FORBEARANCE
AGREEMENT, dated as of April 5, 2007 (this “
Agreement ”), under the AMENDED AND RESTATED CREDIT
AGREEMENT, dated as of October 16, 2006 (as in effect on the
date immediately prior to the date hereof, the “ Credit
Agreement ”; unless otherwise defined herein, capitalized
terms are used herein as defined in the Credit Agreement), among
BALLY TOTAL FITNESS HOLDING CORPORATION, a Delaware corporation
(the “ Borrower ”), the lenders parties thereto
(the “ Lenders ”), JPMORGAN CHASE BANK, N.A., as
agent for the Lenders (in such capacity, the “ Agent
”), and MORGAN STANLEY SENIOR FUNDING, INC., as Syndication
Agent.
WHEREAS, the
Borrower, the Lenders and the Agent executed and delivered the
Credit Agreement, pursuant to which, among other things, the
Lenders have extended credit to the Borrower in the form of
Revolving Credit, Term Advances and Letters of Credit
(collectively, the “ Credit ”);
WHEREAS, a Default
has occurred and is continuing under Section 8.15 of the
Credit Agreement due to the Borrower’s failure to deliver to
the Lenders when due (i) a copy of its audited financial
statements for the fiscal year ended December 31, 2006 as
required by Section 6.03(b) of the Credit Agreement and
certificate of KPMG LLC or other independent public accountant of
national reputation certifying that such accountants have not
obtained knowledge of any event or act which would constitute a
Default or Event of Default with respect to financial covenant and
certain computations (the “ Accountant’s
Certificate ”), and (ii) a copy of its updated
financial projections through its fiscal year ending
December 31, 2010 as required by Section 6.03(f) of the
Credit Agreement, which Defaults will ripen into Events of Default
following notice from the Agent as required by the Majority Lenders
pursuant to Section 8.15 of the Credit Agreement;
WHEREAS, the
Borrower has failed to deliver to the holders of the Senior Notes
and the holders of the Subordinated Notes, a copy of the
Borrower’s Form 10-K for the fiscal year ended December 31,
2006, when due as required by Section 10.17 of each of the
Senior Notes Indenture and the Subordinated Notes Indenture; such
failure will, upon notice, constitute defaults under Section 5.1(c)
of each of the Senior Notes Indenture and the Subordinated Notes
Indenture and, absent cure, such defaults would constitute events
of default under the Senior Notes Indenture and the Subordinated
Notes Indenture (collectively, the “ Notes Financial
Statement Default ”);
WHEREAS, the
Borrower is scheduled to make an interest payment on the
Subordinated Notes to holders of the Subordinated Notes on
April 16, 2007, and the failure to make such payment would
constitute an event of default under Section 5.1(e) of the
Senior Notes Indenture and, upon the expiration of the applicable
grace period, constitute an event of default under
Section 5.1(a) of the Subordinated Notes Indenture (the
“ Sub Notes Interest Payment Default
”);
WHEREAS, the
Borrower is scheduled to deliver to the holders of the Senior Notes
and the holders of the Subordinated Notes a copy of the
Borrower’s Form 10-Q for the fiscal quarter ended
March 31, 2007, when due as required by Section 10.17 of
each of the Senior Notes Indenture and the Subordinated Notes
Indenture; and failure to deliver such
2
financial
statements would, upon notice, constitute a default under
Section 5.1(c) of each of the Senior Notes Indenture and the
Subordinated Notes Indenture and, absent cure, such defaults would
constitute events of default under the Senior Notes Indenture and
the Subordinated Notes Indenture (collectively, the “
Notes Quarterly Financial Statement Default
”);
WHEREAS, pursuant
to Section 6.03(a) of the Credit Agreement, the Borrower is
scheduled to deliver to the Lenders a copy of its unaudited
consolidated statement of income and retained earnings within
forty-five (45) days after the close of the first fiscal
quarter of 2007, and failure to deliver such financial statements
would constitute a Default, which Default would ripen into an Event
of Default following notice from the Agent as required by the
Majority Lenders pursuant to Section 8.15 of the Credit
Agreement;
WHEREAS, pursuant
to Section 6.03(h) of the Credit Agreement, at each time
