FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the period ended March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of he Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: X No:
As of April 30, 1999, 23,304,249 shares of the registrant's common stock were
outstanding.
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Condensed consolidated balance sheets (unaudited)
March 31, 1999 and December 31, 1998.......................... 1
Consolidated statements of operations (unaudited)
Three months ended March 31, 1999 and 1998.................... 2
Consolidated statement of stockholders' equity (unaudited)
Three months ended March 31, 1999............................. 3
Consolidated statements of cash flows (unaudited)
Three months ended March 31, 1999 and 1998.................... 4
Notes to condensed consolidated financial statements
(unaudited)................................................... 6
Item 2. Management's discussion and analysis of financial
condition and results of operations.................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.......................... 12
SIGNATURE PAGE....................................................... 13
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................. $ 50,688 $ 64,382
Installment contracts receivable, net............ 210,659 199,979
Other current assets............................. 32,606 34,212
------------ -----------
Total current assets........................... 293,953 298,573
Installment contracts receivable, net.............. 236,413 222,147
Property and equipment, less accumulated
depreciation and amortization of $351,157
and $340,702..................................... 380,738 361,300
Intangible assets, less accumulated
amortization of $60,052 and $58,844 104,248 101,815
Deferred income taxes.............................. 21,191 17,430
Deferred membership origination costs.............. 100,977 97,901
Other assets....................................... 32,466 29,679
------------ -----------
$ 1,169,986 $ 1,128,845
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 38,763 $ 40,957
Income taxes payable............................. 2,752 2,608
Deferred income taxes............................ 22,679 18,919
Accrued liabilities.............................. 61,347 48,596
Current maturities of long-term debt............. 6,916 5,799
Deferred revenues................................ 291,460 282,806
------------ -----------
Total current liabilities...................... 423,917 399,685
Long-term debt, less current maturities............ 485,569 482,199
Other liabilities.................................. 6,177 6,226
Deferred revenues.................................. 85,454 78,952
Stockholders' equity............................... 168,869 161,783
------------ -----------
$ 1,169,986 $ 1,128,845
============ ===========
<FN>
See accompanying notes
</FN>
</TABLE>
1
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
THREE MONTHS
ENDED MARCH 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Net revenues:
Membership revenues --
Initial membership fees on financed
memberships originated........................... $ 126,730 $ 113,188
Initial membership fees on paid-in-full
memberships originated.......................... 6,670 9,858
Dues collected.................................... 59,968 51,573
Change in deferred revenues....................... (13,437) (10,147)
---------- ----------
179,931 164,472
Finance charges earned............................... 13,983 11,147
Fees and other....................................... 14,281 8,869
---------- ----------
208,195 184,488
Operating costs and expenses:
Fitness center operations............................ 112,989 103,122
Member processing and collection centers............. 10,127 10,591
Advertising.......................................... 13,773 13,500
General and administrative........................... 6,688 6,305
Provision for doubtful receivables................... 36,815 32,392
Depreciation and amortization........................ 12,395 12,743
Change in deferred membership origination costs...... (2,889) (6,092)
---------- ----------
189,898 172,561
---------- ----------
Operating income....................................... 18,297 11,927
Interest income........................................ 861 551
Interest expense....................................... (12,297) (10,206)
---------- ----------
Income before income taxes and cumulative
effect of a change in accounting principle........... 6,861 2,272
Income tax provision .................................. (150) (200)
---------- ----------
Income before cumulative effect of a change in
accounting principle................................. 6,711 2,072
Cumulative effect of a change in accounting principle,
net of income tax.................................... (262)
---------- ----------
Net income ............................................ $ 6,449 $ 2,072
========== ==========
Earnings per common share:
Income before cumulative effect of a change
in accounting principle............................ $ .29 $ .10
Cumulative effect of a change in accounting
principle.......................................... (.01)
---------- ----------
Net income per common share.......................... $ .28 $ .10
========== ==========
Earnings per common share --assuming dilution:
Income before cumulative effect of a change in
accounting principle............................... $ .25 $ .09
Cumulative effect of a change in accounting
principle.......................................... (.01)
---------- ----------
Net income per common share--assuming dilution....... $ .24 $ .09
========== ==========
<FN>
See accompanying notes
</FN>
</TABLE>
2
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
<CAPTION>
COMMON STOCK UNEARNED
------------------- COMPENSATION COMMON TOTAL
NUMBER PAR CONTRIBUTED ACCUMULATED (RESTRICTED STOCK IN STOCKHOLDERS'
OF SHARES VALUE CAPITAL DEFICIT STOCK) TREASURY EQUITY
---------- ----- ----------- ----------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998....... 23,373,393 $ 239 $ 488,046 $ (309,306) $ (7,978) $ (9,218) $ 161,783
Net income......................... 6,449 6,449
Issuance of common stock under
stock purchase and option plans.. 76,277 1 636 637
---------- ----- --------- ---------- -------- -------- ---------
Balance at March 31, 1999.......... 23,449,670 $ 240 $ 488,682 $ (302,857) $ (7,978) $ (9,218) $ 168,869
========== ===== ========= ========== ======== ======== =========
<FN>
See accompanying notes
</FN>
</TABLE>
3
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
THREE MONTHS
ENDED MARCH 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
OPERATING:
Income before cumulative effect of a change
in accounting principle............................ $ 6,711 $ 2,072
Adjustments to reconcile to cash provided--
Depreciation and amortization, including
amortization included in interest expense........ 13,122 13,284
Provision for doubtful receivables................. 36,815 32,392
Change in operating assets and
liabilities...................................... (40,340) (47,670)
---------- ----------
Cash provided by operating activities............ 16,308 78
INVESTING:
Purchases and construction of property
and equipment...................................... (24,964) (13,423)
Acquisitions of businesses........................... (819)
Other, net........................................... (3,000)
---------- ----------
Cash used in investing activities ............... (28,783) (13,423)
FINANCING:
Debt transactions --
Redemption of 13% Senior Subordinated
notes due 2003................................... (24,021)
Repayments of other long-term debt................. (1,856) (1,939)
---------- ----------
Cash used in debt transactions................... (1,856) (25,960)
Equity transactions --
Proceeds from issuance of common stock under
stock purchase and option plans.................. 637 269
---------- ----------
Cash used in financing activities................ (1,219) (25,691)
---------- ----------
Decrease in cash and equivalents....................... (13,694) (39,036)
Cash and equivalents, beginning of period.............. 64,382 61,679
---------- ----------
Cash and equivalents, end of period.................... $ 50,688 $ 22,643
========== ==========
<FN>
(continued)
</FN>
</TABLE>
4
<PAGE>
<TABLE>
BALLY TOTAL FITNESS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(In thousands)
(Unaudited)
<CAPTION>
THREE MONTHS
ENDED MARCH 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and liabilities,
were as follows --
Increase in installment contracts
receivable..................................... $ (61,761) $ (60,846)
(Increase) decrease in other current and
other assets................................... 877 (1,464)
Increase in deferred membership
origination costs.............................. (2,889) (6,092)
Increase (decrease) in accounts payable.......... (2,194) 4,293
Increase in income taxes payable................. 144 280
Increase in accrued and other
liabilities.................................... 12,046 6,012
Increase in deferred revenues.................... 13,437 10,147
---------- ----------
$ (40,340) $ (47,670)
========== ==========
Cash payments for interest and income taxes
were as follows --
Interest paid.................................... $ 4,540 $ 5,604
Interest capitalized............................. (276) (170)
Income taxes (refunded) paid, net................ 6 (80)
Investing and financing activities exclude the
following non-cash transactions --
Acquisition of property and equipment
through capital leases/borrowings.............. 2,882 1,933
Debt, including assumed debt, related to
acquisitions of businesses..................... 3,417
<FN>
See accompanying notes.
