EXHIBIT 10.1 - 10/20/2004 FORM 8-K


EXHIBIT 10.1



EXECUTION COPY






CREDIT AGREEMENT


AMONG


BALLY TOTAL FITNESS HOLDING CORPORATION,
as Borrower


The Several Banks and other Financial Institutions
Parties Hereto


JPMORGAN CHASE BANK,
as Agent


DEUTSCHE BANK SECURITIES INC.,
as Syndication Agent


and


LASALLE BANK NATIONAL ASSOCIATION,
as Documentation Agent


Dated as of November 18, 1997


As Amended and Restated as of October 14, 2004


JPMORGAN SECURITIES INC.,
as Sole Lead Arranger and Sole Bookrunner












TABLE OF CONTENTS

Page


	ARTICLE I. DEFINITIONS AND ACCOUNTING TERMINOLOGY	2


	 	1.01	Certain Definitions	2
	 	1.02	Financial Standards	28
	 	1.03	Interpretation	28




	ARTICLE II. THE CREDIT	29


	 	2.01	The Revolving Credit	29
	 	2.02	Requests for Revolving Advances	29
	 	2.03	Term Loan Facility	30
	 	2.04	Requests for Term Advances	30
	 	2.05	Repayment of Term Advances	31
	 	2.06	Lending Branch and Evidence of Credit	31
	 	2.07	Conversion and Continuation Options	32
	 	2.08	Computation of and Payment of Interest	32
	 	2.09	Payment of Advances	34
	 	2.10	Payments	34
	 	2.11	Optional Termination or Reduction of Revolving Credit Commitment Amount	35
	 	2.12	Optional Prepayments	35
	 	2.13	Mandatory Prepayments	36
	 	2.14	Fees	37
	 	2.15	Agency Fees	38
	 	2.16	Taxes	38
	 	2.17	Increased Costs; Illegality; Indemnity	40
	 	2.18	Capital Adequacy	41
	 	2.19	Letters of Credit	42




	ARTICLE III. SECURITY	49


	 	3.01	Security	49
	 	3.02	Collateral Documents	49
	 	3.03	Priority of Security Interest	49
	 	3.04	New Guarantors	50
	 	3.05	Real Property Matters	50
	 	3.06	Exceptions	51
	 	3.07	Pledge of Capital Stock	51
	 	3.08	Collateral Agency Agreement	51
	 	3.09	Amendments of Collateral Documents	51




	ARTICLE IV. CONDITIONS PRECEDENT	52


	 	4.01	Conditions Precedent to Closing Date	52
	 	4.02	Conditions Precedent to Each Advance and Letter of Credit	56




-i-








	ARTICLE V. REPRESENTATIONS AND WARRANTIES	56


	 	5.01	Borrower’s Existence	56
	 	5.02	Subsidiaries’ Existence	56
	 	5.03	Borrower’s and Subsidiaries’ Powers	57
	 	5.04	Power of Officers	57
	 	5.05	Government Approvals	57
	 	5.06	Compliance With Laws	57
	 	5.07	Enforceability of Agreement	57
	 	5.08	Title to Property	57
	 	5.09	Litigation	57
	 	5.10	Events of Default	58
	 	5.11	Compliance with Margin Requirements	58
	 	5.12	Subsidiaries	58
	 	5.13	Financial Information	58
	 	5.14	ERISA	58
	 	5.15	Investment Company Act of 1940	59
	 	5.16	No Restrictions on Subsidiaries	59
	 	5.17	Senior Indebtedness	59
	 	5.18	Environmental Matters	59
	 	5.19	Collateral Documents	60
	 	5.20	Copyrights, Patents, Trademarks and Licenses, etc.	61
	 	5.21	Accuracy of Information, etc.	61
	 	5.22	Permitted Indebtedness	61




	ARTICLE VI. AFFIRMATIVE COVENANTS	61


	 	6.01	Use of Proceeds and Letters of Credit	62
	 	6.02	Notices	62
	 	6.03	Financial Statements, Reports, Etc.	63
	 	6.04	Further Assurances	66
	 	6.05	Existence, Etc.	66
	 	6.06	Ownership of Stock of Subsidiaries	66
	 	6.07	Payment of Obligations	66
	 	6.08	Compliance with Laws	66
	 	6.09	Insurance and Condemnation	66
	 	6.10	Adequate Books	69
	 	6.11	ERISA	69
	 	6.12	Interest Coverage	70
	 	6.13	Hazardous Materials	70
	 	6.14	Total Leverage Ratio	71
	 	6.15	Senior Secured Leverage Ratio	71
	 	6.16	Real Estate Taxes	72
	 	6.17	Real Estate Collateral; Schedule 1.01	72
	 	6.18	Control Agreements	73
	 	6.19	Funding Corp.	73




	ARTICLE VII. NEGATIVE COVENANTS	73


	 	7.01	Investments and Restricted Payments	73




-ii-








	 	7.02	Other Obligations	75
	 	7.03	Other Security	77
	 	7.04	Subordinated Debt; Senior Unsecured Notes	78
	 	7.05	Liquidation; Merger	79
	 	7.06	Capital Expenditures	80
	 	7.07	Change in Business	80
	 	7.08	Disposal of Assets	80
	 	7.09	Limitation on Optional Payments
and Modifications of Debt Instruments	82
	 	7.10	Limitation on Transactions with Affiliates	83
	 	7.11	Limitation on Sales and Leasebacks	83
	 	7.12	Limitation on Changes in Fiscal Year	83
	 	7.13	Funding Corp.; Finance Subsidiaries	83
	 	7.14	Unrestricted Subsidiaries	83
	 	7.15	Tax Allocation and Indemnity Agreement	84




	ARTICLE VIII. EVENTS OF DEFAULT	84


	 	8.01	Nonpayment	84
	 	8.02	Representation or Warranty	84
	 	8.03	Judgments	84
	 	8.04	Voluntary Bankruptcy	85
	 	8.05	Involuntary Bankruptcy	85
	 	8.06	Change of Control Event	85
	 	8.07	Cross Default	85
	 	8.08	ERISA	86
	 	8.09	Specific Defaults	86
	 	8.10	Guarantee and Collateral
Agreement; Impairment of Collateral Documents	86
	 	8.11	Condemnation	87
	 	8.12	Class Actions/SEC Proceedings	87
	 	8.13	Actual or Asserted Invalidity	87
	 	8.14	Other Defaults	87




	ARTICLE IX. MISCELLANEOUS	88


	 	9.01	Notices	88
	 	9.02	Successors and Assigns	89
	 	9.03	Lenders’ Obligations Several	89
	 	9.04	Assignments; Participations	89
	 	9.05	Delays and Waivers	92
	 	9.06	Costs and Expenses	92
	 	9.07	Telephone Indemnity	93
	 	9.08	Other Indemnity	93
	 	9.09	Choice of Law	94
	 	9.10	Personal Jurisdiction; Waiver	94
	 	9.11	Service of Process	95
	 	9.12	Waiver of Jury Trial	95
	 	9.13	Section Headings	95




-iii-








	 	9.14	Severability	95
	 	9.15	Counterparts	95
	 	9.16	No Reliance by Lenders	96
	 	9.17	Entire Agreement	96
	 	9.18	Confidentiality	96
	 	9.19	Existing Credit Agreement
to Remain in Full Force and Effect	96




	ARTICLE X. RELATION OF LENDERS	97


	 	10.01	Agent and Collateral Agent; Enforcement of Guaranties	97
	 	10.02	Pro Rata Sharing	97
	 	10.03	Set-off	98
	 	10.04	Liability of Agent	99
	 	10.05	Reliance by Agent	99
	 	10.06	Approvals; Amendments	99
	 	10.07	Notice of Default	100
	 	10.08	Credit Decision	101
	 	10.09	Lenders’ Indemnity	101
	 	10.10	Agent as Lender	102
	 	10.11	Notice of Transfer	102
	 	10.12	Resignation of Agent	102
	 	10.13	Collateral Matters	102
	 	10.14	Collateral Agent	106
	 	10.15	Documentation Agent and Syndication Agent	106




-iv-








	SCHEDULES




	 	Schedule 1.01	Existing Liens
	 	Schedule 1.01(b)	[Reserved]
	 	Schedule 1.01(c)	Unrestricted Subsidiaries
	 	Schedule 2.19(b)	Letters of Credit
	 	Schedule 3.05	Existing Mortgage Collateral Properties
	 	Schedule 5.09	Litigation
	 	Schedule 5.14	ERISA Matters
	 	Schedule 5.16	Restrictions on Subsidiaries
	 	Schedule 5.18	Environmental Matters
	 	Schedule 5.20	Trademark Disputes
	 	Schedule 6.02(a)	Additional Disclosed Litigation
	 	Schedule 6.17	Additional Mortgaged Properties
	 	Schedule 7.02(b)	Existing Debt
	 	Schedule 7.09(a)	Prepayable Debt
	 	Schedule 9.01 	Addresses for Notices




	EXHIBITS




	 	Exhibit A.	Form of Guarantee and Collateral Agreement
	 	Exhibit B.	Form of Collateral Agency Agreement
	 	Exhibit C.	List of Commitment Percentages
	 	Exhibit D.	List of Subsidiaries
	 	Exhibit E.	Form of Operating Bank Guaranty
	 	Exhibit F.	[Reserved]
	 	Exhibit G.	[Reserved]
	 	Exhibit H.	Form of Revolving Note
	 	Exhibit I.	Form of Term Note
	 	Exhibit J-1.	Form of Opinions of Borrower’s Special Counsel
	 	Exhibit J-2.	Form of Opinion of Borrower’s Special Counsel
	 	Exhibit K.	Form of Opinion of General Counsel
	 	Exhibit L.	[Reserved]
	 	Exhibit M.	Form of Assignment and Acceptance
	 	Exhibit N.	Form of Subordination Agreement




-v-








CREDIT AGREEMENT


          
This Credit Agreement, dated as of November 18, 1997, as amended and restated as
of October 14, 2004 (the “Credit Agreement”), among BALLY TOTAL
FITNESS HOLDING CORPORATION, a Delaware corporation (“Borrower”),
the banks and other financial institutions named on the signature pages of this
Agreement (collectively, “Lenders” and individually, a
“Lender”), JPMORGAN CHASE BANK, as agent for Lenders (in such
capacity, “Agent”), DEUTSCHE BANK SECURITIES INC., as
syndication agent (in such capacity, the “Syndication Agent”),
and LASALLE BANK NATIONAL ASSOCIATION, as documentation agent (in such capacity,
the “Documentation Agent”), is entered into with respect to the
following: 


          
1.   The Borrower, certain of the Lenders, certain other lenders and the Agent are
parties to the Credit Agreement dated as of November 18, 1997, as amended and
restated as of November 10, 1999, as further amended and restated as of December
21, 2001, as further amended and restated as of July 2, 2003, as amended (as
further amended, modified or supplemented from time to time, the
“Existing Credit Agreement”).


          
2.   The Borrower has requested that the Existing Credit Agreement be amended and
restated (a) to provide for a five-year senior secured term loan facility under
this Agreement in an aggregate principal amount of $175,000,000 (the
“Term Loan Facility”) in order, first, to repay and
refinance in full all obligations of the Borrower and its Subsidiaries under the
Receivables Program (as defined in the Existing Credit Agreement),
second, to repay certain indebtedness under the Existing Credit Agreement, and, third, for
general corporate and working capital purposes, (b) to amend certain covenants and (c)
otherwise to amend the Existing Credit Agreement and restate it in its entirety as more
fully set forth herein


          
3.   Certain parties to the Existing Credit Agreement and the other
Credit Parties (as herein defined) desire to continue in full force and effect
all of the indebtedness, guarantees, liens and security interests created under
the Existing Credit Agreement and all guarantee and collateral documents
delivered in connection therewith under this Agreement and the Credit
Documents.


          
4.   The Lenders and the Agent are willing to so amend and restate the
Existing Credit Agreement, and the Lenders not now parties to the Existing
Credit Agreement are willing to become parties hereto, but only on the terms and
subject to the conditions set forth herein;


          
In consideration of the premises and other valuable consideration the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree that on the Closing Date (as hereinafter defined) the Existing Credit
Agreement shall be amended and restated in its entirety as follows: 



 








ARTICLE I.


DEFINITIONS AND ACCOUNTING TERMINOLOGY



          
1.01   Certain Definitions. In addition to the terms defined
elsewhere in this Agreement, the following terms have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined): 


	 	          
“Advance” means a Revolving Advance or a Term Advance.




	 	          
“Affiliate” of any Person means any other Person directly or
indirectly Controlling or Controlled by or under direct or indirect common
Control with such Person.




	 	          
“After Acquired Owned Property” has the meaning set forth in
Section 7.03(b).




	 	          
“Agreement” shall mean the Existing Credit Agreement, as
amended and restated by this Agreement, as the same may be amended, supplemented
or otherwise modified from time to time. 




	 	          
“Applicable Margin” (a) means, at any time, with respect to
Revolving Advances and Letter of Credit fees, the rate per annum based on the
Total Leverage Ratio of the Borrower, set forth in the following matrix which
shall apply to each Type of Revolving Advance and the Letter of Credit fee
payable pursuant to Section 2.14(a)(i), as applicable: 





            |=====================================================================|
            |  Total Leverage    |  Eurodollar   | Reference Rate  |  Letter of   |
            |       Ratio        |    Margin     |     Margin      | Credit Rate  |
            |--------------------|---------------|----------------- --------------|
            |     x > 5.25       |      4.00%    |      3.00%      |      3.00%   |
            |--------------------|---------------|----------------- --------------|
            |  3.75 < x < 5.25   |      3.75%    |      2.75%      |      2.75%   |
            |--------------------|---------------|----------------- --------------|
            |  2.75 < x < 3.75   |      3.50%    |      2.50%      |      2.50%   |
            |--------------------|---------------|----------------- --------------|
            |     x < 2.75       |      3.25%    |      2.25%      |      2.25%   |
            |=====================================================================|


	 	          
Changes in the Applicable Margin resulting from changes in the Total Leverage
Ratio shall become effective on the date (the “Adjustment
Date”) on which financial statements are delivered to the Lenders
pursuant to Section 6.03 (but in any event not later than the 50th day after the
end of each of the first three quarterly periods of each fiscal year or the
105th day after the end of each fiscal year, as the case may be) and shall
remain in effect until the next change to be effected pursuant to this
paragraph. Each determination of the Total Leverage Ratio pursuant to this
definition shall be made with respect to the period of four consecutive fiscal
quarters of the Borrower ending at the end of the period covered by the relevant
financial statements. For the period from the Closing Date to the date financial
statements are delivered pursuant to Section 6.03(b) with respect to the fiscal
quarter ending September 30, 2004, the Total Leverage Ratio shall be presumed to
be greater than or equal to 5.25 to 1 for purposes of this definition; and




2








	 	          
(b) means at any time (i) with respect to Term Advances which are Eurodollar
Advances, 4.75% and (ii) with respect to Term Advances which are Reference Rate
Advances, 3.75%.




	 	          
“Approved Fund” means any Person (other than a natural person)
that is engaged in making, purchasing, holding or investing in bank loans and
similar extensions of credit in the ordinary course and that is administered or
managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an
Affiliate of an entity that administers or manages a Lender. 




	 	          
“Banking Day” means a day other than Saturday or Sunday on
which (i) banks are open for business in New York City and (ii) for any
calculation, determination or other matter with respect to Eurodollar Rate
Advances, dealings in foreign currencies and exchange between banks may be
carried on in London, England. 




	 	          
“Borrowing Date” means, with respect to each Advance, the date
such Advance is made. 




	 	          
“BTFC” means Bally Total Fitness Corporation, a Delaware
corporation (formerly named Health & Tennis Corporation of America).




	 	          
“Capital Expenditures” for any period means, with respect to
the Borrower and its Subsidiaries, the amount identified on the Borrower’s
Consolidated Statement of Cash Flows (adjusted to remove expenditures of
Unrestricted Subsidiaries) on the line titled “Cash Used in Investing
Activities” for such period. Notwithstanding the foregoing, Capital
Expenditures, regardless of how reported in the Borrower’s Consolidated
Statement of Cash Flows, shall not include expenditures funded by proceeds from
the issuance of Capital Stock if such Capital Stock is issued within 90 days
before or after the making of such expenditures. 




	 	          
“Capitalized Lease” means any lease which is or should be, in
accordance with GAAP, capitalized on the balance sheet of the lessee.




	 	          
“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 Closing Date. 




	 	          
“Cash Equivalents” means (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof) having maturities of not
more than 12 months from the date of acquisition, (ii) Dollar denominated time
deposits, certificates of deposit and bankers acceptances of any Lender or any
bank whose short-term commercial paper rating from Standard & Poor’s
Ratings Group, a division of McGraw-Hill (“S&P”), is at
least A-1 or the equivalent thereof or from Moody’s Investors Service, Inc.
(“Moody’s”) is at least P-1 or the equivalent thereof (any
such Lender, an “Approved Lender”), with maturities of not more
than 12 months from the date of acquisition, (iii) repurchase obligations with a
term of not more than seven days for underlying securities of the type described
in clause




3








	 	(i) entered
into with an Approved Lender, (iv) commercial paper issued by, or guaranteed by,
any Approved Lender or by the parent company of any Approved Lender or
commercial paper issued by, or guaranteed by, any industrial or financial
company with a short-term commercial paper rating of at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody’s, or issued by, or guaranteed by, any industrial company with a long
term unsecured debt rating of at least A or A2, or the equivalent of each
thereof, from S&P or Moody’s, respectively, and in each case maturing
within 12 months after the date of acquisition and (v) any fund or funds making
substantially all of their investments in investments of the type described in
clauses (i) through (iv) above. 




	 	          
“Change of Control Event” means, without limitation, (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group (within the meaning of the Securities Exchange Act of 1934
and the rules of the Securities and Exchange Commission thereunder as in effect
on the date hereof), of shares representing more than 30% of the aggregate
ordinary voting power represented by the issued and outstanding Capital Stock of
the Borrower; (b) occupation of a majority of the seats (other than vacant
seats) on the board of directors of the Borrower by Persons who were neither (i)
nominated by the board of directors of the Borrower nor (ii) appointed by
directors so nominated; (c) the acquisition of direct or indirect Control of the
Borrower by any Person or group; or (d) a “change of control” (however
denominated) shall occur with respect to any Subordinated Debt or the Senior
Unsecured Notes. 




	 	          
“Closing Date” means the date on which all of the conditions in
Section 4.01 are satisfied. 




	 	          
“Code” means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute. 




	 	          
“Collateral” means all real, personal and mixed property and
interests in property and proceeds thereof now owned or hereafter acquired by
Borrower or any Guarantor and their respective Subsidiaries in or upon which a
security interest, pledge, lien or mortgage is, or is purported to be, granted
to the Lenders or the Collateral Agent pursuant to the Collateral Documents for
the benefit of the Secured Creditors whether under this Agreement or under any
other documents, instruments or writings executed by any such Persons in
connection with Advances or other credit extensions made hereunder and delivered
to the Collateral Agent or the Lenders. 




	 	          
“Collateral Agency Agreement” means the Collateral Agency
Agreement between the Collateral Agent and the Agent in the form of Exhibit B
hereto, as amended, supplemented or otherwise modified. 




	 	          
“Collateral Agent” means JPMorgan Chase Bank or any successor
agent thereto acting as Collateral Agent for the Secured Creditors pursuant to
the Collateral Agency Agreement. 




4








	 	          
“Collateral Documents” means, collectively, (i) the Guarantee
and Collateral Agreement, the Collateral Agency Agreement, the Mortgages, the
Mortgage Amendments, the Operating Bank Guaranty and all other security
agreements, mortgages, deeds of trust, patent and trademark assignments,
certificates of title, lease assignments, guarantees and other agreements
between Borrower or any Guarantor and their respective Subsidiaries and any of
the Lenders or the Collateral Agent for the benefit of the Lenders or the
Secured Creditors, now or hereafter delivered to any of the Secured Creditors or
the Collateral Agent pursuant to or in connection with the transactions
contemplated hereby, and all financing statements (or comparable documents) now
or hereafter filed in accordance with the Uniform Commercial Code (or comparable
law) against Borrower or any Guarantor or any Subsidiaries in favor of any of
the Lenders or the Collateral Agent for the benefit of the Lenders or the
Secured Creditors and (ii) any amendments, supplements, modifications, renewals,
replacements, consolidations, substitutions and extensions of any of the
foregoing.




	 	          
“Commitment” means, as to any Lender, such Lender’s
Revolving Credit Commitment, L/C Commitment and Term Loan Commitment;
collectively, as to all the Lenders, the “Commitments”. 




	 	          
“Commitment Percentage” means, as to each Lender, its Revolving
Credit Commitment Percentage or Term Loan Commitment Percentage, as applicable.




	 	          
“Commitment Reductions” shall mean the amount of the permanent
reductions of the Revolving Credit Commitment Amount resulting from the
application of Section 2.11 or any other provision contained herein.




	 	          
“Conduit Lender” means any special purpose corporation
organized and administered by any Lender for the purpose of making Advances
otherwise required to be made by such Lender and designated by such Lender in a
written instrument; provided, that the designation by any Lender of a Conduit
Lender shall not relieve the designating Lender of any of its obligations to
make an Advance under this Agreement if, for any reason, its Conduit Lender
fails to make such Advance, and the designating Lender (and not the Conduit
Lender) shall have the sole right and responsibility to deliver all consents and
waivers required or requested under this Agreement with respect to its Conduit
Lender and itself, and provided, further, that no Conduit Lender
shall (a) be entitled to receive any greater amount pursuant to Section 2.16,
2.17, 2.18 or 9.06 than the designating Lender would have been entitled to
receive in respect of the extensions of credit made by such Conduit Lender or
(b) be deemed to have any Commitment. 




	 	          
“Consolidated”or “consolidated” means (i) when
used herein with reference to financial statements, ratios, assets, liabilities,
operating accounts or operations of Borrower and its Subsidiaries, that any
calculations have been made by combining the assets and liabilities of Borrower
and its Subsidiaries after eliminating all intercompany items; and (ii) when
used herein with reference to a Subsidiary, a Subsidiary the financial
statements of which have been presented together with those of
Borrower.




5








	 	          
“Consolidated Adjusted EBITDA” means GAAP EBITDA of the
Borrower and its Subsidiaries, calculated on a trailing 12-month basis in
accordance with GAAP as in effect from time to time, adding back (to the extent
deducted in calculating GAAP EBITDA) for all New Clubs, in the aggregate, the
actual GAAP EBITDA loss incurred by such New Clubs during a trailing 12-month
period ending on the date of determination (the “New Clubs
Adjustment”), provided that such New Clubs Adjustment may not
exceed $3,000,000 during any such twelve (12) month period. For purposes of
calculating the Total Leverage Ratio and Senior Secured Leverage Ratio, if the
Borrower or any Subsidiary has acquired any Person, line of business or health
and fitness club within any applicable trailing 12-month period, Consolidated
Adjusted EBITDA for such period shall be calculated on a pro forma basis
(and adjusted for cost savings realizable within six months of such
acquisitions) as if such acquisition occurred on the first day of such period,
as set forth in a certificate of a duly authorized financial officer of the
Borrower. 




	 	          
“Consolidated Interest Expense” means, for any period, the
aggregate amount of interest that, in accordance with GAAP, would be set forth
opposite the caption “interest expense” or any like caption on a
consolidated income statement of the Borrower and its Subsidiaries (including,
but not limited to, imputed interest on Capitalized Leases, all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers’ acceptance financing, the net costs associated with hedging
obligations, amortization of other financing fees and expenses, the interest
portion of any deferred payment obligation, amortization of discount or premium,
if any, and all other non-cash interest expense (other than previously
capitalized interest amortized to cost of sales)) plus, without duplication, all
interest accrued or paid by the Borrower or any of its Subsidiaries under any
Guaranty of Debt (including a Guaranty of principal, interest or any combination
thereof) of any Person for such period, in each case determined on a
consolidated basis in accordance with GAAP. 




	 	          
“Consolidated Net Income” of the Borrower means, for any
period, the consolidated net income (or loss) of the Borrower and its
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income (or loss), by excluding (i)
all extraordinary gains or losses (less all fees and expenses relating thereto),
(ii) the portion of net income (or loss) of the Borrower and its Subsidiaries
allocable to minority interests in unconsolidated Persons to the extent that
cash dividends or distributions have not actually been received by the Borrower
or one of its Subsidiaries, (iii) net income (or loss) of any Person combined
with the Borrower 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 Plan, (v) any gains or losses (less all fees and expenses relating
thereto) in respect of dispositions of assets other than in the ordinary course
of business, and (vi) the net income of any Subsidiary to the extent that the
declaration of the 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 regulations applicable to that Subsidiary or its
stockholders. 




6








	 	          
“Consolidated Total Debt” means for the Borrower for any
period, the sum (without duplication) of (i) all indebtedness of the Borrower
and its Subsidiaries for borrowed money, including, without limitation,
reimbursement obligations with respect to letters of credit, whether or not
matured or whether or not such letters of credit have been drawn (excluding
reimbursement obligations to the extent that any letter of credit has been cash
collateralized on terms satisfactory to the issuer of such letter of credit),
(ii) indebtedness under Receivables Financing Transactions, whether or not
constituting Debt or indebtedness under GAAP, (iii) all obligations of the
Borrower and its Subsidiaries with respect to Capitalized Leases determined in
accordance with GAAP, (iv) all Guaranties (without duplication of any amount of
Debt included in another clause of this definition) made by the Borrower and its
Subsidiaries, (v) all obligations of the Borrower and its Subsidiaries
representing the deferred purchase price of real or personal property or of
services (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices), and (vi) all
indebtedness arising under any Interest Expense Hedging Arrangement of the
Borrower and its Subsidiaries (excluding to the extent otherwise included in (i)
up to $25,000,000 of Guaranties under the Credit Card Program Agreement but
including the amount of any matured payment obligation of the Borrower and its
Subsidiaries thereunder), in each case calculated on a consolidated basis.




	 	          
“Control” means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. “Controlling” and “Controlled” have
meanings correlative thereto. 




	 	          
“Credit Card Program Agreement” means the Credit Card Program
Agreement dated December 21, 1995 between the Borrower, Renaissance Bankcard
Services Inc. and Orchard Federal Savings Bank (or a substitute agreement with a
substitute provider), including the attachments thereto. 




	 	          
“Credit” means the credit available to Borrower under Article II hereof.




	 	          
“Credit Agreement” has the meaning assigned in the recitals hereto.




	 	          
“Credit Documents” means, collectively, this Agreement, the
Notes and the Collateral Documents. 




	 	          
“Credit Parties” means the Borrower and each of its
Subsidiaries which is a party to a Credit Document. 




	 	          
“Debt” means for any Person (i) all indebtedness of such Person
for borrowed money (including, without limitation, reimbursement and all other
obligations with respect to letters of credit, whether or not matured), (ii) all
obligations of such Person representing the deferred purchase price of real or
personal property or of services (other than current trade liabilities incurred
in the ordinary course of business and payable in accordance with customary
practices), (iii) the amount of all obligations of such Person under Capitalized
Leases determined in accordance with GAAP, (iv) all indebtedness  




7








	 	arising under
any Interest Expense Hedging Arrangement, and (v) without duplication of any
amount of Debt included in clause (i), (ii), (iii) or (iv) of this definition,
all Guaranties made by such Person. Notwithstanding the foregoing,
“Debt” shall not include up to $25,000,000 of Guaranties under the
Credit Card Program Agreement but shall include the amount of any matured
payment obligation of the Borrower or its Subsidiaries thereunder. 




	 	          
“Default” shall mean an event which with the giving of notice,
passage of time or both would constitute an Event of Default. 




	 	          
“Demand Deposit Accounts” means (i) the demand deposit accounts
listed on Annex 1 to the Operating Bank Guaranty maintained by Borrower
and/or any of its Subsidiaries with the respective Revolving Lenders identified
on such Annex, and (ii) other demand deposit accounts established by
Borrower or any of its Subsidiaries on or after the date hereof which shall be
promptly identified by the Borrower in writing to Agent. 




	 	          
“Designated Senior Indebtedness” means Designated Senior
Indebtedness of Borrower as defined in each of the 1997 Indenture and the 1998
Indenture. 




	 	          
“Disclosure Letter” means the Disclosure Letter dated September
22, 2004 prepared by the Borrower for the Lenders and the Revolving Credit
Lenders. 




	 	          
“Dollars” and “$” mean United States dollars.




	 	          
“Domestic Subsidiary” means any Subsidiary of the Borrower
organized under the laws of any jurisdiction within the United States. 




	 	          
“Early Termination Date” means April 15, 2007 if the
Subordinated Notes have not been repaid in full by that date pursuant to a
Permitted Subordinated Notes Refinancing. 




	 	          
“ERISA” means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any regulations promulgated thereunder.




	 	          
“ERISA Affiliate” means any corporation, trade or business that
is, along with Borrower, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in Section 414 of the
Code or Section 4001 of ERISA. 




	 	          
“Eurocurrency Reserve Requirements” means, for any day as
applied to a Eurodollar Rate Advance, the aggregate (without duplication) of the
rates (expressed as a decimal) of reserve requirements in effect on such day
(including, without limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the Federal Reserve
System or other governmental authority having jurisdiction with respect thereto)
dealing with reserve requirements prescribed for eurocurrency funding (currently
referred to as “Eurocurrency Liabilities” in Regulation D of such
Board) maintained by a member bank of such System. 




8








	 	          
“Eurodollar Base Rate”: with respect to each day during each
Interest Period pertaining to a Eurodollar Rate Advance, the rate per annum
determined on the basis of the rate for deposits in Dollars for a period equal
to such Interest Period commencing on the first day of such Interest Period
appearing on Page 3750 of the Dow Jones Markets screen as of 11:00 A.M., London
time, two Business Days prior to the beginning of such Interest Period. In the
event that such rate does not appear on Page 3750 of the Dow Jones Markets
screen (or otherwise on such screen), the “Eurodollar Base
Rate” shall be determined by reference to such other comparable
publicly available service for displaying eurodollar rates as may be selected by
the Agent or, in the absence of such availability, by reference to the rate at
which the Agent is offered Dollar deposits at or about 11:00 A.M., New York City
time, two Banking Days prior to the beginning of such Interest Period in the
interbank eurodollar market where its eurodollar and foreign currency and
exchange operations are then being conducted for delivery on the first day of
such Interest Period for the number of days comprised therein. 




	 	          
“Eurodollar Rate” means, with respect to each day during each
Interest Period pertaining to a Eurodollar Rate Advance, a rate per annum
determined for such day in accordance with the following formula (rounded upward
to the nearest 1/100th of 1%): 




Eurodollar Base Rate


1.00 - Eurocurrency Reserve Requirements


	 	          
“Eurodollar Rate Advances” means Advances the rate of interest
applicable to which is based upon the Eurodollar Rate. 




	 	          
“Event of Default” means any event listed in Article VIII.




	 	          
“Excess Cash Flow”: for any fiscal year of the Borrower, shall
mean without duplication:




	 	(a)        
“Cash provided by operating activities” as reported on the Borrower’s
Consolidated Statement of Cash Flows (adjusted to remove Unrestricted
Subsidiaries) as provided by the Borrower to the Lenders,




	 	              
Plus:




	 	(b)        
to the extent not included in “Cash provided by operating activities”,
net cash proceeds received by the Borrower or any of its Subsidiaries from the
sale, lease, assignment or other disposition of any asset (excluding proceeds
from the sale of common stock (or common stock equivalents) of the Borrower) in
such fiscal year;




	 	              
Less:




	 	(c)        
net proceeds from asset sales to the extent:




	 	              
(i)        constituting Net Cash
Proceeds or Reinvestment Proceeds, or




9








	 	              
(ii)        derived from any disposition
permitted by Section 7.08(a), (b) or the proviso to Section 7.08(d),




	 	(d)        
dividends, distributions, and repayments on Investments to the extent included
in “Cash provided by operating activities”,




	 	(e)        
the aggregate amount of Capital Expenditures actually paid by the Borrower and
its Subsidiaries in cash during such fiscal year (excluding the principal amount
of Debt incurred in connection with such expenditures and any such expenditures
financed with Reinvestment Proceeds),




	 	(f)        
Investments to the extent not deducted in calculating “Cash provided by
operating activities” or as Capital Expenditures (including Investments in
Unrestricted Subsidiaries),




	 	(g)        
debt issuance costs incurred in such fiscal year, and




	 	(h)        
the aggregate amount of all regularly scheduled principal payments, and any
permanent prepayments of Debt (including the Term Advances and Revolving
Advances to the extent accompanying permanent reductions in the Revolving Credit
Commitment Amount) of the Borrower and its Subsidiaries in such fiscal
year.




	 	          
“Excess Cash Flow Application Date” has the meaning set forth
in Section 2.13(b). 




	 	          
“Existing Credit Agreement” has the meaning set forth in the
recitals hereto.




	 	          
“Existing Mortgage Collateral Properties” has the meaning set
forth in Section 3.05. 




	 	          
“Facility” means the collective reference to the Term Loan
Facility and the Revolving Credit Facility. 




	 	          
“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. 




	 	          
“Federal Funds Rate” means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Banking Day, for the next preceding Banking Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Banking Day, the average of the quotations for such day
on such transactions received by the Agent from three (3) Federal funds brokers
of recognized standing selected by it. 




10








	 	          
“Finance Subsidiary” means (i) Funding Corp. and (ii) any
wholly owned special purpose Subsidiary created by the Borrower whose sole
activity is engaging in Receivables Financing Transactions. 




	 	          
“Foreign Subsidiaries” means (x) Bally Matrix Fitness Centre
Ltd., a corporation organized under the laws of Ontario, Canada, and (y) any
other Subsidiary of the Borrower organized under the laws of any jurisdiction
outside the United States of America, which is created or acquired in accordance
with the terms of this Agreement. 




	 	          
“Franchise Program” means a program under which the Borrower or
its Subsidiaries grant franchises to third parties which require franchisees,
among other things, to pay fees to the Borrower and/or its Subsidiaries, make
use of certain collection and administrative services of the Borrower and its
Subsidiaries and contribute to a national advertising program and which entitle
the franchisees, among other things, to receive training from the Borrower and
its Subsidiaries, to have nonexclusive licenses to use on a limited basis
certain service marks, trademarks and trade names and other intellectual
property of or licensed to the Borrower and its Subsidiaries, and to sell
memberships to use facilities of the franchisee and the Borrower and its
Subsidiaries. A Franchise Program may include the conversion of certain
facilities owned by the Borrower or its Subsidiaries to franchised facilities,
so long as such conversions are consummated on terms and conditions permitted
under this Agreement. 




	 	          
“Funding Corp.” means H&T Receivable Funding Corporation, a
Delaware corporation and a wholly-owned Subsidiary of BTFC.




	 	          
“GAAP” means either (i) “Historic GAAP” being
the accounting principles applied by the Borrower in the preparation of its
audited financial statements for its fiscal year ended December 31, 2003 as
filed with the Securities and Exchange Commission on March 30, 2004, (the
Lenders being advised that the Borrower is currently in discussions with its
auditors and the SEC regarding various accounting matters, as set forth in the
second and third paragraphs of the Disclosure Letter (it being understood that
for purposes hereof Historic GAAP shall not be affected by the resolution of the
accounting matters subject to such discussions) and (ii) upon conclusion of
those discussions and resolution of the accounting matters subject to such
discussions at the request of Borrower, “Prospective GAAP”
shall mean generally accepted accounting principles in the United States of
America as in effect from time to time, as modified to reflect such accounting
resolution, and the Agent and the Lenders agree to enter into and diligently
pursue negotiations in order to amend the financial covenants or terms in
accordance with Section 10.06 hereof to the extent necessary so as to equitably
reflect such changes, with the desired result that the criteria for evaluating
Borrower’s financial condition and results of operations shall be the same
after such changes as if such changes had not been made (the effective date of
any such amendment, the “GAAP Adjustment Date”). All financial
statements required to be delivered pursuant to Section 6.03 will be (a)
prepared in accordance with Historic GAAP until the date any Prospective GAAP is
agreed upon, (b) on and after the date Prospective GAAP is agreed upon and prior
to the GAAP Adjustment Date shall be prepared in accordance with both Historic
GAAP and Prospective GAAP and (c) prepared in accordance with Prospective GAAP
thereafter. 




11








	 	          
“GAAP EBITDA” means with respect to the Borrower and its
Subsidiaries on a consolidated basis, without duplication, for any period of
determination, (i) Consolidated Net Income (loss), plus, to the extent
deducted in determining Consolidated Net Income (loss), (ii) provision for
taxes, (iii) Consolidated Interest Expense, (iv) depreciation and amortization,
all calculated in accordance with GAAP, (v) [Reserved], (vi) any
non-cash charges solely related to stock-based compensation; provided,
that, to the extent any non-cash expense under this clause (vi) subsequently
requires any cash disbursement, such disbursement expense will be subtracted
from GAAP EBITDA in the applicable period, (vii) [Reserved],
(viii) a one-time non-cash charge of up to $30,000,000 taken by the Borrower
between July 2, 2003 and June 30, 2004 in connection with the sale of
receivables (it being agreed that if any such non-cash charge shall subsequently
become a cash charge, the amount of such cash charge shall be deducted at such
time in calculating GAAP EBITDA), (ix) the cumulative non-cash charge resulting
from a change in accounting principles, (x) for any period that includes the
Borrower’s fourth fiscal quarter in 2003, up to $10,000,000 of charges
related to non-recurring year end audit adjustments and (xi) non-cash charges
solely related to the matters set forth in the Disclosure Letter. 




