Document:

Exhibit
10.10

 

	
  

  

 

April 19, 2002

 

 

Mr. Jeffrey L. Grayson

220 West 98th, Apt 9L

New York, NY 10025

 

Dear Jeff:

 

It is my pleasure
to extend to you an offer for the position of Chief Technology Officer for
Equinox Holdings, Inc., the consolidated business of Equinox Fitness Clubs
comprising all of the businesses that carry the “Equinox” brand name including
the fitness clubs, management company and related products or businesses (the
“Company”). As Chief Technology Officer, you will report directly to the Chief
Financial Officer of the Company and will have duties consistent with the job
description. The position offered is full-time employment at our corporate
headquarters in  New York City,
beginning May 8, 2002.

 

Your employment is
subject to your execution of Equinox’s Non-Disclosure and Non-Competition
Agreement for senior executives, a copy of which is attached. Initially, your
annual base salary will be $150,000, payable in biweekly installments.  Effective January 1, 2003, your annual base
salary will increase to $160,000. As additional compensation, you are eligible
to receive an annual performance incentive as described more fully in
Attachment 1 to this letter.  As an
inducement to accept this offer of employment, the Company will pay you a
special $5,000 bonus on November 1, 2002 and grant you options to purchase up
to 10,000 shares of the common stock of the Company at an exercise price equal
to the Fair Market Value at December 31, 2001, as described more fully in a
separate option agreement. Your compensation will be reviewed annually by the
Compensation Committee of the Board of Directors and may be increased but not
decreased.

 

Single health
insurance and group term life insurance (in an amount equal to your base
salary) coverage under our executive benefits program through PHS/The Guardian
will be effective after ninety days of full-time employment. After you have
completed six months of employment, you are entitled to two weeks’ paid
vacation and you are eligible to participate in the Company’s 40l(k) plan with
a 25% match by the Company. You are also entitled to one complimentary
membership during your first year of employment and three memberships
thereafter.

 

 

	
  895 broadway

  	
   

  	
   

  	
   

  	
  new york, new york 10003

  	
   

  	
   

  	
   

  	
  tel 212.677.0180

  	
   

  	
   

  	
   

  	
  fax 212.777.9510

  

 

www.equinoxfitness.com

 

 

If the terms of
this offer letter are acceptable to you, please indicate your agreement by
countersigning both originals of this letter and the Non-Disclosure and
Non-Competition Agreement, returning one copy of each to me. On behalf of the
Board of Directors and the employees of Equinox, I wish to express my
excitement at the prospect of your joining us.

 

	
   

  	
  Sincerely
  yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Harvey Spevak

  	
   

  
	
   

  	
  Harvey Spevak

  
	
   

  	
   

  
	
  Agreed
  and Accepted:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/
  Jeffrey L. Grayson

  	
   

  	
   

  
	
  Jeffrey
  L. Grayson

  	
   

  
				

 

 

Attachment 1

Performance
Bonus Plan

Chief Technology Officer

 

 

1.                                       The
performance bonus will be based upon (i) certain individual deliverables to  be mutually agreed within the first
ninety (90) days of your employment, and (ii) the Company’s earnings before
interest expense, income taxes and depreciation and amortization (“EBITDA”)
during any fiscal year.

 

2.                                       Individual Deliverables Upon your
achievement of certain mutually agreed deliverables in 2002, you will be
eligible to receive a performance incentive up to $10,000.  For 2003, the bonus opportunity will increase
to $20,000. This individual performance incentive is contingent upon the
Company achieving 90% of its profitability goal (see paragraph 4).

 

3.                                       Corporate EBITDA On an annual basis, the
actual EBITDA during the given fiscal year (as confirmed by the Company’s
outside auditors) will be compared with the amount of EBITDA forecast to be
generated during such period as outlined in the approved operating budget.

 

a.               If the
actual EBITDA is less than, 90% of goal, no performance bonus will be awarded.

 

b.              If the
actual 2002 EBITDA is equal to or greater than 90% of goal but less than 95% of
goal, a performance bonus in the amount of $4,000 will be awarded. For 2003,
the bonus opportunity will increase to $8,000.

 

c.               If the
2002 actual EBITDA is equal to or greater than 95% of goal but less than 100%
of goal, a performance bonus incentive in the amount of $6,000 plus $800 for
each one percent (1%) in excess of 95% of goal, subject to a maximum
performance bonus of $10,000 will be awarded. For 2003, the 95% and incremental
bonus opportunities increase to $12,000 and $1,600, respectively.

 

d.              If the
actual EBITDA is  greater than 100% of
goal, a performance bonus in the amount of $10,000 plus $2,000 for each one
percent (1%) in excess of 100% of goal be awarded. For 2003, the 100% and
incremental bonus opportunities will increase to $20,000 and $4,000,
respectively.

 

4.                                       If
actual Corporate EBITDA is less than 90% of goal, no individual performance
bonus will be awarded.

 

5.                                       Performance
incentive bonuses will be paid no later than April 10th of the
following year.

 

 

	
  

  

 

May 8, 2002

 

 

Mr.
Jeffrey L. Grayson

220
West 98th, Apt 9L

New
York, NY 10025

 

Re:    Non-Disclosure and Non-Competition
Agreement

 

Dear Jeff:

 

This will confirm
the terms of the agreement between Equinox Holdings, Inc. with offices at 895
Broadway, New York, New York (“Equinox”) and Mr. Jeffrey L.  Grayson (“You”) regarding the protection
of Confidential Information and certain restrictions on Your competing with
Equinox.

 

1.                                       GENERAL

 

Equinox agrees to
employ You, and You agree to be employed by Equinox as Chief Technology Officer
for Equinox’s consolidated businesses pursuant to the terms and provisions of
the offer letter dated April 19, 2002 (the “Offer Letter”).  Your employment relationship with Equinox
will be on an “at will” basis, and either Equinox or You may  terminate the employment for any reason
and at any time, without notice.

 

2.                                       WORKS
FOR HIRE

 

You agree that all
work products including, but not limited to, patents, copyrights, product
developments, service developments, ideas and concepts created by You during
Your employment and which relate to the business of Equinox shall remain the
exclusive property of Equinox.

 

3.                                       CONFIDENTIALITY
AGREEMENT AND RESTRICTIVE CONVENANTS

 

(a)           You recognize and acknowledge that
the lists and files relating to Equinox’s members, prospects, employees,
independent contractors and suppliers as well as its business plans, policies,
operating procedures and financial information (including operating budgets)
concerning Equinox or its shareholders and affiliates (collectively,
“Confidential Information”), as same may exist from time to time, are valuable,
special and unique assets of Equinox’s business.  You agree that, except as required by law,
You will not disclose Confidential Information to any person, firm,
corporation, association or other entity for any reason or any

 

	
  895 broadway

  	
   

  	
   

  	
   

  	
  new york, new york 10003

  	
   

  	
   

  	
   

  	
  tel 212.677.0180

  	
   

  	
   

  	
   

  	
  fax 212.777.9510

  

 

www.equinoxfitness.com

 

 

purpose at all and that You will not use such Confidential Information
for Your own benefit or the benefit of any third party(s). You also agree that
all equipment, records, files, memoranda, computer printouts and data, reports,
correspondence and the like, relating to the business of Equinox, that You
might use or prepare or with which You might come into contact, shall remain
the sole property of Equinox. You further agree to turn over immediately to Equinox
any such material in Your possession at such time as Your employment is
terminated.

 

(b)           You agree that, during Your
employment and for a period of twelve (12) months
immediately following termination of Your employment, You will not, without
Equinox’s prior written consent, directly or indirectly, own, manage, be
employed by, operate, consult for or participate in, or be connected as an
officer, employee, partner, or otherwise with any  fitness club within a twelve (12) block radius of Equinox
or any of its affiliates’ facilities; provided however that, in the event that
Your employment is terminated by Equinox without cause, the period of time of
your non-compete will be the same as the equivalent number of months during
which You receive severance pay as described more fully in paragraph 3(c).
Notwithstanding the foregoing, the parties agree that You will be released from
the terms of the preceding non-compete provision in the event that Equinox
fails to fulfill any of its financial obligations under the Offer Letter or
this letter agreement. You also agree that, during Your employment and for a
period of eighteen (18) months immediately following termination of Your
employment. You will not in any  manner,
directly or indirectly, disparage Equinox or its employees and operations in
any way. You further agree that, during Your employment and for a period of
eighteen (18) months immediately following termination of Your employment, You
will not in any  manner, directly
or indirectly, encourage, Induce or attempt to induce any person who is then or
was (within six (6) months before the date of such Inducement) an employee or
consultant of Equinox to alter or terminate his or her employment or
consultation with Equinox or otherwise solicit, attempt to hire or hire any
such employee or consultant. If the period of time or area herein specified
should be adjudged unreasonable in any court proceeding, then the period of
time shall be reduced by such number of months or the area shall be reduced
geographically, of both, so that this covenant may be enforced during such
period of time and in such areas as are adjudged to be reasonable.

 

(c)           Equinox agrees that, in the event
that Your employment is terminated by Equinox, You will be entitled to receive
severance pay equal to the equivalent of one week’s salary for each six months
of service to Equinox at the time of termination, payable at the option of
Equinox, either in one lump sum or in biweekly installments of no less the
equivalent biweekly installment of Your effective base salary at the time of
termination. The amount of such severance pay shall be no more than one-half of
Your effective base salary at the time of termination, less any applicable
deductions as required by law. In the event that You are terminated for cause,
Equinox is not obligated to make any severance payment. For the purposes of
this Agreement, “cause” shall be deemed to exist if:

 

(i)        You
are terminated for embezzlement of corporate funds;

(ii)       You
enter a business or employment that Equinox reasonably determines to be
detrimentally competitive with the business of Equinox and substantially
injurious to the financial interests of Equinox;

(iii)      You
willfully refuse to perform services consistent with Your position;

 

 

(iv)     You
engage in acts of dishonesty or fraud  in
connection with Your employment; or 

(v)      You
engage in acts of misconduct of such nature that Your continued employment
could reasonably be expected to adversely affect the business or properties of
Equinox.

 

For the purposes of determining “cause” in subparagraph 3(c)(iii) and
3(c)(v) above, You will have thirty (30) days, after written notice from
Equinox’s Board of Directors, to remedy the reason(s) given by the Board in
such notice for the assertion of a “cause” event. If You fail to remedy the
reason(s) within such thirty (30) day period, Equinox may terminate You for
cause.

 

(d)           You agree that, upon a breach,
threatened breach or violation by You of any of the foregoing provisions of
this paragraph 3, Equinox, in addition to all other remedies, shall be entitled
as a matter of right to injunctive relief in any court of competent
jurisdiction without being required to post bond or other security and without
having to prove the inadequacy of the available remedies at law, to enjoin and
restrain You and each and every other person, partnership, association,
corporation or organization concerned therein, from the continuance of any
action constituting such breach.

 

4.             NOTICES

 

Any and all
notices or other communications given under this Agreement shall be in writing
and shall be deemed to have been duly given on the date of delivery, if
delivered in person, or four (4) days after mailing, if mailed within the
continental United States, postage prepaid, by certified or registered mail,
return receipt requested, to the party entitled to receive the same at his or
its address first set forth above. We may designate by notice to each other any
new address for the purposes of this Agreement as provided in this paragraph 4.

 

5.             MISCELLANEOUS
PROVISIONS

 

(a)           This instrument, in conjunction with
the Offer Letter, represents the entire Agreement between us and supersedes any
prior agreement or understanding with respect to the subject matter hereof. In
the event that a conflict arises between this Agreement and the Offer Letter,
the Offer Letter will govern. No provision hereof may be amended, modified,
terminated or revoked except by a writing signed by both of us.

 

(b)           This Agreement will be governed by,
and construed and enforced according to, the laws of the State of New York
without regard to its conflicts of  law
rules.

 

(c)           No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed the
waiver of subsequent breach or default of the same or similar nature.

 

(d)           If any provision of this Agreement shall be held invalid
or unenforceable, such invalidity or unenforceability shall affect only such
provision and shall not in any manner affect

 

 

or render invalid or unenforceable any other severable provision of
this Agreement, and this Agreement shall be carried out as if any such invalid
or unenforceable provision were not contained herein.

 

(e)           We agree that we will each take such
action and execute and deliver such documents as may be reasonably necessary to
fulfill the terms of this Agreement.

 

(f)            The agreements and covenants set forth in Paragraph 3
above shall survive termination and expiration of this Agreement for the
various time periods specified therein.

 

If this letter accurately
sets  forth the terms of our
agreement, please countersign the enclosed copy and return it to us.

 

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  EQUINOX
  HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  /s/ Harvey Spevak

  	
   

  
	
   

  	
  Harvey Spevak

  
	
   

  	
   

  
	
  Accepted
  and Agreed to this

  	
   

  
	
  8
  day of May, 2002

  	
   

  
	
   

  	
   

  
	
  /s/
  Jeffrey L. Grayson

  	
   

  	
   

  
	
  Jeffrey
  L. GraysonExhibit 10.11

 

CREDIT AGREEMENT

DATED AS OF DECEMBER 16, 2003

BY AND AMONG

EQUINOX HOLDINGS, INC., a Delaware corporation,

MERRILL LYNCH CAPITAL,

a Division of Merrill Lynch Business Financial Services Inc.,

as Agent, Administrative Agent, Lead Arranger and as a Lender,

 

UBS SECURITIES LLC, as Syndication Agent,

 

WACHOVIA BANK, NATIONAL ASSOCIATION, as
Documentation Agent and as a Lender,

 

UBS LOAN FINANCE LLC, as a Lender,

AND

THE ADDITIONAL LENDERS

FROM TIME TO TIME PARTY HERETO

 

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE
  I DEFINITIONS

  	
   

  
	
   

  	
   

  
	
  Section
  1.1

  	
  Certain
  Defined Terms

  	
   

  
	
  Section
  1.2

  	
  Accounting
  Terms and Determinations

  	
   

  
	
  Section
  1.3

  	
  Other
  Definitional Provisions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  II LOANS AND LETTERS OF CREDIT

  	
   

  
	
   

  	
   

  
	
  Section
  2.1

  	
  Loans.

  	
   

  
	
  Section
  2.2

  	
  Interest,
  Interest Calculations and Certain Fees.

  	
   

  
	
  Section
  2.3

  	
  Notes

  	
   

  
	
  Section
  2.4

  	
  Letters
  of Credit and Letter of Credit Fees.

  	
   

  
	
  Section
  2.5

  	
  General
  Provisions Regarding Payment; Loan Account.

  	
   

  
	
  Section
  2.6

  	
  Maximum
  Interest.

  	
   

  
	
  Section
  2.7

  	
  Taxes.

  	
   

  
	
  Section
  2.8

  	
  Ancillary
  Services

  	
   

  
	
  Section
  2.9

  	
  Change
  of Lending Office

  	
   

  
	
  Section
  2.10

  	
  Replacement
  of Lenders under Certain Circumstances

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III REPRESENTATION AND WARRANTIES

  	
   

  
	
   

  	
   

  
	
  Section
  3.1

  	
  Existence
  and Power

  	
   

  
	
  Section
  3.2

  	
  Organization
  and Governmental Authorization; No Contravention

  	
   

  
	
  Section
  3.3

  	
  Binding
  Effect

  	
   

  
	
  Section
  3.4

  	
  Capitalization

  	
   

  
	
  Section
  3.5

  	
  Financial
  Information.

  	
   

  
	
  Section
  3.6

  	
  Litigation

  	
   

  
	
  Section
  3.7

  	
  Ownership
  of Property

  	
   

  
	
  Section
  3.8

  	
  No
  Default

  	
   

  
	
  Section
  3.9

  	
  Labor
  Matters

  	
   

  
	
  Section
  3.10

  	
  Regulated
  Entities

  	
   

  
	
  Section
  3.11

  	
  Margin
  Regulations

  	
   

  
	
  Section
  3.12

  	
  Compliance
  With Laws

  	
   

  
	
  Section
  3.13

  	
  Taxes

  	
   

  
	
  Section
  3.14

  	
  Compliance
  with ERISA.

  	
   

  
	
  Section
  3.15

  	
  Broker
  Fees and Other Payments

  	
   

  
	
  Section
  3.16

  	
  Related
  Transactions

  	
   

  
	
  Section
  3.17

  	
  Employment,
  Equityholders and Subscription Agreements

  	
   

  
	
  Section
  3.18

  	
  Compliance
  with Environmental Requirements; No Hazardous Materials

  	
   

  
	
  Section
  3.19

  	
  Intellectual
  Property

  	
   

  
	
  Section
  3.20

  	
  Real
  Property Interests

  	
   

  
	
  Section
  3.21

  	
  Solvency

  	
   

  
	
  Section
  3.22

  	
  Full
  Disclosure

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV AFFIRMATIVE COVENANTS

  	
   

  
	
   

  	
   

  
	
  Section
  4.1

  	
  Financial
  Statements and Other Reports

  	
   

  

 

i

 

	
  Section
  4.2

  	
  Payment
  and Performance of Obligations

  	
   

  
	
  Section
  4.3

  	
  Maintenance
  of Existence

  	
   

  
	
  Section
  4.4

  	
  Maintenance
  of Property; Insurance.

  	
   

  
	
  Section
  4.5

  	
  Compliance
  with Laws

  	
   

  
	
  Section
  4.6

  	
  Reserved.

  	
   

  
	
  Section
  4.7

  	
  Use
  of Proceeds

  	
   

  
	
  Section
  4.8

  	
  Lenders’
  Meetings

  	
   

  
	
  Section
  4.9

  	
  Reserved.

  	
   

  
	
  Section
  4.10

  	
  Reserved.

  	
   

  
	
  Section
  4.11

  	
  Bank,
  Investment and Other, Similar Accounts

  	
   

  
	
  Section
  4.12

  	
  Further
  Assurances

  	
   

  
	
  Section
  4.13

  	
  New
  Leases; Certain New Subsidiaries.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  V NEGATIVE COVENANTS

  	
   

  
	
   

  	
   

  
	
  Section
  5.1

  	
  Debt

  	
   

  
	
  Section
  5.2

  	
  Liens

  	
   

  
	
  Section
  5.3

  	
  Restricted
  Distributions

  	
   

  
	
  Section
  5.4

  	
  Restrictive
  Agreements

  	
   

  
	
  Section
  5.5

  	
  Payments
  and Modifications of Unsecured Notes Debt; Warrant Documents.