</FN>
</TABLE>
5
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands)
(Unaudited)
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Bally Total Fitness Holding Corporation (the "Company") and the
subsidiaries which it controls. The Company through its subsidiaries, is a
nationwide commercial operator of fitness centers with approximately 335
facilities concentrated in 27 states and Canada. The Company operated in one
industry segment, and all significant revenues arise from the commercial
operation of fitness centers, primarily in major metropolitan markets in the
United States. Unless otherwise specified in the text, references to the Company
include the Company and its subsidiaries. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
All adjustments have been recorded which are, in the opinion of
management, necessary for a fair presentation of the condensed consolidated
balance sheets of the Company at March 31, 1999, its consolidated statements of
operations and cash flows for the three months ended March 31, 1999 and 1998,
and its consolidated statement of stockholders' equity for the three months
ended March 31, 1999. All such adjustments were of a normal recurring nature.
The accompanying condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles which
require the Company's management to make estimates and assumptions that affect
the amounts reported therein. Actual results could vary from such estimates. In
addition, certain reclassifications have been made to prior period financial
statements to conform with the 1999 presentation.
SEASONAL FACTORS
The Company's operations are subject to seasonal factors and, therefore,
the results of operations for the three months ended March 31, 1999 and 1998 are
not necessarily indicative of the results of operations for the full year.
ACQUISITIONS
During the first quarter of 1999, the Company acquired five fitness
centers; four located in the Seattle area and one in the San Francisco area. The
total purchase price of the five centers was $4,236.
6
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands)
(Unaudited)
<TABLE>
INSTALLMENT CONTRACTS RECEIVABLE
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
---------- -----------
<S> <C> <C>
Current:
Installment contracts receivable................. $ 318,319 $ 294,880
Unearned finance charges....................... (40,323) (35,792)
Allowance for doubtful receivables
and cancellations............................ (67,337) (59,109)
---------- ----------
$ 210,659 $ 199,979
========== ==========
Long-term:
Installment contracts receivable................. $ 310,580 $ 287,443
Unearned finance charges....................... (20,395) (18,104)
Allowance for doubtful receivables
and cancellations............................ (53,772) (47,192)
---------- ----------
$ 236,413 $ 222,147
========== ==========
</TABLE>
ALLOWANCE FOR DOUBTFUL RECEIVABLES AND CANCELLATIONS
A summary of the allowance for doubtful receivables and cancellations activity
is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
Balance at beginning of period........................... $106,301 $ 80,531
Contract cancellations and
write-offs of uncollectible
amounts, net of recoveries............................. (63,807) (54,767)
Provision for cancellations
(classified as a direct
reduction of revenues)................................ 41,800 37,315
Provision for doubtful
receivables............................................ 36,815 32,392
-------- --------
Balance at end of period................................. $121,109 $ 95,471
======== ========
</TABLE>
7
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands)
(Unaudited)
EARNINGS PER COMMON SHARE
Basic earnings per common share for each period is computed based on the
weighted average number of shares of common stock outstanding of 23,202,709 in
1999 and 20,579,571 in 1998. Diluted earnings per common share for each period
includes the addition of common stock equivalents of 3,589,750 and 3,685,457 in
1999 and 1998, respectively. Common stock equivalents represent the dilutive
effect of the assumed exercise of outstanding warrants and stock options.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, Reporting the Costs of Start-up
Activities. The SOP is effective beginning on January 1, 1999, and requires that
start-up costs including organization costs capitalized prior to January 1, 1999
be written-off and any future start-up costs be expensed as incurred. The
Company's unamortized start-up costs at January 1, 1999 were written off and
reported as a cumulative effect of a change in accounting principle, net of tax,
in accordance with APB Opinion No. 20.
SUBSEQUENT EVENT
In April 1999, the Company amended its $160,000 securitization facility
extending the initial maturity to July 2001. The interest rate on the $145,500
of fixed rate accounts receivable trust certificates remained unchanged at
8.43%. The interest rate on the $14,500 of floating rate accounts receivable
trust certificates is 3.01% above the London Interbank Offer Rate with the
interest capped at 8.99% pursuant to an interest rate cap agreement. The
remaining features of the securitization facility remained substantially
unchanged.