	 	          
“Guarantee and Collateral Agreement” means the Guarantee and
Collateral Agreement in the form of Exhibit A hereto, as amended, supplemented
or otherwise modified from time to time. 




	 	          
“Guarantors” means collectively, the Subsidiaries listed on
Exhibit D hereto (other than Unrestricted Subsidiaries, Foreign Subsidiaries,
Lincoln Indemnity Company and Finance Subsidiaries) and any other Subsidiary
which hereafter becomes a Guarantor pursuant to Section 3.04 (each individually
a “Guarantor”). 




	 	          
“Guaranty” means, as applied to any Debt, (i) a guaranty (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of any part
or all of such obligation, including, without limiting the foregoing, the
payment of amounts drawn under letters of credit. 




	 	          
“Hazardous Materials” means any (i) “hazardous
substance” or “toxic substances,” as those terms are defined by
the Comprehensive Environmental Response, Compensation, and Liability Act
(“CERCLA”), 42 U.S.C. § 9601 et seq. and the
Hazardous Materials Transportation Act, 49 U.S.C. § 1802, all as
amended or hereafter amended; (ii) “hazardous waste”, as defined by
the Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C.
§ 6901 et seq., as amended or hereafter amended; (iii)
pollutant or contaminant or hazardous, dangerous or toxic chemical, material, or
substance within the meaning of any other applicable federal, state or local
law, regulation, ordinance, or requirement (including consent decrees and
administrative orders) relating to protection of health, safety or the
environment, as amended or hereafter amended; (iv) crude oil or any fraction
thereof which is liquid at standard conditions of temperature and pressure (60
degrees Fahrenheit and 14.7 pounds per square inch absolute); (v) any
radioactive material, including any source, special nuclear or by-product
material as defined at 42




12








	 	U.S.C.
§ 2011 et seq., as amended or hereafter amended; (vi)
asbestos or asbestos containing material (“ACM”) in any form or
condition and (vii) polychlorinated biphenyls (“PCBs”) or substances
or compounds containing PCBs. 




	 	          
“Historic GAAP” has the meaning assigned in the definition of
“GAAP”. 




	 	          
“Hazardous Materials Claims” has the meaning ascribed to it in
Section 6.02(f). 




	 	          
“Hazardous Materials Laws” means any federal, state or local
statute, regulation, ordinance or other legal requirement (including consent
decrees and administrative orders) relating to protection of health, safety or
environment, including but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act (“CERCLA”), 42 U.S.C. §
9601 et seq.; the Resource Conservation and Recovery Act
(“RCRA”), 42 U.S.C. § 6901 et seq.; the Clean Air
Act, 42 U.S.C. § 7401 et seq.; the Clean Water Act, 33 U.S.C.
§ 1251 et seq.; the Occupational Safety and Health Act
(“OSHA”), 29 U.S.C. § 651 et seq.; the Toxic
Substances Control Act (“TSCA”), 15 U.S.C. § 2601 et
seq.; any similar state or local laws; any regulations promulgated
pursuant to any of the foregoing; and all of the foregoing as amended or
hereafter amended.




	 	          
“Intangible Asset” means 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. 




	 	          
“Intellectual Property” has the meaning assigned to such term
in the Guarantee and Collateral Agreement. 




	 	          
“Interest Expense Hedging Arrangement” means an interest rate
swap, cap or collar agreement or similar arrangement entered into with the
intent of protecting the Borrower or a Guarantor against fluctuations in
interest rates or the exchange of notional interest obligations, either
generally or under specific contingencies. 




	 	          
“Interest Payment Date” means (a) as to any Reference Rate
Advance, the last Banking Day of each March, June, September and December, (b)
as to any Eurodollar Rate Advance having an Interest Period of three months or
less, the last day of such Interest Period, (c) as to any Eurodollar Rate
Advance having an Interest Period longer than three months, (i) each day which
is three months, or a whole multiple thereof, after the first day of such
Interest Period and (ii) the last day of such Interest Period and (d) as to any
Advance, in addition to any applicable dates under clauses (a), (b) and (c)
above, the date of any repayment or prepayment (except for any prepayment
pursuant to Section 2.12 of any Revolving Advance that is a Reference Rate
Advance) made in respect thereof. 




	 	          
“Interest Period” means with respect to any Eurodollar Rate
Advance:




	 	          
(a) initially, the period commencing on the borrowing or conversion date, as the
case may be, with respect to such Eurodollar Rate Advance and ending one,




13








	 	two, three or
six months thereafter, as selected by the Borrower in its notice of borrowing or
notice of conversion, as the case may be, given with respect thereto;
and




	 	          
(b) thereafter, each period commencing on the last day of the next preceding
Interest Period applicable to such Eurodollar Rate Advance and ending one, two,
three or six months thereafter, as selected by the Borrower by irrevocable
notice to the Agent not less than three Banking Days prior to the last day of
the then current Interest Period with respect thereto;




	 	provided that, all
of the foregoing provisions relating to Interest Periods are subject to the
following:




	 	          
(1) if any Interest Period pertaining to a Eurodollar Rate Advance would
otherwise end on a day that is not a Banking Day, such Interest Period shall be
extended to the next succeeding Banking Day unless the result of such extension
would be to carry such Interest Period into another calendar month in which
event such Interest Period shall end on the immediately preceding Banking Day;




	 	          
(2) any Interest Period for any Revolving Advance that would otherwise extend
beyond the Revolving Credit Termination Date shall end on the Revolving Credit
Termination Date;




	 	          
(3) any Interest Period for any Term Advance that would otherwise extend beyond
the Term Loan Termination Date shall end on the Term Loan Termination Date;




	 	          
(4) any Interest Period pertaining to a Eurodollar Rate Advance that begins on
the last Banking Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Banking Day of a calendar month; and




	 	          
(5) the Borrower shall select Interest Periods in such a way so that no
Eurodollar Rate Advances will be required to be repaid prior to the last day of
an Interest Period therefor.




	 	          
“Investment” means any direct or indirect loans, advances,
capital contributions or transfers of assets, and any direct or indirect
purchases and other acquisitions of, or a beneficial interest in, any capital
stock or other securities; provided, however, that the allocation
of corporate overhead to Foreign Subsidiaries shall not constitute an
“Investment”. The amount of any Investment not consisting of cash
shall equal the Fair Market Value of such Investment at the time it is made.




	 	          
“Issuing Lender” means JPMorgan Chase Bank and other Lenders
having Revolving Credit Commitments acceptable to the Agent and the Borrower.





	 	          
“JPMorgan Chase Bank” means JPMorgan Chase Bank, a New York
banking corporation. 




14








	 	          
“Lending Branch” means with respect to each Lender the branches
or offices specified on the signature pages hereto or such other of its branches
or offices as such Lender may from time to time designate in writing to Agent
and Borrower. 




	 	          
“Lenders” shall have the meaning set forth in the recitals
hereto; provided, that unless the context otherwise requires, each
reference herein to the Lenders shall be deemed to include any Conduit Lender.





	 	          
“Letter of Credit” means any letter of credit issued by an
Issuing Lender pursuant to Section 2.19. 




	 	          
“L/C Commitments” means the commitments of Lenders to issue or
participate in Letters of Credit and to make L/C Advances pursuant to Section
2.19 in the aggregate maximum amount specified in Section 2.19(a)(i), as such
amount may be reduced or terminated from time to time hereunder. 




	 	          
“L/C Commitment Amount” means, at any time, the difference
between (i) the lesser of (a) the Revolving Credit Commitment Amount at such
time and (b) $30,000,000 and (ii) any L/C Commitment Reductions. 




	 	          
“L/C Commitment Reductions” means the amount of the permanent
reductions of the L/C Commitment Amount resulting from the application of
Section 2.11 or any other provision contained herein. 




	 	          
“Lien” means a mortgage, security interest, pledge, deed of
trust, encumbrance, lien, option, tax lien, mechanics’ lien,
materialmen’s lien or charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code). 




	 	          
“Majority Lenders” means at any time Lenders holding more than
51% of the sum of (i) the aggregate unpaid principal amount of Term Loans then
outstanding and (ii) the Revolving Credit Commitments then in effect or, if the
Revolving Credit Commitments have been terminated, the Revolving Advances and
participating interests in Letters of Credit and unreimbursed drawings in
respect of Letters of Credit then outstanding. 




	 	          
“Margin Regulations” means Regulations T, U and X of the Board
of Governors of the Federal Reserve System, as amended from time to time.




	 	          
“Material Adverse Effect” means a material adverse effect on
(a) the business, operations, property, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as whole, (b) the validity
or enforceability of (i) this Agreement, any of the Notes or any of the other
Credit Documents or (ii) the rights or remedies of the Agent and the Lenders
hereunder or thereunder or (c) the ability of the Borrower and its Subsidiaries
taken as a whole to perform their respective obligations under the Credit
Documents. The Lenders acknowledge that the events, developments and
circumstances expressly described in the Disclosure Letter and the consequences
thereof as reasonably 




15








	 	foreseeable by
the Agent and the Syndication Agent on the Closing Date do not constitute a
Material Adverse Effect. 




	 	          
“Membership Receivables” means all right, title and interest of
the Borrower and its Domestic Subsidiaries in payment obligations (however
characterized), including accounts and receivables, owed to or owned by the
Borrower and its Domestic Subsidiaries in connection with membership in and the
right to use the facilities at, and obtain products and services from, one or
more fitness centers and health clubs owned or operated by the Borrower and its
Subsidiaries, including, without limitation, (a) the right to payment of amounts
in respect of the membership fee (including any sales tax thereon) and finance
charges relating thereto under an agreement made by the Borrower or any Domestic
Subsidiary of the Borrower, in the form of a written retail installment sale
contract, for membership in and the right to use facilities at, and obtain
products and services from, the Borrower and its Domestic Subsidiaries or one or
more health clubs owned or operated by the Borrower or any Domestic Subsidiary
of the Borrower, (b) all amounts paid from time to time in connection with the
foregoing, including pursuant to such written retail installment sale contract
in respect of monthly dues, nsf fees, late payment fees, cancellation fees for
relocation cancellations, transfer fees to transfer a membership, lost
membership card replacement fees, or other payments and proceeds thereof.




	 	          
“Mortgage Amendment” means each of the Amendments to Mortgages
in the form requested by the Agent, to be executed by the Borrower or the
various Guarantors in order to continue for the benefit of the Collateral Agent,
on behalf of the Secured Creditors, the Liens created by the Mortgages delivered
under the Existing Credit Agreement. 




	 	          
“Mortgages” means all fee mortgages, leasehold mortgages,
assignments of leases, mortgage deeds, deeds of trust, deeds to secure debt,
security agreements, and other similar instruments, executed or to be executed
by the Borrower or the various Guarantors (i) which provide the Collateral
Agent, for the benefit of the Secured Creditors, a Lien on or other interest in
Existing Mortgage Collateral Properties and (ii) pursuant to Section 3.05(b) or
(c), as amended, restated, modified, extended or supplemented from time to time.




	 	          
“Multiemployer Plan” has the meaning ascribed to it in Section
3(37) of ERISA.




	 	          
“Net Cash Proceeds” means (a) in connection with any issuance
or incurrence of Prepayment Debt, the cash proceeds received from such issuance
or incurrence, net of attorneys’ fees, investment banking fees,
accountants’ fees, underwriting discounts and commissions and other
customary fees and expenses actually incurred in connection therewith and (b) in
connection with the sale, lease, assignment or other disposition of any asset
(other than sales by the Borrower or a Subsidiary of the Borrower of common
stock (or common stock equivalents) of the Borrower), cash proceeds (including
any cash received by way of deferred payments, purchase price adjustments or
otherwise, but only as and when so received) received by the Borrower or any of
its Subsidiaries from the sale, lease, assignment or other disposition (but
excluding any such disposition permitted  




16








	 	by Sections
7.08(a), (c), (e) or (f) or the proviso to Section 7.08(d), and excluding any
such proceeds to the extent they constitute Reinvestment Proceeds) of any asset
or property of such Person or any insurance or condemnation awards net of (i)
the reasonable and customary costs directly incurred in connection with such
transaction, (ii) taxes actually paid or in good faith estimated to be payable
as a result thereof and (iii) amounts applied to the repayment of other
Debt secured by a Permitted Lien on the asset disposed of. If in determining
“Net Cash Proceeds”, amounts are deducted for estimated taxes payable,
and such amounts are not actually paid when due by the Borrower in cash in
accordance with all applicable laws, then such deducted amounts shall constitute
“Net Cash Proceeds”. Cash proceeds from the sale of written-off
receivables to a collection agency or similar organization pursuant to Section
7.08(g) shall not constitute “Net Cash Proceeds”, and cash received by
the Borrower or its Subsidiaries related to membership contracts receivables
originated for the account of franchisees or other third parties (and not
constituting assets of the Borrower or its Subsidiaries) shall not constitute
“Net Cash Proceeds”. 




	 	          
“New Clubs” means, with respect to any date, the collective
reference to each health and fitness club (i) owned and operated by the Borrower
or any Subsidiary and (ii) opened within 18-months prior to such date. 




	 	          
“New Ventures” means the collective reference to each Person
(other than Subsidiaries and Unrestricted Subsidiaries) in which the Borrower or
any Subsidiary makes its initial Investment after the date hereof. 




	 	          
“1998 Indenture” means that certain Indenture dated as of
December 16, 1998 between Borrower and U.S. Bank National Association, as
trustee (and any successor trustee thereto) relating to the 1998 Subordinated
Notes. 




	 	          
“1998 Subordinated Notes” has the meaning ascribed to it in the
definition of Subordinated Debt. 




	 	          
“1997 Indenture” means that certain Indenture, dated as of
October 7, 1997, between Borrower and First Trust National Association, as
trustee (and any successor trustee thereto) relating to the 1997 Subordinated
Notes.




	 	          
“1997 Subordinated Notes” has the meaning ascribed to it in the
definition of Subordinated Debt. 




	 	          
“Notes” means the collective reference to the Revolving Notes
and the Term Notes. 




	 	          
“Obligations” means all loans, advances, debts, liabilities,
obligations, covenants and duties owing to Agent, the Collateral Agent, any
Lender (or in the case of any Interest Expense Hedging Arrangement referred to
below, any Affiliate of the Lender), any Issuing Lender or any of them or any of
their respective successors and assigns, of any kind or nature, present or
future, arising under this Agreement or under the Notes or under any Collateral
Document or under any Interest Expense Hedging Agreement with any Lender (or any
Affiliate of any Lender), whether or not for the payment of money, 




17








	 	whether
arising by reason of an extension of credit, opening or amendment of a letter of
credit (or payment of any draft drawn thereunder), loan, guaranty,
indemnification, or in any other manner, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising and however acquired. The term includes, without
limitation, all interest (whether or not such interest would be an allowed claim
in a bankruptcy or similar proceeding against the Borrower or any Guarantor),
charges, expenses, fees, reasonable attorneys’ fees and disbursements and
paralegals’ fees, and any other sums chargeable to Borrower or any
Guarantor under this Agreement or any other Collateral Document.




	 	          
“Operating Bank Guaranty” means the Guaranty Agreement in the
form of Exhibit E hereto, as amended, supplemented or otherwise modified,
pursuant to which each of the Guarantors shall guaranty the payment of the
Operating Bank Obligations to the extent set forth therein.




	 	          
“Operating Bank Obligations” means, collectively at any time,
up to Ten Million Dollars ($10,000,000) in the aggregate (including, without
limitation, principal, interest, fees, costs and expenses) of the obligations of
Borrower and/or any of its Subsidiaries to one or more of the Operating Banks
(including, without limitation, JPMorgan Chase Bank in its individual capacity)
at such time under or by reason of any customary banking deposit or disbursement
transaction or service performed for Borrower or any of its Subsidiaries in
connection with the Demand Deposit Accounts. 




	 	          
“Operating Banks” means the Lenders listed on Annex 1 to the
Operating Bank Guaranty and other Lenders at which Borrower or any of its
Subsidiaries may from time to time establish Demand Deposit Accounts. 




	 	          
“PBGC” means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA. 




	 	          
“Permitted Leasehold Liens” means liens on leasehold interests
and leasehold improvements of the types permitted by clauses (i), (ii), (iii),
(iv) (to the extent such lien permitted by clause (iv) is on property acquired
after the Closing Date), (vi) or (vii) of the definition of “Permitted
Liens”. 




	 	          
“Permitted Liens” means any one or more of the following:




	 	          
(i)   Liens for taxes, assessments, governmental charges or levies
either not yet delinquent (or, if delinquent, in an aggregate amount not in
excess of $500,000) or the validity of which is being contested in good faith in
an appropriate manner diligently pursued and as to which adequate reserves for
the unpaid amount shall have been set aside in conformity with GAAP; 




	 	          
(ii)   Deposits or pledges to secure the payment of, or to secure the
Borrower’s obligations with respect to letters of credit that secure the
payment of, workers’ compensation, unemployment insurance or social
security or other retirement benefits or obligations (exclusive of liens arising
under ERISA), or to secure the performance of bids, trade contracts, leases,
public or statutory 




18








	 	obligations,
surety or appeal bonds and other obligations of a like nature incurred in the
ordinary course of business; 




	 	          
(iii)   Materialmen’s, mechanics’, landlords’,
workmen’s, repairmen’s, employees’ or other like liens arising in
the ordinary course of business to secure obligations not yet delinquent or
being contested in good faith and as to which adequate reserves for the unpaid
amount shall have been set aside in conformity with GAAP or as to which adequate
bonds shall have been obtained; 




	 	          
(iv)   Purchase money liens, purchase money security interests,
mortgages or title retention arrangements upon or in any property (real or
personal) acquired or held by Borrower or its Subsidiaries in the ordinary
course of business to secure Debt (including, without limitation, Capitalized
Leases) permitted hereunder (provided that the security agreement or
conditional sales or other title retention contract pursuant to which the Lien
on such property is created shall be entered into within 180 days (except as
otherwise permitted by Section 7.03(b)) after the purchase or substantial
completion of the construction of such property) and incurred solely for the
purpose of financing the acquisition of such property or improvements upon such
property, or renewals, extensions or refinancing thereof; provided, that
any renewal, extension or refinancing thereof shall not consist of any
capitalization of interest on the original Debt and such Liens do not extend to
any property of Borrower or any Subsidiary other than the property acquired or
financed with the original purchase money Debt; 




	 	          
(v)   Other Liens, so long as the aggregate amount of all such other
Liens does not exceed at any time an aggregate amount of Two Million Dollars
($2,000,000); 




	 	          
(vi)   Other non-monetary Liens which do not have a material adverse
effect on the value or use of the property subject to such Liens (including
licenses, sublicenses, leases and subleases in the ordinary course of business
consistent with past practices); 




	 	          
(vii)   Precautionary UCC filings executed by Borrower or any
Subsidiary, as lessee, in the ordinary course of business, on equipment,
leasehold improvements and furnishings; 




	 	          
(viii)   Liens under the Collateral Documents;




	 	          
(ix)   Liens related to credit card processing agreements, so long as
the aggregate amount of such Liens does not exceed at any time an aggregate
amount of Five Million Dollars ($5,000,000); 




	 	          
(x)   Other existing Liens listed on Schedule 1.01 (as updated pursuant to Section 6.17);




	 	          
(xi)   Liens created after the Closing Date securing Debt of the
Borrower or any Subsidiary of the type described in clause (iii) of the
definition of “Debt”, the 




19








	 	incurrence of
which Debt is in the ordinary course of business of the Borrower or such
Subsidiary, and any renewals, extensions or refinancings of such Debt permitted
hereunder that do not consist of any capitalization of interest on the original
Debt, provided that such Liens shall not extend to or encumber any
property other than the property financed by such Debt;




	 	          
(xii)   [Reserved];




	 	          
(xiii)   [Reserved];




	 	          
(xiv)   in addition to Liens permitted under clause (iv) above, Liens
on the capital stock and assets of a Subsidiary acquired after the Closing Date
so long as (a) such Liens do not cover or extend to any other stock or assets of
the Borrower and its Subsidiaries and (b) the only obligations secured by such
Liens are (1) purchase money seller Debt incurred to finance the acquisition of
such stock or assets and existing Debt which was not created in contemplation of
such acquisition and is secured by a pledge of such stock and may also be
secured by a pledge of such assets (such existing Debt, “Assumed
Debt”), incurred or assumed in connection with an acquisition permitted
by Section 7.01(e) in an aggregate amount not to exceed $20,000,000 at any time
outstanding, and (2) existing Debt assumed in connection with an acquisition
permitted by Section 7.01(e) which was not created in contemplation of such
acquisition and is secured by a pledge of such assets (but not a pledge of such
stock). 




	 	          
“Permitted Real Estate Financing Transactions” has the meaning
assigned in Section 7.03(b). 




	 	          
“Permitted Subordinated Notes Refinancing” means the repayment
in full of the Subordinated Notes from the proceeds of common equity of the
Borrower or of other Subordinated Debt of the Borrower requiring no principal
payments on or prior to October 31, 2010, which, in each case, is issued
contemporaneously with the repayment of the Subordinated Notes and, in the case
of an issuance of Subordinated Debt, (i) the terms of such Subordinated Debt are
at least as favorable to the Credit Parties and the Secured Parties as in the
1998 Indenture or (ii) such Subordinated Debt contains terms reasonably
satisfactory to the Majority Lenders. 




	 	          
“Person” means an individual, a corporation, a partnership,
limited liability company, a joint venture, an association, a trust or any other
entity or organization, including a governmental or political subdivision or an
agent or instrumentality thereof. 




	 	          
“Plan” means, at any date, any employee pension benefit plan
(as defined in Section 3(2) of ERISA) which is subject to Title IV of ERISA
(other than a Multiemployer Plan) and to which Borrower or any ERISA Affiliate
may have any liability, including any liability by reason of having been a
substantial employer within the meaning of Section 4063 of ERISA at any time
during the preceding five years, or by reason of being deemed to be a
contributing sponsor under Section 4069 of ERISA. 




20








	 	          
“Prepayment Debt” means any Debt incurred pursuant to Section
7.02(l) after the Closing Date if and to the extent the Senior Secured Leverage
Ratio as of the last day of the last fiscal quarter ended immediately prior to
the date of issuance or incurrence, recomputed to give effect to the issuance or
incurrence of such Debt, would be greater than or equal to 0.25x less than the
maximum Senior Secured Leverage Ratio permitted to be outstanding on that day in
accordance with Section 6.15 (it being understood that only the portion of such
Debt which causes such ratio to exceed .25x less than the maximum ratio
permitted by Section 6.15 shall constitute Prepayment Debt). Notwithstanding the
foregoing, purchase money Debt incurred to finance the purchase of new property
or equipment of the Borrower and its Subsidiaries shall not constitute
Prepayment Debt. 




	 	          
“Properties” means all real properties owned in fee by Borrower
or its Subsidiaries and all real properties in which Borrower or its
Subsidiaries hold a leasehold interest. 




	 	          
“Prospective GAAP” has the meaning assigned in the definition
of “GAAP”.




	 	          
“Real Estate Financing Subsidiary” has the meaning assigned in
Section 7.03(b).




	 	          
“Receivables Financing Transaction” means any sale by BTFC or a
Domestic Subsidiary of Membership Receivables to a Finance Subsidiary intended
to be a true sale transaction and the corresponding sale or pledge of such
Membership Receivables (or an interest therein) by the Finance Subsidiary;
provided, however that (i) the terms, conditions and structure
(including the legal and organizational structure of the Finance Subsidiary and
the restrictions imposed on its activities) of and the documentation incidental
to any such transactions must be reasonably acceptable to the Agent, (ii) the
Borrower and its Subsidiaries provide no credit support (other than customary
limited recourse based upon the collectibility of the Membership Receivables) or
collateral (other than the Membership Receivables so sold), and (iii) the
documents governing any such transactions do not contain any cross-defaults or
cross-acceleration to Debt of the Borrower and its Subsidiaries. The Borrower
shall deliver a certificate to the Agent concurrently with the effectiveness of
any Receivables Financing Transaction certifying that such Receivables Financing
Transaction complies with the requirements of this Agreement. 




	 	          
“Reference Rate” means, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day
plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus
1⁄2 of 1%. For purposes hereof: “Prime Rate” shall mean the
rate of interest per annum publicly announced from time to time by JPMorgan
Chase Bank as its prime rate (the Prime Rate not being intended to be the lowest
rate of interest charged by the JPMorgan Chase Bank in connection with
extensions of credit to debtors) in effect at its principal office in New York
City (each change in the Prime Rate to be effective on the date such change is
publicly announced); “Base CD Rate” shall mean the sum of (a)
the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the
numerator of which is one and the denominator of which 




21








	 	is one minus
the C/D Reserve Percentage and (b) the C/D Assessment Rate; “Three-Month
Secondary CD Rate” shall mean, for any day, the secondary market rate
for three-month certificates of deposit reported as being in effect on such day
(or, if such day shall not be a Business Day, the next preceding Business Day)
by the Board of Governors of the Federal Reserve System (the
“Board”) through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so reported
on such day or such next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of major money center
banks in New York City received at approximately 10:00 A.M., New York City time,
on such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Agent from three New York City negotiable certificate of
deposit dealers of recognized standing selected by it; “C/D Assessment
 Rate”: for any day as applied to any Reference Rate Advance,
the annual assessment rate in effect on such day that is payable by a member of
the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation
(the “FDIC”) classified as well-capitalized and within
supervisory subgroup “B” (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. § 327.4 (or any successor
provision) to the FDIC (or any successor) for the FDIC’s (or such
successor’s) insuring time deposits at offices of such institution in the
United States; “C/D Reserve Percentage”: for any day as applied
to any Reference Rate Advance, that percentage (expressed as a decimal) which is
in effect on such day, as prescribed by the Board, for determining the maximum
reserve requirement for a Depositary Institution (as defined in Regulation D of
the Board as in effect from time to time) in respect of new non-personal time
deposits in Dollars having a maturity of 30 days or more; and “Federal
Funds Effective Rate” shall mean, for any day, the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Agent from three
federal funds brokers of recognized standing selected by it. If for any reason
the Agent shall have determined (which determination shall be conclusive absent
manifest error) that it is unable to ascertain the Base CD Rate or the Federal
Funds Effective Rate, or both, for any reason, including the inability or
failure of the Agent to obtain sufficient quotations in accordance with the
terms thereof, the Reference Rate shall be determined without regard to clause
(b) or (c), or both, of the first sentence of this definition, as appropriate,
until the circumstances giving rise to such inability no longer exist. Any
change in the Reference Rate due to a change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate shall be effective on the
effective day of such change in the Prime Rate, the Three-Month Secondary CD
Rate or the Federal Funds Effective Rate, respectively. 




	 	          
“Reference Rate Advance” means an Advance the rate of interest
applicable to which is based upon the Reference Rate. 




	 	          
“Register” has the meaning ascribed to it in Section 9.04(e).




22








	 	          
“Reinvestment Proceeds” means, at any time, all net proceeds of
dispositions of assets (other than sales by the Borrower or a Subsidiary of the
Borrower of common stock (or common stock equivalents) of the Borrower) by
Borrower and its Subsidiaries (but excluding any such dispositions permitted by
Sections 7.08(a), (c), (e) or (f) or the proviso to Section 7.08(d)), to the
extent, without duplication, that (i) such net proceeds have not yet been
applied to the acquisition of properties and other assets that replace the
properties and assets that were the subject of such disposition or properties
and assets that will be used in the businesses of the Borrower or its
Subsidiaries existing on the Closing Date (or in businesses reasonably related
or complementary thereto) or to the prepayment of the Advances in accordance
with Section 2.13(a), and with respect to which less than 360 days has elapsed
since the disposition giving rise to such proceeds, or (ii) an amount equal to
or greater than such net proceeds has been applied to the acquisition of
properties and other assets that (as determined by the board of directors of the
Borrower) replace the properties and assets that were the subject of such
disposition or properties and assets that will be used in the businesses of the
Borrower or its Subsidiaries existing on the Closing Date (or in businesses
reasonably related or complementary thereto) within 180 days prior to the
disposition giving rise to such proceeds, provided that, to the extent
that the Borrower and its Subsidiaries receive in excess of $10,000,000 of Net
Cash Proceeds from dispositions (but excluding any such dispositions permitted
by Sections 7.08(a), (c), (e) or (f) or the proviso to Section 7.08(d)) in any
fiscal year of the Borrower, such excess shall not be Reinvestment Proceeds.




	 	          
“Reinvestment Proceeds Amount” means, at any time, the
aggregate amount of Reinvestment Proceeds at such time. 




	 	          
“Reportable Event” shall be as defined in Section 4043 of ERISA.




	 	          
“Restricted Payment” means with respect to any Person (a) any
dividend or other distribution of assets, properties, cash, rights, obligations
or securities, direct or indirect, on account of any shares of any class of the
capital stock or other equity interests of such Person; or (b) any amount paid
in redemption, retirement, repurchase, direct or indirect, of (x) any shares of
any class of capital stock or other equity interests or (y) any warrants,
options or other rights to acquire any shares of any class of capital stock or
other equity interests of such Person. 




	 	          
“Revolving Advance” means a borrowing under the Revolving
Credit pursuant to Section 2.01 or 2.19(e)(ii) hereof; collectively, the
“Revolving Advances”. 




	 	          
“Revolving Credit” means the credit described in Section 2.01.




	 	          
“Revolving Credit Commitment” has the meaning ascribed to it in
Section 2.01(a) hereof. 




	 	          
“Revolving Credit Commitment Amount” means $100, 000,000,
less any Revolving Credit Commitment Reductions; provided that the
Borrower may request that the Revolving Credit Commitment Amount be increased
from time to time in an aggregate amount not to exceed $25,000,000 as long as
(i) any such increase (a  




23








	 	
“Revolving  Credit Commitment Amount Increase”) shall be
in a minimum amount of $5,000,000, (ii) no Default or Event of Default shall
exist immediately preceding or following any Revolving Credit Commitment Amount
Increase, (iii) any Revolving Credit Commitment Amount Increase shall be made
available by lenders (which may include Persons not theretofore Lenders under
this Agreement), and pursuant to technical procedures (such as non-pro rata
funding and fundings during Eurodollar interest periods), satisfactory to the
Agent and (iv) the Borrower and its Subsidiaries shall have taken such action,
including executing and delivering satisfactory amendments to the mortgages and
providing satisfactory title insurance, as the Agent may request in order to
provide that each such Revolving Credit Commitment Amount Increase and related
Obligations are secured by a perfected Lien on the Collateral having the
priority existing immediately prior to such increase. No Lender shall be
required to provide any Revolving Credit Commitment Amount Increase.





	 	          
“Revolving Credit Commitment Amount Increase” has the meaning
assigned in the definition of “Revolving Credit Commitment Amount”.




	 	          
“Revolving Credit Commitment Percentage” means, as to each
Lender, the percentage set forth opposite such Lender’s name under the
column entitled “Commitment Percentage” on Exhibit C hereto or, if
such Lender shall have acquired or disposed of any interest in the Revolving
Credit pursuant to Section 9.04(a), on the applicable instrument of assignment,
which is the percentage equivalent of a fraction, the numerator of which is such
Lender’s Revolving Credit Commitment and the denominator of which is the
Revolving Credit Commitment Amount (or, if the Revolving Credit Commitments have
been terminated, the sum of its outstanding Revolving Advances, participating
interests in Letters of Credit and unreimbursed drawings in respect of Letters
of Credit as a percentage of the aggregate amount of outstanding Revolving
Advances, participating interests in Letters of Credit and unreimbursed drawings
in respect of Letters of Credit). 




	 	          
“Revolving Credit Commitment Period” means the period from and
including the date of this Agreement to but excluding the Revolving Credit
Termination Date. 




	 	          
“Revolving Credit Commitment Reductions” means the amount of
the permanent reductions of the Revolving Credit Commitment Amount resulting
from the application of Sections 2.11 or any other provision contained herein.




	 	          
“Revolving Credit Termination Date” means the earliest to occur
of: 




	 	          
(a) the date the Revolving Credit Commitment Amount is terminated by the
Borrower pursuant to Section 2.11 or is otherwise terminated or reduced to zero
pursuant to the terms of this Agreement, provided that all amounts
payable under this Agreement in respect of the Revolving Credit and the
Revolving Notes are fully repaid on or prior to such date,




	 	          
(b) the date the Revolving Credit hereunder is terminated or accelerated
pursuant to Article VIII,




24








	 	          
(c) June 30, 2008, and




	 	          
(d) the Early Termination Date.




	 	          
“Revolving Note” means the master promissory note of Borrower
payable to the order of a Lender in substantially the form of Exhibit H hereto;
and “Revolving Notes” means all of such Notes. 





	 	          
“SEC” means the Securities and Exchange Commission, as from
time constituted, created under the Securities Exchange Act of 1934, as amended
from time to time, or any successor thereto. 




	 	          
“Secured Creditors” means, collectively, JPMorgan Chase Bank and the Operating
Banks in their separate financial arrangements with the Borrower, and the Agent,
the Collateral Agent, the Lenders and the Issuing Lenders (and any Affiliate of
any such Lender party to an Interest Expense Hedging Arrangement), each in
connection with the Secured Obligations.




	 	          
“Secured Obligations” means, collectively, the Obligations and
the Operating Bank Obligations. 




	 	          
“Senior Indebtedness” means Senior Indebtedness of the Borrower
as defined in each of the 1997 Indenture and the 1998 Indenture. 




	 	          
“Senior Unsecured Notes” means the Borrower’s 10.5% Senior
Notes due 2011, issued under and pursuant to the Senior Unsecured Notes
Indenture 




	 	          
“Senior Unsecured Notes Indenture” means that certain Indenture
dated as of July 2, 2003 among the Borrower, the Subsidiaries party thereto and
U.S. Bank National Association, as trustee (and any successor trustee thereto)
relating to the Senior Unsecured Notes. 




	 	          
“Senior Secured Leverage Ratio” means at any time the ratio of
(i) Consolidated Total Debt less the aggregate principal amount of (x)
Subordinated Debt and (y) Senior Unsecured Notes at such time to (ii)
Consolidated Adjusted EBITDA for the period of four consecutive fiscal quarters
of the Borrower most recently ended. 




	 	          
“Subordinated Debt” means (a) Borrower’s 9-7/8% Senior
Subordinated Notes due 2007, issued under and pursuant to the 1997 Indenture
(“1997 Subordinated Notes”), (b) 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, the “1998 
Subordinated Notes” and together with the 1997 Subordinated Notes,
the “Subordinated  Notes”), and (c) any other Debt of
Borrower which is subordinated to the Debt created under this Agreement and the
Notes (i) in a manner and containing terms and provisions satisfactory to
Majority Lenders or (ii) on terms at least as favorable to the Secured Creditors
as the subordination provisions in the Subordinated Notes Indenture and which
does not require any principal payments on or prior to October 31, 2010. 




25








	 	          
“Subordinated Notes” has the meaning ascribed to it in the
definition of Subordinated Debt. 




	 	          
“Subordinated Notes Indenture” means the collective reference
to the 1997 Indenture and the 1998 Indenture. 




	 	          
“Subsidiary” means any corporation, association or other
business entity of which a Person owns, directly or indirectly, more than fifty
percent (50%) of the voting securities thereof or which such Person otherwise
controls; provided that, other than for purposes of Sections 5.12, 6.08
and 7.14, the definition of “Subsidiary” shall not include any
Unrestricted Subsidiary. Unless the reference is specifically otherwise,
“Subsidiary” shall refer to a Subsidiary of Borrower. 




	 	          
“Substantial Subsidiary” means any Subsidiary of Borrower with
respect to which (a) the aggregate book value of its assets, determined in
accordance with GAAP at such time, is greater than 1% of the aggregate book
value of the assets of Borrower and its Subsidiaries taken as a whole or (b) the
aggregate gross revenues of such Subsidiary, determined in accordance with GAAP
for the immediately preceding fiscal quarter, is greater than 1% of the
aggregate gross revenues of Borrower and its Subsidiaries taken as a whole, for
such period. 




	 	          
“Tax Allocation and Indemnity Agreement” means the Tax
Allocation and Indemnity Agreement, dated as of January 9, 1996, among Bally
Entertainment Corporation, a Delaware corporation, the Borrower and their
respective direct and indirect subsidiaries. 




	 	          
“Term Advance” means a borrowing under the Term Loan Facility
pursuant to Section 2.03 hereof; collectively, the “Term
Advances”. 




	 	          
“Term Loan Commitment”has the meaning ascribed to it in Section
2.03 hereof.




	 	          
“Term Loan Commitment Amount”means $175,000,000.




	 	          
“Term Loan Commitment Percentage” means, as to each Lender, the
percentage set forth opposite such Lender’s name under the column entitled
“Term Loan Commitment Percentage” on Exhibit C hereto or, if such
Lender shall have acquired or disposed of any amount of Term Advances pursuant
to Section 9.04(a), on the applicable instrument of assignment, which is the
percentage equivalent of a fraction, the numerator of which is such
Lender’s Term Advances and the denominator of which is the aggregate Term
Advances then outstanding. 




	 	          
“Term Loan Facility” means the credit described in Section 2.03
hereof.




	 	          
“Term Note” means the master promissory note of the Borrower
payable to the order of a Lender in substantially the form of Exhibit I hereto;
and “Term Notes” means all of such Term Notes. 




26








	 	          
“Term Loan Termination Date” means the earliest to occur of (a)
the date the Term Advances are terminated or accelerated pursuant to Article
VIII, (b) the fifth anniversary of the Closing Date and (c) the Early
Termination Date.