  	
   

  
	
  Section
  5.6

  	
  Consolidations,
  Mergers and Sales of Assets

  	
   

  
	
  Section
  5.7

  	
  Permitted
  Acquisitions, Investments

  	
   

  
	
  Section
  5.8

  	
  Transactions
  with Affiliates

  	
   

  
	
  Section
  5.9

  	
  Modification
  of Organizational Documents

  	
   

  
	
  Section
  5.10

  	
  Fiscal
  Year

  	
   

  
	
  Section
  5.11

  	
  Conduct
  of Business

  	
   

  
	
  Section
  5.12

  	
  Investor
  Fees

  	
   

  
	
  Section
  5.13

  	
  Bank
  Accounts

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI FINANCIAL COVENANTS

  	
   

  
	
   

  	
   

  
	
  Section
  6.1

  	
  Capital
  Expenditures

  	
   

  
	
  Section
  6.2

  	
  Interest
  Coverage Ratio

  	
   

  
	
  Section
  6.3

  	
  Total
  Debt to EBITDA Ratio

  	
   

  
	
  Section
  6.4

  	
  Senior
  Debt to EBITDA Ratio

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII CONDITIONS

  	
   

  
	
   

  	
   

  
	
  Section
  7.1

  	
  Conditions
  to Closing; Conditions to Initial Loans.

  	
   

  
	
  Section
  7.2

  	
  Conditions
  to Each Loan and Support Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII EVENTS OF DEFAULT

  	
   

  
	
   

  	
   

  
	
  Section
  8.1

  	
  Events
  of Default

  	
   

  
	
  Section
  8.2

  	
  Acceleration
  and Suspension or Termination of Loan Commitment

  	
   

  
	
  Section
  8.3

  	
  Cash
  Collateral

  	
   

  
	
  Section
  8.4

  	
  Default
  Rate of Interest and Suspension of LIBOR Rate Options

  	
   

  
	
  Section
  8.5

  	
  Setoff
  Rights

  	
   

  
	
  Section
  8.6

  	
  Application
  of Proceeds

  	
   

  

 

ii

 

	
  ARTICLE
  IX EXPENSES, INDEMNITY, TAXES AND RIGHT TO PERFORM

  	
   

  
	
   

  	
   

  
	
  Section
  9.1

  	
  Expenses

  	
   

  
	
  Section
  9.2

  	
  Indemnity

  	
   

  
	
  Section
  9.3

  	
  Taxes

  	
   

  
	
  Section
  9.4

  	
  Right
  to Perform

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  X AGENT

  	
   

  
	
   

  	
   

  
	
  Section
  10.1

  	
  Appointment
  and Authorization

  	
   

  
	
  Section
  10.2

  	
  Agent
  and Affiliates

  	
   

  
	
  Section
  10.3

  	
  Action
  by Agent

  	
   

  
	
  Section
  10.4

  	
  Consultation
  with Experts

  	
   

  
	
  Section
  10.5

  	
  Liability
  of Agent

  	
   

  
	
  Section
  10.6

  	
  Indemnification

  	
   

  
	
  Section
  10.7

  	
  Right
  to Request and Act on Instructions

  	
   

  
	
  Section
  10.8

  	
  Credit
  Decision

  	
   

  
	
  Section
  10.9

  	
  Collateral
  Matters

  	
   

  
	
  Section
  10.10

  	
  Agency
  for Perfection

  	
   

  
	
  Section
  10.11

  	
  Notice
  of Default

  	
   

  
	
  Section
  10.12

  	
  Successor
  Agent

  	
   

  
	
  Section
  10.13

  	
  Disbursements
  of Loans; Payment.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XI MISCELLANEOUS

  	
   

  
	
   

  	
   

  
	
  Section
  11.1

  	
  Survival

  	
   

  
	
  Section
  11.2

  	
  No
  Waivers

  	
   

  
	
  Section
  11.3

  	
  Notices

  	
   

  
	
  Section
  11.4

  	
  Severability

  	
   

  
	
  Section
  11.5

  	
  Amendments
  and Waivers

  	
   

  
	
  Section
  11.6

  	
  Assignments;
  Participations.

  	
   

  
	
  Section
  11.7

  	
  Headings

  	
   

  
	
  Section
  11.8

  	
  Confidentiality

  	
   

  
	
  Section
  11.9

  	
  GOVERNING
  LAW; SUBMISSION TO JURISDICTION

  	
   

  
	
  Section
  11.10

  	
  WAIVER
  OF JURY TRIAL

  	
   

  
	
  Section
  11.11

  	
  Publication;
  Advertisement.

  	
   

  
	
  Section
  11.12

  	
  Counterparts;
  Integration

  	
   

  

 

iii

 

ANNEXES AND EXHIBITS

 

	
  ANNEXES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Annex A

  	
  Commitment Annex

  	
   

  
	
  Annex B

  	
  JW Childs Coinvestors

  	
   

  
	
  Annex C

  	
  Conditions and Factors for Permitted Acquisitions

  	
   

  
	
  Annex D

  	
  Selected Unrestricted Lease Provisions

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Form of Assignment Agreement

  	
   

  
	
  Exhibit B

  	
  Form of Compliance Certificate

  	
   

  
	
  Exhibit C

  	
  Form of Borrowing Base Certificate

  	
   

  
	
  Exhibit D

  	
  Form of Notice of Borrowing

  	
   

  

 

iv

 

CREDIT
AGREEMENT

 

CREDIT
AGREEMENT dated as of December 16, 2003 by and among EQUINOX HOLDINGS, INC., a Delaware corporation (“Borrower”), as Borrower, the financial
institutions from time to time parties hereto, each as a Lender, MERRILL LYNCH CAPITAL, a division of
Merrill Lynch Business Financial Services Inc., individually as a Lender and as
Agent, Administrative Agent and Lead Arranger, UBS SECURITIES LLC, as Syndication Agent, WACHOVIA BANK, NATIONAL ASSOCIATION, a
national banking association, individually as a Lender and as Documentation
Agent, and UBS LOAN FINANCE LLC,
as a Lender.

 

RECITALS:

 

WHEREAS,
Borrower desires that Lenders extend certain working capital facilities to
Borrower to provide funds necessary to provide working capital financing for
Borrower and to provide funds for other general business purposes of Borrower;
and

 

WHEREAS,
Borrower desires to secure all of its Obligations under the Financing Documents
by granting to Agent, for the benefit of Agent and Lenders, a security interest
in and lien upon substantially all of its personal property and certain of its
real property, including without limitation substantially all of the
outstanding capital stock or other equity securities, as applicable, of each
Subsidiary, all as set forth in the Security Documents; and

 

WHEREAS, each
Domestic Subsidiary is willing to guaranty all of the Obligations of Borrower
to Lenders under the Financing Documents, and certain Domestic Subsidiaries are
willing to grant to Agent, for the benefit of Agent and Lenders, a security
interest in and lien upon substantially all of their personal property and
certain of their real property, including without limitation substantially all
of the outstanding capital stock or other equity securities, as applicable, of
their respective Subsidiaries, all as set forth in the Security Documents;

 

NOW,
THEREFORE, in consideration of the premises and the agreements, provisions and
covenants herein contained, Borrower, Lenders and Agent agree as follows:

 

ARTICLE I

DEFINITIONS

 

Section 1.1            Certain Defined Terms.  The following terms have the following
meanings:

 

“Accounts” means “accounts” (as defined in
Article 9 of the UCC) of Borrower, the Domestic Subsidiaries, including without
limitation any and all rights to payment for the sale or lease of goods or
rendition of services, whether or not they have been earned by performance.

 

“Adjustment Date” means the first Business
Day of each February, May, August and November of each year, commencing with
the first Business Day of February, 2004.

 

 

“Administrative Agent”  means Merrill Lynch, in its capacity as
administrative agent for the Lenders hereunder, subject to the provisions of Section
10.14, and the successors of Merrill Lynch in such capacity.

 

“Affiliate” means with respect to any
Person: (i) any Person that
directly or indirectly controls such Person, (ii)
any Person which is controlled by or is under common control with such
controlling Person and (iii) in
the case of an individual, the parents, descendants, siblings and spouse of
such individual.  As used in this
definition, the term “control” of
a Person means the possession, directly or indirectly, of the power to vote
five percent (5%) or more of any class of voting securities of such Person or
to direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by contract or otherwise; provided,
however: (x) neither the Agent nor
any Lender (nor any Affiliate thereof) shall be considered an Affiliate of the
Borrower or any Subsidiary thereof and (y)
so long as any Unsecured Notes are outstanding, no holder of the Unsecured
Notes shall be considered an Affiliate of the Borrower or any Subsidiary
thereof solely by reason of such holder’s holding such Senior Subordinated
Notes.

 

“Agent” means Merrill Lynch in its capacity
as agent for the Lenders hereunder, as such capacity is established and subject
to the provisions of Article X, and the successors of Merrill Lynch in
such capacity.

 

“Agent Advances” has the meaning set forth
in subsection 2.1(a)(ii).

 

“Agreement” means this Credit Agreement, as
the same may be amended, supplemented, restated or otherwise modified from time
to time.

 

“Ancillary Services” means any service or
facility (other than any Debt and/or Letter of Credit facility) extended to the
Borrower or any Subsidiary by any Designated Lender Affiliate under any
Interest Rate Protection Agreement otherwise permitted hereunder in reliance on
the agreement of a Lender to indemnify such Designated Lender Affiliate in
respect of such service or facility.

 

“Applicable Unused Line Rate” means, at the
time of calculation: (i) if the
Loan Outstandings divided by the Loan Commitment is less than .33, a
rate per annum equal to 875/1000
percent (0.875%), (ii) if the Loan
Outstandings divided by the Loan Commitment is .33 or more but less than
..50, a rate per annum equal to
750/1000 percent (0.750%), and (iii)
if the Loan Outstandings divided by the Loan Commitment is .50 or more,
a rate per annum equal to
500/1000 percent (0.500%).

 

“Asset Disposition” means any sale, lease,
exclusive license or other consensual disposition by any Credit Party of any
asset, but excluding sales, leases, exclusive licenses or transfers or other
dispositions expressly permitted under Section 5.6.

 

“Assignee” has the meaning set forth in subsection
11.6(a).

 

“Assignment Agreement” means an agreement
substantially in the form of Exhibit A hereto.

 

2

 

“Borrower” has the meaning set forth in the Preamble
to this Agreement.

 

“Borrower’s Account” means the account
specified on the signature pages hereof below Borrower’s name.

 

“Borrowing” means a borrowing of a Loan.

 

“Borrowing Base” means, as of any date of
calculation, the dollar amount calculated to be the “Borrowing Base” under and
pursuant to the Borrowing Base Certificate most recently delivered to Agent in
accordance with the terms hereof.

 

“Borrowing Base Certificate” means a
certificate, duly executed by a Responsible Officer, appropriately completed
and substantially in the form of Exhibit C hereto.

 

“Business Day” means any day except a
Saturday, Sunday or other day on which either the New York Stock Exchange is
closed, or on which commercial banks in Chicago are authorized by law to close
and, in the case of a Business Day which relates to a LIBOR Loan, a day on
which dealings are carried on in the London interbank eurodollar market.

 

“Capital Expenditures” has the meaning
provided in the Compliance Certificate.

 

“Capital Lease” of any Person means any
lease of any property by such Person as lessee which would, in accordance with
GAAP, be required to be accounted for as a capital lease on the balance sheet
of such Person.

 

“Cash-Collateralized Letter of Credit” means
a Letter of Credit with respect to which Borrower has deposited with Agent for
the benefit of all Lenders which have committed to make Loans hereunder cash in
an amount equal to: (i) one
hundred percent (100%) of the aggregate outstanding Letter of Credit
Liabilities with respect to such Letter of Credit to be available to Agent to
reimburse payments of drafts drawn under such Letter of Credit and pay any fees
and expenses related thereto plus (ii) an amount equal to the aggregate
amount of fees payable under subsection 2.4(b) with respect to such
Letter of Credit for the full remaining term of such Letter of Credit which are
not otherwise prepaid by Borrower

 

“Cash Equivalents” means any Investment in: (i) direct obligations of the United
States or any agency thereof, or obligations guaranteed by the United States or
any agency thereof, (ii) commercial
paper rated at least A-1 by Standard & Poor’s Ratings Service and P-1 by
Moody’s Investors Services, Inc., (iii)
time deposits with, including certificates of deposit issued by, any Lender or
any office located in the United States of any bank or trust company which is
organized under the laws of the United States or any State thereof and has
capital, surplus and undivided profits aggregating at least $500,000,000 and
which issues (or the parent of which issues) certificates of deposit or
commercial paper with a rating described in clause (ii) above, (iv) repurchase agreements with respect to securities
described in clause (i) above entered into with an office of a bank or
trust company meeting the criteria specified in clause (iii) above,
provided in each case that such Investment matures within one year from the
date of acquisition thereof by any Credit Party, or (v) any money market or mutual fund which invests only in the
foregoing types of investments and the liquidity of which is satisfactory to
Agent.

 

3

 

“Closing Checklist” means that certain
Closing Checklist describing certain conditions precedent to the effectiveness
of this Agreement, which has been agreed upon by and between Agent and
Borrower.

 

“Closing Date” means the date of this
Agreement.

 

“Club Contribution” means, with respect to
any Domestic Subsidiary for any defined period, an amount equal to revenues of
such Domestic Subsidiary on a stand-alone basis for such period less operating expenses of such Domestic
Subsidiary for such period (i.e.,  operating income before allocation of
corporate expenses).

 

“Code” means the Internal Revenue Code of
1986.

 

“Collateral” means all property, now owned
or existing or hereafter acquired or arising, mortgaged or pledged to, or
purported to be subjected to a Lien in favor of, Agent, for the benefit of
Agent and Lenders, pursuant to the Security Documents.

 

“Commitment Annex” means Annex A to
this Agreement.

 

“Commitment Expiry Date” means December 16,
2008.

 

“Compliance Certificate” means a
certificate, duly executed by a Responsible Officer, appropriately completed
and substantially in the form of Exhibit B hereto.

 

“Consolidated Subsidiary” means at any date
any Subsidiary or other Person the accounts of which would be consolidated with
those of Borrower in its consolidated financial statements if such statements
were prepared as of such date.

 

“Control Agreement”  means an agreement by and among Agent, any
Credit Party and a deposit bank or other financial institution, pursuant to
which such deposit bank or other financial institution acknowledges the
security interest of Agent in all bank, investment or other, similar accounts
of such Credit Party held by such deposit bank or other financial institution,
and agrees to comply with instructions originated by Agent directing
disposition of the funds in the bank, investment or other, similar accounts
upon the occurrence and during the continuance of an Event of Default without
further consent from any Credit Party, and agrees to subordinate and limit any
security interest the deposit bank may have in the bank accounts on terms
reasonably satisfactory to Agent, and which are otherwise in form and substance
reasonably satisfactory to Agent.

 

“Controlled Group” means all members of a
controlled group of corporations and all members of a controlled group of
trades or businesses (whether or not incorporated) under common control which,
together with Borrower, are treated as a single employer under Section 414 of
the Code or Section 4001 of ERISA.

 

“Credit Exposure” means the Loan Commitment
is outstanding or any Loan, Reimbursement Obligation or other Obligation
remains unpaid or any Letter of Credit or Support Agreement remains
outstanding; provided, no Credit Exposure shall be deemed to exist
solely

 

4

 

due to the existence of: (i)
contingent indemnification liability or (ii) any
outstanding Cash-Collateralized Letter of Credit.

 

“Credit Party” means Borrower and each
Subsidiary.

 

“Debt” of a Person means at any date,
without duplication: (i) all
obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising
and paid in the ordinary course of business, (iv)
all Capital Leases of such Person, (v)
all non-contingent obligations of such Person to reimburse any bank or other
Person in respect of amounts paid under a letter of credit or similar instrument,
(vi) all equity securities of such
Person subject to repurchase or redemption otherwise than at the sole option of
such Person (other than the Warrants and, to the extent no mandatory right of
redemption has arisen thereunder, any Preferred Stock), (vii) Debt of the types described in clauses
(i), (ii), (iii), (iv), (v) and (vii) of
this definition that is secured by a Lien on any asset of such Person, whether
or not such obligation is otherwise an obligation of such Person, (viii) “earnouts” which are due and owing
and similar payment obligations and (ix)
all Debt of others Guaranteed by such Person; provided, in no event
shall “Debt” include Cash-Collateralized Letters of Credit or letters of credit
issued by Persons other than Agent or any Lender which are fully cash
collateralized in a manner reasonably satisfactory to Agent.

 

“Default” means any condition or event which
with the giving of notice or lapse of time or both would, unless cured or
waived, become an Event of Default.

 

“Defaulted Lender” means, so long as such
failure shall remain in existence and uncured, any Lender which shall have
failed to make any Loan or other credit accommodation, disbursement or
reimbursement required pursuant to the terms of any Financing Documents.

 

“Designated Lender Affiliates” means any
Affiliate of Agent or any Lender that:
(i) from time to time makes Ancillary Services available to
Borrower or any Subsidiary and (ii)
in the case of an Affiliate of a Lender other than Merrill Lynch, is expressly
identified in writing by Agent, in its sole discretion, as a Designated Lender
Affiliate.

 

“Documentation Agent” means Wachovia, in its
capacity as documentation agent for the Lenders hereunder, subject to the
provisions of Section 10.14, and the successors of Wachovia in such
capacity.

 

“Domestic Subsidiary” means a Subsidiary
which is formed under the laws of one (1) of the fifty (50) states of the
United States of America.

 

“EBITDA” has the meaning provided in the
Compliance Certificate.

 

“Eligible Assignee” means: (i) any commercial bank organized under the
laws of the United States or any state thereof; (ii) a commercial bank organized under the laws of any other
country; or (iii) a finance
company, insurance company or other financial institution or fund which is
engaged in making, purchasing or otherwise investing in commercial loans for
its own account in the ordinary course of business.

 

5

 

“Environmental Laws” means any and all
federal, state, local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, decrees, codes, plans,
injunctions, permits, concessions, grants, franchises, licenses, agreements and
governmental restrictions, whether now or hereafter in effect, relating to the
environment or the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Materials or
wastes into the environment, including ambient air, surface water, ground water
or land, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Materials or wastes or the clean-up or other
remediation thereof.