8
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Net revenues for the first quarter of 1999 was $208.2 million compared to
$184.5 million in 1998, an increase of $23.7 million (13%). Net revenues from
comparable fitness centers increased 9%. This significant increase in net
revenues resulted from the following:
- Total new membership units sold increased 5% and the weighted average
selling price of membership contracts sold increased 6% over the prior
year quarter. As a result, initial membership fees originated increased
$10.4 million (8%), consisting of a $13.6 million(12%) increase in
financed memberships originated offset, in part, by a planned $3.2
million (32%) decrease in paid-in-full memberships originated. The
increase in new membership units sold was almost entirely attributable
to the sale of higher margin multi-club membership plans.
- Dues collected increased $8.4 million (16%) from the 1998 quarter,
reflecting both continued improvements in member retention and
previously implemented pricing strategies.
- Finance charges earned during the first quarter of 1999 increased $2.8
million (25%) compared to the 1998 quarter, due to the growth in size
and quality of the receivables portfolio. The average interest rate for
finance charges to members was substantially unchanged between the
periods. The percentage of accounts current with all contractual
payments as of March 31, 1999, was 88% compared to 87% as of March 31,
1998. The amount of receivables written off in the 1999 period, 11% of
average receivables, was unchanged from the first quarter of 1998.
- Fees and other revenues increased $5.4 million (61%) over the 1998
quarter, primarily reflecting the increase sales of personal training
services and nutritional and other retail products.
The weighted average number of fitness centers increased to 329 in the
first quarter of 1999 from 313 in the first quarter of 1998, including an
increase to 15 from five operating under three upscale brands: Bally Sports
Club, Pinnacle Fitness and Gorilla Sports.
Operating income for the first quarter of 1999 was $18.3 million compared
to $11.9 million in 1998. The increase of $6.4 million (54%) was due to the
increase in revenues of $23.7 million (13%) partially offset by a $17.3 million
(10%) increase in operating costs and expenses. Excluding the provision for
doubtful receivables and the effect of deferral accounting, operating costs and
expenses increased $9.7 million (7%) from 1998. Fitness center operating
expenses increased $9.9 million (10%) due principally to costs supporting the
growth of new service and product offerings, incremental costs of operating new
fitness centers and additional commissions from the growth in initial membership
fees originated. A substantial portion of the commission expense is deferred
through deferral accounting. Member processing and collection center expenses
decreased 5%, while general and administrative expenses and advertising expenses
increased an average of 3% quarter over quarter.
The provision for doubtful receivables, included in operating costs and
expenses, for the first quarter of 1999 was $36.8 million compared to $32.4
million in 1998, an increase of $4.4 million due to the increase in initial
membership fees on financed memberships originated. The total provision rate,
inclusive of provision for cancellations, which is reflected in the financial
statements as a direct reduction of initial membership fees on financed
memberships originated, was 41% of gross financed originations during each of
the periods.
9
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Deferral accounting reduced earnings by $6.5 million for 1999 compared to
1998. This decrease reflects the combined impact of a decrease in revenues of
$3.3 million and an increase in expenses of $3.2 million.
Interest expense was $12.3 million for the first quarter of 1999
compared to $10.2 million in 1998. The $2.1 million increase was due to higher
levels of debt incurred.
The income tax provisions for the first quarter of 1999 and 1998 reflect
state income taxes only. The federal provisions were offset by the utilization
of prior years' net operating losses.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the first quarter of 1999 was
$16.3 million compared to $.1 million in 1998. The quarter over quarter
improvement of $16.2 million principally reflects the continued growth in
overall collections from installment contracts receivable and monthly dues. Net
installment contracts receivable grew $24.9 million during the quarter compared
to $28.5 million in 1998. Excluding the growth in receivables, operating
activities for the 1999 quarter provided cash of $41.2 million compared to $28.6
million for 1998.
We have no scheduled principal payments under our $300.0 million
subordinated debt until October 2007. In April 1999, we extended the initial
maturity of our $160.0 million securitization facility to July 2001.
Accordingly, our debt service requirements, including interest, for the next 12
months are approximately $53.0 million. We believe that we will be able to
satisfy our annual debt service requirements, capital expenditures and stock
repurchases, if any, out of available cash balances, cash flow from operations
and, if necessary, borrowings on the revolving credit facility.
Our revolving credit facility provides up to $100.0 million of credit
through November 2000. 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
March 31, 1999, the credit line was unused except for outstanding letters of
credit totaling $3.7 million.
We are authorized to repurchase up to 1,500,000 shares of our common stock
on the open market from time to time. As of May 10, 1999, we have repurchased
554,800 shares at an average price of $17 per share. No purchases have been made
since September 1998.
We invest approximately $10.0 million to $15.0 million annually to
maintain and make minor upgrades to our existing facilities. In addition, during
the first quarter of 1999, we invested approximately $21.0 million in the
development of new fitness centers and to refurbish and make major upgrades,
including new equipment, to our existing fitness centers. Six new facilities
were opened during the first quarter of 1999. This is consistent with our plan
to invest approximately $30.0 million to $35.0 million in the development of new
fitness centers and open approximately 20 new fitness centers during 1999. We
also acquired five fitness centers during the first quarter of 1999; four in the
Seattle area and one in the San Francisco area.
10
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
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 remaining modifications are
expected to be completed in 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 methods. 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.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Form 10-Q 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-Q
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.
11
<PAGE>
BALLY TOTAL FITNESS HOLDING CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
10.1 Employment Agreement effective as of September 1, 1998 between
the Company and William Fanelli.
10.2 First Amendment to the Series 1996-1 Supplement to Amended and
Restated Pooling and Servicing Agreement dated as of April 27,
1999 among H&T Receivable Funding Corporation, as Transferor,
Bally Total Fitness Corporation, as Servicer, and Texas Commerce
Bank National Association, as Trustee.
27 Financial Data Schedule for March 31, 1999 (filed electronically
only).
(b) Reports on Form 8-K:
None.