	 	          
“Termination Date” means the Revolving Credit Termination Date
or the Term Loan Termination Date, as applicable. 




	 	          
“Termination Event” means (i) the institution of steps by
Borrower, an ERISA Affiliate, PBGC or any other Person under Section 4041 or
4042, as applicable, of ERISA to terminate a Plan, (ii) the occurrence of a
Reportable Event which is a basis under Section 4042 of ERISA for PBGC to
institute steps to terminate a Plan, (iii) the occurrence of a contribution
failure with respect to a Plan sufficient to give rise to a lien under Section
302(f) of ERISA, (iv) the withdrawal by Borrower or any ERISA Affiliate from a
Plan as to which it is a substantial employer under Sections 4062(e) and 4063 of
ERISA or (v) the withdrawal by Borrower or any ERISA Affiliate from a
Multiemployer Plan under Section 4203 or 4205 of ERISA. 




	 	          
“Total Leverage Ratio” means at any time the ratio of
Consolidated Total Debt at such time to Consolidated Adjusted EBITDA for the
period of four consecutive fiscal quarters of the Borrower most recently ended.




	 	          
“Transferee” has the meaning ascribed to it in Section 9.04(c).




	 	          
“Type” means, as to any Advance, its nature as a Reference Rate
Advance or a Eurodollar Rate Advance. 




	 	          
“Unrestricted Subsidiary” means (i) any Subsidiary of the
Borrower that exists on the Closing Date and is so designated as an Unrestricted
Subsidiary on Schedule 1.01(c), (ii) any subsidiary of the Borrower that at the
time of determination shall be an Unrestricted Subsidiary (as designated by the
Board of Directors of the Borrower, as provided below), and (iii) any subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
subsidiary of the Borrower (including any newly acquired or newly formed
subsidiary) to be an Unrestricted Subsidiary if all of the following conditions
apply: (a) neither the Borrower nor any of its Subsidiaries provides guarantees
or other credit support for Debt or other obligations of such Unrestricted
Subsidiary (including any undertaking, agreement or instrument evidencing such
Debt or obligations), (b) such Unrestricted Subsidiary is not liable, directly
or indirectly, with respect to any Debt other than Unrestricted Subsidiary
Indebtedness, (c) any Investment by the Borrower in such Unrestricted Subsidiary
made as a result of designating such subsidiary an Unrestricted Subsidiary shall
not violate the provisions described under Section 7.01 and such Unrestricted
Subsidiary is not party to any agreement, contract, arrangement or understanding
at such time with the Borrower or any other Subsidiary of the Borrower unless
the terms of any such agreement, contract, arrangement or understanding are no
less favorable to the Borrower or such other Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the Borrower 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  




27








	 	Investment,
and (d) such Unrestricted Subsidiary does not own any Capital Stock in any
Subsidiary of the Borrower which is not simultaneously being designated an
Unrestricted Subsidiary. Any such designation by the Board of Directors shall be
evidenced to the Agent by filing with the Agent a resolution of the Board of
Directors of the Borrower giving effect to such designation and an
officer’s certificate certifying that such designation complies with the
foregoing conditions and any Investment by the Borrower in such Unrestricted
Subsidiary shall be deemed the making of an Investment 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 (and evidenced by a resolution of 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
Debt, immediately after giving effect to such designation, no Default or Event
of Default would result, and (ii) that all Debt 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 Debt of such Unrestricted Subsidiary (a) as to which neither
the Borrower nor any Subsidiary is directly or indirectly liable (by virtue of
the Borrower or any such Subsidiary being the primary obligor on, guarantor of,
or otherwise liable in any respect to, such Debt), and (b) which, upon the
occurrence of a default with respect thereto, does not result in, or permit any
holder of any Debt of the Borrower or any Subsidiary to declare, a default on
such Debt of the Borrower or any Subsidiary or cause the payment thereof to be
accelerated or payable prior to its stated maturity. 




          
1.02   Financial Standards. All accounting terms not expressly
defined herein shall be construed, except where the context otherwise requires
or if it has otherwise been indicated herein, in accordance with GAAP. Following
the GAAP Adjustment Date, if any changes in accounting principles are hereafter
occasioned by promulgation of rules, regulations, pronouncements or opinions by
or are otherwise required by the Securities and Exchange Commission, the
Financial Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or agencies with similar functions),
and any of such changes result in a change in the method of calculation, or
affect the results of such calculation, of any of the financial covenants and
the definitions relating to such financial covenants, then the parties hereto
agree to enter into and diligently pursue negotiations in order to amend such
financial covenants or terms in accordance with Section 10.06 hereof so as to
equitably reflect such changes, with the desired result that the criteria for
evaluating Borrower’s financial condition and results of operations shall
be the same after such changes as if such changes had not been made. 


          
1.03   Interpretation. References to Exhibits and Schedules are
to those to this Agreement, unless otherwise indicated. References to agreements
and other contractual instruments shall be deemed to include all exhibits and
appendices attached thereto and all amendments, supplements and other
modifications to such instruments, but only to the extent such amendments,
supplements and other modifications are not prohibited by the terms of this
Agreement; and references to Persons include their respective permitted
successors and assigns



28








and, in the case of governmental authorities, Persons
succeeding to their respective functions and capacities. 







ARTICLE II.


THE CREDIT


          
2.01   The Revolving Credit. (a)  From time to time
during the Revolving Credit Commitment Period and subject to the terms and
conditions of this Agreement, each Lender severally agrees to lend to Borrower
sums at any one time outstanding not in excess of an aggregate amount equal to
such Lender’s Revolving Credit Commitment Percentage of the Revolving
Credit Commitment Amount (as to each Lender; its “Revolving Credit
Commitment”) provided, that no Lender shall make any Advance if, after giving effect
to such Revolving Advance, the aggregate outstanding principal amount of all
Revolving Advances plus the aggregate undrawn amount of all Letters of Credit
then outstanding plus the aggregate amount of all unreimbursed drawings under
Letters of Credit would exceed the Revolving Credit Commitment Amount. Each
Lender’s maximum obligation under the Revolving Credit at any time is the
amount derived by multiplying its Revolving Credit Commitment Percentage by the
Revolving Credit Commitment Amount. Revolving Advances made under the Existing
Credit Agreement and outstanding and not repaid on the Closing Date shall
continue outstanding under this Agreement and be deemed to be Advances made by
the Lenders pursuant to this Agreement. 


          
(b)   The Revolving Credit is a revolving credit and Borrower may,
prior to the Revolving Credit Termination Date, borrow, repay and reborrow
amounts repaid up to the maximum amount available under Section 2.01(a), subject
to the reductions required by Section 2.13 hereof and the reductions permitted
by Section 2.11 hereof. 


          
(c)   The Revolving Credit may from time to time consist of (i)
Eurodollar Rate Advances, (ii) Reference Rate Advances or (iii) a
combination thereof, as determined by the Borrower and notified to the Agent in
accordance with Section 2.02, provided that no Advance shall be made as a
Eurodollar Rate Advance after the day that is one month prior to the Revolving
Credit Termination Date. 


          
2.02   Requests for Revolving Advances. (a)  Each
Revolving Advance shall be made upon the irrevocable request of the Borrower
received by Agent by 12:00 p.m. noon, New York time, on the Borrowing Date
therefor in the case of Reference Rate Advances and three (3) Banking Days
prior to the Borrowing Date therefor in the case of Eurodollar Rate Advances,
specifying: (i) the Borrowing Date for such Revolving Advance, which shall be a
Banking Day; (ii) the amount of such Revolving Advance; (iii) whether the
Revolving Advance is to be of Reference Rate Advances, Eurodollar Rate Advances
or a combination thereof; (iv) if the Revolving Advance is to consist entirely
or partly of Eurodollar Rate Advances, the amount of such Eurodollar Rate
Advances and the length of the initial Interest Period therefor; and (v) the
account of Borrower with Agent for the deposit of the proceeds of such Revolving
Advance. Notwithstanding the foregoing, all Revolving Advances to be made on the
Closing Date shall be Reference Rate Advances. 



29








          
(b)   Each request for a Revolving Advance may be made in writing or
by telephone, provided, however, that any such telephonic request shall
be confirmed immediately by telecopier and also in writing delivered to Agent by
Borrower not more than three (3) Banking Days after the date such telephonic
request is made, provided, however, that telephonic requests shall be subject to
the indemnity provisions set forth in Section 9.07 hereof. 


          
(c)   Upon receipt of such borrowing request, Agent shall promptly
notify Lenders thereof. 


          
(d)   Each Reference Rate Advance hereunder shall be in the minimum
aggregate amount of One Million Dollars ($1,000,000) or in integral multiples of
Five Hundred Thousand Dollars ($500,000) in excess thereof (or, if the excess of
the Revolving Credit Commitments then in effect over the aggregate principal
amount of all Revolving Advances then outstanding is less than $1,000,000, such
lesser amount). Each Eurodollar Rate Advance shall be in the minimum aggregate
amount of Five Million Dollars ($5,000,000) or in integral multiples of One
Million Dollars ($1,000,000) in excess thereof. 


          
(e)   Each Revolving Advance shall be made on a pro rata basis by all
Lenders having Revolving Credit Commitments, and each Lender’s portion of
each Revolving Advance shall be equal to its Commitment Percentage of such
Revolving Advance. 


          
2.03   Term Loan Facility


          
(a)   Subject to the terms and conditions of this Agreement, each
Lender severally agrees to make a term loan (a “Term Advance”)
to the Borrower on the Closing Date in an amount equal to such Lender’s
Term Loan Commitment Percentage of the Term Loan Commitment Amount (as to each
Lender, its “Term Loan Commitment”). Amounts of Term Advances
repaid or prepaid may not be reborrowed. 


          
(b)   The Term Advances may from time to time consist of (a)
Eurodollar Rate Advances, (b) Reference Rate Advances or (iii) a combination
thereof, as determined by the Borrower and notified to the Agent in accordance
with Sections 2.04 and 2.06. 


          
2.04   Requests for Term Advances. (a)  Each Term
Advance shall be made upon the irrevocable request of the Borrower received by
the Agent by 12:00 p.m. noon, New York time, one (1) Banking Day prior to the
Closing Date in the case of Reference Rate Advances and three (3) Banking Days
prior to the Closing Date in the case of Eurodollar Rate Advances, specifying
(i) the amount of such Term Advances; (ii) whether the Term Advances are to be
Reference Rate Advances, Eurodollar Rate Advances or a combination thereof;
(iii) if the Term Advances are to consist entirely or partly of Eurodollar Rate
Advances, the amount of such Eurodollar Rate Advances and the length of the
initial Interest Period therefor; and (iv) the account of the Borrower with
Agent for the deposit of the proceeds of such Term Advances. Notwithstanding the
foregoing, any Term Advances to be made on the Closing Date shall be Reference
Rate Advances, unless otherwise agreed by the Agent. 


          
(b)   Each request for Term Advances may be made in writing or by
telephone, provided, however, that any such telephonic request shall be
confirmed immediately by telecopier and also in writing delivered to Agent by
Borrower not more than three (3) Banking  



30








Days after the date such telephonic
request is made, provided, however, that telephonic requests shall
be subject to the indemnity provisions set forth in Section 9.07 hereof. 


          
(c)   Upon receipt of such borrowing request, the Agent shall promptly
notify Lenders thereof. 


          
(d)   Each Reference Rate Advance hereunder shall be in the minimum
aggregate amount of One Million Dollars ($1,000,000) or in integral multiples of
Five Hundred Thousand Dollars ($500,000) in excess thereof. Each Eurodollar Rate
Advance shall be in the minimum aggregate amount of Five Million Dollars
($5,000,000) or in integral multiples of One Million Dollars ($1,000,000) in
excess thereof. 


          
(e)   Each Term Advance shall be made on a pro rata basis by all
Lenders having Term Loan Commitments, and each Lender’s portion of the Term
Advances shall be equal to its Term Loan Commitment Percentage of such Term
Advances. 


          
2.05   Repayment of Term Advances. The Term Advances of each
Lender shall mature in 20 consecutive installments on each March 31, June 30,
September 30 and December 31, commencing on March 31, 2005, each of which shall
equal such Lender’s Term Loan Commitment Percentage multiplied by $437,500,
except for the final installment which shall be payable on the fifth anniversary
of the Closing Date and shall equal such Lender’s Term Loan Commitment
Percentage multiplied by $166,687,500. In any event, all Term Advances will
mature on or before the Term Loan Termination Date. 


          
2.06   Lending Branch and Evidence of Credit.
(a)  The Borrower hereby unconditionally promises to pay to the Agent
for the account of each Lender (i) the then unpaid principal amount of each
Revolving Advance made by such Lender on the Revolving Credit Termination Date
(or such earlier date on which the Advances become due and payable pursuant to
Article VIII) and (ii) the then unpaid principal amount of each Term Advance
made by such Lender in accordance with Section 2.05 or, if earlier, on the Term
Loan Termination Date. The Borrower hereby further agrees to pay interest on the
unpaid principal amount of the Advances made to it from time to time outstanding
from the Closing Date until payment in full thereof at the rates per annum, and
on the dates, set forth in Section 2.08. 


          
(b)   Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Advance made by such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement. 


          
(c)   The Agent shall maintain the Register pursuant to Section
9.04(e), and a subaccount therein for each Lender in which shall be recorded (i)
the amount of each Revolving Advance and Term Advance made hereunder, the Type
thereof and each Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) both the amount of any sum received
by the Agent hereunder from the Borrower and each Lender’s share thereof.


          
(d)   The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.06(c) shall, to the extent permitted by
applicable law, be prima facie 



31








evidence of the existence and amounts of
the obligations of the Borrower therein recorded; provided,
however, that the failure of any Lender or the Agent to maintain the
Register or any such account, or any error therein, shall not in any manner
affect the obligation of any Borrower to repay (with applicable interest) the
Loans made to the Borrower by such Lender in accordance with the terms of this
Agreement. 


          
(e)   The Borrower agrees that, upon the request to the Agent by any
Lender, the Borrower will execute and deliver to such Lender (i) a Revolving
Note with appropriate insertions as to date and principal amount, and/or (ii) a
Term Note with appropriate insertions as to date and principal amount.


          
(f)   Each Lender’s proportionate interest in each Advance and
each payment to such Lender under this Agreement and the Notes shall be made for
the account of such Lender’s Lending Branch. 


          
2.07   Conversion and Continuation Options. (a)  The
Borrower may elect from time to time to convert Eurodollar Rate Advances to
Reference Rate Advances by giving the Agent at least two Banking Days’
prior irrevocable notice of such election, provided that any such
conversion of Eurodollar Rate Advances may only be made on the last day of an
Interest Period with respect thereto. The Borrower may elect from time to time
to convert Reference Rate Advances to Eurodollar Rate Advances by giving the
Agent at least three Banking Days’ prior irrevocable notice of such
election. Any such notice of conversion to Eurodollar Rate Advances shall
specify the length of the initial Interest Period or Interest Periods therefor.
Upon receipt of any such notice the Agent shall promptly notify each Lender
thereof. All or any part of outstanding Eurodollar Rate Advances or Reference
Rate Advances may be converted as provided herein, provided that (i) no
Advance may be converted into a Eurodollar Rate Advance when any Default or
Event of Default has occurred and is continuing and the Agent or the Majority
Lenders have determined that such a conversion is not appropriate, and (ii) no
Advance may be converted into a Eurodollar Rate Advance after the date that is
one month prior to the relevant Termination Date. 


          
(b)   Any Eurodollar Rate Advances may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower’s giving notice to the Agent, in accordance with the applicable
provisions of the term “Interest Period” set forth in Section 1.01, of
the length of the next Interest Period to be applicable to such Advance,
provided that no Eurodollar Rate Advance may be continued as such (i)
when any Default or Event of Default has occurred and is continuing and the
Agent or the Majority Lenders have determined that such a continuation of a
Eurodollar Rate Advance is not appropriate, or (ii) after the date that is one
month prior to the relevant Termination Date and provided, further, that
if the Borrower shall fail to give any required notice as described above in
this paragraph or if such continuation is not permitted pursuant to the
preceding proviso such Advances shall be automatically converted to Reference
Rate Advances on the last day of such then expiring Interest Period. 


          
2.08   Computation of and Payment of Interest.
(a)  From and including the relevant Borrowing Date to the payment in
full of all Obligations, the outstanding principal balance of each Advance
hereunder, subject to Section 2.08(d) hereof, shall bear interest until paid in
full at a rate per annum equal to: 



32








	 	          
(i)   with respect to Reference Rate Advances, at the Reference Rate
for each day plus the Applicable Margin; and 




	 	          
(ii)   with respect to Eurodollar Rate Advances, for each day during
an Interest Period therefor, at the Eurodollar Rate for such day plus the
Applicable Margin; 



          
(b)   Interest on each Advance shall be paid in arrears on each
Interest Payment Date. Interest shall also be payable on the date of any
prepayment of Advances pursuant to Section 2.12 or 2.13 (except for any
prepayment pursuant to Section 2.12 of any Advance that is a Reference Rate
Advance) for the portion of the Advances so prepaid and upon payment (including
prepayment) in full thereof and, after the occurrence and during the continuance
of any Event of Default, interest shall be payable on demand. 


          
(c)   Interest on Reference Rate Advances calculated on the basis of
the Prime Rate shall be computed on the basis of a year of three hundred
sixty-five (365) or three hundred sixty-six (366) days, as the case may be;
otherwise, interest and fees payable hereunder shall be computed on the basis of
a year of three hundred sixty (360) days, in each case for actual days elapsed,
including the first day and excluding the last day. 


          
(d)   During the period (i) from and including the stated due date for
payment of any amount under this Agreement or the date of acceleration of any
amount pursuant to Article VIII which Borrower fails to pay on such due date or
date of acceleration and (ii) to but excluding the date on which such amount is
paid in full, Borrower shall, on demand and to the extent permitted by
applicable law, pay interest on such unpaid amount at a rate per annum equal to
(A) in the case of overdue principal of any Advance, the sum of the rate of
interest otherwise applicable to such unpaid amount plus two percent (2%) or (B)
in the case of any other overdue amount, the Reference Rate plus the Applicable
Margin plus 2%; provided, however, that upon the occurrence and during
the continuation of an Event of Default under Section 8.01(a), the entire
principal amount of the Advances outstanding hereunder and under the Notes shall
bear interest as provided in this Section 2.08(d). Interest under this Section
2.08(d) shall be computed on the basis of a three hundred sixty (360) day year
and actual days elapsed. 


          
(e)   Each determination of an interest rate by the Agent pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
and the Lenders in the absence of manifest error. The Agent shall, at the
request of the Borrower, deliver to the Borrower a statement showing the
quotations used by the Agent in determining any interest rate pursuant to
Section 2.08(a). 


          
(f)   If prior to the first day of any Interest Period:


	 	          
(i)   the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for such Interest Period, or 




	 	          
(ii)   the Agent shall have received notice from the Majority Lenders
that the Eurodollar Rate determined or to be determined for such Interest Period
will 




33








	 	not adequately
and fairly reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Advances during such Interest
Period, 




then the Agent shall give
telecopy or telephonic notice thereof to the Borrower and the Lenders as soon as
practicable thereafter. If such notice is given (x) any Eurodollar Rate Advances
requested to be made on the first day of such Interest Period shall be made as
Reference Rate Advances, (y) any Advances that were to have been converted on
the first day of such Interest Period to Eurodollar Rate Advances shall be
converted to or continued as Reference Rate Advances and (z) any outstanding
Eurodollar Rate Advances shall be converted, on the first day of such requested
Interest Period, to Reference Rate Advances. Until such notice has been
withdrawn by the Agent, no further Eurodollar Rate Advances shall be made or
continued as such, nor shall the Borrower have the right to convert Advances to
Eurodollar Rate Advances. The Agent shall give telecopy or telephonic notice of
such withdrawal to the Borrower and the Lenders as soon as practicable
thereafter. 


          
2.09   Payment of Advances. Borrower shall repay the
outstanding amount of (a) all Revolving Advances on the Revolving Credit
Termination Date and (b) all Term Advances on the dates set forth in Section
2.05, or if earlier, on the Term Loan Termination Date. 


          
2.10   Payments. (a)  Each payment to Borrower
hereunder, and each payment of principal, interest and other sums due from
Borrower under this Agreement shall be made in immediately available funds at
Agent’s address for payments indicated on the signature page of this
Agreement. 


          
(b)   Each Lender agrees that upon receipt of notice from Agent, it
will make the funds which it is to advance hereunder available to Agent at
Agent’s address for payments indicated on the signature page of this
Agreement not later than 1:00 p.m., New York time, on the date of disbursement,
and Agent will thereupon advance to Borrower the amount so received from
Lenders. 


          
(c)   Payment of all sums under this Agreement shall be made by
Borrower to Agent for the account of Lenders, and the Agent shall promptly
distribute to each Lender its share of such payments by wire transfer of
immediately available funds. Each payment by Borrower shall be made without
setoff, deduction or counterclaim not later than 1:00 p.m., New York time, on
the day such payment is due. All sums received after such time shall be deemed
received on the next Banking Day and such extension of time shall be included in
the computation of payment of interest, fees or other sums, as the case may be.


          
(d)   Unless Agent shall have been notified by telephone (confirmed in
writing), by any Lender prior to a Borrowing Date, that such Lender will not
make available to Agent the amount which would constitute its applicable
Commitment Percentage of the Advances to be made on such date, Agent may assume
that such Lender has made such amount available to Agent and, in reliance
thereon, may (but shall not be required to) make available to Borrower a
corresponding amount. If such Lender makes its applicable Commitment Percentage
of an Advance available to Agent after a borrowing date, such Lender shall pay
to Agent on demand an amount equal to the product of (i) the daily average
Federal Funds Rate from and including 



34








the borrowing date to but excluding the
date the applicable Commitment Percentage of such Advance was made available to
Agent (the “Out of Funds Period”) multiplied by (ii) an amount
equal to its applicable Commitment Percentage of such Advance multiplied by
(iii) the quotient of the number of days in the Out of Funds Period divided by
365 or 366, as the case may be. A certificate from Agent submitted to any Lender
with respect to any amounts owing under this paragraph (d) shall be conclusive
in the absence of manifest error. If any Lender’s applicable Commitment
Percentage of an Advance is not in fact made available to Agent by such Lender
within one (1) Banking Day after a Borrowing Date, Agent shall be entitled to
recover such amount, with interest thereon at the rate per annum then applicable
to the Advances hereunder, on demand from Borrower, without prejudice to
Agent’s and Borrower’s rights against such defaulting Lender.


          
(e)   Unless Agent shall have been notified by telephone (confirmed in
writing), by Borrower, prior to any date on which a payment is due hereunder,
that Borrower will not make the required payment on such date, Agent may assume
that Borrower will make such payment to Agent and, in reliance upon such
assumption, may (but shall not be required to) make available to each Lender the
amount due to it on such date. If such amount is not in fact paid to Agent by
Borrower within one (1) Banking Day after such payment is due, Agent shall be
entitled to recover from each Lender the amount paid to it by Agent, together
with interest thereon in the amount equal to the product of (i) the daily
average Federal Funds Rate from and including the payment date to but excluding
the date the payment was made available to Agent (the “Out of Funds
Interval”) multiplied by (ii) an amount equal to the amount received by
such Lender multiplied by (iii) the quotient of the number of days in the Out of
Funds Interval divided by 365 or 366, as the case may be. A certificate from
Agent submitted to any Lender with respect to any amounts owing under this
paragraph (e) shall be conclusive in the absence of manifest error. 


          
2.11   Optional Termination or Reduction of Revolving Credit
Commitment Amount. The Borrower shall have the right, upon not less than
five Banking Days’ notice to the Agent, to terminate the Revolving Credit
Commitments and the L/C Commitments or, from time to time, to reduce the
Revolving Credit Commitment Amount. Any such reduction shall be in an amount
equal to $2,000,000 or a whole multiple thereof and shall reduce permanently the
Revolving Credit Commitment Amount then in effect; provided,
however, that the Revolving Credit Commitment Amount may not at any time
be reduced (after giving effect to any prepayments made on the date of such
reduction pursuant to Section 2.13(c)) below the sum of (i) the principal amount
of the outstanding Revolving Advances, (ii) the undrawn amount of all
outstanding Letters of Credit and (iii) the aggregate amount of all unreimbursed
drawings under Letters of Credit on the date of reduction or termination. Any
Revolving Credit Commitment Reduction pursuant to this Section 2.11 shall be
permanent. 


          
2.12   Optional Prepayments. (a) Upon written notice (or
telephone notice confirmed promptly in writing) received by Agent not later than
12:00 noon, New York City time, on the date thereof, Borrower may at any time
prepay any Reference Rate Advance in full or in part, without premium or
penalty, in the amount of One Million Dollars ($1,000,000) or an integral
multiple of Five Hundred Thousand Dollars ($500,000) in excess thereof (or, if
the outstanding principal amount of all Reference Rate Advances is less that
$1,000,000, such lesser amount). Upon written notice (or telephone notice
confirmed promptly in writing) received by Agent not later than 12:00 noon, New
York time, received at least three (3) Banking Days prior 



35








to the date of
prepayment, which notice shall specify the date and amount of prepayment and the
amount of Eurodollar Rate Advances being prepaid, Borrower may on the last day
of any Interest Period with respect thereto prepay any Eurodollar Rate Advance
in full or in part, without premium or penalty (other than costs required to be
paid pursuant to Section 2.17(d)), in the amount of Five Million Dollars
($5,000,000) or an integral multiple of One Million Dollars ($1,000,000) in
excess thereof. Each such prepayment of Revolving Advances made pursuant to this
Section 2.12 may be reborrowed subject to the terms and conditions of this
Agreement. Prepayment of Term Advances may not be reborrowed. Any prepayments of
Revolving Advances or Term Advances, as the case may be, made pursuant to this
Section 2.12 shall be applied first to Reference Rate Advances then outstanding
and then to Eurodollar Rate Advances then outstanding, subject to Section
2.17(d). Any prepayments of Term Advances made pursuant to this Section 2.12
shall be applied to the remaining installments in direct order of maturity.


          
(b) Any optional prepayments of the Term Advances from the net cash proceeds
of a substantially concurrent issuance or incurrence of senior secured Debt by the Borrower
or any of its Subsidiaries during any period set forth below shall be accompanied by the
prepayment premium on the amount of Term Advances so prepaid set forth opposite the period
in which such prepayment is made:


	Period	 	Prepayment Premium	 




	Closing Date to and including first anniversary

of the Closing Date	 	2%	 




	Thereafter to and including the second

anniversary of the Closing Date	 	1%	 




	Thereafter	 	0%	 





If Section 7.02 is amended
in order to permit the issuance or incurrence of any Debt the proceeds of which
are used to prepay the Term Advances, such prepayment shall be deemed not to be
an optional prepayment. 


          
2.13   Mandatory Prepayments. (a)   (i) Within ten
(10) days of the date of receipt by Borrower or any of its Subsidiaries of any
Net Cash Proceeds, first, Borrower shall make a mandatory prepayment, without
premium or penalty (other than costs required to be paid pursuant to Section
2.17(d)), of, the Term Advances and, second, after payment in full of the Term
Advances, the outstanding Revolving Advances or, to the extent that at such time
no Revolving Advances are outstanding, shall cash collateralize any outstanding
Letter of Credit, in an amount equal to 100% of such Net Cash Proceeds (without
any reduction of the Revolving Credit Commitment Amount). 


          
(b)   If, for any fiscal year of the Borrower commencing with the
fiscal year ending December 31, 2005, there shall be Excess Cash Flow in excess
of $5,000,000, the Borrower 



36








shall, on the relevant Excess Cash Flow Application
Date, apply 50% of such Excess Cash Flow, without premium or penalty (other than
costs required to be paid pursuant to Section 2.17(d)), first, to make a
mandatory prepayment of the Term Advances and, second, after payment in full of
the Term Advances, to make a mandatory prepayment of the outstanding Revolving
Advances or, to the extent that at such time no Revolving Advances are
outstanding, to cash collateralize any outstanding Letter of Credit (without any
reduction of the Revolving Credit Commitment Amount). Each such prepayment shall
be made on a date (an “Excess Cash Flow Application Date”) no
later than five days after the earlier of (i) the date on which the financial
statements of the Borrower referred to in Section 6.03(b), for the fiscal year
with respect to which such prepayment is made, are required to be delivered to
the Agent and (ii) the date such financial statements are actually delivered.


          
(c)   If at any time (A) the sum of the aggregate principal amount of
the outstanding Revolving Advances plus the aggregate undrawn amount of all
outstanding Letters of Credit plus the aggregate amount of all unreimbursed
drawings under Letters of Credit shall exceed (B) the Revolving Credit
Commitment Amount, Borrower shall, without demand or notice, prepay Revolving
Advances or cash collateralize or replace Letters of Credit in such amount as
may be necessary to eliminate such excess, and Borrower shall take such action
on the Banking Day on which Borrower learns or is notified of the excess, if
Borrower so learns or is so notified prior to 1:00 p.m. (New York City time) on
such day, and otherwise on the immediately succeeding Banking Day.
Notwithstanding any contrary provision contained herein, the prepayment of any
Advance or cash collateralization or replacement of any Letter of Credit
hereunder (including, without limitation, pursuant to this Section 2.13 or
Section 2.11) shall be accompanied by the payment of accrued interest on the
amount prepaid to the date of payment. 


          
(d)   Any prepayments made pursuant to this Section 2.13 shall be
applied first to Reference Rate Advances to the extent then outstanding and then
to Eurodollar Rate Advances to the extent then outstanding, subject to Section
2.17(d). Any prepayments of Term Advances pursuant to this Section 2.13 shall be
applied to the remaining installments in direct order of maturity. 


          
2.14   Fees. Borrower shall pay to Agent for the ratable
benefit of each relevant Lender (except as otherwise provided): 


	 	          
(a)  (i)  in respect of each Letter of Credit, a commission
on the maximum amount available for drawing under such Letter of Credit,
calculated at the rate per annum equal to the Letter of Credit Rate (as set
forth under the definition of Applicable Margin in Section 1.01; provided
that for the period from the Closing Date to the date financial statements are
delivered pursuant to Section 6.03(b) with respect to the fiscal quarter ending
September 30, 2004, the Total Leverage Ratio shall be presumed to be greater
than or equal to 5.25 to 1 for purposes of calculating such commission) on the
face amount of such Letter of Credit, computed for the period from the date such
Letter of Credit is issued to the date upon which the next payment is due under
this subsection (and, thereafter, from the date of payment under this subsection
to the date upon which the next payment is due under this subsection), and
payable quarterly in arrears (calculated on the basis of a three hundred sixty
(360) day year for the actual days 




37








	 	elapsed) on the last Banking Day of each
March, June, September and December after the issuance of such Letter of Credit
and on the Revolving Credit Termination Date;




	 	          
(ii)   a fronting fee in an amount equal to one-quarter percent (1/4%) of the face
amount of such Letter of Credit, computed for the period from the date such
Letter of Credit is issued to the date upon which the next payment is due under
this subsection (and, thereafter, from the date of payment under this subsection
to the date upon which the next payment is due under this subsection), and
payable quarterly in arrears (calculated on the basis of a three hundred sixty
(360) day year for the actual days elapsed) on the last Banking Day of each
March, June, September and December after the issuance of such Letter of Credit
and on the Revolving Credit Termination Date; provided that such fee
shall be for the Issuing Lender’s sole account; and




	 	          
(iii)   all customary and normal costs and expenses as are incurred or charged by the
Issuing Lender in negotiating, issuing, effecting payment under, amending or
otherwise administering any Letter of Credit, provided that payment of
such costs and expenses shall be for the Issuing Lender’s sole account; and





          
(b)   a commitment fee, at the rate per annum equal to (x) 0.75% for
each day on which utilization (the aggregate amount of outstanding Revolving
Advances, Letters of Credit and unreimbursed drawings in respect of Letters of
Credit) of the Revolving Credit is equal to or less than 33% of the Revolving
Credit Commitment Amount or (y) 0.50% otherwise, on the difference between (i)
the average daily Revolving Credit Commitment Amount, and (ii) the average daily
principal amount of the outstanding Revolving Advances, participating interests
in Letters of Credit and unreimbursed drawings in respect of Letters of Credit.
The commitment fees under this Section 2.14(b) shall be payable quarterly in
arrears (calculated on the basis of a three hundred sixty (360) day year for the
actual days elapsed) payable on the last Banking Day of each March, June,
September and December and on the Revolving Credit Termination Date. 


          
2.15   Agency Fees. The Borrower agrees to pay to the Agent the
fees in the amounts and on the dates as set forth in any fee agreements with the
Agent and to perform any other obligations contained therein. 


          
2.16   Taxes.


          
(a)   All payments or reimbursements under this Agreement and any
instrument or agreement required hereunder shall be made free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, 


	 	          
(i)   in the case of each Lender and Agent, taxes imposed on its net
income, and franchise taxes imposed on it, by the jurisdiction under the laws of
which such Lender or Agent (as the case may be) is organized or any political
subdivision thereof, 




	 	          
(ii)   in the case of each Lender, taxes imposed on its net income,
and franchise taxes imposed on it, by the jurisdiction of such Lender’s
Lending Branch or any political subdivision thereof, and 




38








	 	          
(iii)   in the case of each Lender that is not a U.S. person as
defined in Section 7701(a)(30) of the Code (“Non-U.S. Lender”),
United States federal withholding taxes that are (x) attributable to such
Bank’s failure to comply with the requirements of Section 2.16(d), (y)
imposed on amounts payable to such Lender at the time the Lender becomes a party
to this Agreement, or (z) imposed other than as a result of a change in treaty,
law or regulation or the application or interpretation thereof, except in the
case of (x) or (y), to the extent that such Bank’s assignor (if any) was
entitled, at the time of assignment, to receive additional amounts from the
Borrower with respect to such taxes. 





(all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as “Taxes”). If Borrower or Agent shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Lender or Agent, 


	 	          
(i)   the sum payable by Borrower shall be increased as may be
necessary so that after Borrower or Agent has made all required deductions
(including deductions applicable to additional sums payable under this Section
2.16) such Lender or Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made,




	 	          
(ii)   Borrower or Agent shall make such deductions and




	 	          
(iii)   Borrower or Agent shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.





          
(b)   In
addition, Borrower agrees to pay any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made by Borrower or by Agent hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement (hereinafter referred to as “Other Taxes”). 


          
(c)   Borrower
will indemnify each Lender and Agent for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 2.16) paid by such Lender or
Agent (as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. This indemnification shall be
made within 30 days from the date such Lender or Agent (as the case may be)
makes written demand therefor. Any such demand shall show in reasonable detail
the amount payable and the calculations used to determine such amount and shall
provide reasonably acceptable evidence of payment of such Tax or Other Tax. 


          
(d)   Each
Non-U.S. Lender shall deliver to the Borrower and the Agent two copies of either
U.S. Internal Revenue Service Form W-8 BEN or Form W-8ECI, or any subsequent
versions thereof or successors thereto properly completed and duly executed by
such Non-U.S. Lender claiming complete exemption from, or a reduced rate of,
U.S. federal withholding tax on all payments by the Borrower under this
Agreement. Such forms shall be delivered by each Non-U.S. Lender on or before
the date it becomes a party to this Agreement. In addition, each 



39








Non-U.S. Lender
shall deliver such forms promptly upon the obsolescence or invalidity of any
form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall
promptly notify the Borrower at any time it determines that it is no longer in a
position to provide any previously delivered certificate to the Borrower (or any
other form of certification adopted by the U.S. taxing authorities for such
purpose). Notwithstanding any other provision of this Section 2.16(d), a
Non-U.S. Lender shall not be required to deliver any form pursuant to this
Section 2.16(d) that such Non-U.S. Lender is not legally able to deliver. 


          
(e)   Any Lender
claiming any additional amounts payable pursuant to this Section 2.16 shall use
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to change the jurisdiction of its Lending Branch if the making of
such a change would avoid the need for, or reduce the amount of, any such
additional amounts which may thereafter accrue and would not, in the judgment of
such Lender, be otherwise disadvantageous to such Lender. 


          
(f)   Without
prejudice to the survival of any other agreement of Borrower hereunder, the
agreements and obligations of the Borrower contained in this Section 2.16 shall
survive the payment in full of principal and interest under this Agreement and
the Notes and all other Obligations under this Agreement. 


          
2.17  
Increased Costs; Illegality; Indemnity. (a)  Borrower shall
reimburse or compensate each Lender, upon demand by such Lender, for all costs
incurred, losses suffered (including lost profit) or payments made by such
Lender which are applied or allocated by such Lender to the Credit (all as
determined by such Lender in its sole and absolute discretion) by reason of: 


	 	          
(i)  
any Lender’s being subject to any tax of any kind whatsoever with respect
to this Agreement, any Note or any Advance made by it, or change in the basis of
taxation of payments to such Lender in respect thereof (except for taxes covered
by Section 2.16 and changes in the rate of tax on the overall net income of such
Lender); 




	 	          
(ii)  
the imposition, modification or holding applicable of any reserve, special
deposit, compulsory loan or similar requirement against assets held by, deposits
or other liabilities in or for the account of, advances, loans or other
extensions of credit by, or any other acquisition of funds by, any office of
such Lender which is not otherwise included in the determination of the
Eurodollar Rate; or 




	 	          
(iii)  
compliance by such Lender with any direction, requirement or request from any
regulatory authority, whether or not having the force of law. 