 

“Equity Documents” means, collectively: (i) that certain Stockholders Agreement
dated as of December 15, 2000 by and among Borrower, each of the “Stockholders”
party thereto, North Castle Partners and Friends of North Castle Fund, L.P., a
Delaware limited partnership, (ii)
that certain Registration Rights Agreement dated as of December 15, 2000 by and
among Borrower, NCP Co. Investment Fund, L.P. and each other Holder party
thereto, (iii) that certain Senior
Subordinated Note and Warrant Purchase Agreement dated as of December 15, 2000
by and among Borrower and each of the “Noteholders” party thereto, as amended
by that certain Amendment No. 1 to Common Stock Purchase Warrant, Amendment
No.2 to Senior Subordinated Note and Warrant Purchase Agreement and Consent
dated as of November 8, 2003, (iv) that
certain Amendment No. 1 to Common Stock Purchase Warrant, Amendment No.2 to
Senior Subordinated Note and Warrant Purchase Agreement and Consent dated as of
November 8, 2003, and (iv) each of
the Warrants, together with any Redeemable Preferred Stock of the Borrower
issued pursuant thereto, as amended by that certain Amendment No. 1 to Common
Stock Purchase Warrant, Amendment No.2 to Senior Subordinated Note and Warrant
Purchase Agreement and Consent dated as of November 8, 2003.

 

“ERISA” means the Employee Retirement Income
Security Act of 1974.

 

“Event of Default” has the meaning set forth
in Section 8.1.

 

“Excluded
Collateral” means, collectively, “Excluded
Collateral,” as such term is defined in: (i)
that certain Security Agreement dated as of even date herewith by and between
Agent and Borrower and (ii) that
certain Security Agreement dated as of even date herewith by and among Agent
and certain Subsidiaries of Borrower, in each case as such document may be
amended, restated, supplemented or otherwise modified from time to time in
accordance with its terms.

 

“Federal Funds Rate” means, for any day, the
rate of interest per annum (rounded upwards, if necessary, to the nearest
whole multiple of 1/100 of 1%) equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such day; provided,
if: (i) such day is not a Business
Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day and (ii) no such rate is so published on such next preceding
Business Day, the Federal Funds Rate for such day shall be the average rate
quoted to Agent on such day on such transactions as determined by Agent.

 

6

 

“Financing Documents” means this Agreement,
the Notes, the Security Documents, the Information Certificate, each Guarantee
issued by any Credit Party to Agent or any Lender in respect of the
Obligations, any fee letter between Merrill Lynch and Borrower relating to the
transactions contemplated hereby and all other documents, instruments and
agreements contemplated herein or thereby and executed concurrently herewith or
at any time and from time to time hereafter, as any or all of the same may be
amended, supplemented, restated or otherwise modified from time to time.

 

“Fiscal Year” means a fiscal year of Borrower,
ending on December 31 of each calendar year.

 

“Foreign Subsidiary”  means a Subsidiary which is not formed
under the laws of one (1) of the fifty (50) states of the United States of
States of America.

 

“Foreign Subsidiary Advance Amount”  means, at any time of determination, an
amount equal to: (i) the aggregate
amount of intercompany Debt outstanding which has arisen from loans made by
Borrower or any of its Domestic Subsidiaries to any Foreign Subsidiary plus  (ii)
the aggregate amount of all Investments in and other advances or
other transfers of any kind or type to any Foreign Subsidiary by Borrower or
any of its Domestic Subsidiaries less (iii) the aggregate amount of cash received
by Borrower or any of its Domestic Subsidiaries in whatever form  as a result of dispositions of Foreign
Subsidiaries or directly or indirectly from such Foreign Subsidiaries as a
result of their operations or otherwise (including, without limitation, by
payment of interest, principal, dividends, stock repurchases or otherwise).

 

“GAAP” means generally accepted accounting
principles set forth from time to time in the opinions and pronouncements of
the Accounting Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are applicable to the
circumstances as of the date of determination.

 

“Guarantee” by any Person means: (i) any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and (ii)
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person: (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (b)
entered into for the purpose of assuring in any other manner the obligee of
such Debt or other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part), provided that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business.  The term “Guarantee” used as a verb has a
corresponding meaning.

 

“Hazardous Materials” means: (i) any “hazardous substance” as defined
in the Comprehensive Environmental Response, Compensation and Liability Act of
1980, (ii) asbestos, (iii) polychlorinated biphenyls, (iv) petroleum, its derivatives,
by-products and other

 

7

 

hydrocarbons, and (v) any
other toxic, radioactive, caustic or otherwise hazardous substance regulated
under Environmental Laws.

 

“Hazardous Materials Contamination” means
contamination (whether now existing or hereafter occurring) of the
improvements, buildings, facilities, personalty, soil, groundwater, air or
other elements on or of the relevant property by Hazardous Materials, or any
derivatives thereof, or on or of any other property as a result of Hazardous
Materials, or any derivatives thereof, generated on, emanating from or disposed
of in connection with the relevant property.

 

“Holders” means Holdings and each other
holder of issued and outstanding capital stock of Borrower.

 

“Holdings” means Equinox Holdings, L.P., a
Delaware limited partnership.

 

“Indemnitees” has the meaning set forth in Section
9.2.

 

“Information Certificate” means that certain
Information Certificate of even date herewith executed by Borrower and
delivered to Agent and the Lenders.

 

“Intellectual Property” means all patents,
trademarks, trade names, copyrights, technology, know-how and processes, and
all applications and registrations therefor, used in or necessary for the
conduct of business by a Person.

 

“Interest Coverage Ratio” has the meaning
provided in the Compliance Certificate.

 

“Interest Period” means, as to any LIBOR
Loan, the period commencing on the date such Loan is borrowed or continued as,
or converted into, a LIBOR Loan and ending on the date one (1), two (2), three
(3) or six (6) months thereafter, as selected by Borrower pursuant to subsection
2.2(d); provided:  (a) if any Interest Period would otherwise
end on a day that is not a Business Day, such Interest Period shall be extended
to the following Business 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 preceding Business Day; (b) any Interest Period that begins 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 Business Day of the
calendar month at the end of such Interest Period; and (c) Borrower may not select any Interest
Period for a Loan which would extend beyond the Commitment Expiry Date.

 

“Interest Rate Protection Agreement” means
any interest rate swap agreement, interest rate cap agreement, interest collar
agreement, interest rate hedging agreement or other similar agreement or
arrangement.

 

“Intermediate Holdco” means EQX Holdings,
LLC, a Delaware limited liability company.

 

“Intermediate Holdco Entities” means each of
the direct, wholly-owned Domestic Subsidiaries of Intermediate Holdco which own
fitness clubs which are parties to Unrestricted Leases and are not party to any
real property leases which do not constitute Unrestricted Leases.

 

8

 

“Inventory” means “inventory” (as defined in
Article 9 of the UCC) of Borrower and the Domestic Subsidiaries.

 

“Investment” has the meaning set forth in Section
5.7.

 

“Investor Subordinated Debt” means unsecured
junior subordinated bridge Debt securities issued by Borrower to any Investor,
so long as the terms of any such junior subordinated Debt securities: (i) do not provide for any security, (ii) do not provide any guaranty or other
support by any Subsidiary of Borrower, (iii)
do not contain any covenants, (iv) provide
that Borrower’s obligations thereunder may be satisfied through the issuance of
additional common stock of Borrower, (v) do
not require the payment of any cash interest or the payment of any principal
before principal incurred, interest and other Obligations then due and owing
hereunder have been indefeasibly paid in full, the Lenders have no further commitments
to lend under this Agreement and the Letter of Credit Liabilities have been
reduced to zero ($0), and (vi) provide
that Borrower’s obligations thereunder are fully subordinated to the
Obligations on a basis reasonably satisfactory to Agent in its discretion.

 

“Investors” means  the North Castle Group and the JW Childs Group.

 

“JW Childs” means J.W. Childs Associates,
L.P., a Delaware limited partnership.

 

“JW Childs Coinvestors” means those
individuals listed on Annex B, but only so long as the respective
investments of such individuals in Borrower is (and continues to be) controlled
by JW Childs.

 

“JW Childs Equity Partners” means J.W.
Childs Equity Partners II, L.P., a Delaware limited partnership.

 

“JW Childs Group” means JW Childs, JW Childs
Equity Partners, the JW Childs Coinvestors and their respective Affiliates and
any other investment fund or vehicle controlled by JW Childs.

 

“LC Issuer” means Merrill Lynch or a bank or
trust company reasonably acceptable to Merrill Lynch, as issuer of one (1) or
more Letters of Credit outstanding at any time.

 

“Lead Arranger” means Merrill Lynch, in its
capacity as lead arranger for the Lenders hereunder, subject to the provisions
of Section 10.14, and the successors of Merrill Lynch in such capacity.

 

“Lender” means each of: (i) Merrill Lynch, (ii) each other financial institution party
hereto, (iii) each other Person
that becomes a holder of a Note pursuant to and in compliance with subsection
11.6(a)(i) (and excluding any Person which becomes a holder of a Note
pursuant to subsection 11.6(a)(iv)), (iv) Agent,
to the extent of any Agent Advances and other Loans made by Agent which have
not been settled among the Lenders pursuant to Section 10.13, and (v) the respective successors of all of the
foregoing, and “Lenders” means all
of the foregoing.  In addition to the
foregoing, for the purpose of identifying the Persons entitled to share in the
Collateral and the proceeds thereof under, and in accordance with the
provisions of, this

 

9

 

Agreement and the Security Documents, the term “Lender” shall include
Designated Lender Affiliates.

 

“Letter of Credit” means a standby letter of
credit issued for the account of Borrower by an LC Issuer which expires by its
terms within one year after the date of issuance and in any event at least
thirty (30) days prior to the Commitment Expiry Date.  Notwithstanding the foregoing, a Letter of Credit may provide for
automatic extensions of its expiry date for one (1) or more successive one (1)
year periods; provided, the LC Issuer that issued such Letter of Credit
has the right to terminate such Letter of Credit on each such annual expiration
date; provided, further, no renewal term may extend the term of the
Letter of Credit to a date that is later than the thirtieth (30th) day prior to
the Commitment Expiry Date.

 

“Letter of Credit Liabilities” means, at any
time of calculation, the sum of: (i)
the amount then available for drawing under all outstanding Letters of Credit
(not including any Cash-Collateralized Letter of Credit and without regard to
whether any conditions to drawing thereunder can then be met), to the extent
subject to a Support Agreement plus  (ii)
the aggregate unpaid amount of all reimbursement obligations in respect of
previous drawings made under such Letters of Credit (not including any
Cash-Collateralized Letters of Credit), to the extent subject to a Support
Agreement.

 

“LIBOR” means, with respect to any LIBOR
Loan for any Interest Period, a rate per annum (rounded upwards, if necessary,
to the nearest 1/16 of 1%) equal to: (i)
the rate of interest which is identified and normally published by Bloomberg
Professional Service Page BBAM 1 as the offered rate for loans in U.S. dollars
for the applicable Interest Period under the caption British Bankers
Association LIBOR Rates as of 11:00 a.m. (London time), on the second full
Business Day next preceding the first day of such Interest Period (unless such
date is not a Business Day, in which event the next succeeding Business Day
will be used); divided by (ii)
the sum of one (1) minus the daily average during such Interest Period
of the aggregate maximum reserve requirement (expressed as a decimal) then
imposed under Regulation D of the Board of Governors of the Federal Reserve
System (or any successor thereto) for “Eurocurrency Liabilities” (as defined
therein).  If Bloomberg Professional
Service no longer reports the LIBOR or Agent determines in good faith that the
rate so reported no longer accurately reflects the rate available to Agent in
the London Interbank Market or if such index no longer exists or if Page BBAM 1
no longer exists or accurately reflects the rate available to Agent in the
London Interbank Market, Agent may select a replacement index or replacement
page, as the case may be.

 

“LIBOR Loans” means any Loans which accrue
interest by reference to the LIBOR in accordance with the terms of this
Agreement.

 

“LIBOR Margin” means: (i) as of the Closing Date, three and one
quarter percent (3.25%) per annum and (ii) thereafter, as of each Adjustment Date, the LIBOR Margin
shall be adjusted, if necessary, to the applicable percent per annum set forth in the
Pricing Table corresponding to the ratio of: (x)
Total Debt on the last day of the most recently completed calendar quarter
prior to the applicable Adjustment Date to (y)
EBITDA for the twelve (12) month period ending on such date; provided,
if an Event of Default has occurred and is

 

10

 

continuing on an Adjustment Date, no reduction in the LIBOR Margin
shall occur on such Adjustment Date.

 

“Lien” means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind,
or any other type of preferential arrangement that has the practical effect of
creating a security interest, in respect of such asset.  For the purposes of this Agreement and the
other Financing Documents, Borrower or any Subsidiary shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, Capital
Lease or other title retention agreement relating to such asset.

 

“Loan Account” has the meaning set forth in subsection
2.5(b).

 

“Loan Commitment” means the sum of all
Lenders’ Loan Commitment Amounts.

 

“Loan Commitment Amount” means, as to any
Lender, the dollar amount set forth opposite such Lender’s name on the Annex
A under the column “Loan Commitment Amount,” or, if different, in the most
recent Assignment Agreement to which such Lender is a party.

 

“Loan Commitment Percentage” means, as to
any Lender, the percentage set forth opposite such Lender’s name on Annex A
under the column “Loan Commitment Percentage,” or, if different, in the most
recent Assignment Agreement to which such Lender is a party.

 

“Loan Limit” means, at any time, the lesser
of: (i) the Borrowing Base, plus any Agent Advances and (ii) the Loan Commitment.

 

“Loan Outstandings” means at any time of
calculation the sum of the then existing aggregate outstanding principal amount
of Loans and the then existing Letter of Credit Liabilities.

 

“Loans” has the meaning set forth in subsection
2.1(a), and includes all Agent Advances.

 

“Major Casualty Proceeds” means, if the
amount of such aggregate insurance proceeds or award or other compensation
exceeds $100,000: (i) the
aggregate insurance proceeds received in connection with one (1) or more
related events under any Property Insurance Policy or (ii) any award or other compensation with respect to any
condemnation of property (or any transfer or disposition of property in lieu of
condemnation).

 

“Management Agreement” means the Consulting
Agreement dated as of December 15, 2000 by and among Borrower, JW Childs and
North Castle.

 

“Margin Stock” has the meaning assigned
thereto in Regulation U of the Federal Reserve Board.

 

“Material Adverse Effect” means, with
respect to any event, act, condition or occurrence of whatever nature
(including any adverse determination in any litigation, arbitration, or governmental
investigation or proceeding), whether singly or in conjunction with any other
event or events, act or acts, condition or conditions, occurrence or
occurrences, whether or not

 

11

 

related, a material adverse change in, or a material adverse effect
upon, any of: (i) the financial
condition, operations, business or properties of the Credit Parties taken as a
whole, (ii) the rights and
remedies of Agent or Lenders under any Financing Document, or the ability of
any Credit Party to perform any of its obligations under any Financing Document
to which it is a party, (iii) the
legality, validity or enforceability of any Financing Document, or (iv) the existence, perfection or priority
of any security interest granted with respect to any material Collateral in any
Financing Document or the value of any material Collateral.

 

“Maximum Lawful Rate” has the meaning set
forth in subsection 2.6(b).

 

“Merrill Lynch” means Merrill Lynch Capital,
a division of Merrill Lynch Business Financial Services Inc., and its
successors.

 

“Multiemployer Pension Plan” means a
multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which
Borrower or any member of the Controlled Group may have any liability.

 

“Net Cash Proceeds” means, with respect to
any transaction or event, an amount equal to the cash proceeds received by the
Credit Party from or in respect of such transaction or event (including cash
proceeds of any non-cash proceeds of such transaction), less: (i) any out-of-pocket costs, expenses or
taxes reasonably incurred by such Person in connection therewith, (ii) any underwriting discounts or
commissions and (iii) in the case
of an Asset Disposition, the amount of any Debt secured by a Lien on the
related asset and discharged from the proceeds of such Asset Disposition and
any taxes paid or payable by such Person in respect of such Asset Disposition.

 

“North Castle” means North Castle Partners,
L.L.C., a Delaware limited liability company.

 

“North Castle Group” means North Castle,
North Castle Partners and their respective Affiliates and any other investment
fund or vehicle controlled by North Castle.

 

“North Castle Partners” means North Castle
Partners II, L.P., a Delaware limited partnership, and North Castle Partners
III, L.P., a Delaware limited partnership, or either of them.

 

“Notes” has the meaning set forth in Section
2.3.

 

“Notice of Borrowing” means a written notice
of a Responsible Officer, appropriately completed and substantially in the form
of Exhibit D hereto.

 

“Notice of LC Credit Event” means a written
notice from a Responsible Officer to Agent with respect to any issuance,
increase or extension of a Letter of Credit specifying: (i) the date of issuance or increase of a
Letter of Credit; (ii) the expiry
date of such Letter of Credit; (iii) the
proposed terms of such Letter of Credit, including the face amount; and (iv) the transactions or additional
transaction or transactions that are to be supported or financed with such
Letter of Credit or increase thereof.

 

12

 

“Obligations” means all obligations,
liabilities and indebtedness (monetary (including post-petition interest,
whether or not allowed) or otherwise) of each Credit Party under this Agreement
or any other Financing Document, in each case howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, now or hereafter
existing, or due or to become due.  The
Obligations shall include, without limitation, all obligations, liabilities and
indebtedness arising from or in connection with all Support Agreements and all
Ancillary Services.

 

“Operative Documents” means the Financing
Documents and the Unsecured Notes Debt Documents.

 

“Organizational Documents” means, with respect
to any Person other than a natural person, the documents by which such Person
was organized (such as a certificate of incorporation, certificate of limited
partnership or articles of organization, and including, without limitation, any
certificates of designation for preferred stock or other forms of preferred
equity) and which relate to the internal governance of such Person (such as
by-laws, a partnership agreement or an operating, limited liability or members
agreement).

 

“Participant” has the meaning set forth in subsection
11.6(b).

 

“Payment Account” means the account
specified on the signature pages hereof into which all payments by or on behalf
of Borrower to Agent under the Financing Documents shall be made, or such other
account as Agent shall from time to time specify by notice to Borrower.

