and 1998 stock option activity under the Directors' Plan
and Incentive Plan is as follows:
<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
Granted 729,000 16.32 12.00-17.5625
Exercised (59,931) 4.125 4.125
Forfeited (109,268) 4.125 4.125
-----------
Outstanding at December 31, 1997,
391,820 of which were exercisable 1,904,461 8.88 4.125-17.5625
Granted 664,000 20.73 18.50-36.00
Exercised (78,645) 5.89 4.125-17.5625
Forfeited (20,991) 9.40 4.125-18.50
-----------
Outstanding at December 31, 1998,
970,136 of which are exercisable 2,468,825 12.16 4.125-36.00
===========
</TABLE>
The Company has elected to follow 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
41
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
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.
<TABLE>
Had compensation cost been determined for the Company's stock option portion of
the plans based on the fair value at the grant dates for awards under those
plans consistent with the alternative method set forth under SFAS No. 123, the
Company's pro forma net income (loss) would be:
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)
As reported $ 13,297 $ (44,870) $(19,242)
Pro Forma 11,266 (45,783) (20,032)
Net income (loss) per common share
As reported .59 (2.88) (1.58)
Pro Forma .50 (2.94) (1.65)
The weighted average fair value
of options granted 8.11 2.88 1.93
</TABLE>
The fair value for the stock options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996: risk-free interest rate of 4.72%, 5.67% and
6.22%, respectively; no dividend yield; volatility factor of the expected market
price of the common stock of 0.356, 0.164 and 0.413 respectively; and a
weighted-average expected life of the options of five 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 1998, the Compensation Committee awarded 190,000 shares of restricted Common
Stock to certain key executives of the Company. These shares were issued in the
employee's name and are held by the Company until the restrictions lapse. The
restrictions on these shares lapse upon change in control of the Company, the
employee's death, termination of employment due to disability or the first date
prior to September 30, 2000 which follows seven consecutive trading days on
which the trading price equals or exceeds the targeted stock price of $42 per
share. As of December 31, 1998, no compensation expense has been recognized.
Unearned compensation of $7,978 is included in stockholders' equity.
42
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
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 lapsed based upon the market price of the Common Stock reaching
certain targeted stock prices unless less than half of such shares awarded
vested within two years after the date of grant, at which time a number of
shares would vest so that the total number of vested shares equaled 50% of the
original grants. In addition, a recipient of these restricted stock awards
received a cash payment from the Company upon the lapse of restrictions in an
amount sufficient to insure that the recipient received 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 these shares generally lapsed upon
reaching certain targeted stock prices in 1997 and 1996 and, accordingly, the
fair value of these shares was amortized to expense ($2,051 in 1997 and $2,345
in 1996) in connection therewith. In addition, the tax gross-up expense related
to these restricted shares totaled $3,856 and $2,764 in 1997 and 1996,
respectively. The weighted-average fair value of restricted Common Stock awarded
in 1996 was $4.87 per share as determined under SFAS No. 123.
In November 1997, the Board of Directors of the Company adopted the Bally Total
Fitness Holding Corporation Employee Stock Purchase Plan (the "Stock Purchase
Plan"). The Stock Purchase Plan provides for the purchase of Common Stock by
eligible employees (as defined) electing to participate in the plan. The stock
can generally be purchased semi-annually at a price equal to the lesser of: (i)
95% of the fair market value of the Common Stock on the date when a particular
offering commences or (ii) 95% of the fair market value of the Common Stock on
the date when a particular offering expires. For each offering made under the
Stock Purchase Plan, each eligible employee electing to participate in the Stock
Purchase Plan will automatically be granted shares of Common Stock equal to the
number of full shares which may be purchased from the employee's elected payroll
deduction, with a maximum payroll deduction equal to 10% of eligible
compensation, as defined. The first offering under this plan commenced on
January 1, 1998 and expired on March 31, 1998. Thereafter, offerings shall
commence on each April 1 and October 1 and expire on the following September 30
and March 31, respectively, until the Stock Purchase Plan is terminated or no
additional shares are available for purchase. At December 31, 1998, 207,374
shares of Common Stock were available for future purchases under the Stock
Purchase Plan. Pursuant to APB No. 25, no expense is recorded by the Company in
connection with this plan.
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
$1,312, $1,106 and $974 in 1998, 1997 and 1996, respectively.
43
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
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 $92,816, $89,384 and $90,060 for 1998, 1997 and 1996,
respectively.
Minimum future rent payments under long-term noncancellable operating leases in
effect as of December 31, 1998, exclusive of taxes, insurance, other expenses
payable directly by the Company and contingent rent, are $93,352, $89,568,
$85,035, $81,866 and $78,663 for 1999 through 2003, respectively, and $458,572
thereafter.
Included in the amounts above are leases with real estate partnerships in which
certain of the Company's then current executive officers had ownership
interests. Rent expense under these leases was $169, $808 and $2,002 for 1998,
1997 and 1996, respectively.
LITIGATION
The Company is involved in various 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 January 1996, the Company and Entertainment entered into a Trademark License
Agreement pursuant to which Entertainment (Park Place Entertainment Corporation
after various transactions) licenses the use of the name "Bally" and certain
trademarks, trade names and service marks 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 1996 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 provided 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 paid 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 $53 for the first
four months of 1998, $213 for 1997, and $279 for 1996. The management agreement
was assigned to an unrelated third party on April 15, 1998. In addition,
Entertainment purchased from the Company all of the shares of capital stock and
warrants to purchase shares of capital stock of Holmes Place PLC owned by the
Company, as well as a note receivable from Holmes Place PLC held by the Company,
for $1,800. For financial accounting purposes, because of Entertainment's
ownership interest at the time, the excess of the sales price over the
historical net book value of the fitness center and Holmes Place PLC assets of
$5,988 was accounted for as an increase to stockholders' equity, net of income
taxes of $2,096.
44
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)
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. 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 in 1996 totaled $4,625.
Pursuant to the Transitional Services Agreement, the Company indemnified
Entertainment against (i) debts and liabilities of the Company and (ii)
liabilities relating to litigation currently pending or claims, controversies or
other causes of action relating to the Company's business arising through the
Distribution Date. The Transitional Services Agreement also provided for the
payment by the Company of $15,200 due Entertainment under the prior tax sharing
agreement (plus interest at 10% per annum from the Distribution Date). At the
time of the Merger, the $15,200 of indebtedness was forgiven by Hilton, which
the Company reflected as an extraordinary gain. The Company also paid interest,
calculated primarily at a prime rate, on advances from Entertainment. Interest
paid to Entertainment was $1,551 for 1996.
45
<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,
------------- ------------- ------------- -------------
1998 1997 1998 1997 1998 1997 1998 1997
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $184.5 $168.4 $180.9 $161.8 $189.6 $165.1 $187.5 $165.7
Operating income 11.9 6.2 11.6 3.2 13.8 .9 15.5 9.6
Income (loss) before
extraordinary item 2.1 (5.7) 2.0 (7.3) 4.3 (10.3) 4.9 (.2)
Extraordinary loss
on extinguishment of
debt (21.4)
Net income (loss) 2.1 (5.7) 2.0 (7.3) 4.3 (10.3) 4.9 (21.6)
Basic earnings (loss) per
common share:
Income (loss) before
extraordinary item $ .10 $ (.46) $ .09 $ (.59) $ .18 $ (.60)$ .21 $ (.01)
Extraordinary
loss on extin-
guishment of debt (1.04)
Net income (loss) .10 (.46) .09 (.59) .18 (.60) .21 (1.05)
Diluted earnings (loss)
per common share:
Income (loss) before
extraordinary item $ .09 $ (.46) $ .08 $ (.59) $ .16 $ (.60)$ .19 $ (.01)
Extraordinary
loss on extin-
guishment of debt (1.04)
Net income (loss) .09 (.46) .08 (.59) .16 (.60) .19 (1.05)
<FN>
- - ------------
1. The Company's operations are subject to seasonal factors.
2. The extraordinary loss on extinguishment of debt for the quarter ended
December 31, 1997 resulted from a refinancing of the Company's subordinated
debt and credit facility.
</FN>
</TABLE>
46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Item 9 is inapplicable.
PART III
Part III (except for certain information relating to Executive Officers included
in Part I) is omitted. The Company intends to file with the Securities and
Exchange Commission within 120 days of the close of the fiscal year ended
December 31, 1998 a definitive proxy statement containing such information
pursuant to Regulation 14A of the Securities Exchange Act of 1934 and such
information shall be deemed to be incorporated herein by reference from the date
of filing such document.
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)1. INDEX TO FINANCIAL STATEMENTS
Report of independent auditors 23
Consolidated balance sheets at December 31, 1998 and 1997 24
For each of the three years in the period ended December 31, 1998:
Consolidated statements of operations 26
Consolidated statements of stockholders' equity 27
Consolidated statements of cash flows 28
Notes to consolidated financial statements 30
Supplementary data:
Quarterly consolidated financial information (unaudited) 46
(a)2. INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and qualifying accounts for each of the
three years in the period ended December 31, 1998 S-1
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
1.1 Purchase Agreement dated December 9, 1998 among Bally Total Fitness
Holding Corporation and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Jefferies & Company, Inc.
*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 October 7, 1997 between the Company and First
Trust National Association, as Trustee, including the form of Old Note
and form of New Note (filed as an exhibit to the Company's registration
statement on Form S-4 filed October 31, 1997, registration no.
333-39195).
47
<PAGE>
*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).
**4.6 Warrant Agreement dated as of July 11, 1997 between the Company and
Ladenburg Thalmann Capital Corporation.
**4.7 First Amendment dated as of August 5, 1997 to the Warrant Agreement
between the Company and Ladenburg Thalmann Capital Corporation.
**4.8 Registration Rights Agreement dated as of July 11, 1997 between the
Company and Ladenburg Thalmann Capital Corporation.
4.9 Indenture dated as of December 16, 1998 between Bally Total Fitness
Holding Corporation and U.S. Bank Trust National Association, as
Trustee, including the form of Series C Notes and form of Series D
Notes.
4.10 Registration Rights Agreement dated as of December 16, 1998 among Bally
Total Fitness Holding Corporation and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Jefferies & Company, Inc.
*10.1 Credit Agreement dated as of November 18, 1997 among the Company, the
several banks and financial institutions which are parties thereto and
The Chase Manhattan Bank, as Agent (filed as an exhibit to the Company's
registration statement on Form S-4 filed December 11, 1997, registration
no. 333-39195).
*10.2 Guarantee and Collateral Agreement dated as of November 18, 1997 made by
the Company and certain of its subsidiaries in favor of The Chase
Manhattan Bank, as Collateral Agent (filed as an exhibit to the
Company's registration statement on Form S-4 filed December 11, 1997,
registration no. 333-39195).
*10.3 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 (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, 1996).
*10.4 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 (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, 1996).
*10.5 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 (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, 1996).
*10.6 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).
*10.7 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).
48
<PAGE>
*10.8 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).
*10.9 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).
*10.10 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).
*10.11 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).
*10.12 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).
*10.13 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).
*10.14 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).
**10.15 First Amendment dated as of November 21, 1997 to the Company's 1996
Long-Term Incentive Plan.
**10.16 Second Amendment dated as of February 24, 1998 to the Company's 1996
Long-Term Incentive Plan.
*10.17 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).
*10.18 First Amendment dated as of November 19, 1996 to 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, 1996).
**10.19 Second Amendment dated as of February 24, 1998 to the Company's
Management Retirement Savings Plan.
**10.20 The Company's 1997 Bonus Plan.
**10.21 First Amendment dated as of February 24, 1998 to the Company's 1997
Bonus Plan.
*10.22 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).
*10.23 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).
49
<PAGE>
*10.24 Employment Agreement effective as of March 20, 1997 between the Company
and Cary A. Gaan (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,
1996).
*10.25 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).
*10.26 Employment Agreement effective as of October 7, 1996 between the Company
and John H. Wildman (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,
1996).
**10.27 Employment Agreement effective as of January 1, 1998 between the Company
and Lee S. Hillman (filed as an exhibit to the Company's Quarterly
Report in Form 10-Q, file no. 0-27478, for the quarter ended March 31,
1998).
**10.28 Employment Agreement effective as of January 1, 1998 between the Company
and John W. Dwyer (filed as an exhibit to the Company's Quarterly Report
in Form 10-Q, file no. 0-27478, for the quarter ended September 30,
1998).
**10.29 Employment Agreement effective as of January 1, 1998 between the Company
and Harold Morgan (filed as an exhibit to the Company's Quarterly Report
in Form 10-Q, file no. 0-27478, for the quarter ended September 30,
1998).
**10.30 Employment Agreement effective as of January 1, 1998 between the Company
and John Wildman (filed as an exhibit to the Company's Quarterly Report
in Form 10-Q, file no. 0-27478, for the quarter ended September 30,
1998).
10.31 Second Amendment dated as of December 8, 1998 to the Company's Credit
Agreement.
21 List of subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule for December 31, 1998 (filed electronically
only).
27.2 Amended Financial Data Schedule for December 31, 1997 (filed
electronically only).
**27.3 Restated Financial Data Schedule for December 31, 1996 (filed
electronically only as an exhibit to the Company's Annual Report on Form
10-K, file no. 0-27478, for the fiscal year ended December 31, 1997).
**99.1 Physical Rehabilitation Services Development Agreement between
Continucare Outpatient Rehabilitation Management, Inc. and BFIT
Rehabilitation Services, Inc. (filed as an exhibit to the Company's
registration statement on Form S-3 filed July 16, 1997, registration
no. 333-24175).
- - ----------
* Incorporated herein by reference as indicated.
** Filed previously.
50
<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 18, 1999 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 18, 1999 By: /s/ Lee S. Hillman
-------------------------------------------------
Lee S. Hillman
President, Chief Executive Officer and
Director
(principal executive officer)
Dated: March 18, 1999 By: /s/ John W. Dwyer
-------------------------------------------------
John W. Dwyer
Executive Vice President, Chief Financial
Officer and Treasurer
(principal financial officer)
Dated: March 18, 1999 By: /s/ Geoffrey M. Scheitlin
-------------------------------------------------
Geoffrey M. Scheitlin
Vice President and Controller
(principal accounting officer)
Dated: March 18, 1999 By: /s/ Arthur M. Goldberg
-------------------------------------------------
Arthur M. Goldberg
Chairman of the Board of Directors
Dated: March 18, 1999 By: /s/ Aubrey C. Lewis
-------------------------------------------------
Aubrey C. Lewis
Director
Dated: March 18, 1999 By: /s/ J. Kenneth Looloian
-------------------------------------------------
J. Kenneth Looloian
Director
Dated: March 18, 1999 By: /s/ James F. Mc Anally, M.D.
-------------------------------------------------
James F. Mc Anally, M.D.
Director
Dated: March 18, 1999 By: /s/ Liza M. Walsh
-------------------------------------------------
Liza M. Walsh
Director
51
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1998, 1997 and 1996
(All dollar amounts in thousands)
<CAPTION>
ADDITIONS
--------------------
CHARGED
TO COSTS CHARGED
BALANCE AT AND TO OTHER BALANCE
BEGINNING EXPENSES ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF YEAR (A) (B) (C) OF YEAR
- - ----------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1998:
Allowance for doubtful
receivables and
cancellations $ 80,531 $ 118,604 $ 134,590 $ 227,424 $ 106,301
========== ========= ========= ========= =========
1997:
Allowance for doubtful
receivables and
cancellations $ 86,095 $ 96,078 $ 107,660 $ 209,302 $ 80,531
========== ========= ========= ========= =========
1996:
Allowance for doubtful
receivables and
cancellations $ 112,528 $ 80,350 $ 111,736 $ 218,519 $ 86,095
========== ========= ========= ========= =========
<FN>
- - -----------
Notes:
(a) Amounts are included as a component of the deferred revenue computation as
set forth in the "Summary of significant accounting policies - Membership
revenue recognition" note to the consolidated financial statements.
(b) Additions charged to accounts other than costs and expenses primarily
consist of charges to revenues, principally for cancellations.
(c) Deductions include write-offs of uncollectible amounts, net of recoveries.
</FN>
</TABLE>
S-1
EXHIBIT 1.1
- - --------------------------------------------------------------------------------
BALLY TOTAL FITNESS HOLDING CORPORATION
a Delaware corporation
$75,000,000
9-7/8% Series C Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
Dated December 9, 1998
- - --------------------------------------------------------------------------------
<PAGE>
PURCHASE AGREEMENT
December 9, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower World Financial Center
New York, New York 10281-1209
JEFFERIES & COMPANY, INC.
11100 Santa Monica Boulevard
10th Floor
Los Angeles, California 90025
Ladies and Gentlemen:
Bally Total Fitness Holding Corporation, a Delaware corporation
(the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Jefferies & Company,
Inc. ("the "Initial Purchasers") with respect to the issue and sale by the
Company and the purchase by the Initial Purchasers of $75,000,000 aggregate
principal amount of the Company's 9-7/8% Series C Senior Subordinated Notes due
2007 (the "Securities"). The Securities are to be issued pursuant to an
Indenture to be dated as of the Closing Time (the "Indenture") between the
Company and U.S. Bank Trust National Association, as trustee (the "Trustee").
Securities issued in book-entry form will be issued to Cede & Co. as nominee of
The Depository Trust Company ("DTC") pursuant to a letter agreement, to be dated
as of the Closing Time (as defined in Section 2(b)) (the "DTC Agreement"), among
the Company, the Trustee and DTC.
The Company understands that the Initial Purchasers propose to
make an offering of the Securities on the terms and in the manner set forth
herein and agrees that the Initial Purchasers may resell, subject to the
conditions set forth herein, all or a portion of the Securities to purchasers
("Subsequent Purchasers") at any time after the date of this Agreement. The
Securities are to be offered and sold through the Initial Purchasers without
being registered under the United States Securities Act of
2
<PAGE>
1933, as amended (the "Securities Act"), in reliance upon exemptions therefrom.
Pursuant to the terms of the Securities and the Indenture, investors that
acquire Securities may only resell or otherwise transfer such Securities if such
Securities are hereafter registered under the Securities Act or if an exemption
from the registration requirements of the Securities Act is available
(including, without limitation, the exemption afforded by Rule 144A ("Rule
144A") promulgated under the Securities Act by the Securities and Exchange
Commission (the "SEC")).
The holders of the Securities will be entitled to the benefits of
a Registration Rights Agreement (the "Registration Rights Agreement"), between
the Company and the Initial Purchasers pursuant to which the Company will file a
registration statement (the "Registration Statement") with the SEC registering
the Securities or the Exchange Securities referred to in the Registration Rights
Agreement under the Securities Act.
The Company is preparing and will deliver to the Initial
Purchasers on December 14, 1998 copies of a final offering memorandum dated the
date hereof (the "Offering Memorandum"), for use by the Initial Purchasers in
connection with their solicitation of purchases of or offering of, the
Securities. "Offering Memorandum" means, with respect to any date or time
referred to in this Agreement, the Offering Memorandum (or any amendment or
supplement to such document), including exhibits thereto and any documents
incorporated therein by reference, which has been prepared and delivered by the
Company to the Initial Purchasers in connection with their solicitation of
purchases of, or offering of, the Securities.
All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated" in
the Offering Memorandum (or other references of like import) shall be deemed to
mean and include all such financial statements and other information which are
included in the Offering Memorandum.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Initial Purchaser as of the date hereof, and as
of the Closing Time referred to in Section 2(b) hereof, and agrees with each
Initial Purchaser as follows:
3
<PAGE>
(i) Similar Offerings. The Company has not, directly or
indirectly, solicited any offer to buy or offered to sell, and will not,
directly or indirectly, solicit any offer to buy or offer to sell, in the United
States or to any United States citizen or resident, any security which is or
would be integrated with the sale of the Securities in a manner that would
require the Securities to be registered under the Securities Act.
(ii) Offering Memorandum. As of the date hereof, the Offering
Memorandum does not, and at the Closing Time the Offering Memorandum will not,
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that this
representation, warranty and agreement shall not apply to statements in or
omissions from the Offering Memorandum made in reliance upon and in conformity
with information furnished to the Company in writing by any Initial Purchaser
through Merrill Lynch expressly for use in the Offering Memorandum.
(iii) Independent Accountants. Ernst & Young LLP is an
independent certified public accountant with respect to the Company and its
subsidiaries (each a "Subsidiary" and, collectively, the "Subsidiaries") within
the meaning of Rule 2-01 of Regulation S-X under the Securities Act.
(iv) Financial Statements. The financial statements, together
with the related schedules and notes, included in the Offering Memorandum
present fairly the financial position of the Company and its consolidated
Subsidiaries at the dates indicated and the statement of operations,
stockholders' equity and cash flows of the Company and its consolidated
Subsidiaries for the periods specified; said financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as
otherwise described in such financial statements). The selected financial data
and the summary financial information included in the Offering Memorandum
present fairly the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included in the
Offering Memorandum.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Offering Memorandum,
except as otherwise stated therein, (A) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business
4
<PAGE>
prospects of the Company and its Subsidiaries considered as one enterprise (a
"Material Adverse Effect"), whether or not arising in the ordinary course of
business, (B) there have been no transactions entered into by the Company or any
of its Subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its Subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing under the
laws of the State of Delaware and has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Offering Memorandum and to enter into and perform its obligations under this
Agreement. The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each other jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each Subsidiary has been
duly organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation and has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Offering Memorandum. Each Significant Subsidiary (as defined
below) is duly qualified as a foreign corporation to transact business and is in
good standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect. Except as otherwise disclosed in the
Offering Memorandum, all of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and, except as set forth on Schedule B attached hereto, is wholly
owned by the Company, directly or through Subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity. None of
the outstanding shares of capital stock of the Subsidiaries was issued in
violation of any preemptive or other rights of any security holder of such
Subsidiary. Attached hereto as Schedule B is a true and complete list of the
Subsidiaries of the Company. As used herein, "Significant Subsidiary" means any
subsidiary designated by the Company as a Significant Subsidiary in Schedule B
attached hereto. The assets of the Significant Subsidiaries (i) constitute at
least 95% of the total assets
5
<PAGE>
of the Company and its Subsidiaries considered as one enterprise and (ii)
produced at least 95% of the operating income of the Company and its
Subsidiaries considered as one enterprise in each of the last three fiscal
years, in each case determined in accordance with GAAP.
(viii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Offering Memorandum in the
column entitled "Actual" under the caption "Capitalization," except for
subsequent issuances pursuant to reservations, agreements, or employee benefits
plans of the Company or pursuant to the exercise of outstanding warrants, stock
options or convertible securities.
(ix) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company, and constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as the enforcement thereof may be by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other laws of general applicability
relating to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is considered
in a proceeding in equity or at law).
(x) Authorization of Registration Rights Agreement. The
Registration Rights Agreement has been duly authorized by the Company, and when
executed and delivered by the Company will constitute a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other laws of general applicability
relating to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).
(xi) Authorization of the Indenture and the DTC Agreement. Each
of the Indenture and the DTC Agreement has been duly authorized by the Company,
and when executed and delivered by the Company will constitute a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other laws of general applicability
relating to or
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affecting enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
(xii) Authorization of the Securities. The Securities have been
duly authorized for issuance and sale to the Initial Purchasers pursuant to this
Agreement and, at the Closing Time, will have been duly executed by the Company
and, when authenticated in the manner provided for in the Indenture and
delivered against payment of the purchase price therefor as provided in this
Agreement, will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers) reorganization,
moratorium or other laws of general applicability relating to or affecting
enforcement of creditors' rights generally, or by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law), and will be in the form contemplated by, and entitled to the benefits of,
the Indenture.
(xiii) Description of the Securities and the Indenture. The
Securities, the Indenture and the Registration Rights Agreement will conform in
all material respects to the respective statements relating thereto contained in
the Offering Memorandum and will be in substantially the respective forms
previously delivered to the Initial Purchasers.
(xiv) Absence of Defaults and Conflicts. Neither the Company nor
any of its Subsidiaries is in violation of its charter or by-laws or in default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or any of its
Subsidiaries is subject (collectively, "Agreements and Instruments") except for
such defaults that would not result in a Material Adverse Effect. The execution,
delivery and performance of this Agreement, the Registration Rights Agreement,
the DTC Agreement, the Indenture and the Securities and any other agreement or
instrument entered into or issued or to be entered into or issued by the Company
in connection with the transactions contemplated hereby or thereby or in the
Offering Memorandum, and the consummation of the transactions contemplated
herein and in the Offering Memorandum (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities as
described in the Offering Memorandum under the caption "Use of
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Proceeds") and compliance by the Company with its obligations hereunder and
thereunder have been duly authorized by all necessary corporate action and do
not and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default or a Repayment
Event (as defined below) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any
of its Subsidiaries pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that, singly
or in the aggregate, would not result in a Material Adverse Effect), nor will
such action result in any violation of (A) the provisions of the charter or
by-laws of the Company or any of its Subsidiaries or (B) any applicable law,
statute, rule, regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any of its Subsidiaries or any of their assets or
properties, in the case of this clause (B), except for such violation that would
not result in a Material Adverse Effect. As used herein, a "Repayment Event"
means any event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or a portion
of such indebtedness by the Company or any of its Subsidiaries.
(xv) Absence of Default on Senior Indebtedness. No event of
default exists under any contract, indenture, mortgage, loan agreement, note,
lease or other Agreement or Instrument constituting Senior Indebtedness (as
defined in the Indenture).
(xvi) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any of its Subsidiaries exists or, to the knowledge
of the Company, has been threatened, and the Company is not aware of any
existing or threatened labor disturbance by the employees of any of its, or any
Subsidiary's, principal suppliers, manufacturers, customers or contractors,
which, in either case, may reasonably be expected to result in a Material
Adverse Affect.
(xvii) Absence of Proceedings. Except as disclosed in the Offer-
ing Memorandum, there is no action, suit, proceeding, inquiry or investigation
before or brought by any court or governmental agency or body, domestic or
foreign, now pending, or, to the knowledge of the Company, threatened, against
or affecting the Company or any Subsidiary which might reasonably be expected to
result in a Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets of the Company or any
of its Subsidiaries or
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the consummation of this Agreement or the performance by the Company of its
obligations hereunder, thereunder or under the Securities. The aggregate of all
pending legal or governmental proceedings to which the Company or any Subsidiary
is a party or of which any of their respective property or assets is the subject
which are not described in the Offering Memorandum, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a Material Adverse Effect.
(xviii) Possession of Intellectual Property. The Company and its
Subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks,
trade names or other intellectual property (collectively, "Intellectual
Property"), necessary to carry on the business now operated by them, and
neither the Company nor any of its Subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with asserted rights of
others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or inadequate
to protect the interest of the Company or any of its Subsidiaries therein, and
which infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
would result in a Material Adverse Effect.
(xix) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration, qualification or
decree of, any court or governmental authority or agency (other than (A) under
the Securities Act and the rules and regulations thereunder with respect to the
Registration Statement to be filed pursuant to the Registration Rights
Agreement and the transactions contemplated thereunder, and (B) under the
securities or "blue sky" laws of the various states) is necessary or required
for the performance by the Company of its obligations hereunder, in connection
with the offering, issuance or sale of the Securities hereunder or the
consummation of the transactions contemplated by this Agreement.
(xx) Possession of Licenses And Permits. The Company and
its Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them, except where the failure
to possess such Governmental Licenses would not, singly or in the aggregate,
have a Material Adverse Effect. The Company
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<PAGE>
and its Subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not, singly
or in the aggregate, have a Material Adverse Effect. All of the Governmental
Licenses are valid and in full force and effect, except when the invalidity of
such Governmental Licenses or the failure of such Governmental Licenses to be in
full force and effect would not have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such Governmental Licenses
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(xxi) Title to Property. The Company and its Subsidiaries have
good and marketable title to all real property owned by the Company and its
Subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Offering Memorandum, (b) are listed on Schedule C hereto or (c)
do not, singly or in the aggregate, materially affect the value of such property
and do not interfere with the use made and proposed to be made of such property
by the Company or any of its Subsidiaries; and all of the leases and subleases
material to the business of the Company and its Subsidiaries, considered as one
enterprise, and under which the Company or any of its Subsidiaries holds
properties described in the Offering Memorandum, are in full force and effect,
and neither the Company nor any of its Subsidiaries has any notice of any
material claim of any sort that has been asserted by anyone adverse to the
rights of the Company or any of its subsidiaries under any of the leases or
subleases mentioned above, or affecting or questioning the rights of the Company
or such Subsidiary to the continued possession of the leased or subleased
premises under any such lease or sublease, which in either case, may be expected
to result in a Material Adverse Effect.
(xxii) Environmental Laws. Except as described in the Offering
Memorandum and except such matters as would not, singly or in the aggregate,
result in a Material Adverse Effect, (A) neither the Company nor any of its
Subsidiaries is in violation of any statute, law, rule, regulation, ordinance,
code, policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent,
decree or judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife (collectively,
"Environmental Laws"), including, without limitation, laws and regulations
relating to the release or threatened release of chemicals, pollutants,
contaminants,
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wastes, toxic substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, (B) the Company and its Subsidiaries have all Governmental
Authorizations required under any applicable Environmental Laws and are each in
compliance with their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand letters,
claims, liens, notices of noncompliance or violation, investigation or
proceedings relating to any Environmental Law against the Company or any of its
Subsidiaries and (D) there are no events or circumstances that might reasonably
be expected to form the basis of an order for clean-up or remediation, or an
action, suit or proceeding by any private party or governmental body or agency,
against or affecting the Company or any of its Subsidiaries relating to
Hazardous Materials or the violation of any Environmental Laws.
(xxiii) Tax Returns. All United States federal income tax returns
of the Company and its consolidated Subsidiaries required by law to be filed
have been filed and all taxes shown by such returns or otherwise assessed, which
are due and payable, have been paid, except taxes or charges that are being
contested in good faith or assessments against which appeals have been or will
be promptly taken. All United States federal income tax returns of Bally
Entertainment Corporation ("Entertainment") and its consolidated subsidiaries,
including the Company, for tax periods prior to January 9, 1996, required by law
to be filed have been filed and all taxes shown by the said returns or otherwise
assessed which are due and payable have been paid, except assessments against
which appeals have been or will be promptly taken. The United States federal
income tax returns of Entertainment and its consolidated Subsidiaries, including
the Company and its Subsidiaries, through the fiscal year ended 1986 have been
settled and no assessment in connection therewith has been made against the
Company or Entertainment in connection with the business of the Company. The
Company and its Significant Subsidiaries have filed all other tax returns that
are required to have been filed by them pursuant to applicable foreign, state,
local or other law except insofar as the failure to file such returns would not
result in a Material Adverse Effect, and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Company and its
Subsidiaries, except for such taxes or charges that are being contested in good
faith or assessments against which appeals have been or will promptly be taken
and as to which adequate reserves have been provided and other than those the
nonpayment of which would not have a Material Adverse Effect. The charges,
accruals and reserves on the books of the Company in respect of any income and
corporation tax liability for any years not finally determined are adequate to
meet any assessments or reassessments for
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additional income tax for any years not finally determined, except to the extent
of any inadequacy that would not result in a Material Adverse Effect.
(xxiv) Internal Controls. The Company and its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance with
management's general or specific authorization, (B) transactions are recorded as
necessary to permit preparation of financial statements in conformity with GAAP
and to maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific authorization and (D)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xxv) Solvency. The Company is, and immediately after the
Closing Time will be, Solvent. As used herein, the term "Solvent" means, with
respect to the Company on a particular date, that on such date (A) the fair
market value of the assets of the Company is greater than the total amount of
liabilities (including contingent liabilities) of the Company, (B) the present
fair salable value of the assets of the Company is greater than the amount that
will be required to pay the probable liabilities of the Company on its debts as
they become absolute and matured, (C) the Company is able to realize upon its
assets and pay its debts and other liabilities, including contingent
obligations, as they mature, and (D) the Company does not have unreasonably
small capital.
(xxvi) Stabilization. Neither the Company nor any of its
officers, directors or controlling persons has taken, directly or indirectly,
any action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Securities.
(xxvii) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the application
of the net proceeds therefrom as described in the Offering Memorandum will not
be, an "investment company" or an entity "controlled" by an "investment company"
as such terms are defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
(xxviii) Rule 144A Eligibility. At the Closing Time, assuming
the Initial Purchasers are not Affiliates (as defined herein) of the Company,
the Securities
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will be eligible for resale by the Initial Purchasers pursuant to Rule 144A and
will not be, at the Closing Time, of the same class as United States Securities
listed on a national securities exchange registered under Section 6 of the
United States Exchange Act of 1934, as amended (the "Exchange Act"), or quoted
in a U.S. automated interdealer quotation system.
(xxix) No General Solicitation. None of the Company, its affili-
ates, as such term is defined in Rule 501(b) under the Securities Act
("Affiliates"), or any person acting on its or any of their behalf (other than
the Initial Purchasers, as to whom the Company makes no representation) has
engaged or will engage, in connection with the offering of the Securities, in
any form of general solicitation or general advertising within the meaning of
Rule 502(c) under the Securities Act.
(xxx) No Registration Required. Subject to compliance by the
Initial Purchasers with the representations and warranties set forth in Section
2 and the procedures set forth in Section 6 hereof, it is not necessary in
connection with the offer, sale and delivery of the Securities to the Initial
Purchasers and to each Subsequent Purchaser in the manner contemplated by this
Agreement and the Offering Memorandum to register the Securities under the
Securities Act or to qualify the Indenture under the Trust Indenture Act of
1939, as amended (the "1939 Act").
(xxxi) Registration Rights. There are no holders of securities
(debt or equity) of the Company, or holders of rights (including, without
limitation, preemptive rights), warrants or options to obtain securities of the
Company, who in connection with the issuance, sale and delivery of the
Securities and the execution, delivery and performance of this Agreement and the
Registration Right Agreement, have the right to request the Company to register
securities held by them under the Securities Act.
(xxxii) Compliance With Laws. The Company and its Subsidiaries
have conducted and are conducting their business in compliance with all
applicable federal, state and local laws, rules, regulations, decisions,
directives and orders, except where the failure to do so would not have a
Material Adverse Effect.
(b) Officer's Certificates. Each certificate signed by any officer of
the Company delivered to the Initial Purchasers or to counsel for the Initial
Purchasers shall be deemed a representation and warranty by the Company to the
Initial Purchasers as to the matters covered thereby.
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SECTION 2. SALE AND DELIVERY TO INITIAL PURCHASER; CLOSING.
(a) Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each Initial Purchaser, severally and not jointly, and
each Initial Purchaser agrees to purchase from the Company the Securities set
forth in Schedule A opposite the name of such Initial Purchaser, plus any
additional principal amount of Securities which such Initial Purchaser may
become obligated to purchase pursuant to the provisions of Section 11 hereof.
The purchase price to be paid by the Initial Purchasers for the Securities shall
be 96.001% of the principal amount thereof, plus accrued interest from October
15, 1998.
(b) Payment. Payment of the purchase price for, and delivery of certifi-
cates for, the Initial Securities shall be made at the office of Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022-3897 or at
such other place as shall be agreed upon by Merrill Lynch and the Company, at
10:00 a.m. (Eastern time) on the fifth business day after the date hereof
(unless postponed in accordance with the provisions of Section 11) or such other
time not later than ten business days after such date as shall be agreed upon by
Merrill Lynch and the Company (such time and date of payment and delivery being
herein called the "Closing Time"). Payment shall be made to the Company by wire
transfer of immediately available funds to a bank account designated by the
Company, against delivery to Merrill Lynch for the respective accounts of the
Initial Purchasers of certificates for the Securities to be purchased by them.
The certificates representing the Securities shall be registered in the name of
Cede & Co. pursuant to the DTC Agreement and shall be made available for
examination and packaging by the Initial Purchasers in The City of New York not
later than 10:00 a.m. (Eastern Time) on the last business day prior to the
Closing Time.
(c) Qualified Institutional Buyer. The Initial Purchasers represent and
warrants to, and agrees with, the Company that it is a "qualified institutional
buyer" within the meaning of Rule 144A (a "Qualified Institutional Buyer").
(d) Denominations; Registration. Except for certificates for any
securities to be issued to an Initial Purchaser, certificates for the Securities
shall be in such denominations (minimum denominations of $100,000 and integral
multiples of $1,000, except in the case of Securities issued to an Initial
Purchaser at the Closing
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Time) and registered in such names as the Initial Purchasers may request in
writing at least one full business day before the Closing Time.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
Initial Purchaser as follows:
(a) Delivery of Offering Memorandum. The Company, as promptly as
possible, will furnish to each Initial Purchaser, without charge, such number of
copies of the Offering Memorandum and any amendments and supplements as each
Initial Purchaser may reasonably request.
(b) Notice and Effect of Material Events. The Company will immediately
notify each Initial Purchaser, and confirm such notice in writing, of (x) any
filing made by the Company of information relating to the offering of the
Securities with any Securities exchange or any other regulatory body in the
United States or any other jurisdiction, and (y) prior to the completion of the
placement of the Securities by the Initial Purchasers as evidenced by a notice
in writing from Merrill Lynch to the Company, any material changes in or
affecting the earnings, business affairs or business prospects of the Company
and its Subsidiaries which (i) make any statement in the Offering Memorandum
false or misleading or (ii) are not disclosed in the Offering Memorandum. In
such event or if during such time any event shall occur as a result of which it
is necessary, in the reasonable opinion of the Company, its counsel, Merrill
Lynch or counsel for the Initial Purchasers, to amend or supplement the Offering
Memorandum in order that the Offering Memorandum not include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein not misleading in the light of the circumstances
then existing, the Company will forthwith amend or supplement the Offering
Memorandum by preparing and furnishing to each Initial Purchaser an amendment
or amendments of, or a supplement or supplements to, the Offering Memorandum
(in form and substance satisfactory to counsel for the Initial Purchasers) so
that, as so amended or supplemented, the Offering Memorandum will not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to a Subsequent Purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The Company will
advise each Initial Purchaser promptly of any proposal to amend or supplement
the Offering Memorandum and will not effect such amendment or supplement without
the consent of Merrill Lynch, provided that Merrill Lynch shall
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object to the Company within three business days after receipt of a copy of any
such proposed amendment or supplement. Neither the consent of Merrill Lynch, nor
the Initial Purchasers' delivery of any such amendment or supplement, shall
constitute a waiver of any of the conditions set forth in Section 5 hereof.
(d) Blue Sky Qualification of Securities for Offer and Sale. The Com-
pany, in cooperation with the Initial Purchasers, will endeavor to qualify the
Securities for offering and sale under the applicable securities laws of such
jurisdictions as Merrill Lynch may designate and will maintain such
qualifications in effect as long as required for the sale of the Securities;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such statements and
reports as may be required by the laws of such jurisdiction to continue such
qualification in effect for so long as may be required to complete the
distribution of the Securities contemplated by this Agreement.
(e) Rating of Securities. The Company shall take all reasonable action
necessary to enable Standard & Poor's Ratings Group ("S&P"), a division of
McGraw Hill, Inc., Moody's Investors Service, Inc. ("Moody's"), and Duff &
Phelps to provide their respective credit ratings of the Securities.
(f) DTC and PORTAL. The Company will cooperate with the Initial
Purchasers and use its best efforts to (i) permit the Securities to be eligible
for clearance and settlement through the facilities of DTC and (ii) include
quotation of the Securities on the Private Offerings, Resales and Trading
through Automatic Linkages (PORTAL) System of The National Association of
Securities Dealers, Inc.
(the "NASD").
(g) Use of Proceeds. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the Offering
Memorandum under "Use of Proceeds."
(h) Restriction of Sale of Securities. During a period of 120 days from
the date of the Offering Memorandum, the Company will not, without the prior
written consent of Merrill Lynch, directly or indirectly, issue, sell, offer or
agree to sell, grant any option for the sale of, or otherwise dispose of, (i)
any other debt securities of the
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Company, except for the modification or replacement of the Senior Indebtedness
(as defined in the Offering Memorandum) currently outstanding or the issuance of
debt securities (other than debt securities issued under an indenture) in
connection with the acquisition of fitness centers or fitness center operators
in an aggregate principal amount not to exceed $50 million, which debt
securities may not be offered or resold during such 120 day period, or (ii)
securities of the Company that are convertible into, or exchangeable for, the
Securities or such other debt securities, other than the Exchange Securities
referred to in the Registration Rights Agreement.
SECTION 4. PAYMENT OF EXPENSES.
(a) Expenses. The Company will pay all expenses incident to the perfor-
mance of its obligations under this Agreement, including (i) the preparation,
printing, delivery to the Initial Purchasers and any filing of the Offering
Memorandum (including financial statements and exhibits) and of each amendment
or supplement thereto, (ii) the preparation, printing and delivery to the
Initial Purchasers of this Agreement, the Registration Rights Agreement, the
Indenture and such other documents as may be required in connection with the
offering, purchase, sale and delivery of the Securities, (iii) the preparation,
issuance and delivery of the certificates for the Securities to the Initial
Purchasers, including any charges of DTC in connection therewith, (iv) the fees
and disbursements of the Company's counsel, accountants and other advisors, (v)
the qualification of the Securities under securities laws in accordance with
the provisions of Section 3(d) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Initial Purchasers in connection
therewith and in connection with the preparation of the blue sky survey and any
supplement thereto and delivery to the Initial Purchasers of copies thereof,
(vi) the reasonable fees and expenses of the Trustee, including the reasonable
fees and disbursements of counsel for the Trustee in connection with the
Indenture and the Securities, (vii) any fees payable in connection with the
rating of the Securities, and (viii) any fees payable to the NASD in connection
with the initial and continued designation of the Securities as PORTAL
Securities under the PORTAL Market Rules pursuant to NASD Rule 5322.
(b) Termination of Agreement. If this Agreement is terminated by Merrill
Lynch in accordance with the provisions of Section 5(j) or Section 10(a)(i)
hereof, the Company shall reimburse the Initial Purchasers for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Initial Purchasers.
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SECTION 5. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS.
The obligations of the several Initial Purchasers hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company delivered
pursuant to the provisions hereof, to the performance by the Company of its
covenants and other obligations hereunder, and to the following further
conditions:
(a) Opinion of Counsel for Company. At the Closing Time, the Initial
Purchasers shall have received the favorable opinion, dated as of the Closing
Time, of Benesch, Friedlander, Coplan & Aronoff LLP, counsel for the Company, in
form and substance satisfactory to Skadden, Arps, Slate, Meagher & Flom LLP, to
the effect set forth in Exhibit A hereto and to such further effect as Skadden,
Arps, Slate, Meagher & Flom LLP may reasonably request. It is understood that
the opinions set forth in paragraphs (i) (as to due incorporation), (iii), (v),
(xiv) and (xvii) of Exhibit A may be delivered by Cary A. Gaan, Esq., on behalf
of the Company, rather than by Benesch, Friedlander, Coplan & Aronoff LLP.