          
(b)   Any Lender
seeking (i) reimbursement from Borrower for the costs incurred, losses suffered
or payments made as described in subsection (a) of this Section 2.17, or (ii)
payment from Borrower under Section 2.18 hereof, may recover such sums from
Borrower by delivering to Borrower a statement setting forth the amount owed to
such Lender and showing how such calculation was made, signed by a duly
authorized officer of such Lender, which  



40








statement shall be
conclusive evidence of the amount owed absent manifest error; provided,
however, that (A) reimbursement or payment under this subsection (b)
shall not be demanded by any Lender for the period prior to the Closing Date
(other than Lenders party to the Existing Credit Agreement; provided that
no claim shall be made by any Lender pursuant to the Existing Credit Agreement
that arose during the period prior to the closing date for the Existing Credit
Agreement), and (B) each Lender shall notify Borrower as promptly as practicable
of any event occurring after the date of this Agreement that would entitle such
Lender to reimbursement or payment under this subsection (b). 


          
(c)  
Notwithstanding any other provision herein, if the adoption of or any change in
any requirement of law or in the interpretation or application thereof shall
make it unlawful for any Lender to make or maintain Eurodollar Rate Advances as
contemplated by this Agreement, (A) the commitment of such Lender hereunder to
make Eurodollar Rate Advances, continue Eurodollar Rate Advances as such and
convert Reference Rate Advances to Eurodollar Rate Advances shall forthwith be
cancelled and (B) such Lender’s Advances then outstanding as
Eurodollar Rate Advances, if any, shall if required by law, be converted
automatically to Reference Rate Advances on the respective last days of the then
current Interest Periods with respect to such Advances or within such earlier
period as required by law. If any such conversion of a Eurodollar Rate Advance
occurs on a day which is not the last day of the then current Interest Period
with respect thereto, the Borrower shall pay to such Lender such amounts, if
any, as may be required pursuant to paragraph (d) below. 


          
(d)   The
Borrower agrees to indemnify each Lender and to hold each Lender harmless from
any loss or expense which such Lender may sustain or incur as a consequence of
(A) default by the Borrower in payment when due of the principal amount of or
interest on any Eurodollar Rate Advance, (B) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Rate Advances after
the Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (C) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (D) the making of a prepayment of
Eurodollar Rate Advances on a day which is not the last day of an Interest
Period with respect thereto, including, without limitation, in each case, any
such loss or expense arising from the reemployment of funds obtained by it or
from fees payable to terminate the deposits from which such funds were obtained.
A certificate as to any amounts payable pursuant to this Section submitted to
the Borrower by any Lender shall be conclusive in the absence of manifest error.
The covenants contained in Subsections (b) and (d) of this Section 2.17 shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder. 


          
2.18   Capital
Adequacy. If any Lender shall have determined that, after the date hereof,
the adoption of any applicable law, rule, regulation or guideline regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central Lender or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender (or its Lending Branch or any corporation controlling
such Lender) with any direction, requirement or request regarding capital
adequacy (whether or not having the force of law) of any such authority, central
Lender or comparable agency, affects or would affect the amount of capital
required or expected to be maintained by such Lender or any corporation
controlling such Lender and such Lender (taking 



41








into consideration such
Lender’s policies with respect to capital adequacy and such Lender’s
targeted return on capital) determines that the amount of such capital is
increased or required to be increased as a consequence of such Lender’s
obligations under this Agreement, then, upon demand by such Lender, Borrower
shall immediately pay to such Lender, from time to time as specified by such
Lender, additional amounts sufficient to compensate such Lender for such
increase. 


          
2.19   Letters
of Credit.(a)  The Letters of Credit. (i)  From
time to time during the Revolving Credit Commitment Period, each Issuing Lender
agrees on the terms and conditions set forth herein to issue Letters of Credit
for the account of the Borrower; provided, that no Issuing Lender shall
issue any Letter of Credit if after giving effect to such issuance, the
aggregate undrawn amount of all Letters of Credit then outstanding plus the
aggregate amount of all unreimbursed drawings under Letters of Credit would
exceed the L/C Commitment Amount; provided, further, that no
Issuing Lender shall issue any Letters of Credit if, after giving effect to such
issuance, the sum of the aggregate undrawn amount of all Letters of Credit then
outstanding plus the aggregate outstanding principal amount of all Revolving
Advances plus the aggregate amount of unreimbursed drawings under Letters of
Credit would exceed the Revolving Credit Commitment Amount; provided,
further, that no Issuing Lender shall issue any Letters of Credit
subsequent to the date which is 30 days prior to the Revolving Credit
Termination Date. All letters of credit issued under the Existing Credit
Agreement and outstanding on the Closing Date shall continue outstanding under
this Agreement. 


	 	          
(ii)   No Issuing
Lender shall be under any obligation to issue any Letter of Credit if: 




	 	          
(A)  
any order, judgment or decree of any governmental authority or arbitrator shall
purport by its terms to enjoin or restrain such Issuing Lender from issuing such
Letter of Credit or any legal requirement applicable to such Issuing Lender or
any request or directive (whether or not having the force of law) from any
governmental authority with jurisdiction over such Issuing Lender shall
prohibit, or request that such Issuing Lender refrain from the issuance of
letters of credit generally or such Letter of Credit in particular or shall
impose upon such Issuing Lender with respect to such Letter of Credit any
restriction or reserve or capital requirement (for which such Issuing Lender is
not otherwise compensated) not in effect on the Closing Date, or any
unreimbursed loss, cost or expense which was not applicable, in effect or known
to such Issuing Lender on the Closing Date and which such Issuing Lender in good
faith deems material to it; or 




	 	          
(B)  
such Issuing Lender has received notice from Agent, or from Agent at the request
of any Lender, on or prior to the Banking Day immediately prior to the requested
date of issuance of such Letter of Credit that one or more of the conditions
contained in Section 4.02 is not then satisfied; or 




42








	 	          
(C)  
such requested Letter of Credit has an expiration date which is after the
earlier of (x) five Banking Days prior to the Revolving Credit Termination Date
and (y) one year after the date of issuance (subject to automatic renewals on
terms satisfactory to the Issuing Lenders). 




	 	          
(iii)  
Subject to Section 2.19(g), Letters of Credit with a one-year tenor may be by
their terms automatically renewable (such automatically renewable Letters of
Credit hereby referred to as “Renewable Letters of Credit”) for
additional one-year periods (which shall in no event extend beyond the date
referred to in clause (x) of the preceding paragraph (a)(ii)(C)). The Issuing
Lender shall notify all beneficiaries of Renewable Letters of Credit that such
Letters of Credit shall not be renewed or extended unless the Agent and the
Issuing Lender shall have received the request from the Borrower required under
Section 2.19(g) and all conditions precedent to the issuance of Letters of
Credit set forth in Section 4.02 are satisfied at the time of such renewal or
extension (which time, for purposes of this Section and Section 4.02, shall be
deemed to be the time of such renewal or extension and not the expiry date of
such Letters of Credit). 





          
(b)   Issuance of Letters of Credit.


	 	          
(i)  
Each Letter of Credit shall be issued upon the irrevocable written request of
Borrower, received by Agent and the Issuing Lender at least seven (7) days (or
such shorter time as Agent may agree in a particular instance) prior to the
proposed date of issuance. Each Letter of Credit outstanding under the Existing
Credit Agreement which survives the Closing Date shall be deemed to be reissued
under this Agreement on the Closing Date as set forth on Schedule 2.19(b). 




	 	          
(ii)  
Each request for issuance of a Letter of Credit shall be by telecopy, confirmed
immediately in writing, on the form specified by the Issuing Lender as being its
then customary form for letter of credit applications and shall specify:
(A) the proposed date of issuance (which shall be a Banking Day); (B) the
face amount of the Letter of Credit; (C) the date of expiration of the Letter of
Credit; (D) the purpose of such Letter of Credit, (E) the name and address of
the beneficiary thereof; (F) the documents to be presented by the beneficiary of
the Letter of Credit in case of any drawing thereunder; and (G) the full text of
any certificate to be presented by the beneficiary in case of any drawing
thereunder; provided that in the event that the form specified by the
Issuing Lender conflicts with any provisions of this Agreement, the provisions
in this Agreement shall govern. 




	 	          
(iii)  
No Letter of Credit shall be issued (or renewed or extended) if such Letter of
Credit would thereupon have an expiration date which is after the date which is
five Banking Days prior to the Revolving Credit Termination Date. 




	 	          
(iv)  
Unless an Issuing Lender has received notice on or before the Banking Day
immediately preceding the date such Issuing Lender is to issue a  




43








	 	requested
Letter of Credit (A) from the Agent directing such Issuing Lender not to issue
such Letter of Credit because the amount specified in Section 2.19(a)(i) would
be exceeded and/or (B) from any Lender that one or more conditions specified in
Section 4.02 are not then satisfied, then subject to the terms and conditions of
this Section 2.19 and provided that the applicable conditions set forth
in Section 4.02 hereof have been satisfied, such Issuing Lender shall, on the
requested date, issue a Letter of Credit for the account of Borrower in
accordance with the Issuing Lender’s usual and customary business
practices. Prior to issuing any Letter of Credit, the Issuing Lender of such
Letter of Credit will consult with the Agent to confirm that the amount
specified in Section 2.19(a)(i) would not be exceeded, and that the conditions
specified in Section 4.02 have been satisfied. 




	 	          
(v)  
Promptly after issuance of each Letter of Credit, the Issuing Lender shall
deliver to Borrower and Agent a copy of such Letter of Credit. Agent shall
promptly deliver a copy thereof to each other Lender. Each Letter of Credit
shall provide that, except as otherwise determined in the sole discretion of the
Issuing Lender, payment thereunder shall not be made earlier than two (2)
business days after receipt of any requisite documents demanding such payment. 




	 	          
(vi)   All Letters of Credit shall be issued only in
Dollars.





          
(c)   Participations, Drawings and Reimbursements.


	 	          
(i)  
Immediately upon the issuance of each Letter of Credit, each Lender (other than
the Issuing Lender) shall be deemed to, and hereby agrees to, have irrevocably
purchased from the Issuing Lender a participation in such Letter of Credit and
each drawing thereunder in a percentage equal to the Revolving Credit Commitment
Percentage of such Lender. 




	 	          
(ii)  
The Borrower shall reimburse the Agent for the full amount of any drawing under
the Letter of Credit on the same date such drawing is honored by the Issuing
Lender. In the event Borrower shall fail to reimburse Agent for the full amount
of any drawing on the same date such drawing is honored by the Issuing Lender
under any Letter of Credit, the Issuing Lender shall promptly notify Agent and
Agent shall as promptly as possible notify each Lender with a Revolving Credit
Commitment thereof and Borrower shall be deemed to have requested that a
Reference Rate Advance be made by the Lenders with a Revolving Credit Commitment
to be disbursed on the date of payment by the Issuing Lender under such Letter
of Credit, subject to the amount of the unutilized portion of the Revolving
Credit Commitment Amount on such date and subject to the conditions set forth in
Section 4.02. Any notice given by the Issuing Lender or Agent pursuant hereto
may be oral if immediately confirmed in writing (including telecopy or telex);
provided that the lack of such an immediate confirmation shall not affect
the conclusiveness and binding effect of such notice. The proceeds of such
Revolving Advances shall be paid to the Agent which will, in turn, disburse such
proceeds to the Issuing Lender as reimbursement for such drawings.
Notwithstanding the foregoing, if at any time an Event of Default  




44








	 	described in
Section 8.05 or 8.06 has occurred and is continuing, such drawings shall be
reimbursed by the Lenders’ purchasing pro rata participation interests in
such Letter of Credit in amounts equal to each Lender’s Revolving Credit
Commitment Percentage of the relevant amounts drawn. 




	 	          
(iii)  
Any unreimbursed Letter of Credit drawing which shall not be converted into a
Revolving Advance pursuant to Section 2.19(c)(ii) in whole or in part because
such conversion would have caused the Revolving Credit Commitment Amount to be
exceeded or because of Borrower’s failure to satisfy the conditions set
forth in Section 4.02, shall become due and payable upon the date such drawing
is paid by the Issuing Lender. Agent shall promptly notify Borrower and Lenders
with a Revolving Credit Commitment of the occurrence of any unreimbursed drawing
under a Letter of Credit. Any such unreimbursed drawing shall bear interest at a
rate per annum equal to the Reference Rate plus the sum of the Applicable Margin
and 2%. 




	 	          
(iv)  
Each Lender will, promptly upon receipt of notice of an unreimbursed drawing
under a Letter of Credit pursuant to Section 2.19(c)(iii), make available to
Agent for the account of the Issuing Lender an amount in immediately available
funds equal to its Revolving Credit Commitment Percentage of the amount of the
such unreimbursed drawing. If any Lender so notified shall fail to make
available to Agent for the account of the Issuing Lender the amount of its
Revolving Credit Commitment Percentage of any such unreimbursed drawing on the
date the relevant Letter of Credit drawing was honored by the Issuing Lender
(the “Participation Date”), then interest shall accrue on such
Lender’s obligation to make such payment, (i) from the Participation Date
to but not including the second Banking Day after the Participation Date at a
rate per annum equal to the Federal Funds Rate, and (ii) from the second Banking
Day after the Participation Date at the same rate specified in Section 2.08(a)
for Reference Rate Advances. Agent will as promptly as practicable (but in no
event later than two (2) Banking Days after the occurrence thereof) give notice
of the occurrence of the Participation Date, but failure of Agent to give any
such notice on the Participation Date or in sufficient time to enable any Lender
to effect such payment on such date shall not relieve such Lender from its
obligations under this Section 2.19(c)(iv). 




	 	          
(v)  
The obligation of each Lender to provide Agent with such Lender’s Revolving
Credit Commitment Percentage of the amount of any payment or disbursement made
by any Issuing Lender under any outstanding Letter of Credit shall be absolute
and unconditional under any and all circumstances and irrespective of any
setoff, counterclaim or defense to payment which such Lender may have or have
had against such Issuing Lender (or any other Lender), including, without
limitation, any defense based on the failure of the demand for payment under
such Letter of Credit to conform to the terms of such Letter of Credit or the
legality, validity, regularity or enforceability of such Letter of Credit or any
defense based on the identity of the transferee of such Letter of Credit or the
sufficiency of the transfer if such Letter of Credit is transferable;
provided, 




45








	 	however,
that Lenders shall not be obligated to reimburse such Issuing Lender for any
wrongful payment or disbursement made under any Letter of Credit as a result of
acts or omissions constituting gross negligence or willful misconduct on the
part of such Issuing Lender or any of its officers, employees or agents.
Further, each Lender agrees to perform its obligations under Section 2.19(c)(iv)
despite the occurrence of a Default or an Event of Default or any inability of
Borrower to require such Lender to fulfill its other obligations hereunder
including, without limitation, any inability resulting from the operation of
Bankruptcy Code § 365(c)(2) (11 U.S.C. § 365(c)(2)) or
otherwise. 




          
(d)   Repayment of Participations.


	 	          
(i)   Upon and only upon receipt by Agent for the account of the
Issuing Lender of funds from Borrower,




	 	          
(A)  
in reimbursement of any payment made under a Letter of Credit with respect to
which any Lender has theretofore paid Agent for the account of the Issuing
Lender for such Lender’s participation in the Letter of Credit pursuant to
Section 2.19(c)(iv); or 




	 	          
(B)  
in payment of interest thereon;





	 	
Agent will pay to each Lender which has funded its participating interest
therein, in the same funds as those received by Agent for the account of the
Issuing Lender, such Lender’s Revolving Credit Commitment Percentage of
such funds.




	 	          
(ii)  
If Agent or the Issuing Lender is required at any time to return to Borrower or
to a trustee, receiver, liquidator, custodian or other similar official any
portion of the payments made by Borrower to Agent for the account of the Issuing
Lender pursuant to paragraph (i) in reimbursement of payment made under the
Letter of Credit or interest thereon, each Lender shall, on demand of Agent,
forthwith return to Agent or the Issuing Lender its Revolving Credit Commitment
Percentage of any amounts so returned by Agent or the Issuing Lender plus
interest thereon from the date such demand is made to but not including the date
such amounts are returned by such Lender to Agent or the Issuing Lender, at a
rate per annum equal to the Federal Funds Rate. 





          
(e)   Role of Issuing Lender. (i)  Each Issuing
Lender will exercise and give the same care and attention to any Letter of
Credit as it gives to its other letters of credit and similar obligations.


	 	          
(ii)  
Each Lender participating in a Letter of Credit agrees that, in paying any
drawing under any Letter of Credit, the Issuing Lender shall not have any
responsibility to obtain any document (other than the sight draft and
certificates required by the Letter of Credit) or to ascertain or inquire as to
the validity or accuracy of any such document or the authority of the Person
delivering any such document. Neither the Issuing Lender nor any of its
representatives, officers, employees or agents shall be liable to any Lender
for: 




46








	 	          
(A)  
any action taken or omitted in connection herewith at the request or with the
approval of the Majority Lenders; 




	 	          
(B)  
any action taken or omitted in the absence of gross negligence or willful
misconduct; or 




	 	          
(C)  
the execution, effectiveness, genuineness, validity or enforceability of any
Letter of Credit or any other document contemplated hereby or thereby. 





          
(f)  
Obligations Absolute. The obligations of Borrower under this Agreement and
any other agreements or instrument relating to any Letter of Credit to reimburse
each Issuing Lender shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement and such other agreement
or instrument under all circumstances, including, without limitation, the
following circumstances: 


	 	          
(A)  
any lack of validity or enforceability of this Agreement, any Letter of Credit,
or any other agreement or instrument relating thereto (collectively, the
“L/C Related Documents”); 




	 	          
(B)  
any change in the time, manner or place of payment of, or in any other term of,
all or any of the obligations of Borrower in respect of any Letter of Credit or
any other amendment or waiver of or any consent to departure from all or any of
the L/C Related Documents; 




	 	          
(C)  
the existence of any claim, set-off, defense or other right that Borrower may
have at any time against any beneficiary or any transferee of any Letter of
Credit (or any Person for whom any such beneficiary or any such transferee may
be acting), the Issuing Lender or any other Person, whether in connection with
this Agreement, the transactions contemplated hereby or by the L/C Related
Documents or any unrelated transaction; 




	 	          
(D)  
any statement and other document presented under any Letter of Credit proving to
be forged, fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect; 




	 	          
(E)  
any payment by the Issuing Lender under any Letter of Credit against
presentation of a draft or certificate that does not strictly comply with the
terms of any Letter of Credit; 




	 	          
(F)  
any exchange, release or non-perfection of any Collateral, or any release or
amendment or waiver of or consent to departure from any Collateral Document, for
all or any of the obligations of Borrower in respect of any Letter of Credit; 




	 	          
(G)  
any other circumstance or happening whatsoever, whether or not similar to any of
the foregoing, including, without limitation, any other  




47








	 	circumstance that might
otherwise constitute a defense available to, or a discharge of, Borrower or any
Guarantor but excluding any action constituting the Issuing Lender’s gross
negligence or willful misconduct; or 




	 	          
(H)   the
occurrence of a Default or an Event of Default. 





          
(g)   Requests
Regarding Renewals and Extensions of Renewable Letters of Credit. The
Borrower shall deliver to the Agent and the applicable Issuing Lender, not
earlier than thirty (30) days, and not later than fourteen (14) days, before
notice of non-renewal or non-extension is required under the Renewable Letters
of Credit issued by such Issuing Lender, a written request for renewal or
extension of each Renewable Letter of Credit which the Borrower desires to renew
or extend. Such request shall specify the required date for notice by the
Issuing Lender of non-renewal or non-extension under the Renewable Letters of
Credit and include a certification by the Borrower that as of the date of such
request, no Default or Event of Default shall have occurred and be continuing
and all of the representations and warranties contained in this Agreement and
the Collateral Documents are true and correct in all material respects, except
as to representations and warranties contained in Section 5.09 and which
expressly relate to an earlier date and for changes which are contemplated or
permitted by this Agreement. No such request shall be made by the Borrower which
would cause the expiry date of such Renewable Letter of Credit to extend beyond
five Banking Days prior to the Revolving Credit Termination Date. For purposes
of this Section 2.19(g), valid delivery by the Borrower of the required request
shall be deemed to have occurred only upon actual receipt of such notice by the
Agent and the Issuing Lender. If the Borrower fails to deliver such a notice
within such period with respect to such Renewable Letter of Credit, the Issuing
Lender of such Renewable Letter of Credit shall deliver appropriate notices of
non-extension or non-renewal with respect to such Renewable Letter of Credit. 


          
(h)   If any
change in any requirement of law shall either (i) impose, modify or deem or make
applicable any reserve, special deposit, assessment or similar requirement
against Letters of Credit issued by any Issuing Lender or against a
Lender’s participation in such Letter of Credit or (ii) impose on any
Issuing Lender or any Lender participating in such Letter of Credit (a
“Participating Lender”) any other condition regarding this
Agreement or any Letter of Credit, and the result of any event referred to in
clause (i) or (ii) above shall be to increase the cost to such Issuing Lender of
issuing or maintaining any Letter of Credit, or to such Participating Lender of
purchasing or maintaining such participating interest in any Letter of Credit
(which increase in cost shall be the result of such Issuing Lender’s, or
Participating Lender’s, as the case may be, reasonable allocation of the
aggregate of such cost increases resulting from such events), then from time to
time following notice by such Issuing Lender (or such Participating Lender, as
the case may be) to the Borrower, the Borrower shall pay to such Person, as
specified by such Person, additional amounts which shall be sufficient to
compensate such Person for such increased cost, together with interest on each
such amount from the date demanded until payment in full thereof at a rate per
annum equal to the Reference Rate plus the Applicable Margin plus 2% per annum.
A certificate submitted by such Issuing Lender or Participating Lender to the
Borrower concurrently with any such demand by such Person, shall be conclusive,
absent manifest error, as to the amount thereof. 



48








ARTICLE III.


SECURITY


          
3.01   Security.


          
(a)   As security
for the prompt payment and performance of all Secured Obligations of Borrower,
Borrower has heretofore granted and assigned or shall grant and assign, in
accordance with the provisions of the Collateral Documents applicable to
Borrower, to the Collateral Agent for the benefit of the Secured Creditors all
of its right, title and interest in and to all of the Collateral. Additionally,
all Secured Obligations shall be guaranteed by each Guarantor under the
Guarantee and Collateral Agreement and all Operating Bank Obligations shall be
guaranteed by each Guarantor under the Operating Bank Guaranty, to the extent
provided therein, and the obligations of the Guarantors under the Guarantee and
Collateral Agreement and the Operating Bank Guaranty shall be secured pursuant
to the terms of the Collateral Documents required to be executed and delivered
by them hereunder. Upon the effective date of the sale of all of the stock owned
by Borrower or any Subsidiary of, or the effective date of the sale of all of
the assets of, any Guarantor permitted hereunder, such Guarantor shall be
released from all obligations under the Guarantee and Collateral Agreement. 


          
(b)   Upon the
acquisition of any new property or assets by the Borrower or any Subsidiary, the
Borrower or such Subsidiary at its expense shall immediately cause such acquired
property or assets to become subject to Liens and security interests in favor of
the Collateral Agent to secure the Secured Obligations except to the extent that
this Agreement and the Collateral Documents do not require such property or
assets to become subject to such Liens and security interests. Upon any such
acquisition, such acquired property or assets shall be deemed to constitute
Collateral for all purposes of this Agreement and the Collateral Documents, any
collateral documents executed and delivered by the Borrower or any of its
Subsidiaries to grant the liens and security interests required by this Section
shall be deemed to be Collateral Documents for all purposes of this Agreement
and the other Credit Documents, and any such acquisition of such property or
assets shall be deemed a representation and warranty that, as of the date of
such acquisition, all representations and warranties contained in this Agreement
and the Collateral Documents applicable to such Collateral are true and correct
in all material respects. 


          
3.02  
Collateral Documents. The Borrower and the Guarantors have heretofore
executed and delivered or will execute and deliver to the Collateral Agent
certain Collateral Documents, and the Borrower shall execute and deliver to the
Collateral Agent for the benefit of the Secured Creditors (and shall cause each
Guarantor to so execute and deliver) all such further Collateral Documents and
such other collateral documents as may be reasonably requested by the Collateral
Agent in order to perfect and protect Collateral Agent’s security interest
in the Collateral granted pursuant to the Collateral Documents, all in form and
substance reasonably acceptable to the Collateral Agent. 


          
3.03  
Priority of Security Interest. The lien and security interest of the
Collateral Agent in the Collateral shall, to the extent permissible by
applicable law, at all times, be and 



49








continue to be a first lien in all
jurisdictions, whether state, federal or foreign, subject to no other Lien of
any kind (except Permitted Liens). 


          
3.04   New
Guarantors. Borrower shall cause each Domestic Subsidiary which is hereafter
created or acquired (but in any event excluding (i) Unrestricted Subsidiaries,
(ii) Lincoln Indemnity Company, (iii) H&T Receivable Funding Corporation
(subject to Section 6.19), (iv) any Finance Subsidiary, (v) any Real Estate
Financing Subsidiary and (vi) any Subsidiary acquired after the Closing Date to
the extent such Subsidiary is not required to provide a security interest in its
assets or cause its capital stock to be pledged pursuant to Section 7.01(e) (but
such Subsidiary described in clause (iii) shall be required to become a
Guarantor)) to promptly execute and deliver a supplement or addendum to each of
the Guarantee and Collateral Agreement and the Operating Bank Guaranty, in form
and substance satisfactory to the Collateral Agent, pursuant to which such
Subsidiary shall become a party to such agreements as a Grantor (as defined in
the Guarantee and Collateral Agreement) and guarantor, together with such
Collateral Documents and other documents, instruments and opinions reasonably
requested by Agent or the Collateral Agent in order to perfect and protect the
Collateral Agent’s security interest in the Collateral granted pursuant to
such Collateral Documents, all in form and substance reasonably satisfactory to
Agent and the Collateral Agent. 


          
3.05   Real
Property Matters. (a) As security for the Secured Obligations, the
Collateral Agent shall have received, with respect to each parcel of real
property listed on Schedule 3.05 (the “Existing Mortgage Collateral
Properties”), (i) a Mortgage Amendment, executed and delivered by a
duly authorized officer of each party thereto; (ii) an endorsement to each of
the existing title insurance policies updating the effective date and amending
the description of the existing insured mortgage to include the Mortgage
Amendment; and (iii) a no-lien affidavit executed by the president or other
officer of each respective mortgagor, in form satisfactory to the title company. 


          
(b) As additional security for the Secured Obligations, Borrower agrees that in
the event Borrower or any Guarantor acquires any real property, then, from time
to time, upon request of the Agent, Borrower shall, or shall cause such
Guarantor to, execute, deliver and record any new mortgages, deeds of trust and
similar instruments, or amendments to any existing mortgages, deeds of trust and
similar instruments (collectively, such existing and new instruments are called
the “Real Property Security Documents”) encumbering such owned
property, which Real Property Security Documents shall be substantially in the
same form as the Real Property Security Documents provided on and/or in effect
as of the date hereof. In connection with such hereafter owned or otherwise
acquired real property, Borrower agrees to provide, or cause the applicable
Guarantor to provide, to the Collateral Agent (a) surveys of said real property
in the form described in Section 4.01(o) of the Existing Credit Agreement and
(b) mortgagee title insurance policies in the form and amount described in
Section 4.01(p) of the Existing Credit Agreement covering said real
property.


          
(c) As additional security for the Secured Obligations, Borrower agrees that if
Borrower or any Guarantor acquires any leasehold interest as lessee, then, from
time to time, upon request of Agent, Borrower shall, or shall cause such
Guarantor to, execute, deliver and record any new mortgages, deeds of or trust
or similar instruments, or amendments to any existing mortgages, deeds of trust
and similar instruments encumbering such leasehold interest, 



50








which documents
shall be substantially similar to the Real Property Security Documents, in order
to create a leasehold mortgage on such leasehold interest. Notwithstanding the
foregoing, the Borrower shall not be required to take any action described in
the preceding sentence to the extent taking such action (i) violates the
applicable lease, (ii) requires the consent of another party to such lease or
(iii) if a recorded memorandum with respect to such lease has not been filed in
the relevant real property recording offices. The actions required by this
paragraph with respect to (i) any leasehold interest existing on the Closing
Date shall be completed no later than 90 days after the Closing Date and (ii)
any leasehold interest acquired after the Closing Date shall be completed no
later than 60 days after the date of acquisition.


          
3.06  
Exceptions. Notwithstanding the foregoing, the Borrower and its Subsidiaries
shall not be required to (a) execute and deliver Real Property Security
Documents with respect to real property acquired after the Closing Date that is
subject to liens permitted by clause (iv) or (xiv) of the definition of
“Permitted Liens”, (b) cause any Subsidiary to provide a security
interest in its assets or cause its Capital Stock to be pledged to the extent
not required pursuant to Section 7.01(e) or (c) cause the assets of any Real
Estate Financing Subsidiary to be pledged as Collateral to the extent not
required pursuant to the definition of “Permitted Real Estate Financing
Transaction”. 


          
3.07   Pledge
of Capital Stock. Without limitation of the foregoing, the Borrower and its
Subsidiaries will pledge (a) the Capital Stock, limited liability interests, or
partnership interests, of any entity acquired after the Closing Date, subject to
the provisions of Section 3.06, (b) all Capital Stock of each Finance Subsidiary
which is owned by any Credit Party to be pledged as Collateral pursuant to the
Collateral Documents and (c) all Capital Stock of each Unrestricted Subsidiary
which is owned by any Credit Party to be pledged as Collateral pursuant to the
Collateral Documents. 


          
3.08  
Collateral Agency Agreement. Each Lender authorizes and instructs the Agent
and the Collateral Agent to execute and deliver the Collateral Agency Agreement
on behalf of such Lender. Each Lender agrees to be bound by and perform the
obligations set forth for such Lender in the Collateral Agency Agreement. Each
Lender acknowledges and agrees that pursuant to the Collateral Agency Agreement
the Secured Obligations are secured by the Collateral under the Collateral
Documents an a pari passu basis. Each Lender acknowledges that the
Collateral Agent is acting on behalf of the Lenders (and their Affiliates), the
Issuing Lenders, the Agent and the Operating Banks. 


          
3.09  
Amendments of Collateral Documents. The Lenders acknowledge that certain of
the Collateral Documents delivered under the Existing Credit Agreement are being
amended, or amended and restated, in order to secure the Term Advances and to
reflect the amendment and restatement of the Existing Credit Agreement by this
Agreement. 



51








ARTICLE IV.


CONDITIONS PRECEDENT


          
4.01  
Conditions Precedent to Closing Date. This Agreement shall become effective
as of the Closing Date, subject to the conditions precedent that on or prior to
the Closing Date (subject to the additional time allotted in Section 6.17 for
certain of such conditions to be satisfied): 


          
(a)   Opinions
of Counsel to Borrower, etc. There shall have been delivered to Agent, in
form and substance satisfactory to Agent and its counsel, an opinion, dated the
Closing Date, of (i) Kahn Kleinman, L.P.A., special counsel for Borrower and the
Guarantors, substantially in the form of Exhibit J-1 hereto and (ii) Kirkland
& Ellis LLP, special counsel for the Borrower and the Guarantors,
substantially in the form of Exhibit J-2 hereto; 


          
(b)   Other
Opinions. There shall have been delivered to Agent, in form and substance
satisfactory to Agent and its counsel, an opinion, dated the Closing Date, of
Cary Gaan, Esq., or other acceptable in-house counsel, substantially in the form
of Exhibit K hereto; 


          
(c)  
Borrower’s Incorporation Papers. There shall have been delivered to
Agent, in form and substance satisfactory to Agent and its counsel, a copy of
Borrower’s certificate of incorporation, certified by the Secretary of
State of Delaware, as of a recent date, and a copy of the Borrower’s
by-laws, certified by the Secretary or an Assistant Secretary of Borrower; 


          
(d)  
Borrower’s Corporate Resolution. There shall have been delivered to
Agent, in form and substance satisfactory to Agent and its counsel, a copy of a
resolution or resolutions passed by the Board of Directors of Borrower,
certified by the Secretary or an Assistant Secretary of Borrower as being in
full force and effect on the Closing Date, authorizing the borrowing provided
for herein and the execution, delivery and performance of this Agreement, the
Notes, the Collateral Documents to which it is a party and any other instrument
or agreement required hereunder; 


          
(e)  
Borrower’s Incumbency Certificate. There shall have been delivered to
Agent, in form and substance satisfactory to Agent and its counsel, a
certificate, signed by the Secretary or an Assistant Secretary of Borrower and
dated the Closing Date, as to the incumbency, and containing the specimen
signature or signatures (not photocopied), of the person or persons authorized
to execute and deliver this Agreement, the Notes, the Collateral Documents to
which it is a party and any other instrument or agreement required hereunder on
behalf of Borrower; 


          
(f)  
Guarantors’ Incorporation Papers. There shall have been delivered to
Agent, in form and substance satisfactory to Agent and its counsel, with respect
to each Guarantor which has not previously delivered such documents to Agent, a
copy of each such Guarantor’s certificate of incorporation or articles of
association and by-laws or partnership agreement, as the case may be, certified
by the Secretary or an Assistant Secretary of such Guarantor; 


          
(g)  
Guarantors’ Resolutions. There shall have been delivered to Agent, with
respect to each Guarantor which has not previously delivered such documents to
Agent, in form  



52








and substance satisfactory
to Agent and its counsel, a copy of a resolution or resolutions passed by the
Board of Directors (or similar body) of each Guarantor (or, with respect to a
Guarantor which is a partnership, of such Guarantor’s general partner),
certified by the Secretary or an Assistant Secretary of such Guarantor (or
general partner) as being in full force and effect on the Closing Date,
authorizing the execution, delivery and performance of the Collateral Documents
to which it is a party; 


          
(h)  
Guarantors’ Incumbency Certificates. There shall have been delivered to
Agent, with respect to each Guarantor which has not previously delivered such
documents to Agent, in form and substance satisfactory to Agent and its counsel,
a certificate, signed by the Secretary or an Assistant Secretary of each
Guarantor (or, with respect to a Guarantor which is a partnership, of such
Guarantor’s general partner) and dated the Closing Date, as to the
incumbency, and containing the specimen signature or signatures (not
photocopied), of the person or persons authorized to execute and deliver the
Collateral Documents to which it is a party on behalf of such Guarantor (or on
behalf of such general partner for such Guarantor); 


          
(i)  
Approvals and Consents. There shall have been delivered to Agent, in form
and substance satisfactory to Agent and its counsel, certified copies of all
material approvals, consents, exemptions and other actions by, and notices to
and filings with, any governmental authority or any other Person and any trustee
or holder of any indebtedness or obligation of Borrower or of any Guarantor
which are required in connection with any transaction contemplated hereby (other
than landlords under leases and first mortgage holders constituting Permitted
Liens, but subject to Section 6.17), all of which shall be in full force and
effect; 


          
(j)  
Agreement. There shall have been delivered to Agent, in form and substance
satisfactory to Agent and its counsel, sufficient counterparts of this
Agreement, duly executed by an authorized officer of Borrower; 


          
(k)  [Reserved];


          
(l)  [Reserved];


          
(m)  
Collateral Documents. There shall have been delivered to Agent, in form and
substance satisfactory to Agent and its counsel, sufficient counterparts of (i)
the Guarantee and Collateral Agreement, and (ii) the other Collateral Documents,
executed by a duly authorized officer of each of the Borrower and the Guarantors
party to such Collateral Documents. In addition, the Collateral Agent shall have
received the documents described in Section 3.05 (subject to the additional time
allotted in Section 6.17); 


          
(n)   Pledge
of Shares. The Collateral Agent shall have received (x) (i) the
certificates representing the certificated shares of Funding Corp., each other
Finance Subsidiary, each of the Guarantors listed on Exhibit D hereto and each
first-tier Subsidiary of such Guarantors, in each case to the extent owned by a
Credit Party, and (ii) the certificates representing 65% of the certificated
shares of the Foreign Subsidiaries owned directly by the Borrower or a
Guarantor, which certificates are to be pledged pursuant to the Guarantee and
Collateral Agreement, together with (y) an undated stock power for each such
certificate executed in blank by a duly authorized officer of the pledgor
thereof; 



53








          
(o)  [Reserved];


          
(p)  [Reserved];



          
(q)  [Reserved];


          
(r)  [Reserved];


          
(s)   No Litigation. No litigation, inquiry, injunction or
restraining order shall be pending, entered or threatened (including any
proposed statute, rule or regulation) which, in the reasonable opinion of the
Majority Lenders, could have a Material Adverse Effect;


          
(t)   No Material Adverse Change. There shall not have occurred
since December 31, 2003 any change or development, which in either case in the
opinion of the Majority Lenders could have a Material Adverse Effect;


          
(u)  
Filings. Any filings and other actions required to create, perfect and
preserve the priority of the appropriate security interests in all Collateral
(including, without limitation, the filing of duly executed financing statements
on Form UCC-1 in the jurisdictions set forth in Schedule 3 to the Guarantee and
Collateral Agreement and in any other jurisdiction, in the opinion of the Agent,
desirable to perfect the Liens on the Collateral) shall have been duly made or
taken (or, in the case of UCC-1s, executed and delivered in proper form for
filing), and all Collateral shall be free and clear of other liens other than
Permitted Liens. 