12
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALLY TOTAL FITNESS HOLDING CORPORATION
---------------------------------------------------------------
Registrant
/s/ John W. Dwyer
---------------------------------------------------------------
John W. Dwyer
Executive Vice President, Chief Financial Officer and Treasurer
(principal financial officer)
Dated: May 17, 1999
13
EXHIBIT 10.1
SENIOR VICE PRESIDENT
EMPLOYMENT AGREEMENT
---------------------
THE EMPLOYMENT AGREEMENT made and entered into as of the first day of
September 1, 1998, among Bally Total Fitness Holding Corporation, a Delaware
corporation ("BTFHC") and William Fanelli ("Employee").
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements herein contained, the parties agree as follows:
1. Employment.
(a) BTFHC hereby employs Employee in the capacity of Senior Vice
President. BTFHC may employ Employee in such other capacities of equal status
and responsibility as the Chief Executive Officer of BTFHC, or his designated
representative, shall reasonably determine, and Employee hereby accepts such
employment upon the terms and conditions herein set forth.
(b) During the term of his employment, Employee will devote his
best efforts to his employment and perform such duties consistent with his
status as a Senior Vice President and in such capacities as the Chief Executive
Officer of BTFHC shall reasonably assign to him. Employee will devote his entire
working time and attention to the business and related interests of, and will be
loyal to, BTFHC, and Employee agrees to render service on behalf of BTFHC and
its subsidiaries or affiliates.
(c) Employee shall not, without prior written consent of BTFHC,
directly or indirectly, during the term of this Employment Agreement:
(i) Other than in the performance of duties naturally
inherent to BTFHC's business and in furtherance thereof, render
services of a business, professional or commercial nature to any other
person or firm, whether for compensation or otherwise, but this shall
not be construed as preventing the Employee from investing his assets
in such form or manner as will not require any services on the part of
the Employee in the operation of the affairs of the companies in which
such investments are made and which are not in violation of
subparagraph (ii) below or from engaging in boards of directors
(subject to the approval of BTFHC's Chief Executive Officer) or
charitable activities so long as such activities do not interfere with
the performance of Employee's duties hereunder;
(ii) Engage in any activity competitive with or adverse to
BTFHC's business or welfare, whether alone, as a partner, or as an
officer, director, employee or shareholder of any other corporation, or
otherwise, directly or indirectly, except that the ownership of not
more than one percent (1%) of the stock of any publicly traded
corporation shall not be deemed violative of this subparagraph (ii);
<PAGE>
(iii) Be engaged by any entity which conducts business with
or acts as consultant or advisor to BTFHC, whether alone, as a
partner, or as an officer, director, employee or shareholder, or
otherwise, directly or indirectly, except that ownership of not more
than one percent (1%) of the stock of any publicly traded corporation
shall not be deemed violative of this subparagraph (iii).
2. Term. The term of this Employment Agreement shall begin on the
effective date stated above ("commencement date") and shall continue for three
(3) years through September 30, 2001, unless terminated by either party pursuant
to paragraphs 7 or 8.
3. Compensation.
(a) In consideration of the services to be rendered by the
Employee hereunder, BTFHC agrees to pay to the Employee, and the Employee agrees
to accept, as compensation, the sum of Two Hundred Thousand Dollars and No/100
Cents Dollars ($200,000.00) (the "Base Salary") for each twelve month period
following the effective date of this Employment Agreement, which shall be paid
on the regularly recurring pay periods established by BTFHC. The Base Salary
shall be subject to periodic review for consideration of increase by BTFHC.
(b) It is further understood by the parties that, pursuant to the
policies of BTFHC, discretionary bonus payments may be made in addition to the
Base Salary above provided.
4. Vacation and Other Benefits. Employee shall be entitled to a
reasonable vacation each year of his employment with BTFHC as well as other
employment benefits, including hospitalization, life insurance, death and
retirement plans, an automobile allowance or the use of an automobile, and the
like, afforded to senior executives of BTFHC of comparable status and tenure and
consistent with that afforded under BTFHC's policies.
5. Expenses. BTFHC shall pay all reasonable expenses incurred by
Employee in the performance of his responsibilities and duties for BTFHC.
Employee shall submit to BTFHC periodic statements of all expenses so incurred.
Subject to such audits BTFHC may deem necessary, BTFHC shall reimburse Employee
the full amount of any such expenses advanced by Employee promptly in the
ordinary course.
6. Covenants and Confidential Information.
(a) Employee agrees that for the applicable period specified
below, he will not, directly or indirectly, do any of the following:
(i) Be engaged as a partner, officer, director, employee,
shareholder or consultant by any entity which is engaged in the
operation of health or fitness clubs within five (5) miles of any
facility which (on the date Employee ceases to be employed hereunder)
is owned, managed or under development to be owned or managed by BTFHC,
its subsidiaries, affiliates and/or its successors and assigns, or is
owned by a franchisee of BTFHC, its subsidiaries, affiliates and/or its
successor and assigns ("Facility"); provided, however, that the
ownership
2
<PAGE>
of not more than one percent (1%) of the stock in a publicly-traded
corporation shall not be deemed violative of this subparagraph
6(a)(i);
(ii) Induce any person who is an employee, officer, or agent
of BTFHC, to terminate said relationship or employ, assist in employing
or otherwise associate in business with any present, former or future
employee or officer of BTFHC;
(iii) Disclose, divulge, discuss, copy or otherwise use or
suffer to be used in any manner, in competition with, or contrary to
the interests of BTFHC, the customer lists, inventions, ideas,
discoveries, manufacturing methods, product research or engineering
data or other trade secrets of BTFHC, it being acknowledged by Employee
that all such information regarding the business of BTFHC compiled or
obtained by, or furnished to, Employee while he shall have been
employed by or associated with BTFHC is confidential information and
the exclusive property of BTFHC.
(b) The provisions of subparagraphs 6(a)(i), 6(a)(ii) and
6(a)(iii) shall be operative during the Term hereof and as hereafter provided in
this subparagraph 6(b).
(i) In the event of a "Change in Control" (as defined in
subparagraph 9(c)), the provisions of subparagraphs 6(a)(i) and
6(a)(ii) shall be operative only so long as the Employee remains an
employee of BTFHC.