 

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

 

“Pension Plan” means any “employee pension
benefit plan” or “pension plan,” as such terms are defined in Section 3(2) of
ERISA, (other than a Multiemployer Pension Plan) that is subject to Title IV of
ERISA, and to which Borrower or any member of the Controlled Group 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 (5) years, or by reason of being deemed to be a contributing
sponsor under Section 4069 of ERISA.

 

“Permitted Acquisition” means an acquisition
by Borrower, Intermediate Holdco or any of their wholly-owned Domestic
Subsidiaries of another Person which satisfies all of the conditions set forth
on Annex C.

 

“Permitted Contest” means a contest
maintained in good faith by appropriate proceedings promptly instituted and
diligently conducted and with respect to which such reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; provided that compliance with the obligation that is the
subject of such contest is effectively stayed during such challenge.

 

“Permitted Liens” means Liens permitted
pursuant to Section 5.2.

 

“Person” means any natural person,
corporation, limited liability company, professional association, limited
partnership, general partnership, joint stock company, joint venture,

 

13

 

association, company, trust, bank, trust company, land trust, business
trust or other organization, whether or not a legal entity, and any government
or agency or political subdivision thereof.

 

“Preferred
Stock” means the Senior Redeemable Preferred Stock of
Borrower, par value $0.01 per share, with an initial liquidation preference of
$1000.00 per share.

 

“Pricing Table” means the following table:

 

	
  Total Debt to EBITDA Ratio

  	
   

  	
  Prime Rate

  	
   

  	
  LIBOR

  	
   

  
	
  Greater than or equal to 5.0 to 1.0

  	
   

  	
  2.75

  	
  %

  	
  3.75

  	
  %

  
	
  Greater than 4.5 to 1.0, but less than 5.0
  to 1.0

  	
   

  	
  2.50

  	
  %

  	
  3.50

  	
  %

  
	
  Greater than 4.0 to 1.0, but less than or
  equal to 4.5 to 1.0

  	
   

  	
  2.25

  	
  %

  	
  3.25

  	
  %

  
	
  Less than 4.0 to 1.0

  	
   

  	
  2.00

  	
  %

  	
  3.00

  	
  %

  

 

For purposes
of the Pricing Table, if Borrower shall at any time fail to timely deliver a
Compliance Certificate, then effective as of the tenth (10th) Business Day
following the date on which such Compliance Certificate was due, each applicable
Prime Rate Margin and each applicable LIBOR Margin shall be conclusively
presumed to equal the highest applicable Prime Rate Margin and the highest
applicable LIBOR Margin specified in the Pricing Table until the date of
delivery of such Compliance Certificate.

 

“Prime Rate” means a variable per annum
rate, as of any date of determination, equal to the greater of: (i) the Federal Funds Rate plus one
half of one percent (0.50%) per annum and (ii) the rate from time to time published in the “Money
Rates” section of The Wall Street Journal
as being the “Prime Rate” (or, if more than one (1) rate is published as the
Prime Rate, then the highest of such rates). 
The Prime Rate will change as of the date of publication in The Wall Street Journal of a Prime Rate
that is different from that published on the preceding Business Day.  In the event that The Wall Street Journal shall, for any reason, fail or cease
to publish the Prime Rate, Agent shall choose a reasonably comparable index or
source to use as the basis for the Prime Rate.

 

“Prime Rate Loans” means Loans which accrue
interest by reference to the Prime Rate, in accordance with the terms of this
Agreement.

 

“Prime Rate Margin” means: (i) as of the Closing Date, two and one
quarter percent (2.25%) per annum, and (ii) thereafter, as of each Adjustment Date, the Prime Rate
Margin shall be adjusted, if necessary, to the applicable percent per annum
set forth in the Pricing Table corresponding to the ratio of: (x) Total Debt on the last day of the most
recently completed calendar quarter prior to the applicable Adjustment Date to (y) EBITDA for the twelve (12) month period
ending on such date; provided, if an Event of Default has occurred and
is continuing on an Adjustment Date, no reduction in the Prime Rate Margin
shall occur on such Adjustment Date.

 

14

 

“Property Insurance Policy” means any
insurance policy maintained by any Credit Party covering losses with respect to
tangible real or personal property or improvements.

 

“Pro Rata Share” means:
(i) with respect to a Lender’s obligation to make Loans, such
Lender’s right to receive payments of principal and interest with respect
thereto, such Lender’s right to receive the unused line fee described in subsection
2.2(b), and such Lender’s obligation to share in Letter of Credit
Liabilities (including, notwithstanding anything contained herein to the
contrary, liabilities and obligations arising with respect to
Cash-Collateralized Letters of Credit) and to receive the related Letter of
Credit fee described in subsection 2.4(b), the Loan Commitment
Percentage of such Lender and (ii)
for all other purposes (including without limitation the indemnification
obligations arising under Section 10.6) with respect to any Lender, the
percentage obtained by dividing: (x)
the sum of the Loan Commitment Amount of such Lender (or, in the event the Loan
Commitment shall have been terminated, such Lender’s then existing Loan
Outstandings), by (y) the sum of
the Loan Commitment (or, in the event the Loan Commitment shall have been
terminated, the then existing Loan Outstandings of all Lenders).

 

“Reimbursement Obligations” means, at any
date, the obligations of Borrower then outstanding to reimburse Agent for
payments made by Agent under a Support Agreement.

 

“Required Lenders” means at any time Lenders
holding: (i) more than fifty
percent (50%) of the Loan Commitment or (ii)
if the Loan Commitment has been terminated, more than fifty percent (50%) of
the sum of: (x) the aggregate
outstanding principal balance of the Loans plus
(y) the aggregate amount of
Reimbursement Obligations; provided, however, in the event one (1)
Lender holds more than fifty percent (50%) of the sum of the Loan Commitment
(or, if the Loan Commitment has been terminated, more than fifty percent (50%)
of the aggregate outstanding principal balance of the Loans plus the aggregate amount of Reimbursement
Obligations), the term “Required Lenders” shall mean at least two (2) Lenders
who, together or collectively, meet the qualifications set forth in clauses
(i) or (ii), as applicable.

 

“Responsible Officer” means either the Chief
Executive Officer or the Chief Financial Officer.

 

“Restricted Distribution” means as to any
Person: (i) any dividend or other
distribution on any equity interest in such Person (except those payable solely
in its equity interests) or (ii) any
payment on account of: (a) the
purchase, redemption, retirement, defeasance, surrender or acquisition of any
equity interests in such Person or any claim respecting the purchase or sale of
any equity interest in such Person, or (b)
any option, warrant or other right to acquire any equity interests in such
Person.

 

“Securities Act” means the Securities Act of
1933, as amended.

 

“Security Documents” means any agreement,
document or instrument executed concurrently herewith or at any time hereafter
pursuant to which one or more Credit Parties or any other Person either: (i) Guarantees payment or performance of
all or any portion of the Obligations and/or (ii)
provides, as security for all or any portion of the Obligations, a Lien on any
of its assets in favor of Agent for its own benefit and the benefit of the
Lenders, as any or all of the same may be amended, supplemented, restated or
otherwise modified from time to time.

 

15

 

“Seller Subordinated Debt” means unsecured
junior subordinated Debt securities issued by Borrower as consideration to any
seller in a Permitted Acquisition consummated in accordance with the terms of
this Agreement, so long as the terms of any such junior subordinated Debt
securities: (i) do not provide for
any security, (ii) do not provide
any guaranty or other support by any Subsidiary of Borrower, (iii) do not contain any covenants and (iv) do not require the payment of any
principal before principal incurred, interest and other Obligations then due
and owing hereunder have been indefeasibly paid in full, the Lenders have no
further commitments to lend under this Agreement and the Letter of Credit
Liabilities have been reduced to zero ($0), and (v) provide that Borrower’s obligations thereunder are fully
subordinated to the Obligations on a basis reasonably satisfactory to Agent in
its discretion, which terms of subordination may, but need not necessarily,
include the delay of any cash interest payments thereof until indefeasible
payment in full of the Obligations.

 

“Senior Debt” has the meaning provided in
the Compliance Certificate.

 

“Settlement Date” has the meaning set forth
in subsection 10.13(a).

 

“Stated Rate” has the meaning set forth in subsection
2.6(b).

 

“Subsidiary” means, with respect to any
Person, any corporation, limited liability company, limited partnership or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person.  Unless otherwise
specified, the term Subsidiary shall refer to a Subsidiary of Borrower.

 

“Support Agreement” has the meaning set
forth in subsection 2.4(a).

 

“Syndication Agent” means UBS Securities
LLC, in its capacity as syndication agent for the Lenders hereunder, subject to
the provisions of Section 10.14, and the successors of UBS Securities
LLC in such capacity.

 

“Taxes” has the meaning set forth in Section
2.7.

 

“Taxpayer” means any Person described in Section
7701(a)(1) of the Code.

 

“Termination Date” has the meaning set forth
in subsection 2.1(c).

 

“Total Debt” has the meaning provided in the
Compliance Certificate.

 

“Transaction” means all of the factual
elements relevant to the expected Tax treatment of any investment, entity, plan
or arrangement contemplated pursuant to this Agreement, and includes any series
of steps carried out as part of a plan.

 

“UCC” means the Uniform Commercial Code of
the State of New York or of any other state the laws of which are required to
be applied in connection with the perfection of security interests in any
Collateral.

 

16

 

“Unrestricted Lease”  means a real property lease for a fitness
club which: (i) does not prohibit
the pledge of the stock of Intermediate Holdco and (ii) contains language which either: (A) is in form and substance substantially
similar to and has substantially the same effect as the language contained
attached hereto as Annex D, or (B) does
not otherwise contain any change of control restriction, anti-assignment
provision or other provision of similar import which would be breached in
connection with a foreclosure upon the stock of Intermediate Holdco.

 

“Unsecured Notes” means the 9% Senior Notes due December 16, 2009 in
an aggregate principal amount of $160,000,000 issued by Borrower, as the same
may be or have been exchanged for substantially similar unsecured senior notes
that have been registered under the Securities Act, and as the same or such
substantially similar notes may be amended, supplemented, waived or otherwise
modified from time to time in accordance with Section 5.5.

 

“Unsecured Notes Debt” means Debt of
Borrower incurred pursuant to the terms of the Unsecured Notes Debt Documents
in an original aggregate principal amount of $160,000,000 (together with
capitalized interest, fees, costs and other amounts).

 

“Unsecured Notes Debt Documents” means,
collectively: (i) the Unsecured
Notes, (ii) the “Guarantees”
and the “Registration Rights Agreement,” all as defined in the Unsecured Notes
Purchase Agreement, (iii) the
Unsecured Notes Purchase Agreement and (iv) the
Unsecured Notes Indenture, together with all other documents, instruments and
agreements contemplated therein or thereby and executed concurrently therewith
or at any time and from time to time hereafter; individually, each an “Unsecured Notes Debt Document.”

 

“Unsecured Notes Indenture” means the
indenture dated as of even date herewith by and between the Borrower and U.S.
Bank, National Association, a national banking association, as trustee, as the
same may be amended, supplemented, waived or otherwise modified from time to
time in accordance with Section 5.5.

 

“Unsecured Notes Purchase Agreement” means
that certain Purchase Agreement dated as of even date herewith by and among the
Borrower, each of the Subsidiaries party thereto, Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC and Wachovia
Capital Markets, LLC.

 

“Wachovia” means Wachovia Bank, National
Association, a national banking association, and its successors.

 

“Warrants”
means each of those certain Warrants issued by Borrower on December 15, 2000
(and replacements for lost, stolen or partially-exercised warrants) for the
purchase of common stock of Borrower, or any of them.

 

Section 1.2            Accounting Terms and
Determinations.  Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder (including without
limitation determinations made pursuant to the exhibits hereto) shall be made,
and all financial statements required to be delivered hereunder shall be
prepared on a consolidated basis in accordance with GAAP applied on a basis
consistent (except for changes concurred with by Borrower’s independent public
accountants) with the most recent audited consolidated financial statements of
Borrower and its Consolidated Subsidiaries

 

17

 

delivered to
Agent and each of the Lenders; provided, if: (a) Borrower shall object to determining compliance with the
provisions of this Agreement on such basis by written notice delivered to Agent
and the Lenders at the time of delivery of required financial statements due to
any change in GAAP or the rules promulgated with respect thereto or (b) Agent or the Required Lenders shall so object in
writing by written notice delivered to Borrower within thirty (30) days after
delivery of such financial statements, then such calculations shall be made on
a basis consistent with the most recent financial statements delivered by
Borrower to the Lenders as to which no such objection shall have been
made.  In the event of any change in
GAAP that occurs after the date of this Agreement and that is material to
Borrower, either: (i) Agent,
Lenders and Borrower shall mutually agree that Borrower will make conforming
adjustments to any financial covenants set forth in this Agreement, or the
components thereof, that are affected by such change or (ii)
at Borrower’s option, Borrower may, in its reasonable discretion, report its
covenant compliance based on GAAP as in effect immediately prior to the
occurrence of such change with a reconciliation to GAAP as in effect after the
occurrence of such change.  All amounts
used for purposes of financial calculations required to be made herein shall be
without duplication.

 

Section 1.3            Other Definitional
Provisions.  References
in this Agreement to “Articles,” “Sections,” “subsections,” “Annexes” or
“Exhibits” shall be to Articles, Sections, subsections, Annexes or Exhibits of
or to this Agreement unless otherwise specifically provided.  Any term defined herein may be used in the
singular or plural.  “Include,”
“includes” and “including” shall be deemed to be followed by “without
limitation.”  Except as otherwise
specified herein, references to any Person include the successors and assigns
of such Person.  References “from” or
“through” any date mean, unless otherwise specified, “from and including” or
“through and including,” respectively. 
References to any statute or act shall include all related current
regulations and all amendments and any successor statutes, acts and
regulations.

 

ARTICLE II

LOANS AND LETTERS OF CREDIT

 

Section 2.1            Loans.

 

(a)                           Loans and Borrowings.

 

(i)            On the terms and
subject to the conditions set forth herein, each Lender severally agrees to
make loans to Borrower from time to time as set forth herein equal to such
Lender’s Loan Commitment Percentage of revolving loans (“Loans”)
requested by Borrower hereunder; provided, after giving effect thereto,
the Loan Outstandings shall not exceed the Loan Limit; provided,
further, no Loans shall be made on the Closing Date.  Loans (other than Agent Advances, which shall be disbursed by
Agent in a manner permitted by subsection 2.1(a)(ii)) shall, absent
other written instructions, be made to the Borrower’s Account, or such other
account as Borrower may specify by written notice to Agent.  Within the foregoing limits, Borrower may
borrow under this subsection 2.1(a)(i), prepay or repay Loans as
required or permitted under this Section 2.1 and reborrow Loans pursuant
to this subsection 2.1(a)(i).

 

18

 

(ii)           Agent Advances.  Subject to the limitations set forth in this
subsection 2.1(a)(ii), Agent is hereby authorized by Lenders (and, with
respect to clauses (B)(3) and (B)(4) below, is hereby authorized
by both Borrower and the Lenders), from time to time in Agent’s sole
discretion: (A) after the occurrence of a
Default or an Event of Default, or (B) at any time
that any of the other applicable conditions precedent set forth in Section
7.2 have not been satisfied (including without limitation the condition
precedent that the Loan Outstandings not exceed the Borrowing Base plus any
other then outstanding Agent Advances), to make Loans to Borrower on behalf of
the Lenders which Agent, in its reasonable business judgment, deems necessary
or desirable: (1) to preserve or protect the
business conducted by Borrower, the Collateral, or any portion thereof, (2) to enhance the likelihood of, or maximize the amount of,
repayment of the Loans and other Obligations, (3) to
pay any amount chargeable to the Borrower pursuant to the terms of this
Agreement, including interest costs, fees and expenses as described in and
chargeable to the Borrower under Section 9.1 and/or Section 9.4
or (4) to satisfy payment obligations
under Support Agreements (any of the advances described in this subsection
2.1(a)(ii) being hereafter referred to as “Agent
Advances”); provided: (i) except with
respect to Agent Advances which are applied in the manner described in the
preceding clauses (3) and (4), Required Lenders (or, with respect
to its authorization, the Borrower) may at any time revoke Agent’s
authorization to make Agent Advances, any such revocation to be in writing and
to become effective prospectively upon the Agent’s receipt thereof, (ii) Agent Advances shall be made solely as Prime Rate
Loans, (iii) the aggregate amount of Agent
Advances outstanding at any time, exclusive of those made pursuant to the
preceding clauses (3) and (4), shall not exceed  $1,500,000 and (iv) Agent shall be prohibited from making Agent Advances to
the extent the making thereof would cause the Loan Outstandings (inclusive of
Agent Advances) to exceed the Loan Commitment. 
Notwithstanding anything contained herein or elsewhere in this Credit
Agreement to the contrary, Agent Advances may be made in the event the
“Conditions to Initial Loans” set forth in subsection 7.1(b) or other
conditions to Loans set forth in Section 7.2 have not been satisfied.

 

(b)                           Advancing Loans.

 

(i)            Borrower shall
deliver to Agent a Notice of Borrowing with respect to each proposed Borrowing,
such Notice of Borrowing to be delivered no later than noon (Chicago time): (A) on the day of such proposed Borrowing, in the case of
Prime Rate Loans in an aggregate principal amount equal to or less than
$5,000,000, (B) on the Business Day prior to
such proposed Borrowing, in the case of Prime Rate Loans in an aggregate
principal amount greater than $5,000,000 and (C)
on the third (3rd) Business Day prior to such proposed Borrowing, in the case
of all LIBOR Loans.  Once given, except
as provided in subsection 2.2(d)(ii), a Notice of Borrowing shall be
irrevocable and Borrower shall be bound thereby.

 

(ii)           Borrower hereby
authorizes Lenders and Agent to make Loans (other than LIBOR Loans) to
Borrower’s Account based on telephonic notices

 

19

 

made by any Person which Agent, in good
faith, believes to be acting on behalf of Borrower.  Borrower agrees to deliver to Agent a Notice of Borrowing in
respect of each Loan requested by telephone no later than one Business Day
following such request.  If the Notice
of Borrowing differs in any respect from the action taken by Agent and Lenders,
the records of Agent and the Lenders shall govern absent manifest error.  Borrower further hereby authorizes Lenders
and Agent to make Loans based on electronic notices made by any Person which
Agent, in good faith, believes to be acting on behalf of Borrower.