          
(v)   Good
Standing Certificates. There shall have been delivered to Agent, in form and
substance satisfactory to Agent and its counsel, good standing certificates (or
bring-down telexes or other evidence of good standing) for Borrower and for each
Guarantor from the Secretary of State of the state of incorporation of each such
Person and good standing certificates (or similar authorization to conduct
business as a foreign corporation) for Borrower and each Guarantor from the
Secretary of State of each state with respect to which Borrower makes the
representations contained in Sections 5.01 and 5.02 hereof; 


          
(w)   Payment
of Fees and Expenses. The Agent shall have received, for the account of the
Lenders and for its own account, payment by Borrower of all fees and expenses
(including reasonable legal fees and expenses) required to be paid hereunder,
including without limitation, under Section 9.06, to the extent invoices
therefor have been presented to Borrower prior to the Closing Date; 


          
(x)  
Officer’s Certificate. There shall have been delivered to Agent, in
form and substance satisfactory to Agent and its counsel, a certificate signed
by a Senior Vice President of Borrower, dated as of the Closing Date, certifying
that: 


	 	          
(i)   the representations and warranties contained in Article V and in
each Collateral Document are true and correct in all material respects on and as
of such date, as though made on and as of such date; 




54








	 	          
(ii)  
no event has occurred and is continuing, or would result from the transactions
provided for herein, which has or would constitute an Event of Default; and 




	 	          
(iii)   there has occurred since December 31, 2003, no development,
event or circumstance which has had or is reasonably likely to have a Material
Adverse Effect; 





          
(y)   Insurance Policies.  There shall have been delivered to the Agent a certificate
evidencing the Borrower’s and its Subsidiaries’ insurance coverage in form and substance
reasonably satisfactory to the Agent;


          
(z)  
Projections. There shall have been delivered to Agent, the consolidated plan
and financial forecast for the then current and next succeeding five (5) fiscal
years of Borrower and its Subsidiaries, including, without limitation, (i) a
forecasted consolidated balance sheet and a consolidated statement of income and
cash flows of Borrower for each such fiscal year, and (ii) forecasted
consolidated statements of income and cash flows of Borrower for each quarter of
the first such fiscal year. Such plan and forecast for the current fiscal year
shall include a summary of significant assumptions. The Lenders acknowledge that
projections satisfying the condition in this Section 4.01(z) have previously
been delivered by the Borrower; 


          
(aa)   Senior
Debt. The Borrower shall have delivered to the Agent a certificate
demonstrating in reasonable detail that the Borrower and the other Credit
Parties have the ability (i) under the 1997 Indenture and the 1998 Indenture to
incur the indebtedness and other Obligations under the Credit Documents and that
the Obligations constitute Senior Indebtedness (as defined in the 1997 Indenture
and the 1998 Indenture) and (ii) under the Senior Unsecured Notes Indenture to
incur the indebtedness and other Obligations under the Credit Documents and to
create Liens on the Collateral therefor. 


          
(bb)   Other
Evidence Agent May Require. There shall have been delivered to Agent, in
form and substance satisfactory to Agent and its counsel, such other evidence or
documents as Agent may reasonably request consistent with the other terms of
this Agreement to establish the consummation of the transactions contemplated
hereby, the taking of all proceedings in connection herewith and compliance with
the conditions set forth in this Agreement 


          
(cc)  
Repayment of Indebtedness. The Borrower shall have repaid at least
$50,000,000 of Revolving Advances outstanding under the Existing Credit
Agreement. The Borrower shall have repaid all of the indebtedness and other
obligations outstanding under the Receivables Program in full, the Receivables
Program shall have been terminated and all of the Credit Parties’ accounts
receivables and other assets shall have ceased to be subject to the Receivables
Program or any Lien in connection therewith. 


          
(dd)  
Ratings. Each of the Term Loan Facility and the Revolving Credit Facility
shall have both received a rating of at least B2 from Moody’s Investors
Service, Inc. and at least B from Standard & Poor’s Ratings Group. 



55








          
4.02  
Conditions Precedent to Each Advance and Letter of Credit. The obligation of
each Lender to make any Advance or to issue any Letter of Credit (or to renew or
extend any Letter of Credit) hereunder is subject to the following conditions
precedent: 


	 	          
(a)   No Default or Event of Default has occurred and is continuing on the date of
each Advance or the date of issuance (or the date of renewal or extension, as
the case may be) of each Letter of Credit or would result from the incurring of
obligations by Borrower under this Agreement;




	 	          
(b)   The representations and warranties contained herein, in the
Collateral Documents and in any guaranty hereafter executed and delivered by a
new Guarantor pursuant to Section 3.04, shall be true and correct in all
material respects on the date of each Advance or the date of issuance (or the
date of renewal or extension, as the case may be) of each Letter of Credit,
except as to representations and warranties which expressly relate to an earlier
date and except for changes which are expressly permitted by this Agreement;
and




	 	          
(c)   There has occurred since the Closing Date, no event, development or circumstance
which has had or is reasonably likely to have a Material Adverse Effect. 





Each borrowing by or credit
extension to Borrower hereunder shall constitute a representation and warranty
by Borrower as of the date of each such borrowing or credit extension that the
conditions in Section 4.02 have been satisfied.  




ARTICLE V.


REPRESENTATIONS AND WARRANTIES


          
Borrower represents and warrants to each Lender that:


          
5.01  
Borrower’s Existence. Borrower is a corporation duly organized and
validly existing under the laws of the State of Delaware, and is in good
standing and properly licensed to conduct business in every jurisdiction in
which the nature of the business conducted by it makes such license and good
standing necessary and where failure to so comply would have a Material Adverse
Effect. 


          
5.02  
Subsidiaries’ Existence. Each Substantial Subsidiary is duly organized
and validly existing under the laws of the jurisdiction of its formation, and is
in good standing and properly licensed to conduct business in the State in which
its principal operations are located and in every jurisdiction in which the
nature of the business conducted by it makes such compliance necessary and where
failure to comply would have a material adverse effect on the business of any
such Subsidiary. Each Guarantor which is not a Substantial Subsidiary is duly
organized and validly existing under the laws of the jurisdiction of its
formation and is in good standing and properly licensed to conduct business in
the State in which its principal operations are located and in every
jurisdiction in which the nature of the business conducted by it makes such
compliance necessary except where failure to comply with any of the foregoing
could not reasonably be expected to have a Material Adverse Effect. 



56








          
5.03  
Borrower’s and Subsidiaries’ Powers. The execution, delivery and
performance of this Agreement, the Notes, the other Credit Documents and any
other instrument or agreement required to be executed and delivered by Borrower
hereunder or any of its Subsidiaries are within Borrower’s or such
Subsidiary’s corporate or other appropriate powers, have been duly
authorized, and are not in conflict with the terms of any charter, by-law or
other organization papers of Borrower or such Subsidiary, or any material
instrument or agreement to which Borrower or any Subsidiary is a party or by
which Borrower or any Subsidiary is bound or affected (including, but not
limited to, the 1997 Indenture, the 1998 Indenture and the Senior Unsecured
Notes Indenture). 


          
5.04   Power
of Officers. The officers of Borrower and the other Credit Parties executing
this Agreement, the Notes, the other Credit Documents and any other certificate,
instrument or agreement required to be delivered hereunder are duly authorized
to execute same. 


          
5.05  
Government Approvals. No approval, consent, exemption or other action by, or
notice to or filing with, any governmental authority is necessary in connection
with the execution, delivery, performance or enforcement of this Agreement, the
Notes, the other Credit Documents or any other instrument or agreement required
hereunder, except as may have been obtained and certified copies of which have
been delivered to Agent or except where the failure to so comply would not
reasonably be expected to have a Material Adverse Effect. 


          
5.06   Compliance With Laws. There is no law, rule or
regulation, nor is there any judgment, decree or order of any court or
governmental authority binding on Borrower or any Subsidiary, which would be
contravened by the execution, delivery, performance or enforcement of this
Agreement, the Notes, the other Credit Documents or any instrument or agreement
required hereunder, except where the failure to so comply would not reasonably
be expected to have a Material Adverse Effect. 


          
5.07  
Enforceability of Agreement. Each of this Agreement, the Notes and each of
the other Credit Documents to which the Borrower or any of its Subsidiaries is a
party are legal, valid and binding agreements and obligations of Borrower, or
such Subsidiary, as the case may be, enforceable against Borrower or such
Subsidiary, as the case may be, in accordance with their respective terms, and
any other instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable, subject, in
each case, to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors’ rights generally and general equitable principles (whether
considered in a proceeding in equity or at law). 


          
5.08   Title
to Property. Borrower and its Subsidiaries have good title to their
respective personal properties and assets, and good and marketable title to
their respective real properties, free and clear of all Liens, except for
Permitted Liens on such properties and assets. The execution, delivery or
performance of this Agreement, the Notes, the other Credit Documents or any
instrument or agreement required hereunder will not result in the creation of
any Lien, other than in favor of the Secured Creditors pursuant to the
Collateral Documents. 


          
5.09  
Litigation. Except as disclosed on Schedule 5.09, there are no suits,
proceedings, claims or disputes pending or, to the knowledge of Borrower,
threatened against or 



57








affecting Borrower or any
Subsidiary or their respective property, which could reasonably be expected to
have a Material Adverse Effect. 


          
5.10   Events
of Default. Except for the matters expressly described in the Disclosure
Letter, no event has occurred and is continuing or would result from the
incurring of obligations by Borrower or its Subsidiaries under this Agreement
and the other Credit Documents which is a Default or an Event of Default. 


          
5.11  
Compliance with Margin Requirements. Borrower is not in violation of any
provision of Section 7 of the Securities Exchange Act of 1934 or any Margin
Regulation, nor will Borrower’s activities cause it to violate such
provision or any Margin Regulation. 


          
5.12  
Subsidiaries. All of Borrower’s Subsidiaries are listed on Exhibit D
hereto or on an amendment thereto delivered pursuant to Section 6.03(d) hereof. 


          
5.13  
Financial Information. The audited consolidated financial statements of
Borrower and its Subsidiaries for the fiscal year ending December 31, 2003 and
the unaudited consolidated financial statements of the Borrower and its
subsidiaries for the fiscal quarter ending June 30, 2004 have been furnished by
Borrower to Lenders. Such financial statements have been prepared in accordance
with Historic GAAP and practices consistently applied and accurately and fairly
present in all material respects the consolidated financial condition and
results of operations of the entities referred to therein as of such dates,
subject to the matters disclosed in the second and third paragraphs of the
Disclosure Letter. Since the date of the most recent audited financial
statements referred to above, there has been no change in Borrower’s
consolidated financial condition or results of operations sufficient to impair
Borrower’s ability to repay the Obligations in accordance with the terms
hereof. Except as disclosed in the Disclosure Letter, neither Borrower nor any
Subsidiary has any contingent obligations, liabilities for taxes or other
outstanding financial obligations which are material in the aggregate, except
those for which adequate reserves are established or as disclosed in such
statements or in the statements or reports delivered or to be delivered for the
period in which such obligations were incurred pursuant to Section 6.03. 


          
5.14   ERISA. Each Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code and any other
applicable federal or state law, and except as listed on Schedule 5.14 no event
or condition is occurring nor is there any present intent to cause any such
event or condition to occur with respect to any Plan or Multiemployer Plan with
respect to which Borrower would be under an obligation to furnish a report to
Lenders in accordance with Section 6.02(d) hereof and which, taking all such
events or conditions arising within the last twelve-month period, in the
aggregate would result in liability to Borrower or an ERISA Affiliate in excess
of One Million Dollars ($1,000,000). For purposes of this representation and
warranty, Borrower, or any ERISA Affiliate if not the Plan administrator, shall
be deemed to have knowledge of all facts attributable to the Plan administrator
designated pursuant to ERISA; provided, however, that the
foregoing representation with respect to Multiemployer Plans is made with
respect to matters of which Borrower or any ERISA Affiliate has actual
knowledge. The aggregate withdrawal liability under Section 4201 of ERISA which
could be incurred by Borrower and each ERISA Affiliate, collectively, upon a
complete withdrawal, within the meaning of Section 4203 of ERISA, from each and
all Multiemployer  



58








Plans to which each is
contributing or has contributed within the past five calendar years, plus the
aggregate of the excess of benefit liabilities, within the meaning of Section
4001(a)(16) of ERISA, of each Plan upon termination of such Plan over the assets
of such Plan, does not exceed Five Million Dollars ($5,000,000). 


          
5.15   Investment Company Act of 1940. Neither Borrower nor any
of its Subsidiaries is an “investment company” or a company
“controlled” by an “investment company”, within the meaning
of the Investment Company Act of 1940, as amended. 


          
5.16   No
Restrictions on Subsidiaries. No Subsidiary is prohibited by the terms of
any agreement to which it is a party or by which it is bound or affected from
paying dividends to or making loans or advances to Borrower or any Subsidiary
directly controlling it, except (a) as disclosed in Schedule 5.16; (b)
restrictions imposed by this Agreement or any Collateral Agreement; (c)
customary non-assignment provisions restricting subletting or assignment of any
lease or assignment of any contract of any Subsidiary; customary net worth
provisions contained in leases and other agreements entered into by a Subsidiary
in the ordinary course of business; and customary provisions in instruments or
agreements relating to a Lien created, incurred or assumed in accordance with
this Agreement prohibiting the transfer of the property subject to such Lien, in
each case in existence on the Closing Date; (d) restrictions on Debt secured by
any Permitted Lien described in clauses (iv), (xii), (xiii) or (xiv) of the
definition of “Permitted Lien” limiting the right of such Subsidiaries
to dispose of the assets securing such Debt to the extent that the agreement
governing such Debt prohibits the transfer of such assets as a Restricted
Payment; (e) customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the capital stock or assets of such Subsidiary; and (f) any
restrictions pursuant to any agreement that extends, refinances, renews or
replaces any agreement containing any of the restrictions described in the
foregoing clauses (a) through (e), provided that the terms and conditions
of any such restrictions are not less favorable to the Lenders than those under
or pursuant to the agreement extended, refinanced, renewed or replaced. 


          
5.17   Senior
Indebtedness. The Borrower agrees that at all times all sums outstanding
under this Agreement and the Notes and all other monetary obligations of the
Credit Parties under this Agreement and the other Credit Documents will
constitute Senior Indebtedness and Designated Senior Indebtedness under the
Subordinated Notes Indenture. 


          
5.18  Environmental Matters.  As of the Closing Date:


          
(a)   except as disclosed on Schedule 5.18, the property, assets and
operations of Borrower and the Subsidiaries comply in all material respects with
all applicable Hazardous Materials Laws and all governmental permits relating to
the use and/or operation thereof (except to the extent that failure to comply
with such Hazardous Materials Laws or applicable permits would not have a
material adverse effect on the business, operations, properties, assets or
financial condition of Borrower and its Subsidiaries taken as a whole);


          
(b)   to the best knowledge of Borrower, after reasonable inquiry, (i)
none of the real property owned in fee, or the assets or operations of Borrower
and the Subsidiaries related thereto is the subject of federal or state
investigation mandating any remedial action, involving 



59








expenditures, which is
needed to respond to a release of any Hazardous Materials into the environment,
(ii) there are no underground storage tanks present on or under the Properties
owned in fee, and (iii) there are no pending or threatened: (A) actions or
proceedings from any governmental agency or any other person or entity regarding
the disposal of Hazardous Materials, or regarding any Hazardous Materials Laws
or evaluation, or (B) liens or governmental actions, notices of violations,
notices of noncompliance or other proceedings of any kind relating to any of the
Hazardous Materials Laws with respect to the Properties; and 


          
(c)   neither Borrower nor any Subsidiary has any material liability
(material to the Borrower and its Subsidiaries taken as a whole) in connection
with any release of any Hazardous Materials into the environment. 


          
5.19   Collateral Documents. (a)  The provisions of
each of the Collateral Documents (other than the Mortgages, subject to (b)
below, and the collateral assignments of tenant’s rights in leases) are
effective to create in favor of the Collateral Agent, for the benefit of the
Secured Creditors, a legal, valid and enforceable security interest in all
right, title and interest of Borrower and its Subsidiaries in the Collateral
described therein; and financing statements have been filed (or, in the case of
UCC-1 financing statements delivered on the Closing Date, executed and delivered
in the proper form for filing) in the offices in all of the jurisdictions listed
in the schedules to the Guarantee and Collateral Agreement. 


          
(b)   Each Mortgage when delivered will be effective to grant to the
Collateral Agent for the benefit of the Secured Creditors, a legal, valid and
enforceable mortgage lien on all the right, title and interest of the mortgagor
under such Mortgage in the real property and fixtures described therein. When
each such Mortgage is duly recorded in the appropriate land records offices and
the mortgage recording fees and taxes in respect thereof are paid and compliance
is otherwise had with the formal requirements of state law applicable to the
recording of real estate mortgages generally, each such Mortgage shall
constitute a perfected first priority mortgage lien on such mortgaged property
(or, as required by Section 7.03(b), a perfected second priority mortgage lien
on such mortgaged property), subject to the encumbrances and exceptions to title
set forth therein and except as noted in the title policies and title
endorsements thereto delivered to the Collateral Agent, and such Mortgage also
creates a legal, valid, enforceable and perfected first lien on, and security
interest in, all right, title and interest of Borrower or such Subsidiary under
such Mortgage in all fixtures which are covered by such Mortgage, subject to no
other Liens, except the encumbrances and exceptions to title set forth therein
and except as noted in the title policies and title endorsements thereto
delivered to the Collateral Agent and Permitted Liens. 


          
(c)   The provisions of the Guarantee and Collateral Agreement, after
giving effect to the filing of UCC-1 financing statements in the offices set
forth on the schedules to the Guarantee and Collateral Agreement and completion
of the filings and other actions described in Schedule 3 to the Guarantee and
Collateral Agreement, shall be effective to create, in favor of the Collateral
Agent, for the ratable benefit of the Secured Creditors, a fully perfected first
Lien on, and security interest in, all right, title and interest of Borrower and
the Guarantors in the “Collateral”, as defined in the Guarantee and
Collateral Agreement (except for Permitted Liens). 



60








          
5.20   Copyrights, Patents, Trademarks and Licenses, etc.
Except as disclosed in Schedule 5.20, Borrower and its Subsidiaries own or are
licensed or otherwise have the right to use all of the Intellectual Property
that is reasonably necessary for the operations of their respective businesses
as currently conducted, without conflict with the rights of any other Person
with respect thereto and except where the failure to be in compliance with this
sentence would not have a Material Adverse Effect. To the best knowledge of
Borrower, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
employed by Borrower or any of its Subsidiaries infringes upon any rights
obtained by any other Person, except where the failure to be in compliance with
this sentence would not have a Material Adverse Effect, and no claim or
litigation regarding any of the foregoing is pending or threatened. 


          
5.21   Accuracy of Information, etc. No statement or
information contained in this Agreement, any other Credit Document, the
“private” Confidential Information Memorandum dated September 2004 or
any other document, certificate or statement (other than Schedule 1.01 until
such time Schedule 1.01 shall have been updated pursuant to Section 6.17)
furnished by or on behalf of any Credit Party to the Agent or the Lenders, or
any of them, for use in connection with the transactions contemplated by this
Agreement or the other Credit Documents, contained as of the date such
statement, information, document or certificate was so furnished (or, in the
case of the Confidential Information Memorandum, as of the date of this
Agreement), any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements contained herein or therein not
misleading. The projections and pro forma financial information contained in the
materials referenced above are based upon good faith estimates and assumptions
believed by management of the Borrower to be reasonable at the time made, it
being recognized by the Lenders that such financial information as it relates to
future events is not to be viewed as fact and that actual results during the
period or periods covered by such financial information may differ from the
projected results set forth therein by a material amount. 


          
5.22   Permitted Indebtedness. All Indebtedness (as defined in
the Senior Unsecured Notes Indenture) outstanding under this Agreement and the
other Credit Documents is and will be permitted by Sections 1.1 and 10.8 of the
Senior Unsecured Notes Indenture. All other sums outstanding under this
Agreement and the Notes and all other monetary obligations of the Credit Parties
under the Credit Documents are and will be permitted under the Senior Unsecured
Notes Indenture. All Liens on the Collateral are and will be permitted by
Sections 1.1 and 10.11 of the Senior Unsecured Notes Indenture. 




ARTICLE VI.


AFFIRMATIVE COVENANTS


          
Borrower covenants and agrees that so long as the Credit shall remain available,
and until the full and final payment of all Obligations, it will, and with
respect to Sections 6.01, 6.04, 6.05, 6.06, 6.07, 6.08, 6.09, 6.10, 6.11, 6.14,
6.16 and 6.17, it will cause each Subsidiary to, unless Majority Lenders waive
compliance in writing: 



61








          
6.01   Use of Proceeds and Letters of Credit. Use (a) the
proceeds of the Revolving Advances solely (i) refinance and continue
indebtedness under the Existing Credit Agreement, (ii) for general corporate
purposes, including to finance expansions and investments permitted hereunder
and (iii) for working capital purposes in the ordinary course of business; (b)
the Letters of Credit (i) to provide security as required under applicable state
consumer protection statutes and for utility deposits, (ii) to provide
credit support for insurance, construction bonds, rent deposits and utility
bonds, (iii) to secure the payment of workers’ compensation benefits and
obligations, (iv) for the purposes described in clause (ii) of the definition of
“Permitted Liens” and to provide credit support for the obligations
described therein, and (v) for the general corporate purposes of the Borrower
and its Subsidiaries in the ordinary course of business; and (c) the proceeds of
the Term Advances in the following order of priority: (i) first, to repay in
full all obligations of the Borrower and its Subsidiaries under the Receivables
Program, (ii) second, to repay up to $50,000,000 of Revolving Advances, (iii)
third, to pay fees and expenses related to the foregoing, (iv) fourth, for
general corporate purposes, including to finance expansions and investments
permitted hereunder and (v) fifth, for working capital purposes in the ordinary
course of business. For purposes of this Section 6.01, a “hostile
takeover” of another entity or a “tender offer” in furtherance of
same is not a proper purpose. 


          
6.02   Notices. Promptly, but within five (5) Banking Days,
unless otherwise provided below, give written notice to Agent of: 


	 	          
(a)  except for matters previously disclosed on Schedule 5.09, Schedule 6.02(a) and
the Disclosure Letter (unless there is a significant development with respect to
these matters), any litigation affecting Borrower or any Subsidiary, the adverse
determination of which could materially and adversely affect the financial
condition or business of Borrower and its Subsidiaries taken as a whole, or
where the amount Borrower or such Subsidiary expects to pay the other parties to
the litigation is more than Two Million Dollars ($2,000,000);




	 	          
(b)  (i)  any dispute which may exist between Borrower or any Subsidiary
and any governmental regulatory body or law enforcement authority which has not
been previously disclosed and could have a material adverse effect on its
operations, and (ii) any lien for taxes (other than taxes unless such taxes are
due), assessments, governmental charges, or levies, in each case in excess of
One Million Dollars ($1,000,000), immediately upon the filing thereof or the
attachment thereof to any property of Borrower or any of its Subsidiaries;




	 	          
(c)  any labor controversy resulting in or reasonably likely to result in a strike
against Borrower or any Subsidiary which could have a Material Adverse Effect; 




	 	          
(d)  the occurrence of a Reportable Event with respect to any Plan which could result
in the incurrence by Borrower or any ERISA Affiliate of any liability, fine or
penalty; the institution of any steps to terminate any Plan (together with
copies of any communication between the PBGC and Borrower or any ERISA Affiliate
related to such termination); the institution of any steps to withdraw from any
Plan, within the meaning of Section 4062(e) or 4063 of ERISA, or any
Multiemployer Plan, within the meaning of Section 4203 or 4205 of ERISA; the
incurrence of any material increase in the contingent 




62








	 	liability of Borrower or
any ERISA Affiliate with respect to any post-retirement welfare benefits; the
failure of Borrower or any other Person to make a required contribution to a
Plan if such failure is sufficient to give rise to a lien under Section 302(f)
of ERISA; or the adoption of an amendment to any Plan that pursuant to Section
401(a)(29) of the Code or Section 307 of ERISA would require Borrower or an
ERISA Affiliate to provide security to the Plan in accordance with the
provisions of such Sections;




	 	          
(e)  except for matters expressly described in the Disclosure Letter, any Default or
Event of Default, specifying the nature and the period of existence thereof and
what action Borrower has taken or proposes to take with respect thereto; 




	 	          
(f)  upon, but in no event later than ten (10) days after, becoming aware of (i) any
and all enforcement, cleanup, removal or other governmental or regulatory
actions instituted, completed or threatened against Borrower or any Subsidiary
or any of their properties pursuant to any applicable Hazardous Materials Laws
which has the reasonable likelihood of subjecting Borrower or any Subsidiary to
environmental liability of Two Million Dollars ($2,000,000) or more, (ii) all
claims made or threatened by any third party against Borrower or any Subsidiary
with respect to or because of its or their property relating to damage,
responsibility, contribution, cost recovery, compensation, loss or injury
resulting from any Hazardous Materials which has the reasonable likelihood of
subjecting Borrower or any Subsidiary to environmental liability of Two Million
Dollars ($2,000,000) or more (the matters set forth in clauses (i) and (ii)
above are hereinafter referred to as “Hazardous Materials Claims”),
and (iii) any environmental or similar condition on any real property adjoining
or in the vicinity of the property of Borrower or any Subsidiary that could
reasonably be anticipated to cause the property owned by Borrower or any
Subsidiary or any part thereof to be subject to any restrictions on the
ownership, occupancy, transferability or use of such property under any
Hazardous Materials Laws, together with copies of all inquiries, reports or
notices relating to the matters set forth in clauses (i), (ii) and (iii);




	 	          
(g)  following receipt by Borrower of a material notice from any holder or
representative of Subordinated Debt or any Senior Unsecured Notes, a copy of
such notice and, concurrently with the sending of any notice by Borrower to the
holder or representative of any Subordinated Debt or any Senior Unsecured Notes,
a copy of such notice; and




	 	          
(h)  any other matter which has resulted or is reasonably likely to result in a
Material Adverse Effect. 




          
6.03   Financial Statements, Reports, Etc. Deliver or cause to
be delivered to the Agent, with copies for each of the Lenders:


	 	          
(a)  As soon as available but no later than forty-five (45) days after the close of
each of the first three fiscal quarters of each of Borrower’s fiscal years,
Borrower’s unaudited consolidated statement of income and retained earnings
as of the close of such quarter, its consolidated balance sheet and statement of
income and retained earnings for that portion of the fiscal year ending with
such quarter, and its unaudited consolidated 




63








	 	statement of
cash flows for that portion of the fiscal year ending with such quarter. Each of
such financial statements shall be certified by a responsible officer of
Borrower as being prepared in accordance with then applicable GAAP;
provided, that the delivery to each Lender of a Form 10-Q Quarterly
Report of the Borrower within the time period set forth above shall satisfy the
Borrower’s obligations pursuant to this paragraph (a);




	 	          
(b)  (i)  Prior to the implementation of Prospective GAAP as soon as
available but no later than ninety (90) days after the close of each of the
Borrower’s fiscal years, Borrower’s unaudited consolidated statement
of income and retained earnings as of the close of such year, its consolidated
balance sheet and statement of income and retained earnings for such fiscal
year, and its unaudited consolidated statement of cash flows for such fiscal
year. Each of such financial statements shall be certified by a responsible
officer of Borrower as being prepared in accordance with Historic GAAP;
provided, that the delivery to each Lender of a Form 10-K Annual Report
of the Borrower within the time period set forth above shall satisfy the
Borrower’s obligations pursuant to this paragraph (b)(i);




	 	          
(ii) From and after the implementation of Prospective GAAP as soon as available
but no later than ninety (90) days after the close of each of its fiscal years,
a copy of the unqualified, audited financial statements of Borrower and such
other audited financial statements of Subsidiaries of Borrower that have been
prepared (if any). Such financial statements shall include at least the balance
sheet of Borrower as of the close of such year and statements of income and
retained earnings and of changes in financial position and cash flows for such
year, prepared (in the case of Borrower) on a consolidated basis, and such
consolidated financial statements shall be certified by KPMG LLC or by other
independent public accountants of national reputation selected by Borrower and
reasonably satisfactory to Lenders. The delivery to each Lender of a Form 10-K
Annual Report within the time period set forth above shall satisfy the
Borrower’s obligations pursuant to the preceding portion of this Section
6.03(b); provided that the consolidated financial statements included in
such Form 10-K shall be certified by KPMG LLC or by other independent public
accountants of national reputation selected by Borrower and reasonably
satisfactory to Lenders. The accountants’ certification (x) shall not be
qualified or limited because of restricted or limited examination by such
accountants of any material portion of the records of Borrower or any such
Subsidiary for which audited financial statements have been prepared and (y)
shall not contain a “going concern” or like qualification or exception. Such
accountants for Borrower shall state in a letter to Lenders that in the course
of their examination such accountants, without undertaking any special
procedures for the purpose of such certificate, have obtained no knowledge of
the occurrence of any condition, event or act which would constitute a Default
or an Event of Default, or, if such accountants shall have obtained knowledge of
any such violation, condition, event or act, they shall specify in such letter
all such violations, conditions, events and acts and the nature and status
thereof. If any of the materials required to be delivered pursuant to paragraph
(c) of this Section 6.03 are delivered in connection with the delivery of the
financial statements pursuant to this Section 6.03(b), the Borrower shall not be
required to deliver 




64








	 	separately
such statements pursuant to such paragraph (c). Borrower shall promptly deliver
to Agent a copy of any management letters from such accountants to
Borrower;




	 	          
(c)  promptly after filing with the Securities and Exchange Commission, a copy of
each Form 8-K Current Report, Form 10-K Annual Report, Form 10-Q Quarterly
Report and Form 11-K Annual Report, Annual Report to Shareholders, Proxy
Statement and Registration Statement of (i) Borrower and (ii) Borrower’s
Subsidiaries;




	 	          
(d)  not later than forty (40) days after the end of each fiscal month (other than
the last month in each fiscal quarter), Borrower’s unaudited consolidated
statement of income for that portion of the fiscal year ending with such month,
certified by a responsible officer of Borrower as being complete and correct and
fairly presenting its results of operations and including a comparison to the
same period for the prior fiscal year;




	 	          
(e)  not later than forty-five (45) days after the close of each of the first three
(3) quarters of the fiscal year of Borrower nor later than ninety (90) days
after the close of each of the Borrower’s fiscal years, a quarterly
certificate executed by any of the chief financial officer, vice president,
treasurer or controller of Borrower, stating that such officer is familiar with
this Agreement and the business and operations of Borrower and (i) showing
Borrower’s compliance with Sections 6.12, 6.14, 6.15, 7.01, 7.02, 7.08 and
7.11, (ii) if Borrower or any Subsidiary is not in compliance therewith, showing
such failure to comply, the amount thereof and explaining the reason therefor,
(iii) specifying changes during such quarter in the list of Subsidiaries
previously delivered by the Borrower to the Lenders, other than changes
previously reported to the Agent during such quarter, (iv) stating that Borrower
has performed all its obligations hereunder and under any judgment, decree or
order of any court or governmental authority binding on Borrower except as may
be contested in good faith upon advice of counsel and for the possible payment
of which adequate reserves are being maintained, (v) stating that no event has
occurred which constitutes a Default or an Event of Default, or, if such event
has occurred, the nature and status thereof and the steps that Borrower is
taking or has taken to cure the same and (vi) stating the name and jurisdiction
of organization of each Subsidiary and Unrestricted Subsidiary created during
such quarter;




	 	          
(f)  commencing March 1, 2005, on such date and on the first day of each March
thereafter, projections which are similar in form and substance to the
projections delivered pursuant to Section 4.01(z);




	 	          
(g)  such other statements, lists of property and accounts, budgets, forecasts or
reports as Agent or any Lender may reasonably request; 




	 	          
(h)  within 10 Banking Days after (i) the receipt of proceeds from a disposition of
assets which receipt causes the amount of Reinvestment Proceeds not theretofore
reinvested or applied to prepayment of Advances and cash collateralization of
Letters of Credit to exceed $5,000,000 or (ii) the receipt of proceeds from the
disposition of assets when the Reinvestment Proceeds not theretofore reinvested
or applied to prepayment of 




65








	 	Advances and
cash collateralization of Letters of Credit exceeds $5,000,000, a statement of a
responsible officer of the Borrower certifying the amount of such proceeds and
the amount of Reinvestment Proceeds as of such date of receipt;




	 	          
(i)  [Reserved]





	 	          
(j)  at each time financial statements of the Borrower are required to be delivered
pursuant to paragraph (a) or (b) above, copies of the combined balance sheet of
the Unrestricted Subsidiaries as of the close of the applicable quarter or
fiscal year and combined statements of income and retained earnings of the
Unrestricted Subsidiaries for the portion of the fiscal year then ended, all set
forth in a format which reconciles such financial statements of the Unrestricted
Subsidiaries to the corresponding financial statements delivered pursuant to
paragraphs (a) and (b); and




	 	          
(k)  upon request of the Administrative Agent, a description of the business and
activities of each Unrestricted Subsidiary created after the Closing Date and
the Borrower’s reason for designation of such entity as an Unrestricted
Subsidiary.





          
6.04   Further
Assurances. Borrower shall execute and deliver, or cause to be executed and
delivered, to Lenders, Agent or the Collateral Agent, such documents and
agreements, and shall take or cause to be taken such actions, as Agent, the
Collateral Agent or the Majority Lenders may, from time to time reasonably
request to carry out the terms and conditions of this Agreement and all of the
Collateral Documents. 


          
6.05  
Existence, Etc. Subject to Section 7.05, maintain and preserve its existence
and all rights, privileges and franchises now enjoyed and necessary for use in
its business, and keep all its properties material to its operations consistent
with industry practice in good working order and condition. 


          
6.06  
Ownership of Stock of Subsidiaries. Subject to Sections 7.05 and 7.08,
maintain at least the same ownership of the capital stock or other equity
interests of each of its Subsidiaries as in effect on the Closing Date or, if
such Subsidiary is acquired after the Closing Date, the same ownership of
Capital Stock or other equity interests of such Subsidiary as existed on the
date of acquisition. 


          
6.07   Payment
of Obligations. Pay all material obligations, including tax claims, when
due, except such as may be diligently contested in good faith and by appropriate
proceedings or as to which a bona fide dispute may exist and for which adequate
reserves are being maintained. 


          
6.08  
Compliance with Laws. At all times comply with all laws, rules, regulations,
orders and directions of any governmental authority applicable to or having
jurisdiction over it or its business, the violation of which could have a
Material Adverse Effect. 


          
6.09  
Insurance and Condemnation. Maintain at all times substantially the same
type of insurance coverage in respect of its properties and assets as that
maintained in respect thereof immediately prior to the execution of this
Agreement: 



66








	 	          
(a)  in amounts not less than the amount of the coverage immediately prior to the
execution of this Agreement for all insurance other than that described in
clause (b) below including, without limitation, fire and extended coverage
insurance for the full and insurable replacement value of all buildings and
other improvements located on its properties and business interruption and
workmen’s compensation insurance. All such insurance (other than
workmen’s compensation insurance and directors’ and officers’
insurance) relating to assets of Borrower or its Subsidiaries shall name the
Collateral Agent as loss payee (and in the case of each item of real property on
which the Collateral Agent has a security interest, mortgage loss payee) and an
additional insured for the interests relating to the assets of Borrower and its
Subsidiaries, for the benefit of the Collateral Agent and each Secured Creditor,
as their interests may appear, and shall not be modified, reduced or cancelled
in the absence of thirty (30) days prior written notice to the Collateral Agent.
Borrower shall promptly notify Agent of any loss, damage, or destruction to the
Collateral in excess of $2,000,000 for each such casualty, whether or not
covered by insurance. The Collateral Agent is hereby authorized to collect all
insurance proceeds directly. With respect to insurance proceeds arising from
loss, damage or other casualty to any of the Collateral or any part thereof,
such proceeds shall be applied as hereinafter provided. Destruction or damage to
any real or personal property of Borrower or any Subsidiary which gives rise to
insurance proceeds shall be deemed to be a disposition of such property for
purposes of Section 7.08(d); provided, however, that if the total
amount of the proceeds from such casualty is reasonably expected to be less than
$5,000,000 and neither an Event of Default nor a Default shall have occurred and
be continuing, Borrower shall have the exclusive right to negotiate a settlement
regarding such proceeds with the applicable insurance company and the Collateral
Agent shall promptly forward such proceeds to Borrower and the Borrower shall
use such proceeds to pay for the repair or replacement (it being agreed that a
destroyed or damaged fitness center may be replaced at any site within five
miles of the site of such fitness center) of the Collateral subject to such
casualty; provided, further, however, that if an Event of Default or a
Default shall have occurred and be continuing, or the proceeds of insurance from
such casualty are reasonably expected to be equal to or greater than $5,000,000,
Borrower shall not enter into any settlement agreement with the applicable
insurance company without the prior written consent of Agent, which consent
shall not be unreasonably withheld, and if a determination has been made by
Borrower, with the prior written consent of Agent, to utilize such proceeds to
replace or rebuild the Collateral affected by such casualty, the Collateral
Agent shall release such proceeds to Borrower from time to time during the
course of said reconstruction, repair or restoration, but not more often than
once each thirty (30) day interval, in accordance with the Collateral
Agent’s customary practices for disbursements of construction loans,
including, without limitation, customary conditions precedent to disbursement,
provided that:




	 	          
(i)  
at the time of any requested release of funds, no Event of Default or Default
shall have occurred and be continuing (to the extent such Event of Default or
Default is cured or waived, Borrower may again request the release of such
funds); 




67








	 	          
(ii)  
if at the time of any such request by Borrower the cost of completing the
repair, replacement or reconstruction, lien-free and ready for use, is in excess
of insurance proceeds and other sums then in the Collateral Agent’s hand
pursuant to this Section 6.09, funds to cover such excess shall either (x) be
promptly deposited by Borrower with the Collateral Agent and shall be disbursed
under this Section 6.09 in the same manner as insurance proceeds or (y) to the
extent some or all of such amount is available to be borrowed pursuant to
Section 2.01(a) hereof, Borrower may, in lieu of the deposit set forth in
subsection (x) above, elect to borrow such amounts as an Advance in accordance
with the terms of Article II hereof when and as needed to complete the repair; 




	 	          
(iii)  
costs of administering this disbursement procedure shall be paid by Borrower out
of funds on deposit with the Collateral Agent or otherwise; 




	 	          
(iv)  
when repair, replacement or reconstruction has been completed and paid for, all
insurance proceeds then remaining in the Collateral Agent’s hands shall be
applied, first, to the payment of the Term Advances in accordance with
Sections 7.08(d) and 2.13(a) and, second, to the payment of the other
Obligations in accordance with Section 7.08(d) and Section 2.13(a); 




	 	          
(v)  
the Collateral Agent shall be satisfied that, upon release of such proceeds, it
shall have for the ratable benefit of the Secured Creditors, a first priority
perfected security interest on all property acquired (or to be acquired), but
subject to Permitted Liens, with such proceeds; and 




	 	          
(vi)  
each release of funds shall be conditioned upon receipt by Agent of such
documentation as Agent may reasonably require such as bills of sale, other
evidences of ownership by the Borrower (or a Subsidiary) of property acquired
with such proceeds, completion certificates, waivers of mechanic’s liens,
etc. 