financial statements of the Borrower are required to be delivered
pursuant to Sections 6.03(a), 6.03(b) or 6.03(d) of the Credit
Agreement, the Borrower is required to deliver copies of the
combined balance sheet of the Unrestricted Subsidiaries as of the
close of the applicable fiscal month and combined statements of
income and retained earnings of the Unrestricted Subsidiaries for
the portion of the fiscal year ending with such month; and failure
to deliver such copies of the combined balance sheet of the
Unrestricted Subsidiaries when due would constitute a Default,
which Default would ripen into an Event of Default following notice
from the Agent as required by the Majority Lenders pursuant to
Section 8.15 of the Credit Agreement;
WHEREAS,
additional Defaults and/or Events of Default may occur under
Section 8.07 of the Credit Agreement due to the Notes Annual
Financial Statement Default, the Sub Notes Interest Payment
Default, the Notes Quarterly Financial Statement Default and
certain other defaults as a result of failure to deliver audited
financial statements pursuant to certain other debt agreements
(collectively with Defaults and possible Events of Default
described in each of the second, sixth and seventh
“WHEREAS” clause above, the “ Known
Defaults ”);
WHEREAS, absent
the agreement of the Agent and the Lenders to implement a
forbearance period in respect of the Known Defaults, the Agent and
the Lenders would, upon the expiration of the applicable grace
periods set forth in the Credit Agreement (following applicable
notice, if any), be entitled to exercise at any time all of their
rights and remedies and to commence enforcement and collection
actions under the Credit Agreement, the other Credit Documents and
applicable law (such rights, remedies and actions, collectively,
“ Enforcement Actions ”), including without
limitation, to declare to be immediately due and payable all of the
Credit, all accrued interest thereon and all fees and other
obligations owing to the Agent and the Lenders under the Credit
Agreement and the other Credit Documents (collectively, the “
Obligations ”);
WHEREAS, in
connection with the foregoing, the Borrower and the other Credit
Parties have requested that the Agent and the Lenders
(a) agree to implement a forbearance period in respect of the
Known Defaults for a limited period during which, among other
things, the Credit Parties would be afforded an opportunity to
formulate and propose a comprehensive restructuring with respect to
their respective indebtedness, including the Obligations
outstanding under the Credit Agreement, (b) continue
(i) extending Advances, (ii) issuing, extending and/or
renewing Letters of Credit and (iii) continuing
and/or
3
converting
Eurodollar Rate Advances under the Credit Agreement and
(c) consent to certain agreements between the Borrower and the
holders of the Senior Notes and the holders of the Subordinated
Notes that would otherwise be prohibited by the Credit Agreement;
and
WHEREAS, the Agent
and the Lenders have (a) agreed to (i) the requested
forbearance and (ii) continue the extension of Advances, the
issuance, extension or renewal, as applicable, of Letters of Credit
and the continuation and/or conversion of Eurodollar Rate Advances
and (b) are willing to so consent, but only upon the terms and
subject to the conditions expressly set forth in this Agreement,
and without any advance understanding or agreement by the Lenders
to consent to, or grant a waiver to permit, the implementation of
any restructuring proposal or the consummation of any transaction
for which such consent or waiver would be required under the Credit
Agreement or the other Credit Documents (including without
limitation, this Agreement);
NOW THEREFORE, in
consideration of the premises and for other good and valuable
consideration the receipt of which is hereby acknowledged, the
parties hereto hereby agree as follows:
As used in this
Agreement, the following terms shall have the following
meanings:
“
Effective Date ” shall have the meaning set forth in
Section 7 hereof.
“
Forbearance Period ” shall mean the period from and
including the Effective Date to, but not including, the Forbearance
Period Termination Date.