(ii) In all events, including a Change in Control or in the
event Employee is terminated for illness or incapacity (as provided in
subparagraph 7(a)) or for "Cause" (as defined in subparagraph 8(a)),
the provisions of subparagraph 6(a)(iii) shall be operative until such
time as the information becomes public knowledge other than through the
act of Employee.
(iii) In the event Employee is terminated for Cause or for
illness or incapacity (as provided in subparagraph 7(a)), the
provisions of subparagraphs 6(a)(i) and 6(a)(ii) shall be operative
during the Term of this Agreement and for one (1) additional year.
(c) Employee expressly agrees and understands that the remedy at
law for any breach by him of this paragraph 6 will be inadequate and that the
damages flowing from such breach are not readily susceptible to being measured
in monetary terms. Accordingly, it is acknowledged that BTFHC shall be entitled
to immediate injunctive relief and if the court so permits, may obtain a
temporary order restraining any threatened or further breach. Nothing contained
in this paragraph 6 shall be deemed to limit BTFHC's remedies at law or in
equity for any breach by Employee of the provisions of this paragraph 6 which
may be pursued or availed of by BTFHC. Any covenant on Employee's part contained
hereinabove, which may not be specifically enforceable, shall nevertheless, if
breached, give rise to a cause of action for monetary damages.
(d) Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon BTFHC under
this paragraph 6, and hereby acknowledges and agrees that the same are
reasonable in time and territory, are designed to eliminate competition which
otherwise would be unfair to BTFHC, do not stifle the inherent skill and
experience of
3
<PAGE>
Employee, would not operate as a bar to Employee's sole means of support, are
fully required to protect the legitimate interests of BTFHC and do not confer a
benefit upon BTFHC disproportionate to the detriment to Employee.
(e) For the purposes of this paragraph 6, the term "BTFHC" shall
be deemed to include BTFHC and its subsidiaries and affiliates and the
successors and assigns of it and its subsidiaries and affiliates, involved in
the operation or management of a fitness center.
(f) The covenants contained in this paragraph 6 shall be construed
to extend to separate counties and adjacent counties, if applicable, of the
states of the United States in which BTFHC and its subsidiaries, affiliates and
its and their successors and assigns has a fitness center, and to the extent
that any such covenant shall be illegal and/or unenforceable with respect to any
one of said counties, said covenants shall not be affected thereby with respect
to each other county, such covenants with respect to each county being construed
as severable and independent.
7. Illness, Incapacity or Death During Employment.
(a) If the Employee is unable to perform his services by reason of
illness or incapacity resulting in a failure to discharge his duties under this
Employment Agreement for six (6) or more consecutive months or for 180 days in
any 365-day period, then upon three (3) days notice, BTFHC may terminate the
employment of Employee under this Employment Agreement and Employee, upon such
termination, shall be (i) paid his Base Salary on a pro-rata basis to the date
of termination through the three (3) day notice period; plus (ii) any previously
declared but unpaid bonuses; plus (iii) reimbursement of all expenses reasonably
incurred by Employee in performing his responsibilities and duties for BTFHC
through and including such three (3) day notice period; plus (iv) any other
payment or benefit which Employee is then entitled to receive under any
employment benefit plan, retirement plan or similar arrangement then maintained
by BTFHC, in the amount and to the extent determined under the terms and
conditions of any such plan.
In the event of such termination, the Employee shall have the right, at
his option, to the assignment of any and all insurance policies or health
protection plans if said policies and plans permit assignment out of the group
to the Employee.
(b) In the event that BTFHC elects to terminate this Employment
Agreement pursuant to Section 7(a) by reason of illness or incapacity, then
Employee shall be entitled to the long-term disability (LTD) benefits provided
to senior officers by BTFHC but in any event at no less than sixty percent (60%)
of Base Salary as of the date of termination, without reference to set-off or
caps existing in any LTD plan.
(c) In the event of Employee's death, all obligations of BTFHC
under this Employment Agreement shall terminate other than the payment of that
portion of his Base Salary on a pro-rata basis accrued to the date of death, any
previously declared but unpaid bonuses, plus reimbursement of all expenses
reasonably incurred by Employee in performing his responsibilities and duties
for BTFHC prior to and including such date.
8. Termination.
4
<PAGE>
(a) The employment of Employee under this Employment Agreement,
and the term hereof, may be terminated by BTFHC for cause at any time. For
purposes hereof, the term "cause" means:
(i) Employee's fraud or dishonesty;
(ii) Employee's willful misconduct or gross negligence in
the performance of his duties hereunder, including willful failure to
perform such duties as may properly be assigned him hereunder; or
(iii) Employee's material breach of any material provision of
this Employment Agreement.
(b) Any termination shall not be in limitation of any other right
or remedy BTFHC or Employee may have under this Employment Agreement or
otherwise.
9. Optional Termination Upon Change of Control.
(a) In the event that there is a "Change in Control" (as defined
in this paragraph 9) of BTFHC and the successor in control, without cause,
terminates this Employment Agreement, Employee shall be paid, subject to the
limits set forth in paragraph 10 a lump sum equal to twenty-four (24) months of
his then Base Salary or an amount equal to his then Base Salary for the balance
of the three year term, whichever is greater, and the greater of the average of
twice the bonuses paid to Employee by BTFHC for 1997 or the bonus, if any, for
any year after 1997 but prior to the Change in Control. If the successor in
control changes Employee's title or substantially changes his duties or
functions from those which he previously performed hereunder or requires
Employee to perform the majority of his duties at a location outside of the
metropolitan area of Chicago, Illinois, the successor in control shall be deemed
to have constructively terminated Employee's services without cause and Employee
shall be entitled to payment set forth in the first sentence of this paragraph.
In the event that there is a Change in Control (as defined in this
paragraph 9) of BTFHC, Employee may, at his option, terminate this Employment
Agreement at any time thereafter upon thirty (30) days written notice to BTFHC.