	 	          
The Collateral Agent shall, pending disbursement or application of funds in
accordance with the terms of this Section 6.09, hold any insurance proceeds (and
other funds deposited with it pursuant to clause (ii) above) deposited with it
in an interest bearing account as to which the Collateral Agent shall not be
liable in any respect to Borrower for any investment results. Interest thereon
shall be held and disposed of in the same manner as other monies held by the
Collateral Agent under this Section 6.09. On each anniversary date of this
Agreement, Borrower shall provide Agent with a summary of each insurance policy
satisfactory to Agent reflecting the insurance coverage required under this
Section 6.09 (together with complete copies of any insurance policies which
Agent may request promptly after such request but not later than six months
after such request). In the event of foreclosure of any mortgage or deed of
trust in favor of Collateral Agent encumbering the Properties or transfer of
title to the Properties in lieu of foreclosure, all right, title and interest of
Borrower in and to any insurance policies then in force with respect to the
Properties (other than liability policies of Borrower) shall pass to the
purchaser, grantee or assignee. In the event of any taking of any portion of any
of the Properties by condemnation, seizure or appropriation by any governmental
authority which does not constitute an Event of Default hereunder, all awards or
proceeds on 




68








	 	account of
said taking shall be collected and applied in the same manner and shall be
subject to the same conditions precedent to the disbursement thereof as
applicable to insurance proceeds under this Section 6.09. Notwithstanding the
foregoing, the rights of the Agent and the Lenders under this paragraph (a) with
respect to property and casualty insurance proceeds relating to loss,
destruction or damage, or a taking of, real property (x) leased by the Borrower
or any of its Subsidiaries or (y) which is subject to a mortgage lien which is
prior to the lien of any Mortgage in favor of the Collateral Agent thereon, and
for which in either case the Collateral Agent is named as loss payee, shall be
subordinate to the rights, if any, of the owner of such real property or the
holder of such prior mortgage lien to the extent such owner or holder is also
named as loss payee; and




	 	          
(b) in an amount not less than Fifty Million Dollars ($50,000,000) for general
liability coverage, including both bodily injury and property damage, on a per
occurrence basis (the “Minimum Liability Coverage”),
provided, however, that the Minimum Liability Coverage may be
reduced from time to time to a coverage limit of not less than Twenty-Five
Million Dollars ($25,000,000) on a per occurrence basis (the “Lowered
 Coverage”) if, within thirty (30) days prior to the expiration
of any Minimum Liability Coverage policy, and thereafter within thirty (30) days
after the end of each fiscal year of Borrower until the Minimum Liability
Coverage is reinstated, Borrower delivers to Agent a certificate signed by the
chief operating officer of Borrower stating that Borrower has obtained a lesser
amount of coverage, setting forth the amount thereof, and that Borrower was
unable to obtain Minimum Liability Coverage and was able to obtain general
liability coverage only in the amount set forth in the Borrower’s
certificate; provided, further, however, that the Lowered
Coverage may be reduced from time to time to a coverage limit of not less than
Twenty-Five Million Dollars ($25,000,000) on a “claims made” basis if,
within thirty (30) days prior to the expiration of any Lowered Coverage policy
and thereafter within thirty (30) days after the end of each fiscal year of
Borrower until the Minimum Liability Coverage is reinstated, Borrower delivers
to Agent a certificate signed by the chief operating officer of Borrower stating
that Borrower has obtained a lesser amount of coverage, setting forth the amount
thereof, and that Borrower was unable to obtain Minimum Liability Coverage or
Lowered Coverage and was able to obtain general liability coverage only in the
amount set forth in the Borrower’s certificate.





          
6.10   Adequate Books. Maintain adequate books, accounts and
records in accordance with then applicable GAAP, and at any reasonable time upon
reasonable notice, during normal business hours, permit employees or agents of
each Lender at any reasonable time to inspect its properties and examine or
audit its books, accounts and records and make copies and memoranda thereof.


          
6.11  
ERISA. Make prompt payment contributions required to meet the minimum
funding standards of ERISA (including any funding waivers granted thereunder) or
as required pursuant to a collective bargaining agreement and to maintain, and
cause each of its ERISA Affiliates to maintain, each employee benefit plan (as
defined in Section 3(3) of ERISA) as to which it may have any liability in
material compliance with all applicable requirements of law and regulations. 



69








          
6.12  
Interest Coverage. At the end of any fiscal quarter of the Borrower,
commencing with the period ending December 31, 2004, maintain a ratio of (i)
Consolidated Adjusted EBITDA to (ii) Consolidated Interest Expense, for any
period of four consecutive fiscal quarters of the Borrower then ended, equal to
or greater than the level set forth below opposite such period: 



          |=========================================================|
          |Quarter Ending                    |   Minimum Allowed    |
          |----------------------------------|----------------------|
          |December 31, 2004 through         |        1.70x         |
          |September 30, 2006                |                      |
          |----------------------------------|----------------------|
          |December 31, 2006 through         |        1.80x         |
          |September 30, 2007                |                      |
          |----------------------------------|----------------------|
          |December 31, 2007 through         |        2.00x         |
          |September 30, 2008                |                      |
          |----------------------------------|----------------------|
          |December 31, 2008 and thereafter  |        2.25x         |
          |=========================================================|



          
6.13  
Hazardous Materials. (a)  Conduct, and cause each Subsidiary to
conduct, its operations and keep and maintain its property in compliance with
all Hazardous Materials Laws (except to the extent that failure to comply with
such Hazardous Materials Laws would not have a Material Adverse Effect. 


	 	          
(b)  Conduct, and cause to be conducted, the ongoing operations of Borrower and its
Subsidiaries in a manner that will not give rise to the imposition of liability,
or require expenditures, under or in connection with any Hazardous Materials Law
(except for any liabilities or expenditure which, in the aggregate, would not
have a material adverse effect on the business, operations, properties, assets
or financial condition of Borrower and its Subsidiaries taken as a whole.




	 	          
(c)  Agent and its agents and representatives shall have the right at any reasonable
time to enter and visit the property (whether owned or leased) of Borrower or
any of its Subsidiaries for the purpose of observing such property. Agent is
under no duty, however, to visit or observe any such property, and any such acts
by Agent shall be solely for the purposes of protecting Lenders’ security
and preserving Lenders’ rights under the Collateral Documents. No site
visit or observation by Agent shall result in a waiver of any default of
Borrower or any Subsidiary or impose any liability on Agent or Lenders. In no
event shall any site visit or observation by Agent be a representation that
Hazardous Materials are or are not present in, on, or under such property, or
that there has been or shall be compliance with any Hazardous Materials Laws.
Neither the Borrower nor any other party is entitled to rely on any site visit
or observation by Agent. Agent owes no duty to inform Borrower or any other
party of any Hazardous Materials or any other adverse condition affecting any
such property. Agent shall not be obligated to disclose to Borrower or any other
party any report or findings made as a result of, or in connection with, any
site visit or observation by Agent. In each instance, Agent shall give Borrower
reasonable notice before entering any such property. Agent shall make reasonable
efforts 




70








	 	to avoid
interfering with the use of any such property in exercising any rights provided
in this Section 6.13.




	 	          
(d)  At the Collateral Agent’s reasonable request, which the Collateral Agent
may make at all reasonable times and from time to time, Borrower shall cause
Phase I environmental audits of the Properties on which the Collateral Agent has
Liens to be conducted by technical consultants acceptable to the Collateral
Agent and detailed written reports thereof to be furnished to the Collateral
Agent, for its benefit, all in a form acceptable to the Collateral Agent,
provided that no more than one such audit may be required for any
property unless at any time the Collateral Agent reasonably determines that a
material change in the environmental condition of such property may have
occurred. In the event said Phase I environmental audits disclose any
environmental condition of any of the Properties which could cause a material
violation of the Hazardous Materials Laws, Borrower shall cause a Phase II
environmental audit of the applicable Property to be conducted by said technical
consultant acceptable to the Collateral Agent and a detailed written report
thereof to be furnished to the Collateral Agent. Borrower shall take all
reasonable remedial measures indicated in said Phase II environmental audit
necessary to be in compliance with law. If Borrower fails to obtain said Phase I
or Phase II environmental audits as aforesaid, the Collateral Agent may, but
shall not be obligated to, cause said Phase I or Phase II environmental audits
to be conducted at Borrower’s sole cost.




	 	          
(e)   Borrower hereby acknowledges that nothing in this Section is
either intended to or actually does give Collateral Agent or the Lenders control
of Borrower’s or its Subsidiaries’ Properties or business or any of
its or their business decisions. 





          
6.14   Total Leverage Ratio. Maintain the Total Leverage Ratio
at the end of each fiscal quarter of the Borrower set forth below at a level not
to exceed the level set forth opposite such period: 



          |=======================================================|
          |Quarter Ending                |    Maximum Allowed     |
          |------------------------------|------------------------|
          |December 31, 2004 through     |         6.75x          |
          |September 30, 2006            |                        |
          |------------------------------|------------------------|
          |December 31, 2006 through     |         5.75x          |
          |September 30, 2007            |                        |
          |------------------------------|------------------------|
          |December 31, 2007 and         |         5.50x          |
          |thereafter                    |                        |
          |=======================================================|



          
6.15   Senior Secured
Leverage Ratio. Maintain the Senior Secured Leverage Ratio at the end of
each fiscal quarter of the Borrower set forth below at a level not to exceed the
level set forth opposite such period: 



71









          |======================================================|
          |Quarter Ending                         |   Maximum    |
          |                                       |   Allowed    |
          |---------------------------------------|--------------|
          |December 31, 2004 through September    |    2.50x     |
          |30, 2006                               |              |
          |---------------------------------------|--------------|
          |December 31, 2006 through September    |    2.25x     |
          |30, 2008                               |              |
          |---------------------------------------|--------------|
          |December 31, 2008 and thereafter       |    2.00x     |
          |======================================================|



          
6.16   Real
Estate Taxes. Borrower shall pay and discharge, and shall cause its
Subsidiaries to pay and discharge, as and when due and payable, before any
penalty attaches, all charges, impositions, levies, assessments and taxes
(whether general, special or otherwise), water charges, sewer service charges
and all other municipal or governmental charges, impositions, levies,
assessments and taxes of any kind or nature that may be at any time levied,
assessed or imposed upon or against any real property owned in fee by any
Subsidiary or in which any Subsidiary has a leasehold interest (but only to the
extent Borrower or any Subsidiary is required to pay such taxes in accordance
with the terms of the lease), and shall promptly deliver to Collateral Agent
upon Collateral Agent’s request therefor, duplicate receipts evidencing
payment thereof prior to delinquency. Notwithstanding anything to the contrary
in the foregoing, Borrower may contest any tax imposed, assessed, levied or due
with respect to or from said real property, by instituting and diligently and in
good faith prosecuting by appropriate judicial proceedings the validity or
amount of a tax, charge, imposition or assessment (said tax, charge, imposition
or assessment being hereinafter referred to in this Section as
“impositions”) if (i) the contest or decision relating thereto will
not and cannot result in the forfeiture of said real property or the
Subsidiary’s leasehold interest therein prior to or pending resolution of
such contest and the invalidity, forfeiture, loss of priority or
unenforceability of Collateral Agent’s mortgage lien on said real property
or the Subsidiary’s leasehold interest therein will not and cannot result
from such contest or failure to pay such impositions, (ii) no Event of Default
shall exist hereunder, and (iii) prior to commencement and during the duration
of such proceeding, Borrower shall maintain adequate reserves on account of the
failure to pay such imposition and/or the contest of the amount and/or validity
thereof in accordance with GAAP. Upon resolution of such contest, Borrower shall
promptly pay the impositions then due. If, at any time during the continuance of
the contest described in the preceding sentence, said real property or the
Subsidiary’s leasehold interest therein is, in Collateral Agent’s
reasonable determination, in imminent danger of being forfeited, lost or
rendered invalid or unenforceable, then, in any of said events, Borrower shall,
at Collateral Agent’s demand, use the aforesaid reserve to pay such
impositions and if such reserve is insufficient to pay in full the required
payment, Borrower promptly shall pay the amount of such insufficiency. 


          
6.17   Real
Estate Collateral; Schedule 1.01. Notwithstanding the provisions of Section
3.05, Borrower and the Subsidiaries shall have met each of the requirements set
forth in Section 3.05 in connection with the real property set forth on Schedule
3.05 no later than 60 days following the Closing Date. Upon Borrower’s
receipt of all Lien search results and in any event no later than October 31,
2004, Borrower shall deliver an updated Schedule 1.01 which will only add valid
liens that were permitted hereunder prior to the Closing Date and secure
obligations permitted hereunder prior to the Closing Date. 



72








          
6.18   Control
Agreements. Within 60 days following the Closing Date (and subject to the
agreement of the depository banks), cause each of its Demand Deposit Accounts
and deposit accounts (as defined in the Guarantee and Collateral Agreement) to
be made subject to written control agreements with the applicable depository
banks and the Collateral Agent on terms satisfactory to the Administrative Agent
in order to perfect a Lien on such Accounts and accounts in favor of the Secured
Parties (“Controlled Accounts”). The Borrower and its
Subsidiaries will not open or create a Demand Deposit Account or deposit account
after the Closing Date unless such Account or account is subject to such control
arrangements. Notwithstanding the foregoing, the Borrower and its Subsidiaries
shall not be required to enter into such control arrangements with respect to
any Demand Deposit Account or deposit account if the balance from time to time
is, or is expected to be, less than $250,000. Commencing within 60 days
following the Closing Date (and subject to the agreement of the depository
banks), the Borrower and its Subsidiaries (except those Subsidiaries identified
in clauses (i) through (iii) of the immediately following sentence) shall hold
at least 80% of all cash, cash equivalents and similar items in Controlled
Accounts. Notwithstanding anything in this Section 6.18 to the contrary, the
requirements of this Section 6.18 shall not apply in respect of deposit accounts
of (i) Lincoln Indemnity Company, (ii) H&T Receivable Funding Corporation
(subject to Section 6.19), (iii) any Finance Subsidiary, (iv) any Real Estate
Financing Subsidiary and (v) any Subsidiary acquired after the Closing Date to
the extent such Subsidiary is not required to provide a security interest in its
assets or cause its capital stock to be pledged pursuant to Section 7.01(e) and
(vi) Foreign Subsidiaries. 


          
6.19   Funding
Corp. Within 60 days following the Closing Date either (i) liquidate and
dissolve Funding Corp. into its parent company, (ii) merge Funding Corp. into a
Guarantor with the Guarantor as the surviving company or (iii) cause Funding
Corp. to become a Guarantor and “Grantor” under the Guarantee and
Collateral Agreement and execute and deliver appropriate Credit Documents. 




ARTICLE VII.


NEGATIVE COVENANTS


          
Borrower covenants and
agrees that so long as the Credit shall remain available, and until full and
final payment of all Obligations, it will not, and with respect to Sections
7.01, 7.02, 7.03, 7.04, 7.05, 7.06, 7.07, 7.08, 7.09, 7.10, 7.11, 7.13 and 7.14,
it will not permit any Subsidiary to, unless Majority Lenders waive compliance
in writing: 


          
7.01   Investments and Restricted Payments. Except as otherwise
permitted herein, make any Investments in any Person or any Restricted Payments
except:


	 	          
(a)  Borrower or any Subsidiary may make Investments in any Guarantor or in the Borrower; 




	 	          
(b)  Any Subsidiary may make Restricted Payments to Borrower or any Guarantor; 




73








	 	          
(c)  Borrower may make Investments in Cash Equivalents; 




	 	          
(d)  Investments may be made in the ordinary course of business related to employees,
such as payments in respect of relocation, travel advances, and loans to
employees to exercise stock options, all of which Investments do not exceed in
the aggregate at any one time One Million Dollars ($1,000,000) or Investments
made in the ordinary course of business related to leases such as security
deposits or similar items;




	 	          
(e)  Borrower or any Subsidiary may acquire on a friendly basis at least 51% of each
class of capital stock, membership interests or partnership interests, of any
fitness center located in the United States, provided that such fitness
center shall immediately become a Guarantor and shall comply with Section 3.04
hereof. As used in this Section 7.01(e), “fitness center” means any
corporation, limited liability company or partnership whose business is
comparable to any of the businesses currently operated by Borrower or any of its
Subsidiaries (other than a finance company). Notwithstanding the foregoing, the
Borrower and its Subsidiaries may finance all or part of the purchase price of
any such fitness center by the issuance of purchase money seller Debt or the
assumption of Assumed Debt subject to the following: (i) up to 30% of the
purchase price (including the assumption of any existing Debt) of any such
acquisition may consist of purchase money seller Debt and Assumed Debt, and such
seller Debt and Assumed Debt may be secured as permitted by clause (xiv) of the
definition of “Permitted Liens”, (ii) any other seller Debt and
assumed Debt issued to finance such acquisition shall be unsecured and shall be
subordinated to prior payment of the Obligations on terms satisfactory to the
Agent and (iii) the Borrower and its Subsidiaries shall not be required to
provide a security interest in the assets or pledge the capital stock of such
fitness center (but such fitness center shall be required to become a Guarantor)
pursuant to Article III or the Credit Documents if such provision of a security
interest or such pledge is prohibited by the seller Debt or Assumed Debt
referred to in clause (i) (the Borrower agreeing that it shall use reasonable
efforts to cause such seller Debt and Assumed Debt to be unsecured and to permit
the capital stock and assets of such Subsidiary to be pledged to secure the
Obligations);




	 	          
(f)  [Reserved]




	 	          
(g)  
Borrower and its Subsidiaries may make mandatory Investments in Finance
Subsidiaries, and Finance Subsidiaries may make related required Investments, in
each case pursuant to a Receivables Financing Transactions; 




	 	          
(h)  Investments by the Borrower and its Subsidiaries in New Ventures, Foreign
Subsidiaries, Lincoln Indemnity Company, non-Consolidated Subsidiaries,
Unrestricted Subsidiaries and Finance Subsidiaries (i) existing on the Closing
Date and (ii) made after the Closing Date; provided that (A) the
aggregate amount of such Investments made after the Closing Date (valued at the
time of the making thereof, and after taking into account any return after the
Closing Date from dividends, distributions and repayments in respect of such
Investments) does not exceed, at any one time outstanding, $15,000,000 (plus any
dividends, distributions and repayments in respect of Investments existing on
the Closing Date), (B) the aggregate amount of such investments made after the
Closing Date (valued at the time of the making thereof, and after taking into
account any return after the 




74








	 	Closing Date
from dividends, distributions and repayments in respect of such Investments)
does not exceed $5,000,000 in any fiscal year, including the 2004 fiscal year,
and (C) the cumulative outstanding Investment in any Subsidiary on the date that
such Subsidiary is converted to an Unrestricted Subsidiary in accordance with
the terms hereof shall be deemed an Investment made on such conversion date in
an Unrestricted Subsidiary for purposes of determining compliance with this
Section 7.01(h);




	 	          
(i)  Investments to the extent funded by common stock of the Borrower issued after
the Closing Date or the cash proceeds thereof received after the Closing Date
(and Investments of such cash proceeds), provided that such proceeds from
issuances of common stock may only be utilized for Investments if used within
nine months of the issuance of such stock;




	 	          
(j)  Investments consisting of cash reserves established, in the ordinary course of
the Borrower’s and its Subsidiaries’ business and consistent with past
practice, pursuant to the Credit Card Program Agreement; and 




	 	          
(k)  Investments in Real Estate Financing Subsidiaries consisting of After Acquired
Owned Property made in connection with Permitted Real Estate Financing
Transactions. 





Notwithstanding the
foregoing, Investments made pursuant to the preceding paragraph (h) shall be
subject to the following restrictions: (x) Collateral (other than cash) having
an aggregate value in excess of $5,000,000 may not be transferred or invested
(including in or to an Unrestricted Subsidiary) in any one-year period (except
that any portion of such permitted amount not used in any year may be carried
forward to subsequent years) and (y) intellectual property may not be so
transferred or invested. In addition, the Borrower and its Subsidiaries shall
not be permitted to make Investments (including in Unrestricted Subsidiaries)
which have the effect of paying, purchasing, redeeming or defeasing the Senior
Unsecured Notes or the Subordinated Notes or paying dividends on or purchasing
or redeeming Capital Stock of the Borrower (it being understood that the
Borrower and its Subsidiaries shall not provide Guarantees or other credit
support with respect to Unrestricted Subsidiaries). 


          
7.02   Other Obligations. Except as provided in this Agreement,
create, incur, assume or permit to exist any Debt, or create, incur or enter
into any Guaranty of any Debt of any other Person, other than: 


	 	          
(a)   the Secured Obligations;




	 	          
(b)  Any Debt existing on the Closing Date listed on Schedule 7.02(b) hereto, and any
renewal, extension or refinancing of any purchase money Debt listed on such
Schedule (and identified as such on such Schedule) that does not consist of any
capitalization of interest on the original Debt; provided, that the
principal amount of such renewal, extension or refinancing Debt (the
“Refinancing Debt”) shall not exceed the principal amount of
the Debt on the Closing Date listed on such Schedule, the maturity date of each
installment or principal of such Refinancing Debt shall not be earlier than the
maturity date of the corresponding installment of the original Debt, and the
Liens 




75








	 	securing the Refinancing Debt constitute “Permitted Liens” under
clause (iv) of the definition of such term;




	 	          
(c)   Standby letters of credit obtained in the ordinary course of business;




	 	          
(d)   Debt of Borrower to any of its Subsidiaries and of any Guarantor
to Borrower or any other Guarantor;




	 	          
(e)   [Reserved];




	 	          
(f)  additional Debt (including Guarantees of Debt permitted under paragraph (g) of
Section 7.02 to the extent such Guarantee would be in excess of the amount
permitted by paragraph (g) hereof) incurred or assumed by the Borrower and its
Subsidiaries in an aggregate principal amount not to exceed $10,000,000;
provided that (i) such Debt is not secured by any property constituting
Collateral under the Collateral Documents (except to the extent that such Debt
may be secured by Liens described under clause (iv) or (xiv) of the definition
of “Permitted Liens”), (ii) any unsecured purchase money seller Debt
is subordinated to the Obligations on terms reasonably satisfactory to the Agent
unless such seller Debt is not required to be subordinated pursuant to Section
7.01(e) and (iii) before and after giving effect to the incurrence of such Debt,
no Default or Event of Default shall have occurred and be continuing and
provided, further, that (to avoid double counting) Guarantees of
such Debt shall not be considered Debt for the purposes of this paragraph (f) of
this Section 7.02;




	 	          
(g)   Guarantees of Debt permitted under paragraph (b) of this Section
7.02 in an aggregate amount not to exceed $7,000,000;




	 	          
(h)   Debt incurred as an Investment permitted by Section 7.01;




	 	          
(i)  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; 




	 	          
(j)  Debt of the Borrower consisting of the Senior Unsecured Notes and guarantees of
the Senior Unsecured Notes by Subsidiaries to the extent such Subsidiaries are
Guarantors and pledge their assets as grantors under the Collateral Documents; 




	 	          
(k)  [Reserved];




	 	          
(l)  other Debt of the Borrower and its Subsidiaries as long as, immediately after
giving effect to the incurrence of such Debt and the use of the proceeds
thereof, the Borrower would be in compliance on a pro forma basis with Sections
6.12, 6.14 and 6.15 as of the most recently ended fiscal quarter, each
subsequent fiscal quarter and through the Term Loan Termination Date as if such
Debt was incurred on the first day of the relevant measurement period;
provided that (i) such Debt is not secured by any property constituting
Collateral under the Collateral Documents (except to the extent that such Debt
may be secured by Liens described under clause (iv), clause (xiii) or clause
(xiv) of the definition of “Permitted Liens”), (ii) any unsecured
purchase money seller Debt and any unsecured assumed Debt is subordinated to the
Obligations on terms reasonably 




76








	 	satisfactory
to the Agent unless such seller Debt or assumed Debt is not required to be
subordinated pursuant to Section 7.01(e) and (iii) before and after giving
effect to the incurrence of such Debt, no Default or Event of Default shall have
occurred and be continuing and provided, further, that (to avoid
double counting) Guarantees of such Debt shall not be considered Debt for the
purposes of this paragraph (l) of this Section 7.02.





Notwithstanding the
foregoing, (x) the Borrower will not permit any Subsidiary or Unrestricted
Subsidiary to Guaranty or provide credit support for any Subordinated Debt, (y)
the Borrower will not and will not permit any Subsidiary or Unrestricted
Subsidiary to Guaranty or provide credit support in respect of any Unrestricted
Subsidiary and (z) the Borrower will not permit any Real Estate Financing
Subsidiary to create, incur, assume or permit to exist any Debt (including a
Guaranty of the Senior Unsecured Notes) except Debt, if any, permitted pursuant
to clause (l) above and any Debt to the Secured Parties required in connection
with any second mortgage in favor of the Collateral Agent required by Section
7.03(b). 


          
7.03   Other
Security. (a) Other than as pursuant to a Permitted Real Estate Financing
Transaction or as expressly permitted under Section 7.08, create, assume or
suffer to exist any Lien on any of its or its Subsidiaries’ property, real
or personal or mixed (including without limitation, any leasehold interests),
whether now owned or hereafter acquired, except Permitted Liens and licenses of
intellectual property pursuant to a Franchise Program. 


          
(b)(i)  Fee-owned real properties acquired by the Credit Parties after the
Closing Date (“After Acquired Owned Property”) will be required to be pledged to the
Collateral Agent pending their purchase money financing and can be financed with purchase
money financing within 270 days of acquisition.


          
(ii) Purchase money financing of After Acquired Owned Property may be done
through special purpose financing Subsidiaries of the Borrower to which title to the
financed After Acquired Owned Property will be transferred at the time of such financing
(collectively, the “Real Estate Financing Subsidiary”).  If at the time of a financing after
the Closing Date title to the After Acquired Owned Property is not held by a Real Estate
Financing Subsidiary, the property owner must grant a second mortgage in favor of the
Collateral Agent on the financed After Acquired Owned Property. The loan amount of any After
Acquired Owned Property at loan closing shall be at least 50% of the fair market value of
such After Acquired Owned Property (as determined by a reputable independent appraiser). Net
Cash Proceeds from sale and leaseback transactions entered into by the Borrower or its
Subsidiaries (including Real Estate Financing Subsidiaries) shall count against the sale and
leaseback covenant set forth in Section 7.11. The Real Estate Financing Subsidiary will use
commercially reasonable efforts to grant a second mortgage in favor of the Collateral Agent
on any financed After Acquired Owned Property.  Capital Stock of any Real Estate Financing
Subsidiary shall be pledged to the Collateral Agent, but no assets of a Real Estate
Financing Subsidiary need be pledged to the Collateral Agent except for the second mortgages
described above.  Any such financing may be supported solely by one or a combination of a
guarantee of the Debt by the Borrower and/or the financed real properties and/or the Real
Estate Financing Subsidiary’s rights under the lease(s) with respect to such real property.
No Real Estate Financing Subsidiary may be an Unrestricted Subsidiary.  Fee-owned real
properties of any Real Estate Financing Subsidiary shall be leased on an unsecured basis to
the Borrower or one of its wholly-owned Subsidiaries (such lease to a 



77








wholly-owned Subsidiary to
be guaranteed on an unsecured basis by the Borrower) pursuant to a lease in a
form customary for other club facilities leased by the Credit Parties (the
transactions described in this paragraph (ii), the “Permitted Real
Estate Financing Transactions”).


          
(c) Notwithstanding the foregoing, the Borrower and its Subsidiaries shall not
be permitted to create, assume or suffer to exist Liens (except pursuant to the Collateral
Documents) on any Membership Receivables (other than for Liens existing on the Closing Date
of approximately $400,000 of Membership Receivables arising in connection with the
acquisition of Planet Fitness fitness centers and other Liens existing on the Closing Date
securing approximately $1,700,000 of Debt), Intellectual Property (other than as permitted
by Section 7.08(e) and clause (vi) of the definition of Permitted Liens)), leasehold
interests (other than Permitted Leasehold Liens) or leasehold improvements (other than
Permitted Leasehold Liens).


          
7.04   Subordinated Debt; Senior Unsecured Notes.
(a)  Pay interest, principal, or premium on any Subordinated Debt
(other than the Subordinated Notes) if at the time of such payment or proposed
payment there has occurred and is continuing under this Agreement, or if as a
result of any such payment or proposed payment there would occur, a Default or
an Event of Default; 


	 	          
(b)  Pay interest, principal or premium on the 1997 Subordinated Notes in violation
of Article Thirteen of the 1997 Indenture, or make any payment thereunder or
with respect to any other Subordinated Debt 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 1997
Subordinated Notes pursuant to Article Four, Five, Ten, Eleven, Twelve or
Thirteen of the 1997 Indenture or deliver any notice to the trustee under the
Indenture or the holders of the 1997 Subordinated Notes of its intention to make
any such payment, purchase or redemption, or make any “Company
Request” under Section 12.1 of the 1997 Indenture;




	 	          
(c)  Amend or waive any provision of the 1997 Indenture, the 1998 Indenture, the
Subordinated Notes or any other agreement relating to Subordinated Debt without
first obtaining the consent of Majority Lenders;




	 	          
(d)  Prepay, redeem, defease, purchase or repurchase all or any part of any
Subordinated Debt including, but not limited to, the Subordinated Notes (other
than as permitted by Section 7.09(a) hereof), or take any action to effect the
foregoing without first obtaining the consent of Majority Lenders; 




	 	          
(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 




78








	 	Request” under
Section 12.1 (or the comparable provisions of a successor indenture) of the 1998
Indenture;




	 	          
(f)  Make any payment with respect to any Senior Unsecured Notes 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 Senior Unsecured Notes pursuant to Article Four, Five, Ten, Eleven, Twelve
or Thirteen of the Senior Unsecured Notes Indenture or deliver any notice to the
trustee under the Senior Unsecured Notes Indenture or the holders of the Senior
Unsecured Notes of its intention to make any such payment, purchase or
redemption, or make any “Company Request” under Section 12.1 of the
Senior Unsecured Notes Indenture;




	 	          
(g)  Amend or waive any provision of the Senior Unsecured Notes Indenture, the Senior
Unsecured Notes or any other agreement relating thereto without first obtaining
the consent of Majority Lenders; or 




	 	          
(h)  Prepay, redeem, defease, purchase or repurchase all or any part of the Senior
Unsecured Notes (other than as permitted by Section 7.09(a) hereof), or take any
action to effect the foregoing without first obtaining the consent of Majority
Lenders. 




	 	          
(i)  
Notwithstanding the provisions of Section 7.04 and Section 7.09, the Borrower
may purchase or redeem the 1997 Subordinated Notes at an aggregate price not in
excess of $350,000 or, upon the date the redemption prices provided in the 1997
Indenture are applicable, such redemption prices plus accrued interest;
provided that immediately after giving effect thereto, no Default or
Event of Default shall have resulted. 




The only payments that the
Borrower and its Subsidiaries (including Unrestricted Subsidiaries) may make in
respect of the Subordinated Debt and the Senior Unsecured Notes are (i)
scheduled payments of interest, and (ii) payments permitted by clauses (i),
(iii) and (iv) of the second proviso of Section 7.09(a). Notwithstanding the
foregoing the Credit Parties may make payments of the type contemplated by
clause (ii) of Section 8.12 as long as no Event of Default exists under Section
8.12. 


          
7.05   Liquidation; Merger. Liquidate or dissolve, or enter
into any consolidation, merger, partnership, joint venture or other combination,
or sell, lease or dispose of its business or assets as a whole or in an amount
which constitutes a substantial portion thereof; provided,
however, that (a) any Subsidiary may merge into, consolidate with or
transfer its business or assets to Borrower (if the purpose of such merger,
consolidation or combination is a legitimate tax planning purpose of the
Borrower) or any other Subsidiary (so long as such acquiring Subsidiary is a
Guarantor) pro rata, to the extent owned by Borrower or such Subsidiary, (b)
Borrower may merge, consolidate or combine (including through liquidation or
dissolution into the Borrower) with any other corporation so long as Borrower is
the surviving corporation, no Default or Event of Default would exist under this
Agreement after giving effect to such merger, consolidation or combination and
the reason for such merger, consolidation or combination is either (i)
legitimate tax planning purposes of the Borrower or (ii) to consummate an
acquisition permitted by Section 7.01(e), (c) any Subsidiary may liquidate or
dissolve if upon such liquidation or dissolution all or substantially all of the
business or assets of such Subsidiary are 



79








distributed to Borrower or any other
Subsidiary (so long as such transferee Subsidiary is also a Guarantor) pro rata,
to the extent owned by Borrower or such Subsidiary, and (d) in the event that a
Subsidiary has distributed its business or assets to Borrower or any Subsidiary
pursuant to Section 7.05(c), neither Borrower nor any Subsidiary shall be
required to preserve any right, license, or franchise of such Subsidiary or the
corporate existence of such Subsidiary if the Board of Directors of Borrower or
the Subsidiary to which the business or assets of such Subsidiary were
distributed shall determine that the preservation thereof is no longer desirable
and that the loss thereof is not adverse in any material respect to Lenders.


          
7.06   Capital
Expenditures. Make or commit to make Capital Expenditures in any fiscal year
in excess of the amount set forth opposite such fiscal year below: 



          |========================================================|
          |                            |         Permitted         |
          |        Fiscal Year         |   Capital Expenditures    |
          |----------------------------|---------------------------|
          |           2004             |       $60,000,000         |
          |----------------------------|---------------------------|
          |           2005             |       $60,000,000         |
          |----------------------------|---------------------------|
          |           2006             |       $70,000,000         |
          |----------------------------|---------------------------|
          |           2007             |       $75,000,000         |
          |----------------------------|---------------------------|
          |           2008             |       $75,000,000         |
          |========================================================|



Any such permitted amount
not used in any fiscal year may be carried forward to subsequent fiscal periods.
In addition, the annual limit for each fiscal year shall be increased by an
amount equal to 50% of the Excess Cash Flow generated in the prior fiscal year.
Any portion of such increase resulting from Excess Cash Flow not used in any
fiscal year shall be carried forward to subsequent periods. Notwithstanding the
foregoing, at any time that the then aggregate unused portion of the Revolving
Credit Commitment Amount is less than $30,000,000, the Borrower and its
Subsidiaries may not make or commit to make any Capital Expenditures other than
(i) maintenance Capital Expenditures and (ii) Capital Expenditures committed to
pursuant to an enforceable written contract entered into prior to the time at
which the ability to make Capital Expenditures becomes limited. 


          
7.07   Change
in Business. Engage in any business activities or operations substantially
and materially different from or unrelated to business activities existing on
the Closing Date; provided, however, that this Section 7.07 shall
not prohibit the Borrower or its Subsidiaries from managing non-owned fitness
centers or providing payment, processing and collection services for non-owned
fitness centers, or from commencing and operating a Franchise Program, or from
operating a captive insurance company and, provided, further, the
Borrower and its Subsidiaries may elect to cease originating for their own
account and/or servicing all or a portion of membership contracts receivable and
have third parties perform all or some of such functions. 