“
Forbearance Period Termination Date ” shall have the
meaning set forth in Section 3 hereof.
“ Senior
Notes Forbearance Agreement ” shall have the meaning set
forth in Section 5 hereof.
“
Subordinated Notes Forbearance Agreement ” shall have
the meaning set forth in Section 5 hereof.
SECTION 2.
ACKNOWLEDGMENTS
Each Credit Party
acknowledges and agrees that (a) as of the close of business
on April 4, 2007, the Obligations include, without limitation,
$281,551,794.00 on account of the outstanding unpaid amount of
principal of, and $4,356,034.29 on account of the accrued and
unpaid interest on and fees in respect of, the Credit, and
(b) such Credit Party is truly and justly indebted to the
Lenders for the Obligations, without defense, counterclaim or
offset of any kind, and such Credit Party ratifies and reaffirms
the validity, enforceability and binding nature of such
Obligations.
4
SECTION 3.
FORBEARANCE; ADVANCES; CONSENT
3.1 Forbearance
Period . The Agent and the Lenders party hereto agree to
forbear from taking any Enforcement Action as a result of the
occurrence and continuance of the Known Defaults during the period
from and including the Effective Date until the earliest to occur
of the following (the earliest such date, the “
Forbearance Period Termination Date ”): (i) July
13, 2007, or (ii) the date on which any of the following shall
occur: (A) the occurrence of a Default or an Event of Default
that is not a Known Default, (B) the date on which the
Borrower shall make any payment of principal of, premium, if any,
or interest on the Subordinated Notes, (C)(I) the commencement of
any enforcement action by any holder(s) of the Senior Notes or
Subordinated Notes or (II) the issuance of any enforcement
notice by the trustee under the Senior Notes Indenture or the
Subordinated Notes Indenture, including in each case, the
acceleration of the Senior Notes or the Subordinated Notes,
(D) to the extent applicable, a breach by any of the parties
thereto of the Senior Notes Forbearance Agreement or the
Subordinated Notes Forbearance Agreement (which has not been cured
or waived by the requisite parties in accordance with the terms of
such agreement) or (E) any Credit Party shall take any action
to challenge (including without limitation, to assert in writing
any challenge to) the validity or enforceability of the Credit
Agreement, this Agreement or any provision hereof.
3.2
Advances . During the Forbearance Period, the Agent and the
Lenders hereby agree to (i) continue to make Advances
(including continuing and/or converting Eurodollar Rate Advances)
to the Borrower and (ii) issue, extend or renew, as
applicable, Letters of Credit on behalf of the Borrower, in each
case upon satisfaction of the terms and conditions set forth in
Sections 2.19(g), 4.02(a) and 4.02(b) the Credit Agreement, as
applicable (without regard to the occurrence and continuance of the
Known Defaults).
3.3 Consent
. The Agent and the Lenders party hereto consent to the
Borrower’s or other Credit Party’s entry into, and
performance under, the Senior Notes Forbearance Agreement and the
Subordinated Notes Forbearance Agreement notwithstanding any
provisions of the Credit Agreement to the contrary; provided
, that the terms of any such Senior Notes Forbearance Agreement
and/or Subordinated Notes Forbearance Agreement, as applicable,
shall be no less favorable to the Borrower and the other Credit
Parties than those set forth in the letter from the Agent to the
Borrower dated as of even date herewith (the “ Side
Letter ”).