If Employee exercises this right to terminate, he shall be paid the following
amounts: (i) a lump sum amount equal to one-half (1/2) of his annual Base Salary
as in effect at the time of exercise (or, if greater, at the time of the Change
in Control); plus, (ii) his Base Salary on a pro-rata basis through and
including the date of his employment termination; plus (iii) any previously
declared but unpaid bonuses; plus (iv) reimbursement of all expenses reasonably
incurred by Employee in performing his responsibilities and duties for BTFHC
through and including the date of his employment termination; plus (v) any other
payment or benefit which Employee is then entitled to receive under any
employment benefit plan, retirement plan or similar arrangement then maintained
by BTFHC, in the amount and to the extent determined under the terms and
conditions of any such plan. All such payments shall be made no later than
thirty (30) days after the last day of Employee's employment. In addition,
Employee shall have the right, at his election, to the assignment of any and all
insurance policies and/or health protection plans if said policies and plans
permit assignment to Employee.
5
<PAGE>
A "Change in Control" shall, except as provided below, mean a change in
control of BTFHC of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934 (as in effect on the effective date of this Employment
Agreement, the "Exchange Act"), whether or not BTFHC is then subject to such
reporting requirement; provided that, without limitation, such a Change in
Control shall be deemed to have occurred if:
(i) any "person" (as defined in subsections 13(d) and 14(d)
of the Exchange Act), other than a person with which Arthur M. Goldberg
is affiliated or of which he is a part, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), of securities
of BTFHC representing twenty percent (20%) or more of the combined
voting power of BTFHC's then outstanding securities;
(ii) during any period of two (2) consecutive years or less
(not including any period prior to the effective date of this
Employment Agreement) there shall cease to be a majority of the Board
of Directors of BTFHC comprised of Continuing Directors (as defined
below); or
(iii) the stockholders of BTFHC approve (1) a merger or
consolidation of BTFHC with any other corporation, other than a merger
or consolidation that would result in the voting securities of BTFHC
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity) at least 80% of the combined voting power of
the voting securities of BTFHC or such surviving entity outstanding
immediately after such merger or consolidation, or (2) a plan of
complete liquidation of BTFHC or an agreement for the sale or
disposition by BTFHC of all or substantially all of its assets.
Notwithstanding anything else contained herein to the contrary, the
acquisition of BTFHC securities from BTFHC which issuance was approved by the
Continuing Directors (as defined below) shall not, either on its own or in
connection with any other acquisition of BTFHC securities prior thereto, be
deemed to be a Change in Control for purposes of this Agreement.
The term "Continuing Directors" shall mean individuals who constitute
the Board of Directors of BTFHC as of the effective date of this Employment
Agreement and any new director(s) whose election by such Board or nomination for
election by BTFHC's stockholders was approved by a vote of at least two-thirds
of the directors then in office who either were directors as of the effective
date of this Employment Agreement or whose election or nomination for election
was previously so approved.
10. Limit on Payments. Notwithstanding anything in this Agreement
to the contrary, in the event of a Change in Control, the total compensation to
Employee under this Agreement and any other agreements between the Employee and
Company or its subsidiaries relating to a Change in Control shall not exceed an
amount equal to (i) an amount equal to 2.99 times the Employee's "annualized
includible compensation for the base period" (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), over (ii) the present
value of any and all "payments in the nature of compensation" (within the
meaning of Section 280G of the Code and any proposed,
6
<PAGE>
temporary or final Treasury Regulations promulgated thereunder) to the Employee
under this Agreement or any other agreement or arrangement between the Company
and the Employee treated as "parachute payment(s)" under Section 280G of the
Code and any proposed, temporary or final Treasury Regulations promulgated
thereunder, such that no payment to the Employee pursuant to this Agreement or
any other agreement between the Employee and the Company or its subsidiaries
will constitute an "excess parachute payment" within the meaning of Section 280G
of the Code. All determinations under this paragraph 10 shall be made by the
Company based on the advice or counsel of its tax professional and shall be
binding and conclusive on the Company and the Employee.
11. Severable. Provisions. The provisions of this Employment
Agreement are severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable, in whole or in part, the remaining
provisions, and any partially unenforceable provision to the extent enforceable
in any jurisdiction, shall nevertheless be binding and enforceable.
12. Binding Agreement. The rights and obligations of BTFHC under
this Employment Agreement shall inure to the benefit of and shall be binding
upon the respective successors and assigns of BTFHC.
13. Attorneys' Fees. In the event Employee is required to commence
an arbitration action to enforce the provisions of this Employment Agreement and
Employee prevails in such action, BTFHC shall pay Employee's reasonable costs
and expenses, including reasonable attorneys' fees, incurred in such arbitration
and in any subsequent legal action brought to enforce the arbitration decision.
14. Notices. Any notice to be given to BTFHC under the terms of
this Employment Agreement shall be addressed to BTFHC at the address of its
principal places of business, and any notice to be given to Employee shall be
addressed to him at his home address last shown on the records of BTFHC, or at
such other address as the parties may hereafter designate in writing to the
other. Any such notice shall have been duly given when enclosed in a properly
sealed envelope addressed as aforesaid, postage prepaid, registered or
certified, return receipt requested, and deposited in a post office or branch
post office regularly maintained by the United States Government.
15. Waiver. Either party's failure to enforce any provision or
provisions of this Employment Agreement shall not in any way be construed as a
waiver of any such provision or provisions as to any future violations thereof,
nor prevent that party thereafter from enforcing each and every other provision
of this Employment Agreement. The rights granted the parties herein are
cumulative and the waiver by a party of any single remedy shall not constitute a
waiver of such party's right to assert all other legal remedies available to him
or it under the circumstances.
16. Governing Law. This Employment Agreement shall be governed
by and construed and interpreted according to the internal laws of the State of
Illinois without reference to principles of conflict of laws.
17. Miscellaneous. Captions and headings used herein are for
convenience only and are not a part of this Employment Agreement and shall not
be used in construing it. This Employment Agreement constitutes the entire
agreement between BTFHC and Employee with respect to the
7
<PAGE>
subject matter hereof and may not be modified or terminated orally. No
modification, termination or attempted waiver of this Employment Agreement shall
be valid unless in writing and signed by the party against whom the same is
sought to be enforced.
18. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Rules of the American Arbitration Association
then pertaining in Chicago, Illinois and judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. The arbitrator or arbitrators shall be deemed to possess the powers to
issue mandatory orders and restraining orders in connection with such
arbitration; provided, however, that nothing in this paragraph 18 shall be
construed so as to deny BTFHC's right and power to seek and obtain injunctive
relief in a court of equity for any breach or threatened breach of Employee of
any of his covenants contained in subparagraph 6(a) hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly elected as of the day and year first above written.
BALLY TOTAL FITNESS HOLDING
CORPORATION
ATTEST: /s/ John W. Dwyer /s/ Harold Morgan
----------------- ---------------------------------------
Harold Morgan "BTFHC"
/s/ William Fanelli
---------------------------------------
William Fanelli "Employee"
Approved by the Compensation Committee of Bally Total Fitness Holding
Corporation on ____________________, 1998.
/s/ Liza M. Walsh
---------------------------------------
Liza Walsh
Chairman, Compensation Committee - Bally
Total Fitness Holding Corporation
8
EXHIBIT 10.2
FIRST AMENDMENT TO SERIES 1996-1 SUPPLEMENT TO
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT
This First Amendment to Series 1996-1 Supplement to Amended and
Restated Pooling and Servicing Agreement (this "Amendment") made as of April 27,
1999, among H&T Receivable Funding Corporation, a Delaware corporation
("Transferor"), as Transferor, Bally Total Fitness Corporation, a Delaware
corporation (in such capacity, together with any successor in such capacity,
"Servicer" or sometimes referred to herein as "BTFC"), as Servicer, and Chase
Bank of Texas f/k/a Texas Commerce Bank National Association, a national banking
association organized under the laws of the United States ("Trustee"), as
Trustee, on behalf of the 1996-1 Certificateholders.
WHEREAS, Transferor, Servicer and Trustee are a party to that certain
Amended and Restated Pooling and Servicing Agreement (the "Pooling Agreement"),
dated as of December 16, 1996;
WHEREAS, Transferor, Servicer and Trustee are a party to that certain
Series 1996-1 Supplement to the Pooling Agreement (the "Series 1996
Supplement"), dated as of December 16, 1996, pursuant to which the Series 1996-1
Certificates (as defined in the Series 1996 Supplement) were issued;
WHEREAS, the parties hereto desire to amend the Series 1996 Supplement
to extend the amortization period commencement date of the Series 1996-1
Certificates as well as make various other modifications to the Supplement as
provided herein;
WHEREAS, these recitals shall be construed as part of this Amendment
and capitalized terms used but not otherwise defined in this Amendment shall
have the meanings ascribed to them in the Series 1996 Supplement;
WHEREAS, pursuant to Section 13.1(b) of the Pooling Agreement, the
amendments provided for herein require the consent of all of the related
Certificateholders.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
1. Amendment.
1A. The definition of "Amortization Period Commencement Date" in the
Series 1996 Supplement is hereby amended by deleting the term "1999" and
replacing such term with the term "2001."
1B. The definition of "Class A-2 Certificate Rate" in the Series 1996
Supplement is hereby amended by deleting the term "2.57%" in each place such
term appears and replacing such term with the term "3.01%" which shall be
effective from and after May 17, 1999.
<PAGE>
1C. The definitions of "Expected Series 1996-1 Termination Date" in
the Series 1996 Supplement, the forms of the Series 1996-1 Certificates attached
as Exhibits A-1 and A-2 to the Series 1996 Supplement and all outstanding Series
1996-1 Certificates are hereby amended by deleting the term "2002" and replacing
such term with the term "2004."
1D. The definition of "Interest Rate Cap" in the Series 1996
Supplement is hereby amended to read "that certain agreement dated December 16
1996 between the Transferor and the Interest Rate Cap Provider, obtained by the
Transferor for the benefit of the Series 1996-1 Certificateholders and naming
the Trustee as the party entitled to receive payments made thereunder as the
same may be amended by the amendment dated April __, 1999 by and among the same
parties, pursuant to which the Interest Rate Cap Provider will be obligated to
pay to the Trust an amount equal to all interest accrued on the Class A-2
Certificates which is allocable to LIBOR being in excess of 3.01%, which certain
agreement will have a termination date of August 15, 2004."
1E. The definition of "Interest Rate Cap Provider" shall mean The
Chase Manhattan Bank or such other provider which will provide the Class A-2
Certificates a rating of at least BBB+ by each respective Rating Agency.
1F. The reference to "Section 8" contained in the definition of
"Series 1996-1 Pay-Out Event" is hereby amended to read "Section 7".
1G. Schedule I referred to in the "Class A-1 Make Whole Payment"
definition and the "Weighted Average Life to Maturity" definition shall now be
Schedule I attached to this Amendment instead of Schedule 1 attached to the
Series 1996 Supplement.
1H. The references to the "August, 1999 Distribution Date" contained
in the forms of the Series 1996-1 Certificates attached as Exhibits A-1 and A-2
to the Series 1996 Supplement and in all outstanding Series 1996-1 Certificates
are hereby amended to read "August, 2001 Distribution Date".
1J. The reference to "60,000,000" contained in Section 7(k) of the
Series 1996 Supplement and the reference to "$70,000,000" contained in Section
4.5(d) of said Supplement are hereby amended to read "125,000,000" and
"$140,000,000," respectively.
2. Conditions to Effectiveness of this Amendment. This Amendment
shall become effective on the date each of the following conditions precedent is
satisfied:
2A. Transferor, Servicer, and Trustee shall have executed and
delivered this Amendment.
2B. Each of the Class A-1 Certificateholders and the Class A-2
Certificateholders shall have consented to this Amendment.
2C. This Amendment shall be provided to each Rating Agency and each
Rating Agency shall confirm its rating of the Certificates.