 

(c)                           Mandatory Loan Repayments
and Prepayments.

 

(i)            The Loan
Commitment shall terminate upon the earlier to occur of: (i)
the Commitment Expiry Date and (ii) the date
on which Agent or Required Lenders elect to terminate the Loan Commitment
and/or declare all Obligations to be due and payable pursuant to Section 8.2
(such earlier date being the “Termination Date”),
and there shall become due and Borrower shall pay on the Termination Date, the
entire outstanding principal amount of each Loan, together with accrued and
unpaid interest thereon to but excluding the Termination Date.

 

(ii)           If at any time the
Loan Outstandings exceed the Loan Limit, then, on the next succeeding Business
Day, Borrower shall repay the Loans or cash collateralize Letter of Credit
Liabilities in the manner specified in subsection 2.4(e) or cancel
outstanding Letters of Credit, or any combination of the foregoing, in an
aggregate amount equal to such excess.

 

(iii)          There shall also
become due and payable and Borrower shall prepay the outstanding Loans in the
following amounts and at the following times:

 

(A)          within ten (10) days
after the date on which any Credit Party (or Agent as loss payee or assignee)
receives any payment which constitutes Major Casualty Proceeds, an amount equal
to the amount of such payment (net of: (i) reasonable
fees, costs and taxes incurred in connection with the event or events giving
rise to such proceeds and (ii) any
required permanent payment of Debt (other than Debt secured pursuant to the
Security Documents) which is secured by the property that is the subject of
such event or events); provided, any payment which constitutes Major
Casualty Proceeds shall not be required to be so applied and may be reinvested
by any Credit Party within two hundred and seventy (270) days, in replacement
assets comparable to the assets giving rise to such payment; provided,
further, if no Credit Party intends to reinvest such payment, or if the time
period set forth in this sentence expires without any Credit Party having
reinvested such payment, Borrower shall prepay the Loans in an amount equal to
such payment;

 

(B)          promptly upon
receipt by any Credit Party of the proceeds from the issuance and sale of any
Debt or equity securities (other than: (1) proceeds
of the issuance of Debt securities expressly permitted pursuant to

 

20

 

Section 5.1, (2) proceeds of the issuance of equity securities by
Borrower received on or before the Closing Date, (3)
proceeds from the issuance of equity securities to officers, directors and
employees of any Credit Party, (4) proceeds of
the issuance of equity securities to Borrower or any Subsidiary and (5) provided no Event of Default has occurred and is
continuing, or would otherwise arise as a result of such issuance, proceeds
from equity issuances, Investor Subordinated Debt and/or capital contributions
(other than from a registered public equity offering) in an aggregate amount up
to $15,000,000 in any Fiscal Year of the Borrower), an amount equal to one
hundred percent (100%) of the Net Cash Proceeds of such issuance and sale; and

 

(C)          promptly upon
receipt by any Credit Party of the proceeds of any Asset Disposition, an amount
equal to one hundred percent (100%) of the Net Cash Proceeds of such Asset
Disposition; provided, no prepayment shall be required pursuant to this subsection
2.1(c)(iii)(C) unless and until the aggregate Net Cash Proceeds received
during any Fiscal Year from Asset Dispositions exceeds $500,000 (in which case
all Net Cash Proceeds in excess of such amount shall be used to make
prepayments pursuant to this subsection 2.1(c)(iii)(C)); provided,
further, such Net Cash Proceeds shall not be required to be so applied on such
date and may instead be reinvested by any Credit Party within one hundred
eighty (180) days, in assets of a kind then used or usable in the business of
such Credit Party.  If the applicable
Credit Party does not intend to so reinvest such Net Cash Proceeds, or if the
period set forth in the immediately preceding sentence expires without such
Credit Party having reinvested such Net Cash Proceeds, Borrower shall prepay
the Loans in an amount equal to such Net Cash Proceeds.

 

Amounts used to mandatorily prepay the outstanding Loans shall be
applied as a repayment of the outstanding Loans with no concurrent equivalent
reduction of the Loan Commitment.

 

(d)           Voluntary Prepayments.  Borrower may from time to time, on at
least one (1) Business Day’s prior written notice to Agent specifying the date
and amount of such prepayment, prepay the Loans in whole or in part; provided,
any such partial prepayment shall be in an amount equal to $100,000 or a higher
integral multiple of $25,000 (or the full outstanding amount if less than
$100,000 is then outstanding).  No
payment pursuant to this subsection 2.1(d) shall reduce the amount of
any payment required by subsection 2.1(c).

 

Amounts used to voluntarily prepay the outstanding Loans shall be
applied as a repayment of the outstanding Loans with no concurrent equivalent
reduction of the Loan Commitment.

 

(e)           Termination;
Reduction.  Borrower may at any
time terminate, or from time to time reduce, the Loan Commitment; provided,
each such reduction of the Loan Commitment shall be in an amount equal to
$100,000 or a higher integral multiple of $25,000.

 

21

 

Section 2.2            Interest, Interest
Calculations and Certain Fees.

 

(a)           Interest.  From and following the Closing Date, depending upon Borrower’s
election from time to time, subject to the terms hereof, to have portions of
the Loans accrue interest determined by reference to the Prime Rate or the
LIBOR, the Loans and the other Obligations shall bear interest at the
applicable rates set forth below:

 

(i)            If a Prime Rate
Loan, or any other Obligation other than a LIBOR Loan, then at the sum of the
Prime Rate plus the applicable Prime Rate Margin.

 

(ii)           If a LIBOR Loan,
then at the sum of the LIBOR plus the applicable LIBOR Margin.

 

(b)           Unused Line Fee.  From and following the Closing Date, Borrower
shall pay Agent, for the benefit of all Lenders committed to make Loans, in
accordance with their respective Pro Rata Shares, a fee in an amount equal
to: (1) (a) the Loan Commitment less
(b) the average daily balance of the
Loan Outstandings during the preceding month, multiplied by (2) the Applicable Unused Line Rate.  Such fee is to be paid monthly in arrears on
the first day of each month.

 

(c)           Computation of Interest and Related Fees.
 All interest and fees under each
Financing Document shall be calculated on the basis of a three hundred sixty (360)
day year for the actual number of days elapsed.  The date of funding of a Prime Rate Loan and the first day of an
Interest Period with respect to a LIBOR Loan shall be included in the
calculation of interest.  The date of
payment of a Prime Rate Loan and the last day of an Interest Period with
respect to a LIBOR Loan shall be excluded from the calculation of
interest.  If a Loan is repaid on the
same day that it is made, one (1) days’ interest shall be charged.  Interest on all Prime Rate Loans is payable
in arrears on the first day of each month (or, if such day is not a Business
Day, the following Business Day) and on the maturity of such Loans, whether by
acceleration or otherwise.  Interest on
LIBOR Loans shall be payable on the last day of the applicable Interest Period,
unless the Interest Period is greater than three (3) months, in which case
interest will be payable on the last day of each three (3) month interval (or,
if such day is not a Business Day, the following Business Day).  In addition, interest on LIBOR Loans is due
on the maturity of such Loans, whether by acceleration or otherwise.

 

(d)           LIBOR Provisions.

 

(i)            LIBOR Election.  Borrower may request that Loans to be made
be LIBOR Loans, that outstanding portions of Loans be converted to LIBOR Loans
and that all or any portion of a LIBOR Loan be continued as a LIBOR Loan upon
expiration of the applicable Interest Period. 
Any such request will be made by submitting a Notice of Borrowing to
Agent.  Once given, and except as
provided in clause (ii) below, a Notice of Borrowing shall be
irrevocable and Borrower shall be bound thereby.  Upon the expiration of an Interest Period, in the absence of a
new Notice of Borrowing submitted to Agent not less than three (3) Business
Days prior to the end of such Interest Period, the LIBOR Loan then maturing
shall be automatically converted to a Prime Rate Loan.  There may be no more than six (6) LIBOR
Loans outstanding at any one time. 
Loans which are not requested as

 

22

 

LIBOR Loans in accordance with this subsection
2.2(d)(i) shall be Prime Rate Loans. 
Agent will notify Lenders, by telephonic or facsimile notice, of each
Notice of Borrowing received by Agent not less than two (2) Business Days prior
to the first day of the Interest Period of the LIBOR Loan requested thereby.

 

(ii)           Inability to Determine LIBOR.  In the event, prior to commencement of any
Interest Period relating to a LIBOR Loan, Agent shall reasonably determine or
be notified in writing by Required Lenders that adequate and reasonable methods
do not exist for ascertaining LIBOR, Agent shall promptly provide notice of
such determination to Borrower and Lenders (which shall, absent manifest error,
be conclusive and binding on Borrower and Lenders).  In such event: (1) any
request for a LIBOR Loan or for a conversion to or continuation of a LIBOR Loan
shall be automatically withdrawn and shall be deemed a request for a Prime Rate
Loan, (2) each LIBOR Loan will automatically,
on the last day of the then current Interest Period relating thereto, become a
Prime Rate Loan and (3) the
obligations of Lenders to make LIBOR Loans shall be suspended until Agent or
Required Lenders determine that the circumstances giving rise to such
suspension no longer exist, in which event Agent shall so notify Borrower and
Lenders.

 

(iii)         Illegality.  Notwithstanding any other provisions hereof,
if any law, rule, regulation, treaty or directive or interpretation or
application thereof shall make it unlawful for any Lender to make, fund or
maintain LIBOR Loans, such Lender shall promptly give notice of such
circumstances to Agent, Borrower and the other Lenders.  In such an event: (1)
the commitment of such Lender to make LIBOR Loans or convert Prime Rate Loans
to LIBOR Loans shall be immediately suspended until such time as it shall no
longer be unlawful for such Lender to make, fund or maintain LIBOR Loans and (2) such Lender’s outstanding LIBOR Loans shall be converted
automatically to Prime Rate Loans on the last day of the Interest Period
thereof or at such earlier time as may be required by law.

 

(iv)          LIBOR
Breakage Fee.  Upon: (i) any default by Borrower in making any borrowing of,
conversion into or continuation of any LIBOR Loan following Borrower’s delivery
to Agent of any applicable Notice of Borrowing or (ii)
any payment of a LIBOR Loan on any day that is not the last day of the Interest
Period applicable thereto (regardless of the source of such prepayment and
whether voluntary, by acceleration or otherwise), Borrower shall pay Agent, for
the benefit of all Lenders that funded or were prepared to fund any such LIBOR
Loan, an amount equal to the amount of any losses, expenses and liabilities
(including, without limitation, any loss (including interest paid) in connection
with the re-employment of such funds but excluding loss of anticipated profits)
that any Lender may sustain as a result of such default or such payment.  For purposes of calculating amounts payable
to a Lender under this paragraph, each Lender shall be deemed to have actually
funded its relevant LIBOR Loan through the purchase of a deposit bearing
interest at LIBOR in an amount equal to the amount of that LIBOR Loan and
having a maturity and

 

23

 

repricing characteristics comparable to the
relevant Interest Period; provided, however,
each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this subsection.

 

(v)            Increased Costs.  If, after the Closing Date, the adoption of,
or any change in, any applicable law, rule or regulation, or any change in the
interpretation or administration of any applicable law, rule or regulation by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency: 
(i) shall impose, modify or deem
applicable any reserve (including any reserve imposed by the Board of Governors
of the Federal Reserve System, or any successor thereto, but excluding any
reserve included in the determination of the LIBOR pursuant to the provisions
of this Agreement), special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by any Lender; or (ii) shall impose on any Lender any other condition (other
than in respect of Taxes, which shall be governed by Section 2.7)
affecting its LIBOR Loans, its Notes or its obligation to make LIBOR Loans; and
the result of anything described in clauses (i) and (ii) above is
to increase the cost to (or to impose a cost on) such Lender of making or
maintaining any LIBOR Loan, or to reduce the amount of any sum received or
receivable by such Lender under this Agreement or under its Notes with respect
thereto, then upon demand by such Lender (which demand shall be accompanied by
a statement setting forth the basis for such demand and a calculation of the
amount thereof in reasonable detail, a copy of which shall be furnished to
Agent), Borrower shall pay directly to such Lender such additional amount as
will compensate such Lender for such increased cost or such reduction, so long
as such amounts have accrued on or after the day which is one hundred eighty
(180) days prior to the date on which such Lender first made demand therefor.

 

(e)           Capital Adequacy.  If any Lender shall reasonably determine
that any change in, or the adoption or phase-in of, any applicable law, rule or
regulation regarding capital adequacy, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
the compliance by any Lender or any Person controlling such Lender with any
request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Lender’s or such
controlling Person’s capital as a consequence of such Lender’s obligations
hereunder or under any Support Agreement to a level below that which such
Lender or such controlling Person could have achieved but for such change,
adoption, phase-in or compliance (taking into consideration such Lender’s or
such controlling Person’s policies with respect to capital adequacy) by an
amount reasonably deemed by such Lender or such controlling Person to be
material, then from time to time, upon demand by such Lender (which demand
shall be accompanied by a statement setting forth the basis for such demand and
a calculation of the amount thereof in reasonable

 

24

 

detail, a copy of which shall be furnished to
Agent), Borrower shall pay to such Lender such additional amount as will
compensate such Lender or such controlling Person for such reduction, so long
as such amounts have accrued on or after the day which is one hundred eighty
(180) days prior to the date on which such Lender first made demand
therefor.  In determining such
additional amounts, each Lender will act reasonably and in good faith.

 

Section 2.3            Notes.  The portion of the Loans made by each Lender
shall be evidenced by a promissory note executed by Borrower (each a “Note”), each of which shall be issued for a principal amount
which is stated to be equal to the lesser of: (i) such
Lender’s Pro Rata Share of the Loan
Commitment and (ii) the aggregate unpaid
principal amount of all Loans made or deemed made by the applicable Lender to
Borrower under the terms of this Agreement.

 

Section 2.4            Letters of Credit and
Letter of Credit Fees.

 

(a)           Letter of Credit.  On the terms and subject to the conditions
set forth herein, Agent will prior to the Termination Date issue letters of
credit or guarantees (each, a “Support Agreement”),
either directly to a beneficiary that is not an LC Issuer or otherwise, to
induce an LC Issuer to issue or increase the amount of, or extend the expiry
date of, a Letter of Credit so long as:

 

(i)            Agent shall have
received a Notice of LC Credit Event at least two (2) Business Days before the
relevant date of issuance, increase or extension; and

 

(ii)           After giving effect
to such issuance or increase: (x) the
aggregate Letter of Credit Liabilities, to the extent supported by a Support
Agreement, under all Letters of Credit do not exceed $12,500,000, and (y) the Loan Outstandings do not exceed the Loan Limit.

 

(b)           Letter of Credit Fee.  Borrower shall pay to Agent, for the benefit
of the Lenders which have committed to make Loans, in accordance with their
respective Pro Rata Shares, a
letter of credit fee with respect to the Letter of Credit Liabilities for each
Letter of Credit, computed for each day from the date of issuance of such
Letter of Credit to the date that is the last day a drawing is available under
such Letter of Credit, at a rate per annum equal to the LIBOR Margin then
applicable to Loans.  Such fee shall be
payable in arrears on the first Business Day of each calendar month prior to
the Termination Date and on such date. 
In addition, Borrower agrees to pay promptly to the LC Issuer any
fronting or other fees that it may charge in connection with any Letter of
Credit.

 

(c)           Reimbursement Obligations of Borrower.  If Agent shall make a payment to an LC Issuer
pursuant to a Support Agreement, after receipt of notice thereof from Agent,
Borrower shall promptly reimburse Agent for the amount of such payment and, to
the extent that so doing would not, to Agent’s knowledge, cause the Loan
Outstandings to exceed the Loan Limit, Borrower shall be deemed to have
requested a Prime Rate Loan, the proceeds of which will be used to satisfy such
Reimbursement Obligations.  Borrower
shall pay interest, on demand, on all amounts so paid by Agent

 

25

 

for each day until Borrower reimburses Agent
therefor at a rate per annum equal to the sum of two percent
(2%) plus the interest rate
applicable to Loans (which are Prime Rate Loans) for such day.

 

(d)           Reimbursement and Other Payments by Borrower.
 To the extent permitted under
applicable law, the obligations of Borrower to reimburse Agent pursuant to subsection
2.4(c) shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including the following:

 

(i)            any lack of
validity or enforceability of, or any amendment or waiver of or any consent to
departure from, any Letter of Credit or any related document;

 

(ii)           the existence of
any claim, set-off, defense or other right which Borrower may have at any time
against the beneficiary of any Letter of Credit, the LC Issuer (including any
claim for improper payment), Agent, any Lender or any other Person, whether in
connection with any Financing Document or any unrelated transaction, provided
that nothing herein shall prevent the assertion of any such claim by separate
suit or compulsory counterclaim;

 

(iii)         any statement or any
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 whatsoever;

 

(iv)          any affiliation
between the LC Issuer and Agent; or

 

(v)            to the extent
permitted under applicable law, any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.

 

(e)           Deposit Obligations of Borrower.  In the event any Letters of Credit are
outstanding at the time that Borrower is required to repay the Obligations as a
result of an Event of Default or the Loan Commitment is terminated or reduced
to an amount that is less than the aggregate amount of Loans, Letters of Credit
and other Obligations outstanding, Borrower shall deposit with Agent for the
benefit of all Lenders which have committed to make Loans hereunder cash in an
amount equal to: (i)(A) one hundred percent (100%)
of the aggregate outstanding Letter of Credit Liabilities to be available to
Agent to reimburse payments of drafts drawn under such Letters of Credit and
pay any fees and expenses related thereto plus
(B) an amount equal to the
aggregate amount of fees payable under subsection 2.4(b) with respect to
such Letters of Credit for the full remaining terms of such Letters of Credit
which are not otherwise prepaid by Borrower or (ii) in
the case of a reduction in the Loan Commitment, if less than the amount
described in clause (i), the amount by which the outstanding Loans,
Letters of Credit and other Obligations, together with the aggregate amount of
fees payable under subsection 2.4(b) with respect to such Letters of
Credit for the full remaining terms of such Letters of Credit outstanding, exceed
the Loan Commitment.  Upon termination
of any such

 

26

 

Letter of Credit, to the extent not
previously applied by Agent in the manner described herein, the unearned
portion of any prepaid fees attributable to such Letter of Credit, together
with all cash deposits of the type described in the preceding clause (i),
shall be refunded to Borrower.