(b) Opinion of Counsel for Initial Purchasers. At the Closing Time, the
Initial Purchasers shall have received the favorable opinion, dated as of the
Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Initial Purchasers, with respect to the matters as are customarily covered in
such opinions.
(c) Officers' Certificate. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its Subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Initial Purchasers shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of the Closing Time, to the effect that (i) there has
been no such material adverse change, (ii) the representations and warranties in
Section l(a) hereof are true and correct with the same force and effect as
though expressly made at and as of the Closing Time, except for any
representations and warranties which are made as of a specific date, which were
true and correct as of such date, and (iii) the Company has complied with all
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Closing Time.
(d) Accountant's Comfort Letter. Prior to the Closing Time, the
Initial Purchasers shall have received from Ernst & Young LLP a letter dated the
date
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<PAGE>
hereof, in form and substance satisfactory to Merrill Lynch, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to Initial Purchasers with respect to the financial statements
and certain financial information contained in the Offering Memorandum.
(e) Bring-down Comfort Letter. At the Closing Time, the Initial Purchas-
ers shall have received from Ernst & Young LLP a letter, dated as of the Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (d) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to the
Closing Time.
(f) Maintenance of Rating. At the Closing Time, the Securities shall be
rated at least "B3" by Moody's, "B-" by S & P and "B+" by Duff & Phelps, and the
Company shall have delivered to the Initial Purchasers a letter dated the
Closing Time, from each such rating agency, or other evidence satisfactory to
Merrill Lynch, confirming that the Securities have such ratings; and since the
date of this Agreement, there shall not have occurred a downgrading in the
rating assigned to the securities or any of the Company's other debt securities
by any nationally recognized securities rating agency, and no such securities
rating agency shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of the Securities or any
of the Company's other debt securities.
(g) PORTAL and DTC. At the Closing Time, the Securities shall have been
designated for trading on PORTAL and accepted for settlement through the
facilities of DTC.
(h) Registration Rights Agreement and Indenture. The Company shall have
duly authorized, executed and delivered the Registration Rights Agreement and
the Indenture, in each case in form and substance reasonably satisfactory to
Merrill Lynch and counsel to the Initial Purchasers.
(i) Additional Documents. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with such documents and opinions as they
may reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be reasonably
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<PAGE>
satisfactory in form and substance to Merrill Lynch and counsel for the Initial
Purchasers.
(j) Termination of Agreement. If any condition specified in this Section
5 shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by Merrill Lynch by notice to the Company at any
time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 7 and 8 shall survive any such termination and remain in
full force and effect.
(k) Amendment to Bank Credit Facility. The Bank Credit Facility shall
have been amended to permit the transactions contemplated by this Agreement, the
Securities, the Indenture and the Registration Rights Agreement, which amendment
shall be reasonably satisfactory in form and substance to Merrill Lynch and
counsel for the Initial Purchasers.
SECTION 6. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES.
(a) Offer and Sale Procedures. Each of the Initial Purchasers and the
Company hereby establish and agree to observe the following procedures in
connection with the offer and sale of the Securities:
(i) Offers and Sales Only to Qualified Institutional Buyers.
Offers and sales of the Securities will be made only by the Initial Purchasers
or Affiliates thereof qualified to do so in the jurisdictions in which such
offers or sales are made. Each such offer or sale shall only be made to persons
whom the offeror or seller reasonably believes to be Qualified Institutional
Buyers at a price per Security of not less than 98.001% of the principal amount
thereof, plus accrued interest from October 15, 1998.
(ii) No General Solicitation. The Securities will be offered by
the Initial Purchasers only by approaching prospective Subsequent Purchasers on
an individual basis. No general solicitation or general advertising (within the
meaning of Rule 502(c) under the Securities Act) will be used in the United
States in connection with the offering of the Securities.
(iii) Purchases by Non-bank Fiduciaries. In the case of a
non-bank Subsequent Purchaser of a Security acting as a fiduciary for one or
more
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third parties, in connection with an offer and sale to such purchaser pursuant
to clause (a) above, each third party shall, in the judgment of the applicable
Initial Purchaser, be a Qualified Institutional Buyer.
(iv) Subsequent Purchaser Notification. The Initial Purchasers
will take reasonable steps to inform, and cause its Affiliates in the United
States to take reasonable steps to inform, persons acquiring Securities from
such Initial Purchaser or Affiliate, as the case may be, in the United States
that the Securities (A) have not been and will not be registered under the
Securities Act, (B) are being sold to them without registration under the
Securities Act in reliance on Rule 144A or in accordance with another exemption
from registration under the Securities Act, as the case may be, and (C) may not
be offered, sold or otherwise transferred except (1) to the Company, (2)
pursuant to a registration statement which has been declared effective under the
Securities Act, (3) for so long as the Securities are eligible for resale
pursuant to Rule 144A, to a person it reasonably believes is a Qualified
Institutional Buyer that purchases for its own account or for the account of a
Qualified Institutional Buyer to whom notice is given that the transfer is being
made in reliance on Rule 144A, (4) outside the United States, pursuant to offers
and sales to non-U.S. persons in an Offshore Transaction within the meaning of
Regulation S, (5) an institutional "accredited investor" within the meaning of
subparagraph (a) (1), (2), (3) or (7) of Rule 501 under the Securities Act
("Institutional Accredited Investor") that is acquiring the Securities for its
own account or for the account of another Institutional Accredited Investor, for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act, or (6) pursuant to
any other available exemption from the registration requirements of the
Securities Act, subject in each of the foregoing cases to any requirement of law
that the disposition of its property or the property of such investor account or
accounts be at all times within its or their control and in compliance with any
applicable state securities laws.
(v) Minimum Principal Amount. Except in the case of any sale
of the Securities by one Initial Purchaser to another Initial Purchaser, no sale
of the Securities to any one Subsequent Purchaser will be for less than $200,000
principal amount and no Security will be issued in a smaller principal amount.
If the Subsequent Purchaser is a non-bank fiduciary acting on behalf of others,
each person for whom it is acting must purchase at least $200,000 principal
amount of the Securities.
(vi) Restrictions on Transfer. The transfer restrictions
and the other provisions set forth in Section 2.2 of the Indenture, including
the legend
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<PAGE>
required thereby, shall apply to the Securities except as otherwise agreed by
the Company and Merrill Lynch. Following the sale of the Securities by the
Initial Purchaser to Subsequent Purchasers pursuant to the terms hereof, the
Initial Purchasers shall not be liable or responsible to the Company for any
losses, damages or liabilities suffered or incurred by the Company, including
any losses, damages or liabilities under the Securities Act, arising from or
relating to any resale or transfer of any Security.
(vii) Delivery of Offering Memorandum. Each Initial Purchaser
will deliver to each purchaser of the Securities from such Initial Purchaser, in
connection with its original distribution of the Securities, a copy of the
Offering Memorandum, as amended and supplemented at the date of such delivery.
(b) Covenants of the Company. The Company covenants with the Initial
Purchaser as follows:
(i) Due Diligence. In connection with the original
distribution of the Securities, the Company agrees that, prior to any offer or
resale of the Securities by the Initial Purchasers, the Initial Purchasers and
counsel for the Initial Purchasers shall have the right to make reasonable
inquiries into the business of the Company and its Subsidiaries. The Company
also agrees to provide answers to each prospective Subsequent Purchaser of
Securities who so requests concerning the Company and its Subsidiaries and the
terms and conditions of the offering of the Securities, as provided in the
Offering Memorandum.
(ii) Integration. The Company agrees that it will not and will
cause its Affiliates not to make any offer or sale of securities of the Company
of any class if, as a result of the of "integration" referred to in Rule 502
under the Securities Act, such offer or sale would render invalid (for the
purpose of (i) the sale of the Securities by the Company to the Initial
Purchasers, (ii) the resale of the Securities by the Initial Purchasers to
Subsequent Purchasers or (iii) the resale of the Securities by such Subsequent
Purchasers to others) the exemption from the registration requirements of the
Securities Act provided by Section 4(2) thereof or by Rule 144A or by Regulation
S thereunder or otherwise.
(iii) Rule 144A Information. The Company agrees that, in order
to render the Securities eligible for resale pursuant to Rule 144A under the
Securities Act, while any of the Securities remain outstanding, it will make
available, upon request, to any holder of Securities or prospective purchasers
of Securities the
22
<PAGE>
information specified in Rule 144A(d)(4), unless the Company furnishes
information to the SEC pursuant to Section 13 or 15(d) of the Exchange Act (such
information, whether made available to holders or prospective purchasers or
furnished to the SEC, is herein referred to as "Additional Information").
(iv) Restriction on Repurchases. Until the expiration of two
years after the original issuance of the Securities, the Company will not, and
will cause its Affiliates not to, purchase or agree to purchase or otherwise
acquire any Securities which are "restricted securities" (as such term is
defined under Rule 144(a)(3) under the Securities Act), whether as beneficial
owner or otherwise (except as agent acting as a Securities broker on behalf of
and for the account of customers in the ordinary course of business in
unsolicited broker's transactions) unless, immediately upon any such purchase,
the Company or any Affiliate shall submit such Securities to the Trustee for
cancellation.
SECTION 7. INDEMNIFICATION.
(a) Indemnification of Initial Purchaser. The Company agrees to
indemnify and hold harmless each Initial Purchaser and each person, if any, who
controls any Initial Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Offering
Memorandum or the Final Offering Memorandum (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 7(d) below) any such
settlement is effected with the written consent of the Company; and
23
<PAGE>
(iii) against any and all expense whatsoever, as incurred
(including the reasonable fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Initial Purchaser through Merrill Lynch expressly for use in any Preliminary
Offering Memorandum or the Offering Memorandum (or any amendment or supplement
thereto) shall not inure to the benefit of any Initial Purchaser (or to the
benefit of any person controlling such Initial Purchaser) from whom the person
asserting any such losses, liabilities, claims, damages or expenses purchased
Securities if such untrue statement or omission or alleged untrue statement or
omission made in any Preliminary Offering Memorandum or the Offering Memorandum
(or any amendment or supplement thereto) is identified in writing at such time
to such Initial Purchaser and is eliminated or remedied in the Offering
Memorandum as most recently amended or supplemented (copies of such amendments
and supplements having been delivered to such Initial Purchaser in sufficient
quantity at least three business days prior to the written confirmation of the
sale of such Securities to such person) and it shall be established that a copy
of the Offering Memorandum as most recently amended or supplemented had not been
furnished to such person at or prior to the written confirmation of the sale of
such Securities to such person.
(b) Indemnification of Company, Directors and Officers. The Initial
Purchasers severally agree to indemnify and hold harmless the Company, its
direc tors, each of its officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Offering Memorandum in reliance upon
and in conformity with written information furnished to the Company by the
Initial Purchasers through Merrill Lynch expressly for use in the Offering
Memorandum.
(c) Actions Against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any
24
<PAGE>
action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 7(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 7(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement Without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for reasonable fees and expenses of counsel,
such indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
25
<PAGE>
SECTION 8. CONTRIBUTION. If the indemnification provided for in Section
7 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Initial Purchasers on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Initial Purchasers on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Initial Purchasers on
the other hand in connection with the offering of the Securities pursuant to
this Agreement shall be deemed to be in the same respective proportions as the
total proceeds from the offering of the Securities pursuant to this Agreement
(before deducting expenses) received by the Company and the total underwriting
discount received by the Initial Purchasers, bear to the aggregate initial
offering price to investors of the Securities as set forth on the cover page of
the Offering Memorandum. The relative fault of the Company on the one hand and
the Initial Purchasers on the other hand shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact necessary to make the statements made in the Offering Memorandum
not misleading or omission or alleged omission to state a material fact relates
to information supplied by the Company or by the Initial Purchasers and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Initial
Purchasers agree that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation or by any
other method of allocation (even if the Initial Purchasers were treated as one
entity for such purpose) which does not take account of the equitable
considerations referred to above in this Section 8. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 8 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission. Notwithstanding the provisions of
this Section 8, no Initial Purchaser shall be
26
<PAGE>
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such Initial
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls an Initial Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Initial Purchaser, and each director of the Company, each
officer of the Company and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act shall have the same rights to contribution as the Company. The Initial
Purchasers' respective obligations to contribute pursuant to this Section 8 are
several in proportion to the principal amount of Securities set forth opposite
their respective names in Schedule A hereto and not joint.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Initial Purchaser or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Initial Purchasers.
SECTION 10. TERMINATION OF AGREEMENT.
(a) Termination; General. Merrill Lynch may terminate this Agreement, by
notice to the Company, at any time at or prior to the Closing Time (i) if there
has been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the Offering Memorandum, any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there has occurred any material adverse change in the
financial markets in the United States, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political, financial
or economic conditions, in each case the effect of which is such as to make it,
in the judgment of Merrill Lynch, impracticable to market the Securities or to
27
<PAGE>
enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or limited by the SEC or if trading
generally on the American Stock Exchange or The New York Stock Exchange, Inc. or
in the NASDAQ National Market System has been suspended or limited, or minimum
or maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
SEC, NASD or any other governmental authority, or (iv) if a banking moratorium
has been declared by either United States Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 7 and 8 shall survive such termination and remain in fall force and effect.
SECTION 11. DEFAULT BY ONE OF THE INITIAL PURCHASERS. If
one of the Initial Purchasers shall fail at the Closing Time to purchase the
Securities which it is obligated to purchase under this Agreement (the
"Defaulted Securities"), the non-defaulting Initial Purchaser shall have the
right, but not the obligation, within 24 hours thereafter, to make arrangements
for such non-defaulting Initial Purchaser, or any other Initial Purchasers, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
non-defaulting Initial Purchaser shall not have completed such arrangements
within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, the non-defaulting Initial
Purchaser shall be obligated to purchase the full amount thereof, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement shall terminate without
liability on the part of any non-defaulting Initial Purchaser. No action
pursuant to this Section shall relieve any defaulting Initial Purchaser from
liability in respect of its default. In the event of any such default which does
not result in a termination of this Agreement, either the non-defaulting Initial
Purchaser or the Company shall have the right to postpone the Closing Time for a
period not exceeding seven days in order to effect any required changes in the
Offering Memorandum or in any other documents or arrangement. As used herein,
the term Initial Purchaser includes any person substituted for an Initial
Purchaser under this Section 11.
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<PAGE>
SECTION 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchasers shall be directed to Merrill Lynch at North Tower, World Financial
Center, New York, New York 10281-1201, facsimile no.: (212) 449-8635, Attention
of Lex Maultsby, with a copy to Skadden, Arps, Slate, Meagher & Flom LLP, 300
South Grand Avenue, Suite 3400, Los Angeles, California 90071, facsimile no.:
(213) 687-5600, Attention of Michael A. Woronoff; notices to the Company shall
be directed to it at 8700 West Bryn Mawr Avenue, Chicago, Illinois 60631,
facsimile no.: (773) 399-0661, Attention of Lee S. Hillman, with a copy to
Benesch, Friedlander, Coplan & Aronoff LLP, 2300 BP America Building, 200 Public
Square, Cleveland, Ohio 44114, facsimile no.: (216) 363-4588, Attention of Irv
Berliner.
SECTION 13. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the Initial Purchasers and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchasers and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchasers and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of the Securities
from any Initial Purchaser shall be deemed to be a successor by reason merely of
such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. EFFECT OF HEADINGS. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
SECTION 16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
BALLY TOTAL FITNESS HOLDING
CORPORATION
By: /s/ John W. Dwyer
-------------------------------
Name: John W. Dwyer
Title: Executive Vice President
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By: /s/ Naomi Sachs
-------------------------------
Name: Naomi Sachs
Title: Vice President
JEFFERIES & COMPANY, INC.
By: /s/ Andrew Whittaker
-------------------------------
Name: Andrew Whittaker
Title: Executive Vice President
30
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SCHEDULE A
Principal Amount
Initial Purchaser to be Purchased
- - ----------------- ----------------
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated $74,999,000
Jefferies & Company, Inc. 1,000
-----------
$75,000,000
===========
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SCHEDULE B
List of Subsidiaries
A. List of Significant Subsidiaries:
Bally Total Fitness Corporation
Bally's Fitness and Racquet Clubs, Inc.
Bally's Pacwest, Inc.
Holiday Health Clubs and Fitness Centers, Inc.
Holiday Spa Health Clubs of California
Holiday Universal, Inc.
Houston Health Clubs, Inc.
Jack LaLanne Fitness Centers, Inc.
Scandinavian Health Spa, Inc.
Scandinavian U.S. Swim & Fitness, Inc.
So. Cal Nautilus Fitness Centers, Inc.
Bally Total Fitness International, Inc.
Bally Total Fitness of Missouri, Inc.
Bally Total Fitness of Greater Michigan, Inc.
B. List of all Subsidiaries other than those listed in A above:
Bally Fitness Franchising, Inc.
Bally Franchise RSC, Inc.
Bally Franchising Holdings, Inc.
Bally's S.C. Management, Inc.
BFIT Rehab of Boca Raton, Inc.
BFIT Rehab of Coral Gables, Inc.
BFIT Rehab of Kendall, Inc.
BFIT Rehab of Sunrise, Inc.
BFIT Rehab of West Palm Beach, Inc.
BFIT Rehabilitation Services, Inc.
C.Z.W. Health Limited
H&T Receivable Funding Corporation
Health & Tennis Corporation of New York, Inc.
Holiday Health Clubs of the East Coast, Inc.
Holiday Health Clubs of the Southeast, Inc.
Holiday/Southeast Holding Corp.
Jack LaLanne Holding Corp.
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Lincoln Indemnity Company
Manhattan Sports Clubs, Inc.
Scandinavian Development Company
Tidelands Holiday Health Clubs, Inc.
U.S. Health, Inc.
Vertical Fitness and Racquet Club, Ltd.
Bally Total Fitness of Cleveland, Inc.
Bally Total Fitness of Toledo, Inc.
Bally Total Fitness Clinics, Inc.
BTF of Washington, Inc.
BFIT Acquisition Corporation
BTFCC, Inc.
BFIT Sports Medicine of Boca Raton, Inc.
BFIT Sports Medicine of Kendall, Inc.
BFIT Sports Medicine of Sunrise, Inc.
BFIT Sports Medicine of West Palm Beach, Inc.
BFIT Sports Medicine of Coral Springs, Inc.
BFIT Sports Medicine of Clearwater, Inc.
BFIT Sports Medicine of Coral Gables, Inc.
BFIT Sports Medicine, Inc.
C. List of Subsidiaries Not Wholly-owned:
Bally Matrix Fitness Centre Ltd.
Connecticut Coast Fitness Centers, Inc.
Connecticut Valley Fitness Centers, Inc.
Greater Philly No. 1 Holding Company
Greater Philly No. 2 Holding Company
Health and Tennis (UK) Limited
Holiday Health & Fitness Centers of New York, Inc.
New Fitness Holding Co., Inc.
Nycon Holding Co.
Physical Fitness Centers of Philadelphia
Providence Fitness Centers, Inc.
Rhode Island Holding Company
New Health & Fitness Centers of New York, Inc.
D. Encumbrances
33
<PAGE>
1. Except as set forth below, the capital stock of each subsidiary
of the Company is pledged to the Company's principal lenders
pursuant to various Pledge Agreements delivered in connection
with the Bank Credit Facility.
BALLY MATRIX FITNESS CENTER, LTD, AND CZW HEALTH LIMITED. Only
65% of the shares of capital stock of each of these Canadian
subsidiaries are pledged to the Company's lenders under the Bank
Credit Facility.
2. The transfer of encumbrance or the capital stock of Nycon Holding
Co., New Fitness Holding Co., Inc., Connecticut Coast Fitness
Centers, Inc., Connecticut Valley Fitness Centers, Inc., Holiday
Health & Fitness Centers of New York, Inc., Rhode Island Holding
Company, Greater Philly No. 1 Holding Company, Bally Matrix
Fitness Centre Ltd., Providence Fitness Centers, Inc., Greater
Philly No. 2 Holding Company and Physical Fitness Centers of
Philadelphia, Inc. is restricted pursuant to the terms of certain
Shareholders' Agreements dated December 3, 1982 and April 29,
1987, each as amended.
34
<PAGE>
Schedule C
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
SUMMARY OF OWNED LOCATIONS WITH MORTGAGES
AS OF SEPTEMBER 30, 1997
<CAPTION>
Year Mortgage Interest
Club Address Square Opened/ Company Name/Mortgagor Balance Rate
Feet Acquired
<S> <C> <C> <C> <C> <C>
Hilltop 745-02 80,000 1987 Nations Bank 2,112,427 9.00%
Bally Health & Racquet of Kansas
6600 East 87th Street
Kansas City, MO 64138
Glendale Heights 712-17
Glendale Heights 712-17 35,000 1989 Union Bank & Trust 220,731 9.25%
Chicago Health Clubs II
265 Army Trail Road
Bloomingdale, IL 60139
(includes parking)
Beachwood 819-20
Beachwood 819-20 41,520 1986 Ohio Savings Bank 1,508,736 10.25%
Scandinavian Health Spa
3600 Park East
Beachwood, OH 44122
Maple Heights 819-25
Maple Heights 819-25 18,762 1987 Ohio Savings Bank 2,563,909 10.25%
Scandinavian Health Spa (Note 1) (Note 1)
5510 Warrensville Center Road
Maple Heights OH 44142
Willoughby 819-26
Willoughby 819-26 18,762 1987 Ohio Savings Bank (Note 1) 10.25%
Scandinavian Health Spa
5880 Som Center Road
Willoughby, OH 44094
Brook Park 819-27
Brookpark 819-27 18,672 1987 Ohio Savings Bank (Note 1) 10.25%
Scandinavian Health Spa
14571 Snow Road
Brook Park, OH 44142
Penn Hills, PA 15235
St. Louis Park 838-40
St. Louis Park 838-40 39,156 1986 Nat'l City Bank 163,819 9.00%
U.S. Swim & Fitness 289,000 9.00%
4900 Excelsior Blvd.
St. Louis Park, MN 55416
<FN>
Notes:
(1) The mortgage balance for Maple Heights represents the total mortgage on
three clubs: Maple Heights, Willoughby and Brookpark
</FN>
</TABLE>
35
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the State of Delaware.
(ii) The Company has corporate power and authority to
own, lease and operate its properties and to conduct its business
as described in the Offering Memorandum and to enter into and
perform its obligations under the Purchase Agreement, the
Indenture, the Registration Rights Agreement, the DTC Agreement
and the Securities.
(iii) To our knowledge, the Company is duly qualified as
a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so
to qualify or to be in good standing would not result in a
Material Adverse Effect.
(iv) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Offering Memorandum
in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances pursuant to
reservations, agreements, employee benefit plans of the Company
or the exercise of outstanding warrants, stock options or
convertible securities).
(v) Each Significant Subsidiary has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation,
has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Offering Memorandum and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; all of
the issued and outstanding capital stock of each Significant
Subsidiary has been duly authorized and validly issued, is fully
paid and non-assessable and, except at disclosed on Schedule B to
the Purchase Agreement, to our knowledge, is owned by the
Company, directly or through one of its Subsidiaries, free and
clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity. Except as set forth on Schedule B
of the Purchase Agreement, there are no outstanding rights,
warrants or options to acquire, or instruments convertible into
or exchangeable for, or agreements or understandings with respect
to the sale or issuance of other equity interest in any
Significant Subsidiary.
(vi) Each of the Purchase Agreement and the
Registration Rights Agreement has been duly authorized, executed
and delivered by the Company and (assuming the due authorization,
execution and delivery thereof by the Initial Purchasers)
constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms,
except as
36
<PAGE>
the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws
relating to or affecting enforcement of creditors' rights
generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at
law).
(vii) The DTC Agreement has been duly authorized,
executed and delivered by the Company and (assuming the due
authorization, execution and delivery thereof by any party
thereto other than the Company) constitutes a valid and binding
agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may
be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law).
(viii) The Indenture has been duly authorized, executed
and delivered by the Company and (assuming the due authorization,
execution and delivery thereof by the Trustee) constitutes a
valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws
relating to or affecting enforcement of creditors' rights
generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at
law).
(ix) The Securities are in the form contemplated by the
Indenture, have been duly authorized by the Company and, when
executed by the Company and authenticated by the Trustee in the
manner provided in the Indenture (assuming the due authorization,
execution and delivery of the Indenture by the Trustee) and
delivered against payment of the purchase price therefor will
constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms,
except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium (including, without
limitation, all laws relating to fraudulent transfers), or other
similar laws relating to or affecting enforcement of creditor's
rights generally, or by general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or
at law), and will be entitled to the benefits of the Indenture.
(x) The Securities, the Indenture and the Registration
Rights Agreement conform in all material respects to the
descriptions thereof contained in the Offering Memorandum.
(xi) To our knowledge and other than as described in
the Offering Memorandum, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the
Company or any of its Subsidiaries is a party, or to which, to
our knowledge, the property of the Company or any of its
Subsidiaries is subject, before or brought by any court or
governmental agency or body, which might reasonably be expected
to result in a Material Adverse Effect, or which might reasonably
be expected to materially and adversely affect the properties or
assets thereof or the consummation of the transactions
contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder or under the Securities or
the transactions contemplated by the Offering Memorandum;
37
<PAGE>
(xii) The information in the Offering Memorandum under
"Description of the Notes," "Description of Certain Other
Indebtedness, Bank Credit Facility" and "Exchange Offer;
Registration Rights," to the extent that it constitutes matters
of law, summaries of legal matters or legal conclusions, has been
reviewed by us and is correct in all material respects.
(xiii) All descriptions in the Offering Memorandum of
contracts and other documents to which the Company or any of its
Subsidiaries is a party are accurate in all material respects; to
our knowledge, there are no franchises, contracts, indentures,
mortgages, loan agreements, notes, leases or other instruments to
which the Company or any of its Subsidiaries is a party that
would be required to be described in the Offering Memorandum that
are not described in the Offering Memorandum, and the
descriptions thereof or references thereto are correct in all
material respects.
(xiv) To our knowledge, neither the Company nor any of
its Subsidiaries is in violation of its charter or bylaws and, to
our knowledge, no default by the Company or any of its
Subsidiaries exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained
in any contract, indenture, mortgage, loan agreement, note, lease
or other agreement or instrument that is described in the
Offering Memorandum.
(xv) No authorization, approval, consent or order of
any court or governmental authority or agency, other than such as
may be required under the applicable securities laws of the
various jurisdictions in which the Securities will be offered or
sold (as to which we express no opinion) is required on the part
of the Company in connection with the due authorization,
execution and delivery of the Purchase Agreement by the Company
or the due execution, delivery of the Indenture by the Company or
for the offering, issuance, sale or delivery of the Securities to
the Initial Purchasers or the resale by the Initial Purchasers in
accordance with the Purchase Agreement.
(xvi) Assuming the accuracy of the representations and
warranties of the Initial Purchasers set forth in the Purchase
Agreement, it is not necessary in connection with the offer, sale
and delivery of the Securities to the Initial Purchasers in the
manner contemplated by the Purchase Agreement and the Offering
Memorandum to register the Securities under the Securities Act or
to qualify the Indenture under the 1939 Act.
(xvii) The execution, delivery and performance of the
Purchase Agreement, the Registration Rights Agreement, the DTC
Agreement, the Indenture and the Securities by the Company and
the consummation of the transactions contemplated in the Purchase
Agreement and in the Offering Memorandum (including the use of
the proceeds from the sale of the Securities as described in the
Offering Memorandum under the caption "Use of Proceeds") and
compliance by the Company with its obligations under the Purchase
Agreement, the Registration Rights Agreement, the DTC Agreement,
the Indenture and the Securities will not, whether with or
without the giving of notice or lapse of time or both, conflict
with or constitute a breach of, or default or Repayment Event (as
defined in Section 1(a)(xiv) of the Purchase Agreement) under or
result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of
its Subsidiaries pursuant to any material contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or
any other material agreement or instrument, known to us, to which
the Company or any of its Subsidiaries is a party or by which
38
<PAGE>
it or any of them may be bound, or to which, to our knowledge,
any of the property or assets of the Company or any of its
Subsidiaries is subject (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not have a
Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the
Company or any Significant Subsidiary, or any applicable law,
statute, rule, regulation, judgment, order, writ or decree, known
to us, of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over the Company or any
Significant Subsidiary or any of their respective properties,
assets or operations.
(xviii) The Company is not an "investment company" or an
entity "controlled" by an investment company as such terms are
defined in the 1940 Act.
In addition, we have participated in conferences with officers
and other representatives of the Company and representatives of the independent
public accountants of the Company and representatives of the Initial Purchasers
at which the contents of the Offering Memorandum were discussed and we have
reviewed certain other documents. Although we are not passing upon and do not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Offering Memorandum (except as set forth in
paragraph (xii) above), and we make no representation that we have independently
verified the accuracy, completeness or fairness of such statements, on the basis
of the foregoing, we confirm to you that no information has come to our
attention that would cause us to believe that the Offering Memorandum, at the
time such Offering Memorandum was issued or as of the date hereof, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Notwithstanding
the foregoing, we assume no responsibility for, and have not independently
verified, the accuracy, completeness or fairness of the financial and
statistical data included in or excluded from the Offering Memorandum. Although
certain portions of the Offering Memorandum (including financial statements)
have been included therein on the authority of "experts" within the meaning of
the Securities Act, we are not such experts with respect to any portion of the
Offering Memorandum, including, without limitation, such financial statements or
schedules or the other financial or statistical data included therein.
39
EXHIBIT 4.9
BALLY TOTAL FITNESS HOLDING CORPORATION
AND
U.S. BANK TRUST NATIONAL ASSOCIATION,
AS TRUSTEE
INDENTURE
DATED AS OF DECEMBER 16, 1998
$300,000,000
9-7/8% SENIOR SUBORDINATED NOTES DUE 2007
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions................................................... 1
Section 1.2. Other Definitions.............................................18
Section 1.3. Compliance Certificates and Opinions..........................18
Section 1.4. Form of Documents Delivered to Trustee........................19
Section 1.5. Acts of Holders...............................................20
Section 1.6. Notices, etc., to Trustee and the Company.....................20
Section 1.7. Notice to Holders; Waiver.....................................21
Section 1.8. Conflict with Trust Indenture Act.............................21
Section 1.9. Effect of Headings and Table of Contents......................21
Section 1.10. Successors and Assigns........................................21
Section 1.11. Separability Clause...........................................21
Section 1.12. Benefits of Indenture.........................................21
Section 1.13. Governing Law.................................................22
Section 1.14. Legal Holidays................................................22
Section 1.15. Schedules.....................................................22
Section 1.16. Counterparts..................................................22
Section 1.17. No Recourse against Others....................................22
ARTICLE II
SECURITY FORMS...............................22
Section 2.1. Forms Generally...............................................22
Section 2.2. Form of Face of Security......................................23
Section 2.3. Form of Reverse of Securities.................................34
ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms...............................................40
Section 3.2. Denominations.................................................41
Section 3.3. Execution, Authentication, Delivery and Dating................41
Section 3.4. Temporary Securities..........................................42
Section 3.5. Registration, Registration of Transfer and Exchange...........42
Section 3.6. Book-Entry Provisions for Global Securities...................44
Section 3.7. Special Transfer Provisions...................................45
Section 3.8. Mutilated, Destroyed, Lost and Stolen Securities..............45
Section 3.9. Payment of Interest; Interest Rights Preserved................46
Section 3.10. CUSIP Numbers.................................................46
Section 3.11. Persons Deemed Owners.........................................47
Section 3.12. Cancellation..................................................47
Section 3.13. Computation of Interest.......................................47
ARTICLE IV
DEFEASANCE AND COVENANT DEFEASANCE
Section 4.1. Company's Option to Effect Defeasance or Covenant
Defeasance....................................................47
Section 4.2. Defeasance and Discharge......................................47
Section 4.3. Covenant Defeasance...........................................48
Section 4.4. Conditions to Defeasance or Covenant Defeasance...............48
Section 4.5. Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions......................50
Section 4.6. Reinstatement.................................................50
- i -
<PAGE>
PAGE
----
ARTICLE V
REMEDIES
Section 5.1. Events of Default.............................................51
Section 5.2. Acceleration of Maturity; Rescission and Annulment............52
Section 5.3. Collection of Indebtedness and Suits for Enforcement
by Trustee....................................................53
Section 5.4. Trustee May File Proofs of Claim..............................53
Section 5.5. Trustee May Enforce Claims without Possession of
Securities....................................................54
Section 5.6. Application of Money Collected................................54
Section 5.7. Limitation on Suits...........................................54
Section 5.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest..........................................55
Section 5.9. Restoration of Rights and Remedies............................55
Section 5.10. Rights and Remedies Cumulative................................55
Section 5.11. Delay or Omission Not Waiver..................................55
Section 5.12. Control by Holders............................................56
Section 5.13. Waiver of Past Defaults.......................................56
Section 5.14. Undertaking for Costs.........................................56
Section 5.15. Waiver of Stay, Extension or Usury Laws.......................56
Section 5.16. Remedies Subject to Applicable Law............................57
ARTICLE VI
THE TRUSTEE
Section 6.1. Duties of Trustee.............................................57
Section 6.2. Notice of Defaults............................................58
Section 6.3. Certain Rights of Trustee.....................................58
Section 6.4. Trustee Not Responsible for Recitals, Dispositions of
Securities or Application of Proceeds Thereof.................59
Section 6.5. Trustee and Agents May Hold Securities; Collections; etc......59
Section 6.6. Money Held in Trust...........................................60
Section 6.7. Compensation and Indemnification of Trustee and Its
Prior Claim...................................................60
Section 6.8. Conflicting Interests.........................................60
Section 6.9. Trustee Eligibility...........................................60
Section 6.10. Resignation and Removal; Appointment of Successor Trustee.....61
Section 6.11. Acceptance of Appointment by Successor........................62
Section 6.12. Merger, Conversion, Consolidation or Succession to
Business......................................................62
Section 6.13. Preferential Collection of Claims Against Company.............63
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.....63
Section 7.2. Disclosure of Names and Addresses of Holders..................63
Section 7.3. Reports by Trustee............................................63
Section 7.4. Reports by Company............................................64
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 8.1. Company May Merge, Consolidate, etc., Only on Certain Terms...64
Section 8.2. Successor Substituted.........................................65
- ii -
<PAGE>
PAGE
----
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures and Agreements without Consent
of Holders...................................................65-
Section 9.2. Supplemental Indentures and Agreements with Consent
of Holders....................................................66
Section 9.3. Execution of Supplemental Indentures and Agreements...........67
Section 9.4. Effect of Supplemental Indentures.............................67
Section 9.5. Conformity with Trust Indenture Act...........................67
Section 9.6. Reference in Securities to Supplemental Indentures............67
Section 9.7. Notice of Supplemental Indentures.............................68
ARTICLE X
COVENANTS
Section 10.1. Payment of Principal, Premium and Interest....................68
Section 10.2. Maintenance of Office or Agency...............................68
Section 10.3. Money for Security Payments to Be Held in Trust...............68
Section 10.4. Corporate Existence...........................................69
Section 10.5. Payment of Taxes and Other Claims.............................70
Section 10.6. Maintenance of Properties.....................................70
Section 10.7. Insurance.....................................................70
Section 10.8. Limitation on Indebtedness....................................70
Section 10.9. Limitation on Restricted Payments.............................71
Section 10.10. Limitation on Transactions with Affiliates....................74
Section 10.11. Limitation on Liens...........................................74
Section 10.12. Limitation on Sale of Assets..................................75
Section 10.13. Purchase of Securities upon a Change of Control...............76
Section 10.14. Limitation on Preferred Stock of Subsidiaries.................78
Section 10.14A. Limitation on Senior Subordinated Indebtedness................78
Section 10.15. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries........................................79
Section 10.16. Limitations on Unrestricted Subsidiaries......................79
Section 10.17. Provision of Financial Statements.............................79
Section 10.18. Statement by Officers as to Default...........................80
Section 10.19. Waiver of Certain Covenants...................................80
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Rights of Redemption..........................................80
Section 11.2. Applicability of Article......................................81
Section 11.3. Election to Redeem; Notice to Trustee.........................81
Section 11.4. Selection by Trustee of Securities to Be Redeemed.............81
Section 11.5. Notice of Redemption..........................................81
Section 11.6. Deposit of Redemption Price...................................82
Section 11.7. Securities Payable on Redemption Date.........................82
Section 11.8. Securities Redeemed or Purchased in Part......................83
ARTICLE XII
SATISFACTION AND DISCHARGE
Section 12.1. Satisfaction and Discharge of Indenture.......................83
Section 12.2. Application of Trust Money....................................84
- iii -
<PAGE>
PAGE
----
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinate to Senior Indebtedness.................84
Section 13.2. Payment Over of Proceeds Upon Dissolution, etc................84
Section 13.3. Suspension of Payment When Designated Senior Indebtedness
in Default....................................................86
Section 13.4. Payment Permitted if No Default...............................87
Section 13.5. Subrogation to Rights of Holders of Senior Indebtedness.......87
Section 13.6. Provisions Solely to Define Relative Rights...................87
Section 13.7. Trustee to Effectuate Subordination...........................87
Section 13.8. No Waiver of Subordination Provisions.........................88
Section 13.9. Notice to Trustee.............................................88
Section 13.10. Reliance on Judicial Orders or Certificates...................89
Section 13.11. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights..............................89
Section 13.12. Article Applicable to Paying Agents...........................89
Section 13.13. No Suspensions of Remedies....................................90
Section 13.14. Trustee's Relation to Senior Indebtedness.....................90
- iv -
<PAGE>
INDENTURE dated as of December 16, 1998 between BALLY TOTAL
FITNESS HOLDING CORPORATION, a Delaware corporation (as more fully defined
below, the "Company"), and U.S. BANK TRUST NATIONAL ASSOCIATION, a national
banking association, as trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
9-7/8% Series C Senior Subordinated Notes due 2007 (the "Series C Securities" or
the "Initial Securities"), and an issue of 9-7/8% Series D Senior Subordinated
Notes due 2007 (the "Series D Securities" or the "Exchange Securities" and,
together with the Series C Securities, the "Securities"), of substantially the
tenor and amount hereinafter set forth, and to provide therefor, the Company has
duly authorized the execution and delivery of this Indenture and the Securities;
Upon the effectiveness of the Exchange Offer Registration
Statement or the Shelf Registration Statement (as defined herein), this
Indenture will be subject to, and shall be governed by, the provisions of the
Trust Indenture Act (as defined herein) that are required to be part of and to
govern indentures qualified under the Trust Indenture Act; and
All acts and things necessary have been done to make (i) the
Securities, when duly issued and executed by the Company and authenticated and
delivered hereunder, the valid obligations of the Company and (ii) this
Indenture a valid agreement of the Company in accordance with the terms of this
Indenture.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to them
in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP;
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(e) all references to $, US$, dollars or United States dollars shall
refer to the lawful currency of the United States of America;
(f) all references herein to particular Sections or Articles refer to
this Indenture unless otherwise so indicated; and
(g) the word "or" is not exclusive and the word "including" means
including without limitation.
-1-
<PAGE>
The following terms shall have the meanings set forth in this Section.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at
the time such Person becomes a Subsidiary or merges with or into the Company or
any Subsidiary, or (ii) assumed in connection with the acquisition of assets
from such Person, in each case, other than Indebtedness incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary or such
acquisition, as the case may be. Acquired Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Subsidiary, as the case may be.
"Adjusted Consolidated Interest Expense" of any Person means, without
duplication, for any period, as applied to any Person, the sum of (a) the
interest expense of such Person and its Consolidated Subsidiaries (exclusive of
deferred financing fees and any premiums or penalties paid in connection with
redeeming or retiring any Indebtedness prior to its stated maturity) for such
period, on a Consolidated basis, including without limitation, (i) amortization
of debt discount, (ii) the net cost under interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation, and (iv) accrued interest, plus (b) (i) the interest component of
the Capital Lease Obligations paid, accrued and/or scheduled to be paid, or
accrued by such Person during such period, and (ii) all capitalized interest of
such Person and its Consolidated Subsidiaries, in each case as determined in
accordance with GAAP consistently applied.
"Affiliate" means, with respect to any specified Person: (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (ii) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Capital
Stock or beneficial equity interest in such Person (if such Person is a real
estate investment trust), or any officer or director of any such specified
Person or other Person or, with respect to any natural Person, any person having
a relationship with such Person by blood, marriage or adoption not more remote
than first cousin; or (iii) any other Person 10% or more of the Voting Stock of
which is beneficially owned or held directly or indirectly by such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or Sale and Leaseback Transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of: (i) any
Capital Stock of any Subsidiary; (ii) all or substantially all of the properties
and assets of any division or line of business of the Company or its
Subsidiaries; or (iii) any other properties or assets of the Company or any
Subsidiary, other than in the ordinary course of business. For the purposes of
this definition, the term "Asset Sale" shall not include any transfer of
properties and assets (A) that is governed by the provisions of Article VIII,
(B) that is by any Subsidiary to the Company or any Wholly Owned Subsidiary in
accordance with the terms of the Indenture, (C) that is of obsolete equipment or
other obsolete assets in the ordinary course of business, (D) that constitutes
the making of a Permitted Investment (other than pursuant to clause (v) of the
definition of "Permitted Investment"), (E) the Fair Market Value of which in the
aggregate does not exceed $1,000,000 in any transaction or series of related
transactions, (F) sales of accounts receivable and other transactions among the
Company and its Subsidiaries pursuant to the Securitization Facility, or (G)
Investments by the Company which comply with the terms of clause (ix) of the
definition of "Permitted Investments".
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b)
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the amount of each such principal payment; by (ii) the sum of all such principal
payments.
"Bank Credit Facility" means the third amended and restated Credit
Agreement, dated as of June 26, 19957, among the Company, the Banks and The
Chase Manhattan Bank, as agent, as such agreement, in whole or in part, may be
amended, renewed, extended, substituted, refinanced, restructured, replaced,
supplemented or otherwise modified from time to time (including, without
limitation, any successive renewals, extensions, substitutions, refinancings,
restructurings, replacements, supplementations or other modifications of the
foregoing).
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978,
as amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Banks" means the lenders under the Bank Credit Facility.