- 2 -
<PAGE>
2D. The Rate Cap Provider shall provide such interest rate cap
agreement(s) as are appropriate to provide the Class A-2 Certificates a rating
of at least BBB+ by each respective Rating Agency; provided, however, to the
extent the Rate Cap Agreement dated December 16, 1996 provided by The Chase
Manhattan Bank and accepted and agreed to by H&T Receivables Funding Corporation
and assigned to Texas Commerce Bank, National Association, as Trustee continues
to be utilized the definition of "Termination Date" contained therein shall be
amended, if necessary, to provide the above-described minimum rating on the
Class A-2 Certificates.
2E. Counsel to the Transferor will provide an opinion that this
Amendment is in compliance with the Pooling Agreement and the Series 1996
Supplement.
3. Miscellaneous.
3A. Representations. Each of the representations and warranties of
the Transferor set forth in Section 2.3 of the Pooling Agreement is hereby
restated and reaffirmed by the Transferor as of the effective date of this
Amendment as if made herein by the Transferor on said effective date, and each
of the representations and warranties of the Servicer set forth in Section 3.3
of the Pooling Agreement is hereby restated and reaffirmed by the Servicer as of
the said effective date as if made herein by the Servicer on said effective
date. The Transferor and the Servicer hereby agree that, for purposes of Section
7(a) of the Series 1996-1 Supplement, the representations and warranties made
under this Section 3A shall be deemed to have been made in said Supplement. BTFC
and the Transferor represent and warrant that (i) no material adverse change has
occurred with respect to their businesses since BTFC's financial statements
dated December 31, 1998, (ii) no material change has occurred with respect to
the Receivables' performance since the last monthly Settlement Statement and
(iii) no Trust Pay-Out-Event or Series 1996-1 Pay-Out-Event or incipient Trust
Pay-Out-Event or Series 1996-1 Pay-Out-Event exists under the Pooling Agreement
or the 1996 Supplement as the same are both amended, modified and supplemented
under this Agreement.
3B. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
3C. Captions. The various captions in this Amendment are provided
solely for convenience of reference and shall not affect the meaning or
interpretation of any provision of this Amendment.
3D. Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same agreement.
3E. Severability of Provisions. If any one or more of the provisions
or terms of this Amendment shall be held invalid for any reason whatsoever, then
such provisions or terms shall
- 3 -
<PAGE>
be deemed severable from the remaining provisions or terms of this Amendment and
shall in no way affect the validity or enforceability of the other provisions of
this Amendment. If the invalidity of any part, provision, representation or
warranty of this Amendment shall deprive any party of the economic benefit
intended to be conferred by this Amendment, the parties shall negotiate in
good-faith to develop a structure the economic effect of which is as nearly as
possible the same as the economic effect of this Amendment without regard to
such invalidity.
3F. Successors and Assigns. This Amendment shall be binding upon,
and shall inure to the benefit of, Transferor, the Servicer, the Trustee, and
their respective successors and assigns.
3G. References. Any reference to the Series 1996 Supplement
contained in any notice, request, certificate, or other document executed
concurrently with or after the execution and delivery of this Amendment shall be
deemed to include this Amendment unless the context shall otherwise require.
3H. Continued Effectiveness. Notwithstanding anything contained
herein, the terms of this Amendment are not intended to and do not serve to
effect a novation as to the Series 1996 Supplement or the Pooling Agreement. The
parties hereto ratify and reaffirm the Pooling Agreement and the Series 1996
Supplement, as amended hereby, shall remain in full force and effect.
3I. Entire Agreement. This Amendment constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all other understandings, oral or written, with respect to the
subject matter hereof.
* * * * * *
- 4 -
<PAGE>
IN WITNESS WHEREOF, Transferor, the Servicer and the Trustee have
caused this Amendment to be executed by their respective officers thereunto duly
authorized as of the day and year first above written.
H&T RECEIVABLE FUNDING CORPORATION,
as Transferor
By: /s/ John W. Dwyer
Printed Name: John W. Dwyer
Title: _____________________________________
BALLY TOTAL FITNESS CORPORATION,
as Servicer
By: /s/ John W. Dwyer
Printed Name: John W. Dwyer
Title: _____________________________________
CHASE BANK OF TEXAS f/k/a TEXAS COMMERCE
BANK NATIONAL ASSOCIATION, not individually
but solely as Trustee
By: /s/ Leah Foshee
Printed Name: Leah Foshee
Title: Vice President
- 5 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1999, THE CONSOLIDATED
STATEMENT OF OPERATIONS AND THE CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 50,688
<SECURITIES> 0
<RECEIVABLES> 568,181<F1>
<ALLOWANCES> 121,109
<INVENTORY> 0
<CURRENT-ASSETS> 293,953
<PP&E> 731,895
<DEPRECIATION> 351,157
<TOTAL-ASSETS> 1,169,986
<CURRENT-LIABILITIES> 423,917
<BONDS> 485,569
0
0
<COMMON> 240
<OTHER-SE> 168,629
<TOTAL-LIABILITY-AND-EQUITY> 1,169,986
<SALES> 0
<TOTAL-REVENUES> 208,195
<CGS> 0
<TOTAL-COSTS> 123,873<F2>
<OTHER-EXPENSES> 10,127<F3>
<LOSS-PROVISION> 36,815
<INTEREST-EXPENSE> 12,297
<INCOME-PRETAX> 6,861
<INCOME-TAX> 150
<INCOME-CONTINUING> 6,711
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (262)
<NET-INCOME> 6,449
<EPS-PRIMARY> .28
<EPS-DILUTED> .24
<FN>
<F1>THIS AMOUNT IS THE SUM OF THE SHORT-TERM AND LONG-TERM INSTALLMENT
CONTRACTS RECEIVABLE LINES ON THE CONDENSED CONSOLIDATED BALANCE SHEET AT
MARCH 31, 1999 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 THREE MONTHS
ENDED MARCH 31, 1999.
<F3>THIS AMOUNT IS THE MEMBER PROCESSING AND COLLECTION CENTERS LINE ON THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1999.
</FN>
</TABLE>