 

(f)            Participations in
Support Agreements.

 

(i)            Concurrently with
the issuance of each Letter of Credit, Agent shall be deemed to have sold and
transferred to each Lender, and each Lender shall be deemed irrevocably and
unconditionally to have purchased and received from Agent, without recourse or
warranty, an undivided interest and participation in, to the extent of such
Lender’s Pro
Rata Share of the Loan Commitment, Agent’s Support Agreement
liabilities and obligations in respect of such Letters of Credit and Borrower’s
Reimbursement Obligations with respect thereto.  If Borrower does not pay any Reimbursement Obligation when due,
then Borrower shall be deemed to have immediately requested that Lenders make a
Loan which is a Prime Rate Loan in a principal amount equal to such
Reimbursement Obligation.  Agent shall
promptly notify Lenders of such deemed request and each Lender shall make
available to Agent its Pro Rata Share of such Loan.  The proceeds of such Loan shall be paid over
by Agent to the LC Issuer for the account of Borrower in satisfaction of
reimbursement obligations then owing by Borrower to such LC Issuer in respect
of outstanding Letters of Credit.

 

(ii)           If Agent makes any
payment or disbursement under any Support Agreement and: (x)
Borrower has not reimbursed Agent in full for such payment or disbursement in
accordance with subsection 2.4(c), (y) a Loan may
not be made pursuant to the immediately preceding clause (i) or (z) any reimbursement received by Agent from Borrower is or
must be returned or rescinded upon or during any bankruptcy or reorganization
of any Credit Party or otherwise, each Lender shall be irrevocably and
unconditionally obligated to pay to Agent its Pro Rata Share of such
payment or disbursement (but no such payment shall diminish the Obligations of
Borrower under subsection 2.4(c)). 
To the extent any Lender shall not have made such amount available to
Agent by noon (Chicago time) on the Business Day on which such Lender receives
notice from Agent of such payment or disbursement, such Lender agrees to pay
interest on such amount to Agent forthwith on demand accruing daily at the Federal
Funds Rate, for the first three (3) days following such Lender’s receipt of
such notice, and thereafter at the Prime Rate plus the Prime Rate Margin in
respect of Loans.  Any Lender’s failure
to make available to Agent its Pro Rata Share of any such payment or
disbursement shall not relieve any other Lender of its obligation hereunder to
make available to Agent such other Lender’s Pro Rata Share of such payment, but no
Lender shall be responsible for the failure of any other Lender to make
available to Agent such other Lender’s Pro Rata Share of any such payment or
disbursement.

 

27

 

Section 2.5            General Provisions
Regarding Payment; Loan Account.

 

(a)                           All payments to be made by Borrower
under any Financing Document, including payments of principal and interest on
the Notes, and all fees, expenses, indemnities and reimbursements, shall be
made without set-off or counterclaim, in lawful money of the United States of
America and in immediately available funds. 
If any payment hereunder becomes due and payable on a day other than a
Business Day, such payment shall be extended to the next succeeding Business
Day and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.  Borrower shall make all payments in
immediately available funds to the Payment Account before noon (Chicago time)
on the date when due.  Notwithstanding
anything to the contrary set forth in this subsection 2.5(a), Agent shall
be permitted, in its sole discretion, but subject to the limitations set forth
in subsection 2.1(a)(ii), to satisfy any of the payment obligations
described in this subsection 2.5(a) through the making of Agent
Advances.

 

(b)                           Agent shall maintain a loan account
(the “Loan Account”) on its books to record
Loans and other extensions of credit made by the Lenders hereunder or under any
other Financing Document, all payments thereon made by Borrower and the Loan
Commitment Amount of each Lender.  All
entries in the Loan Account shall be made in accordance with Agent’s customary
accounting practices as in effect from time to time.  The balance in the Loan Account, as recorded on Agent’s most
recent printout or other written statement, shall be conclusive and binding
evidence of the amounts due and owing to Agent and each Lender by Borrower
absent clear and convincing evidence to the contrary; provided, any
failure to so record or any error in so recording shall not limit or otherwise
affect Borrower’s duty to pay all amounts owing hereunder or under any other
Financing Document.  Unless Borrower
notifies Agent in writing of any objection to any such printout or statement
(specifically describing the basis for such objection) within sixty (60) days
after the date of receipt thereof, it shall be deemed final, binding and
conclusive upon Borrower in all respects as to all matters reflected therein; provided,
however, in the event Borrower finds an error in any such printout or statement
after such sixty (60) day period, it shall notify the Agent in writing of such
purported error and Agent shall, in the event it agrees (after reasonable
review of such notice and such printout or statement) that an error was made,
take reasonable steps to correct such error.

 

Section 2.6            Maximum Interest.

 

(a)           In no event shall
the interest charged with respect to the Notes or any other obligations of
Borrower under any Financing Document exceed the maximum amount permitted under
the laws of the State of New York or of any other applicable jurisdiction.

 

(b)           Notwithstanding
anything to the contrary herein or elsewhere, if at any time the rate of
interest payable hereunder or under any Note or other Financing Document (the “Stated Rate”) would exceed the highest rate of interest
permitted under any applicable law to be charged (the “Maximum
Lawful Rate”), then for so long as the Maximum Lawful Rate would be
so exceeded, the rate of interest payable shall be equal to the Maximum Lawful
Rate; provided, that if at any time thereafter the Stated Rate is

 

28

 

less than the Maximum Lawful Rate, Borrower
shall, to the extent permitted by law, continue to pay interest at the Maximum
Lawful Rate until such time as the total interest received is equal to the
total interest which would have been received had the Stated Rate been (but for
the operation of this provision) the interest rate payable.  Thereafter, the interest rate payable shall
be the Stated Rate unless and until the Stated Rate again would exceed the
Maximum Lawful Rate, in which event this provision shall again apply.

 

(c)           In no event shall
the total interest received by any Lender exceed the amount which it could
lawfully have received had the interest been calculated for the full term hereof
at the Maximum Lawful Rate. If, notwithstanding the prior sentence, any Lender
has received interest hereunder in excess of the Maximum Lawful Rate, such
excess amount shall be applied to the reduction of the principal balance of the
Loans or to other amounts (other than interest) payable hereunder, and if no
such principal or other amounts are then outstanding, such excess or part
thereof remaining shall be paid to Borrower.

 

(d)           In computing
interest payable with reference to the Maximum Lawful Rate applicable to any
Lender, such interest shall be calculated at a daily rate equal to the Maximum
Lawful Rate divided by the actual number of days in the year in which such
calculation is made.

 

Section 2.7            Taxes.

 

(a)           All payments of
principal and interest on the Loans and all other amounts payable hereunder
shall be made free and clear of and without deduction for any present or future
income, excise, stamp, documentary, property or franchise taxes and other
taxes, fees, duties, levies, withholdings or other charges of any nature
whatsoever imposed by any taxing authority, excluding all taxes imposed on
Agent or any Lender by the jurisdiction under which Agent or such Lender is
organized, conducts business or is otherwise subject to such taxation (other than
solely as a result of entering into this Agreement or any other Financing
Documents or performing any obligations, receiving any payments or enforcing
any rights under this Agreement or any other Financing Document) (all
non-excluded items being called “Taxes”).  If any withholding or deduction from any
payment to be made by Borrower hereunder is required in respect of any Taxes
pursuant to any applicable law, rule or regulation, then Borrower will: (i) pay directly to the relevant authority the full amount
required to be so withheld or deducted; (ii) promptly
forward to Agent an official receipt or other documentation reasonably
satisfactory to Agent evidencing such payment to such authority; and (iii) except as otherwise specifically provided in subsection
2.7(c) hereof, pay to Agent for the account of Agent and Lenders such
additional amount or amounts as is necessary to ensure that the net amount
actually received by Agent and each Lender will equal the full amount Agent and
such Lender would have received had no such withholding or deduction been
required.  If any Taxes are directly
asserted against Agent or any Lender with respect to any payment received by
Agent or such Lender hereunder, Agent or such Lender may pay such Taxes and
Borrower will promptly pay such additional amounts (including any penalty,
interest or expense) as is necessary in order that the net amount received by
such Person after the payment of such Taxes (including any Taxes on such
additional amount)

 

29

 

shall equal the amount such Person would have
received had such Taxes not been asserted so long as such amounts have accrued
on or after the day which is one hundred eighty (180) days prior to the date on
which Agent or such Lender first made demand therefor.

 

(b)           If Borrower fails
to pay any Taxes when due to the appropriate taxing authority or fails to remit
to Agent, for the account of Agent and the respective Lenders, the required
receipts or other required documentary evidence, Borrower shall indemnify Agent
and Lenders for any incremental Taxes, interest or penalties that may become
payable by Agent or any Lender as a result of any such failure.

 

(c)           Each Lender that: (i) is organized under the laws of a jurisdiction other than
the United States of America and (ii)(A) is a
party hereto on the Closing Date or (B) becomes
an assignee of an interest under this Agreement under subsection 11.6(a)
after the Closing Date (unless such Lender was already a Lender hereunder
immediately prior to such assignment) shall, on or before the date it becomes a
party to this Agreement and on or before the date, if any, such Lender changes
its applicable lending office, execute and deliver to Borrower and Agent one or
more (as Borrower or Agent may reasonably request) Forms W-8ECI, W-8BEN, W-8IMY
(as applicable) or successors thereto or other applicable form, certificate or
document prescribed by the United States Internal Revenue Service certifying as
to such Lender’s entitlement to exemption from withholding or deduction of
Taxes, or, if such Lender is claiming exemption from U.S. Federal withholding
tax under Section 871(h) or 881(c) of the Code with respect to payments of
“portfolio interest”, one or more (as Borrower or Agent may reasonably request)
Forms W-8BEN or successor thereto and a certificate representing that such
Lender is not a bank for purposes of Section 881(c)(3)(A) of the Code, is not a
10 percent shareholder (within the meaning of Section 881(c)(3)(B) of the Code)
of Borrower and is not a controlled foreign corporation related to Borrower
(within the meaning of Section 881(c)(3)(C) of the Code).  In addition, each Lender shall deliver such
forms promptly upon the obsolescence or invalidity of any form previously
delivered by such Lender.  Borrower
shall not be required to pay additional amounts to any Lender pursuant to this Section
2.7 to the extent that the obligation to pay such additional amounts would
not have arisen but for the failure of such Lender to comply with this paragraph.

 

Section 2.8            Ancillary Services.  Borrower may from time to time request, and
Agent or any Lender that is an Affiliate of a Designated Lender Affiliate may,
in its sole discretion, from time to time arrange for Borrower to obtain from
Agent or any Designated Lender Affiliate, Ancillary Services although Borrower
is not required to do so.  To the extent
Ancillary Services are provided, Borrower agrees to indemnify and hold Agent
and Lenders harmless from any and all costs and obligations now or hereafter
incurred by Agent or any Lenders which arise from the indemnity given by Agent
or any Lender to any Designated Lender Affiliates related to such Ancillary
Services.  The agreement contained in
this Section 2.8 shall survive termination of this Agreement.  Borrower acknowledges and agrees that the
obtaining of Ancillary Services: (a) is in the
sole and absolute discretion of Agent and each Designated Lender Affiliate, and
(b) is subject to all rules and
regulations of Agent and each applicable Designated Lender Affiliate.

 

30

 

Section 2.9            Change of Lending Office.  Each Lender agrees that, upon the occurrence
of any event giving rise to the Obligations of Borrower under subsection
2.7(a) or subsection 2.2(d)(v) hereof with respect to such Lender,
it will, if reasonably requested by Borrower, use reasonable efforts (subject
to overall policy considerations of such Lender) to designate another lending
office for any Loans affected by such event with the object of avoiding the
consequences of such event, including avoiding the need for, or reducing the
amounts of, additional costs of Borrower pursuant to subsection 2.7(a)
or subsection 2.2(d)(v); provided, such designation is made on
terms that, in the sole judgment of such Lender, cause each Lender and its
lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided,
further, nothing in this Section shall affect or postpone any of the
Obligations of Borrower or the rights of any Lender pursuant to subsection
2.7(a) or subsection 2.2(d)(v) hereof

 

Section 2.10         Replacement of Lenders
under Certain Circumstances. Borrower shall be permitted to
replace any Lender with an Eligible Assignee, if such Lender:

 

(a)           requests
reimbursement for amounts owing pursuant to subsection 2.7(a) or subsection
2.2(d)(v) hereof; or

 

(b)           affirmatively
refuses to approve any waiver, amendment or modification to this Agreement that
is otherwise approved by the Required Lenders;

 

provided, in either of such cases: (i) the assignment to such Eligible
Assignee does not conflict with any applicable law, rule or regulation, (ii) no Event of Default shall have
occurred and be continuing at the time of such replacement, (iii) prior to any such replacement, such
Lender shall not have designated a different lending office under Section
2.9 hereof so as to eliminate the continued need for payment of amounts
owing pursuant to subsection 2.7(a) or subsection 2.2(d)(v)
hereof, (iv) the replacement
financial institution shall purchase, at par, all Loans and other amounts owing
to such replaced Lender on or prior to the date of replacement, (v) such replacement is carried out in
accordance with and subject to the restrictions contained in Section 11.6,
(vi) until such time as such replacement
shall be consummated, Borrower shall pay all additional amounts, if any,
required pursuant to subsection 2.7(a) or subsection 2.2(d)(v)
hereof, as the case may be, and (vii)
no such replacement shall be deemed to be a waiver of any rights which Borrower,
Agent or any other Lender shall have against the replaced Lender.

 

ARTICLE III

REPRESENTATION AND WARRANTIES

 

To induce
Agent and Lenders to enter into this Agreement and to make the Loans and other
credit accommodations contemplated hereby, Borrower hereby represents and
warrants to Agent and each Lender that:

 

Section 3.1            Existence and Power.  Each Credit Party is a corporation,
partnership or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and has all powers and all governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted,
except where the failure to have such licenses, authorizations, consents and

 

31

 

approvals
would not reasonably be expected to have a Material Adverse Effect.  Each Credit Party is qualified to do
business as a foreign entity in each jurisdiction in which it is required to be
so qualified, which jurisdictions as of the Closing Date are specified on the
Information Certificate, except where the failure to be so qualified would not
reasonably be expected to have a Material Adverse Effect.

 

Section 3.2            Organization and Governmental
Authorization; No Contravention.  The execution, delivery and performance by each Credit Party of
the Operative Documents to which it is a party are within its powers, have been
duly authorized by all necessary action pursuant to its Organizational Documents,
require no further action by or in respect of, or filing with, any governmental
body, agency or official (except for: (i) those that
have been obtained or made prior to the Closing Date, (ii) filings
to perfect the Liens created by the Security Documents (iii) consents,
authorizations, notices and filings necessary or required in connection with
the consummation of the transactions contemplated by the Unsecured Notes Debt
Documents which are not contemplated or required by the terms of the Unsecured
Notes Debt documents to occur on or before the Closing Date, and (iv) consents, authorizations, notices and filings which the
failure to obtain or make would not reasonably be expected to have a Material
Adverse Effect) and do not violate, conflict with or cause a breach or a
default under any provision of applicable law or regulation or of the
Organizational Documents of any Credit Party or of any agreement, judgment,
injunction, order, decree or other instrument binding upon it, except for such
violations, conflicts, breaches or defaults as would not reasonably be expected
to have a Material Adverse Effect.

 

Section 3.3            Binding Effect.  Each of the Financing Documents and, as of
the Closing Date, each of the other Operative Documents to which any Credit
Party is a party constitutes a valid and binding agreement or instrument of
such Credit Party, enforceable against such Credit Party in accordance with its
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws relating to the enforcement of
creditors’ rights generally and by general equitable principles.

 

Section 3.4            Capitalization.  The authorized equity securities of each of
the Credit Parties as of the Closing Date is as set forth on the Information
Certificate.  All issued and outstanding
equity securities of each of the Credit Parties are duly authorized and validly
issued, fully paid, nonassessable, free and clear of all Liens other than those
in favor of Agent for the benefit of Agent and Lenders, and such equity
securities were issued in compliance with all applicable state, federal and
foreign laws concerning the issuance of securities.  The identity of the holders of the equity securities of each of
the Credit Parties and the percentage of their fully-diluted ownership of the
equity securities of each of the Credit Parties as of the Closing Date is set
forth on the Information Certificate. 
No shares of the capital stock or other equity securities of any Credit
Party, other than those described above, are issued and outstanding, other than
shares of the capital stock or other equity securities of Borrower which are
otherwise not prohibited by the terms of this Agreement.  Except as set forth on the Information
Certificate, as of the Closing Date there are no preemptive or other
outstanding rights, options, warrants, conversion rights or similar agreements
or understandings for the purchase or acquisition from any Credit Party of any
equity securities of any such entity.

 

32

 

Section 3.5            Financial Information.

 

(a)           The consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of December
31, 2002 and the related consolidated statements of operations, stockholders’
equity and cash flows for the Fiscal Year then ended, reported on by KPMG LLP,
the U.S. member firm of KPMG International, copies of which have been delivered
to Agent and the Lenders, fairly present, in all material respects and in
conformity with GAAP, the consolidated financial position of Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations, changes in stockholders’ equity (or comparable calculation) and
cash flows for such period.

 

(b)           The unaudited
consolidated balance sheet of Borrower and its Consolidated Subsidiaries as of
September 30, 2003 and the related unaudited consolidated and consolidating
statements of operations and consolidated cash flows for the nine (9) months
then ended, copies of which have been delivered to Agent, fairly present, in
all material respects and in conformity with GAAP applied on a basis consistent
with the financial statements referred to in subsection 3.5(a), the
consolidated and consolidating financial position of Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for the nine (9) months then ended (subject to normal
year-end adjustments and the absence of footnote disclosures).

 

(c)           The pro forma
consolidated balance sheet of Borrower and its Consolidated Subsidiaries as of
September 30, 2003, copies of which have been delivered to Agent and the
Lenders, fairly presents in all material respects, in conformity with GAAP
applied on a basis consistent with the financial statements referred to in subsection
3.5(a), the consolidated financial position of Borrower and its
Consolidated Subsidiaries as of such date, adjusted to give effect (as if such
events had occurred on such date) to: (i) the
transactions contemplated by the Operative Documents, (ii)
the application of the proceeds therefrom contemplated by the Operative
Documents and (iii) the payment of all legal,
accounting and other fees related thereto to the extent known at the time of
the preparation of such balance sheet.