"B Indenture" means the Indenture dated October 7, 1997 between the
Company and the Trustee providing for the issuance of the Series B Securities in
the aggregate principal amount of $225,000,000, as such may be amended or
supplemented from time to time.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of such board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Book-Entry Security" means any Security bearing the legend specified in
Section 2.2 evidencing all or part of a series of Securities, authenticated and
delivered to the Depository for such series or its nominee, and registered in
the name of such Depository or nominee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the City of New York
or the city in which the principal office of the Trustee is located are
authorized or obligated by law or executive order to close.
"Capital Lease Obligation" of any Person means any obligation of such
Person and its Subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock or other equity interests whether now outstanding or issued after
the date of the Indenture.
"Cash Equivalents" means: (i) Temporary Cash Investments; (ii)
securities received by the Company or any Subsidiary from the transferee in an
Asset Sale that are promptly converted by the Company or such Subsidiary into
cash; (iii) the assumption of Indebtedness or other obligations or liabilities
of the Company or any Subsidiary in connection with an Asset Sale; and (iv) in
connection with an Asset Sale to a Person where the assets sold, issued,
conveyed, transferred, leased or otherwise disposed of are included in a
business which will be a party to the Franchise Program, the net present value
of payments by such Person pursuant to the Franchise Program as calculated and
certified by the chief financial officer of the Company.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange
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Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have beneficial
ownership of all shares that such Person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than a majority of the total outstanding Voting Stock of the
Company; (ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election to the Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of 66 2/3% of
the directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved), cease for any reason to constitute a majority of such Board of
Directors then in office; (iii) the Company consolidates with or merges with or
into any Person or conveys, transfers or leases all or substantially all of its
assets to any Person, or any corporation consolidates with or merges into or
with the Company in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where the
outstanding Voting Stock of the Company is not changed or exchanged at all
(except to the extent necessary to reflect a change in the jurisdiction of
incorporation of the Company) or where (A) the outstanding Voting Stock of the
Company is changed into or exchanged for (x) Voting Stock of the surviving
corporation which is not Redeemable Capital Stock or (y) cash, securities and
other property (other than Capital Stock of the surviving corporation) in an
amount which could be paid by the Company as a Restricted Payment as described
in Section 10.9 (and such amount shall be treated as a Restricted Payment
subject to the provisions in the Indenture described in Section 10.9) and (B) no
"person" or "group" owns immediately after such transaction, directly or
indirectly, more than a majority of the total outstanding Voting Stock of the
surviving corporation; or (iv) the Company is liquidated or dissolved or adopts
a plan of liquidation or dissolution other than in a transaction which complies
with the provisions described in Article VIII.
"Company" means Bally Total Fitness Holding Corporation, a corporation
incorporated under the laws of Delaware, until a successor Person shall have
become such pursuant to the applicable provisions of the Indenture, and
thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by (i) any of its Chairman of the Board, its
Vice Chairman, its President or a Vice President (regardless of Vice
Presidential designation) or Treasurer, and (ii) any one of its Assistant
Treasurers, its Secretary or any Assistant Secretary, and delivered to the
Trustee, provided, however, that such request or order may be signed by any two
of the officers or directors listed in clause (i) above in lieu of being signed
by one of such officers or directors and one officer pursuant to clause (ii)
above.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of EBITDA to the sum of Adjusted Consolidated Interest Expense
for such period and cash dividends paid on any Preferred Stock of such Person
during such period; provided that (i) in making such computation, the Adjusted
Consolidated Interest Expense attributable to interest on any Indebtedness shall
be computed on a pro forma basis and (A) where such Indebtedness was outstanding
during the period and bore a floating interest rate, interest shall be computed
as if the rate in effect on the date of computation had been the applicable rate
for the entire period, and (B) where such Indebtedness was not outstanding
during the period for which the computation is being made but which bears, at
the option of the Company, a fixed or floating rate of interest, shall be
computed by applying at the option of the Company, either the fixed or floating
rates and (ii) in making such computation, the Adjusted Consolidated Interest
Expense of such Person attributable to interest on any Indebtedness under a
revolving credit facility computed on a pro forma basis shall be computed based
upon the average daily balance of such Indebtedness during the applicable
period.
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"Consolidated Income Tax Expense" of any Person means, for any period,
the provision for federal, state, local and foreign income taxes of such Person
and its Consolidated Subsidiaries for such period as determined in accordance
with GAAP.
"Consolidated Net Income (Loss)" of any Person means, for any period,
the Consolidated net income (or loss) of such Person and its Subsidiaries for
such period on a Consolidated basis as determined in accordance with GAAP,
adjusted, to the extent included in calculating such net income (or loss), by
excluding, without duplication, (i) all extraordinary gains or losses (exclusive
of all fees and expenses relating thereto), (ii) the portion of net income (or
loss) of such Person and its Subsidiaries on a Consolidated basis allocable to
minority interests in unconsolidated Persons to the extent that cash dividends
or distributions have not actually been received by such Person or one of its
Subsidiaries, (iii) net income (or loss) of any Person combined with such Person
or any of its Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of combination, (iv) any gain or loss, net of taxes,
realized upon the termination of any employee pension benefit plan, (v) net
gains (or losses) (except for all fees and expenses relating thereto) in respect
of dispositions of assets other than in the ordinary course of business, (vi)
the net income of any Subsidiary to the extent that the declaration of dividends
or similar distributions by that Subsidiary of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders, (vii)
any gain arising from the acquisition of any securities, or the extinguishment,
under GAAP, of any Indebtedness of such Person, (viii) transaction costs charged
in connection with the Refinancing, or (ix) amortization of intangible assets of
such Person and its Subsidiaries on a consolidated basis under GAAP.
"Consolidated Non-Cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Subsidiaries on a Consolidated basis for such period, as determined in
accordance with GAAP (excluding any non-cash charge which requires an accrual or
reserve for cash charges for any future period).
"Consolidated Tangible Assets" means consolidated total assets of the
Company and its Subsidiaries as reported in the Company's Consolidated balance
sheet from time to time as required by Section 10.17 less (A) (i) any asset
which is treated as an intangible asset in conformity with GAAP (including,
without limitation, leasehold rights, franchise rights, non-compete agreements,
goodwill, unamortized debt discounts, patents, patent applications, trademarks,
trade names, copyrights and licenses), and (ii) any deferred charges determined
in conformity with GAAP (including, without limitation, deferred finance charges
and deferred membership origination costs), plus (B) any treasury stock.
"Consolidation" means, with respect to any Person, the consolidation of
the accounts of such Person and each of its Subsidiaries if and to the extent
the accounts of such Person and each of its Subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"Corporate Trust Office" means the office of the Trustee or an affiliate
or agent thereof at which at any particular time the corporate trust business
for the purposes of this Indenture shall be principally administered, which
office at the date of execution of this Indenture is located at 180 East 5th
Street, St. Paul, Minnesota 55101, Attention: Corporate Finance.
"Credit Card Program Guarantee" means the obligation of the Company to
remit funds in excess of the sum of (a) $25,000,000 plus (b) a reserve (of up to
25% of the amount owed to the Company by a member which becomes an obligation
due to the credit card issuer by such member) with respect to the Company's
credit card program pursuant to the Company's Credit Card Program Agreement
dated December 21, 1995, as such agreement, in whole or in part, may be amended,
renewed, extended, substituted,
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refinanced, restructured, replaced, supplemented, or otherwise modified from
time to time (including, without limitation, any successive renewals,
extensions, substitutions, refinancings, restructurings, replacements,
supplementations or other modifications of the foregoing).
"Default" means any event which is, or after notice or passage of any
time or both would be, an Event of Default.
"Depository" means, with respect to the Securities issued in the form of
one or more Book-Entry Securities, The Depository Trust Company ("DTC"), its
nominees and successors, or another Person designated as Depository by the
Company, which must be a clearing agency registered under the Exchange Act.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness
under, or in respect of, the Bank Credit Facility and the Securitization
Facility, and (ii) any other Senior Indebtedness which at the time of
determination, has an aggregate principal amount outstanding of at least $15
million and is specifically designated in the instrument evidencing such Senior
Indebtedness or the Agreement under which such Senior Indebtedness arises as
"Designated Senior Indebtedness" by the Company.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors who does not
have any material direct or indirect financial interest in or with respect to
such transaction or series of related transactions.
"EBITDA" means the sum of Consolidated Net Income, Adjusted Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-Cash
Charges deducted in computing Consolidated Net Income, in each case, for such
period, of the Company and its Subsidiaries on a Consolidated basis, all
determined in accordance with GAAP consistently applied.
"Event of Default" has the meaning specified in Article V.
"Exchange Act" means the United States Securities Exchange Act of 1934,
as amended, or any successor statute.
"Exchange Offer" means the exchange offer by the Company of Series D
Securities for Series C Securities and Series B Securities to be effected
pursuant to Section 2.1 of the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the registration statement
under the Securities Act contemplated by Section 2.1 of the Registration Rights
Agreement.
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Fair Market Value shall be determined
by the Board of Directors acting in good faith and shall be evidenced by a
resolution of the Board of Directors.
"Franchise Program" means the program under which the Company and/or its
Subsidiaries grant franchises to third parties which require franchisees, among
other things, to pay fees to the Company and/or its Subsidiaries, and which,
among other things, grants to the franchisee the right to receive training from
the Company or its Subsidiaries or sell memberships to use facilities of the
franchisee and the Company or its Subsidiaries. The Franchise Program may
include the conversion of facilities owned by the Company or its Subsidiaries to
franchise facilities and includes such a program as it may be amended, renewed,
extended, substituted, restructured, replaced, supplemented or otherwise
modified from time to time (including, without limitation, any successive
renewal, extension, substitution, restructuring, replacement, supplementation or
other modification of the foregoing).
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"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date of the B Indenture.
"Global Securities" means one or more securities evidencing all or a
part of the Securities to be issued as Book-Entry Securities issued to the
Depository in accordance with this Indenture.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of "Indebtedness"
contained in this Section guaranteed directly or indirectly in any manner by
such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to, or in any other manner invest in, the debtor (including any
agreement to pay for property or services without requiring that such property
be received or such services be rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a creditor
against loss; provided that the term "guarantee" shall not include endorsements
for collection or deposit, in either case in the ordinary course of business or
guarantees of operating leases.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities arising in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letters of credit issued under letter of credit
facilities, acceptance facilities or other similar facilities and in connection
with any agreement to purchase, redeem, exchange, convert or otherwise acquire
for value any Capital Stock of such Person, or any warrants, rights or options
to acquire such Capital Stock, now or hereafter outstanding, (ii) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade payables arising in the ordinary course
of business, (iv) all obligations under Interest Rate Agreements of such Person,
(v) all Capital Lease Obligations of such Person, (vi) all Indebtedness referred
to in clauses (i) through (v) above of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien, upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vii) all
Guaranteed Debt of such Person, (viii) all Redeemable Capital Stock issued by
such Person valued at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends, (ix) the Credit Card Program
Guarantee, (x) indebtedness incurred by a real estate investment trust in which
the Company or any Subsidiary has invested pursuant to clause (ix) of the
definition of "Permitted Investments" and as to which, in the event that the
Company controls such trust, any of the Company or any Subsidiary is directly or
indirectly liable (by virtue of the Company or any such Subsidiary being the
primary obligor on, guarantor of, or otherwise liable in respect to, such
indebtedness), and (xi) any amendment, supplement, modification, deferral,
renewal, extension, refunding or refinancing of any liability which constitutes
Indebtedness of the types referred to in clauses (i) through (ix) above. For
purposes hereof, the "maximum fixed
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repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the Fair Market
Value of such Redeemable Capital Stock, such Fair Market Value to be determined
in good faith by the board of directors of the issuer of such Redeemable Capital
Stock.
"Indenture" means this instrument as originally executed (including all
exhibits and schedules thereto) and as it may from time to time be supplemented
or amended by one or more indentures supplemental hereto entered into pursuant
to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor on the Indenture or under the Securities to pay principal of,
premium, if any, and interest when due and payable, and all other amounts due or
to become due under or in connection with the Indenture, the Securities and the
performance of all other obligations to the Trustee and the holders under the
Indenture and the Securities, according to the terms thereof.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Jefferies & Company, Inc.
"Initial Securities" has the meaning stated in the first recital of this
Indenture.
"Interest Payment Date" means the Stated Maturity of a regular
installment of interest on the Securities.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) and/or other types of interest rate
hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or indirectly,
any advance, loan (including guarantees), or other extension of credit or
capital contribution (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase, acquisition or ownership (other than ownership
obtained without making, or becoming liable, directly or indirectly, contingent
or otherwise, for the making of, any advance, loan (or the forgiveness thereof),
payment, extension of credit or capital contribution in connection therewith),
by such Person of any Capital Stock, bonds, notes, debentures or other
securities issued or owned by any other Person and all other items that would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Issue Date" means the date on which the Securities are originally
issued under this Indenture.
"Lien" means any mortgage or deed of trust, charge, pledge, lien
(statutory or otherwise), privilege, security interest, assignment, deposit,
arrangement, easement, hypothecation, claim, preference, priority or other
encumbrance upon or with respect to any property of any kind (including any
conditional sale, capital lease or other title retention agreement, any leases
in the nature thereof, and any agreement to give any security interest), real or
personal, movable or immovable, now owned or hereafter acquired.
"Maturity" means, when used with respect to any Security, the date on
which the principal of such Security becomes due and payable as therein provided
or as provided in the Indenture, whether at Stated Maturity, the Offer Date, the
Change of Control Purchase Date or the redemption date and whether by
declaration of acceleration, Offer
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in respect of Excess Proceeds, Change of Control Offer in respect of a Change of
Control, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. or any successor rating
agency.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any
Person, the proceeds thereof (without duplication in respect of all Asset Sales)
in the form of cash or Temporary Cash Investments including payments in respect
of deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or Temporary Cash Investments (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Subsidiary) net of (i) brokerage commissions and other reasonable fees
and expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties the subject of such
Asset Sale, (iv) amounts required to be paid to any Person (other than the
Company or any Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an Officers'
Certificate delivered to the Trustee, and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital Stock,
or debt securities or Capital Stock that have been converted into or exchanged
for Capital Stock as referred to in Section 10.9, the proceeds of such issuance
or sale in the form of cash or Temporary Cash Investments including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed of for, cash or Temporary Cash Investments (except
to the extent that such obligations are financed or sold with recourse to the
Company or any Subsidiary), net of attorneys' fees, accountants' fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Non-U.S. Person" means a Person that is not a "U.S. person" as defined
in Regulation S under the Securities Act.
"Non-U.S. Subsidiaries" means Subsidiaries organized under the laws of
jurisdictions other than the United States and the states and territories
thereof.
"Officers' Certificate" means a certificate signed by any of (i) the
Chairman of the Board, Vice Chairman, President or a Vice President (regardless
of Vice Presidential designation) or Treasurer, and (ii) by any one of its
Assistant Treasurers, its Secretary or any Assistant Secretary, of the Company,
and delivered to the Trustee, provided, however, that such certificate may be
signed by any two of the officers or directors listed in clause (i) above in
lieu of being signed by one of such officers or directors and one officer
pursuant to clause (ii) above.
"Opinion of Counsel" means a written opinion of qualified legal counsel,
who may be counsel for the Company or the Trustee, and who shall be reasonably
acceptable to the Trustee, including but not limited to an Opinion of
Independent Counsel.
"Opinion of Independent Counsel" means a written opinion by qualified
legal counsel who is not an employee or consultant of the Company and who shall
be reasonably acceptable to the Trustee.
"Outstanding" when used with respect to Securities means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
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(a) Securities theretofore canceled by the Trustee or delivered
to the Trustee for cancellation;
(b) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such Securities;
provided, that if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor reasonably satisfactory to the Trustee has been made;
(c) Securities, except to the extent provided in Sections 4.2 and
4.3, with respect to which the Company has effected defeasance or
covenant defeasance as provided in Article IV; and
(d) Securities in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to this
Indenture, other than any such Securities in respect of which there
shall have been presented to the Trustee and Company proof reasonably
satisfactory to each of them that such Securities are held by a bona
fide purchaser in whose hands the Securities are valid obligations of
the Company; PROVIDED, HOWEVER, that in determining whether the Holders
of the requisite principal amount of Outstanding Securities have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder, Securities owned by the Company or any other obligor on the
Securities or any Affiliate of the Company or such other obligor shall
be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or
waiver, only Securities which the Trustee knows to be so owned shall be
so disregarded. Securities so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
reasonable satisfaction of the Trustee the pledgee's right so as to act
with respect to such Securities and that the pledgee is not the Company
or any other obligor on the Securities or any Affiliate of the Company
or such other obligor.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment to the Securities (including, without limitation,
the Series B Securities).
"Paying Agent" means any Person authorized by the Company to pay the
principal of, premium, if any, or interest on any Securities on behalf of the
Company.
"Permitted Indebtedness" means:
(i) Indebtedness under the Bank Credit Facility in an aggregate
principal amount at any one time outstanding not to exceed $70,000,000,
minus any permanent reductions of the amount outstanding under the Bank
Credit Facility, which reduction is a result of the application of
Section 10.12;
(ii) Indebtedness under the Securitization Facility in an
aggregate amount not to exceed the greater of $160,000,000 or 80% of the
net book value of the consolidated accounts receivable of the Company
and its Subsidiaries, calculated in accordance with GAAP;
(iii) Indebtedness of the Company (a) represented by the
Securities, or (b) that is incurred, in any amount, and in whole or in
part, to (1) redeem all of the Securities outstanding as described
herein, or (2) effect a complete defeasance or a covenant defeasance
thereof as described herein; provided, in either case, that any
Indebtedness incurred under this subclause (b) is actually applied in
accordance with the applicable redemption or defeasance provision of the
Indenture;
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(iv) Indebtedness of the Company under the Series B Securities or
otherwise outstanding on the date of the B Indenture and listed on
Schedule I to the B Indenture;
(v) Indebtedness of the Company owing to a Subsidiary; provided
that any Indebtedness of the Company owing to a Subsidiary is made
pursuant to an intercompany note and is expressly subordinated in right
of payment to the payment and performance of the Company's obligations
under the Securities, and, upon an Event of Default, such Indebtedness
shall not be due and payable until such Event of Default is cured,
waived or rescinded; provided, further, that any disposition, pledge or
transfer of any such Indebtedness to a Person (other than a disposition,
pledge or transfer to a Subsidiary) shall be deemed to be an incurrence
of such Indebtedness by the Company not permitted by this clause (v);
(vi) obligations of the Company entered into in the ordinary
course of business pursuant to Interest Rate Agreements designed to
protect the Company against fluctuations in interest rates in respect of
Indebtedness of the Company as long as such obligations do not exceed
the aggregate principal amount of such Indebtedness then outstanding;
(vii) Indebtedness of the Company represented by Capital Lease
Obligations or Purchase Money Obligations or other Indebtedness incurred
or assumed in connection with the acquisition, improvement or
development of real or personal, movable or immovable, property in each
case incurred for the purpose of financing or refinancing all or any
part of the purchase price or cost of construction or improvement of
property used in the business of the Company and any refinancings of
such Indebtedness made in accordance with subclauses (a), (b) and (c) of
clause (xi) below, in an aggregate principal amount pursuant to this
clause (vii) not to exceed $25,000,000 outstanding at any time; provided
that the principal amount of any Indebtedness permitted under this
clause (vii) did not in each case at the time of incurrence exceed the
cost of the acquired or constructed asset or improvement so financed;
(viii) Indebtedness of the Company in respect of performance
bonds, surety bonds and replevin bonds provided by the Company in the
ordinary course of business;
(ix) other Indebtedness of the Company that does not exceed
$50,000,000 in the aggregate at any one time outstanding;
(x) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or other financial instrument
drawn against insufficient funds in the ordinary course of business,
provided that such Indebtedness is extinguished within four Business
Days of its incurrence; and
(xi) any renewals, extensions, substitutions, refundings,
refinancings or replacements (collectively, a "refinancing") of any
Indebtedness described in clauses (iv) and (v) of this definition of
"Permitted Indebtedness", including any successive refinancings (a) so
long as the borrower under such refinancing is the Company or, if not
the Company, the same as the borrower of the Indebtedness being
refinanced, (b) the aggregate principal amount of Indebtedness
represented thereby as of the date hereof is not increased by such
refinancing by an amount greater than the lesser of (I) the stated
amount of any premium or other payment required to be paid in connection
with such a refinancing pursuant to the terms of the Indebtedness being
refinanced or (II) the amount of premium or other payment actually paid
at such time to refinance the Indebtedness, plus, in either case, the
amount of expenses of the Company incurred in connection with such
refinancing, and (c) (A) in the case of any refinancing of Indebtedness
that is Subordinated Indebtedness, such new Indebtedness is made
subordinated to the Securities at least to the same extent as the
Indebtedness being refinanced and (B) in the case of Pari Passu
Indebtedness or Subordinated Indebtedness, as the
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case may be, such refinancing does not reduce the Average Life to Stated
Maturity or the Stated Maturity of such Indebtedness.
"Permitted Investment" means: (i) Investments in any Subsidiary or any
Person which, as a result of such Investment, (a) becomes a Subsidiary or (b) is
merged or consolidated with or into, or transfers or conveys substantially all
of its assets to, or is liquidated into, the Company or any Subsidiary; (ii)
Indebtedness of the Company described under clause (v) of the definition of
"Permitted Indebtedness"; (iii) Investments in any of the Securities or the
Series B Securities; (iv) Temporary Cash Investments; (v) Investments acquired
by the Company or any Subsidiary in connection with an Asset Sale permitted
under Section 10.12 to the extent such Investments are non-cash proceeds as
permitted under such covenant; (vi) Investments in existence on the date of the
B Indenture; (vii) Investments in the aggregate amount of $5,000,000 to purchase
Capital Stock of any Subsidiary; (viii) any advance, loan (including guarantees)
or other extension of credit to any Person who purchases or acquires assets of
the Company or any Subsidiaries which are to be included in a business which
will be or is a party to the Franchise Program, limited to the purchase or
acquisition price of such assets; (ix) a one-time contribution of real property
independently valued at not more than $10,000,000 to a real estate investment
trust which is an Affiliate of the Company and additional contributions (and/or
the non-cash component of sales in a situation where less than 75% of the
consideration was received in cash or Cash Equivalents) to such trust of real
property independently valued, which in the aggregate at the time of each
additional contribution, together with all previous additional contributions, do
not have a value in excess of 3% of the Company's Consolidated Tangible Assets
as of the end of the next immediately preceding fiscal year; and (x) any other
Investments in joint ventures, partnerships, real estate investment trusts or
other Persons reasonably related or complementary to the business of the Company
on the date hereof in an aggregate amount not greater than $25,000,000 at any
one time outstanding. In connection with any assets or property contributed or
transferred to any Person as an Investment, such property and assets shall be
equal to the Fair Market Value (as determined by the Board of Directors) at the
time of Investment.
"Permitted Subsidiary Indebtedness" means:
(i) Indebtedness of a Subsidiary owing to the Company or another
Subsidiary; provided that such Indebtedness is made pursuant to an
intercompany note, and, upon an Event of Default, all amounts owing
pursuant to such Indebtedness are immediately due and payable; and
provided, further, that (a) any disposition, pledge or transfer of any
such Indebtedness to a Person (other than the Company or a Subsidiary)
shall be an incurrence of such Indebtedness by the obligor not within
the definition of "Permitted Subsidiary Indebtedness" pursuant to this
clause (i), and (b) any transaction pursuant to which any Subsidiary
ceases to be a Subsidiary shall be deemed to be the incurrence of
Indebtedness by such Subsidiary that is not within the definition of
"Permitted Subsidiary Indebtedness" pursuant to this clause (i);
(ii) Indebtedness of a Subsidiary represented by Indebtedness
which would be permitted by clause (iv), (vi), (vii), (viii), (ix), (x)
or (xi) of the definition of "Permitted Indebtedness" if incurred by the
Company;
(iii) Acquired Indebtedness of a Subsidiary that would be
permitted to be incurred by the Company if such Acquired Indebtedness
were being incurred by the Company;
(iv) Indebtedness of a Subsidiary under the Securitization
Facility;
(v) guarantees of Senior Indebtedness of the Company; and
(vi) guarantees of Indebtedness of Affiliates provided that the
Investment in such Affiliate complies with the limitation on Restricted
Payments covenant of the Indenture or constitutes a Permitted
Investment.
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"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Security" of any particular Security means every previous
Security (including any Series B Security) evidencing all or a portion of the
same debt as that evidenced by such particular Security; and, for the purposes
of this definition, any Security authenticated and delivered under Section 3.8
in exchange for a mutilated Security or in lieu of a lost, destroyed or stolen
Security shall be deemed to evidence the same debt as the mutilated, lost,
destroyed, or stolen Security.
"Preferred Stock" means, with respect to any Person, any Capital Stock
of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Prospectus" means the prospectus included in a Registration Statement,
including any preliminary prospectus, and any such prospectus as amended or
supplemented by any prospectus supplement, including any such prospectus
supplement with respect to the terms of the offering of any portion of the
Series C Securities covered by a Shelf Registration Statement, and by all other
amendments and supplements to a prospectus, including post-effective amendments,
and in each case including all material incorporated by reference therein.
"Public Equity Offering" means any underwritten public offering of
Capital Stock (other than Redeemable Capital Stock) pursuant to a registration
statement that has been declared effective by the SEC (other than a registration
statement on Form S-8 or any successor form or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company and its Subsidiaries and any
additions and accessions thereto, which are purchased at any time after the
Securities are issued; provided that (i) the security agreement or conditional
sales or other title retention contract pursuant to which the Lien on such
assets is created (collectively a "Purchase Money Security Agreement") shall be
entered into within 120 days after the purchase or substantial completion of the
construction of such assets and shall at all times be confined solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom, (ii) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby, be increased, except in connection
with the purchase of additions and accession thereto and except in respect of
fees and other obligations in respect of such Indebtedness, and (iii) (A) the
aggregate outstanding principal amount of Indebtedness secured thereby
(determined on a per asset basis in the case of any additions and accessions)
shall not at the time such Purchase Money Security Agreement is entered into
exceed 100% of the purchase price to the Company and its Subsidiaries of the
assets subject thereto, or (B) the Indebtedness secured thereby shall be with
recourse solely to the assets so purchased or acquired, any additions and
accessions thereto and any proceeds therefrom.
"QIB" or "Qualified Institutional Buyer" means a qualified institution
buyer under Rule 144A of the Securities Act.
"Qualified Capital Stock" of any Person means any and all Capital Stock
of such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of any event or passage of
time would be, required to be redeemed prior to any Stated Maturity of the
principal of the Securities or is redeemable at the option of the holder thereof
at any time prior to any such Stated
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Maturity, or is convertible into or exchangeable for debt securities at any time
prior to any such Stated Maturity at the option of the holder thereof.
"Redemption Date" when used with respect to any Security to be redeemed
pursuant to any provision in this Indenture means the date fixed for such
redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to be redeemed
pursuant to any provision in this Indenture means the price at which it is to be
redeemed pursuant to this Indenture.
"Refinancing" means (i) the offering and sale of the Series B Securities
pursuant to the B Indenture, (ii) the modification of the Bank Credit Facility,
and (iii) the consummation of the tender offer by the Company for its 13% Notes
outstanding prior to the date of the B Indenture.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date hereof, among the Company and the Initial Purchasers.
"Registration Statement" means any registration statement of the Company
which covers any of the Series C Securities or Series D Securities pursuant to
the provisions of the Registration Rights Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Regular Record Date" for the interest payable on any Interest Payment
Date means April 1 or October 1, as the case may be (whether or not a Business
Day), immediately preceding such Interest Payment Date.
"Responsible Officer" when used with respect to the Trustee means any
officer assigned to the Corporate Trust Office of the Trustee or any agent of
the Trustee appointed hereunder, including the chairman or vice chairman of the
board of directors or the executive committee of the board of directors, the
president, any vice president, any assistant vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any other officer of the Trustee customarily performing functions similar to
those performed by any of the above designated officers or any other officer
appointed hereunder to whom any corporate trust matter is referred because of
his or her knowledge of and familiarity with the particular subject.
"Rule 144A" means Rule 144A promulgated under the Securities Act or any
successor rule.
"S&P" means Standard and Poor's Corporation or any successor rating
agency.
"Sale and Leaseback Transaction" means any transaction or series of
related transactions pursuant to which the Company or a Subsidiary sells or
transfers any property or asset in connection with the leasing, or the resale
against installment payments, of such property or asset to the seller or
transferor.
"SEC" means the United States Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or if, at any
time after the execution of the Indenture, the SEC is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Securities" has the meaning specified in the first recital of this
Indenture.
"Securities Act" means the United States Securities Act of 1933, as
amended, or any successor statute.
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"Securitization Facility" means the asset-backed securities issued by
the H&T Master Trust on December 13, 1996 in the aggregate principal amount of
$160,000,000, as such facility in whole or in part, may be amended, renewed,
extended, substituted, refinanced, restructured, replaced (including, without
limitation, with bank financing secured by receivables), supplemented or
otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancing, restructurings,
replacements, supplementations or other modifications of the foregoing).
"Senior Indebtedness" means the principal of, premium (if any) and
interest (including interest accruing after the filing of a petition initiating
any proceeding under any state, federal or foreign Bankruptcy Law whether or not
allowable as a claim in such proceeding) and all other monetary obligations on
any Indebtedness of the Company (other than as otherwise provided in this
definition), whether outstanding on the date hereof or thereafter created,
incurred or assumed, and whether at any time owing, actually or contingently,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Securities. Without limiting the generality of the foregoing, Senior
Indebtedness shall include principal, premium (if any) and interest (including
interest accruing after the filing of a petition initiating any proceedings
under any state, federal or foreign Bankruptcy Laws whether or not allowable as
a claim in such proceeding) and all other monetary obligations of every kind and
nature of the Company from time to time owed under the Bank Credit Facility or
under the Securitization Facility; provided, however, that any Indebtedness
under any refinancing, refunding or replacement of the Bank Credit Facility or
the Securitization Facility shall not constitute Senior Indebtedness to the
extent the Indebtedness thereunder is by its express terms subordinate to any
other Indebtedness of the Company. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) Indebtedness evidenced by the Securities or
the Series B Securities, (ii) Indebtedness that is by its terms subordinate or
junior in right of payment to any Indebtedness of the Company, (iii)
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of title 11 United States Code, is without recourse to the
Company, (iv) Indebtedness which is represented by Redeemable Capital Stock, (v)
any liability for foreign, federal, state, local or other tax owed or owing by
the Company to the extent such liability constitutes Indebtedness, (vi)
Indebtedness of the Company to a Subsidiary or any other Affiliate of the
Company or any of such Affiliate's subsidiaries, and (vii) that portion of any
Indebtedness which at the time of issuance is issued in violation of this
Indenture.
"Senior Representative" means the agent, indenture trustee or other
trustee or representative for any Senior Indebtedness.
"Series B Security" means the Company's 9-7/8% Senior Subordinated Notes
due 2007 issued pursuant to the B Indenture, as such may be amended or
supplemented from time to time.
"Series C Security" has the meaning stated in the first recital of this
Indenture.
"Series D Security" has the meaning stated in the first recital of this
Indenture.
"Shelf Registration Statement" means a "shelf" registration statement of
the Company pursuant to Section 2.2 of the Registration Rights Agreement, which
covers all of the Registrable Securities (as defined in the Registration Rights
Agreement) on an appropriate form under Rule 415 under the Securities Act, or
any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
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"Significant Subsidiary" means any Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.9.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon means the dates specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is
by its terms expressly subordinated in right of payment to the Securities.
"Subsidiary" means any Person, a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries; provided that (i) any Unrestricted Subsidiary shall not be
deemed a Subsidiary under the Indenture and (ii) any real estate investment
trust in which the Company or any Subsidiary has invested pursuant to clause
(ix) of the definition of "Permitted Investment" shall not be deemed a
Subsidiary under this Indenture.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof, and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit (or, with respect to non-U.S.
banking institutions, similar instruments) maturing not more than one year after
the date of acquisition, issued by, or time deposit of, a commercial banking
institution that is a member of the Federal Reserve System or a commercial
banking institution organized and located in a country recognized by the United
States of America, in each case, that has combined capital and surplus and
undivided profits of not less than $500,000,000 (or the foreign currency
equivalent thereof), whose debt has a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's or any
successor rating agency or "A-1" (or higher) according to S&P or any successor
rating agency, (iii) commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an Affiliate or
Subsidiary of the Company) organized and existing under the laws of the United
States of America with a rating, at the time as of which any investment therein
is made, of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P, (iv) any money market deposit accounts or demand deposit
accounts issued or offered by a domestic commercial bank or a commercial banking
institution organized and located in a country recognized by the United States
of America, in each case having capital and surplus in excess of $500,000,000
(or the foreign currency equivalent thereof); provided that the short-term debt
of such commercial bank has a rating, at the time of Investment, of "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to S&P, and (v) any
other Investments, that at any one time do not exceed $100,000 in the aggregate,
issued or offered by any domestic commercial bank or any commercial banking
institution organized and located in a country recognized by the United States
of America.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this Indenture, until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended,
or any successor statute. References to sections of the Trust Indenture Act
include successor statute sections dealing with the same subject.
"13% Notes" means the Senior Subordinated Notes due 2003 of the Company.
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"Unrestricted Subsidiary" means (i)BTFCC, Inc., (ii) any subsidiary of
the Company that at the time of determination shall be an Unrestricted
Subsidiary (as designated by the Board of Directors, as provided below), and
(iii) any subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any subsidiary of the Company (including any newly acquired or newly
formed subsidiary) to be an Unrestricted Subsidiary if all of the following
conditions apply: (a) neither the Company nor any of its Subsidiaries provides
credit support for Indebtedness of such Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (b) such
Unrestricted Subsidiary is not liable, directly or indirectly, with respect to
any Indebtedness other than Unrestricted Subsidiary Indebtedness or the Bank
Credit Facility, (c) any Investment by the Company in such Unrestricted
Subsidiary made as a result of designating such subsidiary an Unrestricted
Subsidiary shall not violate the provisions described under Section 10.16 and
such Unrestricted Subsidiary is not party to any agreement, contract,
arrangement or understanding at such time with the Company or any other
subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such other
subsidiary than those that might be obtained at the time from Persons who are
not Affiliates of the Company or, in the event such condition is not satisfied,
the value of such agreement, contract, arrangement or understanding to such
Unrestricted Subsidiary shall be deemed an Investment, and (d) such Unrestricted
Subsidiary does not own any Capital Stock in any subsidiary of the Company which
is not simultaneously being designated an Unrestricted Subsidiary. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complies with the
foregoing conditions and any Investment by the Company in such Unrestricted
Subsidiary shall be deemed a Restricted Payment on the date of designation in an
amount equal to the greater of (1) the net book value of such Investment or (2)
the Fair Market Value of such Investment as determined in good faith by the
Board of Directors. The Board of Directors may designate any Unrestricted
Subsidiary as a Subsidiary; provided (i) that if such Unrestricted Subsidiary
has any Indebtedness, that immediately after giving effect to such designation,
the Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness or Permitted Subsidiary Indebtedness) pursuant to the restrictions
under Section 10.18, and (ii) that all Indebtedness of such Subsidiary shall be
deemed to be incurred on the date such Unrestricted Subsidiary becomes a
Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary
means Indebtedness of such Unrestricted Subsidiary (a) as to which neither the
Company nor any Subsidiary is directly or indirectly liable (by virtue of the
Company or any such Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), and (b) which, upon the
occurrence of a default with respect thereto, does not result in, or permit any
holder of any Indebtedness of the Company or any Subsidiary to declare, a
default on such Indebtedness of the Company or any Subsidiary or cause the
payment thereof to be accelerated or payable prior to its Stated Maturity.
"Voting Stock" means Capital Stock of the class or classes pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of a corporation (irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"Wholly-Owned Subsidiary" means a Subsidiary all the Capital Stock of
which (other than qualifying shares, if any) is owned by the Company or another
Wholly-Owned Subsidiary.
Section 1.2. Other Definitions.
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DEFINED IN
TERM SECTION
---- ----------
"Act" 1.5
"Agent Members" 3.6
"Change of Control Offer" 10.13
"Change of Control Purchase Date" 10.13
"Change of Control Purchase Notice" 10.13
"Change of Control Purchase Price" 10.13
"covenant defeasance" 4.3
"Defaulted Interest" 3.9
"defeasance" 4.2
"Defeasance Redemption Date" 4.4
"Defeased Securities" 4.1
"Excess Proceeds" 10.12
"Global Securities" 2.1
"incur" 10.8
"Incurrence Date" 10.8
"Initial Period" 13.3
"Non-Global Purchasers 2.1
"Non-payment Default" 13.3
"Offer" 10.12
"Offer Date" 10.12
"Offered Price" 10.12
"Offshore Global Security" 2.1
"Offshore Securities Exchange Date" 2.1
"Pari Passu Debt Amount" 10.12
"Payment Blockage Period" 13.3
"Payment Default" 13.3
"Pari Passu Offer" 10.12
"Permanent Offshore Physical Securities" 2.1
"Permitted Junior Securities" 13.2
"Permitted Payment" 10.9
"Physical Securities" 3.6
"Private Placement Legend" 2.2
"refinancing" 10.9
"Regulation S" 2.1
"Required Filing Dates" 10.17
"Restricted Payments" 10.9
"Security Amount" 10.12
"Security Register" 3.5
"Security Registrar" 3.5
"Special Payment Date" 3.9
"Surviving Entity" 8.1
"U.S. Global Security" 2.1
"U.S. Government Obligations" 4.4
"U.S. Physical Securities 2.1
Section 1.3. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company and each other
obligor on the Securities shall furnish to the Trustee an Officers' Certificate
in a form and substance reasonably acceptable to the Trustee stating that all
conditions precedent, if any, provided for in this Indenture (including any
covenant compliance which constitutes a condition precedent) relating to the
proposed action have been complied with and an Opinion of Counsel in a form and
substance reasonably acceptable to the Trustee stating that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that, in the case of any such application or request as to which the
furnishing of any certificates and/or opinions is specifically required by any
provision of this Indenture, relating to such particular application or request,
no additional certificate or opinion need be furnished.
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Every certificate or Opinion of Counsel with respect to compliance with
a condition or covenant provided for in this Indenture shall include:
(a) a statement to the effect that each individual or firm signing such
certificate or opinion has read such covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement to the effect that, in the opinion of each such
individual or such firm, he has made such examination or investigation as is
necessary to enable him or them to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such individual or
such firm, such condition or covenant has been complied with.
Section 1.4. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to such matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company or other obligor
on the Securities may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any certificate or opinion of
such an officer or of counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Company or other obligor on the Securities with respect to such
factual matters and which contains a statement to the effect that the
information with respect to such factual matters is in the possession of the
Company or other obligor on the Securities, unless such officer or counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Opinions of Counsel required to be delivered to the Trustee may have
qualifications customary for opinions of the type required, and counsel
delivering such Opinions of Counsel may rely on certificates of the Company or
government or other officials customary for opinions of the type required,
including certificates certifying as to matters of fact, including that various
financial covenants have been complied with.
Any certificate or opinion of an officer of the Company or other obligor
on the Securities may be based, insofar as it relates to accounting matters,
upon a certificate or opinion of, or representations by, an accountant or firm
of accountants in the employ of the Company, unless such officer knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the accounting matters upon which his
certificate or opinion may be based are erroneous. Any certificate or opinion of
any independent firm of public accountants filed with the Trustee shall contain
a statement that such firm is independent with respect to the Company.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
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Section 1.5. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The ownership of Securities shall be proved by the Security
Register.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other Act by the Holder of any Security shall bind every future Holder
of the same Security or the Holder of every Security issued upon the transfer
thereof or in exchange therefor or in lieu thereof, in respect of anything done,
suffered or omitted to be done by the Trustee, any Paying Agent or the Company
or any other obligor on the Securities in reliance thereon, whether or not
notation of such action is made upon such Security.
(d) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
Section 1.6. Notices, etc., to Trustee and the Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company or any other obligor on
the Securities shall be sufficient for every purpose hereunder if made, given,
furnished or filed, in writing, by first-class mail postage prepaid (return
receipt requested) or delivered in person or by recognized overnight courier to
or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust
Administration or at any other address furnished in writing prior thereto to the
Holders, the Company or any other obligor on the Securities by the Trustee; or
(b) the Company shall be sufficient for every purpose (except as
provided in Section 5.1(c)) hereunder if made, given, furnished or filed, in
writing, by first-class mail postage prepaid (return receipt requested) or
delivered in person or by recognized overnight courier, to or with the Company
addressed to it at 8700 West Bryn Mawr Avenue, Chicago, Illinois 60633,
Attention: Chief Financial Officer, or at any other address previously furnished
in writing to the Trustee by the Company.
Section 1.7. Notice to Holders; Waiver.
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Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at such Holder's address as it appears in the Security Register,
not later than the latest date, and not earlier than the earliest date,
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Any notice when mailed to a Holder in the
aforesaid manner shall be conclusively deemed to have been received by such
Holder whether or not actually received by such Holder. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause, it shall be impracticable to mail notice of any event as
required by any provision of this Indenture, then any method of giving such
notice as shall be reasonably satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice.
Section 1.8. Conflict with Trust Indenture Act.
If and to the extent that any provision hereof limits, qualifies or
conflicts with any provision of the Trust Indenture Act or another provision
which is required or deemed to be included in this Indenture by any of the
provisions of the Trust Indenture Act, the provision or requirement of the Trust
Indenture Act shall control. If any provision of this Indenture modifies or
excludes any provision of the Trust Indenture Act that may be so modified or
excluded, such provision of the Trust Indenture Act shall be deemed to apply to
this Indenture as so modified or to be excluded, as the case may be.
Section 1.9. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 1.10. Successors and Assigns.
All covenants and agreements in this Indenture by the Company and any
other obligor on the Securities shall bind their successors and assigns, whether
so expressed or not.
Section 1.11. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.12. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person (other than the parties hereto and their successors
hereunder, any Paying Agent, the Holders and the holders of Senior Indebtedness)
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
Section 1.13. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES THEREOF).
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Section 1.14. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, Maturity
or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date, or at
Maturity or the Stated Maturity, and no interest shall accrue with respect to
such payment for the period from and after such Interest Payment Date,
Redemption Date, Maturity or Stated Maturity, as the case may be, to the next
succeeding Business Day.
Section 1.15. Schedules.
All schedules attached hereto are by this reference made a part with the
same effect as if herein set forth in full.
Section 1.16. Counterparts.
This Indenture may be executed in any number of counterparts, each of
which shall be an original; but such counterparts shall together constitute but
one and the same instrument.
Section 1.17. No Recourse against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder by accepting any of
the Securities waives and releases all such liability. Such waiver may not be
effective to waive liabilities under federal securities laws and it is the view
of the SEC that such a waiver is against public policy.