          
7.08  
Disposal of Assets. Dispose of any accounts receivable, any fixed or capital
assets (including, without limitation, the entering into of any sale and
leaseback agreement covering any of its fixed or capital assets), any Capital
Stock of Subsidiaries or any Intangible Assets, or enter into any license,
franchise or sublease arrangements; provided, however, that: 



80








	 	          
(a)  
dispositions of assets among and between Borrower and the Guarantors shall not
be prohibited hereunder; 




	 	          
(b)  [Reserved]




	 	          
(c)  to the extent the Borrower or any Subsidiary may at any time be a party to the
Credit Card Program Agreement, licensing arrangements contemplated by the Credit
Card Program Agreement shall not be prohibited under this Section 7.08;




	 	          
(d)  Borrower or any Subsidiary may dispose of accounts receivable, fixed or capital
assets (including, but not limited to dispositions by sale and leaseback
agreements covering fixed or capital assets), capital stock or Intangible
Assets, or enter into any license, franchise or sublease arrangement (other than
pursuant to a Franchise Program), so long as (1) the value of the assets subject
to such dispositions does not exceed $10,000,000 in any fiscal year, including
the 2004 fiscal year, and (2) the proceeds of such dispositions, to the extent
the same constitutes Reinvestment Proceeds, shall be applied to the acquisition
of properties and other assets that (as determined by the board of directors of
the Borrower) replace the properties and assets that were the subject of such
disposition or properties and assets that will be used in the businesses of the
Borrower or its Subsidiaries existing on the Closing Date (or in businesses
reasonably related or complementary thereto), and otherwise the proceeds of such
disposition shall be applied to the prepayment of the Term Advances and the
Revolving Advances (without any reduction of the Revolving Credit Commitment
Amount), as set forth in Section 2.13; provided, however, that (i)
Borrower or any Subsidiary may dispose of surplus or obsolete equipment or
fixtures in the ordinary course of business, and up to Two Million Five Hundred
Thousand Dollars ($2,500,000) per year of the proceeds of such dispositions
shall not be subject to the requirements of this Section 7.08(d) and (ii)
Borrower and its Subsidiaries may license certain rights with respect to its
trade name or other Intellectual Property pursuant to franchising and other
arrangements permitted by Section 7.08(e) and the proceeds of such license and
franchise activities shall not be subject to the requirements of this Section
7.08(d);




	 	          
(e)  Borrower and its Subsidiaries may license certain rights with respect to its
trade name and other Intellectual Property (i) to franchisees and joint ventures
for the operation of health clubs pursuant to a Franchise Program or otherwise
in respect of joint ventures and (ii) for other purposes intended to generate
proceeds to the Borrower in the ordinary course of business consistent with past
practice;




	 	          
(f)  Borrower and its Subsidiaries may sell assets (and related liabilities)
consisting of health and fitness clubs to Persons which simultaneously become
franchisees pursuant to a Franchise Program; provided that (i) such
assets are sold at their net fair market value (taking into account the amount
of such liabilities) and (ii) the aggregate net cash proceeds arising from such
sales since the Closing Date do not exceed $5,000,000;




81








	 	          
(g)  the Borrower and its Subsidiaries may sell written off receivables to a
collection or similar agency in lieu of in-house collection in the ordinary
course of business; 




	 	          
(h)  the Borrower and its Subsidiaries may enter into outsourcing arrangements with
respect to the processing of Membership Receivables as long as (i) such
Membership Receivables remain assets of the Borrower and its Subsidiaries and
(ii) payment of such Membership Receivables is made to Demand Deposit Accounts;




	 	          
(i)  the Borrower and its Subsidiaries may enter into subleases in the ordinary
course of business consistent with past practices; and 




	 	          
(j)  in addition to the foregoing, the Borrower may dispose of the properties
described in the letter dated the date hereof from the Borrower to the
Collateral Agent as long as such dispositions are for fair market value and at
least 80% of the consideration for each disposition is payable in cash or Cash
Equivalents. 




For purposes of this
Section 7.08, (i) dispositions of assets shall not include sales by the Borrower
or any Subsidiary of the Borrower of common stock (or common stock equivalents)
of the Borrower and (ii) Membership Receivables shall be valued at their net
book value for purpose of utilization of the exceptions set forth in this
Section 7.08 and shall not be subject to securitization transactions. 


          
7.09  
Limitation on Optional Payments and Modifications of Debt Instruments.
Without limitation of any obligation under Section 7.04 or the last sentence of
7.01: 


	 	          
(a)  make any optional payment or prepayment on or redemption or purchase or
defeasance of any Debt or make or set aside any sinking fund payments with
respect to any Debt (other than the Advances and reimbursement obligations in
respect of any Letter of Credit); provided, however, Borrower or
its Subsidiaries may prepay or make optional payments on any purchase money Debt
or Capitalized Leases where the Agent, for the benefit of the Lenders, is
granted a Lien in the relevant asset of the Borrower or its Subsidiary, as the
case may be, in the amount of such prepayment or optional payment;
provided further, however, the Borrower shall be permitted
to redeem or prepay (i) the Subordinated Notes from the proceeds of a public
offering of the Borrower’s common stock after the Closing Date, to the
extent permitted by the “equity clawback” provision set forth in
Section 11.1(b) of the 1997 Indenture and the 1998 Indenture, (ii) Debt existing
on the Closing Date and identified on Schedule 7.09(a), (iii) the Senior
Unsecured Notes from the proceeds of a public offering of the Borrower’s
common stock after the Closing Date, to the extent permitted by the “equity
clawback” provision set forth in Section 11.1(b) of the Senior Unsecured
Notes Indenture and (iv) the Subordinated Notes pursuant to a Permitted
Subordinated Notes Refinancing; or





	 	          
(b)  amend, modify or change in any material respect, or consent or agree to any such
amendment, modification or change to, any of the terms of any such Debt (other
than any such amendment, modification or change to the terms of any Debt which
would 




82








	 	extend the
maturity or reduce the amount of any payment of principal thereof or which would
reduce the rate or extend the date for payment of interest thereon).



          
7.10  
Limitation on Transactions with Affiliates. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate (other than a Subsidiary)
unless such transaction is (a) otherwise permitted under this Agreement,
and (b) upon fair and reasonable terms no less favorable to the Borrower or
such Subsidiary, as the case may be, than it would obtain in a comparable
arm’s length transaction with a Person which is not an Affiliate. 


          
7.11  
Limitation on Sales and Leasebacks. Enter into arrangements after the
Closing Date providing for the leasing by the Borrower or any Subsidiary of real
or personal property which has been or is to be sold or transferred by the
Borrower or such Subsidiary to a third person on the security of such property
or rental obligations of the Borrower or such Subsidiary if the net proceeds
from sale or transfer with respect to such arrangements exceed, in the
aggregate, $10,000,000; provided that the Borrower and its Subsidiaries may not
enter into any such transaction with an Unrestricted Subsidiary. 


          
7.12  
Limitation on Changes in Fiscal Year. Permit the fiscal year of the Borrower
to end on a day other than December 31. 


          
7.13   Funding Corp.; Finance Subsidiaries. Cause Funding Corp.
to engage solely in limited activities in connection with the termination of its
receivables financing transactions, subject to Section 6.19.


          
(a)   Permit any
Finance Subsidiary to (i) assume, guarantee or otherwise become liable in any
manner with respect to any Debt other than Debt arising under a Receivables
Financing Transaction, (ii) consolidate or merge with any Person, (iii) purchase
or acquire any business or property other than receipt or purchase of
Receivables Assets in a Receivables Financing Transaction, (iv) conduct any
business other than the transactions to be performed by it in a Receivables
Financing Transaction or (v) create, assume or suffer to exist any Lien on any
of its property, whether now owed or hereafter created, except Liens pursuant to
and in accordance with the terms of a Receivables Financing Transaction; and in
connection therewith, the Borrower shall provide a legal opinion from counsel to
Borrower that such Finance Subsidiary shall not be substantively consolidated
with Borrower or its Subsidiaries. 


          
(b)   Fail to
cause the management, business and affairs of each Finance Subsidiary to be
conducted in such a way as to maintain the separate corporate existence of each
Finance Subsidiary. 


          
7.14  
Unrestricted Subsidiaries. (a)  Create or otherwise designate any
Subsidiary as an Unrestricted Subsidiary unless the terms set forth in the
definition of Unrestricted Subsidiary are complied with respect to such
Subsidiary and no Default or Event of Default then exists (unless the creation
or designation of the Unrestricted Subsidiary would cure the Default or Event of
Default) or would result from the designation, creation and operation of such
Unrestricted Subsidiary. 



83








          
(b)   Without the
prior written consent of the Majority Lenders, change the characterization of a
Subsidiary from a Subsidiary to an Unrestricted Subsidiary or an Unrestricted
Subsidiary to a Subsidiary; provided however, the prior written
consent of the Majority Lenders shall not be required if (A) no Default or Event
of Default shall have occurred and be continuing at such time or would result
therefrom, (B) after giving effect to such re-characterization, each of the
representations and warranties made by in the Borrower in or pursuant to this
Agreement or the Collateral Documents shall be true and correct in all material
respects as of the date of such re-characterization, (C) if re-characterized as
a Subsidiary, such Subsidiary shall have complied with the provisions of Article
III as if it were a new Subsidiary and (D) the Borrower provides the Agent five
Banking Days advance written notice of its intent to re-characterize such
Subsidiary. 


          
(c)   Permit any
Unrestricted Subsidiary to fail to comply with the requirements set forth in the
definition of “Unrestricted Subsidiary.” 


          
7.15   Tax
Allocation and Indemnity Agreement. Amend, modify or change, or consent or
agree to any amendment, modification or change to the Tax Allocation and
Indemnity Agreement in any manner which is materially adverse to the Lenders. 




ARTICLE VIII.


EVENTS OF DEFAULT



          
If one or more of the following events (herein called “Events of
Default”) shall occur and be continuing: 


          
8.01   Nonpayment. (a) Borrower shall fail to pay, when due,
any portion of principal or interest due hereunder or under the Notes in
accordance with the terms hereof or thereof; or


	 	          
(b)  Borrower shall fail to pay, when due, any fees, commissions or
any other sum due hereunder in accordance with the terms hereof. 





          
8.02  
Representation or Warranty. Any representation or warranty made by Borrower
or any Subsidiary herein or in any other Credit Document or in any agreement,
instrument or certificate executed or delivered to Lenders, Agent or the
Collateral Agent pursuant hereto or in connection with any transaction
contemplated here shall prove to have been false or misleading in any material
respect when made or when deemed to have been made; 


          
8.03  
Judgments. There shall be entered against Borrower or any of its
Subsidiaries one or more judgments (or any judgment against an ERISA Affiliate,
if such judgment is in favor of a Multiemployer Plan) in excess of Two Million
Dollars ($2,000,000) in the aggregate at any one time outstanding excluding
those judgments (i) that have been outstanding less than thirty (30) calendar
days from the entry thereof, (ii) for not more than Five Million Dollars
($5,000,000) during the time which a stay of enforcement of such judgment is in
effect by reason of a pending appeal or otherwise or (iii) for and to the extent
which Borrower or  



84








such Subsidiary is insured
and with respect to which the insurer has accepted coverage in writing.



          
8.04  
Voluntary Bankruptcy. Borrower or any Guarantor shall fail to pay, or admit
in writing its inability to pay, its debts generally as they come due, or shall
file any petition or action for relief under any bankruptcy, reorganization,
insolvency or moratorium law, or any other law or laws for the relief of, or
relating to, debtors, or Borrower or any Guarantor shall take any corporate
action to authorize, or in furtherance of, any of the foregoing. 


          
8.05  
Involuntary Bankruptcy. Involuntary petition shall be filed under any
bankruptcy statute against Borrower or any Guarantor, or a custodian, receiver,
trustee, assignee for the benefit of creditors (or other similar official) shall
be appointed to take possession, custody or control of the properties of
Borrower or any Guarantor, unless such petition or appointment is set aside or
withdrawn or ceases to be in effect within sixty (60) days from the date of said
filing or appointment. 


          
8.06   Change of Control Event.  A Change of Control Event shall occur.


          
8.07   Cross
Default. Any breach or default shall occur with respect to any Debt or any
operating lease agreement in excess of Five Million Dollars ($5,000,000) (except
with respect to Debt under this Agreement) individually or in the aggregate,
under which Borrower or any of its Subsidiaries may be obligated as borrower or
guarantor, if such breach or default consists of the failure to pay any such
indebtedness when due whether by acceleration or otherwise (and remains uncured
or continues beyond any applicable grace period) or if such breach or default
results in or permits (or, with the passage of time, the giving of notice or
both, may permit) the acceleration of any such indebtedness of or the
termination of any commitment to lend to Borrower or any such Subsidiary. The
Lenders acknowledge that any breach of Section 10.17 of the Senior Unsecured
Notes Indenture or Section 10.17 of the Subordinated Notes Indenture as a result
of the failure of the Borrower to timely deliver the financial statements
required by such Section for the fiscal quarter ended June 30, 2004 and
thereafter shall not in and of itself constitute a Default or an Event of
Default under this Agreement until 10 days after a notice of default of the type
described in Section 5.1(c) of the Senior Unsecured Notes Indenture or Section
5.1(c) of this Subordinated Notes Indenture, as applicable, has been delivered.
In the Disclosure Letter the Borrower has disclosed that the failure to timely
file its financial statements for the fiscal quarter ended June 30, 2004 and
thereafter may result in defaults under other Debt obligations. The Lenders
agree that the existence of such defaults shall not constitute Defaults or
Events of Defaults under this Agreement unless the holders of such other
obligations exercise their remedies or otherwise act upon such defaults
adversely to the Borrower. In the Disclosure Letter the Borrower has described
that as a result of accounting adjustments described in the Disclosure Letter,
it may have financial covenant defaults under certain Debt obligations. The
Lenders agree that the existence of such defaults shall not constitute a Default
or Event of Default under this Agreement unless the holders of such obligations
exercise remedies or otherwise act upon such defaults adversely to the Borrower.
The Borrower acknowledges that the foregoing acknowledgements and agreements by
the Lenders under this Agreement do not apply when holders of Debt obligations
of the Borrower and its Subsidiaries exercise their remedies against the
Borrower and its Subsidiaries on the basis of an applicable cross default
clause. 



85








          
8.08  
ERISA. (a)  The occurrence of a Termination Event with respect to
one or more Plans and/or one or more Multiemployer Plans if Borrower’s
maximum liability (as measured, (A) in the case of a Termination Event described
in clauses (i) through (iii) of the definition of “Termination Event”,
by the amount by which plan assets are insufficient to satisfy benefit
liabilities upon termination under ERISA with respect to each Plan as to which
such Termination Event has occurred, (B) in the case of a Termination Event
described in clause (iv) of said definition, by the withdrawal liability under
Section 4063 of ERISA with respect to each Plan as to which such Termination
Event has occurred, and (C) in the case of a Termination Event described in
clause (v) of the definition of “Termination Event”, by the excess, if
any of (i) the aggregate of annual contributions due or paid during a plan year
plus payments and interest due or paid pursuant to Section 4219 of ERISA during
the same plan year, with respect to each Multiemployer Plan as to which a
Termination Event has occurred, over (ii) the annual contribution amount due or
paid for such Multiemployer Plan for the plan year preceding the plan year in
which such Termination Event occurred) which could arise upon the occurrence of
all such Termination Events that occur within a twelve consecutive month period
exceeds One Million Dollars ($1,000,000); or 


          
(b)   The
aggregate withdrawal liability which could be incurred under Section 4201 of
ERISA of Borrower and all ERISA Affiliates, collectively, upon a complete
withdrawal, within the meaning of Section 4203 of ERISA, from each and all
Multiemployer Plans to which each is or has contributed within the past five
calendar years, plus the aggregate of the excess of benefit liabilities, within
the meaning of Section 4001(a)(16) of ERISA, of each Plan upon termination of
such Plan over the assets of such Plan, exceeds Five Million Dollars
($5,000,000). 


          
8.09  
Specific Defaults. (i) Borrower shall fail duly and promptly to perform or
observe any term or provision specified in any of Sections 6.01, 6.02(e), 6.05,
6.06, 6.12, 6.13, 6.14 or 6.15 or Article VII hereof or (ii) Borrower shall fail
to perform or observe any term or provision specified in Section 6.09 and shall
not remedy such failure to perform or observe any term or provision specified in
such Section 6.09 within 10 calendar days. 


          
8.10  
Guarantee and Collateral Agreement; Impairment of Collateral Documents.
(a)   Any breach or default shall occur under the Guarantee and
Collateral Agreement or the Guarantee and Collateral Agreement shall be revoked
by, or become ineffective as to, the Borrower or any Guarantor; provided,
however, that any merger, liquidation, consolidation or transfer of any
Guarantor with any other Guarantor or Borrower in accordance with Section
7.05(c) or Section 7.05(d) shall not constitute an Event of Default under this
Agreement; 


          
(b)  
(i)  any provision of any Collateral Document (other than the
collateral assignments of tenant’s rights in leases) necessary for the
practical realization of the substantial benefits thereof shall for any reason
cease to be valid and binding on or enforceable against Borrower or any
Subsidiary or Borrower or any Subsidiary shall so state in writing or bring an
action to limit its obligations or liabilities thereunder; or 


          
(ii)   any of the
Collateral Documents shall for any reason (other than pursuant to the terms
thereof) cease to create a valid security interest in the Collateral purported
to be covered thereby or such security interest shall for any reason cease to be
a perfected 



86








security interest having
the priority purported to be created by such Collateral Document (other than by
or as a result of any action by the Collateral Agent). 


          
8.11  
Condemnation. Any governmental authority shall condemn, seize or appropriate
any property of Borrower or any Subsidiary if the fair market value of the
property prior to being condemned, seized or taken is equal to or greater than
Five Million Dollars ($5,000,000) and if such governmental authority fails to
compensate such entity for such taking within one (1) year after such entity
loses quiet enjoyment of such property due to such taking in an amount at least
equal to the fair market value as a going concern of the property taken. 


          
8.12   Class
Actions/SEC Proceedings. The Borrower and its Subsidiaries shall pay
damages, penalties or similar amounts in excess of $10,000,000 in the aggregate
(other than from insurance proceeds or from amounts otherwise reimbursed to the
Borrower by third parties to whom the Borrower and its Subsidiaries are not
providing credit or similar support) in connection with (i) the securities class
action lawsuits filed against the Borrower and related SEC investigations in
connection with the matters described in the Disclosure Letter or (ii) other
matters disclosed in the Disclosure Letter. 


          
8.13   Actual
or Asserted Invalidity. (i) This Agreement, any Note, any Collateral
Document or any instrument or certificate executed or delivered to Lenders, the
Agent or the Collateral Agent pursuant to this Agreement or in connection with
any transaction contemplated herewith shall cease, for any reason (other than
solely as a result of any action or inaction on the part of the Agent or any of
the Lenders), to be in full force and effect, or the Borrower or any of its
Affiliates shall so assert or (ii) any Lien created thereby or subordination
provision therein shall cease to be enforceable and of the same effect and
priority purported to be created thereby as a result of any action or inaction
on the part of the Borrower or any of its Affiliates. 


          
8.14   Other
Defaults. Borrower or any Subsidiary shall breach, or default under, any
term, condition, provision, covenant, representation or warranty contained in
this Agreement not specifically referred to in this Article or in any Collateral
Document, if such breach or default shall continue for thirty (30) days after
notice from Agent as required by Majority Lenders; 


THEN:


	 	
(a)  In the case of an Event of Default other than one referred to in Section 8.04 or
8.05 of this Article VIII, upon request of Majority Lenders to Agent, any
obligation on the part of Lenders to make or continue the Credit or any
obligation on the part of any Issuing Lender to issue or amend any Letter of
Credit shall terminate and, at the further option of Majority Lenders, Agent
shall declare all sums of principal and interest outstanding on the Credit and
all other sums outstanding under or in respect of this Agreement and the Notes
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor, or other notices or
demands of any kind or character (other than as stated in any of the foregoing
sections of this Article VIII), all of which are hereby expressly waived by
Borrower; and




87








	 	
(b)  in the case of an Event of Default referred to in Section 8.04 or 8.05 of this
Article VIII, Lenders’ obligations to make or continue the Credit and the
Issuing Lenders’ obligations to issue or amend any Letter of Credit shall
be automatically cancelled and all sums of principal and interest on the Credit
and all other sums outstanding under or in respect of this Agreement and the
Notes shall automatically become immediately due and payable without notice of
default, presentment or demand for payment, protest or notice of nonpayment or
dishonor, all of which are hereby expressly waived by Borrower.





Agent shall promptly advise
Borrower of any declaration under clause (a), above, but failure to do so shall
not impair the effectiveness of such declaration. Additionally, upon the
occurrence of any Event of Default, Agent, at the request of the Majority
Lenders, shall require Borrower to deposit immediately with Agent cash
collateral pursuant to documentation reasonably acceptable to the Agent, for
application against drawings under any Letter of Credit issued for
Borrower’s account hereunder, in an amount equal to the undrawn amount of
such Letter of Credit. Any amount so deposited that is not applied to satisfy
drawings under such Letter of Credit will be repaid with interest (at
Agent’s applicable certificate of deposit rate in effect on the date of
such deposit) to Borrower, provided that Lenders have received all other
amounts due to them under this Agreement and the Notes. Borrower shall not make
(or declare) any Restricted Payments otherwise permitted under Section 7.01 if a
Default or an Event of Default has occurred and is continuing on the date of
such payment (or declaration), or would result from such payment (or
declaration). 




ARTICLE IX.


MISCELLANEOUS



          
9.01  
Notices. Except as otherwise provided herein, any notice required hereunder
shall be in writing, and shall be deemed to have been validly served, given or
delivered (i) four (4) Banking Days following deposit in the United States
mails, with proper postage prepaid, and addressed to the party to be notified;
(ii) upon delivery thereof if delivered by hand to the party to be notified;
(iii) on the Banking Day after delivery to a reputable overnight courier, with
all charges prepaid, and addressed to the party to be notified; or (iv) upon
acknowledgment of receipt thereof if transmitted by telecopy to a valid
telecopier number for the party to be notified; in each case such notification
shall be addressed to Borrower at: 


	 	Bally Total Fitness Holding Corporation

8700 West Bryn Mawr, 2nd Floor

Chicago, Illinois 60631

Attention:  General Counsel

Telecopy: 773-399-0126

Phone: 773-380-3000	 



and shall be addressed to Agent at:



88








	 	JPMorgan Chase Bank

270 Park Avenue

New York, New York 10017

Attention:  ____________

Telecopy:  212-270-____

Phone:  212-270-4211

With a copy to:	 




	 	JPMorgan Chase Bank Agency Services

1111 Fannin

Houston, Texas  77002

Attention:  ___________

Telecopy:  [713-______]

Phone:  [713-_____]	 



and with respect to the
other parties hereto, as set forth on Schedule 9.01 hereof, or to such other
address as each party may designate for itself by like notice. Notices to Agent
shall not be effective until received by Agent. 


          
Notices and other
communications to the Lenders hereunder may be delivered or furnished by
electronic communications pursuant to procedures approved by the Agent; provided
that the foregoing shall not apply to notices pursuant to Section 2 unless
otherwise agreed by the Agent and the applicable Lender. The Agent or the
Borrower may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may
be limited to particular notices or communications. 


          
9.02  
Successors and Assigns. This Agreement shall bind and inure to the benefit
of the parties hereto and their respective successors and assigns;
provided, however, that Borrower shall not assign this Agreement
or any of the rights of Borrower hereunder without the prior written consent of
each Lender. Any purported assignment in contravention of the foregoing shall be
null and void. 


          
9.03  
Lenders’ Obligations Several. The obligations of each Lender under this
Agreement are several. Neither Agent, Collateral Agent nor any Lender shall be
liable for the failure of any other Lender to perform its obligations under this
Agreement. 


          
9.04  
Assignments; Participations. (a)  Any Lender other than any
Conduit Lender (each an “Assignor”) may, with the consent of
Agent, each Issuing Lender to whom obligations are owed in respect of Letters of
Credit issued by it and (unless a Default or Event of Default has occurred and
is continuing) Borrower, which consent of Agent, such Issuing Lenders and the
Borrower shall not be unreasonably withheld or delayed, at any time assign and
delegate to one or more banks or other entities and may, with notice to
Borrower, Agent and each Issuing Lender, and with consent of Agent and such
Issuing Lenders, but without the consent of Borrower, assign to any Affiliate of
a Lender, an Approved Fund or any other Lender (each an
“Assignee”), all or any part of the Advances, the Term Loan
Commitment, Revolving Credit Commitment (including the L/C Commitment), any
Letter of Credit participations,  



89








reimbursement obligations in respect of any
Letter of Credit or any other rights or obligations of such Lender hereunder;
provided, however, that except in the case of an assignment to a
Lender, any Lender Affiliate or an Approved Fund, such assignment must be in a
minimum amount (unless otherwise agreed in writing by the Borrower, Agent and
each Issuing Lender) of One Million Dollars ($1,000,000) (or, if less, the full
amount of such Assignor’s Advances, Letter of Credit Participations,
reimbursement obligations in respect of any Letter of Credit or any other rights
and obligations of such Lender hereunder); provided, further, that
any assignment of Term Advances or Term Loan Commitments shall not require the
consent of the Issuing Lender or, with respect to such assignment to any
Affiliate of any Lender, an Approved Fund or any other Lender, the Agent and
provided, further that (i) Borrower shall not be required to pay
any increased costs or taxes pursuant to Section 2.16 or 2.17 by reason of any
such assignment; (ii) Borrower and Agent shall be entitled to continue to deal
solely and directly with such Assignor in connection with the interests so
assigned to the Assignee until written notice of such assignment, together with
payment instructions, addresses and related information with respect to the
Assignee shall have been given to Borrower, Agent and each Issuing Lender by
such Assignor and the Assignee; and (iii) such Assignor shall not be released
from its obligations hereunder with respect to the assigned portion of any such
rights or obligations until the Assignee shall have delivered to Borrower and
Agent an agreement to be bound by the terms and conditions of this Agreement,
which agreement shall be substantially in the form of Exhibit M (an
“Assignment and Acceptance”), and the Assignor shall have paid
a processing fee to Agent for each assignment hereunder (provided, that
concurrent assignments by any Lender to two or more Approved Funds shall be
counted as one assignment for purposes of assessing assignment fees) in the
amount of Three Thousand Five Hundred Dollars $3,500, and thereupon shall be
released from its obligations with respect to the assigned portion.
Notwithstanding the foregoing, any Conduit Lender may assign at any time to its
designating Lender hereunder without the consent of the Borrower or the Agent
any or all of the Advances it may have made hereunder and pursuant to its
designation agreement and without regard to the limitations set forth in the
first sentence of this Section 9.04(a). 


          
(b)   Any Lender
other than any Conduit Lender may, without the consent of Agent, any other
Lender to whom obligations are owed in respect of Letters of Credit issued by it
or Borrower, at any time sell to one or more Lenders or other entities (a
“Participant”) participating interests in any Advances, any
Term Loan Commitment, any Revolving Credit Commitment, any Letter of Credit
participations or any reimbursement obligations of such Lender in respect of any
Letter of Credit hereunder; provided, however, that such
participation shall not increase the amount payable by Borrower in respect of
taxes pursuant to Section 2.16 and, provided further that (i) such
Lender’s obligations under this Agreement shall remain unchanged; (ii) such
Lender shall remain solely responsible for the performance of its obligations
hereunder; (iii) Borrower and Agent shall continue to deal solely and directly
with such Lender in connection with such Lender’s rights and obligations
under this Agreement; (iv) no Lender shall transfer, grant or assign any
participation under which the Participant shall have rights to approve any
amendment or waiver of this Agreement except to the extent such amendment or
waiver would (A) extend the Revolving Credit Termination Date beyond June 30,
2008, or extend the Term Loan Termination date beyond the fifth anniversary of
the Closing Date, or the scheduled date for the payment of any installment of
principal or interest of the Advances in which such Participant is
participating, (B) reduce the amount of any scheduled installment of principal
of the Advances hereunder in which such Participant is participating, (C)  



90








reduce
the interest rate applicable to Advances hereunder in which such Participant is
participating or (D) reduce any fees or commissions payable hereunder in which
such Participant is participating; and (v) such Lender shall require its
Participants to comply with the provisions of Section 10.03(b). In the case of
any such participation, the Participant shall not have any rights under this
Agreement or any of the other documents in connection herewith and all amounts
payable by Borrower hereunder shall be determined as if such Lender had not sold
such participation, except that Borrower agrees that if amounts outstanding
under this Agreement are due and unpaid, or shall have been declared or shall
have become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement and the Notes to
the same extent as if the amount of its participating interest were owing
directly to it as a lender under this Agreement. The Borrower agrees that each
Participant shall be entitled to the benefits of Sections 2.16, 2.17 and 2.18
with respect to its participation in the Commitments and the Advances and
Letters of Credit outstanding from time to time as if it was a Lender;
provided that, in the case of Sections 2.16, 2.17 and 2.18, such
Participant shall have complied with the requirements of said Section and
provided, further, that no Participant shall be entitled to receive any
greater amount pursuant to any such Section than the transferor Lender would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred. 


          
(c)   Borrower
authorizes each Lender to disclose to any Participant or Assignee (each, a
“Transferee”) and any prospective Transferee such financial and
other information in such Lender’s possession concerning Borrower or its
Subsidiaries which has been delivered to Lenders pursuant to this Agreement or
which has been delivered to Lenders by Borrower in connection with Lenders’
credit evaluation of Borrower prior to entering into this Agreement. 


          
(d)   Nothing
herein shall prohibit any Lender from pledging or assigning any Note in
accordance with applicable law, including to any Federal Reserve Bank. In the
case of any Lender that is a fund that invests in bank loans, such Lender may,
without the consent of Borrower or the Agent, collaterally assign or pledge all
or any portion of its rights under this Agreement, including the Term Advances
and Term Notes or any other instrument evidencing its rights as a Lender under
this Agreement, to any holder of, trustee for, or any other representative of
holders of, obligations owed or securities issued, by such fund, as security for
such obligations or securities. 


          
(e)   The Agent
shall, on behalf of the Borrower, maintain at its address referred to in Section
9.01 a copy of each Assignment and Acceptance delivered to it and a register
(the “Register”) for the recordation of the names and addresses
of the Lenders and the Commitments of, and the principal amount of the Advances
owing to, each Lender from time to time. The entries in the Register shall
constitute prima facie evidence of the foregoing information, in
the absence of manifest error, and the Borrower, each other Credit Party, the
Agent and the Lenders shall treat each Person whose name is recorded in the
Register as the owner of the Advances and any Notes evidencing the Advances
recorded therein for all purposes of this Agreement. Any assignment of any
Advance, whether or not evidenced by a Note, shall be effective only upon
appropriate entries with respect thereto being made in the Register (and each
Note shall expressly so provide). Any assignment or transfer of all or part of
an Advance evidenced by a Note shall be registered on the Register only upon
surrender for registration of assignment or 



91








transfer of the Note evidencing such
Advance, accompanied by a duly executed Assignment and Acceptance, and thereupon
one or more new Notes shall be issued to the designated Assignee. 


          
(f)   Upon its
receipt of an Assignment and Acceptance executed by an Assignor, an Assignee and
any other Person whose consent is required by this Section 9.04, together with
payment to the Agent of the registration and processing fee referred to in
paragraph (a) of this Section 9.04, the Agent shall (i) promptly accept such
Assignment and Acceptance and (ii) record the information contained therein in
the Register on the effective date determined pursuant thereto. 


          
(g)   Each of the
Borrower, each Lender and the Agent hereby confirms that it will not institute
against a Conduit Lender or join any other Person in instituting against a
Conduit Lender any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding under any state bankruptcy or similar law, for one year
and one day after the payment in full of the latest maturing commercial paper
note issued by such Conduit Lender; provided, however, that each Lender
designating any Conduit Lender hereby agrees to indemnify, save and hold
harmless each other party hereto for any loss, cost, damage or expense arising
out of its inability to institute such a proceeding against such Conduit Lender
during such period of forbearance. 


          
9.05   Delays
and Waivers. No delay or omission by Agent, Collateral Agent, Arranger or
Lenders to exercise any right under this Agreement, the Collateral Documents or
any instrument or agreement contemplated hereunder or thereunder shall impair
any such right, nor shall it be construed to be a waiver thereof. No waiver of
any single breach or default under this Agreement shall be deemed a waiver of
any other breach or default. Any waiver, consent or approval under this
Agreement must be in writing to be effective. 


          
9.06   Costs and Expenses.  Borrower agrees:


	 	          
(a)  
to pay or reimburse Agent, the Collateral Agent, the Arranger and the Issuing
Lenders on demand for all reasonable out-of-pocket costs and expenses incurred
by them in connection with the development, preparation, delivery,
administration and execution of, and any amendment, supplement or modification
to, this Agreement, any Collateral Document and any other documents or
instruments prepared in connection herewith or therewith, the consummation of
the transactions contemplated hereby and thereby, and the consummation of the
transactions to occur on the Closing Date, including, without limitation, (i)
the reasonable fees and out-of-pocket expenses of outside and local counsel and
special tax counsel to Agent and the Collateral Agent (and the allocated cost of
Agent’s staff counsel) with respect thereto and (ii) the reasonable fees
and out-of-pocket expenses of Agent’s outside accounting consultant;




	 	          
(b)  
to pay or reimburse each Lender, the Collateral Agent, the Agent, the Arranger
and the Issuing Lenders on demand for all reasonable costs and expenses incurred
by any of them in connection with the enforcement or preservation of any rights
under this Agreement, the Notes, any Collateral Document, and any other
documents or instruments prepared in connection herewith or therewith and in
connection with any refinancing or restructuring of the Credit in the nature of
a “work-out”, including, without limitation, reasonable fees and
out-of-pocket expenses of outside and local counsel (and 




92








	 	the allocated cost of
staff counsel) to Agent, the Collateral Agent and to each of the several
Lenders; and




	 	          
(c)  to pay or reimburse Agent, the Arranger or the Collateral Agent on demand for
all reasonable appraisal, accounting, audit, search, recordation and filing
fees, incurred or sustained by them in connection with the matters referred to
under paragraphs (a) and (b) above.





          
9.07  
Telephone Indemnity. Borrower shall protect Lenders and Agent and hold them
harmless from and not liable for any and all loss, damage, claim or expense
(including, without limitation, reasonable attorneys’ fees and the
allocated costs of any Lender’s in-house legal counsel) incurred by Agent
or Lenders in connection with or in relation to any act or any failure to act
upon telephone instructions received by Lenders or Agent from Borrower or any
Person who has identified himself as an authorized officer of Borrower, whether
or not the instructions are actually given by an authorized officer of Borrower. 


          
9.08   Other
Indemnity. (a)  Borrower agrees to indemnify and hold harmless
Agent, the Collateral Agent, each Lender and each of their respective officers,
directors, agents and employees, and trustees and advisors of an Approved Fund,
from and against any and all claims, damages, liabilities, costs and expenses
(including, without limitation, reasonable fees, expenses and disbursements of
counsel) which may be incurred by or asserted against Agent, the Collateral
Agent, any Lender, any Issuing Lender or any such other indemnified Person in
connection with or arising out of any investigation, litigation or proceeding
related to this Agreement, the Advances, the Term Loan Commitments, the
Revolving Credit Commitments, the Letters of Credit, the use of proceeds of the
Advances or Letters of Credit or the negotiation and preparation of
documentation in connection herewith or therewith, whether or not Agent, the
Collateral Agent, any Issuing Lender or such Lender is a party thereto;
provided, however, that Borrower shall not be required to
indemnify any such indemnified Person from or against any portion of such
claims, damages, liabilities or expenses arising out of gross negligence or
willful misconduct of such indemnified Person. The foregoing indemnification
shall be binding on the Borrower forever, and shall survive repayment of the
Obligations and the release of any liens under the Collateral Documents. 


          
(b)   Borrower
hereby agrees to indemnify, defend and hold harmless Agent, the Collateral
Agent, the Issuing Lenders and each Lender, and each of their respective
officers, directors, employees and agents, and trustees and advisors of an
Approved Fund, from and against any and all claims, losses, liabilities, damages
and expenses (including, without limitation, reasonable attorneys’ fees),
which may be incurred by or asserted against Agent, the Collateral Agent, the
Issuing Lenders or any Lender or any such indemnified Person in connection with
or arising out of any investigation, litigation or proceeding, or any action
taken by any Person, with respect to any Hazardous Materials Claim arising out
of or related to any of the Properties which are subject to a Lien in favor of
the Collateral Agent as contemplated hereunder (including, without limitation,
any Hazardous Materials Claim arising out of or relating to any (i) release of
Hazardous Materials on, upon, under or into any such Properties or (ii) damage
to real or personal property or natural resources and/or harm or injury to
Persons alleged to have resulted from such release of Hazardous Materials on,
upon or into any such Properties); provided, however, that
Borrower shall not be required to indemnify, defend or hold 



93








harmless any such
indemnified Person from or against any portion of such loss, liability, damage
or expense arising out of the gross negligence or willful misconduct of such
indemnified Person. The foregoing indemnification is the personal obligation of
Borrower, binding on Borrower forever, and shall survive repayment of the
Obligations and release of record of the mortgages or deeds of trust in favor of
Collateral Agent encumbering the Properties and any transfer of the Properties
by foreclosure or by deed in lieu of foreclosure. The foregoing indemnification
shall not be affected or negated by any exculpatory clause that may be contained
in any of the Collateral Documents. It is expressly understood and agreed that
to the extent that Collateral Agent and/or Lenders are strictly liable under any
such law, regulation, ordinance or requirement, Borrower’s obligation to
Collateral Agent and Lenders under this indemnity shall likewise be without
regard to fault on the part of Borrower or its Subsidiaries with respect to the
violation or condition which results in liability to Collateral Agent and/or
Lenders; provided, however, that Borrower shall not be required to
indemnify, defend or hold harmless any such indemnified Person from or against
any portion of such loss, liability, damage or expense arising after the
Collateral Agent shall have foreclosed or otherwise taken possession of such
property which is caused by any action or inaction of the Collateral Agent after
such time. 


          
(c)   Agent, the
Collateral Agent and each Lender agree that in the event that any such
investigation, litigation or proceeding is asserted or threatened in writing or
instituted against it or any of its officers, directors, agents and employees,
or trustees and advisors of an Approved Fund, or any remedial, removal or
response action is requested of it or any of its officers, directors, agents and
employees, or trustees and advisors of an Approved Fund, for which Agent, the
Collateral Agent or any Lender may desire indemnity or defense hereunder, Agent,
the Collateral Agent or such Lender shall promptly notify Borrower in writing. 