 

(d)           The information
contained in the most recently delivered Borrowing Base Certificate was
complete and correct on the date delivered and the amounts shown therein were
determined as provided in the Financing Documents.

 

(e)           After giving effect
to the transactions contemplated by the Operative Documents (but for this
purpose assuming that such transactions had occurred prior to December 31,
2002), since December 31, 2002, there has been no change in the business,
operations, properties, prospects or condition (financial or otherwise) of
Borrower and its Consolidated Subsidiaries, taken as a whole, that has had, or
would reasonably be expected to have, either individually or in the aggregate,
a Material Adverse Effect.

 

Section 3.6            Litigation.  Except as specifically disclosed in the
Information Certificate, there is no action, suit or proceeding pending
against, or to Borrower’s knowledge threatened against, any Credit Party or, to
Borrower’s knowledge, any party to any Operative Document or any Equity
Document (other than a Credit Party, any Lender or any Affiliate of any Lender)

 

33

 

before any
court or arbitrator or any governmental body, agency or official that would
reasonably be expected to have a Material Adverse Effect or which in any manner
draws into question the validity of any of the Financing Documents.

 

Section 3.7            Ownership of Property.  Borrower and each of its Subsidiaries is the
lawful owner of, has good and marketable title to and is in lawful possession
of, or has valid leasehold interests in, all material properties and other
assets (real or personal, tangible, intangible or mixed) purported to be owned
or leased (as the case may be) by such Person on the balance sheet referred to
in subsection 3.5(b), except as sold or otherwise disposed of since the
date of such balance sheet in the ordinary course of business or as permitted
by the terms of this Agreement.

 

Section 3.8            No Default.  No Default or Event of Default has occurred
and is continuing and no Credit Party is in breach or default under or with
respect to any material contract, agreement, lease or other instrument to which
it is a party or by which its property is bound or affected, which breach or
default would reasonably be expected to have a Material Adverse Effect.

 

Section 3.9            Labor Matters.  As of the Closing Date, there are no strikes
or other labor disputes pending or, to Borrower’s knowledge, threatened against
any Credit Party.  Hours worked and
payments made to the employees of the Credit Parties have not been in violation
of the Fair Labor Standards Act or any other applicable law dealing with such
matters except where any such violation would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.  All payments due from the Credit Parties, or
for which any claim may be made against any of them, on account of wages and
employee and retiree health and welfare insurance and other benefits have been
paid or accrued as a liability on their books, as the case may be except where
any such failure to pay or accrue any such liability would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect.  The consummation of the
transactions contemplated by the Financing Documents and the other Operative
Documents will not give rise to a right of termination or right of
renegotiation on the part of any union under any collective bargaining
agreement to which it is a party or by which it is bound.

 

Section 3.10         Regulated Entities.  No Credit Party is an “investment company”
or a company “controlled” by an “investment company” or a “subsidiary” of an
“investment company,” all within the meaning of the Investment Company Act of
1940.  No Credit Party is a “holding
company,” or a “subsidiary company” of a “holding company,” or an “affiliate”
of a “holding company” or of a “subsidiary company” of a “holding company,”
within the meaning of the Public Utility Holding Company Act of 1935.

 

Section 3.11         Margin Regulations.  None of the proceeds from the Loans have
been or will be used, directly or indirectly, for the purpose of purchasing or
carrying any Margin Stock, for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any Margin
Stock or for any other purpose which might cause any of the Loans to be
considered a “purpose credit” within the meaning of Regulation T, U or X of the
Federal Reserve Board.

 

34

 

Section 3.12         Compliance With Laws.  Borrower and each Subsidiary is in
compliance with the requirements of all applicable laws, ordinances, rules,
regulations and requests of governmental authorities, except for such laws,
ordinances, rules, regulations and requirements the noncompliance with which
could not reasonably be expected to have a Material Adverse Effect.

 

Section 3.13         Taxes.  Except to the extent subject to a Permitted
Contest or to the extent failure to do so would not have a Material Adverse Effect
or result in a Lien upon any of the Collateral, all Federal, state and local
tax returns, reports and statements required to be filed by or on behalf of
each Credit Party have been filed with the appropriate governmental agencies in
all jurisdictions in which such returns, reports and statements are required to
be filed, and all Taxes (including real property Taxes) and other charges shown
to be due and payable in respect thereof have been timely paid prior to the
date on which any fine, penalty, interest, late charge or loss may be added
thereto for nonpayment thereof.  Except
to the extent subject to a Permitted Contest, all state and local sales and use
Taxes required to be paid by each Credit Party have been paid.  Except to the extent subject to a Permitted
Contest, all Federal and state returns have been filed by each Credit Party for
all periods for which returns were due with respect to employee income tax
withholding, social security and unemployment taxes, and the amounts shown
thereon to be due and payable have been paid in full or adequate provisions
therefor have been made.

 

Section 3.14         Compliance with ERISA.

 

(a)           All required
reports and documents with respect to any Pension Plan have been properly filed
with the appropriate governmental agencies except where any failure to so file
would not reasonably be expected to have a Material Adverse Effect.  All Pension Plans (and related trusts and
insurance contracts) comply in form and in operation in all material respects
with the current applications of ERISA and the Code.  With respect to each Pension Plan, there have been no prohibited
transactions as defined in Section 406 of ERISA or Section 4975 of the Code
that have not been reported and corrected.

 

(b)           During the twelve
(12) month period prior to the Closing Date or the making of any Loan or the
issuance of any Letter of Credit: (i) no steps
have been taken to terminate any Pension Plan and (ii)
no contribution failure has occurred with respect to any Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA or Regulation
2510.3 — 102(b)(1) of ERISA.  No
condition exists or event or transaction has occurred with respect to any
Pension Plan which would reasonably be expected to result in the incurrence by
any Credit Party of any material liability, fine or penalty.  No Credit Party has incurred liability to
the PBGC (other than for current premiums) with respect to any employee Pension
Plan.  All contributions (if any) have
been made to any Multiemployer Pension Plan that are required to be made by any
Credit Party or any other member of the Controlled Group under the terms of the
plan or of any collective bargaining agreement or by applicable law; no Credit
Party nor any member of the Controlled Group has withdrawn or partially
withdrawn from any Multiemployer Pension Plan, incurred any withdrawal
liability with respect to any such plan or received notice of any claim or
demand for withdrawal liability or partial withdrawal liability from any such

 

35

 

plan, and no condition has occurred which, if
continued, would reasonably be expected to result in a withdrawal or partial
withdrawal from any such plan, and no Credit Party nor any member of the
Controlled Group has received any notice that any Multiemployer Pension Plan is
in reorganization, that increased contributions may be required to avoid a
reduction in plan benefits or the imposition of any excise tax, that any such
plan is or has been funded at a rate less than that required under Section 412
of the Code, that any such plan is or may be terminated, or that any such plan
is or may become insolvent.

 

Section 3.15         Broker Fees and Other
Payments.  Except as set
forth in the Information Certificate: (i) no broker,
finder or other intermediary has brought about the obtaining, making or closing
of the transactions contemplated by the Operative Documents, (ii) no Credit Party has or will have any obligation to any
Person in respect of any finder’s or brokerage fees in connection herewith,
therewith or in connection with any Equity Document, (iii) no
Credit Party shall be required to make any payments or redemptions with respect
to any Debt as a result of the obtaining, making or closing of the transactions
contemplated by the Operative Documents and (iv) no
Credit Party is party to any contract or agreement with any Person under which
any such Person obtains any rights of redemption or repayment from any Credit
Party as a result of the obtaining, making or closing of the transactions
contemplated by the Operative Documents.

 

Section 3.16         Related Transactions.  Except as would not be reasonably be
expected to have a Material Adverse Effect, all transactions which are
contemplated to occur by the Unsecured Notes Debt Documents and the Equity
Documents have been consummated on or prior to the date hereof (including
without limitation the disbursement and transfer of all funds in connection
therewith) in all material respects pursuant to the provisions of the
applicable Unsecured Notes Debt Documents and Equity Documents, true and
complete copies of which have been made available to Agent as set forth in the
Closing Checklist, and in compliance with all applicable provisions of law.

 

Section 3.17         Employment, Equityholders
and Subscription Agreements. 
Except for the Operative Documents, the Equity Documents and the other
agreements set forth in the Information Certificate, as of the Closing Date
there are no: (i) collective bargaining
agreements or other organized labor agreements covering any employees of any
Credit Party, (ii) agreements for managerial,
consulting or similar services to which any Credit Party is a party or by which
it is bound with an Affiliate of such Credit Party or (iii) agreements
regarding any Credit Party, its assets or operations or any investment therein
to which any of its equityholders which hold more than five percent (5%) of the
equity of Borrower on a fully-exercised, fully-diluted basis, is a party or by
which it is bound.

 

Section 3.18         Compliance with Environmental
Requirements; No Hazardous Materials.  Except in each case as set forth on the Information Certificate
and as would not reasonably be expected to have or give rise to a Material
Adverse Effect:

 

(a)                           No Hazardous Materials are located on
any properties now or previously owned, leased or operated by any Credit Party
or have been released into the environment, or deposited, discharged, placed or
disposed of at, on, under or near any of such properties in a manner that would
require the taking of any action under any Environmental Law or which could
reasonably be expected to have a Material Adverse

 

36

 

Effect. 
No portion of any such property is being used, or has been used at any
previous time, for the disposal, storage, treatment, processing or other
handling of Hazardous Materials in violation of any Environmental Law nor is
any such property affected by any Hazardous Materials Contamination.

 

(b)                           No underground storage tanks are
located on any properties now or previously owned, leased or operated by any
Credit Party, or were located on any such property and subsequently removed or
filled.

 

(c)                           No notice, notification, demand,
request for information, complaint, citation, summons, investigation, administrative
order, consent order and agreement, litigation or settlement with respect to
Hazardous Materials or Hazardous Materials Contamination is in existence or, to
Borrower’s knowledge, proposed, threatened or anticipated with respect to or in
connection with the operation of any properties now or previously owned, leased
or operated by any Credit Party.  All
such properties and their existing and prior uses, and any disposal of
Hazardous Materials from any thereof, comply and at all times have complied
with all Environmental Laws.  There is
no condition on any of such properties which is in violation of any
Environmental Laws and no Credit Party has received any communication from or
on behalf of any governmental authority that any such condition exists.

 

(d)                           There has been no environmental
investigation, study, audit, test, review or other analysis conducted of which
Borrower has knowledge in relation to the current or prior business of Borrower
or any property or facility now or previously owned, leased or operated by any
Credit Party which has not been made available to Agent.

 

(e)                           For purposes of this Section 3.18,
each Credit Party shall be deemed to include any business or business entity
(including a corporation) which is, in whole or in part, a predecessor of such
Credit Party.

 

Section 3.19         Intellectual Property.  Each Credit Party owns, is licensed to use
or otherwise has the right to use, all Intellectual Property that is material
to the condition (financial or other), business or operations of the Credit
Parties taken as a whole (other than Intellectual Property with respect to
which the failure to own or otherwise have such license or right would not
reasonably be expected to have a Material Adverse Effect) and all such material
Intellectual Property owned by each Credit Party existing as of the Closing
Date and registered with the U.S. government, any foreign government or any
agency or department thereof is set forth on the Information Certificate.  All registered Intellectual Property of each
Credit Party is duly and properly registered, filed or issued in the
appropriate office and jurisdictions for such registrations, filings or
issuances except where such failure would not reasonably be expected to have a
Material Adverse Effect.  To Borrower’s
knowledge: (i) each Credit Party conducts its
business without infringement or claim of infringement of any Intellectual
Property rights of others (other than infringements or claims that would not
reasonably be expected to have a Material Adverse Effect) and (ii) there is no
infringement or claim of infringement by others of any United States
Intellectual Property rights of any Credit Party, which infringement or claim
of infringement would reasonably be expected to have a Material Adverse Effect.

 

37

 

Section 3.20         Real Property Interests.  Except for the ownership, leasehold or other
interests set forth in the Information Certificate, no Credit Party has, as of
the Closing Date, any ownership, leasehold or other interest in real property.

 

Section 3.21         Solvency.  Borrower and each Subsidiary: (a) owns and will own assets the fair saleable value of
which are: (i) greater than the total amount of
its liabilities (including contingent liabilities) and (ii)
greater than the amount that will be required to pay the probable liabilities
of its then existing debts as they become absolute and matured considering all
financing alternatives and potential asset sales reasonably available to it; (b) has capital that is not unreasonably small in relation
to its business as presently conducted or after giving effect to any
contemplated transaction; and (c) does not
intend to incur and does not believe that it will incur debts beyond its
ability to pay such debts as they become due.

 

Section 3.22         Full Disclosure.  None of the information (financial or
otherwise) furnished by or on behalf of any Credit Party to Agent or any Lender
in connection with the consummation of the transactions contemplated by the
Operative Documents or the Equity Documents, including without limitation the
information set forth in the Information Certificate, contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements contained herein or therein not misleading in light of the
circumstances under which such statements were made.  All financial projections delivered to Agent and the Lenders have
been prepared on the basis of the assumptions stated therein.  Such projections represent Borrower’s best
estimate of Borrower’s future financial performance and such assumptions are
believed by Borrower to be fair in light of current business conditions; provided that Borrower can give no assurance that such
projections will be attained.

 

ARTICLE IV

AFFIRMATIVE COVENANTS

 

Borrower
agrees that, so long as any Credit Exposure exists:

 

Section 4.1            Financial Statements and
Other Reports.  Borrower
will maintain a system of accounting established and administered in accordance
with sound business practices to permit preparation of financial statements in
accordance with GAAP (including, without limitation, the maintenance of full,
true and correct books of record and account) and to provide the information
required to be delivered to the Lenders hereunder, and will deliver to Agent,
and, in the case of the deliveries required by paragraphs (a) through (f),
(l), (m), (o) and (p), each Lender:

 

(a)           within thirty (30)
days after the end of each month which is not the last month of a fiscal
quarter and within forty five (45) days after the end of each month which is
the last month of a fiscal quarter (including the last month of Borrower’s
Fiscal Year), a consolidated balance sheet of Borrower and its Consolidated
Subsidiaries as at the end of such month and the related consolidated and
consolidating statements of operations and consolidated cash flows for such
month, and for the portion of the Fiscal Year ended at the end of such month
setting forth in each case in comparative form the

 

38

 

figures for the corresponding periods of the
previous Fiscal Year and the figures for such month and for such portion of the
Fiscal Year ended at the end of such month set forth in the annual operating
and capital expenditure budgets and cash flow forecast delivered pursuant to subsection
4.1(l), all in reasonable detail and certified by a Responsible Officer as
fairly presenting in all material respects the financial condition and results
of operations of Borrower and its Consolidated Subsidiaries and as having been
prepared in accordance with GAAP applied on a basis consistent with the audited
financial statements of Borrower, subject to changes resulting from audit and
normal year-end adjustments and the absence of footnote disclosures;

 

(b)           as soon as
available and in any event within ninety (90) days after the end of each Fiscal
Year, a consolidated balance sheet of Borrower and its Consolidated
Subsidiaries as of the end of such Fiscal Year and the related consolidated and
consolidating statements of operations, consolidated stockholders’ equity (or
the comparable item, if Borrower is not a corporation) and consolidated cash
flows for such Fiscal Year, setting forth in each case in comparative form the
figures for the previous Fiscal Year and the figures for such Fiscal Year set
forth in the annual operating and capital expenditure budgets and cash flow
forecast delivered pursuant to subsection 4.1(l), certified (solely with
respect to such consolidated statements) without qualification by KPMG LLP, the
U.S. member firm of KPMG International, or other independent public accountants
reasonably acceptable to Agent of nationally recognized standing;

 

(c)           together with each
delivery of financial statements pursuant to subsections 4.1(a) and (b),
a Compliance Certificate;

 

(d)           together with each
delivery of financial statements pursuant to subsection 4.1(b) above, a
written statement by the independent public accountants giving the report
thereon stating that their audit examination has included a review of the terms
of this Agreement as it relates to accounting matters;

 

(e)           promptly upon
receipt thereof, copies of all reports submitted to any Credit Party by
independent public accountants in connection with each annual, interim or
special audit of the financial statements of any Credit Party made by such
accountants, including the comment letter submitted by such accountants to
management in connection with their annual audit;

 

(f)            promptly upon
their becoming available, copies of: (i) all
financial statements, reports, notices and, if a Credit Party is a public
company, proxy statements sent or made available generally by any such Credit
Party to its security holders, and (ii) all
regular and periodic reports and all registration statements and prospectuses
filed by any Credit Party with any securities exchange or with the Securities
and Exchange Commission or any successor;

 

(g)           promptly upon any
officer of any Credit Party obtaining knowledge: (i)
of the existence of any Event of Default or Default, or becoming aware that the
holder of any Debt of any Credit Party has given any notice or taken any other
action with respect to, a claimed default thereunder which would reasonably be
expected to have a Material

 

39

 

Adverse Effect, (ii) of any change in any Credit Party’s certified
accountant or, if a Credit Party is a public company, any resignation, or
decision not to stand for re-election, by any member of any such Credit Party’s
board of directors (or comparable body), (iii) that any
Person has given any notice to any Credit Party of, or taken any other action
with respect to a claimed default under any material agreement or instrument
(other than the Financing Documents) to which any Credit Party is a party or by
which any of its assets is bound, other than with respect to such claimed
defaults which Borrower does not reasonably expect to have a Material Adverse
Effect, or (iv) of the institution of any
litigation or arbitration of an amount equal to or greater than $1,000,000 or
any adverse judgment (or its equivalent in an arbitration) in any litigation or
arbitration involving a potential liability of any Credit Party equal to or
greater than $1,000,000, a certificate of a Responsible Officer specifying the
nature and period of existence of any such condition or event, or specifying
the notice given or action taken by such holder or Person and the nature of
such claimed default (including any Event of Default or Default), event or
condition, and what action the applicable Credit Party has taken, is taking or
proposes to take with respect thereto;

 