ARTICLE II
SECURITY FORMS
Section 2.1. Forms Generally.
The Securities and the Trustee's certificate of authentication thereon
shall be in substantially the forms set forth in this Article II, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted hereby and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange, any organizational
document or governing instrument or applicable law or as may, consistently
herewith, be determined by the officers executing such Securities, as evidenced
by their execution of the Securities. Any portion of the text of any Security
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Securities
may be listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
Initial Securities shall be issued initially in the form of one or more
permanent global Securities substantially in the form set forth in Section 2.2
(the "U.S. Global Security") deposited with the Trustee, as custodian for the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the U.S. Global Security
may from time to time be increased or
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decreased by adjustments made on the records of the Trustee, as custodian for
the Depository or its nominee, as hereinafter provided.
Initial Securities held by QIBs who elect to take physical delivery of
their certificates instead of holding their interest through the U.S. Global
Security (collectively, the "Non-Global Purchasers"), will be in registered form
without interest coupons (the "U.S. Physical Securities"). Upon the transfer of
U.S. Physical Securities, which were initially issued to a Non-Global
Purchaser, to a QIB, such U.S. Physical Securities will, unless the transferee
requests otherwise or the U.S. Global Security has previously been exchanged in
whole for U.S. Physical Securities, be exchanged for an interest in the U.S.
Global Security.
Initial Securities offered and sold in reliance on Regulation S under
the Securities Act ("Regulation S") shall be issued initially in the form of a
global note certificate substantially in the form set forth in Section 2.2 (the
"Offshore Global Security" and, together with the U.S. Global Security, the
"Global Securities"). The Offshore Global Security will be deposited with the
Trustee, as custodian for the Depository, and will be registered in the name of
the Depository until the later of the completion of the distribution of the
Initial Securities and the termination of the "restricted period" (as defined in
Regulation S) with respect to the offer and sale of the Initial Securities (the
"Offshore Securities Exchange Date"). Prior to the Offshore Securities Exchange
Date, transfers of beneficial interests in the Offshore Global Security can only
be effected through the Depository in accordance with the requirements of
Section 3.7 hereof. At any time following the Offshore Securities Exchange Date
(but in no event before such date), upon receipt by the Trustee and the Company
of a certificate substantially in the form of Exhibit A hereto, the Company
shall execute, and the Trustee shall authenticate and deliver, one or more
permanent certificated Securities in registered form substantially in the form
set forth in Section 2.2 (the "Permanent Offshore Physical Securities"), in
exchange for the surrender of a Holder's beneficial ownership interest in the
Offshore Global Security of like tenor and amount.
Section 2.2. Form of Face of Security.
(a) The form of the face of any Series C Securities authenticated and
delivered hereunder shall be substantially as follows:
Unless and until (i) an Initial Security is sold under an effective
Registration Statement or (ii) an Initial Security is exchanged for a Series D
Security in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, then (A) the U.S. Global Security
and each U.S. Physical Security shall bear the legend set forth below (the
"Private Placement Legend") on the face thereof and (B) the Offshore Global
Security and each Permanent Offshore Physical Security shall bear the Private
Placement Legend on the face thereof until at least 41 days after the Issue
Date.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS SET FORTH BELOW. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A")) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION WITHIN
THE MEANING OF REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"),
(2) AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO
THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS
SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO
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A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A INSIDE THE UNITED STATES, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A, (D) OUTSIDE THE UNITED STATES
PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS IN AN OFFSHORE
TRANSACTION WITHIN THE MEANING OF REGULATION S, (E) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT IS ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSES (D), (E) OR (F) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE
FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED
BY THE TRANSFEROR TO THE TRUSTEE. AS USED HEREIN, THE TERMS "UNITED
STATES," "OFFSHORE TRANSACTION," AND "U.S. PERSON" HAVE THE RESPECTIVE
MEANINGS GIVEN TO THEM BY REGULATION S.
[Each global security, whether or not an initial security, shall also
bear the following legend on the face thereof:]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR
A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. TRANSFERS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART,
TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
IN SECTIONS 3.5, 3.6 AND 3.7 OF THE INDENTURE. UNLESS THIS CERTIFICATE
IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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BALLY TOTAL FITNESS HOLDING CORPORATION
9-7/8% SERIES C SENIOR SUBORDINATED NOTES DUE 2007
CUSIP NO. __________
No. ________________ $___________________
Bally Total Fitness Holding Corporation, a Delaware corporation (herein
called the "Company," which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to or registered assigns, the principal sum of ______ United States dollars on
October 15, 2007, at the office or agency of the Company referred to below, and
to pay interest thereon from October 15, 1998, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, semiannually
on April 15 and October 15 in each year, commencing April 15, 1999 at the rate
of 9-7/8% per annum, subject to adjustments as described in the second following
paragraph, in United States dollars, until the principal hereof is paid or duly
provided for. Interest shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The Holder of this Series C Security is entitled to the benefits of the
Registration Rights Agreement (the "Registration Rights Agreement") among the
Company and the Initial Purchasers, dated December 16, 1998, pursuant to which,
subject to the terms and conditions thereof, the Company is obligated to
consummate the Exchange Offer pursuant to which the Holder of this Security
shall have the right to exchange this Security for the Company's 9-7/8% Series D
Senior Subordinated Notes due 2007 (herein called the "Series D Securities") in
like principal amount as provided therein. The Series C Securities and the
Series D Securities are together referred to as the "Securities." The Series C
Securities rank pari passu in right of payment with the Series D Securities.
In the event that (a) the Exchange Offer Registration Statement is not
filed with the SEC on or prior to the 90th day following the date of original
issue of the Series C Securities, (b) the Exchange Offer Registration Statement
has not been declared effective on or prior to the 150th day following the date
of original issue of the Series C Securities, or (c) the Exchange Offer is not
consummated on or prior to the 180th day following the date of original issue of
the Series C Securities or a Shelf Registration Statement is not declared
effective on or prior to the 150th day following the date of original issue of
the Series C Securities (or, if a Shelf Registration Statement is required to be
filed because of the request of the Initial Purchasers, 60 days following the
request by the Initial Purchasers) (each such event referred to in clauses (a)
through (c) above, a "Registration Default"), the interest rate borne by the
Series C Securities (except in the case of clause (c), in which case only the
Series C Securities which have not been exchanged in the Exchange Offer) shall
be increased by an amount equal to one-quarter of one percent (0.25%) per annum
upon the occurrence of any Registration Default, which rate (as increased as
aforesaid) will increase by an additional one quarter of one percent (0.25%)
each 90-day period that such additional interest continues to accrue under any
such circumstance, with an aggregate maximum increase in the interest rate equal
to one percent (1%) per annum. Following the cure of all Registration Defaults
the accrual of additional interest will cease and the interest rate will revert
to the original rate.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or any Predecessor Security) is registered
at the close of business on the Regular Record Date for such interest, which
shall be the April 1 or October 1 (whether or not a Business Day), as the case
may be, immediately preceding such Interest Payment Date. Any such interest not
so punctually paid, or duly provided for, and interest on such defaulted
interest at the interest rate borne by the Series C Securities, to the extent
lawful, shall forthwith cease to be payable to the Holder on such Regular Record
Date, and may either be paid to the Person in whose name this Security (or any
Predecessor Security) is registered at the close of business on a
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Special Record Date for the payment of such defaulted interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture.
Payment of the principal of, premium, if any, and interest on, this
Security, and exchange or transfer of the Security, will be made at the office
or agency of the Company in The City of New York maintained for that purpose
(which initially will be the Corporate Trust Office of the Trustee), or at such
other office or agency as may be maintained for such purpose, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that payment
of interest may be made at the option of the Company by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof or by the authenticating agent
appointed as provided in the Indenture by manual signature of an authorized
signer, this Security shall not be entitled to any benefit under the Indenture,
or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by the manual or facsimile signature of its authorized officers and its
corporate seal to be affixed or reproduced hereon.
BALLY TOTAL FITNESS HOLDING CORPORATION
By: --------------------------------
Title: -----------------------------
Attest:
Authorized Officer
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TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 9-7/8% Series C Senior Subordinated Notes due 2007
referred to in the within-mentioned Indenture.
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee
By: --------------------------
Authorized Signer
Dated:
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OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 10.12 or Section 10.13, as applicable, of the Indenture, check the Box:
[ ].
If you wish to have a portion of this Security purchased by the Company
pursuant to Section 10.12 or Section 10.13 as applicable, of the Indenture,
state the amount (in original principal amount): $_________________
Date:_______________ Your Signature:____________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:_______________________________
[Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Securities Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Securities Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act.]
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(b) The form of the face of any Series D Securities authenticated and
delivered hereunder shall be substantially as follows:
[Each global security, whether or not an initial security, shall also
bear the following legend on the face thereof:]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR
A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. TRANSFERS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART,
TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
IN SECTIONS 3.5, 3.6 AND 3.7 OF THE INDENTURE. UNLESS THIS CERTIFICATE
IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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BALLY TOTAL FITNESS HOLDING CORPORATION
9-7/8% SERIES D SENIOR SUBORDINATED NOTES DUE 2007
CUSIP NO. __________
No. _______________ $___________________
Bally Total Fitness Holding Corporation, a Delaware corporation (herein
called the "Company," which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to _____________ or registered assigns, the principal sum of ______ United
States dollars on October 15, 2007, at the office or agency of the Company
referred to below, and to pay interest thereon from October 15, 1998, or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, semiannually on April 15 and October 15 in each year, commencing
April 15, 1999 at the rate of 9-7/8% per annum, in United States dollars, until
the principal hereof is paid or duly provided for; provided that to the extent
interest has not been paid or duly provided for with respect to the Series C
Security or Series B Security exchanged for this Series D Security, interest on
this Series D Security shall accrue from the most recent Interest Payment Date
to which interest on the Series C Security or Series B Security which was
exchanged for this Series D Security has been paid or duly provided for.
Interest shall be computed on the basis of a 360-day year comprised of twelve
30-day months.
This Series D Security was issued pursuant to the Exchange Offer
pursuant to which the Company's 9-7/8% Series C Senior Subordinated Notes due
2007 (herein called the "Series C Securities"), and the Company's 9-7/8% Series
B Senior Subordinated Notes due 2007 (herein called the "Series B Securities")
in like principal amount were exchanged for the Series D Securities. The Series
D Securities rank pari passu in right of payment with the Series C Securities
and the Series B Securities.
In addition, for any period in which the Series C Security exchanged for
this Series D Security was outstanding, in the event that (a) the Exchange Offer
Registration Statement was not filed with the SEC on or prior to the 90th day
following the date of original issue of the Series C Security, (b) the Exchange
Offer Registration Statement was not declared effective on or prior to the 150th
day following the date of original issue of the Series C Security, or (c) the
Exchange Offer was not consummated on or prior to the 180th day following the
date of original issue of the Series C Security or a Shelf Registration
Statement was not declared effective on or prior to the 150th day following the
date of original issue of the Series C Security (or, if a Shelf Registration
Statement was required to be filed because of the request of the Initial
Purchasers, 60 days following a request by the Initial Purchasers) (each such
event referred to in clauses (a) through (c) above, a "Registration Default"),
the interest rate borne by the Series C Securities (except in the case of clause
(c), in which case only the Series C Securities which have not been exchanged in
the Exchange Offer) was increased by one-quarter of one percent (0.25%) per
annum upon the occurrence of the Registration Default, which rate (as increased
as aforesaid) will increase by an additional one-quarter of one percent (0.25%)
each 90-day period that such additional interest continues to accrue under any
such circumstance, with an aggregate maximum increase in the interest rate equal
to one percent (1%) per annum. Following the cure of all Registration Defaults
the accrual of additional interest will cease and the interest rate will revert
to the original rate; provided that, to the extent interest at such increased
interest rate has been paid or duly provided for with respect to the Series C
Security, interest at such increased interest rate, if any, on this Series D
Security shall accrue from the most recent Interest Payment Date to which such
interest on the Series C Security has been paid or duly provided for; provided,
however, that, if after any such reduction in interest rate, a different event
specified in clause (a), (b) or (c) above occurs, the interest rate shall again
be increased pursuant to the foregoing provisions.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in
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<PAGE>
whose name this Security (or any Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the April 1 or October 1 (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such defaulted interest
at the interest rate borne by the Series D Securities, to the extent lawful,
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and may either be paid to the Person in whose name this Security (or any
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such defaulted interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in the Indenture.
Payment of the principal of, premium, if any, and interest on, this
Security, and exchange or transfer of the Security, will be made at the office
or agency of the Company in The City of New York maintained for such purpose
(which initially will be the Corporate Trust Office of the Trustee), or at such
other office or agency as may be maintained for such purpose, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that payment
of interest may be made at the option of the Company by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof or by the authenticating agent
appointed as provided in the Indenture by manual signature of an authorized
signer, this Security shall not be entitled to any benefit under the Indenture,
or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by the manual or facsimile signature of its authorized officers and its
corporate seal to be affixed or reproduced hereon.
BALLY TOTAL FITNESS HOLDING CORPORATION
By: --------------------------------
Title: ----------------------------
Attest:
Authorized Officer
-31-
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 9-7/8% Series D Senior Subordinated Notes due 2007
referred to in the within-mentioned Indenture.
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee
By: -------------------------------
Authorized Signer
Dated:
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 10.12 or Section 10.13, as applicable, of the Indenture, check the Box:
[ ]
If you wish to have a portion of this Security purchased by the Company
pursuant to Section 10.12 or Section 10.13 as applicable, of the Indenture,
state the amount (in original principal amount): $___________
Date:____________ Your Signature:__________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:________________________________
[Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Securities Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Securities Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act.]
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<PAGE>
Section 2.3. Form of Reverse of Securities.
(a) The form of the reverse of the Series C Securities shall be
substantially as follows:
BALLY TOTAL FITNESS HOLDING CORPORATION
9-7/8% SERIES C SENIOR SUBORDINATED NOTES DUE 2007
This Security is one of a duly authorized issue of Securities of the
Company designated as its 9-7/8% Series C Senior Subordinated Notes due
2007(herein called the "Securities"), limited (except as otherwise provided in
the Indenture referred to below) in aggregate principal amount limited to
$300,000,000, issued under and subject to the terms of an indenture (herein
called the "Indenture") dated as of December 16, 1998, between the Company and
U.S. Bank Trust National Association, as trustee (herein called the "Trustee,"
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a) the
entire Indebtedness on the Securities and (b) certain restrictive covenants and
related defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Securities are subject to redemption at any time on or after October
15, 2002, at the option of the Company, in whole or in part, on not less than 30
nor more than 60 days' prior notice to the Holders by first-class mail, in
amounts of $1,000 or an integral multiple thereof, at the following redemption
prices (expressed as percentages of the principal amount), if redeemed during
the 12-month period beginning on October 15, of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- -----
<S> <C> <C>
2002 104.938%
2003 103.292%
2004 101.646%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant Regular Record Dates or Special Record
Dates to receive interest due on an Interest Payment Date).
If less than all of the Securities or Series D Securities are to be
redeemed, the Trustee shall select the Securities and Series D Securities or
portions thereof to be redeemed pro rata, by lot or by any other method the
Trustee shall deem fair and reasonable
Upon the occurrence of a Change of Control, each Holder may require the
Company to purchase such Holder's Securities in whole or in part in integral
multiples of $1,000, at a purchase price in cash in an amount equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
In addition, at any time on or prior to October 15, 2000, the Company
may, at its option, use the net proceeds of one or more Public Equity Offerings
to redeem up to an aggregate of 35% of the aggregate principal amount of
Securities originally issued (whether on or after the Issue Date) under the
Indenture at a redemption price equal to 109.875% of the aggregate principal
amount thereof, plus accrued and unpaid interest
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<PAGE>
thereon, if any, to the Redemption Date; provided that at least 65% of the
aggregate principal amount of Securities and Series D Securities originally
issued under the Indenture remains outstanding immediately after the occurrence
of such redemption. In order to effect the foregoing redemption, the Company
must mail a notice of redemption no later than 60 days after the related Public
Equity Offering and must consummate such redemption within 90 days of the
closing of the Public Equity Offering.
Under certain circumstances, in the event the Net Cash Proceeds received
by the Company from any Asset Sale (which proceeds are not used to permanently
repay any Senior Indebtedness or invested in properties or other assets that
replace the properties and assets that were the subject of the Asset Sale or
which will be used in the businesses of the Company or its Subsidiaries existing
on the date of the Indenture or in businesses reasonably related or
complementary thereto) exceeds a specified amount, the Company will be required
to set aside such proceeds in a separate account pending an offer by the Company
to apply such proceeds to the repayment of the Securities and certain
Indebtedness ranking pari passu in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in accordance
with the Indenture, interest installments whose Stated Maturity is on or prior
to the Redemption Date will be payable to the Holders of such Securities of
record as of the close of business on the relevant Regular Record Date or
Special Record Date referred to on the face hereof. Securities (or portions
thereof) for whose redemption and payment provision is made in accordance with
the Indenture shall cease to bear interest from and after the Redemption Date.
In the event of redemption or repurchase of this Security in accordance
with the Indenture in part only, a new Security or Securities for the unredeemed
portion hereof shall be issued in the name of the Holder hereof upon the
cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture. The Securities are not entitled to
the benefit of any sinking fund.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders) as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture and the Securities at
any time by the Company and the Trustee with the consent of the Holders of a
specified percentage in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities and Series
D Securities at the time Outstanding, on behalf of the Holders of all the
Securities and Series D Securities, to waive compliance by the Company with
certain provisions of the Indenture and the Securities and certain past Defaults
under the Indenture and their consequences. Any such consent or waiver by or on
behalf of the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent or wavier is made upon this
Security.
The Securities are subordinated in right of payment, in the manner and
to the extent set forth in the Indenture, to the prior payment in full in cash
or Cash Equivalents or, as acceptable to the holders of Senior Indebtedness, in
any other manner, of all Senior Indebtedness of the Company whether outstanding
on the date hereof or thereafter created, incurred, assumed or guaranteed. Each
Holder by his acceptance hereof agrees to be bound by such provisions and
authorizes and expressly directs the Trustee, on his behalf, to take such action
as may be necessary or appropriate to effectuate the subordination provided for
in the Indenture and appoints the Trustees his attorney-in-fact for such
purpose.
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<PAGE>
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company or any
other obligor on the Securities (in the event such other obligor is obligated to
make payments in respect of the Securities), which is absolute and
unconditional, to pay the principal of, premium, if any, and interest on, this
Security at the times, place, and rate, and in the coin or currency, herein
prescribed.
If this Series C Security is in certificated form, then as provided in
the Indenture and subject to certain limitations therein set forth, the transfer
of this Security is registrable on the Security Register of the Company, upon
surrender of this Security for registration of transfer at the office or agency
of the Company maintained for such purpose in The City of New York or at such
other office or agency of the Company as may be maintained for such purpose,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or its attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
If this Series C Security is in certificated form, then as provided in
the Indenture and subject to certain limitations therein set forth, the Holder,
provided it is a Qualified Institutional Buyer, may exchange this Series C
Security for a Book-Entry Security by instructing the Trustee (by completing the
Transferee Certificate in the form in Appendix I) to arrange for such Series C
Security to be represented by a beneficial interest in a Global Security in
accordance with the customary procedures of the Depository unless the Company
has elected not to issue a Global Security.
If this Series C Security is a Global Security, it is exchangeable for a
Series C Security in certificated form as provided in the Indenture and in
accordance with the rules and procedures of the Trustee and the Depository. In
addition, certificated securities shall be transferred to all beneficial holders
in exchange for their beneficial interests in a Global Security if (x) the
Depository notifies the Company that it is unwilling or unable to continue as
depository for a Global Security and a successor Depository is not appointed by
the Company within 90 days or (y) there shall have occurred and be continuing an
Event of Default and the Security Registrar has received a request from the
Depository. Upon any such issuance, the Trustee is required to register such
certificated Series C Securities in the name of, and cause the same to be
delivered to, such Person or Persons (or the nominee of any thereof). All such
certificated Series C Securities would be required to include the Private
Placement Legend.
Series C Securities in certificated form are issuable only in registered
form without coupons in denominations of $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, the Series C Securities are exchangeable for a like aggregate
principal amount of Securities of a differing authorized denomination, as
requested by the Holder surrendering the same.
At any time when the Company is not subject to Sections 13 or 15(d) of
the Exchange Act, upon the written request of a Holder of a Series C Security,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provision thereto) to such Holder or to a prospective purchaser of
such Series C Security who such Holder informs the Company is reasonably
believed to be a "Qualified Institutional Buyer" within the meaning of Rule 144A
under the Securities Act, as the case may be, in order to permit compliance by
such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
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<PAGE>
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security is overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES
THEREOF).
All terms used in this Security which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
[The Transferee Certificate, in the form of Appendix I hereto, will be
attached to the Series C Security.]
(b) The form of the reverse of the Series D Securities shall be
substantially as follows:
BALLY TOTAL FITNESS HOLDING CORPORATION
9-7/8% SERIES D SENIOR SUBORDINATED NOTES DUE 2007
This Security is one of a duly authorized issue of Securities of the
Company designated as its 9-7/8% Series D Senior Subordinated Notes due 2007
(herein called the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount limited to
$300,000,000, issued under and subject to the terms of an indenture (herein
called the "Indenture") dated as of December 16, 1998, between the Company and
U.S. Bank Trust National Association, as trustee (herein called the "Trustee,"
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a) the
entire Indebtedness on the Securities and (b) certain restrictive covenants and
related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Securities are subject to redemption at any time on or after October
15, 2002, at the option of the Company, in whole or in part, on not less than 30
nor more than 60 days' prior notice to the Holders by first-class mail, in
amounts of $1,000 or an integral multiple thereof, at the following redemption
prices (expressed as percentages of the principal amount), if redeemed during
the 12-month period beginning October 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- -----
<S> <C> <C>
2002 104.938%
2003 103.292%
2004 101.646%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant Regular Record Dates or Special Record
Dates to receive interest due on an Interest Payment Date).
If less than all of the Securities or Series C Securities are to be
redeemed, the Trustee shall select the Securities and Series C Securities or
portions thereof to be redeemed pro rata, by lot or by any other method the
Trustee shall deem fair and reasonable.
-37-
<PAGE>
Upon the occurrence of a Change of Control, each Holder may require the
Company to purchase such Holder's Securities in whole or in part in integral
multiples of $1,000, at a purchase price in cash in an amount equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, pursuant to a Change of Control Offer and in accordance with
the procedures set forth in the Indenture.
In addition, at any time on or prior to October 15, 2000, the Company
may, at its option, use the net proceeds of one or more Public Equity Offerings
to redeem up to an aggregate of 35% of the aggregate principal amount of
Securities originally issued (whether on or after the Issue Date) under the
Indenture at a redemption price equal to 109.875% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Redemption Date; provided that at least 65% of the aggregate principal amount of
Securities and Series C Securities originally issued under the Indenture remains
outstanding immediately after the occurrence of such redemption. In order to
effect the foregoing redemption, the Company must mail a notice of redemption no
later than 60 days after the related Public Equity Offering and must consummate
such redemption within 90 days of the closing of the Public Equity Offering.
Under certain circumstances, in the event the Net Cash Proceeds received
by the Company from any Asset Sale (which proceeds are not used to permanently
repay any Senior Indebtedness or invested in properties or other assets that
replace the properties and assets that were the subject of the Asset Sale or
which will be used in the businesses of the Company or its Subsidiaries existing
on the date of the Indenture or in businesses reasonably related or
complementary thereto) exceeds a specified amount, the Company will be required
to set aside such proceeds in a separate account pending an offer by the Company
to apply such proceeds to the repayment of the Securities and certain
Indebtedness ranking pari passu in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in accordance
with the Indenture, interest installments whose Stated Maturity is on or prior
to the Redemption Date will be payable to the Holders of such Securities of
record as of the close of business on the relevant Regular Record Date or
Special Record Date referred to on the face hereof. Securities (or portions
thereof) for whose redemption and payment provision is made in accordance with
the Indenture shall cease to bear interest from and after the Redemption Date.
In the event of redemption or repurchase of this Security in accordance
with the Indenture in part only, a new Security or Securities for the unredeemed
portion hereof shall be issued in the name of the Holder hereof upon the
cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture. The Securities are not entitled to
the benefit of any sinking fund.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders) as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture and the Securities at
any time by the Company and the Trustee with the consent of the Holders of a
specified percentage in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities and Series
C Securities at the time Outstanding, on behalf of the Holders of all the
Securities and Series C Securities, to waive compliance by the Company with
certain provisions of the Indenture and the Securities and certain past Defaults
under the Indenture and their consequences. Any such consent or waiver by or on
behalf of the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this
Security.
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<PAGE>
The Securities are subordinated in right of payment, in the manner and
to the extent set forth in the Indenture, to the prior payment in full in cash
or Cash Equivalents or, as acceptable to the holders of Senior Indebtedness, in
any other manner, of all Senior Indebtedness of the Company whether outstanding
on the date hereof or thereafter created, incurred, assumed or guaranteed. Each
Holder by his acceptance hereof agrees to be bound by such provisions and
authorizes and expressly directs the Trustee, on his behalf, to take such action
as may be necessary or appropriate to effectuate the subordination provided for
in the Indenture and appoints the Trustee his attorney-in-fact for such purpose.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company or any
other obligor on the Securities (in the event such other obligor is obligated to
make payments in respect of the Securities), which is absolute and
unconditional, to pay the principal of, and premium, if any, and interest on,
this Security at the times, place, and rate, and in the coin or currency, herein
prescribed.
If this Series D Security is in certificated form, then as provided in
the Indenture and subject to certain limitations therein set forth, the transfer
of this Series D Security is registrable on the Security Register of the
Company, upon surrender of this Series D Security for registration of transfer
at the office or agency of the Company maintained for such purpose in The City
of New York or at such other office or agency of the Company as may be
maintained for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or its attorney duly authorized in
writing, and thereupon one or more new Series D Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
If this Series D Security is a U.S. Global Security, it is exchangeable
for a Series D Security in certificated form as provided in the Indenture and in
accordance with the rules and procedures of the Trustee and the Depository. In
addition, certificated securities shall be transferred to all beneficial holders
in exchange for their beneficial interests in the U.S. Global Security if (x)
the Depository notifies the Company that it is unwilling or unable to continue
as depository for the U.S. Global Security and a successor Depository is not
appointed by the Company within 90 days or (y) there shall have occurred and be
continuing an Event of Default and the Security Registrar has received a request
from the Depository. Upon any such issuance, the Trustee is required to register
such certificated Series D Securities in the name of, and cause the same to be
delivered to, such Person or Persons (or the nominee of any thereof).
Series D Securities in certificated form are issuable only in registered
form without coupons in denominations of $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, the Series D Securities are exchangeable for a like aggregate
principal amount of Securities of a differing authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security is overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES
THEREOF).
-39-
<PAGE>
All terms used in this Security which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
[The Transferee Certificate, in the form of Appendix II hereto, will be
attached to the Series D Security.]
ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is limited to $300,000,000 in principal
amount of Securities, except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Securities
pursuant to Section 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 9.6, 10.12, 10.13 or 11.8.
The Securities shall be known and designated as the "9-7/8% Senior
Subordinated Notes due 2007" of the Company. The Stated Maturity of the
Securities shall be October 15, 2007, and the Securities shall each bear
interest at the rate of 9-7/8% per annum, as such interest rate may be adjusted
as set forth in the Securities, from October 15, 1998, or from the most recent
Interest Payment Date to which interest has been paid, payable semiannually on
April 15 and October 15 in each year, commencing April 15, 1999, until the
principal thereof is paid or duly provided for. Interest on any overdue
principal, interest (to the extent lawful) or premium, if any, shall be payable
on demand.
The principal of, premium, if any, and interest on, the Securities shall
be payable and the Securities will be exchangeable and transferable at an office
or agency of the Company in The City of New York maintained for such purposes
(which initially will be the Corporate Trust Office of the Trustee) or at such
other office or agency as may be maintained for such purpose; provided, however,
that payment of interest may be made at the option of the Company by check
mailed to addresses of the Person entitled thereto as such addresses shall
appear on the Security Register.
For all purposes hereunder, the Series C Securities and the Series D
Securities will be treated as one class and are together referred to as the
"Securities." The Series C Securities rank pari passu in right of payment with
the Series D Securities.
The Securities shall be subject to repurchase by the Company pursuant to
an Offer as provided in Section 10.12.
Holders shall have the right to require the Company to purchase their
Securities, in whole or in part, in the event of a Change of Control pursuant to
Section 10.13.
The Securities shall not be entitled to the benefits of any sinking
fund.
The Securities shall be redeemable as provided in Article XI and in the
Securities.
At the election of the Company, the entire Indebtedness on the
Securities or certain of the Company's obligations and covenants and certain
Events of Default thereunder may be defeased as provided in Article IV.
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<PAGE>
Section 3.2. Denominations.
The Securities shall be issuable only in fully registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
Section 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by one of its
Chairman of the Board, its President, its Chief Executive Officer, its Chief
Financial Officer or one of its Vice Presidents and attested by its Secretary or
one of its Assistant Secretaries. The signatures of any of these officers on the
Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and make available for delivery such
Securities as provided in this Indenture and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of one of its duly authorized
signataries, and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company or any of its Subsidiaries, pursuant to Article
VIII, shall, in a single transaction or through a series of related
transactions, be consolidated or merged with or into any other Person or shall
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person, and the successor
Person resulting from such consolidation or surviving such merger, or into which
the Company shall have been merged, or the successor Person which shall have
participated in the sale, assignment, conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article VIII, any of the Securities authenticated
or delivered prior to such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposition may, from time to time, at the request of
the successor Person, be exchanged for other Securities executed in the name of
the successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section 3.3 in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such new name.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities on behalf of the Trustee. Unless limited by
the terms of such
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appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as any Security Registrar or Paying Agent to deal with the Company
and its Affiliates.
If an officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates such Security such Security shall
be valid nevertheless.
Section 3.4. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities which are printed, lithographed,
typewritten or otherwise produced, in any authorized denomination, substantially
of the tenor of the definitive Securities in lieu of which they are issued and
with such appropriate insertions, omissions, substitutions and other variations
as the officers executing such Securities may determine, as conclusively
evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 10.2,
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and make available for delivery in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged the temporary Securities shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities.
Section 3.5. Registration, Registration of Transfer and Exchange.
The Company shall cause the Trustee to keep, so long as it is the
Security Registrar, at the Corporate Trust Office of the Trustee, or such other
office as the Trustee may designate, a register (the register maintained in such
office or in any other office or agency designated pursuant to Section 10.2
being herein sometimes referred to as the "Security Register") in which, subject
to such reasonable regulations as the Security Registrar may prescribe, the
Company shall provide for the registration of Securities and of transfers of
Securities. The Trustee shall initially be the "Security Registrar" for the
purpose of registering Securities and transfers of Securities as herein
provided. The Company may change the Security Registrar or appoint one or more
co-Security Registrars without notice.
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 10.2, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery, in the name of the designated transferee or transferees, one or more
new Securities of the same series of any authorized denomination or
denominations, of a like aggregate principal amount.
Furthermore, any Holder of a Global Security shall, by acceptance of
such Global Security, agree that transfers of beneficial interests in such
Global Security may be effected only through a book-entry system maintained by
the Holder of such Global Security (or its agent), and that ownership of a
beneficial interest in a Security shall be required to be reflected in a book
entry.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination or denominations, of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and make available for
delivery, Securities of the same series which the Holder making the exchange is
entitled to receive: provided that no exchange of Series C Securities for Series
D Securities shall occur until an Exchange Offer
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Registration Statement shall have been declared effective by the SEC and that
the Series C Securities exchanged for the Series D Securities shall be canceled.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
Indebtedness, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer, or
for exchange, repurchase or redemption, shall (if so required by the Company or
the Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer, exchange or redemption of Securities, except for any tax or other
governmental charge that may be imposed in connection therewith, other than
exchanges pursuant to Sections 3.3, 3.4, 3.5, 9.6, 10.12, 10.13 or 11.8 not
involving any transfer.
The Company shall not be required (a) to issue, register the transfer of
or exchange any Security during a period beginning at the opening of business 15
days before the mailing of a notice of redemption of the Securities selected for
redemption under Section 11.4 and ending at the close of business on the day of
such mailing or (b) to register the transfer of or exchange any Security so
selected for redemption in whole or in part, except the unredeemed portion of
Securities being redeemed in part.
Every Security shall be subject to the restrictions on transfer provided
in the legend required to be set forth on the face of each Security pursuant to
Section 2.2, and the restrictions set forth in this Section 3.5, and the Holder
of each Security, by such Holder's acceptance thereof (or interest therein),
agrees to be bound by such restrictions on transfer.
The restrictions imposed by this Section 3.5 upon the transferability of
any particular Security shall cease and terminate on (a) the later of December
16, 2000 or two years after the last date on which the Company or any Affiliate
of the Company was the owner of such Security (or any predecessor of such
Security) or (b) (if earlier) if and when such Security has been sold pursuant
to an effective registration statement under the Securities Act or transferred
pursuant to Rule 144 or Rule 904 under the Securities Act (or any successor
provision), unless the Holder thereof is an affiliate of the Company, within the
meaning of Rule 144 (or such successor provisions). Any Security as to which
such restrictions on transfer shall have expired in accordance with their terms
or shall have terminated may, upon surrender of such Security for exchange to
the Security Registrar in accordance with the provision of this Section 3.5
(accompanied, in the event that such restrictions on transfer have terminated
pursuant to Rule 144 or Rule 904 (or any successor provision), by an Opinion of
Counsel satisfactory to the Company and the Trustee, to the effect that the
transfer of such Security has been made in compliance with Rule 144 or Rule 904
(or any such successor provision)), be exchanged for a new Security, of like
tenor and aggregate principal amount, which shall not bear the Private Placement
Legend. The Company shall inform the Trustee of the effective date of any
Registration Statement registering the Securities under the Securities Act no
later than two Business Days after such effective date.
Except as provided in the preceding paragraph, any Security
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, any U.S. Global Security or Offshore Global Security,
whether pursuant to this Section 3.5, Section 3.4, 3.8, 9.6 or 11.8 or
otherwise, shall also be a U.S. Global Security or Offshore Global Security, as
the case may be, and shall bear the legend specified in Section 2.2.
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Section 3.6. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in the name
of the Depository, (ii) be deposited with, or on behalf of, the Depository or
with the Trustee as custodian for the Depository and (iii) bear legends as set
forth in Section 2.2.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository or the Trustee as its custodian, or under the
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository, or shall impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Security.
(b) Transfers of a Global Security shall be limited to transfers of such
Global Security in whole, but not in part, to the Depository, its successors or
their respective nominees. Interests of beneficial owners in a Global Security
may be transferred in accordance with the rules and procedures of the Depository
and the provisions of Section 3.7. Beneficial owners may obtain U.S. Physical
Securities in exchange for their beneficial interests in the U.S. Global
Security upon request in accordance with the Depository's and the Security
Registrar's procedures. In addition, at any time following the Offshore
Securities Exchange Date, upon receipt by the Trustee and the Company of a
certificate substantially in the Form of Exhibit A hereto, the Company shall
execute, and the Trustee shall authenticate and deliver to beneficial owners, in
exchange for their beneficial interest in the Offshore Global Security,
Permanent Offshore Physical Securities (together with the U.S. Physical
Securities, the "Physical Securities"). In connection with the execution,
authentication and delivery of either of such Physical Securities, the Security
Registrar shall reflect on its books and records a decrease in the principal
amount of the relevant Global Security equal to the principal amount of such
Physical Securities and the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Securities having an equal
aggregate principal amount.
In addition, Physical Securities shall be issued to all beneficial
owners in exchange for their beneficial interests in a Global Security if (i)
the Depository notifies the Company that it is unwilling or unable to continue
as a Depository for a Global Security and a successor Depository is not
appointed by the Company within 90 days of such notice or (ii) an Event of
Default has occurred and is continuing and the Security Registrar has received a
request from the Depository.
(c) In connection with any transfer of a portion of the beneficial
interest in a Global Security pursuant to subsection (b) of this Section to
beneficial owners who are required to hold Physical Securities, the Security
Registrar shall reflect on its books and records the date and a decrease in the
principal amount of the Global Security in an amount equal to the principal
amount of the beneficial interest in the Global Security to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver one or
more Physical Securities of like tenor and amount.
(d) In connection with the transfer of an entire Global Security to
beneficial owners pursuant to subsection (b) of this Section, such Global
Security shall be deemed to be surrendered to the Trustee for cancellation, and
the Company shall execute, and the Trustee shall authenticate and deliver, to
each beneficial owner identified by the Depository, in exchange for its
beneficial interest in the U.S. Global Security or Offshore Global Security, as
the case may be, an equal aggregate principal amount of U.S. Physical Securities
or Permanent Offshore Physical Securities, as the case may be, of authorized
denominations.
(e) Any Physical Security delivered in exchange for an interest in
Global Securities pursuant to subsection (c) or subsection (d) of this Section
shall, except
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as otherwise provided by paragraph (a)(i)(x) and paragraph (f) of Section 3.7,
bear the Private Placement Legend.
(f) The registered holder of a Global Security may grant proxies and
otherwise authorize any person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
Section 3.7. Special Transfer Provisions.
Unless and until (i) an Initial Security is sold under an effective
Registration Statement, or (ii) an Initial Security is exchanged for a Series D
Security in connection with the Exchange Offer, in each case pursuant to the
Registration Rights Agreement, the following provisions shall apply:
(a) Transfers to non-QIB institutional "accredited investors" (as
defined in Rule 501(a) (1), (2), (3) and (7) under the Securities Act). The
following provisions shall apply with respect to the registration of any
proposed transfer of an Initial Security to an institutional "accredited
investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under
the Securities Act) which is not a QIB (excluding Non-U.S.
Persons):
(i) The Security Registrar shall register the transfer of any
Initial Security whether or not such Initial Security bears the Private
Placement Legend, if (x) the requested transfer is at least two years
after the Issue Date of the Initial Securities or (y) the proposed
transferee has delivered to the Security Registrar a certificate
substantially in the form of Exhibit B hereto.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in a Global Security, upon receipt by the Security
Registrar of (x) the documents, if any, required by paragraph (i) and
(y) instructions given in accordance with the Depository's and the
Security Registrar's procedures therefor, the Security Registrar shall
reflect on its books and records the date and a decrease in the
principal amount of the applicable Global Security in an amount equal to
the principal amount of the beneficial interest in the Global Security
transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more U.S. Physical Securities of like
tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with respect
to the registration of any proposed transfer of an Initial Security to a QIB
(excluding Non-U.S. Persons):
(i) If the Security to be transferred consists of Physical
Securities, the Security Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Initial Security stating, or has otherwise
advised the Company and the Security Registrar in writing, that the sale
has been made in compliance with the provisions of Rule 144A to the
transferee who has signed the certification provided for on the form of
Initial Security, stating, or has otherwise advised the Company and the
Security Registrar in writing, that it is purchasing the Initial
Security for its own account or an account with respect to which it
exercises sole investment discretion and that it, or the person on whose
behalf it is acting with respect to any such account, is a QIB and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company
as it has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, and the
Initial Security to be transferred consists of Physical Securities which
after transfer
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are to be evidenced by an interest in the U.S. Global Security, upon
receipt by the Security Registrar of instructions given in accordance
with the Depository's and the Security Registrar's procedures therefor,
the Security Registrar shall reflect on its books and records the date
and an increase in the principal amount of the U.S. Global Security in
an amount equal to the principal amount of the Physical Securities to be
transferred, and the Trustee shall cancel the Physical Security so
transferred
(iii) If the Security to be transferred consists of an interest
in the U.S. Global Security, and the proposed transferee is a Agent
Member, the Security Registrar shall reflect such transfer on its books
and records.
(c) Transfers by Non-U.S. Persons on or Prior to January 25, 1999. The
following provisions shall apply with respect to registration of any proposed
transfer of an Initial Security by a Non-U.S. Person on or prior to January 25,
1999:
(i) If the proposed transferee is (x) a Non-U.S. Person and the
proposed transferor has delivered to the Security Registrar a
certificate substantially in the form of Exhibit C hereto or (y) a QIB
and the proposed transferor has advised the Company and the Security
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has advised the Company and
the Security Registrar in writing, that it is purchasing the Initial
Security for its own account or an account with respect to which it
exercises sole investment discretion and that it, or the person on whose
behalf it is acting with respect to any such account, is a QIB and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company
as it has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A, upon instructions
given in accordance with the Depository's procedures, the Security
Registrar shall register the transfer of any Initial Security by
reflecting on its books and records a decrease in the principal amount
at maturity of the Offshore Global Security in an amount equal to the
beneficial interest in such Global Security so transferred.
(ii) If the proposed transferee is a Agent Member, upon receipt
by the Security Registrar of instructions given in accordance with the
Depository's and the Security Registrar's procedures therefor, the
Security Registrar shall reflect on its books and records the date and
an increase in the principal amount at maturity of the U.S. Global
Security in an amount equal to the principal amount of the beneficial
interest in the Offshore Global Security to be transferred, and the
Trustee shall decrease the principal amount at maturity of the Offshore
Global Security represented by the beneficial interest therein so
transferred.
(d) Transfers by Non-U.S. Persons after January 25, 1999. The following
provisions shall apply with respect to any transfer of an Initial Security by a
Non-U.S. Person after January 25, 1999:
(i) If the Initial Security to be transferred is a Permanent
Offshore Physical Security, the Security Registrar shall register such
transfer.
(ii) If the proposed transferee is an Agent Member, upon receipt
by the Security Registrar of instructions given in accordance with the
Depository's and the Security Registrar's procedures therefor, the
Security Registrar shall reflect on its books and records the date and
an increase in the principal amount of the U.S. Global Security in an
amount equal to the principal amount of the Permanent Offshore Physical
Security to be transferred, and the Trustee shall cancel the Permanent
Offshore Physical Security so transferred.
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(e) Transfers to Non-U.S. Persons at Any Time. The following provisions
shall apply with respect to any transfer of an Initial Security to a Non-U.S.
Person:
(i) On or prior to January 25, 1999, and subject to (ii) below,
the Security Registrar shall register any proposed transfer of an
Initial Security to a Non-U.S. Person upon receipt of a certificate
substantially in the form of Exhibit C hereto from the proposed
transferor, by reflecting on its books and records an increase in the
principal amount at maturity of the Offshore Global Security in an
amount equal to the principal amount of the Securities transferred.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Security, upon receipt by the
Security Registrar of (x) the document, if any, required by paragraph
(i), and (y) instructions in accordance with the Depository's and the
Security Registrar's procedures thereof, the Security Registrar shall
reflect on its books and records the date and a decrease in the
principal amount of the U.S. Global Security in an amount equal to the
principal amount of the beneficial interest in the U.S. Global Security
transferred, and an increase in the same amount to the principal amount
at maturity of the Offshore Global Security.