          
(d)   Borrower at
the request of Agent, the Collateral Agent or any Lender, shall have the
obligation to defend against such investigation, litigation or proceeding or
requested remedial, removal or response action, and Agent, in any event, may
participate in the defense thereof with legal counsel of Agent’s choice if
Agent asserts defenses that raise potential conflicts of interest with Borrower.
No action taken by legal counsel chosen by Agent or any Lender in defending
against any such investigation, litigation or proceeding or requested remedial,
removal or response action shall vitiate or in any way impair Borrower’s
obligation and duty hereunder to indemnify and hold harmless Agent, the
Collateral Agent and each Lender (unless such action is grossly negligent). 


          
9.09   Choice
of Law. EXCEPT FOR COLLATERAL DOCUMENTS GOVERNED BY THE LAWS OF ANOTHER
STATE OR COUNTRY, AGENT, COLLATERAL AGENT AND LENDERS AND BORROWER AGREE THAT
THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT, THE NOTES AND ALL OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH,
AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK. 


          
9.10  
Personal Jurisdiction; Waiver. AGENT, COLLATERAL AGENT AND LENDERS MAY
ENFORCE ANY CLAIM ARISING UNDER THIS AGREEMENT, THE  



94








NOTES, OR ANY COLLATERAL
DOCUMENT IN ANY STATE OR FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND
LOCATED IN CHICAGO, ILLINOIS OR NEW YORK, NEW YORK. FOR THE PURPOSE OF ANY
ACTION OR PROCEEDING INSTITUTED WITH RESPECT TO ANY SUCH CLAIM, BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS. EACH OF
THE BORROWER AND ITS SUBSIDIARIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN THIS SECTION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES. 


          
9.11   Service
of Process. THE PARTIES HERETO IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS
OF ANY OF THE AFORESAID COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH
PARTY AT ITS ADDRESS PROVIDED HEREIN NOT LESS THAN FIVE (5) DAYS AFTER THE
APPLICABLE SUMMONS IS ISSUED AND SHALL BECOME EFFECTIVE UPON MAILING. NOTHING
CONTAINED IN THIS SECTION 9.11 SHALL AFFECT THE RIGHT OF AGENT, COLLATERAL
AGENT, ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
BORROWER OR ANY GUARANTOR IN ANY OTHER JURISDICTION. 


          
9.12   Waiver
of Jury Trial. EACH OF AGENT, COLLATERAL AGENT, LENDERS AND BORROWER WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, BETWEEN AGENT, LENDERS AND BORROWER ARISING OUT
OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED
IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. 


          
9.13   Section
Headings. Section headings are for reference only, and shall not affect the
interpretation or meaning of any provision of this Agreement. 


          
9.14  
Severability. The illegality or unenforceability of any provision of this
Agreement or any instrument or agreement required hereunder shall not in any way
affect or impair the legality or enforceability of the remaining provisions of
this Agreement or any instrument or agreement required hereunder. 


          
9.15  
Counterparts. This Agreement may be executed in as many counterparts as may
be deemed necessary or convenient, and by the different parties hereto on
separate counterparts (provided that Borrower shall execute each
counterpart), each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same agreement. 



95








          
9.16   No
Reliance by Lenders. Lenders hereby acknowledge that they have not, in good
faith, relied upon any margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve System) as collateral in extending or
maintaining the loans under this Agreement. 


          
9.17   Entire
Agreement. This Agreement, any writing referred to in Section 2.15 and any
agreement, document or instrument attached hereto or referred to herein (i)
integrate all the terms and conditions mentioned herein or incidental hereto,
(ii) supersede all oral negotiations and prior writings in respect to the
subject matter hereof, and (iii) are intended by the parties as the final
expression of the agreement with respect to the terms and conditions set forth
in this Agreement and any such agreement, document or instrument (including such
letter agreement) and as the complete and exclusive statement of the terms
agreed to by the parties. 


          
9.18  
Confidentiality. Each Lender and Agent agree to keep information obtained by
it pursuant hereto and the other Collateral Documents confidential in accordance
with such Lender’s or Agent’s, as the case may be, customary practices
and agrees that it will only use such information in connection with the
transactions contemplated by this Agreement and not disclose any of such
information other than (i) to such Lender’s or Agent’s, as the case
may be, employees, representatives, agents or affiliates who are advised of the
confidential nature of such information, (ii) to the extent such information
presently is or hereafter becomes available to such Lender or Agent, as the case
may be, on a non-confidential basis from a source other than Borrower or such
information that is in the public domain at the time of disclosure, (iii) to the
extent disclosure is required by law, regulation, subpoena or judicial order or
process (which requirement or order shall be promptly notified to Borrower
unless such notice is legally prohibited) or requested or required by bank
regulators or auditors or any administrative body or commission to whose
jurisdiction such Lender or Agent, as the case may be, may be subject, (iv) to
assignees or participants or potential assignees or participants who agree to be
bound by the provisions of this Section 9.18, (v) to the extent required in
connection with any litigation between Borrower and/or any Guarantor and any
Lender or Agent, (vi) following an Event of Default, in connection with the sale
or other realization on any Collateral under any Collateral Document, or (vii)
with Borrower’s prior written consent. 


          
9.19  
Existing Credit Agreement to Remain in Full Force and Effect. This Agreement
shall be deemed to be an amendment to and restatement of the Existing Credit
Agreement and the Existing Credit Agreement as amended and restated hereby shall
remain in full force and effect and is hereby ratified and confirmed in all
respects. All references to the Existing Credit Agreement in any other agreement
or document shall, on and after the Closing Date, be deemed to refer to the
Existing Credit Agreement as amended and restated hereby, and all references to
“Bank” or “Banks” in any other agreement or document shall,
on and after the Closing Date, be deemed to be references to “Lender”
and “Lenders”, respectively. The Borrower agrees, acknowledges and
affirms that (i) each of the Collateral Documents to which it is a party shall
remain in full force and effect and shall constitute security for all extensions
of credit pursuant to the Existing Credit Agreement as amended and restated
hereby and (ii) any reference to the Existing Credit Agreement appearing in any
such Collateral Document shall on and after the Closing Date be deemed to refer
to the Existing Credit Agreement as amended and restated hereby. 



96








ARTICLE X.


RELATION OF LENDERS



          
10.01   Agent
and Collateral Agent; Enforcement of Guaranties. (a)  Each Lender
hereby irrevocably appoints, designates and authorizes Agent to take such action
on its behalf under the provisions of this Agreement and each other instrument
or agreement contemplated hereunder and to exercise such powers and perform such
duties as are expressly delegated to it by the terms of this Agreement or such
other instrument or agreement, together with such powers as are reasonably
incidental thereto. Each Lender agrees that no Lender shall have the right
individually to enforce the Guarantee and Collateral Agreement, the Mortgages or
other Collateral Documents and hereby appoints Agent to act upon the direction
of the Majority Lenders to enforce each such Agreement. JPMorgan Chase Bank and
the Operating Banks agree that none of such Lenders shall take any action to
enforce the Operating Bank Guaranty, respectively, until Agent has commenced to
enforce the Guarantee and Collateral Agreement upon the direction of the
Majority Lenders pursuant to the preceding sentence. Notwithstanding any
provision to the contrary contained elsewhere in this Agreement or in such other
instrument or agreement, Agent shall not have any duties or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any such other instrument or agreement or otherwise exist against
the Agent. Agent may execute any of its duties under this Agreement by or
through agents, employees or attorneys-in-fact and shall be entitled to advice
of counsel concerning all matters pertaining to such duties. Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care. 


          
(b)   Each Lender
hereby authorizes the Collateral Agent to enter into the Collateral Documents to
which it is a party and to take all action contemplated by the Collateral Agency
Agreement; provided that the Collateral Agent shall not enter into or
consent to any amendment, modification, termination or waiver of any provision
contained in any Collateral Document or take any action thereunder without the
direction of Agent. Except as permitted by Section 10.13, the Agent shall not
direct the Collateral Agent to enter into or consent to any amendment,
modification, termination or waiver of any provision of any Collateral Document
or direct the Collateral Agent to take any action thereunder without the prior
consent of the Majority Lenders. Each Lender agrees that no Lender shall have
any right individually to seek or to enforce or to realize upon the security
granted to the Collateral Agent under the Collateral Documents, it being
understood and agreed that such rights and remedies may be exercised by the
Collateral Agent for the benefit of all of the Secured Creditors upon the terms
of the Collateral Documents and the Collateral Agreement. 


          
10.02   Pro
Rata Sharing. All principal, interest and fee payments on the Revolving
Credit (other than sums under Sections 2.14(a)(ii), 2.14(a)(iii) and 2.15 or
other provisions which provide for payments to specific Lenders) shall be
divided pro rata among Lenders according to their respective Revolving Credit
Commitment Percentages, and all principal, interest and fee payments on the Term
Loan Facility (other than sums under Section 2.15 or other provisions which
provide for payments to specific Lenders) shall be divided pro rata among
Lenders according to their respective Term Advances. All sums realized under the
Guarantee and Collateral Agreement (or any guaranty executed and delivered
pursuant to Section  



97








3.04) and all proceeds of
Collateral distributed to Lenders under the Collateral Agency Agreement (subject
to Section 10.13(f)) shall be allocated as set forth in the Collateral Agency
Agreement. 


          
10.03  
Set-off. (a)  Subject to the rights of the Secured Creditors with
respect to any Collateral and in addition to any Liens granted by Borrower or
any of its Subsidiaries to the Collateral Agent and any rights now or hereafter
granted under applicable law and not by way of limitation of any such Lien or
rights, upon the occurrence and during the continuance of an Event of Default,
each Secured Creditor is hereby authorized by Borrower at any time and from time
to time with the prior consent of the Agent, without notice to Borrower, or to
any other Person (any such notice being hereby expressly waived) to set-off all
deposits of Borrower and any other Debt at any time held or owing by such
Secured Creditor to or for the credit of Borrower against and on account of the
Secured Obligations owing to such Secured Creditor irrespective of whether or
not Agent or such Secured Creditor shall have made demand under this Agreement
or any Collateral Document and although the Secured Obligations may be
unmatured. Each of the Lenders agrees that it shall not, without the express
consent of Agent, set-off against the Obligations or any other amounts owing to
such Lender any accounts of Borrower now or hereafter maintained with such
Lender. Each Lender further agrees that it shall not, unless specifically
requested to do so by Agent, take or cause to be taken any action, including,
without limitation, the commencement of any legal or equitable proceedings, to
foreclose any Lien on, or otherwise enforce any security interest in, any of the
Collateral for the purpose of which is, or could be, to give such Lender any
preference or priority against any other Secured Creditor with respect to the
Collateral. 


          
(b)   If at any
time or times any Lender shall receive by payment, foreclosure, set-off or
otherwise, any proceeds of any Collateral or any payments with respect to the
Secured Obligations arising under, or relating to, this Agreement or the
Collateral Documents, except for any such proceeds or payments received by such
Lender or any Issuing Lender from Agent or Collateral Agent pursuant to the
terms of this Agreement or the Collateral Agency Agreement, such Lender shall
promptly purchase, without recourse or warranty, an undivided interest and
participation in the Secured Obligations owed to the other Lenders (or, after an
Event of Default, the other Secured Creditors) so that such excess payment
received shall be applied ratably as among Lenders in accordance with their
respective Commitment Percentages (or, after an Event of Default among the
Secured Creditors as provided for in the Collateral Agency Agreement);
provided, however, that if all or part of such excess payment
received by the purchasing party is thereafter recovered from it, those
purchases of participations shall be rescinded in whole or in part, as
applicable, and the applicable portion of the purchase price paid therefor shall
be returned to such purchasing party, but without interest except to the extent
that such purchasing party is required to pay interest in connection with the
recovery of the excess payment. Notwithstanding any contrary provision contained
herein, the proceeds of any drawing under any Letter of Credit issued hereunder
in favor of JPMorgan Chase Bank in its individual capacity (without affecting
JPMorgan Chase Bank’s obligation to purchase a participation in any such
Letter of Credit in accordance with Section 2.19(c)(i)) shall be for JPMorgan
Chase Bank’s sole benefit. 


          
(c)   Each
Secured Creditor other than in its capacity as a Lender shall be entitled to any
rights conferred upon it under this Agreement or any of the Collateral Documents
only on 



98








the condition and
understanding that it shall be bound by the terms of this Section 10.03 to the
same extent as Lenders. 


          
10.04  
Liability of Agent. Neither Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any
action taken or omitted to be taken by any of them under or in connection with
this Agreement (except for its or such Person’s own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recital, statement, representation or warranty made by Borrower or any
Subsidiary or any officer thereof contained in this Agreement or in any other
instrument or agreement contemplated hereunder or in any certificate, report,
statement or other document referred to or provided for in, or received by Agent
under or in connection with, this Agreement or any other instrument or agreement
contemplated hereunder or for the value of any Collateral or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other instrument or agreement contemplated hereunder or for any failure of
Borrower or any Subsidiary to perform its obligations hereunder or thereunder.
Agent shall not be under any obligation to any Lender to ascertain or to inquire
as to the observance or performance of any of agreements contained in, or
conditions of, this Agreement or any other instrument or agreement contemplated
hereunder, or to inspect the properties, books or records of Borrower or any
Subsidiary. 


          
10.05  
Reliance by Agent. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, telecopy, telex or telephone message,
electronic message, statement or other document or conversation believed by it
to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including
counsel to Borrower or any Guarantor), independent accountants and other experts
selected by Agent. Agent shall be fully justified in failing or refusing to take
any action under this Agreement or any other instruction or agreement
contemplated hereunder unless it shall first receive such advice or concurrence
of the Majority Lenders as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Agent shall in all cases be fully protected
in acting, or in refraining from acting, under this Agreement or any other
instrument or agreement contemplated hereunder in accordance with a request or
consent of the Majority Lenders and such request and any action taken or failure
to act pursuant thereto shall be binding upon all Lenders. 


          
10.06  
Approvals; Amendments. This Agreement and the Collateral Documents may be
amended or waived only upon the prior express written consent of Borrower or
Guarantors, as the case may be, party thereto and the Majority Lenders. Upon any
occasion requiring or permitting an approval, consent, waiver, election or other
action on the part of Majority Lenders, action shall be taken by Agent for and
on behalf or for the benefit of all Lenders upon the direction of Majority
Lenders, and any such action shall be binding on all Lenders; provided,
however, that unless each Lender directly and adversely affected thereby
(it being understood that, for the purposes of Section 10.06 (d) all Lenders
shall be deemed to be directly affected thereby) agree in writing, no amendment,
modification, consent or waiver shall be effective which: 



99








	 	          
(a)  
increases the amount of the Credit or the amount of the Term Loan Commitment or
Revolving Credit Commitment or L/C Commitment of any Lender, 




	 	          
(b)  
reduces interest, principal, prepayment premium (if any, owed pursuant to
Section 2.12(b)), commissions or fees owing hereunder, 




	 	          
(c)  
extends the scheduled date on which any sum is due hereunder, 




	 	          
(d)  releases all or substantially all of the Guarantors from their obligations under
the Guarantee and Collateral Agreement or, subject to the proviso in Section
10.13(c), releases all or substantially all of the Collateral (except (i) in
connection with dispositions thereof permitted under this Agreement, (ii) as
permitted by subsection 10.13(b), (iii) any Guarantor may be released from its
obligations under the Credit Documents if all of the Capital Stock of, or
substantially all of the assets of, such Guarantor are disposed of in a
transaction permitted by this Agreement or (iv) as otherwise expressly permitted
by this Agreement),




	 	          
(e)  
reduces the percentage specified in the definition of “Majority Lenders”, 




	 	          
(f)  
amends or waives the provisions of this Section 10.06, 




	 	          
(g)   [Reserved], or 




	 	          
(h)   amends or
waives any provision requiring consent of a specified percentage of Lenders
without consent of such percentage of Lenders. 





          
Notwithstanding the
foregoing, (i) a Revolving Credit Commitment Amount Increase made in accordance
with the terms of the definition of “Revolving Credit Commitment
Amount” shall be effective with the express written consent of Borrower,
each Lender increasing its Revolving Credit Commitment in connection therewith
and the Agent, (ii) the Borrower and the Agent may enter into technical
amendments to this Agreement in connection with the funding of a Revolving
Credit Commitment Amount Increase, (iii) the Agent and the Collateral Agent may
enter into technical amendments to the Collateral Agency Agreement with the
consent of the Lenders and (iv) no amendment, modification, consent or waiver
shall be effective which reduces the amount of any mandatory prepayment under
Section 2.13 without the consent of the holders of at least a majority in
interest of each Facility. 


          
10.07   Notice
of Default. Agent shall not be deemed to have knowledge or notice of the
occurrence of any Event of Default, except with respect to defaults in the
payment of principal, interest, commissions and fees payable to Agent hereunder
for the account of Lenders, unless Agent shall have received notice from a
Lender or Borrower referring to this Agreement, describing such Event of Default
and stating that such notice is a “notice of default”. In the event
that Agent receives such a notice, Agent shall give prompt notice thereof to
Lenders. Agent shall take such action with respect to such Event of Default as
shall be requested by the Majority Lenders in accordance with Article VIII;
provided, however, that unless and until Agent shall have received any
such request, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Event of Default as it
shall deem advisable in the best interests of Lenders. 



100








          
10.08   Credit
Decision. Each Lender expressly acknowledges that neither Agent nor any
other Lender nor any of their Affiliates nor any officer, director, employee,
agent or attorney-in-fact of any of them has made any representation or warranty
to it and that no act by Agent or any other Lender hereafter taken, including
any review of the affairs of Borrower and its Subsidiaries and their Affiliates,
shall be deemed to constitute any representation or warranty by Agent or any
other Lender to such Lender. Each Lender represents to Agent and to each other
Lender that it has, independently and without reliance upon Agent or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of
Borrower and Guarantors and made its own decision to enter into this Agreement
and extend credit to Borrower hereunder (without reliance on the Agent or any
other Lender). Each Lender also represents that it will, independently and
without reliance upon Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigations as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and other
condition and creditworthiness of Borrower and Guarantors (without reliance on
the Agent or any other Lender). Except for notices, reports and other documents
expressly required to be furnished to Lenders by Agent hereunder, Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of Borrower or any Guarantor
which may come into the possession of Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates. 


          
10.09  
Lenders’ Indemnity. Each Lender agrees to indemnify Agent (to the
extent not reimbursed by or on behalf of Borrower and without limiting the
obligation of Borrower to do so), ratably, according to the sum of (i) its
Revolving Credit Commitments (or, if the Revolving Credit Commitments have been
terminated, the sum of its outstanding Revolving Advances, participating
interests in Letters of Credit and unreimbursed drawings in respect of Letters
of Credit) and (ii) its outstanding Term Advances, determined in effect on the
date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Advances shall have been paid in full, ratably in accordance
with such sum immediately prior to such date), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind whatsoever which may at any time
(including at any time following the repayment of the Advances or the Letters of
Credit) be imposed on, incurred by or asserted against Agent in any way relating
to or arising out of this Agreement or any document contemplated by or referred
to herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by Agent under or in connection with any of the
foregoing; provided however, that no Lender shall be liable for
the payment to Agent of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from Agent’s gross negligence or willful misconduct.
Without limitation of the foregoing, each Lender agrees to reimburse Agent
promptly upon demand for its ratable share of any out-of-pocket expenses
(including reasonable fees and expenses of counsel and the allocated cost of
in-house counsel) incurred by Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in  



101








respect of rights or
responsibilities under, this Agreement, any Collateral Document, or any document
contemplated by or referred to herein to the extent that Agent is not reimbursed
for such expenses by or on behalf of Borrower. 


          
10.10   Agent
as Lender. JPMorgan Chase Bank shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
Agent; and the term “Lenders” shall include JPMorgan Chase Bank in its
individual capacity. JPMorgan Chase Bank and its subsidiaries and affiliates may
accept deposits from, lend money to, act as agent or trustee for other lenders
to, and generally engage in any kind of banking, trust or other business with
Borrower or any of its Subsidiaries or Affiliates as if it were not Agent. 


          
10.11   Notice
of Transfer. Subject to Section 9.04(a), Agent may deem and treat a Lender
party to this Agreement as the owner of such Lender’s portion of the Credit
for all purposes hereof unless and until a written notice of the assignment or
transfer thereof executed by such Lender shall have been received by Agent. 


          
10.12  
Resignation of Agent. Agent may resign upon 30 days’ written notice to
Lenders and Borrower. Upon any such resignation, Majority Lenders shall have the
right to appoint a successor Agent (which shall be either a Lender or a
commercial bank with capital and surplus in excess of One Hundred Million
Dollars ($100,000,000) and which successor Agent, unless a Default or an Event
of Default has occurred and is continuing, shall be reasonably acceptable to
Borrower). If no successor Agent shall have accepted such appointment within
thirty (30) days after the retiring Agent’s giving of notice of
resignation, the retiring Agent may, on behalf of Lenders, appoint a successor
Agent. Upon the acceptance by the successor Agent of its appointment hereunder,
the successor Agent shall succeed to and become vested with all the rights and
obligations of the retiring Agent, and the retiring Agent shall be discharged
from its obligations under this Agreement. The provisions of this Article X and
Sections 9.06, 9.07 and 9.08 shall inure to the benefit of the retiring Agent as
to any actions taken or omitted to be taken by it while it was Agent under this
Agreement. 


          
10.13  
Collateral Matters. (a)  Agent may from time to time, before or
after the occurrence of an Event of Default, make such disbursements and
advances to the Collateral Agent (“Agent Advances”) which
Agent, in its sole discretion, deems necessary or desirable to preserve or
protect the Collateral or any portion thereof, to enhance the likelihood or
maximize the amount of repayment of the Obligations or to pay any other amount
chargeable to Borrower or any Guarantor pursuant to the terms of this Agreement
or any Collateral Document, including, without limitation, costs, fees and
expenses as described in Section 9.06; provided, however, that the Agent
Advances shall not exceed Two Hundred Fifty Thousand Dollars ($250,000) without
the prior written consent of Majority Lenders. The Agent Advances shall be
repayable on demand and be secured by the Collateral. The Agent Advances shall
not constitute Advances but shall otherwise constitute Obligations hereunder.
Agent shall notify each Lender in writing of each such Agent Advance, which
notice shall include a description of the purpose of such Agent Advance. Without
limitation to its obligations pursuant to Section 10.09, each Lender agrees that
it shall make available to Agent, upon Agent’s demand, in immediately
available funds, the amount equal to such Lender’s Commitment Percentage of
each such Agent Advance. If such funds are not made available to Agent by such
Lender within one (1) Banking Day after Agent’s demand therefor, Agent will
be entitled to recover any such amount from such Lender together  



102








with interest
thereon at the Federal Funds Rate for each day during the period commencing the
date of such demand and ending on the date such amount is received. 


          
(b)   Lenders
acknowledge that the Borrower and its Subsidiaries have created and will create
Liens permitted by this Agreement on a substantial portion of their property,
including Collateral, to secure obligations owed to Persons other than the
Secured Creditors and that the Borrower and its Subsidiaries from time to time
have requested and will request the Agent and Collateral Agent to execute and
deliver releases and subordinations with respect to Liens on the Collateral
created by the Collateral Documents in connection with transactions permitted by
this Agreement (such as the Borrower and its Subsidiaries obtaining financing on
equipment and other property secured by Liens described in clauses (iv) and
(xiv) of the definition of “Permitted Liens”). Lenders hereby
irrevocably authorize Agent, at its option and in its discretion, to direct the
Collateral Agent to release or subordinate on terms satisfactory to the
Collateral Agent any Lien granted to or held by the Collateral Agent upon any
Collateral (i) upon termination of the Revolving Credit Commitments and Term
Loan Commitments and indefeasible payment in full and satisfaction of all of the
Obligations; or (ii) constituting property being sold or disposed of if the sale
or disposition is permitted hereunder; or (iii) constituting property in which
neither Borrower nor any Guarantor owned an interest at the time the Lien was
granted or at any time thereafter; or (iv) constituting property leased to
Borrower or any Guarantor; or (v) if approved, authorized or ratified in writing
by the Majority Lenders (subject to Section 10.06(d)); or (vi) subject to a
Permitted Lien or other Lien permitted by Section 7.03; or (vii) not owned by
the Borrower or any Guarantor. Upon request by Agent at any time, Lenders will
confirm in writing Agent’s authority to so direct the release of particular
types or items of Collateral pursuant to this Section 10.13(b). Without
limitation of the foregoing, the Lenders approve the form of, and authorize the
Agent and the Collateral Agent to enter into at the request of the Borrower,
subordination agreements substantially in the form of Exhibit N hereto. The
Lenders hereby irrevocably authorize Agent, at its option and discretion (1) to
direct the Collateral Agent to release and subordinate, on terms satisfactory to
the Collateral Agent, Liens on Collateral which is also subject to Permitted
Liens, (2) to execute any release, subordination or acknowledgement documents
requested by the Borrower in order to effect any release or subordination
described in this paragraph (b) and (3) to execute acknowledgements with respect
to leases to the effect that the Property subject to such leases is not subject
to the Liens created by the Credit Documents or Collateral, and the Agent and
the Collateral Agent shall have no liability to the Secured Creditors for
actions taken pursuant to this paragraph (b). This paragraph (b) is intended as
an authorization by the Lenders to permit the Agent and the Collateral Agent to
take the actions described herein and neither the Borrower nor any of its
Subsidiaries or any other Person shall be entitled to the benefits hereof. In
reliance on and pursuant to the foregoing authority the Agent and the Collateral
Agent may enter into subordination agreements and take other actions requested
by the Borrower in order to provide assurance to purchase money financing
sources and their assignees and successors of their priority in particular items
of Collateral, notwithstanding that such financing sources and their assignees
and successors may have failed to maintain perfected first priority security
interests thereon. 


          
(c)   Without in
any manner limiting Agent’s authority to act without any specific or
further authorization or consent by the Majority Lenders (as set forth in
Section 10.13(b) above), each Lender agrees to confirm in writing, upon request
by Borrower, the authority to  



103








direct the release of Collateral conferred upon
the Agent under clauses (i) through (vii) of Section 10.13(b) above. Upon
receipt by Agent of confirmation from the Majority Lenders of its authority to
direct the release of any particular item or types of Collateral, Agent shall
(and is hereby irrevocably authorized by Lenders to) direct the Collateral Agent
to execute such documents as may be necessary to evidence the release of the
Liens granted to the Collateral Agent for the benefit of the Secured Creditors
herein or pursuant hereto upon such Collateral; provided, however,
that (i) Agent shall not be required to direct the Collateral Agent to execute
any such document on terms which, in Agent’s opinion, would expose Agent or
the Collateral Agent to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse or warranty,
and (ii) such release shall not in any manner discharge, affect or impair the
Obligations or any Liens upon (or obligations of Borrower and its Subsidiaries
in respect of) all interests retained by Borrower and its Subsidiaries,
including (without limitation) the proceeds of any sale, all of which shall
continue to constitute part of the Collateral. 


          
(d)   Neither
Agent nor Collateral Agent shall have any obligation whatsoever to any Lender to
assure that the Collateral exists or is owned by Borrower or any of its
Subsidiaries or is cared for, protected or insured or has been encumbered or
that the Liens granted to the Agent or the Collateral Agent pursuant to any
Collateral Document have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any particular priority, or
to exercise at all or in any particular manner or under any duty of care,
disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent or Collateral Agent in this
Section 10.13 or in any of the Collateral Documents, it being understood and
agreed that in respect of the Collateral, or any act, omission or event related
thereto, each of Agent and Collateral Agent may act in any manner it may deem
appropriate, in its sole discretion, given Agent’s and Collateral
Agent’s own interest in the Collateral as one of the Lenders and that Agent
and Collateral Agent shall have no duty or liability whatsoever to any Lender
(except as specifically provided in this Agreement and the Collateral
Documents). 


          
EACH LENDER FURTHER
ACKNOWLEDGES AND AGREES THAT AGENT AND COLLATERAL AGENT SHALL NOT BE RESPONSIBLE
FOR, AND SHALL HAVE NO LIABILITY OR OBLIGATION WITH RESPECT TO, THE VALIDITY,
EFFECTIVENESS, GENUINENESS, ENFORCEABILITY OR SUFFICIENCY OF THIS AGREEMENT, THE
NOTES, THE COLLATERAL DOCUMENTS, ANY OTHER INSTRUMENT OR AGREEMENT CONTEMPLATED
HEREUNDER OR THEREUNDER, ANY ACTION TAKEN OR NOT TAKEN OR ANY DECISION MADE BY
ANY PERSON (OTHER THAN AGENT, OR COLLATERAL AGENT, AS THE CASE MAY BE) WITH
RESPECT TO ANY THEREOF OR WITH RESPECT TO THE COLLATERAL, THE FAILURE OF THE
BORROWER OR ANY SUBSIDIARY TO PERFORM ITS OBLIGATIONS HEREUNDER OR THEREUNDER,
ANY MISREPRESENTATION BY BORROWER OR ANY SUBSIDIARY HEREUNDER OR THEREUNDER, OR
THE VALUE OF ANY COLLATERAL OR THE CREATION, ATTACHMENT, PERFECTION OR PRIORITY
OF ANY SECURITY INTEREST OR LIEN PURPORTED TO BE CREATED BY THE COLLATERAL
DOCUMENTS, THIS AGREEMENT OR SUCH OTHER INSTRUMENTS OR AGREEMENTS AND THAT
AGENT, AS COLLATERAL AGENT AND AGENT, HAS UNDERTAKEN NO INDEPENDENT REVIEW OR
ANALYSIS WITH RESPECT TO ANY OF THE FOREGOING. 



104








          
(e)   The benefit
of the Collateral Documents and of the provisions of this Agreement relating to
the Collateral shall extend to and be available in respect of the Secured
Obligations (as defined in the Collateral Agency Agreement) solely on the
condition and understanding, as among Agent and Lenders, that (i) the Secured
Obligations shall be entitled to the benefit of the Collateral to the extent
expressly set forth in the Collateral Documents, and to such extent the
Collateral Agent shall hold, and have the right and power to act with respect
to, the Collateral on behalf of and as agent for the holders of the Secured
Obligations; but Agent in its separate capacity as agent hereunder is acting
solely as agent for the Lenders and shall have no separate fiduciary duty, duty
of loyalty, duty of care, duty of disclosure or other obligations whatsoever to
any holder of Secured Obligations; and (ii) all matters, acts and omissions
relating in any manner to the Collateral, or the omission, creation, perfection,
priority, abandonment or release of any Lien, shall be governed solely by the
provisions of this Agreement and the Collateral Documents, and no separate Lien,
right, power or remedy shall arise or exist in favor of any Lender under any
separate instrument or agreement or in respect of any Secured Obligations; and
(iii) each Lender shall be bound by all actions taken or omitted, in accordance
with the provisions of this Agreement or the Collateral Documents, by the
Collateral Agent, at the direction of Agent on behalf of the Lenders; and (iv)
no holder of Secured Obligations shall exercise any right of setoff, bank’s
lien or similar right except as expressly provided in Section 10.03. 


          
(f)   Any
Collateral proceeds received by Agent from the Collateral Agent pursuant to
Section 4(b) clause Third of the Collateral Agency Agreement shall be
applied and paid to the Obligations as follows (unless Agent and Majority
Lenders otherwise agree): 


	 	          
First:
To Agent and the Collateral Agent in an amount equal to all costs and expenses
(other than principal and interest) incurred in connection with performing their
respective duties hereunder and under the Collateral Documents, including,
without limitation, those related to or in connection with the administration of
this Agreement or the enforcement of their respective rights under the
Collateral Documents; 




	 	          
Second:
To the Lenders and the Issuing Lenders in an amount equal to all accrued and
unpaid interest and accrued and unpaid fees and commissions payable pursuant to
Section 2.14 outstanding hereunder or under the Notes and, if such proceeds
shall be insufficient to pay such amounts in full, then ratably (without
priority of any one over any other) to the Lenders and the Issuing Lenders in
proportion to the unpaid amounts of such accrued and unpaid interest, fees and
commissions owed to the respective Lender or Issuing Lender, as the case may be; 




	 	          
Third:
To the Lenders in an amount equal to all unpaid principal of the outstanding
Advances, to the Issuing Lenders in the amount of any unreimbursed Letter of
Credit drawings (to the extent they have not been converted into a Revolving
Advance) and to Agent for deposit as cash collateral, for application against
drawings under any Letters of Credit, up to an amount equal to the undrawn
amount of such Letters of Credit and, if such proceeds shall be insufficient to
pay such amounts in full, then ratably (without priority of any one over any
other) to the Lenders, the Issuing Lenders and the Agent in proportion of such
amounts owed under this clause Third to the respective Lender, Issuing Lender or
Agent, as the case may be; 




105








	 	          
Fourth:
To any accrued and unpaid fees, commissions and other sums payable pursuant to
this Agreement and not paid pursuant to clause Second of this provision and, if
such proceeds shall be insufficient to make such payments in full, then ratably
(without priority of any one obligation over any other) in proportion to the
unpaid amounts of accrued and unpaid fees, commissions and other sums so owed;
and 




	 	          
Fifth:
Any surplus then remaining shall be paid to Borrower or its successors or
assigns, or to whomever may be lawfully entitled to receive the same, or as a
court of competent jurisdiction may direct. 





          
10.14  
Collateral Agent. The Collateral Agent shall be entitled to the standards of
care, indemnities and other rights set forth in this Article Ten as are set
forth for the Agent, mutatis mutandis, except as may be expressly provided
otherwise hereunder, or in the Collateral Documents. 


          
10.15  
Documentation Agent and Syndication Agent. Neither the Documentation Agent
nor the Syndication Agent shall have any rights, duties or responsibilities
hereunder in its capacity as such (except as set forth in the definition of
“Material Adverse Effect”). 



106








          
IN WITNESS WHEREOF, the
parties hereto have executed this Agreement by their duly authorized officers as
of the day and year first above written. 


	 	BALLY TOTAL FITNESS HOLDING CORPORATION




	 	By:	/s/ William G. Fanelli
	 	 	

	 	 	Name:   William G. Fanelli

Title:   Sr. VP and Acting CFO






Credit Agreement








	 	JPMORGAN CHASE BANK, as Agent and as a Lender




	 	By:	/s/ Barry K. Bergman
	 	 	

	 	 	Name:   BARRY K. BERGMAN

Title:   VICE PRESIDENT






Credit Agreement








	 	DEUTSCHE BANK SECURITIES INC.,

as Syndication Agent




	 	By:	/s/ John Eydenberg
	 	 	

	 	 	Name:   John Eydenberg

Title:   Managing Director




	 	By:	/s/ Jeff Ogden
	 	 	

	 	 	Name:   Jeff Ogden

Title:   Managing Director






Credit Agreement






	 	LASALLE BANK NATIONAL ASSOCIATION,

as Documentation Agent




	 	By:	/s/ Zennie W. Lynch Jr.
	 	 	

	 	 	Name:   Zennie W. Lynch Jr.

Title:   Vice President






Credit Agreement






	 	Bally Total Fitness Holding Corporation

amended and restated Credit Agreement

dated as of October 14, 2004




	 	JPMorgan Chase Bank
	 	

	 	[LENDER]




	 	By:	/s/ Teri Streusand
	 	 	

	 	 	Name:   TERI STREUSAND

Title:   VICE PRESIDENT










	 	Bally Total Fitness Holding Corporation

amended and restated Credit Agreement

dated as of October 14, 2004




	 	 
	 	

	 	Deutsche Bank Trust Company Americas




	 	By:	/s/ Carin M. Keegan
	 	 	

	 	 	Name:   Carin M. Keegan

Title:   Vice President










	 	Bally Total Fitness Holding Corporation

amended and restated Credit Agreement

dated as of October 14, 2004




	 	 
	 	

	 	General Electric Capital Corporation




	 	By:	/s/ Brian Schwinn
	 	 	

	 	 	Name:   Brian Schwinn

Title:   Duly Authorized Signatory










	 	Bally Total Fitness Holding Corporation

amended and restated Credit Agreement

dated as of October 14, 2004




	 	UBS AG, Stamford Branch
	 	

	 	[LENDER]




	 	By:	/s/ Anthony N. Joseph
	 	 	

	 	 	Name:   Anthony N. Joseph

Title:   Associate Director

            Banking Products Services, US




	 	By:	/s/ Barbara Ezell-McMichael
	 	 	

	 	 	             Barbara Ezell-McMichael

             Associate Director

             Banking Products Services, US










	 	Bally Total Fitness Holding Corporation

amended and restated Credit Agreement

dated as of October 14, 2004




	 	 
	 	

	 	[LaSalle Bank, N.A.]




	 	By:	/s/ Zennie W. Lynch Jr.
	 	 	

	 	 	Name:   Zennie W. Lynch Jr.

Title:   Vice President










	 	Bally Total Fitness Holding Corporation

amended and restated Credit Agreement

dated as of October 14, 2004




	 	 
	 	 
	 	U.S. Bank National Association




	 	By:	/s/ R. Michael Newton
	 	 	

	 	 	Name:   R. Michael Newton

Title:   Vice President










	 	Bally Total Fitness Holding Corporation

amended and restated Credit Agreement

dated as of October 14, 2004




	 	 
	 	

	 	WELLS FARGO BANK, N.A.




	 	By:	/s/ Andrew Cavallari
	 	 	

	 	 	Name:   Andrew Cavallari

Title:   Vice President