3.4 No Waiver;
Limitation on Forbearance . Each Credit Party acknowledges and
agrees that, notwithstanding the agreement of the Agent and the
Lenders to forbear from taking Enforcement Actions during the
Forbearance Period in respect of the Known Defaults, (a) such
forbearance shall not constitute a waiver of the occurrence or the
continuance of any Default or Event of Default which is not a Known
Default, and each Known Default (and any other Default or Event of
Default) which occurs or has occurred shall continue to exist
unless and until cured or waived by the Majority Lenders or the
Lenders, as applicable under the Credit Agreement and
(b) nothing contained in this Agreement shall be construed to
limit or affect the right of the Agent and the Lenders to bring or
maintain during the Forbearance Period any action to enforce or
interpret any term or provision of this Agreement, or to file or
record instruments of public record (or take other action) to
perfect or further protect the liens and security interests granted
by the Credit Parties to the Agent or the Lenders; it being
understood that nothing in this Agreement is intended to or shall
prevent the Agent and Lenders from issuing a notice in accordance
with
5
Article XIII of the Subordinated Notes
Indenture to prohibit the Borrower from making payments in respect
of the Subordinated Notes.
3.4 Enforcement
Actions After Forbearance Period . Each Credit Party
acknowledges and agrees that on the Forbearance Period Termination
Date the agreement of the Lenders and the Agent to forbear from
taking any Enforcement Action in respect of the Known Defaults
shall automatically cease and be of no further force or effect, and
the Agent and the Lenders shall be entitled to immediately take
Enforcement Actions under the Credit Agreement, the other Credit
Documents and applicable law, all without further notice or demand,
in respect of the Known Defaults or any other Event of Default then
existing.
4.1 Agreements
by Borrower . From and after the Effective Date through the
Forbearance Period Termination Date, and notwithstanding anything
to the contrary contained in the Credit Agreement or the other
Credit Documents, the Borrower shall not, and shall not permit any
of its Subsidiaries to, without the prior written consent of the
Majority Lenders:
(a)
Investments . Make any Investment or Restricted Payment of
the type described in Sections 7.01(e), 7.01(h), 7.01(l) and
7.01(n) of the Credit Agreement or any Investment of the type
described in Section 7.01(g) of the Credit Agreement in excess
of $1,500,000 in the aggregate.
(b)
Indebtedness . Create, incur or assume any Debt of the type
described in Sections 7.02(b), 7.02(g), 7.02(i), 7.02(j), 7.02(l)
and 7.02(n) of the Credit Agreement.
(c)
Liens . Create, incur or assume any Lien of the type
described in sub-clause (v) of the definition of “Permitted
Liens” or any Lien of the type described in sub-clause
(ix) of the definition of “Permitted Liens” in
excess of $10,000,000 in the aggregate.
(d) Asset
Sales . Other than the sale, transfer or lease of assets or
property to which the Borrower or the relevant Subsidiary is
contractually committed as of the Effective Date and the sale or
other disposition of the Credit Parties’ Canadian assets or
property, make any sale, transfer or lease of the type described in
Sections 7.08(o) and Section 7.08(p) of the Credit
Agreement. Notwithstanding anything to the contrary contained in
the Credit Agreement (i) the Borrower may consummate
(A) Permitted Sale/Leasebacks under Section 7.08(n) and
(B) the total Fair Market Value of all assets sold or
Permitted Sale/Leasebacks pursuant to Section 7.08(n) of the
Credit Agreement shall not exceed (individually or in the
aggregate) $7,500,000 (and Section 7.08(n) of the Credit Agreement
is hereby amended to reflect that the Borrower may sell assets or
engage Permitted Sale/Leasebacks in the aggregate amount of up to
$7,500,000 under such Section), and (ii) the Borrower may
retain (A) up to an aggregate of $5,000,000 of Net Cash
Proceeds of any asset sales permitted under Section 7.08(n) as
modified hereby and (B) all Net Cash Proceeds of the sale or
other disposition of the Credit Parties’ Canadian assets or
property (to the extent such disposition is permitted
hereby).
(e)
Optional Payment and Modifications of Debt Instruments .
Other than the Senior Notes Forbearance Agreement and the
Subordinated Notes Forbearance
6
Agreement, make
any payment or modify any debt instrument after the Effective Date
otherwise permitted under Section 7.09 of the Credit
Agreement.
4.2 Application
of Excess Cash Flow . Notwithstanding anything to the contrary
contained in the Credit Agreement or the other Credit
Documents
|