(iii) After January 25, 1999, and subject to paragraph (iv)
below, the Security Registrar shall register any proposed transfer to
any Non-U.S. Person (x) if the Initial Security to be transferred is a
Permanent Offshore Physical Security, or (y) if the Initial Security to
be transferred is a U.S. Physical Security or an interest in the U.S.
Global Security, upon receipt of a certificate substantially in the form
of Exhibit C from the proposed transferor and (z) in the case of any of
clause (x) or (y), the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Permanent Offshore Physical
Securities of like tenor and amount.
(iv) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Security, upon receipt by the
Security Registrar of (x) the document, if any, required by paragraph
(iii), and (y) instructions in accordance with the Depository's and the
Security Registrar's procedures therefor, the Security Registrar shall
reflect on its books and records the date and a decrease in the
principal amount of the U.S. Global Security in an amount equal to the
principal amount of the beneficial interest in the U.S. Global Security
to be transferred and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Permanent Offshore Physical
Securities of like tenor and amount.
(f) Private Placement Legend. Upon the registration of transfer,
exchange or replacement of Securities not bearing the Private Placement Legend,
the Security Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon the registration of transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Security Registrar shall
deliver only Securities that bear the Private Placement Legend unless either (i)
the circumstances contemplated by paragraphs (a)(i)(x), (d)(i) or (e)(iii) of
this Section 3.7 exist or (ii) there is delivered to the Security Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act.
(g) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Security Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 3.6 or this Section
3.7. The Company shall have the right to inspect and make copies of all such
letters, notices
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or other written communications at any reasonable time upon the giving of
reasonable written notice to the Security Registrar.
Section 3.8. Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee, or (b) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company, any other obligor on the Securities and the Trustee, such security or
indemnity, in each case, as may be required by them to save each of them
harmless, then, in the absence of notice to the Company, any other obligor on
the Securities or the Trustee that such Security has been acquired by a bona
fide purchaser, the Company shall execute and upon a Company Request the Trustee
shall authenticate and make available for delivery, in exchange for any such
mutilated Security or in lieu of any such destroyed, lost or stolen Security, a
replacement Security of like tenor and principal amount, bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a replacement Security, pay such Security.
Upon the issuance of any replacement Securities under this Section, the
Company may require the payment of a sum sufficient to pay all documentary,
stamp or similar issue or transfer taxes or other governmental charges that may
be imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith.
Every replacement Security issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company and any other obligor on the Securities,
whether or not the destroyed, lost or stolen Security shall be at any time
enforceable by anyone, and shall be entitled to all benefits of this Indenture
equally and proportionately with any and all other Securities duly issued
hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section 3.9. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on the Stated Maturity of such interest shall be paid to the
Person in whose name the Security (or any Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest payment.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on the Stated Maturity of such interest, and interest
on such defaulted interest at the then applicable interest rate borne by the
Securities, to the extent lawful (such defaulted interest and interest thereon
herein collectively called "Defaulted Interest"), shall forthwith cease to be
payable to the Holder on the Regular Record Date, and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in
Subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or an relevant Predecessor
Securities) are registered at the close of business on a Special Record Date for
the Payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date (not less
than 30 days after such notice) of the proposed payment (the "Special Payment
Date"), and at the same time the Company shall deposit with the Trustee an
amount of money equal to the aggregate amount proposed to be paid in respect of
such Defaulted Interest or shall make arrangements satisfactory to the
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Trustee for such deposit prior to the Special Payment Date, such money when
deposited to be held in trust for the benefit of the Persons entitled to such
Defaulted Interest as provided in this Subsection. Thereupon the Trustee shall
fix a Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of the
Special Payment Date and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify the
Company in writing of such Special Record Date. In the name and at the expense
of the Company, the Trustee shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at its address as it appears in the
Security Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special Record
Date and Special Payment Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Securities are
registered on such Special Record Date and shall no longer be payable pursuant
to the following Subsection (b).
(b) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, if, after written notice given by the Company to the Trustee
of the proposed payment pursuant to this Subsection, such payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 3.9, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Section 3.10. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and the Company, or the Trustee on behalf of the Company,
shall use CUSIP numbers in notices of redemption or exchange as a convenience to
Holders; provided, however, that any such notice shall state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of redemption or exchange and
that reliance may be placed only on the other identification numbers printed on
the Securities; and provided further, however, that failure to use CUSIP numbers
in any notice of redemption or exchange shall not affect the validity or
sufficiency of such notice.
Section 3.11. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name any Security is registered as the owner of such Security
for the purpose of receiving payment of principal of, premium, if any and
(subject to Section 3.9) interest on, such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
Section 3.12. Cancellation.
All Securities surrendered for payment, purchase, redemption,
registration of transfer or exchange shall be delivered to the Trustee and, if
not already canceled, shall be promptly canceled by it. The Company may at any
time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section 3.12, except as expressly
permitted by this Indenture. If requested by the Company, all canceled
Securities held by the Trustee shall be returned to the Company. The Trustee
shall provide the Company a list of all Securities that have been canceled from
time to time as requested by the Company.
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Section 3.13. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
ARTICLE IV
DEFEASANCE AND COVENANT DEFEASANCE
Section 4.1. Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 4.2 or Section 4.3 be
applied to all of the Outstanding Securities (the "Defeased Securities"), upon
compliance with the conditions set forth below in this Article IV.
Section 4.2. Defeasance and Discharge.
Upon the Company's exercise under Section 4.1 of the option applicable
to this Section 4.2, the Company and any other obligor on the Securities, if
any, shall be deemed to have been discharged from its obligations with respect
to the Defeased Securities on the date the conditions set forth in Section 4.4
below are satisfied (hereinafter, "defeasance"). For this purpose, such
defeasance means that the Company and any other obligor on the Securities shall
be deemed to have paid and discharged the entire Indebtedness represented by the
Defeased Securities, which shall thereafter be deemed to be "Outstanding" only
for the purposes of Section 4.5 and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company and upon Company
Request, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (a) the rights of Holders of Defeased Securities to receive, solely
from the trust fund described in Section 4.4 and as more fully set forth in such
Section, payments in respect of the principal of, premium, if any, and interest
on, such Securities, when such payments are due, (b) the Company's obligations
with respect to such Defeased Securities under Sections 3.4, 3.5, 3.8, 10.2 and
10.3, (c) the rights, powers, trusts, duties and immunities of the Trustee
hereunder, including, without limitation, the Trustee's rights under Section
6.7, and (d) this Article IV. Subject to compliance with this Article IV, the
Company may exercise its option under this Section 4.2 notwithstanding the prior
exercise of its option under Section 4.3 with respect to the Securities.
Section 4.3. Covenant Defeasance.
Upon the Company's exercise under Section 4.1 of the option applicable
to this Section 4.3, the Company and any other obligor on the Securities shall
be released from its obligations under any covenant or provision contained or
referred to in Sections 10.4 through 10.18, inclusive, and the provisions of
Article VIII with respect to the Defeased Securities on and after the date the
conditions set forth in Section 4.4 below are satisfied (hereinafter, "covenant
defeasance"), and the Defeased Securities shall thereafter be deemed to be not
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Defeased Securities, the Company and any other obligor on the Securities
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such Section or Article, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
Section or Article or by reason of any reference in any such Section or Article
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Sections
5.1(c), (d), (e) or (f), but, except as specified in this Indenture, the
remainder of this Indenture and such Defeased Securities shall be unaffected
thereby. In the event covenant defeasance occurs, the Events of Default
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specified in Sections 5.1(e) and (f) will no longer constitute Events of Default
with respect to the Securities.
Section 4.4. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
4.2 or Section 4.3 to the Securities to be defeased:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Securities, (a) United States dollars in
an amount, (b) U.S. Government Obligations which through the scheduled payment
of principal and interest in respect thereof in accordance with their terms and
with no further reinvestment will provide, not later than one day before the due
date of any payment, money in an amount, or (c) a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants or a nationally recognized investment banking
firm expressed in a written certification thereof delivered to the Trustee, to
pay and discharge, and which shall be applied by the Trustee to pay and
discharge, the principal of, premium, if any, and interest on, the Securities to
be defeased, on the Stated Maturity of such principal or interest (or on any
date after October 15, 2002 (such date being referred to as the "Defeasance
Redemption Date") if at or prior to electing to exercise either its option
applicable to Section 4.2 or its option applicable to Section 4.3, the Company
has delivered to the Trustee an irrevocable notice to redeem all of the
Outstanding Securities on the Defeasance Redemption Date). For this purpose,
"U.S. Government Obligations" means securities that are (i) direct obligations
of the United States of America for the timely payment of which its full faith
and credit is pledged or (ii) obligations of a Person controlled or supervised
by and acting as an agency or instrumentality of the United States of America
the timely payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt;
(2) In the case of an election under Section 4.2, the Company shall have
delivered to the Trustee an Opinion of Independent Counsel in the United States
stating that (A) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or (B) since the date hereof, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Independent Counsel in the United
States shall confirm that, the Holders of the Outstanding Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred;
(3) In the case of an election under Section 4.3, the Company shall have
delivered to the Trustee an Opinion of Independent Counsel in the United States
to the effect that the Holders of the Outstanding Securities will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred;
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(4) No Default or Event of Default (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
shall have occurred and be continuing on the date of such deposit or insofar as
Section 5.1(g) or (h) is concerned, at any time during the period ending on the
91st day after the date of deposit (it being understood that this condition
shall not be deemed satisfied until the expiration of such period);
(5) Such defeasance or covenant defeasance shall not cause the Trustee
for the Securities to have a conflicting interest for purposes of the Trust
Indenture Act with respect to any other securities of the Company;
(6) Such defeasance or covenant defeasance shall not result in a breach
or violation of, or constitute a default under, (A) this Indenture or (B) any
other agreement or instrument to which the Company or any Significant Subsidiary
is a party or by which the Company or any Significant Subsidiary is bound, if
such breach, violation, or default thereof would have a material adverse effect
on the Company and its Subsidiaries taken as a whole;
(7) Such defeasance or covenant defeasance shall not result in the trust
arising from such deposit constituting an investment company within the meaning
of the Investment Company Act of 1940, as amended, unless such trust shall be
registered under such Act or exempt from registration thereunder;
(8) The Company shall have delivered to the Trustee an Opinion of
Independent Counsel in the United States to the effect that after the 91st day
following the deposit, the trust funds will not be subject to avoidance under
Section 547 of the United States Bankruptcy Code (or any successor provision
thereto) and related judicial decisions;
(9) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Securities over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others;
(10) No event or condition shall exist that would prevent the Company
from making payments of the principal of, premium, if any, and interest on the
Securities on the date of such deposit or at any time ending on the 91st day
after the date of such deposit; and
(11) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Independent Counsel, each stating that all
conditions precedent provided for relating to either the defeasance under
Section 4.2 or the covenant defeasance under Section 4.3 (as the case may be)
have been complied with.
Opinions of Counsel or Opinions of Independent Counsel required to be
delivered under this Section shall be in form and substance reasonably
satisfactory to the Trustee and may have qualifications customary for opinions
of the type required and counsel delivering such opinions may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, which certificates shall be limited as to matters
of fact, including that various financial covenants have been complied with.
Section 4.5. Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 10.3, all
United States dollars and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 4.4 in respect of the
Defeased Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (excluding the Company or
any of its Affiliates acting as Paying Agent), as the Trustee may determine, to
the Holders of such Securities of all
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sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 4.4 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
imposed, assessed or for the account of the Holders of the Defeased Securities.
Anything in this Article IV to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
United States dollars or U.S. Government Obligations held by it as provided in
Section 4.4 which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect defeasance or covenant defeasance.
Section 4.6. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or U.S. Government Obligations in accordance with Section 4.2 or 4.3, as
the case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the Securities shall be
revived and reinstated, with present and prospective effect, as though no
deposit had occurred pursuant to Section 4.2 or 4.3, as the case may be, until
such time as the Trustee or Paying Agent is permitted to apply all such United
States dollars or U.S. Government Obligations in accordance with Section 4.2 or
4.3, as the case may be; provided, however, that if the Company makes any
payment to the Trustee or Paying Agent of principal of, premium, if any, or
interest on any Security following the reinstatement of its obligations, the
Trustee or Paying Agent shall promptly pay any such amount to the Holders of the
Securities and the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the United States dollars and U.S.
Government Obligations held by the Trustee or Paying Agent.
ARTICLE V
REMEDIES
Section 5.1. Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) there shall be a default in the payment of any interest on any
Security when it becomes due and payable, and such default shall continue for a
period of 30 days;
(b) there shall be a default in the payment of the principal of (or
premium, if any, on) any Security at its Maturity (upon acceleration, optional
or mandatory redemption, required repurchase or otherwise);
(c) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company under this Indenture (other than a default
in the performance, or breach, of a covenant or agreement which is specifically
dealt with in clauses (a), (b) or (d) of this Section 5.1) and such default or
breach shall continue for a period of 30 days after written notice has been
given, by certified mail, (x) to the Company by the Trustee or (y) to the
Company and the Trustee by the Holders of at least 25% in
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aggregate principal amount of the Outstanding Securities, which notice shall
specify that it is a "notice of default" and shall demand that such a default be
remedied;
(d) (i) there shall be a default in the performance or breach of the
provisions of Article VIII; (ii) the Company shall have failed to make or
consummate an Offer required in accordance with the provisions of Section 10.12;
or (iii) the Company shall have failed to make or consummate a Change of Control
Offer required in accordance with the provisions of Section 10.13;
(e) one or more defaults shall have occurred under any of the
agreements, indentures or instruments under which the Company or any Subsidiary
then has outstanding Indebtedness in excess of $10,000,000, individually or in
the aggregate, and either (a) such default results from the failure to pay such
Indebtedness at its stated final maturity or (b) such default or defaults have
resulted in the acceleration of the maturity of such Indebtedness;
(f) one or more judgments, orders or decrees for the payment of money in
excess of $10,000,000 either individually or in the aggregate, shall be rendered
against the Company or any Subsidiary or any of their respective properties and
shall not be discharged and either (a) any creditor shall have commenced an
enforcement proceeding upon such judgment, order or decree or (b) there shall
have been a period of 60 consecutive days during which a stay of enforcement of
such judgment, order or decree, by reason of an appeal or otherwise, shall not
be in effect; provided that the amount of such money judgment, order or decree
shall be calculated net of any insurance coverage that the Company has
determined in good faith is available in whole or in part with respect to such
money judgment, order or decree;
(g) there shall have been the entry by a court of competent jurisdiction
of (i) a decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable Bankruptcy
Law or (ii) a decree or order adjudging the Company or any Significant
Subsidiary bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Significant
Subsidiary under any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any Significant Subsidiary or of any substantial
part of their respective properties, or ordering the winding up or liquidation
of their respective affairs, and any such decree or order for relief shall
continue to be in effect, or any such other decree or order shall be unstayed
and in effect for a period of 60 consecutive days; or
(h) (1) the Company or any Significant Subsidiary commences a voluntary
case or proceeding under any applicable Bankruptcy Law or any other case or
proceeding to be adjudicated bankrupt or insolvent, (2) the Company or any
Significant Subsidiary consents to the entry of a decree or order for relief in
respect of the Company or such Significant Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, (3) the Company or any
Significant Subsidiary files a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, (4) the
Company or any Significant Subsidiary (A) consents to the filing of such
petition or the appointment of, or taking possession by, a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of the Company
or such Significant Subsidiary or of any substantial part of their respective
properties, (B) makes an assignment for the benefit of creditors or (C) admits
in writing its inability to pay its debts generally as they become due, or (5)
the Company or any Significant Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (h).
Section 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Sections 5.1(g) and (h) with respect to the Company) shall occur and be
continuing with respect to this Indenture, the Trustee or the Holders of not
less than 25% in aggregate
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principal amount of the Securities then Outstanding may, and the Trustee at the
request of such Holders shall, declare all unpaid principal of, premium, if any,
and accrued interest on all Securities to be due and payable, by a notice in
writing to the Company (and to the Trustee if given by the Holders of the
Securities) and upon any such declaration, such principal, premium, if any, and
interest shall become due and payable immediately. If an Event of Default
specified in clause (g) or (h) of Section 5.1 occurs with respect to the Company
and is continuing, then all the Securities shall ipso facto become and be due
and payable immediately in an amount equal to the principal amount of the
Securities, together with accrued and unpaid interest, if any, to the date the
Securities become due and payable, without any declaration or other act on the
part of the Trustee or any Holder. Thereupon, the Trustee may, at its
discretion, proceed to protect and enforce the rights of the Holders of the
Securities by appropriate judiciary proceedings.
After such declaration of acceleration with respect to the Securities,
but before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in aggregate principal amount of the Securities Outstanding, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel,
(ii) all overdue interest on all Outstanding Securities,
(iii) the principal of and premium, if any, on any
Outstanding Securities which have become due otherwise than by
such declaration of acceleration and interest thereon at the rate
borne by the Securities, and
(iv) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by the
Securities; and
(b) all Events of Default, other than the non-payment of principal of
the Securities which have become due solely by such declaration of acceleration,
have been cured or waived as provided in Section 5.13. No such rescission shall
affect any subsequent Default or impair any right consequent thereon.
If payment of the Securities is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the agent under the
Bank Credit Facility of the acceleration. If any indebtedness under the Bank
Credit Facility is outstanding, the Company may not pay the Securities until
five Business Days after the agent under the Bank Credit Facility receives
notice of such acceleration, and, thereafter, may pay the Securities only if
this Indenture otherwise permits payments at that time.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if:
(a) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a period of
30 days, or
(b) default is made in the payment of the principal of, premium, if any,
on any Security at the Stated Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
holders of such Securities, the whole amount then due and payable on such
Securities for principal and premium, if any, and interest, with interest upon
the overdue principal
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and premium, if any, and, to the extent that payment of such interest shall be
legally enforceable, upon overdue installments of interest, at the rate borne by
the Securities; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor on the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor on the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders under this Indenture by such appropriate private or judicial proceedings
as the Trustee shall deem most effectual to protect and enforce such rights,
subject however to Section 5.12. No recovery of any such judgment upon any
property of the Company shall affect or impair any rights, powers or remedies of
the Trustee or the Holders.
Section 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor on the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal, and
premium, if any, and interest owing and unpaid in respect of the Securities and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 5.5. Trustee May Enforce Claims without Possession of
Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
and as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the
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reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Holders of the
Securities in respect of which such judgment has been recovered.
Section 5.6. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article or otherwise
on behalf of the Holders or the Trustee pursuant to this Article or through any
proceeding or any arrangement or restructuring in anticipation or in lieu of any
proceeding contemplated by this Article shall be applied, subject to applicable
law, in the following order, at the date or dates fixed by the Trustee and, in
case of the distribution of such money on account of principal, premium, if any,
or interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.7;
SECOND: Subject to Article Thirteen, to the payment of the
amounts then due and unpaid upon the Securities for principal, premium,
if any, and interest, in respect of which or for the benefit of which
such money has been collected, ratably, without preference or priority
of any kind, according to the amounts due and payable on such Securities
for principal, premium, if any, and interest; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Company, provided that all sums due and owing to
the Holders and the Trustee have been paid in full as required by this
Indenture.
Section 5.7. Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or the
Securities, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
trustee hereunder;
(c) such Holder or Holders have offered to the Trustee an indemnity
satisfactory to the Trustee against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for 30 days after its receipt of such notice, request
and offer (and if requested, provision) of indemnity has failed to institute any
such proceeding; and
(e) no direction inconsistent with such written request has been given
to the Trustee during such 30-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner provided in
this Indenture and for the equal and ratable benefit of all the Holders.
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Section 5.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right based on the terms stated herein, which is
absolute and unconditional, to receive payment of the principal of, premium, if
any, and (subject to Section 3.9) interest on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption or
repurchase, on the Redemption Date or the repurchase date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
Section 5.9. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, any
other obligor on the Securities, the Trustee and the Holders shall, subject to
any determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as provided in Section 3.8, no right or remedy herein conferred
upon or reserved to the Trustee or to the Holders is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
Section 5.12. Control by Holders.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, provided
that
(a) such direction shall not be in conflict with any rule of law or with
this Indenture (including, without limitation, Section 5.7) or expose the
Trustee to personal liability, or be unduly prejudicial to Holders not joining
therein; and
(b) subject to the provisions of Section 315 of the Trust Indenture Act,
the Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities may on behalf of the Holders of all Outstanding
Securities waive any past Default hereunder and its consequences, except a
Default
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(a) in the payment of the principal of, premium, if any, or interest on
any Security; or
(b) in respect of a covenant or a provision hereof which under this
Indenture cannot be modified or amended without the consent of the Holder of
each Security Outstanding affected by such modification or amendment.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant, but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of, premium, if any, or interest on, any Security on or after the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on or after the Redemption Date).
Section 5.15. Waiver of Stay, Extension or Usury Laws.
Each of the Company and any other obligor on the Securities covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law or any usury or other law wherever
enacted, now or at any time hereafter in force, which would prohibit or forgive
the Company from paying all or any portion of the principal of, premium, if any,
or interest on the Securities contemplated herein or in the Securities or which
may affect the covenants or the performance of this Indenture; and each of the
Company and any other obligor on the Securities (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
Section 5.16. Remedies Subject to Applicable Law.
All rights, remedies and powers provided by this Article V may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all the provisions of this Indenture are
intended to be subject to all applicable mandatory provisions of law which may
be controlling and to be limited to the extent necessary so that they will not
render this Indenture invalid, unenforceable or not entitled to be recorded,
registered or filed under the provisions of any applicable law.
ARTICLE VI
THE TRUSTEE
Section 6.1. Duties of Trustee.
Subject to the provisions of Trust Indenture Act Sections 315(a) through
315(d):
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(a) if a Default or an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise thereof as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs;
(b) except during the continuance of a Default or an Event of Default:
(1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or obligations
shall be implied in this Indenture that are adverse to the Trustee; and
(2) in the absence of bad faith or willful misconduct on its
part, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture;
(c) the Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(1) this Subsection (c) does not limit the effect of Subsection
(b) of this Section 6.1;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith, in accordance with a direction of
the Holders of a majority in principal amount of Outstanding Securities
relating to the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power
confirmed upon the Trustee under this Indenture;
(d) no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it;
(e) whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to Subsections
(a), (b), (c) and (d) of this Section 6.1; and
(f) the Trustee shall not be liable for interest on any money or assets
received by it except as the Trustee may agree with the Company. Assets held in
trust by the Trustee need not be segregated from other assets except to the
extent required by law.
Section 6.2. Notice of Defaults.
Within 90 days after a Responsible Officer of the Trustee receives
notice of the occurrence of any Default, the Trustee shall transmit by mail to
all Holders and any other Persons entitled to receive reports pursuant to
Section 313(c) of the Trust Indenture Act, as their names and addresses appear
in the Security Register, notice of such Default hereunder known to the Trustee,
unless such Default shall have been cured or waived; provided, however, that,
except in the case of a Default in the payment of the principal of, premium, if
any, or interest on any Security, the Trustee shall be protected in withholding
such notice if and so long as a trust committee of Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders.
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Section 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1 hereof and Trust Indenture Act
Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of Indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) the Trustee may consult with counsel of its selection and any advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon in accordance with such
advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee security or indemnity satisfactory to the Trustee against
the costs, expenses and liabilities which might be incurred therein or thereby
in compliance with such request or direction;
(e) the Trustee shall not be liable for any action taken or omitted by
it in good faith and believed by it to be authorized or within the discretion,
rights or powers conferred upon it by this Indenture other than any liabilities
arising out of the negligence, bad faith or willful misconduct of the Trustee;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, approval,
appraisal, bond, debenture, note, coupon, security or other paper or document
unless requested in writing to do so by the Holders of not less than a majority
in aggregate principal amount of the Securities then Outstanding; provided that,
if the payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expenses or liabilities as a condition to
proceeding; the reasonable expenses of every such investigation so requested by
the Holders of not less than 25% in aggregate principal amount of the Securities
Outstanding shall be paid by the Company or, if paid by the Trustee or any
predecessor Trustee, shall be repaid by the Company upon demand; provided,
further, the Trustee in its discretion may make such further inquiry or
investigation into such facts or matters as it may deem fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney;
(g) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate; and
(h) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
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(i) Notwithstanding anything to the contrary herein, the Trustee shall
have no duties to review any Officers' Certificates, Board Resolutions, Opinions
of Counsel, financials or other documents furnished to it by the Company for
purposes of determining compliance with any provisions of this Indenture.
(j) The Trustee shall have no duty to inquire as to the performance of
the Company's covenants in Article X. In addition, the Trustee shall not be
deemed to have knowledge of any Default or Event of Default except (i) any Event
of Default occurring pursuant to Sections 5.01(a), 5.01(b) and 10.1 or (ii) any
Default or Event of Default to which the Trustee shall have received written
notification or obtained actual knowledge.
Section 6.4. Trustee Not Responsible for Recitals, Dispositions of
Securities or Application of Proceeds Thereof.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and that the statements made by
it in any Statement of Eligibility and Qualification on Form T-1 supplied to the
Company are true and accurate subject to the qualifications set forth therein.
The Trustee shall not be accountable for the use or application by the Company
of Securities or the proceeds thereof nor shall the Trustee be responsible for
any statement in any registration statement for the Securities under the
Securities Act or responsible for the determination as to which beneficial
owners are entitled to receive notices hereunder.
Section 6.5. Trustee and Agents May Hold Securities; Collections; etc.
The Trustee, any Paying Agent, Security Registrar or any other agent of
the Company, in its individual or any other capacity, may become the owner or
pledgee of Securities, with the same rights it would have if it were not the
Trustee, Paying Agent, Security Registrar or such other agent and, subject to
Sections 6.8 and 6.13 hereof and Trust Indenture Act Sections 310 and 311, may
otherwise deal with the Company and receive, collect, hold and retain
collections from the Company with the same rights it would have if it were not
the Trustee, Paying Agent, Security Registrar or such other agent.
Section 6.6. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied as
herein provided, and subject to Article XIII, be held in trust for the purposes
for which they were received, but need not be segregated from other funds except
to the extent required by mandatory provisions of law. Except for funds or
securities deposited with the Trustee pursuant to Article IV, the Trustee shall,
upon request by the Company, invest all moneys received by the Trustee, until
used or applied as herein provided, in Temporary Cash Investments in accordance
with the directions of the Company. The Trustee shall be under no liability to
the Company for interest on any money received by it hereunder except as
otherwise agreed in writing with the Company.
Section 6.7. Compensation and Indemnification of Trustee and Its Prior
Claim.
The Company covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, such compensation as the parties
shall agree in writing from time to time for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) and the Company
covenants and agrees to pay or reimburse the Trustee and each predecessor
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of the Trustee in accordance with any of the
provisions of this Indenture (including the reasonable
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compensation and the expenses and disbursements of its counsel and of all agents
and other persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence, bad faith or willful
misconduct. The Company also covenants and agrees to indemnify the Trustee and
each predecessor Trustee for, and to hold it harmless against, any claim, loss,
liability, tax, assessment or other governmental charge (other than taxes
applicable to the Trustee's compensation hereunder) or expense incurred without
negligence, bad faith or willful misconduct on its part, arising out of or in
connection with the acceptance or administration of this Indenture or the trusts
hereunder and its duties hereunder, including enforcement of this Section 6.7
and also including any liability which the Trustee may incur as a result of
failure to withhold, pay or report any tax, assessment or other governmental
charge, and the costs and expenses of defending itself against or investigating
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder. The obligations of the Company under this
Section 6.7 to compensate and indemnify the Trustee and each predecessor Trustee
and to pay or reimburse the Trustee and each predecessor Trustee for reasonable
expenses, disbursements and advances shall constitute an additional obligation
hereunder and shall survive the satisfaction and discharge of this Indenture and
the resignation or removal of the Trustee and each predecessor Trustee.
Section 6.8. Conflicting Interests.
The Trustee shall comply with the provisions of Section 310(b) of the
Trust Indenture Act.
Section 6.9. Trustee Eligibility.
There shall at all times be a Trustee hereunder which shall be eligible
to act as trustee under Trust Indenture Act Section 310(a)(1) and which shall
have a combined capital and surplus of at least $100,000,000 or is a member of a
bank holding company with a combined capital and surplus of at least
$100,000,000, to the extent there is an institution eligible and willing to
serve. If the Trustee does not have a Corporate Trust Office in The City of New
York, the Trustee may appoint an agent in The City of New York reasonably
acceptable to the Company to conduct any activities which the Trustee may be
required under this Indenture to conduct in The City of New York. If such
Trustee publishes reports of condition at least annually, pursuant to law or to
the requirements of federal, state, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section 6.9,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 6.9, the Trustee shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
Section 6.10. Resignation and Removal; Appointment of Successor Trustee.
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor trustee under Section 6.11.
(b) The Trustee, or any trustee or trustees hereafter appointed, may at
any time, upon 30 days prior or written notice, resign by giving written notice
thereof to the Company. Upon receiving such notice or resignation, the Company
shall promptly appoint a successor trustee by written instrument executed by
authority of the Board of Directors, a copy of which shall be delivered to the
resigning Trustee and a copy to the successor trustee. If an instrument of
acceptance by a successor trustee shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may, or any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper, appoint and prescribe a successor trustee.
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(c) The Trustee may be removed at any time for any cause or for no cause
by an Act of the Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities, delivered to the Trustee and to the
Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of Trust
Indenture Act Section 310(b) after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Security
for at least six months,
(2) the Trustee shall cease to be eligible under Section 6.9 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least
six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee,
or (ii) subject to Section 5.14, the Holder of any Security who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as ii may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor trustee and
shall comply with the applicable requirements of Section 6.11. If, within 60
days after such resignation, removal or incapability, or the occurrence of such
vacancy, the Company has not appointed a successor Trustee, a successor trustee
shall be appointed by the Act of the Holders of a majority in principal amount
of the Outstanding Securities delivered to the Company and the retiring Trustee.
Such successor trustee so appointed shall forthwith upon its acceptance of such
appointment become the successor trustee and supersede the successor trustee
appointed by the Company. If no successor trustee shall have been so appointed
by the Company or the Holders of the Securities and accepted appointment in the
manner hereinafter provided, the Trustee or the Holder of any Security who has
been a bona fide Holder for at least six months may, subject to Section 5.14, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Securities as their names and addresses appear in the Security Register. Each
notice shall include the name of the successor trustee and the address of its
Corporate Trust Office or agent hereunder.
Section 6.11. Acceptance of Appointment by Successor.
Every successor trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee as if originally named as Trustee hereunder;
but, nevertheless, on the written request of the Company or the successor
trustee, upon payment of its charges pursuant to Section 6.7 then unpaid, such
retiring Trustee shall pay over to the successor trustee all moneys at the time
held by it hereunder and shall execute and deliver an instrument transferring to
such successor trustee all such rights, powers,
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duties and obligations. Upon request of any such successor trustee, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor trustee all such rights and powers.
No successor trustee with respect to the Securities shall accept
appointment as provided in this Section 6.11 unless at the time of such
acceptance such successor trustee shall be eligible to act as trustee under the
provisions of Trust Indenture Act Section 310(a) and this Article VI and shall
have a combined capital and surplus of at least $100,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 6.9.
Upon acceptance of appointment by any successor trustee as provided in
this Section 6.11, the Company shall give notice thereof to the Holders of the
Securities, by mailing such notice to such Holders at their addresses as they
shall appear on the Security Register. If the acceptance of appointment is
substantially contemporaneous with the appointment, then the notice called for
by the preceding sentence may be combined with the notice called for by Section
6.10. If the Company fails to give such notice within 10 days after acceptance
of appointment by the successor trustee, the successor trustee shall cause such
notice to be given at the expense of the Company.
Section 6.12. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee (including the trust created by this Indenture) shall be
the successor of the Trustee hereunder, provided that such corporation shall be
eligible under Trust Indenture Act Section 310(a) and this Article VI and shall
have a combined capital and surplus of at least $100,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 6.9,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor Trustee and deliver such
Securities so authenticated; and, in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor trustee; and in all such cases such certificate shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have; provided that the right to adopt
the certificate of authentication of any predecessor Trustee or to authenticate
Securities in the name of any predecessor Trustee shall apply only to its
successor or successors by merger, conversion or consolidation.
Section 6.13. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
other obligor on the Securities), the Trustee shall be subject to the provisions
of the Trust Indenture Act regarding the collection of claims against the
Company (or any such other obligor). A Trustee who has resigned or been removed
shall be subject to Trust Indenture Act Section 311(a) to the extent indicated
therein.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
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(a) semiannually, not more than 15 days after each Regular Record Date,
a list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a list
of similar form and content to that in Subsection (a) hereof as of a date not
more than 15 days prior to the time such list is furnished;
Section 7.2. Disclosure of Names and Addresses of Holders.
Holders may communicate pursuant to Trust Indenture Act Section 312(b)
with other Holders with respect to their rights under this Indenture or the
Securities, and the Trustee shall comply with Trust Indenture Act Section
312(b). The Company, the Trustee, the Registrar and any other Person shall have
the protection of Trust Indenture Act Section 312(c). Further, every Holder of
Securities, by receiving and holding the same, agrees with the Company and the
Trustee that neither the Company nor the Trustee nor any agent of either of them
shall be held accountable by reason of the disclosure of any information as to
the names and addresses of the Holders in accordance with Trust Indenture Act
Section 312, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made under Trust Indenture Action Section 312.
Section 7.3. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with the first
May 15 after the issuance of Securities, the Trustee, if so required under the
Trust Indenture Act shall transmit by mail to all Holders in the manner and to
the extent provided in Trust Indenture Act Section 313(c), a brief report dated
as of such May 15 in accordance with and with respect to the matters required by
Trust Indenture Act Section 313(a), provided that if no event described in Trust
Indenture Act Section 313(a) has occurred within the twelve-month period
preceding the reporting date, no such report need be transmitted. The Trustee
shall also transmit by mail to the Holders, in the manner and to the extent
provided in Trust Indenture Act Section 313(c), a brief report in accordance
with and with respect to the matters required by Trust Indenture Act Sections
313(a) and 313(b)(2).
(b) A copy of each report transmitted to Holders pursuant to this
Section 7.3 shall, at the time of such transmission, be mailed to the Company
and filed with each stock exchange, if any, upon which the Securities are listed
and also with the SEC. The Company will notify the Trustee promptly if the
Securities are listed on any stock exchange.
Section 7.4. Reports by Company.
The Company shall:
(a) file with the Trustee, in accordance with Section 10.17 hereof, and
in any event within 15 days after the Company is required to file the same with
the SEC, copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the SEC may
from time to time by rules and regulations prescribe) which the Company is
required to file with the SEC pursuant to Section 13 or Section 15(d) of the
Exchange Act; or, if the Company is not required to file information, documents
or reports pursuant to either of said Sections, then it shall (i) deliver to the
Trustee annual audited financial statements of the Company and its Subsidiaries,
prepared on a consolidated basis in conformity with GAAP, within 120 days after
the end of each fiscal year of the Company, and (ii) file with the Trustee and,
to the extent permitted by law, the SEC, in accordance with rules and
regulations prescribed from time to time by the SEC, such of the supplementary
and periodic information, documents and reports which may be required pursuant
to Section 13 of the Exchange Act in respect of a security listed and registered
on a national
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securities exchange as may be prescribed from time to time in such rules and
regulations;
(b) file with the Trustee and the SEC, in accordance with the rules and
regulations prescribed from time to time by the SEC, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants for this Indenture as are required from time
to time by such rules and regulations (including such information, documents and
reports referred to in Trust Indenture Act Section 314(a)); and
(c) within 15 days after the filing thereof with the Trustee, transmit
by mail to all Holders in the manner and to the extent provided in Trust
Indenture Act Section 313(c), such summaries of any information, documents and
reports required to be filed by the Company pursuant to Section 10.17 hereunder
and subsections (a) and (b) of this Section as is required and not prohibited by
rules and regulations prescribed from time to time by the SEC. At the Company's
request and at the Company's expense, the Trustee shall deliver such documents
to the Holders.
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 8.1. Company May Merge, Consolidate, etc., Only on Certain
Terms.
The Company will not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person or
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
affiliated Persons, or permit any of its Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company and its Subsidiaries on a Consolidated
basis to any other Person or group of affiliated Persons, unless at the time and
after giving effect thereto:
(i) either (a) the Company will be the continuing corporation or
(b) the Person (if other than the Company) formed by such consolidation
or into which the Company is merged or the Person which acquires by
sale, assignment, conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of the Company and its
Subsidiaries on a Consolidated basis (the "Surviving Entity") will be a
corporation duly organized and validly existing under the laws of the
United States of America, any state thereof or the District of Columbia
and such Person expressly assumes, by a supplemental indenture, in a
form satisfactory to the Trustee, all the obligations of the Company
under the Securities and hereunder, as the case may be, and the
Securities and this Indenture will remain in full force and effect as so
supplemented;
(ii) immediately before and immediately after giving effect to
such transaction on a pro forma basis (and treating any Indebtedness not
previously an obligation of the Company or any of its Subsidiaries which
becomes the obligation of the Company or any of its Subsidiaries as a
result of such transaction as having been incurred at the time of such
transaction), no Default or Event of Default will have occurred and be
continuing;
(iii) immediately before and immediately after giving effect to
such transaction on a pro forma basis (on the assumption that the
transaction occurred on the first day of the four-quarter period for
which financial results are available ending immediately prior to the
consummation of such transaction with the appropriate adjustments with
respect to the transaction being included in such pro forma
calculation), the Company (or the Surviving Entity if the Company is not
the continuing obligor hereunder) could incur $1.00 of additional
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Indebtedness (other than Permitted Indebtedness or Permitted Subsidiary
Indebtedness) under Section 10.8; and
(iv) at the time of the transaction the Company or the Surviving
Entity will have delivered, or caused to be delivered, to the Trustee,
in form and substance reasonably satisfactory to the Trustee, an
Officer's Certificate and an Opinion of Counsel, each to the effect that
such consolidation, merger, transfer, sale, assignment, conveyance,
transfer, lease or other transaction and the supplemental indenture in
respect thereof comply with this Indenture and that all conditions
precedent herein provided for relating to such transaction have been
complied with;
provided, however, that the foregoing prohibition shall not prohibit any merger
between or among Subsidiaries or between a Subsidiary and the Company, provided
the Company is the continuing corporation.
Section 8.2. Successor Substituted.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company in accordance with Section 8.1, the successor Person
formed by such consolidation or into which the Company is merged or the
successor Person to which such sale, assignment, conveyance, transfer, lease or
disposition is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture, with the same effect
as if such successor had been named as the Company herein. When a successor
assumes all the obligations of its predecessor under this Indenture or the
Securities, the predecessor shall be released from such assumed obligations and
covenants under the indenture and the Securities, as the case may be; provided
that in the case of a transfer by lease, the predecessor shall not be released
from the payment of principal and interest on the Securities.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures and Agreements without Consent of
Holders.
Without the consent of any Holders, the Company and the Trustee, at any
time and from time to time, may enter into one or more indentures supplemental
hereto in form and substance satisfactory to the Trustee, for any of the
following purposes:
(a) to evidence the succession of another Person to the Company or any
other obligor on the Securities, and the assumption by any such successor of the
covenants of the Company or obligor herein and in the Securities in accordance
with Article VIII;
(b) to add to the covenants of the Company or any other obligor on the
Securities for the benefit of the Holders, or to surrender any right or power
conferred on the Company or any other obligor on the Securities, as applicable,
herein or in the Securities;
(c) to cure any ambiguity, or to correct or supplement any provision
herein or in any supplemental indenture or the Securities which may be defective
or inconsistent with any other provision herein or in the Securities or to make
any other provisions with respect to matters or questions arising under this
Indenture or the Securities; provided that, in each case, such provisions shall
not adversely affect the interest of the Holders;
(d) to comply with the requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act, as
contemplated by Section 9.5 or otherwise;
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(e) to evidence and provide the acceptance of the appointment of a
successor trustee hereunder; or
(f) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the Holders as additional security for
the payment and performance of the Company's Indenture Obligations, in any
property, or assets, including any of which are required to be mortgaged,
pledged or hypothecated, or in which a security interest is required to be
granted to the Trustee pursuant to this Indenture or otherwise.
Section 9.2. Supplemental Indentures and Agreements with Consent of
Holders.
Except as permitted by Section 9.1, with the consent of the Holders of
at least a majority in aggregate principal amount of the Outstanding Securities,
by Act of said Holders delivered to the Company and the Trustee, the Company
when authorized by Board Resolutions, and the Trustee may (i) enter into an
indenture or indentures supplemental hereto in form and substance satisfactory
to the Trustee, for the purpose of adding any provisions to or amending,
modifying or changing in any manner or eliminating any of the provisions of this
Indenture or the Securities (including, but not limited to, for the purpose of
modifying in any manner the rights of the Holders under this Indenture or the
Securities) or (ii) waive compliance with any provision in this Indenture or the
Securities (other than waivers of past Defaults covered by Section 5.13 and
waivers of covenants which are covered by Section 10.19); provided, however,
that no such supplemental indenture, agreement or instrument shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(a) change the Stated Maturity of the principal of, or any installment
of interest on, or change to an earlier date any redemption date of, or waive a
default in the payment of the principal or interest on, any such Security or
reduce the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or change the coin or currency in
which the principal of any Security or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof (or, in the case of redemption,
on or after the Redemption Date);
(b) amend, change or modify the obligation of the Company to make and
consummate an Offer with respect to any Asset Sale or Asset Sales in accordance
with Section 10.12 or the obligation of the Company to make and consummate a
Change of Control Offer in the event of a Change of Control in accordance with
Section 10.13, including, in each case, amending, changing or modifying any
definitions relating thereto;
(c) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver or
compliance with certain provisions of this Indenture;
(d) modify any of the provisions of this Section 9.2 or Section 5.13 or
10.19, except to increase the percentage of such Outstanding Securities required
for any such actions or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
such Security affected thereby;
(e) except as otherwise permitted under Article VIII, consent to the
assignment or transfer by the Company of any of its rights and obligations
hereunder; or
(f) amend or modify any of the provisions of Article XIII of this
Indenture in any manner adverse to the Holders.
Upon the written request of the Company accompanied by a copy of Board
Resolutions authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Holders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture.
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It shall not be necessary for any Act of Holders under this Section 9.2
to approve the particular form of any proposed supplemental indenture but it
shall be sufficient if such Act shall approve the substance thereof.
Section 9.3. Execution of Supplemental Indentures and Agreements.
In executing, or accepting the additional trusts created by, any
supplemental indenture, agreement, instrument or waiver permitted by this
Article IX or the modifications thereby of the trusts created by this Indenture,
the Trustee shall be entitled to receive, and (subject to Trust Indenture Act
Sections 315(a) through 315(d) and Section 6.2 hereof) shall be fully protected
in relying upon, an Opinion of Counsel and an Officers' Certificate stating that
the execution of such supplemental indenture, agreement or instrument is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture, agreement or
instrument which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby
Section 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article IX shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
Section 9.7. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.2, the Company
shall give notice thereof to the Holders of each Outstanding Security affected,
in the manner provided for in Section 1.7, setting forth in general terms the
substance of such supplemental indenture. Any failure of the Company to mail
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such supplemental indenture.
ARTICLE X
COVENANTS
Section 10.1. Payment of Principal, Premium and Interest.
The Company shall duly and punctually pay the principal of, premium, if
any, and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
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Section 10.2. Maintenance of Office or Agency.
The Company shall maintain an office or agency where Securities may be
presented or surrendered for payment. The Company also will maintain in The City
of New York an office or agency where Securities may be surrendered for
registration of transfer, redemption or exchange and where notices and demands
to or upon the Company in respect of the Securities and this Indenture may be
served. The office of the Trustee, at its Corporate Trust Office, will be such
office or agency of the Company, unless the Company shall designate and maintain
some other office or agency for one or more of such purposes. The Company will
give prompt written notice to the Trustee of the location and any change in the
location of any such offices or agencies. If at any time the Company shall fail
to maintain any such required offices or agencies or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the office of the Trustee and the Company
hereby appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
The Company may from time to time designate one or more other offices or
agencies (in or outside of The City of New York) where the Securities may be
presented or surrendered for any or all such purposes, and may from time to time
rescind such designation. The Company will give prompt written notice to the
Trustee of any such designation or rescission and any change in the location of
any such office or agency.
The Trustee shall initially act as Paying Agent for the Securities.
Section 10.3. Money for Security Payments to Be Held in Trust.
If the Company or any of its Affiliates shall at any time act as Paying
Agent, it will, on or before each due date of the principal of, premium, if any,
or interest on any of the Securities, segregate and hold in trust for the
benefit of the Holders entitled thereto a sum sufficient to pay the principal,
premium, if any, or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided, and will promptly
notify the Trustee of its action or failure so to act.
If the Company or any of its Affiliates is not acting as Paying Agent,
the Company will, on or before each due date of the principal of, premium, if
any, or interest on any of the Securities, deposit with a Paying Agent a sum in
same day funds sufficient to pay the principal, premium, if any, or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure to so act.
If the Company is not acting as Paying Agent, the Company will cause
each Paying Agent other than the Trustee to execute and deliver to the Trustee
an instrument in which such Paying Agent shall agree with the Trustee, subject
to the provisions of this Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on the Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal, premium,
if any, or interest on the Securities;
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
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(d) acknowledge, accept and agree to comply in all aspects with the
provisions of this Indenture relating to the duties, rights and disabilities of
such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal and premium, if any, or interest has become due and payable shall
promptly be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the company cause to be published once, in the NEW YORK TIMES and THE
WALL STREET JOURNAL (national edition), and mail to each such Holder, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such notification,
publication and mailing, any unclaimed balance of such money then remaining will
promptly be repaid to the Company.
Section 10.4. Corporate Existence.
Subject to Article VIII, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence and related rights and franchises (charter and statutory) of the
Company and each Subsidiary; provided, however, that the Company shall not be
required to preserve any such right or franchise or the corporate existence of
any such Subsidiary if the Board of Directors shall determine that the
preservation thereof is no longer necessary or desirable in the conduct of the
business of the Company and its Subsidiaries as a whole; and provided, further,
however, that the foregoing shall not prohibit a sale, transfer or conveyance of
a Subsidiary or any of its assets in compliance with the terms of this
Indenture.
Section 10.5. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged, on
or before the date the same shall become due and payable, (a) all taxes,
assessments and governmental charges levied or imposed upon the Company or any
of its Subsidiaries shown to be due on any return of the Company or any of its
Subsidiaries or otherwise assessed or upon the income, profits or property of
the Company or any of its Subsidiaries if failure to pay or discharge the same
could reasonably be expected to have a material adverse effect on the ability of
the Company to perform its obligations hereunder and (b) all lawful claims for
labor, materials and supplies, which, if unpaid, would by law become a Lien upon
the property of the Company or any of its Subsidiaries, except for any Lien
permitted to be incurred under Section 10.11, if failure to pay or discharge the
same could reasonably be expected to have a material adverse effect on the
ability of the Company to perform its obligations hereunder; provided, however,
that the Company shall not be required to pay or discharge or cause to be paid
or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings properly instituted and diligently conducted and in respect of which
appropriate reserves (in the good faith judgment of management of the Company)
are being maintained in accordance with GAAP.
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Section 10.6. Maintenance of Properties.
The Company shall cause all material properties owned by the Company or
any of its Subsidiaries or used or held for use in the conduct of its business
or the business of any of its Subsidiaries to be maintained and kept in good
condition, repair and working order (ordinary wear and tear excepted) and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the reasonable judgment of the Company may be consistent with sound business
practice and necessary so that the business carried on in connection therewith
may be properly conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from discontinuing the maintenance of any of
such properties if such discontinuance is, in the reasonable judgment of the
Company, desirable in the conduct of its business or the business of any of its
Subsidiaries; and provided, further, however, that the foregoing shall not
prohibit a sale, transfer or conveyance of a Subsidiary or any of its properties
or assets in compliance with the terms of this Indenture.
Section 10.7. Insurance.
The Company shall at all times keep all of its and its Subsidiaries'
properties which are of an insurable nature insured with insurers, believed by
the Company in good faith to be financially sound and responsible, against loss
or damage to the extent that property of similar character is usually so insured
by corporations similarly situated and owning like properties in the same
general geographic areas in which the Company and its Subsidiaries operate,
except where the failure to do so could not reasonably be expected to have a
material adverse effect on the condition (financial or otherwise), earnings,
business affairs or prospects of the Company and its Subsidiaries, taken as a
whole.
Section 10.8. Limitation on Indebtedness.
The Company will not create, issue, incur, assume, guarantee or
otherwise in any manner become directly or indirectly liable for the payment of
or otherwise suffer to exist (collectively, "incur"), any Indebtedness
(including any Acquired Indebtedness), other than Permitted Indebtedness, unless
such Indebtedness is incurred by the Company and the Company's Consolidated
Fixed Charge Coverage Ratio for the four full fiscal quarters for which
financial results are available immediately preceding the date of incurrence of
such Indebtedness (the "Incurrence Date"), taken as one period (and after giving
pro forma effect to: (i) the incurrence of such Indebtedness and (if applicable)
the application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, at the beginning of such four-quarter period; (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Company
since the first day of such four-quarter period as if such Indebtedness was
incurred, repaid or retired at the beginning of such four-quarter period (except
that, in making such computation, the amount of Indebtedness under any revolving
credit facility shall be computed based upon the average daily balance of such
Indebtedness during such four-quarter period); (iii) in the case of Acquired
Indebtedness, the related acquisition; and (iv) any acquisition or disposition
by the Company and its Subsidiaries of any company or any business or any assets
out of the ordinary course of business, or any related repayment of
Indebtedness, in each case since the first day of such four-quarter period,
assuming such acquisition or disposition and any such related payments had been
consummated on the first day of such four-quarter period), would be at least
1.8:1 from the date of the Indenture to and including December 31, 1998, and
2.0:1 thereafter. The Company will not permit any of its Subsidiaries to incur
any Indebtedness (other than Permitted Subsidiary Indebtedness).
Section 10.9. Limitation on Restricted Payments.
(a) The Company will not, and will not permit any Subsidiary to,
directly or indirectly:
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(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Company's Capital Stock (other than
dividends or distributions payable solely in shares of its Qualified
Capital Stock or in options, warrants or other rights to acquire shares
of such Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, the Company's Capital Stock or any Capital Stock
of any Affiliate of the Company (other than Capital Stock of any Wholly
Owned Subsidiary of the Company);
(iii) prior to any scheduled principal payment, sinking fund
payment or maturity of any Subordinated Indebtedness, make any principal
payment on, or repurchase, redeem, defease, retire or otherwise acquire
for value, such Subordinated Indebtedness (other than any such
Indebtedness owed to the Company or a Wholly Owned Subsidiary);
(iv) declare or pay any dividend or distribution on any Capital
Stock of any Subsidiary to any Person (other than to the Company or any
of its Wholly Owned Subsidiaries) or purchase, redeem or otherwise
acquire or retire for value any Capital Stock of any Subsidiary held by
any person (other than the Company or any of its Wholly Owned
Subsidiaries);
(v) incur, create, or assume, any guarantee of Indebtedness of
any Affiliate of the Company (other than a Wholly Owned Subsidiary of
the Company); or
(vi) make any Investment in any Person
(other than, in the case of clauses (ii) through (vi) above, Permitted
Investments) (any of the foregoing actions described in clauses (i) through
(vi), other than any such action that is a Permitted Payment (as defined below),
collectively, a "Restricted Payment") (the amount of any such Restricted
Payment, if other than cash, being determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution); unless
(1) immediately before and immediately after giving effect to such proposed
Restricted Payment on a pro forma basis, no Default or Event of Default shall
have occurred and be continuing and such Restricted Payment shall not be an
event which is, or after notice or lapse of time or both, would be, an "event of
default" under the terms of any Indebtedness of the Company or its Subsidiaries;
(2) immediately before and immediately after giving effect to such Restricted
Payment on a pro forma basis, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness or Permitted Subsidiary
Indebtedness) under the provisions of Section 10.8; and (3) after giving effect
to the proposed Restricted Payment, the aggregate amount of all such Restricted
Payments declared or made after the date of the B Indenture plus the Permitted
Payments made under clause (b)(vi), do not exceed $5,000,000 plus the sum of:
(A) 50% of the aggregate Consolidated Net Income of the Company
accrued on a cumulative basis during the period beginning on January 1,
1998 and ending on the last day of the Company's last fiscal quarter
ending prior to the date of the Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus 100%
of such loss); plus
(B) the aggregate Net Cash Proceeds received after the date of
the B Indenture by the Company either (x) as capital contributions in
the form of common equity to the Company or (y) from the issuance or
sale (other than to any of its Subsidiaries) of Qualified Capital Stock
of the Company or any options, warrants or rights to purchase such
Qualified Capital Stock of the Company (except, in each case, to the
extent such proceeds are used to purchase, redeem or otherwise retire
Capital Stock or Subordinated Indebtedness as set forth in clause (ii)
or (iii) of paragraph (b) below), in each case, other than Net Cash
Proceeds received from the issuance or sale of Qualified Capital Stock
or
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options, warrants or rights to purchase Qualified Capital Stock in, or
otherwise received in connection with, the Refinancing; plus
(C) the aggregate Net Cash Proceeds received after the date of
the B Indenture by the Company (other than from any of its Subsidiaries)
upon the exercise of any options, warrants or rights to purchase
Qualified Capital Stock of the Company; plus
(D) the aggregate Net Cash Proceeds received after the date of
the B Indenture by the Company from the conversion or exchange, if any,
of debt securities or Redeemable Capital Stock of the Company or its
Subsidiaries into or for Qualified Capital Stock of the Company plus, to
the extent such debt securities or Redeemable Capital Stock were issued
after the date of the B Indenture, the aggregate of Net Cash Proceeds
from their original issuance; plus
(E) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the date of the B
Indenture, an amount equal to the lesser of the return of capital with
respect to such Investment and the initial amount of such Investment, in
either case, less the cost of the disposition of such Investment.
(b) Notwithstanding the foregoing, and in the case of clauses (ii)
through (vii) below, so long as there is no Default or Event of Default
continuing, the foregoing provisions shall not prohibit the following actions
(each of clauses (i) through (vii) being referred to as a "Permitted Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof if at the date of declaration thereof such other
dividend (A) would be permitted by the provisions of paragraph (a) of
this Section and (B) shall be deemed to have been paid on such date of
declaration for purposes of the calculation required by paragraph (a) of
this Section;
(ii) the repurchase, redemption, or other acquisition or
retirement for value of any shares of any class of Capital Stock of the
Company in exchange for (including any such exchange pursuant to the
exercise of a conversion right or privilege in connection with which
cash is paid in lieu of the issuance of fractional shares or scrip), or
out of the Net Cash Proceeds of a substantially concurrent issue and
sale for cash (other than to a Subsidiary) of, other shares of Qualified
Capital Stock of the Company; provided that the Net Cash Proceeds from
the issuance of such shares of Qualified Capital Stock are, to the
extent so used, excluded from clause (3) (B) of paragraph (a) of this
Section;
(iii) the repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any Subordinated
Indebtedness or Redeemable Capital Stock in exchange for, or in an
amount not in excess of the Net Cash Proceeds of, a substantially
concurrent issuance and sale for cash (other than to any Subsidiary) of
any Qualified Capital Stock of the Company, provided that the Net Cash
Proceeds from the issuance of such shares of Qualified Capital Stock
are, to the extent so used, excluded from clause (3)(B) of paragraph (a)
of this Section;
(iv) the repurchase, redemption, defeasance, retirement,
refinancing, acquisition for value or payment of principal of any
Subordinated Indebtedness (other than Redeemable Capital Stock) (a
"refinancing") through the substantially concurrent issuance of new
Subordinated Indebtedness of the Company, provided that any such new
Subordinated Indebtedness (1) shall be in a principal amount that does
not exceed the principal amount so refinanced (or, if such Subordinated
Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration
thereof, then such lesser amount as of the date of determination), plus
the lesser of (I) the stated amount of any premium or other payment
required to be paid in connection with such a refinancing pursuant to
the terms of the Indebtedness being refinanced, or (II)
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the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of expenses
of the Company incurred in connection with such refinancing; (2) has an
Average Life to Stated Maturity greater than the remaining Average Life
to Stated Maturity of the Securities; (3) has a Stated Maturity for its
final scheduled principal payment later than the Stated Maturity for the
final scheduled principal payment of the Securities; and (4) is
expressly subordinated in right of payment to the Securities at least to
the same extent as the Subordinated Indebtedness to be refinanced;
(v) the repurchase, redemption, defeasance, retirement,
refinancing, acquisition for value or payment of any Redeemable Capital
Stock through the substantially concurrent issuance of new Redeemable
Capital Stock of the Company, provided that any such new Redeemable
Capital Stock (1) shall have an aggregate liquidation preference that
does not exceed the aggregate liquidation preference of the amount so
refinanced; (2) has an Average Life to Stated Maturity greater than the
remaining Average Life to Stated Maturity of the Securities; and (3) has
a Stated Maturity later than the Stated Maturity for the final scheduled
principal payment of the Securities;
(vi) the repurchase of shares of, or options or warrants to
purchase shares of, common stock of the Company or any of its
Subsidiaries from employees, former employees, directors or former
directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former
directors), pursuant to the terms of the agreements (including
employment agreements) or plans (or amendments thereto) approved by the
Board of Directors under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such common stock; and
(vii) the repurchase, redemption, defeasance, retirement or
acquisition for value of the 13% Notes on or prior to their scheduled
maturity.
In addition, so long as any of the Series B Securities are
outstanding, the provisions of this section shall not restrict the ability of
any Subsidiary to (i) pay dividends or make any other distribution on its
Capital Stock, (ii) pay any Indebtedness owed to the Company or any other
Subsidiary, (iii) make any Investment in the Company or any other Subsidiary, or
(iv) transfer any of its properties or assets to the Company or any other
Subsidiary, to the extent such prohibition would violate the terms of the B
Indenture as in effect on the Issue Date.
Section 10.10. Limitation on Transactions with Affiliates.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with or for the benefit of any Affiliate
of the Company (other than the Company or a Subsidiary) unless such transaction
or series of related transactions is entered into in good faith and (a) such
transaction or series of related transactions is on terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than those that
would be available in a comparable transaction in arm's-length dealings with an
unrelated third party, (b) with respect to any transaction or series of related
transactions involving aggregate value in excess of $1,000,000, the Company
delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (a) above,
and (c) with respect to any transaction or series of related transactions
involving aggregate value in excess of $10,000,000, either (A) such transaction
or series of related transactions has been approved by a majority of the
Disinterested Directors of the Company, or in the event there is only one
Disinterested Director, by such Disinterested Director, or (B) the Company
delivers to the Trustee a written opinion of an investment banking firm of
national standing or other recognized independent expert with experience
appraising the terms and conditions of the type of transaction or series of
related transactions for which an opinion is required stating that the
transactions or series of related
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transactions are fair to the Company or such Subsidiary from a financial point
of view; provided, however, that clauses (a) through (c) above shall not apply
to (i) any transaction with an employee or director of the Company or any of its
Subsidiaries entered into in the ordinary course of business (including
compensation and employee benefit arrangements with any officer, director or
employee of the Company or any Subsidiary, including under any stock option or
stock incentive plans), (ii) Restricted Payments made in accordance with Section
10.9 or Permitted Payments, (iii) any transactions related to the Securitization
Facility, (iv) management agreements or similar agreements between (A) the
Company or any Subsidiary and (B) Affiliates in which the Company or any
Subsidiary has made an Investment, and (v) contributions by the Company or any
Subsidiary to a real estate investment trust pursuant to clause (ix) of the
definition of Permitted Investments.
Section 10.11. Limitation on Liens.
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, create or incur any Lien of any kind securing any Pari Passu
Indebtedness or Subordinated Indebtedness (including any assumption, guarantee
or other liability with respect thereto by any Subsidiary) upon any property or
assets (including any intercompany notes) of the Company or any Subsidiary owned
on the date hereof or acquired after the date hereof, or any income or profits
therefrom, unless the Securities are directly secured equally and ratably with
(or, in the case of Subordinated Indebtedness, prior or senior thereto, with the
same relative priority as the Securities shall have with respect to such
Subordinated Indebtedness) the obligations or liability secured by such Lien
except for Liens (A) securing any Indebtedness which became Indebtedness
pursuant to a transaction permitted under Section 8.1 or securing Acquired
Indebtedness which, in each case, were created prior to (and not created in
connection with, or in contemplation of) the incurrence of such Pari Passu
Indebtedness or Subordinated Indebtedness (including any assumption, guarantee
or other liability with respect thereto by any Subsidiary) and which
Indebtedness is permitted under the provisions of Section 10.8, (B) securing any
Indebtedness incurred in connection with any refinancing, renewal, substitutions
or replacements of any such Indebtedness described in clause (A), so long as the
aggregate principal amount of Indebtedness represented thereby is not increased
by such refinancing by an amount greater than the lesser of (i) the stated
amount of any premium or other payment required to be paid in connection with
such a refinancing pursuant to the terms of the Indebtedness being refinanced,
or (ii) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of expenses of the
Company incurred in connection with such refinancing, provided, however, that in
the case of clauses (A) and (B), any such Lien only extends to the assets that
were subject to such Lien securing such Indebtedness prior to the related
acquisition by the Company or its Subsidiaries, or (C) securing Indebtedness
incurred to effect a defeasance of (i) the Securities pursuant to Article IV
hereof or (ii) the Series B Securities pursuant to Article IV of the B
Indenture.
Section 10.12. Limitation on Sale of Assets.
(a) The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, consummate an Asset Sale unless (i) at least 75% of
the consideration from such Asset Sale is received in cash or Cash Equivalents,
and (ii) the Company or such Subsidiary receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value of the shares or assets
subject to such Asset Sale (as determined by the Board of Directors and
evidenced in a Board Resolution).
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are
not required to be applied to repay permanently any Senior Indebtedness then
outstanding as required by the terms thereof, or the Company determines not to
apply such Net Cash Proceeds to the permanent prepayment of such Senior
Indebtedness, or if no such Senior Indebtedness is then outstanding, then the
Company or a Subsidiary may, within 360 days of the Asset Sale, invest the Net
Cash Proceeds in properties and other assets that (as determined by the Board of
Directors) replace the properties and assets that were the
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subject of the Asset Sale or in properties and assets that will be used in the
businesses of the Company or its Subsidiaries existing on the date of the B
Indenture or in businesses reasonably related or complementary thereto. The
amount of such Net Cash Proceeds not applied to repay Senior Indebtedness or
used or invested within 360 days of the Asset Sale as set forth in this
paragraph constitutes "Excess Proceeds".
(c) When the aggregate amount of Excess Proceeds exceeds $15,000,000,
the Company will apply the Excess Proceeds to the repayment of the Securities
and any other Pari Passu Indebtedness outstanding with provisions requiring the
Company to make an offer to purchase or to purchase or redeem such Indebtedness
with the proceeds from any Asset Sale as follows: (A) the Company will make an
offer to purchase (an "Offer") from all holders of the Securities in accordance
with the procedures set forth in this Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of Securities that may be purchased out of
an amount (the "Securities Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the Securities, and the denominator of which is the sum of the
outstanding principal amount of the Securities and such Pari Passu Indebtedness
(subject to proration in the event such amount is less than the aggregate
Offered Price (as defined herein) of all Securities tendered), and (B) to the
extent required by such Pari Passu Indebtedness to permanently reduce the
principal amount of such Pari Passu Indebtedness, the Company will make an offer
to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari
Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess of
the Excess Proceeds over the Securities Amount; provided that in no event will
the Company be required to make a Pari Passu Offer in a Pari Passu Debt Amount
exceeding the principal amount of such Pari Passu Indebtedness plus the amount
of any premium required to be paid to repurchase such Pari Passu Indebtedness.
The offer price for the Securities will be payable in cash in an amount equal to
100% of the principal amount of the Securities plus accrued and unpaid interest,
if any, to the date (the "Offer Date") such Offer is consummated (the "Offered
Price"), in accordance with the procedures set forth in this Indenture. To the
extent that the aggregate Offered Price of the Securities tendered pursuant to
the Offer is less than the Securities Amount relating thereto or the aggregate
amount of Pari Passu Indebtedness that is purchased in a Pari Passu Offer is
less than the Pari Passu Debt Amount, the Company will use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Securities and Pari Passu Indebtedness surrendered by holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Securities to be
purchased on a pro rata basis. Upon the completion of the purchase of all the
Securities tendered pursuant to an Offer and the completion of a Pari Passu
Offer, the amount of Excess Proceeds, if any, shall be reset at zero.
(d) If the Company becomes obligated to make an Offer pursuant to clause
(c) above, the Securities and the Pari Passu Indebtedness shall be purchased by
the Company, at the option of the holders thereof, in whole or in part in
integral multiples of $1,000, on a date that is not earlier than 30 days and not
later than 60 days from the date the notice of such Offer is given to holders,
or such later date as may be necessary for the Company to comply with the
requirements under the Exchange Act.
(e) The Company will comply with the applicable tender offer rules,
including Rule 14e-l under the Exchange Act, and any other applicable securities
laws or regulations in connection with an Offer.
Section 10.13. Purchase of Securities upon a Change of Control.
(a) If a Change of Control shall occur at any time, then each Holder
shall have the right to require that the Company purchase such Holder's
Securities in whole or in part in integral multiples of $1,000 at a purchase
price (the "Change of Control Purchase Price") in cash in an amount equal to
101% of the principal amount of such Securities, plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date"), pursuant to the offer described below in this
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Section 10.13 (the "Change of Control Offer") and in accordance with the other
procedures set forth in subsections (b), (c), (d) and (e) of this Section 10.13.
(b) Within 30 days following any Change of Control, the Company shall
notify the Trustee thereof and give written notice (a "Change of Control
Purchase Notice") of such Change of Control to each Holder by first-class mail,
postage prepaid, at his address appearing in the Security Register, stating
among other things:
(1) that a Change of Control has occurred, the date of such
event, and that such Holder has the right to require the Company to
repurchase such Holder's Securities at the Change of Control Purchase
Price;
(2) the circumstances and relevant facts regarding such Change of
Control (including but not limited to, if applicable, information with
respect to pro forma historical income, cash flow and capitalization
after giving effect to such Change of Control);
(3) (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the Company,
the most recent subsequently filed Quarterly Report on Form 10-Q, as
applicable, and any Current Report on Form 8-K of the Company filed
subsequent to such Quarterly Report (or in the event the Company is not
required to prepare any of the foregoing Forms, the comparable
information required to be prepared by the Company pursuant to Section
10.17), (ii) a description of material developments, if any, in the
Company's business subsequent to the date of the latest of such reports
and (iii) such other information, if any, concerning the business of the
Company which the Company in good faith believes will enable such
Holders to make an informed investment decision regarding the Change of
Control Offer;
(4) that the Change of Control Offer is being made pursuant to
this Section 10.13 and that all Securities properly tendered pursuant to
the Change of Control Offer will be accepted for payment at the Change
of Control Purchase Price;
(5) the Change of Control Purchase Date, which shall be a
Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed, or such later date as is necessary to comply
with requirements under the Exchange Act;
(6) the Change of Control Purchase Price;
(7) the names and addresses of the Paying Agent and the offices
or agencies referred to in Section 10.2;
(8) that Securities must be surrendered not later than one
Business Day prior to the Change of Control Purchase Date to the Paying
Agent at the office of the Paying Agent or to an office or agency
referred to in Section 10.2 to collect payment;
(9) that the Change of Control Purchase Price for any Security
which has been properly tendered and not withdrawn will be paid promptly
following the Change of Control Offer Purchase Date;
(10) the procedures that a Holder must follow to accept a Change
of Control Offer or to withdraw such acceptance;
(11) that any Security not tendered will continue to accrue
interest; and
(12) that, unless the Company defaults in the payment of the
Change of Control Purchase Price, any Securities accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date.
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(c) Upon receipt by the Company of the proper tender of Securities, the
Holder of the Security in respect of which such proper tender was made shall
(unless the tender of such Security is properly withdrawn) thereafter be
entitled to receive solely the Change of Control Purchase Price with respect to
such Security. Upon surrender of any such Security for purchase in accordance
with the foregoing provisions, such Security shall be paid by the Company at the
Change of Control Purchase Price; provided, however, that installments of
interest whose Stated Maturity is on or prior to the Change of Control Purchase
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such on the relevant Regular Record Dates
according to the terms and the provisions of Section 3.9. Holders electing to
have Securities purchased will be required to surrender such Securities to the
Paying Agent at the address specified in the Change of Control Purchase Notice
at least one Business Day prior to the Change of Control Purchase Date. Any
Security that is to be purchased only in part shall be surrendered to a Paying
Agent at the office of such Paying Agent (with, if the Company, the Security
Registrar or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar or the Trustee, as the case may be, duly executed by, the Holder
thereof or such Holder's attorneys duly authorized in writing), and the Company
shall execute and the Trustee shall authenticate and deliver to the Holder of
such Security, without service charge, one or more new Securities of any
authorized denomination as requested by such Holder in an aggregate principal
amount equal to, and in exchange for, the portion of the principal amount of the
Security so surrendered that is not purchased.
(d) The Company shall (i) not later than the Change of Control Purchase
Date, accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) not later than 10:00 a.m. (New York time) on the
Change of Control Purchase Date, deposit with the Trustee or with a Paying Agent
an amount of money in same day funds (or New York Clearing House funds if such
deposit is made prior to the Change of Control Purchase Date) sufficient to pay
the aggregate Change of Control Purchase Price of all the Securities or portions
thereof which are to be purchased as of the Change of Control Purchase Date and
(iii) not later than 10:00 a.m. (New York time) on the Change of Control
Purchase Date, deliver to the Paying Agent an Officers' Certificate stating the
Securities or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail or deliver to Holders of Securities so accepted
payment in an amount equal to the Change of Control Purchase Price of the
Securities purchased from each such Holder, and the Company shall execute and
the Trustee shall promptly authenticate and mail or deliver to such Holders a
new Security equal in principal amount to any unpurchased portion of the
Security surrendered. Any Securities not so accepted shall be promptly mailed or
delivered by the Paying Agent at the Company's expense to the Holder thereof.
The Company will publicly announce the results of the Change of Control Offer on
the Change of Control Purchase Date. For purposes of this Section 10.13, the
Company shall choose a Paying Agent which shall not be the Company.
(e) A tender made in response to a Change of Control Purchase Notice may
be withdrawn if the Company receives, not later than one Business Day prior to
the Change of Control Purchase Date, a telegram, telex, facsimile transmission
or letter, specifying, as applicable:
(1) the name of the Holder;
(2) the certificate number of the Security in respect of which
such notice of withdrawal is being submitted;
(3) the principal amount of the Security (which shall be $1,000
or an integral multiple thereof) delivered for purchase by the Holder as
to which such notice of withdrawal is being submitted;
(4) a statement that such Holder is withdrawing his election to
have such principal amount of such Security purchased; and
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(5) the principal amount, if any, of such Security (which shall
be $1,000 or an integral multiple thereof) that remains subject to the
original Change of Control Purchase Notice and that has been or will be
delivered for purchase by the Company.
(f) Subject to applicable escheat laws, the Trustee and the Paying Agent
shall return to the Company any cash that remains unclaimed, together with
interest or dividends, if any, thereon, held by them for the payment of the
Change of Control Purchase Price; provided, however, that, (x) to the extent
that the aggregate amount of cash deposited by the Company pursuant to clause
(ii) of paragraph (d) above exceeds the aggregate Change of Control Purchase
Price of the Securities or portions thereof to be purchased, then the Trustee
shall hold such excess for the Company and (y) unless otherwise directed by the
Company in writing, promptly after the Business Day following the Change of
Control Purchase Date the Trustee shall return any such excess to the Company
together with interest, if any, thereon.
(g) The Company shall comply, to the extent applicable, with the
applicable tender offer rules, including Rule 14e-1 under the Exchange Act, and
any other applicable securities laws or regulations in connection with a Change
of Control Offer.
Section 10.14. Limitation on Preferred Stock of Subsidiaries.
The Company will not permit (a) any Subsidiary of the Company to issue
any Preferred Stock, except for (i) Preferred Stock issued to the Company or a
Wholly-Owned Subsidiary and (ii) Preferred Stock issued by a Person prior to the
time (A) such Person becomes a Subsidiary, (B) such Person merges with or into a
Subsidiary or (C) a Subsidiary merges with or into such Person; provided that
such Preferred Stock referred to in clause (ii) above was not issued or incurred
by such Person in anticipation of the type of transaction contemplated by
subclause (A), (B) or (C), or (b) any Person (other than the Company, or a
Wholly-Owned Subsidiary) to acquire Preferred Stock of any Subsidiary from the
Company or any Subsidiary, except, in the case of clause (a) or (b), upon the
acquisition of all the outstanding Preferred Stock of such Subsidiary in
accordance with the terms hereof.
Section 10.14A. Limitation on Senior Subordinated Indebtedness.
The Company will not, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise in any manner become directly or indirectly
liable for or with respect to or otherwise permit to exist any Indebtedness that
is subordinate in right of payment to any Indebtedness of the Company unless
such Indebtedness is also pari passu with the Securities or subordinate in right
of payment to the Securities at least to the same extent as the Securities are
subordinate in right of payment to Senior Indebtedness.
Section 10.15. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or suffer to exist any consensual encumbrance or
restriction on the ability of any Subsidiary to (i) pay dividends or make any
other distribution on its Capital Stock, (ii) pay any Indebtedness owed to the
Company or any other Subsidiary, (iii) make any Investment in the Company or any
other Subsidiary or (iv) transfer any of its properties or assets to the Company
or any other Subsidiary, except for: (a) any encumbrance or restriction pursuant
to any agreement in effect on the date of the B Indenture; (b) any encumbrance
or restriction, with respect to a Subsidiary that is not a Subsidiary of the
Company on the date of the B Indenture, in existence at the time such Person
becomes a Subsidiary of the Company and not incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary; (c) customary
non-assignment or subletting provisions of any lease, license or other contract;
(d) any restriction entered into in the ordinary course of business contained in
any lease of any Subsidiary or any security agreement or mortgage securing
Indebtedness of any Subsidiary to the extent such restriction restricts the
transfer
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of property subject to such security agreement, mortgage or lease; (e) any
restriction contained in an agreement pursuant to which Permitted Subsidiary
Indebtedness is incurred; and (f) any encumbrance or restriction existing under
any agreement that amends, substitutes, restructures, supplements, extends,
renews, refinances or replaces or otherwise modifies the agreements containing
the encumbrances or restrictions in the foregoing clauses (a), (b), (c), (d) or
(e), or in this clause (f); provided that the terms and conditions of any such
encumbrances or restrictions are no more restrictive in any material respect
than those under or pursuant to the agreement evidencing the Indebtedness so
amended, substituted, restructured, supplemented, extended, renewed, refinanced,
replaced or modified.
Section 10.16. Limitations on Unrestricted Subsidiaries.
The Company will not make, and will not permit its Subsidiaries to make,
an Investment in Unrestricted Subsidiaries unless, at the time thereof, (a) the
aggregate amount of such Investments would not exceed the amount of Restricted
Payments then permitted to be made pursuant to the provisions of Section 10.9 or
(b) such Investment is a Permitted Investment. Except for Permitted Investments,
any Investment in Unrestricted Subsidiaries permitted to be made pursuant to
this covenant (i) must be permitted to be made pursuant to the provisions of
Section 10.9 and will be treated as a Restricted Payment in calculating the
amount of Restricted Payments made by the Company, and (ii) may be made in cash
or property.
Section 10.17. Provision of Financial Statements.
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, the Company will, to the extent permitted under the Exchange Act,
file with the SEC the annual reports, quarterly reports and other documents
which the Company would have been required to file with the SEC pursuant to
Sections 13(a) or 15(d) of the Exchange Act if the Company were so subject, such
documents to be filed with the SEC on or prior to the date (a "Required Filing
Date") by which the Company would have been required so to file such documents
if the Company were so subject. The Company will also in any event (x) within 15
days of each Required Filing Date occurring after the issuance of the Securities
(i) transmit by mail to all Holders, as their names and addresses appear in the
Security Register, without cost to such holders and (ii) file with the Trustee
copies of the annual reports, quarterly reports and other documents which the
Company would have been required to file with the SEC pursuant to Sections 13(a)
or 15(d) of the Exchange Act if the Company were subject to either of such
Sections and (y) if filing such documents by the Company with the SEC is not
permitted under the Exchange Act, promptly upon written request and payment of
the reasonable cost of duplication and delivery, supply copies of such documents
to any prospective Holder at the Company's cost. So long as any of the
Securities remain Outstanding, the Company will make available to any
prospective purchaser of Securities or beneficial owner of Securities in
connection with any sale thereof the information required by Rule 144A(d)(4)
under the Securities Act, until such time as the Company has either exchanged
the Securities for securities identical in all material respects which have been
registered under the Securities Act or until such time as the Holders thereof
have disposed of such Securities pursuant to an effective registration statement
under the Securities Act.
Section 10.18. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, on or before a date not
more than 120 days after the end of each fiscal year of the Company ending after
the date hereof, a written statement signed by two executive officers of the
Company, one of whom shall be the principal executive officer, principal
financial officer or principal accounting officer of the Company, as to
compliance herewith, including whether or not, after a review of the activities
of the Company during such year and of the Company's performance under this
Indenture, to the best knowledge, based on such review, of the signers thereof,
the Company has fulfilled all of its respective obligations and is in compliance
with all conditions and covenants under this Indenture throughout such year
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and, if there has been a Default specifying each Default and the nature and
status thereof and any actions being taken by the Company with respect thereto.
(b) When any Default or Event of Default has occurred and is continuing,
or if the Trustee or any Holder or the trustee for or the holder of any other
evidence of Indebtedness of the Company or any Subsidiary gives any notice or
takes any other action with respect to a claimed default the Company shall
deliver to the Trustee by registered or certified mail or facsimile transmission
followed by hard copy of an Officers' Certificate specifying such Default, Event
of Default, notice or other action, the status thereof and what actions the
Company is taking or proposes to take with respect thereto, within ten Business
Days of becoming aware of its occurrence.
Section 10.19. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 10.6 through 10.11 and 10.14 through
10.18, if, before or after the time for such compliance, the Holders of not less
than a majority in aggregate principal amount of the Securities at the time
Outstanding shall, by Act of such Holders, waive such compliance in such
instance with such covenant or provision, but no such waiver shall extend to or
affect such covenant or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such covenant or condition shall remain
in full force and effect.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Rights of Redemption.
(a) The Securities are subject to redemption at any time on or after
October 15, 2002, at the option of the Company, in whole or in part, subject to
the conditions, and at the Redemption Prices, specified in the form of Security,
together with accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on relevant Regular Record Dates and
Special Record Dates to receive interest due on relevant Interest Payment Dates
and Special Payment Dates).
(b) In addition, at any time on or prior to October 15, 2000, the
Company may, at its option, use the net proceeds of one or more Public Equity
Offerings to redeem up to an aggregate of 35% of the aggregate principal amount
of Securities originally issued (whether on or after the Issue Date) under this
Indenture at a redemption price equal to 109.875% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Redemption Date; provided that at least 65% of the aggregate principal amount of
Securities originally issued under the Indenture remains outstanding immediately
after the occurrence of such redemption. In order to effect the foregoing
redemption, the Company must mail a notice of redemption no later than 60 days
after the related Public Equity Offering and must consummate such redemption
within 90 days of the closing of the Public Equity Offering.
Section 11.2. Applicability of Article.
Redemption of Securities at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article XI.
Section 11.3. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to Section
11.1 shall be evidenced by a Company Order and an Officers' Certificate. In case
of any redemption at the election of the Company, the Company shall, not less
than 45 nor more than 60 days prior to the Redemption Date fixed by the Company
(unless a shorter notice
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period shall be satisfactory to the Trustee), notify the Trustee in writing of
such Redemption Date and of the principal amount of Securities to be redeemed.
Section 11.4. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities or portions thereof to be redeemed shall be selected not more than 45
days prior to the Redemption Date. The Trustee shall select the Securities or
portions thereof to be redeemed pro rata, by lot or by any other method the
Trustee shall deem fair and reasonable. The amounts to be redeemed shall be
equal to $1,000 or any integral multiple thereof.
If requested by the Company, the Trustee shall promptly notify the
Company and the Security Registrar in writing of the Securities selected for
redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
Section 11.5. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 days nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at its address
appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be redeemed, the
identification of the particular Securities to be redeemed;
(d) in the case of a Security to be redeemed in part, the principal
amount of such Security to be redeemed and that after the Redemption Date upon
surrender of such Security, new Security or Securities in the aggregate
principal amount equal to the unredeemed portion thereof will be issued;
(e) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will become due and
payable upon each such Security or portion thereof to be redeemed, and that
(unless the Company shall default in payment of the Redemption Price) interest
thereon shall cease to accrue on and after said date;
(g) the names and addresses of the Paying Agent and the offices or
agencies referred to in Section 10.2 where such Securities are to be surrendered
for payment of the Redemption Price;
(h) the CUSIP number, if any, relating to such Securities; and
(i) the procedures that a Holder must follow to surrender the Securities
to be redeemed.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's written request, by
the Trustee in the name and at the expense of the Company. If the Company elects
to give notice of
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redemption, it shall provide the Trustee with a certificate stating that such
notice has been given in compliance with the requirements of this Section 11.5.
The notice if mailed in the manner herein provided shall be conclusively
presumed to have been given, whether or not the Holder receives such notice. In
any case, failure to give such notice by mail or any defect in the notice to the
Holder of any Security designated for redemption as a whole or in part shall not
affect the validity of the proceedings for the redemption of any other Security.
Section 11.6. Deposit of Redemption Price.
On or prior to 10:00 a.m., New York time, on any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company or any of its Affiliates is acting as Paying Agent, segregate and hold
in trust as provided in Section 10.3) an amount of money in same day funds
sufficient to pay the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date or Special Payment Date) accrued interest on,
all the Securities or portions thereof which are to be redeemed on that date.
The Paying Agent shall promptly mail or deliver to Holders of Securities so
redeemed payment in an amount equal to the Redemption Price of the Securities
purchased from each such Holder. All money, if any, earned on funds held in
trust by the Trustee or any Paying Agent shall be remitted to the Company. For
purposes of this Section 11.6, the Company shall choose a Paying Agent which
shall not be the Company.
Section 11.7. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Holders will be required
to surrender the Securities to be redeemed to the Paying Agent at the address
specified in the notice of redemption at least one Business Day prior to the
Redemption Date. Upon surrender of any such Security for redemption in
accordance with said notice, such Security shall be paid by the Company at the
Redemption Price together with accrued interest to the Redemption Date;
provided, however, that installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders of such Securities,
or one or more Predecessor Securities, registered as such on the relevant
Regular Record Dates and Special Record Dates according to the terms and the
provisions of Section 3.9.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate borne by such
Security.
Section 11.8. Securities Redeemed or Purchased in Part.
Any Security which is to be redeemed or purchased only in part shall be
surrendered to the Paying Agent at the office or agency maintained for such
purpose pursuant to Section 10.2 (with, if the Company, the Security Registrar
or the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company, the Security Registrar or the
Trustee, as the case may be, duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute,
and the Trustee shall authenticate and deliver to the Holder of such Security
without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to,
and in exchange for, the unredeemed portion of the principal of the Security so
surrendered that is not redeemed or purchased.
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ARTICLE XII
SATISFACTION AND DISCHARGE
Section 12.1. Satisfaction and Discharge of Indenture.
This Indenture shall be discharged and shall cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Securities as expressly provided for herein) as to all Outstanding Securities
hereunder, and the Trustee, upon Company Request and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) either
(1) all the Securities theretofore authenticated and delivered
(other than (i) lost, stolen or destroyed Securities which have been
replaced or paid as provided in Section 3.8 or (ii) all Securities for
whose payment United States dollars have theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust as provided in
Section 10.3) have been delivered to the Trustee for cancellation; or
(2) all such Securities not theretofore delivered to the Trustee
for cancellation (i) have become due and payable, (ii) will become due
and payable at their Stated Maturity within one year or (iii) are to be
called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company; and the Company has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust an amount in United States dollars sufficient to
pay and discharge the entire Indebtedness on the Securities not
theretofore delivered to the Trustee for cancellation, including the
principal of, premium, if any, and accrued interest on, such Securities
at such Maturity, Stated Maturity or Redemption Date;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Independent Counsel, in form and substance reasonably
satisfactory to the Trustee, each stating that (i) all conditions precedent
herein relating to the satisfaction and discharge hereof have been complied with
and (ii) such satisfaction and discharge will not result in a breach or
violation of, or constitute a default under, this Indenture or any other
material agreement or instrument to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary is bound.
Notwithstanding the satisfaction and discharge hereof, the obligations
of the Company to the Trustee under Section 6.6 and, if United States dollars
shall have been deposited with the Trustee pursuant to subclause (2) of
subsection (a) of this Section 12.1, the obligations of the Trustee under
Section 12.2 and the last paragraph of Section 10.3 shall survive.
Section 12.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
United States dollars deposited with the Trustee pursuant to Section 12.1 shall
be held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal of,
premium, if any, and interest on, the Securities for whose payment such United
States dollars have been deposited with the Trustee.
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ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinate to Senior Indebtedness.
Anything in this Indenture or the Securities to the contrary
notwithstanding, the Company covenants and agrees, and each Holder of a
Security, by his acceptance thereof, likewise covenants and agrees, that, to the
extent and in the manner hereinafter set forth in this Article, the Indebtedness
represented by the Securities and the payment of the principal of, premium, if
any, and interest on (including any payment required under any provision of this
Indenture and the Securities, including Sections 10.12 and 10.13), each and all
of the Securities and the other Indenture Obligations are hereby expressly made
subordinate and subject in right of payment as provided in this Article to the
prior payment in full, in cash or Cash Equivalents or, as acceptable to the
holders of Senior Indebtedness, in any other manner, of the Senior Indebtedness
(including any interest accruing after the occurrence of an Event of Default
under Section 5.1(g) or (h), whether or not such interest is an allowed claim
enforceable against the debtor in a case brought under the Bankruptcy Law).
As used in this Indenture and the Securities, "paying the Securities",
"payment of the Securities" and similar phrases mean any direct or indirect
payment or distribution by or on behalf of the Company on account of principal
of (or premium, if any) or interest on the Securities, the Indenture Obligations
or other amounts owed by the Company under this Indenture and the Securities
(other than amounts owing to the Trustee pursuant to Section 6.7 hereof) or to
acquire or repurchase pursuant to the provisions of this Indenture or redeem,
retire or defease all or any portion of the Securities or to make any deposit,
payment or transfer in furtherance of the foregoing.
This Article Thirteen shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders or continue to hold Senior
Indebtedness; and such provisions are made for the benefits of the holders of
Senior Indebtedness; and such holders are made obligees hereunder and they or
each of them may enforce such provisions.
Section 13.2. Payment Over of Proceeds Upon Dissolution, etc.
In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (b) any liquidation, dissolution or other winding
up of the Company, whether voluntary or involuntary, or whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshaling of assets or liabilities of the Company, whether voluntary
or involuntary, or whether or not involving insolvency or bankruptcy, then and
in any such event:
(1) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash or Cash Equivalents or, as acceptable to the holders of
Senior Indebtedness, in any other manner, of all amounts due on or in respect of
Senior Indebtedness before the Holders of the Securities are entitled to receive
any payment or distribution of any kind or character (excluding securities of
the Company or any other corporation that are equity securities or are
subordinate in right of payment to all Senior Indebtedness, that may be
outstanding, to substantially the same extent as, or to a greater extent than,
the Securities are so subordinated as provided in this Article ("Permitted
Junior Securities")) on account of the principal of, premium, if any, or
interest on the Securities or other Indenture Obligations or on account of the
purchase, redemption, defeasance or other acquisition of, or in respect of, the
Securities or other Indenture Obligations (other than amounts previously set
aside with the Trustee, or payments previously made, in either case, in
accordance with the provisions of Sections 4.2 and 4.3 of this Indenture); and
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(2) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (excluding Permitted Junior
Securities), by set-off or otherwise, to which the Holders or the Trustee would
be entitled but for the provisions of this Article shall be paid by the
liquidating trustee or agent or the Person making such payment or distribution,
whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise,
directly to the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Indebtedness may have been issued,
ratably according to the aggregate amounts remaining unpaid on account of the
Senior Indebtedness held or represented by each, to the extent necessary to make
payment in full in cash or Cash Equivalents or, as acceptable to the holders or
Senior Indebtedness, in any other manner, of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (excluding Permitted Junior Securities),
in respect of principal, premium, if any, and interest on the Securities or
other Indenture Obligations before all Senior Indebtedness is paid in full, in
cash or Cash Equivalents or, as acceptable to the holder of Senior Indebtedness,
in any other manner, then and in such event such payment or distribution
(excluding Permitted Junior Securities) shall be paid over or delivered
forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payments or distributions of
assets of the Company for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full
in cash or Cash Equivalents or, as acceptable to the holders of Senior
Indebtedness, in any other manner, after giving effect to any concurrent payment
or distribution to or for the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company with
or into, another Person or the liquidation or dissolution of the Company
following the sale, assignment, conveyance, transfer, lease or other disposal of
its properties and assets substantially as an entirety to another Person upon
the terms and conditions set forth in Article Eight shall not be deemed a
dissolution, winding up, liquidation, reorganization, assignment for the benefit
of creditors or marshaling of assets and liabilities of the Company for the
purposes of this Section if the Person formed by such consolidation or the
surviving entity of such merger or the Person which acquires by sale,
assignment, conveyance, transfer, lease or other disposal of such properties and
assets substantially as an entirety, as the case may be, shall, as a part of
such consolidation, merger, sale, assignment, conveyance, transfer, lease or
other disposal, comply with the conditions set forth in Article Eight.
Section 13.3. Suspension of Payment When Designated Senior Indebtedness
in Default.
(a) Upon the occurrence and during the continuance of any default in the
payment of any Designated Senior Indebtedness beyond any applicable grace period
( a "Payment Default"), no payment (other than amounts previously set aside with
the Trustee or payments previously made, in either case, in accordance with
Section 4.2 and 4.3 in this Indenture) or distribution of any assets of the
Company or any Subsidiary of any kind or character (excluding Permitted Junior
Securities) may be made by the Company or any Subsidiary on account of the
principal of, premium, if any, or interest on, the Securities or other Indenture
Obligations, or on account of the purchase, redemption, defeasance or other
acquisition of or in respect of, the Securities or other Indenture Obligations
unless and until such Payment Default shall have been cured or waived or shall
have ceased to exist or the Designated Senior Indebtedness shall have been
discharged or paid in full, in cash or Cash Equivalents or, as acceptable to the
holders of Senior Indebtedness, in any other manner, after which the Company
shall (subject to the other provisions of this Article Thirteen) resume making
any and all required payments in respect of the Securities, including any missed
payments.
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(b) (1) Upon the occurrence and during the continuance of any
non-payment default with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may then be accelerated immediately (a
"Non-payment Default") and (2) after the receipt by the Trustee and the Company
from a Senior Representative of any Designated Senior Indebtedness of written
notice of such Non-payment Default, no payment (other than any amounts
previously set aside with the Trustee, or payments previously made, in either
case, in accordance with the provisions of Sections 4.2 or 4.3 in this
Indenture) or distribution of any assets of the Company of any kind or character
(excluding Permitted Junior Securities) may be made by the Company or any
Subsidiary on account of the principal of, premium, if any, or interest on, the
Securities or other Indenture Obligations, or on account of the purchase,
redemption, defeasance or other acquisition of, or in respect of, the Securities
or other Indenture Obligations for the period specified below ("Payment Blockage
Period").
(c) A Payment Blockage Period shall commence upon the receipt of notice
of the Non-payment Default by the Trustee and the Company from a Senior
Representative and shall end on the earliest of (i) the 179th day after such
commencement, (ii) the date on which such Non-payment Default (and all
Non-payment Defaults as to which notice is given after such Payment Blockage
Period is initiated) is cured, waived or ceases to exist or on which such
Designated Senior Indebtedness is discharged or paid in full, in cash or Cash
Equivalents or, as acceptable to the holders of Senior Indebtedness, in any
other manner, or (iii) the date on which such Payment Blockage Period (and all
Non-payment Defaults as to which notice is given after such Payment Blockage
Period is initiated) shall have been terminated by written notice to the Company
or the Trustee from the Senior Representative initiating such Payment Blockage
Period, after which, in the case of clauses (i), (ii) and (iii), the Company
shall promptly resume making any and all required payments in respect of the
Securities, including any missed payments. In no event will a Payment Blockage
Period extend beyond 179 days from the date of the receipt by the Company and
the Trustee of the notice initiating such Payment Blockage Period (such 179-day
period referred to as the "Initial Period"). Any number of notices of
Non-payment Defaults may be given during the Initial Period; provided that
during any period of 365 consecutive days only one Payment Blockage Period,
during which payment of principal of, premium, if any, or interest on, the
Securities may not be made, may commence and the duration of such period may not
exceed 179 days. No Non-payment Default with respect to any Designated Senior
Indebtedness that existed or was continuing on the date of the commencement of
any Payment Blockage Period will be, or can be, made the basis for the
commencement of a second Payment Blockage Period, whether or not within a period
of 365 consecutive days, unless such default has been cured or waived for a
period of not less than 90 consecutive days. The Company shall deliver a notice
to the Trustee promptly after the date on which any Non-payment Default is cured
or waived or ceases to exist or on which the Designated Senior Indebtedness
related thereto is discharged or paid in full, in cash or Cash Equivalents or,
as acceptable to the holders of Senior Indebtedness, in any other manner, and
the Trustee is authorized to act in reliance on such notice.
(d) In the event that, notwithstanding the foregoing, the Company or any
Subsidiary shall make any payment or distribution to or for the benefit of the
Trustee or the Holder of any Security prohibited by the foregoing provisions of
this Section, then and in such event such payment or distribution shall be paid
over and delivered forthwith to a Senior Representative of the holders of the
Designated Senior Indebtedness or as a court of competent jurisdiction shall
direct.
Section 13.4. Payment Permitted if No Default.
Nothing contained in this Article, elsewhere in this Indenture or in any
of the Securities shall prevent the Company, at any time except during the
pendency of any case, proceeding, dissolution, liquidation or other winding-up,
assignment for the benefit or creditors or other marshaling of assets and
liabilities of the Company referred to in Section 13.2 or under the conditions
described in Section 13.3, from making payments at any time of principal of,
premium, if any, or interest on the Securities.
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Section 13.5. Subrogation to Rights of Holders of Senior Indebtedness.
After the payment in full, in cash or Cash Equivalents or, as acceptable
to the holders of Senior Indebtedness, in any other manner, of all Senior
Indebtedness, the Holders of the Securities shall be subrogated to the rights of
the holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
principal of, premium, if any, and interest on, the Securities shall be paid in
full, in cash or Cash Equivalents or, as acceptable to the holders of
Securities, in any other manner. For purposes of such subrogation, no payments
or distributions to the holders of Senior Indebtedness of any cash, property or
securities to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article, and no payments over
pursuant to the provisions of this Article to the holders of Senior Indebtedness
by Holders of the Securities or the Trustee, shall, as among the Company, its
creditors other than holders of Senior Indebtedness, and the Holders of the
Securities, be deemed to be a payment or distribution by the Company to or
account of the Senior Indebtedness.
Section 13.6. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders of
the Securities the principal of, and premium, if any, and interest on, the
Securities as and when the same shall become due and payable in accordance with
their terms; or (b) affect the relative rights against the Company or the
Holders of the Securities and creditors of the Company other than the holders of
the Senior Indebtedness; or (c) prevent the Trustee or the Holder of any
Security from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
of the holders of Senior Indebtedness (1) in any case, proceeding, dissolution,
liquidation or other winding up, assignment for the benefit of creditors or
other marshaling of assets and liabilities of the Company referred to in Section
13.2, to receive, pursuant to and in accordance with such Section, cash,
property and securities otherwise payable or deliverable to the Trustee or such
Holder, (2) under the conditions specified in Section 13.3, to prevent any
payment prohibited by such Section or enforce their rights pursuant to Section
13.3(d), or (3) as specified in Section 5.2.
Section 13.7. Trustee to Effectuate Subordination.
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company whether in bankruptcy, insolvency, receivership
proceedings, or otherwise, the timely filing of a claim for the unpaid balance
of the indebtedness of the Company owing to such Holder in the form required in
such proceedings and the causing of such claim to be approved. If the Trustee
does not file such a claim prior to 30 days before the expiration of the time to
file a claim, the holders of Senior Indebtedness, or any Senior Representative,
may file such a claim on behalf of the Holders of the Securities.
Section 13.8. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior Indebtedness
to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the
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Company with the terms, provisions and covenants of this Indenture, regardless
of any knowledge thereof any such holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this Section,
the holders of Senior Indebtedness may at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (1) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter or
increase, Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding; (2) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Indebtedness; (3) release any Person liable in any manner for
the collection or payment of Senior Indebtedness; and (4) exercise or refrain
from exercising any rights against the Company and any other Person; provided,
however, that in no event shall any such actions limit the right of the Holders
of the Securities to take any action to accelerate the maturity of the
Securities pursuant to Article Five of this Indenture or to pursue any rights or
remedies hereunder or under applicable laws if the taking of such actions does
not otherwise violate the terms of this Indenture.
(c) The provisions of this Article Thirteen shall be reinstated if at
any time any payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by any holder of Senior Indebtedness upon the insolvency,
bankruptcy or reorganization of the Company or otherwise.
Section 13.9. Notice to Trustee.
(a) The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from a Senior Representative or
any trustee, fiduciary or agent therefor; and, prior to the receipt of any such
written notice, the Trustee shall be entitled in all respects to assume that no
such facts exist; provided, however, that if the Trustee shall not have received
the notice provided for in this Section by Noon, Eastern Time, on the Business
Day prior to the date upon which by the terms hereof any money may become
payable for any purpose (including, without limitation, the payment of the
principal of, premium, if any, or interest on any Security), then, anything
herein contained to the contrary notwithstanding but without limiting the rights
and remedies of the holders of Senior Indebtedness, a Senior Representative or
any trustee, fiduciary or agent thereof, the Trustee shall have full power and
authority to receive such money and to apply the same to the purpose for which
such money was received and shall not be affected by any notice to the contrary
which may be received by it after such date; nor shall the Trustee be charged
with knowledge of the curing of any such default or the elimination of the act
or condition preventing any such payment unless and until the Trustee shall have
received an Officers' Certificate to such effect.
(b) The Trustee shall be entitled to rely on the delivery to it of a
written notice to the Trustee and the Company by a Person representing himself
to be a Senior Representative or a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
Senior Representative or a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor); provided, however, that failure to give such
notice to the Company shall not affect in any way the ability of the Trustee to
rely on such notice. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of Senior Indebtedness to participate in any payment or distribution pursuant to
this Article, the Trustee may request such Person to furnish
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evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
Section 13.10. Reliance on Judicial Orders or Certificates.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee and the Holders of the Securities shall be entitled to
rely upon any order or decree entered by any court of competent jurisdiction in
which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other person making
such payment or distribution, or a certificate of a Senior Representative,
delivered to the Trustee or to the Holders of the Securities for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article,
provided that the foregoing shall apply only if such court has been fully
appraised of the provisions of this Article.
Section 13.11. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.7.
Section 13.12. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting under this Indenture, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee; provided,
however, that Section 13.11 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
Section 13.13. No Suspensions of Remedies.
Nothing contained in this Article shall limit the right of the Trustee
or the Holders of Securities to take any action to accelerate the maturity of
the Securities pursuant to Article Five of this Indenture or to pursue any
rights or remedies hereunder or under applicable law, subject to the rights, if
any, under this Article of the holders, from time to time, of Senior
Indebtedness to receive the cash, property or securities receivable upon the
exercise of such rights or remedies.
Section 13.14. Trustee's Relation to Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligation as
are specifically set forth in this Article, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Article against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall
not be liable to any holder of Senior Indebtedness
-92-
<PAGE>
if it shall in good faith mistakenly (absent negligence or willful misconduct or
violation of Section 13.9(a)) pay over or deliver to Holders, the Company or any
other Person moneys or assets to which any holder of Senior Indebtedness shall
be entitled by virtue of this Article or otherwise.
-93-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
BALLY TOTAL FITNESS HOLDING CORPORATION
By: /s/ John W. Dwyer
------------------------------------
Name: John W. Dwyer
Title: Senior Vice President and
Chief Financial Officer
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee
By: /s/ Judith M. Zuzek
------------------------------------
Name: Judith M. Zuzek
Title: Trust Officer
-94-
<PAGE>
SCHEDULE I
EXISTING INDEBTEDNESS
<PAGE>
SCHEDULE II
EXISTING UNRESTRICTED SUBSIDIARIES
<PAGE>
EXHIBIT A
FORM OF CERTIFICATE
TO BE DELIVERED UPON
TERMINATION OF RESTRICTED PERIOD
On or after __________, 1998
[Trustee Name and Address]
Attention:
Re: Bally Total Fitness Holding Corporation (the "Company") 9-7/8%
Senior Subordinated Notes due 2007 (the "Securities")
Ladies and Gentlemen:
This letter relates to U.S. $_________ principal amount of Securities
represented by the global note certificate (the "Offshore Global Security").
Pursuant to Section 3.6 of the Indenture dated as of December 16, 1998 relating
to the Securities (the "Indenture"), we hereby certify that (1) we are the
beneficial owner of such principal amount of Securities represented by the
Offshore Global Security and (2) we are a person outside the United States to
whom the Securities could be transferred in accordance with Rule 904 of
Regulation S promulgated under the United States Securities Act of 1933, as
amended. Accordingly, you are hereby requested to issue a certificated Security
representing the undersigned's interest in the principal amount of Securities
represented by the Global Security, all in the manner provided by the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:_________________________
Authorized Signature
A-1
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION WITH
TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS
------------, ------
Bally Total Fitness Holding Corporation
c/o [Trustee Name and Address]
Attention: Corporate Trust Division
Re: Bally Total Fitness Holding Corporation (the "Company") 9-7/8%
Senior Subordinated Notes due 2007 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed purchase of $__________ aggregate
principal amount of the Securities:
1. We understand that the Securities have not been registered under the
United States Securities Act of 1933, as amended (the "Securities Act"), and may
not be sold within the United States or to, or for the benefit of, U.S. Persons
except as permitted in the following sentence. We agree on our own behalf and on
behalf of any investor account for which we are purchasing the Securities to
offer, resell, pledge or otherwise transfer such Securities prior to the date
which is two years after the later of the date of original issue and the last
date on which the Company or any affiliate of the Company was the owner of such
Securities, or any predecessor thereto (the "Resale Restriction Termination
Date") only (a) to the Company, (b) pursuant to a registration statement which
has been declared effective under the Securities Act, (c) for so long as the
Securities are eligible for resale pursuant to Rule 144A under the Securities
Act ("Rule 144A"), inside the United States to a person we reasonably believe is
a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its
own account or for the account of a QIB to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) outside the United States
pursuant to offers and sales to non-U.S. Persons in an Offshore Transaction
within the meaning of Regulation S under the Securities Act, (e) inside the
United States to an institutional "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act that
is acquiring the Securities for its own account or for the account of such an
institutional "accredited investor" for investment purposes and not with a view
to, or for offer or sale in connection with, any distribution thereof in
violation of the Securities Act or (f) pursuant to any other available exemption
from the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
and the property of such investor account or accounts be at all times within our
or their control and to compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Securities
is proposed to be made pursuant to clause (e) above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from the
transferee substantially in the form of this letter to the Trustee, which shall
provide, among other things, that the transferee is an institutional "accredited
investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501
under the Securities Act and that it is acquiring such Securities for investment
purposes and not for distribution in violation of the Securities Act. We
acknowledge that the Company and the Trustee reserve the right prior to any
offer, sale or other transfer prior to the Resale Restriction Termination Date
of the Securities pursuant to clauses (d), (e) and (f) above to require the
delivery of an opinion of counsel, certifications and/or other information
satisfactory to the Company and the Trustee. As used herein, the terms "United
States", "Offshore
B-1
<PAGE>
Transaction", and "U.S. Person" have the respective meanings given to them by
Regulation S under the Securities Act.
2. We are an institutional "accredited investor" (as defined in Rule 501
(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) purchasing for
our own account or for the account of such an institutional "accredited
investor," and we are acquiring the Securities for investment purposes and not
with a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act or the securities laws of any state of the
United States or any other applicable jurisdiction, provided that the
disposition of our property and the property of any accounts for which we are
acting as fiduciary shall remain at all times within our and their control; and
we have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Securities,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
3. We are acquiring the Securities purchased by us for our own account
or for one or more accounts as to each of which we exercise sole investment
discretion.
4. We understand that the Trustee will not be required to accept for
registration of transfer any Securities acquired by us, except upon presentation
of evidence satisfactory to the Company and the Trustee that the foregoing
restrictions on transfer have been complied with. We further understand that the
Securities purchased by us will be in the form of definitive physical
certificates and that such certificates will bear a legend reflecting the
substance of this paragraph. We further agree to provide to any person acquiring
any of the Securities from us a notice advising such person that resales of the
Securities are restricted as stated herein and that certificates representing
the Notes will bear a legend to that effect.
5. We acknowledge that you, the Company, the Trustee and others will
rely upon our acknowledgments, representations and agreements set forth herein,
and we agree to notify you promptly in writing if any of our acknowledgments,
representations or agreements herein cease to be accurate and complete.
6. We represent to you that we have full power to make the foregoing
acknowledgments, representations and agreements on our own behalf and on behalf
of any investor account for which we are acting as a fiduciary or agent.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES
THEREOF).
Very truly yours,
By: -------------------------------
(Name of Purchaser)
Date: ------------------------------
B-2
<PAGE>
Upon transfer, the Securities should be registered in the name of the
new beneficial owner as follows:
Name: --------------------------------------------------------------------------
Address: -----------------------------------------------------------------------
Taxpayer ID Number: ------------------------------------------------------------
B-3
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S
---------------, -------
[Trustee Name and Address]
Attention:
Re: Bally Total Fitness Holding Corporation (the "Company") 9-7/8%
Senior Subordinated Notes due 2007 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $____________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S ("Regulation S") under the
United States Securities Act of 1933, as amended, and, accordingly, we represent
that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we
nor any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the United States Securities Act of 1933,
as amended.
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable
thereto, we confirm that such sale has been made in accordance with the
applicable provisions of Rule 903(c)(2) or Rule 904(c)(1), as the case may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: ----------------------------------
Authorized Signature
C-1
<PAGE>
APPENDIX I
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s)and transfer(s) unto
Insert Taxpayer Identification No.
(Please print or typewrite name and address including zip code of assignee)
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing
attorney to transfer such Security on the books of the Company with full power
of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES FOR SERIES C SECURITIES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Security occurring prior to the
date which is the earlier of the date of an effective Registration Statement or
December 16, 2000, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[CHECK ONE]
[ ] (a) this Security is being transferred in compliance with the
exemption from registration under the United States Securities
Act of 1993, as amended, provided by Rule 144A thereunder.
OR
[ ] (b) Security is being transferred other than in accordance with
(a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the
Indenture.
If none of the foregoing boxes is checked, the Trustee or other Security
Registrar shall not be obligated to register this Security in the name of any
Person other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 3.7 of the Indenture
shall have been satisfied.
Date: -------------------
NOTICE: The signature to this assignment
must correspond with the name as
written upon the face of the
within-mentioned instrument in
every particular, without
alteration or any change
whatsoever.
Signature Guarantee:
[Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Securities Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Securities Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act.]
I-1
<PAGE>
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A ("Rule 144A") under the
United States Securities Act of 1933, as amended, and is aware that the sale to
it is being made in reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as the undersigned has requested pursuant
to Rule 144A or has determined not to request such information and that it is
aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.
Dated:
NOTICE: To be executed by an authorized signatory
I-2
<PAGE>
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Security to:
Please insert social security or other identifying number of assignee
Print or type name, address and zip code of assignee and irrevocably appoint
[Agent], to transfer this Security on the books of the Company. The Agent may
substitute another to act for him.
Dated Signed
(Sign exactly as name appears on the other side of this Security)
[Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Securities Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Securities Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act.]
II-1
<PAGE>
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939
AND INDENTURE, DATED AS OF DECEMBER 16, 1998
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- - --------------------------------------------------------------------------------
Section 310 (a)(1) 6.9
(a)(2) 6.9
(a)(5) 6.9
(b) 6.7, 6.10
Section 311 (a) 6.13
(b) 6.13
Section 312 (a) 7.1
(b) 7.2
(c) 7.2
Section 313 (a) 7.3
(b) 7.3
(c) 7.3
(d) 7.3
Section 314 (a)(1) 7.4
(a)(2) 7.4
(a)(3) 7.4
(a)(4) 10.18
(c)(1) 1.3
(c)(2) 1.3
(e) 1.3
Section 315 (a) 6.1
(b) 6.2
(c) 6.1
(d) 6.1, 6.3
(e) 5.14
Section 316 (a) (last sentence)1.1 ("Outstanding")
(a)(1)(A) 5.12
(a)(2)(B) 5.13
(b) 5.8
(c) 1.5
Section 317 (a)(1) 5.3
(a)(2) 5.4
(b) 10.3
Section 318 (a) 1.8
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of this Indenture.
II-2
EXHIBIT 4.10
- - --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of December 16, 1998
among
Bally Total Fitness Holding Corporation
and
Merrill Lynch & Co.
and
Jefferies & Company, Inc.
- - --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") made and entered into
this 16th day of December, 1998 among Bally Total Fitness Holding Corporation, a
Delaware corporation (the "Company"), and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Jefferies & Company, Inc.
(together, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated Decem-
ber 9, 1998, (the "Purchase Agreement"), among the Company and the Initial
Purchasers which provides for, among other things, the sale by the Company to
the Initial Purchasers of an aggregate of $75,000,000 aggregate principal amount
of the Company's 9-7/8% Series C Senior Subordinated Notes due 2007 (the
"Securities"). In order to induce the Initial Purchasers to enter into the
Purchase Agreement, the Company has agreed to provide to the Initial Purchasers
and their direct and indirect transferees the registration rights set forth in
this Agreement. The execution of this Agreement is a closing condition under the
Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"DEPOSITARY" shall mean The Depository Trust Company, or any other
depositary appointed by the Company; provided, however, that such depositary
must have an address in the Borough of Manhattan in the City of New York.
" EXCHANGE ACT" shall mean the United States Securities Exchange Act of
1934, as amended from time to time.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities and Original Securities pursuant
to Section 2.1 hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the
Securities Act effected pursuant to Section 2.1 hereof.
<PAGE>
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form), and all amendments and supplements to such registration statement, in
each case including the Prospectus contained therein, all exhibits thereto and
all documents incorporated by reference therein.
"EXCHANGE PERIOD" shall have the meaning set forth in Section 2.1
hereof.
"EXCHANGE SECURITIES" shall mean the 9-7/8% Series D Senior Subordinated
Notes due 2007 issued by the Company under the Indenture containing terms
identical to the Securities in all material respects (except for references to
certain interest rate provisions, restrictions on transfers and restrictive
legends).
"HOLDER" shall mean an Initial Purchaser, for so long as it owns any
Registrable Securities, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable Securities
under the Indenture.
"INDENTURE" shall mean the Indenture dated as of December 16, 1998,
between the Company and U.S. Bank Trust National Association, as trustee,
relating to the Securities and the Exchange Securities, as the same may be
amended, supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof.
"ISSUE DATE" shall mean the date on which the Securities are originally
issued under the Indenture.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the aggregate
principal amount of Outstanding (as defined in the Indenture) Registrable
Securities; provided, that whenever the consent or approval of Holders of a
specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company and other obligors on the Securities
or any Affiliate (as defined in the Indenture) of the Company shall be
disregarded in determining whether such consent or approval was given by the
Holders of such required percentage amount.
"ORIGINAL INDENTURE" shall mean the Indenture, dated as of October 7,
1997, between the Company and First Trust National Association, as trustee,
2
<PAGE>
pursuant to which the Original Securities were issued, as amended or
supplemented from time to time, in accordance with the terms thereof.
"ORIGINAL SECURITIES" shall mean the 9-7/8% Senior Subordinated Notes
due 2007 of the Company outstanding under the Original Indenture.
"PARTICIPATING BROKER-DEALER" shall mean Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Jefferies and Company, Inc. and any other broker-dealer
which both makes a market in the Securities and exchanges Registrable Securities
in the Exchange Offer for Exchange Securities.
"PERSON" shall mean an individual, partnership (general or limited),
corporation, limited liability company, trust or unincorporated organization, or
a government or agency or political subdivision thereof.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Securities covered by a Shelf Registration Statement, and by
all other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"REGISTRABLE SECURITIES" shall mean the Securities; provided, however,
that Securities shall cease to be Registrable Securities when (i) a Registra-
tion Statement with respect to such Securities shall have been declared
effective under the Securities Act and such Securities shall have been disposed
of pursuant to such Registration Statement, (ii) such Securities have been sold
to the public pursuant to Rule 144 (or any similar provision then in force, but
not Rule 144A) under the Securities Act, (iii) such Securities shall have ceased
to be outstanding, (iv) such Securities have been exchanged for Exchange
Securities upon consummation of the Exchange Offer and are thereafter freely
tradeable by the holder thereof or (v) such Securities can be sold by the
holders thereof without limitation as to holding period or volume.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. (the "NASD") registration and filing fees, (ii) all
fees and expenses
3
<PAGE>
incurred in connection with compliance with state securities or blue sky laws
and compliance with the rules of the NASD (including reasonable fees and
disbursements of counsel for any underwriters or Holders in connection with blue
sky qualification of any of the Exchange Securities or Registrable Securities
and any filings with the NASD), (iii) all expenses of any Persons in preparing
or assisting in preparing, word processing, printing and distributing any
Registration Statement, any Prospectus, any amendments or supplements thereto,
any underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, (iv) all fees
and expenses incurred in connection with the listing, if any, of any of the
Registrable Securities on any securities exchange or exchanges, (v) all rating
agency fees, (vi) the fees and disbursements of counsel for the Company and of
the independent public accountants of the Company, including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance, (vii) the fees and expenses of the Trustee, and any
escrow agent or custodian, (viii) the reasonable fees and disbursements of
special counsel representing the Holders of Registrable Securities, except as
otherwise provided in Section 2.3 hereof, and (ix) any fees and disbursements of
the underwriters customarily required to be paid by issuers or sellers of
securities and the reasonable fees and expenses of any special experts retained
by the Company in connection with any Registration Statement, but excluding
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of Registrable Securities by a Holder.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company which covers any of the Exchange Securities or Registrable Securities
pursuant to the provisions of this Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SEC" shall mean the United States Securities and Exchange Commission or
any successor agency or government body performing the functions currently
performed by the United States Securities and Exchange Commission.
"SECURITIES ACT" shall mean the United States Securities Act of 1933, as
amended from time to time.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2.2 hereof.
4
<PAGE>
"SHELF REGISTRATION STATEMENT" shall mean a shelf registration statement
of the Company pursuant to the provisions of Section 2.2 of this Agreement
which covers all of the Registrable Securities on an appropriate form under Rule
415 under the Securities Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"TRUSTEE" shall mean the trustee with respect to the Securities under
the Indenture.
2. REGISTRATION UNDER THE SECURITIES ACT.
2.1 EXCHANGE OFFER. (a) The Company shall use its best efforts to
(i) prepare and, as soon as practicable but not later than
90 days following the Issue Date, file with the SEC an Exchange Offer
Registration Statement with respect to a proposed Exchange Offer and the
issuance and delivery, in exchange for the Registrable Securities and
the Original Securities, of a like principal amount of Exchange
Securities,
(ii) cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act no later than 150 days
following the Issue Date,
(iii) keep the Exchange Offer Registration Statement
effective until the closing of the Exchange Offer, and
(iv) cause the Exchange Offer to be consummated not later
than 180 days following the Issue Date.
(b) The Exchange Securities will be issued under, and entitled to
the benefits of, the Indenture. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Exchange Offer,
it being the objective of such Exchange Offer, among other things, to enable
each Holder eligible and electing to exchange Registrable Securities for
Exchange Securities (assuming that such Holder (i) is not an affiliate of the
Company within the meaning of Rule 405 under the Securities Act, (ii) is not a
broker-dealer tendering Registrable
5
<PAGE>
Securities acquired directly from the Company for its own account, (iii)
acquired the Exchange Securities in the ordinary course of such Holder's
business and (iv) at the time of the commencement of the Exchange Offer has no
arrangements or understandings with any person to participate in the
"distribution" (within the meaning of the Securities Act) of the Exchange
Securities) to transfer such Exchange Securities from and after their receipt
without any volume or holding period limitations or restrictions under the
Securities Act and without material restrictions under the securities laws of a
substantial proportion of the several states of the United States.
(c) In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder and each holder of Original
Securities a copy of the Prospectus forming part of the Exchange Offer
Registration Statement, together with an appropriate letter of
transmittal and related documents;
(ii) keep the Exchange Offer open for acceptance for a
period of not less than 30 days after the date notice thereof is mailed
to the Holders and the holders of Original Securities (or longer if
required by applicable law) (such period referred to herein as the
"Exchange Period");
(iii) utilize the services of the Depositary for the
Exchange Offer;
(iv) permit Holders and holders of Original Securities to
withdraw tendered Registrable Securities or Original Securities at any
time prior to 5:00 p.m. (Eastern Standard Time), on the last business
day of the Exchange Period, by sending to the institution specified in
the notice, a telegram, telex, facsimile transmission or letter setting
forth the name of such holder, the principal amount of Registrable
Securities or Original Securities delivered for exchange, and a state
ment that such holder is withdrawing his election to have such securi-
ties exchanged;
(v) notify each Holder that any Registrable Security not
tendered will remain outstanding and continue to accrue interest, but
will not retain any rights under this Agreement (except in the case of
6
<PAGE>
the Initial Purchasers and Participating Broker-Dealers as provided
herein); and
(vi) otherwise comply in all respects with all applicable
laws relating to the Exchange Offer.
(d) As soon as practicable after the close of the Exchange
Offer, the Company shall:
(i) accept for exchange all Registrable Securities and
Original Securities duly tendered and not validly withdrawn pursuant to
the Exchange Offer in accordance with the terms of the Exchange Offer
Registration Statement and the letter of transmittal which shall be an
exhibit thereto;
(ii) deliver, or cause to be delivered, to the applicable
trustee for cancellation all Registrable Securities and Original Securi-
ties so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Securities to each Holder of Registrable Securities and each
holder of Original Securities so accepted for exchange in a principal
amount equal to the principal amount of the securities of such holder so
accepted for exchange.
(e) Interest on each Exchange Security will accrue from the last
date on which interest was paid on the Registrable Securities or the Original
Securities surrendered in exchange therefor or, if no interest has been paid on
the Registrable Securities or the Original Securities, from October 15, 1998.
The Exchange Offer shall not be subject to any conditions, other than that the
Exchange Offer does not violate applicable law or any applicable interpretation
of the staff of the SEC. In addition, the acceptance of tendered securities may
be conditioned on (i) the due tendering of such securities in accordance with
the Exchange Offer, and (ii) in the case of Registrable Securities, the Holder
thereof making certain customary representations, including representations that
such Holder is not an affiliate of the Company within the meaning of Rule 405
under the Securities Act, that all Exchange Securities to be received by it
shall be acquired in the ordinary course of its business and that at the time of
the consummation of the Exchange Offer it shall have no arrangement or
understanding with any person to participate in the distribution
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(within the meaning of the Securities Act) of the Exchange Securities, and any
such other representations as may be reasonably necessary under applicable SEC
rules, regulations or interpretations to render the use of Form S-4 or other
appropriate form under the Securities Act available. To the extent permitted by
law, the Company shall inform the Initial Purchasers of the names and addresses
of the Holders and holders of Original Securities to whom the Exchange Offer is
made, and the Initial Purchasers shall have the right to contact such holders
and otherwise facilitate the tender of Registrable Securities and Original
Securities in the Exchange Offer.
2.2 SHELF REGISTRATION. In the event that
(i) any changes in law, SEC rules or regulations or
applicable interpretations thereof by the staff of the SEC do not permit
the Company to effect the Exchange Offer as contemplated by Section 2.1
hereof,
(ii) if for any other reason the Exchange Offer Registra-
tion Statement is not declared effective within 150 days following the
Issue Date or the Exchange Offer is not consummated within 180 days
after the Issue Date,
(iii) upon the request of the Initial Purchasers acquiring a
majority of the initial aggregate principal amount of the Securities
with respect to any Registrable Securities which it acquired directly
from the Company and, with respect to other Registrable Securities held
by it, if such Initial Purchasers are not permitted, in the reasonable
opinion of counsel to such Initial Purchasers, pursuant to applicable
law or applicable interpretations of the staff of the SEC, to partici-
pate in the Exchange Offer or otherwise receive securities that are
freely tradeable without restriction or limitation as to holding period
or volume under the Securities Act and applicable blue sky or state
securities laws or
(iv) a Holder is not permitted by applicable law to
participate in the Exchange Offer based upon advice of counsel to the
effect that such Holder may not be legally able to participate in the
Exchange Offer or does not receive Exchange Securities pursuant to the
Exchange Offer which are fully tradeable by the Holder without
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restriction or limitation as to holding period or volume under the
Securities Act and under applicable blue sky or state securities laws,
then in case of each of clauses (i) through (iv) the Company shall, at its
cost:
(a) As promptly as practicable, file with the SEC, and thereafter
shall use its best efforts to cause to be declared effective as promptly as
practicable but no later than 150 days after the Issue Date (or, in the case of
a request by the Initial Purchasers acquiring a majority of the initial
aggregate principal amount of the Securities, within 60 days of such request), a
Shelf Registration Statement relating to the offer and sale of the Registrable
Securities by the Holders from time to time in accordance with the methods of
distribution elected by the Majority Holders participating in the Shelf
Registration and set forth in such Shelf Registration Statement.
(b) Subject to Section 2.4(b), use its best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders for a period of two
years after its effective date (or one year after its effective date in the case
of a request solely by Initial Purchasers) from the date the Shelf Registration
Statement is declared effective by the SEC, or for such shorter period that will
terminate when all Registrable Securities covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement or cease
to be outstanding or otherwise to be Registrable Securities.
(c) Notwithstanding any other provisions hereof, use its best
efforts to ensure that (i) any Shelf Registration Statement and any amendment
thereto and any Prospectus forming part thereof and any supplement thereto
complies in all material respects with the Securities Act and the rules and
regulations thereunder, (ii) any Shelf Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any Prospectus
forming part of any Shelf Registration Statement, and any supplement to such
Prospectus (as amended or supplemented from time to time), does not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements, in light of the circumstances under which they
were made, not misleading.
(d) If necessary, supplement or amend the Shelf Registration
Statement, as required by Section 3(b) below, and furnish to the Holders copies
of
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any such supplement or amendment promptly after its being used or filed with the
SEC.
The Company shall not be required to include any Registrable Securities
of a Holder in any Shelf Registration Statement pursuant to this Agreement
unless such Holder furnishes to the Company, within 5 business days after
receipt by such Holder of a request therefor, such information as the Company
may reasonably request for use in connection with such Shelf Registration
Statement.
2.3 EXPENSES. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2.1 or 2.2 hereof. Except
as provided herein, each Holder shall pay all expenses of its counsel,
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to the
Shelf Registration Statement.
2.4 EFFECTIVENESS. (a) The Company will be deemed not to have used
its best efforts to cause the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, to become, or to remain, effective
during the requisite period if the Company voluntarily takes any affirmative
action that would, or omits to take any action which omission would, result in
any such Registration Statement not being declared effective or in the holders
of Registrable Securities covered thereby not being able to exchange or offer
and sell such Registrable Securities during that period as and to the extent
contemplated hereby, unless (i) such action is reasonably believed by the
Company to be required by applicable law or (ii) with respect to the
effectiveness of a Shelf Registration Statement, such action or omission is
taken or made by the Company in good faith and for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company complies with the
requirements of Section 3(k) hereof, if applicable.
(b) The Company may suspend the availability of the Shelf Regis-
tration Statement and the use of any Prospectus which is a part thereof (i) for
one period not to exceed 60 days in any six month period or (ii) for up to four
periods not to exceed an aggregate of 90 days in any 12 month period, if such
suspension is effected in good faith and for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company promptly complies
with the requirements of Section 3(k) hereof, if applicable.
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(c) An Exchange Offer Registration Statement pursuant to Section
2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that if, after it has been declared effective, the
offering of Registrable Securities pursuant to a Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference, until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume.
2.5 INTEREST. In the event that (a) the Exchange Offer Registration
Statement is not filed with the SEC on or prior to the 90th day following the
Issue Date, (b) the Exchange Offer Registration Statement has not been declared
effective on or prior to the 150th day following the Issue Date, or (c) the
Exchange Offer is not consummated on or prior to the 180th day following the
Issue Date or a Shelf Registration Statement is not declared effective on or
prior to the 150th day following the Issue Date (or, if a Shelf Registration
Statement is required to be filed because of the request of the Initial
Purchasers acquiring a majority of the initial aggregate principal amount of the
Securities, 60 days following such request by such Initial Purchasers that the
Company file the Shelf Registration Statement) (each such event referred to in
clauses (a) through (c) above, a "Registration Default"), the interest rate
borne by the Securities (except in the case of clause (c), in which case only
the Securities which have not been exchanged in the Exchange Offer) shall be
increased by an amount equal to one-quarter of one percent (0.25 %) per annum
upon the occurrence of any Registration Default, which rate (as increased as
aforesaid) will increase by an additional one quarter of one percent (0.25%)
each 90-day period that such additional interest continues to accrue under any
such circumstance, with an aggregate maximum increase in the interest rate equal
to one percent (1%) per annum. Following the cure of all Registration Defaults
the accrual of additional interest will cease and the interest rate will revert
to the original rate. Upon (w) the filing of the Exchange Offer Registration
Statement after the 90-day period described in clause (a) above, (x) the
effectiveness of the Exchange Offer Registration Statement after the 150-day
period described in clause (b) above, or (y) the consummation of the Exchange
Offer after the 180-day period or the effectiveness of a Shelf Registration
Statement after the 150-day period (or the 60-day period), as the case may be,
described in clause (c) above, and provided that none of the conditions set
forth in clauses (a), (b) and (c) above continues to exist, a Registration
Default will be deemed to be cured.
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2.6 SPECIFIC ENFORCEMENT. Without limiting the remedies available to
the Initial Purchasers and the Holders, the Company acknowledges that any
failure by the Company to comply with its obligations under Section 2.1 and
Section 2.2 hereof may result in material irreparable injury to the Initial
Purchasers or the Holders for which there is no adequate remedy at law, that it
would not be possible to measure damages for such injuries precisely and that,
in the event of any such failure, the Initial Purchasers or any Holder may
obtain such relief as may be required to specifically enforce the Company's
obligations under Section 2.1 and Section 2.2 hereof.
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to
Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company
shall:
(a) prepare and file with the SEC a Registration Statement,
within the relevant time period specified in Section 2, on an appropriate form
under the Securities Act, which form (i) shall be selected by the Company, (ii)
shall, in the case of a Shelf Registration, be available for the sale of the
Registrable Securities by the selling Holders thereof, (iii) shall comply as to
form in all material respects with the requirements of the applicable form and
include or incorporate by reference all financial statements required by the SEC
to be filed therewith or incorporated by reference therein, and (iv) shall
comply in all respects with the applicable regulations under the Securities Act,
and use its best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement as may be necessary
under applicable law to keep such Registration Statement effective for the
applicable period; and cause each Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in effect) under the Securities Act and comply
with the provisions of the Securities Act applicable to it with respect to the
disposition of such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the selling
Holders thereof described in this Agreement (including sales by any
Participating Broker-Dealer);
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(c) in the case of a Shelf Registration, (i) notify each Holder
of Registrable Securities, at least five days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Securities is being filed
and advising such Holders that the distribution of Registrable Securities will
be made in accordance with the method selected by the Majority Holders
participating in the Shelf Registration, (ii) furnish to each Holder of
Registrable Securities and to each underwriter of an underwritten offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and, if the
Holder so requests, all exhibits in order to facilitate the public sale or other
disposition of the Registrable Securities; and (iii) subject to the last
paragraph of this Section 3, hereby consent to the use of the Prospectus or any
amendment or supplement thereto by each of the selling Holders of Registrable
Securities in connection with the offering and sale of the Registrable
Securities covered by the Prospectus or any amendment or supplement thereto;
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a Registration
Statement and each underwriter of an underwritten offering of Registrable
Securities shall reasonably request by the time the applicable Registration
Statement is declared effective by the SEC, and do any and all other acts and
things which may be reasonably necessary or advisable to enable each such Holder
and underwriter to consummate the disposition in each such jurisdiction of such
Registrable Securities owned by such Holder; provided, however, that the Company
shall not be required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), or (ii) take any action which would subject
it to general service of process or taxation in any such jurisdiction where it
is not then so subject;
(e) notify promptly each Holder of Registrable Securities under a
Shelf Registration or any Participating Broker-Dealer who has notified the
Company that it is utilizing the Exchange Offer Registration Statement as
provided in paragraph (f) below and, if requested by such Holder or
Participating Broker-Dealer, confirm such notice in writing promptly:
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(i) when a Registration Statement has become effective and
when any post-effective amendments and supplements thereto become
effective,
(ii) of any request by the SEC or any state securities
authority for post-effective amendments and supplements to a
Registration Statement and Prospectus or for additional information
after the Registration Statement has become effective,
(iii) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose,
(iv) in the case of a Shelf Registration, if, between the
effective date of a Registration Statement and the closing of any sale
of Registrable Securities covered thereby, the representations and
warranties of the Company contained in any underwriting agreement,
securities sales agreement or other similar agreement, if any, relating
to the offering cease to be true and correct in all material respects,
(v) of the happening of any event or the discovery of any
facts during the period a Shelf Registration Statement is effective
which makes any statement made in such Registration Statement or the
related Prospectus untrue in any material respect or which requires the
making of any changes in such Registration Statement or Prospectus in
order to make the statements therein not misleading, and
(vi) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable
Securities or the Exchange Securities, as the case may be, for sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose;
(f) in the case of the Exchange Offer Registration Statement,
(i) include in the Exchange Offer Registration Statement a
section entitled "Plan of Distribution," which section shall (A) be
reasonably acceptable to the Initial Purchasers acquiring a majority of
the initial aggregate principal amount of the Securities and (B)
contain a summary statement of the positions taken or policies made by
the staff of the SEC with respect to
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the potential "underwriter" status of any broker-dealer that holds
Registrable Securities acquired for its own account as a result of
market-making activities or other trading activities and that will be
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
of Exchange Securities to be received by such broker-dealer in the
Exchange Offer, whether such positions or policies have been publicly
disseminated by the staff of the SEC or such positions or policies, in
the reasonable judgment of the Initial Purchasers and their counsel,
represent the prevailing views of the staff of the SEC, including a
statement that any such broker-dealer who receives Exchange Securities
for Registrable Securities pursuant to the Exchange Offer may be deemed
a statutory underwriter and must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Securities,
(ii) furnish to each Participating Broker-Dealer who has
delivered to the Company the notice referred to in Section 3(e),
without charge, as many copies of each Prospectus included in the
Exchange Offer Registration Statement, including any preliminary
prospectus, and any amendment or supplement thereto, as such
Participating Broker-Dealer may reasonably request,
(iii) subject to the last paragraph of this Section 3,
hereby consent to the use of the Prospectus forming part of the Exchange
Offer Registration Statement or any amendment or supplement thereto, by
any person subject to the prospectus delivery requirements of the SEC,
including all Participating Broker-Dealers, in connection with the sale
or transfer of the Exchange Securities covered by the Prospectus or any
amendment or supplement thereto,
(iv) use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus to be
lawfully delivered by all Persons subject to the prospectus delivery
requirements of the Securities Act for such period of time as such
Persons must comply with such requirements in order to resell the
Exchange Securities,
(v) include in the transmittal letter or similar
documentation to be executed by an exchange offeree in order to
participate in the Exchange Offer the following provision:
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"If the exchange offeree is a broker-dealer holding Registrable
Securities acquired for its own account as a result of
market-making activities or other trading activities, it will
deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of Exchange Securities received
in respect of such Registrable Securities pursuant to the
Exchange Offer; provided, that by delivering a Prospectus in
connection with the exchange of Registrable Securities, the
broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act;"
(vi) to deliver to the Initial Purchasers on behalf of the
Participating Broker-Dealers upon the effectiveness of the Exchange
Offer Registration Statement (A) an opinion of Benesch, Friedlander,
Coplan & Aronoff LLP substantially in the form attached hereto as
Exhibit A, (B) an officers' certificate substantially in the form
customarily delivered in a public offering of debt securities and (C) a
comfort letter or comfort letters in customary form if permitted by
Statement on Auditing Standards No. 72 of the American Institute of
Certified Public Accountants (or if such a comfort letter is not
permitted, an agreed upon procedures letter in customary form) at least
as broad in scope and coverage as the comfort letter or comfort letters
delivered to the Initial Purchasers in connection with the initial sale
of the Securities to the Initial Purchasers;
(g) (i) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (ii) in the case of a Shelf Registration, furnish counsel
for the Holders of Registrable Securities copies of any comment letters received
from the SEC or any other request by the SEC or any state securities authority
for amendments or supplements to a Registration Statement and Prospectus or for
additional information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(i) in the case of a Shelf Registration, furnish to each selling
Holder of Registrable Securities, and each underwriter, if any, without charge,
at least one conformed copy of each Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
(without documents incorporated therein by reference and all exhibits thereto,
unless requested);
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(j) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends; and enable such Registrable Securities to
be in such denominations consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if any, may
reasonably request at least two business days prior to the closing of any sale
of Registrable Securities;
(k) in the case of a Shelf Registration, upon the occurrence of
any event or the discovery of any facts, each as contemplated by Sections
3(e)(ii), 3(e)(iii), 3(e)(v) and 3(e)(vi) hereof, use its best efforts to
prepare a supplement or post-effective amendment to the Registration Statement
or the related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities or Participating Broker-Dealers, such
Prospectus will not contain at the time of such delivery any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(l) obtain a CUSIP number for all Exchange Securities not later
than the effective date of a Registration Statement, and provide the Trustee
with printed certificates for the Exchange Securities in a form eligible for
deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Securities or Registrable Securities, as the case
may be, (ii) cooperate with the Trustee and the Holders to effect such changes
to the Indenture as may be required for the Indenture to be so qualified, as
necessary, in accordance with the terms of the TIA and (iii) execute, and use
its best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents required to
be filed with the SEC to enable the Indenture to be so qualified, as necessary,
in a timely manner;
(n) in the case of a Shelf Registration, enter into agreements
(including customary underwriting agreements) and take all other customary and
appropriate actions in order to expedite or facilitate the disposition of such
Registrable Securities and in such connection whether or not an underwriting
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agreement is entered into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the
Holders of such Registrable Securities and the underwriters, if any, in
form, substance and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be reasonably
requested by them;
(ii) obtain opinions of counsel to the Company and updates
thereof (which opinions (in form, scope and substance) and counsel shall
be reasonably satisfactory to the managing underwriters, if any, and the
Holders of a majority in principal amount of the Registrable Securities
being sold) addressed to each selling Holder and the underwriters, if
any, covering the matters customarily covered in opinions requested in
sales of securities or underwritten offerings and such other matters as
may be reasonably requested by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to the
underwriters, if any, and use reasonable efforts to have such letters
addressed to the selling Holders of Registrable Securities (to the
extent consistent with Statement on Auditing Standards No. 72 of the
American Institute of Certified Public Accounts), such letters to be in
customary form and covering matters of the type customarily covered in
"cold comfort" letters to underwriters in connection with similar
underwritten offerings and such other matters as reasonably requested by
such selling Holders and any underwriters;
(iv) enter into a securities sales agreement with the
Holders and an agent of the Holders providing for, among other things,
the appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Securities, which agreement shall be
in form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into, cause
the same to set forth indemnification provisions and procedures
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substantially equivalent to the indemnification provisions and proce-
dures set forth in Section 4 hereof with respect to the underwriters and
all other parties to be indemnified pursuant to said Section or, at the
request of any underwriters, in the form customarily provided to such
underwriters in similar types of transactions; and
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings to the Holders of a majority in principal amount of the
Registrable Securities being sold and the managing underwriters, if any.
The above shall be done at (i) the effectiveness of such Registration Statement
(and each post- effective amendment thereto) and (ii) each closing under any
underwriting or similar agreement as and to the extent required thereunder;
(o) in the case of a (i) Shelf Registration, or (ii) Prospectus
contained in an Exchange Offer pursuant to Section 2.1 which is required to be
delivered under the Securities Act by a Participating Broker-Dealer who seeks to
sell Exchange Securities, make available for inspection by representatives of
the Holders of the Registrable Securities and any such Participating
Broker-Dealer, as the case may be, and any underwriters participating in any
disposition pursuant to a Shelf Registration Statement and any counsel or
accountant retained by such Holders, Participating Broker Dealers or
underwriters, all pertinent financial and other records, pertinent corporate
documents and properties of the Company reasonably requested by any such
persons, and cause the respective officers, directors, employees, and any other
agents of the Company to supply all information reasonably requested by any such
representative, underwriter, counsel or accountant in connection with a
Registration Statement or Prospectus, and make such representatives of the
Company available for discussion of such documents as shall be reasonably
requested by the Initial Purchasers; provided, that any such records, documents,
properties and such information that is designated in writing by the Company,
in good faith, as confidential at the time of delivery of such records,
documents, properties or information shall be kept confidential by any such
representative, underwriter, counsel or accountant and shall be used only in
connection with such Registration Statement or Prospectus, unless such
information has become available (not in violation of this Agreement) to the
public generally or through a third party without an accompanying obligation of
confidentiality, and except that such representative, underwriter, counsel or
accountant shall have no liability, and shall not be in breach of this
provision, if disclosure
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of such confidential information is required by law or pursuant to a subpoena,
court order or regulatory or agency requirement, and the Company shall be
entitled to request that such representative, underwriter, counsel or accountant
sign a confidentiality agreement to the foregoing effect;
(p) (i) in the case of an Exchange Offer Registration Statement,
a reasonable time prior to the filing of any Exchange Offer Registration
Statement, any Prospectus forming a part thereof, any amendment to an Exchange
Offer Registration Statement or amendment or supplement to such Prospectus,
provide copies of such document to the Initial Purchasers and make such changes
in any such document prior to the filing thereof as the Initial Purchasers may
reasonably request within five business days after receipt of such document, and
make the representatives of the Company available for discussion of such
document as shall be reasonably requested by the Initial Purchasers; and
(ii) in the case of a Shelf Registration, a reasonable time
prior to filing any Shelf Registration Statement, any Prospectus forming
a part thereof, any amendment to such Shelf Registration Statement or
amendment or supplement to such Prospectus, provide copies of such
document to the Holders of Registrable Securities who are then to be a
seller of Registrable Securities thereunder, to the Initial Purchaser,
to counsel on behalf of the Holders and to the underwriter or
underwriters of an underwritten offering of Registrable Securities, if
any, make such changes in any such document prior to the filing thereof
as the Initial Purchasers, the counsel to the Holders or the underwriter
or underwriters reasonably request within 5 business days after receipt
of such document and make the representatives of the Company available
for discussion of such document as shall be reasonably requested by the
Holders of Registrable Securities, the Initial Purchasers on behalf of
such Holders, or any underwriter;
(q) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Securities to be listed on any securities exchange on
which similar debt securities issued by the Company are then listed if requested
by the Majority Holders; or if requested by the underwriter or underwriters of
an underwritten offering of Registrable Securities, if any;
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(r) in the case of a Shelf Registration, use its best efforts to
cause the Registrable Securities to be rerated by the appropriate rating
agencies, if so requested by the Majority Holders, or if requested by the
underwriter or underwriters of an underwritten offering of Registrable
Securities, if any;
(s) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering at least 12
months which shall satisfy the provisions of Section 11 (a) of the Securities
Act and Rule 158 thereun der;
(t) cooperate and assist in any filings required to be made with
the NASD and, in the case of a Shelf Registration, in the performance of any due
diligence investigation by any underwriter and its counsel (including any
"qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD); and
(u) upon consummation of an Exchange Offer, obtain a customary
opinion of counsel to the Company addressed to the Trustee for the benefit of
all Holders of Registrable Securities participating in the Exchange Offer, and
which includes an opinion that (i) the Company has duly authorized, executed and
delivered the Exchange Securities and the related indenture, and (ii) each of
the Exchange Securities and related indenture constitute a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its respective terms (with customary exceptions).
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Securities to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Securities as the Company may from time to time reasonably request
in writing.
For so long as the Company fails to timely effect the Exchange Offer or
file any Shelf Registration Statement and maintain the effectiveness of any
Shelf Registration Statement as provided herein, the Company shall not file any
Registration Statement with respect to any securities (within the meaning of
Section 2(l) of the Securities Act) of the Company other than Registrable
Securities.
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<PAGE>
If any of the Registrable Securities covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the underwriter or
underwriters and manager or managers that will manage such offering will be
selected by the Majority Holders of such Registrable Securities included in such
offering and shall be acceptable to the Company. No Holder of Registrable
Securities may participate in any underwritten registration hereunder unless
such Holder (a) agrees to sell such Holder's Registrable Securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event or the
discovery of any facts, each of the kind described in Sections 3(e)(ii),
3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to a Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(k) hereof, and, if so directed by the Company, such
Holder will deliver to the Company (at its expense) all copies in such Holder's
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Securities current at the time of
receipt of such notice. If the Company shall give any such notice to suspend the
disposition of Registrable Securities pursuant to a Shelf Registration Statement
as a result of the happening of any event or the discovery of any facts, each of
the kind described in Sections 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof,
the Company shall be deemed to have used its best efforts to keep the Shelf
Registration Statement effective during such period of suspension provided that
the Company shall use its best efforts to file and have declared effective (if
an amendment) as soon as practicable an amendment or supplement to the Shelf
Registration Statement and shall extend the period during which the Shelf
Registration Statement shall be maintained effective pursuant to this Agreement
by the number of days during the period from and including the date of the
giving of such notice to and including the date when the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions.
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<PAGE>
4. INDEMNIFICATION, CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the Initial
Purchasers, each Holder, each Participating Broker-Dealer, each Person who
participates as an underwriter (any such Person being an "Underwriter"), their
respective affiliates, and each Person, if any, who controls any of such parties
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act and each of their respective directors, officers, employees and
agents, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Regis-
tration Statement (or any amendment or supplement thereto) pursuant to
which Exchange Securities or Registrable Securities were registered
under the Securities Act, including all documents incorporated therein
by reference, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or arising out of any untrue state-
ment or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which
they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission; provided that (subject
to Section 4(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by any
indemnified party, except to the extent otherwise expressly provided in
Section 4(c) hereof), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding
23
<PAGE>
by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that any
such expense is not paid under subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense whatsoever to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by the Initial Purchasers, such Holder, Participating Broker-Dealer or
Underwriter (or any person controlling such Initial Purchasers, Holder,
Participating Broker-Dealer or Underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) expressly for use in a
Registration Statement (or any amendment or supplement thereto) or any
Prospectus (or any amendment or supplement thereto); provided, further, that
such indemnity with respect to any preliminary prospectus shall not inure to the
benefit of any Initial Purchasers, Holder, Participating Broker-Dealer or
Underwriter (or any persons controlling such Initial Purchasers, Participating
Broker-Dealer, Holder or Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) (i) from whom the person
asserting such loss, claim, damage or liability purchased the Securities which
are the subject thereof if such person did not receive a copy of the final
Prospectus (or the final Prospectus as amended or supplemented) at or prior to
the confirmation of the sale of such Securities to such person in any case where
the Company complied with its obligations under Sections 3(c) and 3(f)(A)(ii)
hereof and any such untrue statement or omission or alleged untrue statement or
omission of a material fact contained in such preliminary prospectus (or any
amendment or supplement thereto) was corrected in the final Prospectus (or the
final Prospectus as amended or supplemented) or (ii) if it resulted from the
use of the Prospectus during a period when the use of the Prospectus has been
suspended in accordance with Section 2.4(b) or Sections 3(e)(ii), 3(e)(iii),
3(e)(v) and 3(e)(vi) hereof; provided, in each case, that Holders received prior
notice of such suspension.
(b) Each Holder severally, but not jointly, agrees to indemnify
and hold harmless the Company, the Initial Purchasers, each Underwriter and the
other selling Holders, and each of their respective directors, officers,
employees and agents, and each Person, if any, who controls the Company, the
Initial Purchasers, any Underwriter or any other selling Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
against any and all loss, liability,
24
<PAGE>
claim, damage and expense described in the indemnity contained in Section 4(a)
hereof, as incurred, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions, made in the Shelf Registration Statement
(or any amendment thereto) or any Prospectus included therein (or any amendment
or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company expressly for use in the Shelf Registration
Statement (or any amendment thereto) or such Prospectus (or any amendment or
supplement thereto); provided, however, that no such Holder shall be liable for
any claims hereunder in excess of the amount of net proceeds received by such
Holder from the sale of Registrable Securities pursuant to such Shelf
Registration Statement.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action or proceeding
commenced against it in respect of which indemnity may be sought hereunder, but
failure so to notify an indemnifying party shall not relieve such indemnifying
party from any liability hereunder to the extent it is not materially prejudiced
as a result thereof and in any event shall not relieve it from any liability
which it may have otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. Notwithstanding the foregoing, if it so elects within a
reasonable time after receipt of such notice, an indemnifying party, jointly
with any other indemnifying parties receiving such notice, may assume the
defense of such action with counsel chosen by it and approved by the indemnified
parties defendant in such action (which approval shall not be unreasonably
withheld), unless such indemnified parties reasonably object to such assumption
on the ground that there may be legal defenses available to them which are
different from or in addition to those available to such indemnifying party. If
an indemnifying party assumes the defense of such action, the indemnifying party
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action. In no event shall
the indemnifying party or parties be liable for the fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be
25
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sought under this Section 4 (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in this Section 4 is for
any reason unavailable to, or insufficient to hold harmless, an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand, the Holders on another hand, and the Initial Purchasers on another hand,
from the offering of the Securities, the Exchange Securities and the Registrable
Securities (taken together) included in such offering or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand, the
Holders on another hand and the Initial Purchasers on another hand in connection
with the statements or omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Company from the offering of the
Securities, the Exchange Securities and the Registrable Securities (taken
together) included in such offering shall in each case be deemed to include the
proceeds received by the Company in connection with the offering of the
Securities pursuant to the Purchase Agreement. The parties hereto agree that any
underwriting discount or commission or reimbursement of fees paid to the Initial
Purchasers pursuant to the
26
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Purchase Agreement shall not be deemed to be a benefit received by the Initial
Purchasers in connection with the offering of the Exchange Securities or
Registrable Securities included in such offering.
The relative fault of the Company on the one hand, the Holders on
another hand, and the Initial Purchasers on another hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company, the Holders or the Initial
Purchasers and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Holders and the Initial Purchasers agree that it would
not be just and equitable if contribution pursuant to this Section 4 were
determined by pro rata allocation (even if the Initial Purchasers were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 4. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
4 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 4, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities sold by them were offered exceeds the amount
of any damages which such Initial Purchasers have otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 1 l(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4, each Person, if any, who controls an
Initial Purchaser or Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act shall have the same rights to contribution
as such Initial Purchaser or Holder, and each director of the Company, each
officer of the
27
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Company who signed the Registration Statement and each Person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Company. The Initial Purchasers' respective obligations to contribute pursuant
to this Section 4 are several in proportion to the principal amount of
Securities set forth opposite their respective names in Schedule A to the
Purchase Agreement and not joint.
5. MISCELLANEOUS.
5.1 Rule 144 and Rule 144A. For so long as the Company is subject to
the reporting requirements of Section 13 or 15 of the Exchange Act, the Company
covenants that it will file the reports required to be filed by it under the
Securities Act and Section 13(a) or 15(d) of the Exchange Act and the rules and
regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, the Company covenants that it will upon the
request of any Holder of Registrable Securities (a) make publicly available such
information as is necessary to permit sales pursuant to Rule 144 under the
Securities Act, (b) deliver such information to a prospective purchaser as is
necessary to permit sales pursuant to Rule 144A under the Securities Act and it
will take such further action as any Holder of Registrable Securities may
reasonably request, and (c) take such further action that is reasonable in the
circumstances, in each case, to the extent required from time to time to enable
such Holder to sell its Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144
under the Securities Act, as such rule may be amended from time to time, (ii)
Rule 144A under the Securities Act, as such rule may be amended from time to
time, or (iii) any similar rules or regulations hereafter adopted by the SEC.
Upon the request of any Holder of Registrable Securities, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
5.2 No Inconsistent Agreements. The Company has not entered into and
the Company will not after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with the
rights granted to the holders of the Company's other issued and outstanding
securities under any such agreements.
28
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5.3 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or departure.
5.4 Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, facsimile, telecopier, or any courier guaranteeing
overnight delivery (a) if to a Holder, at the most current address given by such
Holder to the Company by means of a notice given in accordance with the
provisions of this Section 5.4, which address initially is the address set forth
in the Purchase Agreement with respect to the Initial Purchasers; and (b) if to
the Company, initially at the Company's address set forth in the Purchase
Agreement, and thereafter at such other address of which notice is given in
accordance with the provisions of this Section 5.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; two business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; when receipt is acknowledged, if telecopied or facsimiled; and
on the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee under the
Indenture, at the address specified in such Indenture.
5.5 Successor and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement. If any transferee of any
Holder shall acquire Registrable Securities, in any manner, whether by operation
of law or otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding such Registrable
Securities such person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement, including
the restrictions on resale set forth in this
29
<PAGE>
Agreement and, if applicable, the Purchase Agreement, and such person shall be
entitled to receive the benefits hereof.
5.6 Third Party Beneficiaries. The Initial Purchasers (even if the
Initial Purchasers are not Holders of Registrable Securities) shall be
beneficiaries to the agreements made hereunder by the Company, and shall have
the right to enforce such agreements directly to the extent they deem such
enforcement necessary or advisable to protect their rights or the rights of
Holders hereunder. Each Holder of Registrable Securities shall be a third party
beneficiary to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights hereunder. Other than the foregoing
sentences, nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person, firm or corporation, other than the Initial
Purchasers, the Holders, including Participating Broker-Dealers, each under-
writer who participates in an offering of Registrable Securities, their
respective affiliates, and the Company and their respective successors and the
controlling persons, directors, officers, employees, and agents referred to in
Section 4 and their heirs and legal representatives, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole benefit of the Initial Purchasers, the Holders and
the Company and the other persons referenced by the preceding sentences and
their heirs and legal representatives, and for the benefit of no other person,
firm or corporation.
5.7 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
5.8 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
5.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
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5.10 Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
5.11 Entire Agreement. This Agreement constitutes the entire contract
between the parties hereto relative to the subject matter hereof. Any previous
agreement among the parties hereto relative to the subject matter hereof is
superseded by this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
BALLY TOTAL FITNESS HOLDING
CORPORATION
By: /s/ John W. Dwyer
-------------------------------
Name: John W. Dwyer
Title: Executive Vice President
Confirmed and accepted as
of the date first above
written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Naomi Sachs
-------------------------------
Name: Naomi Sachs
Title: Vice President
JEFFERIES & COMPANY, INC.
By: /s/ Andrew Whittaker
-------------------------------
Name: Andrew Whittaker
Title: Executive Vice President
<PAGE>
Exhibit A to
Registration Rights Agreement
FORM OF OPINION OF COUNSEL
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Jefferies & Company, Inc.
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower World Financial Center
New York, New York 10281-1209
RE: Bally Total Fitness Holding Corporation 9-7/8% Series C Senior
Subordinated Notes due 2007
Ladies and Gentlemen:
We have acted as counsel for Bally Total Fitness Holding Corporation, a
Delaware corporation (the "Company"), in connection with the sale by the Company
to the Initial Purchasers (as defined below) of $75,000,000 aggregate principal
amount of 9-7/8% Series C Senior Subordinated Notes due 2007 (the "Notes") of
the Company pursuant to the Purchase Agreement dated December __, 1998 (the
"Purchase Agreement") among the Company and Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Jefferies & Company, Inc. (together, the "Initial
Purchasers") and the filing by the Company of an Exchange Offer Registration
Statement (the "Registration Statement") in connection with an Exchange Offer to
be effected pursuant to the Registration Rights Agreement, dated December __,
1998 (the "Registration Rights Agreement") between the Company and the Initial
Purchasers. This opinion is furnished to you pursuant to Section 3(f)(vi)(A) of
the Registration Rights Agreement. Unless otherwise defined herein, capitalized
terms used in this opinion that are defined in the Registration Rights Agreement
are used herein as so defined.
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion. In rendering this opinion, as to
all matters of fact relevant to this opinion, we have assumed the completeness
and accuracy of, and are relying solely upon, the representations, warranties
and agreements of the Company and the Initial Purchasers set forth in the
Purchase Agreement
<PAGE>
and the statements set forth in certificates of public officials and officers of
the Company, without making any independent investigation or inquiry with
respect to the completeness or accuracy of such representations, warranties,
agreements or statements. This opinion is limited to the laws of the United
States of America and the laws of the State of Delaware.
Based on and subject to the foregoing, we are of the opinion that the
Exchange Offer Registration Statement and the Prospectus (other than the
financial statements, notes or schedules thereto and other financial data and
supplemental schedules included therein or omitted therefrom and the Form T-1,
as to which we need express no opinion), comply as to form in all material
respects with the requirements of the Securities Act and the applicable rules
and regulations promulgated under the Securities Act.
In addition, although we have not undertaken to determine independently,
and do not assume any responsibility for, the accuracy or completeness of the
statements in the Registration Statement and the Prospectus, we have
participated in conferences with officers and other representatives of the
Company and representatives of the independent public accountants of the
Company at which the contents of the Registration Statement and Prospectus were
discussed and we have reviewed certain other documents. We are not passing upon
and do not assume any responsibility for the accuracy, completeness or fairness
of such statements contained in the Registration Statement and the Prospectus,
and we make no representation that we have independently verified the accuracy,
completeness or fairness of such statements. Without limiting the foregoing, we
assume no responsibility for, and have not independently verified, the accuracy,
completeness or fairness of the financial and statistical data included in or
excluded from the Registration Statement and the Prospectus. Although certain
portions of the Registration Statement and the Prospectus (including financial
statements) have been included therein on the authority of "experts" within the
meaning of the Securities Act, we are not such experts with respect to any
portion of the Registration Statement and the Prospectus, including, without
limitation, such financial statements or schedules or the other financial or
statistical data included therein.
On the basis of the foregoing, we confirm to you that no information has
come to our attention that would cause us to believe that the Registration
Statement, at the time it became effective or as of the date hereof, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any
2
<PAGE>
amendment or supplement thereto, at the time the Prospectus was issued, at the
time any such amended or supplemented Prospectus was issued or upon consummation
of the Exchange Offer, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
3
<PAGE>
This opinion is being furnished to you solely for your benefit in
connection with the transaction contemplated by the Registration Rights
Agreement, and may not be used for any other purpose or relied upon by any
person other than you. Except with our prior written consent, the opinions
herein expressed are not to be used, circulated, quoted or otherwise referred to
in connection with any transactions other than those contemplated by the
Registration Rights Agreement by or to any other person.
Very truly yours,
4
EXHIBIT 10.31
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT, dated as of December 8, 1998 (this
"Amendment"), to the Credit Agreement, dated as of November 18, 1997, as in
effect immediately prior to the date hereof (the "Credit Agreement"), among
BALLY TOTAL FITNESS HOLDING CORPORATION, a Delaware corporation (the
"Borrower"), the several banks and other financial institutions (the "Banks")
parties thereto and THE CHASE MANHATTAN 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 certain provisions of the Credit Agreement as set forth in this
Amendment in order to permit the Borrower to issue up to $75,000,000 aggregate
principal amount of its 9-7/8% Senior Subordinated Notes due 2007, Series C; and
WHEREAS, the Agent and the Banks are willing to agree to such
amendments, 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. In addition,
the terms defined in Section 2 are used herein as therein defined.
2. Amendments to Section 1.01.
(a) Section 1.01 of the Credit Agreement is amended by adding the
following definitions in proper alphabetical order.
"1998 Indenture" means that certain Indenture dated as of
December __, 1998 ("Original 1998 Indenture") between Borrower and U.S.
Bank National Association, as trustee (and any successor trustee
thereto) (and any other indenture, if any, entered into in connection
with a registered exchange offer as long as such other indenture is
substantially identical to, and no less favorable to the Banks than, the
Original 1998 Indenture) relating to the 1998 Subordinated Notes and/or
entered into by the Borrower in connection with a registered exchange
offer of the 1998 Subordinated Notes and/or the
<PAGE>
2
1997 Subordinated Notes.
"1998 Subordinated Notes" has the meaning ascribed to it in the
definition of Subordinated Debt in Section 1.01.
(b) Section 1.01 of the Credit Agreement is amended by deleting
the definitions "1997 Indenture", "Senior Indebtedness" and "Subordinated Debt"
and substituting therefor the following:
"1997 Indenture" means that certain Indenture, dated as of
October 7, 1997 ("Original 1997 Indenture"), between Borrower and U.S.
Bank National Association, as trustee (and any successor trustee
thereto) (and any other indenture, if any, entered into in connection
with a registered exchange offer as long as such other indenture is
substantially identical to, and no less favorable to the Banks than, the
Original 1997 Indenture) relating to the 1997 Subordinated Notes and/or
entered into by the Borrower in connection with a registered exchange
offer of the 1997 Subordinated Notes and/or the 1998 Subordinated Notes.
"Senior Indebtedness" means Senior Indebtedness of Borrower as
defined in each of 1993 Indenture, the 1997 Indenture, and the 1998
Indenture.
"Subordinated Debt" means (a) Borrower's 13% Senior Subordinated
Notes ("1993 Subordinated Notes") due January 15, 2003, issued under and
pursuant to the 1993 Indenture, (b) Borrower's 9-7/8% Senior
Subordinated Notes due 2007, issued under and pursuant to the 1997
Indenture (together with any of Borrower's 9-7/8% Senior Subordinated
Notes due 2007 issued under the 1998 Indenture in exchange therefor,
"1997 Subordinated Notes"), (c) Borrower's 9-7/8% Senior Subordinated
Notes due 2007, issued under and pursuant to the 1998 Indenture
(together with any of Borrower's 9-7/8% Senior Subordinated Notes due
2007 issued under the 1998 Indenture in exchange therefor, "1998
Subordinated Notes" and together with the 1993 Subordinated Notes and
the 1997 Subordinated Notes, the "Subordinated Notes"), and (d) any
other Debt of Borrower which is subordinated to the Debt created under
this Agreement and the Notes in a manner and containing terms and
provisions satisfactory to Majority Banks.
3. Amendment to Section 7.02. Section 7.02 of the
Credit Agreement is amended by (i) deleting the word "and" from the end of
clause (h), (ii) deleting the period from the end of clause (i) and substituting
therefor the phrase "; and" and (iii) adding the following new clause (j):
(j) without duplication of Debt permitted by Section 7.02
(b) above, Debt of the Borrower consisting of the 1997
Subordinated Notes and the 1998 Subordinated Notes.
4. Amendments to Section 7.04. (a) Section 7.04 of the
Credit Agreement is amended by deleting from paragraph (c) thereof the phrase
"the Indenture" and substituting therefor the phrase "the 1993 Indenture, the
1997 Indenture, the 1998 Indenture".
<PAGE>
3
(b) Section 7.04 of the Credit Agreement is amended by adding
the following new paragraph (e) at the end thereof:
(e) Pay interest, principal or premium on the 1998 Subordinated
Notes in violation of Article Thirteen (or the comparable provisions of
a successor indenture) of the 1998 Indenture, or make any payment
thereunder to any holder or the trustee named therein prior to one (1)
Banking Day preceding the times set forth therein for the payment of
same, or make any payment, purchase or redemption of the 1998
Subordinated Notes pursuant to Article Four, Five, Ten, Eleven, Twelve
or Thirteen (or the comparable provisions of a successor indenture) of
the 1998 Indenture or deliver any notice to the trustee under the 1998
Indenture or the holders of the 1998 Subordinated Notes of its intention
to make any such payment, purchase or redemption, or make any "Company
Request" under Section 12.1 (or the comparable provisions of a successor
indenture) of the 1998 Indenture.
(c) Section 7.04 of the Credit Agreement is amended by deleting
from paragraph (b) the phrase "the Indenture" and substituting therefor the
phrase "the 1997 Indenture."
5. Amendment to Section 7.09. Section 7.09 of the Credit
Agreement is amended by (a) deleting the word "and" which appears immediately
before clause (iii) of paragraph (a) and (b) adding the following at the end of
paragraph (a):
and (iv) the Borrower may make a registered exchange offer of
each of the 1997 Subordinated Notes and the 1998 Subordinated
Notes as long as the terms of the subordinated notes issued in
the exchange are substantially identical (and not less favorable
to the Banks than) to those being replaced.
6. Representations and Warranties. The Borrower hereby
confirms that, after giving effect to the amendments provided for herein 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 the Borrower
has all necessary power and has taken all corporate action necessary to approve
and authorize this Amendment.
7. Senior Obligations. The 1998 Subordinated Notes are being
issued pursuant to the first paragraph of Section 10.8 of the 1997 Indenture.
The Borrower hereby covenants and agrees that each time it requests that an
Advance be made or a Letter of Credit be issued, renewed or extended under the
Credit Agreement and, after giving effect to such Advance or issuance, renewal
or extension, the sum of the aggregate principal amount of the Advances, the
aggregate undrawn amount of Letters of Credit and the aggregate amount of all
unreimbursed drawings under the Letters of Credit then outstanding would exceed
$70,000,000 (or such lesser amount as is then permitted to be outstanding under
the Credit Agreement under clause (i) of the definition of Permitted
Indebtedness, as defined in the 1997 Indenture and the 1998 Indenture) (such
excess, the "Excess Amount"), it shall either deliver to the Agent a written
notice accompanying such request, demonstrating in detail consistent with past
quarterly certifications that such Excess Amount is then permitted under clause
(ix) of the definition of Permitted
<PAGE>
4
Indebtedness (as defined in the 1997 Indenture and the 1998 Indenture) or
deliver to the Agent a certificate from Ernst & Young addressed to the Agent
certifying that the Excess Amount is then permitted to be incurred under Section
10.8 of the 1997 Indenture and the 1998 Indenture (based on the Consolidated
Fixed Charge Coverage Ratio test set forth therein) and demonstrating in
reasonable detail its calculations supporting such certification.
8. No Other Amendments. Except as expressly amended hereby,
the Credit Agreement shall continue to be and shall remain, in full force and
effect in accordance with its terms.
9. 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.
10. Conditions and Effectiveness. This Amendment shall become
effective on the date (the "Effective 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 Guarantors' 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.
11. Representations and Warranties, No Default. The Borrower
represents and warrants, and will be deemed to have represented and warranted on
the Effective Date, that the representations and warranties contained in Article
V of the Credit Agreement and in each Collateral Document will be true and
correct in all material respects on the Effective Date and that no Default or
Event of Default will have occurred and be continuing on the Effective Date.
12. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE
OF NEW YORK.
13. 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
<PAGE>
5
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.
<PAGE>
6
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: Exec. V.P., C.F.O. & Treasurer
---------------------------------
THE CHASE MANHATTAN BANK, as Agent and
as Bank
By:
------------------------------------
Title:
---------------------------------
U.S. BANK NATIONAL ASSOCIATION
By:
------------------------------------
Title:
---------------------------------
LASALLE NATIONAL BANK
By:
------------------------------------
Title:
---------------------------------
PNC BANK, NATIONAL ASSOCIATION
By:
------------------------------------
Title:
---------------------------------
<PAGE>
7
SOCIETE GENERALE
By:
------------------------------------
Title:
---------------------------------
THE SUMITOMO BANK, LIMITED, CHICAGO
BRANCH
By:
------------------------------------
Title:
---------------------------------
MERRILL LYNCH CAPITAL CORPORATION
By:
------------------------------------
Title:
---------------------------------
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
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
Bally Total Fitness of Greater Michigan, Inc. Michigan
Bally Total Fitness of Cleveland, Inc. Ohio
Holiday Spa Health Clubs of California California
Bally Total Fitness 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
Bally Total Fitness International, Inc. Michigan
Bally Total Fitness of Missouri, Inc. Missouri
Health & Tennis (U.K.) Limited United Kingdom
</TABLE>
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
LIST OF SUBSIDIARIES
<CAPTION>
Place of Incorporation
----------------------
<S> <C>
Bally Total Fitness Corporation (CONTINUED)
Bally's Fitness & Racquet Clubs, Inc. Florida
BFIT Acquisition Corporation Delaware
BFIT Rehabilitation Services, Inc. Delaware
BFIT Rehab of West Palm Beach, Inc. Florida
BFIT Rehab of Boca Roton, Inc. Florida
BFIT Rehab of Kendall, Inc. Florida
Bally Franchising Holdings, Inc. Illinois
Bally Fitness Franchising, Inc. Illinois
Bally Franchise RSC, Inc. Illinois
Lincoln Indemnity Company Vermont
BTFCC, INC. Delaware
BTF Washington, Inc. Delaware
Bally Total Fitness Clinics, Inc. Delaware
KR/BTF, LLC. (p) Delaware
<FN>
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.
(p) 50% of outstanding stock owned by Bally Total Fitness Clinics, Inc.
</FN>
</TABLE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 333-63761 and Form S-3 No. 333-60095) of Bally Total Fitness
Holding Corporation and in the related Prospectus of our report dated February
11, 1999, 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, 1998.
ERNST & YOUNG LLP
Chicago, Illinois
March 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998, THE CONSOLIDATED STATEMENT
OF OPERATIONS AND THE CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 64,382
<SECURITIES> 0
<RECEIVABLES> 528,427<F1>
<ALLOWANCES> 106,301
<INVENTORY> 0
<CURRENT-ASSETS> 298,573
<PP&E> 702,002
<DEPRECIATION> 340,702
<TOTAL-ASSETS> 1,128,845
<CURRENT-LIABILITIES> 399,685
<BONDS> 482,199
0
0
<COMMON> 239
<OTHER-SE> 161,544
<TOTAL-LIABILITY-AND-EQUITY> 1,128,845
<SALES> 0
<TOTAL-REVENUES> 742,525
<CGS> 0
<TOTAL-COSTS> 457,582<F2>
<OTHER-EXPENSES> 39,185<F3>
<LOSS-PROVISION> 118,604
<INTEREST-EXPENSE> 41,494
<INCOME-PRETAX> 13,822
<INCOME-TAX> 525
<INCOME-CONTINUING> 13,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,297
<EPS-PRIMARY> .59
<EPS-DILUTED> .51
<FN>
<F1>THIS AMOUNT IS THE SUM OF THE SHORT-TERM AND LONG-TERM INSTALLMENT
CONTRACTS RECEIVABLE LINES ON THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
1998 AND IS NET OF UNEARNED FINANCE CHARGES.
<F2>THIS AMOUNT IS THE SUM OF THE FITNESS CENTER OPERATIONS LINE, THE
ADVERTISING LINE AND THE CHANGE IN DEFERRED MEMBERSHIP ORIGINATION COSTS
LINE ON THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1998.
<F3>THIS AMOUNT IS THE MEMBER PROCESSING AND COLLECTION CENTERS LINE ON THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1998.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997, THE CONSOLIDATED STATEMENT
OF OPERATIONS AND THE CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 61,679
<SECURITIES> 0
<RECEIVABLES> 424,117<F1>
<ALLOWANCES> 80,531
<INVENTORY> 0
<CURRENT-ASSETS> 261,433
<PP&E> 625,741
<DEPRECIATION> 314,544
<TOTAL-ASSETS> 967,566
<CURRENT-LIABILITIES> 393,372
<BONDS> 405,425
0
0
<COMMON> 206
<OTHER-SE> 70,115
<TOTAL-LIABILITY-AND-EQUITY> 967,566
<SALES> 0
<TOTAL-REVENUES> 661,037
<CGS> 0
<TOTAL-COSTS> 424,565<F2>
<OTHER-EXPENSES> 38,627<F3>
<LOSS-PROVISION> 96,078
<INTEREST-EXPENSE> 45,021
<INCOME-PRETAX> (23,156)
<INCOME-TAX> 300
<INCOME-CONTINUING> (23,456)
<DISCONTINUED> 0
<EXTRAORDINARY> (21,414)
<CHANGES> 0
<NET-INCOME> (44,870)
<EPS-PRIMARY> (2.88)
<EPS-DILUTED> (2.88)
<FN>
<F1>THIS AMOUNT IS THE SUM OF THE SHORT-TERM AND LONG-TERM INSTALLMENT
CONTRACTS RECEIVABLE LINES ON THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
1997 AND IS NET OF UNEARNED FINANCE CHARGES.
<F2>THIS AMOUNT IS THE SUM OF THE FITNESS CENTER OPERATIONS LINE, THE
ADVERTISING LINE AND THE CHANGE IN DEFERRED MEMBERSHIP ORIGINATION COSTS
LINE ON THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1997.
<F3>THIS AMOUNT IS THE MEMBER PROCESSING AND COLLECTION CENTERS LINE ON THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1997.
</FN>
</TABLE>