(h)           promptly upon any
officer of any Credit Party obtaining knowledge of: (i)
the institution of any steps by any member of the Controlled Group or any other
Person to terminate any Pension Plan, (ii) the
failure of any member of the Controlled Group to make a required contribution
to any Pension Plan (if such failure is sufficient to give rise to a Lien under
Section 302(f) of ERISA) or to any Multiemployer Pension Plan, (iii) the taking of any action with respect to a Pension
Plan which would reasonably be expected to result in the requirement that
Borrower or any Subsidiary furnish a bond or other security to the PBGC or such
Pension Plan, (iv) the occurrence of any event
with respect to any Pension Plan or Multiemployer Pension Plan which would
reasonably be expected to result in the incurrence by any member of the
Controlled Group of any material liability, fine or penalty (including any
claim or demand for withdrawal liability or partial withdrawal from any
Multiemployer Pension Plan), (v) any
material increase in the contingent liability of Borrower or any Subsidiary
with respect to any post-retirement welfare plan benefit or (vi) any notice that any Multiemployer Pension Plan is in
reorganization, that increased contributions may be required to avoid a
reduction in plan benefits or the imposition of an excise tax, that any such
plan is or has been funded at a rate less than that required under Section 412
of the Code, that any such plan is or may be terminated, or that any such plan
is or may become insolvent, a certificate of a Responsible Officer specifying
the nature and period of existence of any such condition or event, or
specifying the notice given or action taken by such holder or Person, and what
action the applicable Credit Party has taken, is taking or proposed to take
with respect thereto;

 

(i)            promptly upon any
officer of any Credit Party obtaining knowledge of any complaint, order, citation,
notice or other written communication from any Person delivered to any Credit
Party with respect to, or if any officer of any Credit Party becomes aware of
any of the following which would reasonably be expected to give rise to,
individually or in the aggregate, a Material Adverse Effect: (x) the existence or alleged existence of a violation of
any Environmental Law or the incurrence of any liability, obligation, loss,
damage, cost, expense, fine, penalty or sanction or the

 

40

 

requirement to commence any remedial action
resulting from or in connection with any air emission, water discharge, noise
emission, Hazardous Material or any other environmental, health or safety
matter at, upon, under or within any of the properties now or previously owned,
leased or operated by any Credit Party, or due to the operations or activities
of any Credit Party or any other Person on or in connection with any such
property or any part thereof or (y)
any release on any of such properties of Hazardous Materials in a quantity that
is reportable under any applicable Environmental Law, a certificate of a
Responsible Officer specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken by such
holder or Person, and what action the applicable Credit Party has taken, is
taking or proposes to take with respect thereto;

 

(j)            promptly upon any
officer of any Credit Party obtaining knowledge that any Credit Party has either: (x) registered or applied to register any material
Intellectual Property with the U.S. government, any foreign government or any
agency or department thereof, or (y) acquired
any interest in real property (including leasehold interests in real property),
a certificate of a Responsible Officer describing such Intellectual Property
and/or such real property in such detail as Agent shall reasonably require;

 

(k)           copies of any
reports or notices of non-payment of any material taxes received by any Credit Party
from any Federal, state or local governmental agency or body;

 

(l)            within thirty (30)
days following the first day of each Fiscal Year, Borrower’s annual operating
plans, operating and capital expenditure budgets, and financial forecasts,
including consolidated and consolidating statements of operations, consolidated
stockholders’ equity and consolidated cash flows, each for such Fiscal Year and
the two (2) subsequent Fiscal Years presented on a monthly basis for such
Fiscal Year and annually for such two (2) subsequent Fiscal Years, all of which
shall be in a format reasonably consistent with projections, budgets and
forecasts theretofore provided to the Lenders, and promptly following the
preparation thereof, formal updates to any of the foregoing from time to time
prepared by management of Borrower;

 

(m)          (i) in
the event the amount of Loan Outstandings is greater than zero ($0), within
thirty (30) days after the last day of each fiscal quarter, (ii) in the event the most recent financial statements delivered
pursuant to subsection 4.1(a) indicate the amount of Loans Outstanding
may exceed the Loan Limit and (iii) if an
Event of Default has occurred and is continuing, within thirty (30) days after
the last day of each calendar month, a Borrowing Base Certificate as of the
last day of the month most recently ended;

 

(n)           if Agent or any
Lender determines that obtaining appraisals is necessary in order for Agent or
such Lender to comply with applicable laws or regulations, appraisal reports in
form and substance and from appraisers satisfactory to Agent stating the then
current fair market values of all or any portion of the real estate owned by
Borrower or any Subsidiaries.  In
addition to the foregoing, from time to time, upon the occurrence of an Event of
Default, Agent may require Borrower to obtain and deliver to Agent appraisal
reports in form and substance and from appraisers satisfactory to Agent stating

 

41

 

the then current market values of all or any
portion of the real estate and personal property owned by Borrower or any
Subsidiaries;

 

(o)           with reasonable
promptness, such other information and data with respect to any Credit Party as
from time to time may be reasonably requested by Agent or any Lender;

 

(p)           Borrower will
permit, and will cause each Subsidiary to permit, at the sole cost of Borrower
or any applicable Subsidiary, representatives of Agent and of any Lender (but
at such Lender’s expense unless such visit or inspection is made concurrently
with Agent) to visit and inspect once per calendar year, in connection with the
Lender’s meeting described in Section 4.18, upon commercially reasonable
prior written notice, during normal business hours and, absent the existence of
an Event of Default, under the guidance of officers of Borrower or such
Subsidiary, any of their respective properties, to examine and make abstracts
or copies from any of their respective books and records, to discuss their
respective affairs, finances and accounts with their respective officers,
general managers, key employees and independent public accountants and, if an
Event of Default has occurred and is continuing, to conduct an analysis of
their respective Inventory and Accounts; provided, however, if an Event
of Default has occurred and is continuing, such visits and inspections may be
conducted as often as may reasonably be desired by Agent or any Lender and no
notice to Borrower or any applicable Subsidiary of such exercise shall be
required; and

 

(q)           In the event of any
issuance of capital stock of or other equity interests in Borrower which will
or would reasonably be expected to constitute an issuance of capital stock or
other equity interests representing more than five percent (5%) of the
then-outstanding capital stock of and other equity interests in Borrower,
Borrower shall give written notice thereof to Agent prior to such issuance.

 

Section 4.2            Payment and Performance of
Obligations.  Borrower: (i) will pay and discharge, and cause each Subsidiary to
pay and discharge, at or before maturity, all of their respective obligations
and liabilities, including tax liabilities, except: (x)
where the same may be the subject of a Permitted Contest and (y) for such obligations and/or liabilities the nonpayment
or nondischarge of which could not reasonably be expected to have a Material
Adverse Effect, (ii) will maintain, and cause each
Subsidiary to maintain, in accordance with GAAP, appropriate reserves for the
accrual of all of their respective obligations and liabilities and (iii) will not breach or permit any Subsidiary to breach, or
permit to exist any default under, the terms of any lease, commitment,
contract, instrument or obligation to which it is a party, or by which its
properties or assets are bound, except for such breaches or defaults which
could not reasonably be expected to have a Material Adverse Effect.

 

Section 4.3            Maintenance of Existence.  Borrower will preserve, renew and keep in
full force and effect, and will cause each Subsidiary to preserve, renew and
keep in full force and effect their respective existence and their respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business; provided, however, nothing in this Section 4.3 shall
prevent the: (i) sales of assets and other
transactions by the Borrower or its Subsidiaries which are undertaken in
accordance with Section 5.6 or (ii) withdrawal
by the Borrower or any of its

 

42

 

Subsidiaries
of its qualification as a foreign corporation, partnership or limited liability
company, as the case may be, in any jurisdiction where such withdrawal could
not, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

Section 4.4            Maintenance of Property;
Insurance.

 

(a)                           Borrower will keep, and will cause each
Subsidiary to keep, all property useful and necessary in its business in good
working order and condition, ordinary wear and tear excepted, other than as
would not reasonably be expected to have a Material Adverse Effect.

 

(b)                           Borrower will maintain, and will cause
each Subsidiary to maintain with financially sound and reputable insurance
companies insurance on all such property and against such risks as is
consistent and in accordance with industry practice for companies similarly
situated owning similar properties and engaged in similar businesses as
Borrower or any of its Subsidiaries operates; provided, such insurance
shall at all times be substantially of the same or higher amounts and same or
better quality as the insurance maintained by Borrower and its Subsidiaries as
of the Closing Date and as reviewed on or prior to the Closing Date by Agent,
as such amounts may be increased from time to time in relation to increases in
size of Borrower and its Subsidiaries.

 

(c)                           On or prior to the Closing Date,
Borrower will cause Agent to be named as an additional insured, assignee and
loss payee, as applicable, on each insurance policy required to be maintained
pursuant to this Section 4.4 pursuant to endorsements in form and
content reasonably acceptable to Agent. 
Borrower will deliver to Agent: (i) on the
Closing Date, a certificate from Borrower’s insurance broker dated such date
showing the amount of coverage as of such date, and that such policies will
include effective waivers (whether under the terms of any such policy or
otherwise) by the insurer of all claims for insurance premiums against all loss
payees and additional insureds and all rights of subrogation against all loss
payees and additional insureds, and that if all or any part of such policy is
canceled, terminated or expires, the insurer will forthwith endeavor give prior
written notice thereof to each additional insured and loss payee (and will give
such notice to the Credit Party insured thereunder) and that no cancellation,
reduction in amount or material change in coverage thereof shall be effective
until at least thirty (30) days after receipt by each Credit Party which is
either insured or the loss payee thereunder of written notice thereof, (ii) upon the reasonable request of any Lender through Agent
from time to time information as to the insurance carried, (iii)
within five (5) Business Days of receipt of notice from any insurer, a copy of
any notice of cancellation, reduction in amount, nonrenewal or material change
in coverage from that existing on the date of this Agreement, and (iv) forthwith, notice of any cancellation or nonrenewal of
coverage by Borrower.

 

(d)                           In the event Borrower fails to provide
Agent with evidence of the insurance coverage required by this Agreement, Agent
may purchase such insurance at Borrower’s expense to protect Agent’s interests
in the Collateral.  This insurance may,
but need not, protect Borrower’s interests. 
The coverage purchased by Agent may not pay any claim made by Borrower
or any claim that is made against Borrower in

 

43

 

connection with the Collateral.  Borrower may later cancel any insurance
purchased by Agent, but only after providing Agent with evidence that Borrower
has obtained insurance as required by this Agreement.  If Agent purchases insurance as provided above, Borrower will be
responsible for the costs of that insurance, including interest and other
charges imposed by Agent in connection with the placement of the insurance,
until the effective date of the cancellation or expiration of the
insurance.  The costs of the insurance
may be added to the Obligations.  The
costs of the insurance may be more than the cost of insurance Borrower is able
to obtain on its own.

 

Section 4.5            Compliance with Laws.  Borrower will comply, and cause each
Subsidiary to comply, with the requirements of all applicable laws, ordinances,
rules, regulations, and requirements of governmental authorities (including
Environmental Laws and ERISA and the rules and regulations thereunder), except
for such laws, ordinances, rules, regulations and requirements the
noncompliance with which would not reasonably be expected to have a Material
Adverse Effect.

 

Section 4.6            Reserved.

 

Section 4.7            Use of Proceeds.  The proceeds of Loans shall be used by
Borrower solely for: (i) working
capital and general corporate purposes of Borrower, its Domestic Subsidiaries
and its Foreign Subsidiaries which have entered into and delivered any
Financing Documents required to be delivered hereunder and (ii) Permitted
Acquisitions.

 

Section 4.8            Lenders’ Meetings.  Within one hundred twenty (120) days after
the end of each Fiscal Year and, if an Event of Default has occurred and is
continuing, on such date as is and at such times as are reasonably requested by
Agent, Borrower will conduct a meeting of Agent and the Lenders to discuss such
Fiscal Year’s (or other applicable period’s) results and the financial
condition of Borrower and the Subsidiaries at which shall be present a
Responsible Officer and such officers of the Credit Parties as may be
reasonably requested to attend by Agent or any Lender, such request or requests
to be made within a reasonable time prior to the scheduled date of such
meeting.  Such meetings shall be held at
a time and place convenient to the Lenders and to Borrower; provided,
however, Borrower and the Lenders hereby agree the chief executive office of
Borrower shall constitute such a convenient place.

 

Section 4.9            Reserved.

 

Section 4.10         Reserved.

 

Section 4.11         Bank, Investment and
Other, Similar Accounts. 
Borrower will cause Control Agreements to be in place with respect to
each bank, investment and other, similar accounts of Borrower and its Domestic Subsidiaries
no later than December 16, 2004.

 

Section 4.12         Further Assurances.  Borrower will, and will cause each
Subsidiary to, at its own cost and expense, cause to be promptly and duly
taken, executed, acknowledged and delivered all such further acts, documents
and assurances as may from time to time be necessary or as Agent or the
Required Lenders may from time to time reasonably request in order to carry out
the intent and purposes of the Financing Documents and the transactions
contemplated hereby and thereby, including all such actions to Guarantee the
Obligations and create, establish,

 

44

 

preserve,
protect and perfect Liens on the capital stock of or other equity securities
in, and any and all assets of such Persons (other than Excluded Collateral), in
each case, to the extent and in the manner provided for in the applicable
Security Documents in favor of Agent for the benefit of the Lenders (including
the property of such Persons acquired after the date hereof), including on the
capital stock of or other equity securities in and any and all assets of each
Credit Party (other than Excluded Collateral), other than Subsidiaries which
are “controlled foreign corporations,” within the meaning of Section 957 of the
Code, or which hold stock of or other equity interests in a “controlled foreign
corporation” (in which case, with respect to such “controlled foreign
corporation,” Agent and the Lenders shall be entitled to a pledge of sixty five
percent (65%) of the issued and outstanding capital stock of or other equity
interests in such Person); provided, however,  if such “controlled foreign corporation” may guaranty the
Obligations or if the assets, capital stock or other equity securities of such
“controlled foreign corporation” may serve, directly or indirectly, as security
for the performance of an obligation of a United States Person without causing
all or any portion of the undistributed earnings of such “controlled foreign
corporation” to be treated as a deemed inclusion to such “controlled foreign
corporation’s” United States parent for federal income tax purposes or
otherwise having any adverse effect on Borrower or any of its Subsidiaries with
respect to taxes (because a change has become effective in the relevant
sections of the Code or the treasury regulations thereunder after the Closing
Date), Borrower shall (or shall cause each such “controlled foreign
corporation” to, as applicable) guaranty the Obligations and establish,
preserve, protect and perfect Liens in favor of Agent for the benefit of the
Lenders on one hundred percent (100%) of the capital stock of or other equity
securities in and any and all assets of each such “controlled foreign
corporation,”  in each case whether now
owned or hereafter acquired.

 

Section 4.13         New
Leases; Certain New Subsidiaries.

 

(a)           Borrower shall, and
shall cause each of its Subsidiaries to, in connection with the negotiation of
any new real property leases to which any of them may become a party, undertake
efforts to negotiate leases which: (i) constitute
Unrestricted Leases, (ii) do not
require that leasehold improvements become the property of landlord upon the
installation of such improvements or any other time prior to the expiration of
the lease term, and (iii) do not
contain a negative pledge clause with respect the assets of tenant, including
any leasehold improvements.  Promptly
upon the execution of any new real property lease by Borrower or any of its
Subsidiaries, Borrower shall, or shall cause the relevant Subsidiary to,
deliver a copy of such real property lease to Agent, certified by a Responsible
Officer as being a true, correct and complete copy thereof.

 

(b)            Of all new fitness
clubs which are opened by Borrower or any of its Subsidiaries, the Borrower’s
beneficial interest in the capital stock of Subsidiaries which are parties to
Unrestricted Leases shall be owned by Intermediate Holdco.

 

ARTICLE V

NEGATIVE COVENANTS

 

Borrower
agrees that, so long as any Credit Exposure exists:

 

45

 

Section 5.1            Debt.  Borrower will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume, guarantee or
otherwise become or remain directly or indirectly liable with respect to, any
Debt, or any contingent obligations which would be Debt hereunder if they were
non-contingent, except for:

 

(a)           (i) Debt, Letter of Credit Liabilities and liabilities and
obligations arising from Cash-Collateralized Letters of Credit under the
Financing Documents; and (ii) to the
extent they are fully cash collateralized in a manner satisfactory to Agent,
letters of credit which are not issued under or pursuant to this Agreement or
any of the other Financing Documents with an aggregate face amount not greater
than $12,500,000 at any time;

 

(b)           Debt or such
contingent obligations outstanding on the date of this Agreement as set forth
in the Information Certificate;

 

(c)           Unsecured Notes
Debt;

 

(d)           Debt incurred or
assumed for the purpose of financing all or any part of the cost of acquiring
any fixed asset (including through Capital Leases), in an aggregate principal
amount at any time outstanding not greater than $10,000,000;

 

(e)           (1) intercompany Debt arising from loans or advances made
(or other forms of Debt) between and among Borrower and its Domestic
Subsidiaries which are Guarantors, and (2) intercompany
Debt arising from loans or advances made (or other forms of Debt) by and among
Borrower and its wholly-owned Foreign Subsidiaries; provided, no such
loans or advances made (or other forms of Debt) by Borrower to any such
wholly-owned Foreign Subsidiary may be made if the Foreign Subsidiary Advance
Amount exceeds $15,000,000 or would exceed $15,000,000 by the making of any
such loan; provided, in the case of clause (2) above, all such
loans by Borrower shall be evidenced by promissory notes, the sole originally
executed counterparts of which shall be pledged and delivered by Borrower to
Agent, for the benefit of Agent and Lenders, as security for the Obligations; provided,
further, in the case of clauses (1) and (2) above, upon the
request of Agent at any time when an Event of Default has occurred and is
continuing, all such intercompany Debt (and, with respect to obligations of any
“controlled foreign corporation” within the meaning of Section 957 of the Code,
only to the extent that the Borrower has, in good faith, determined that there
is no risk of adverse tax consequences) shall be evidenced by promissory notes,
the sole originally executed counterparts of which shall be pledged and
delivered to Agent, for the benefit of Agent and Lenders, as security for the
Obligations;

 

(f)            Debt of Borrower
or any Subsidiary under Interest Rate Protection Agreements entered into with
respect to Debt permitted under this Section 5.1 so long as the entering
into of such Interest Rate Protection Agreements are bona fide hedging activities and are not for speculative
purposes;

 

(g)           Debt consisting of
guaranties and keep-well arrangements by Borrower and its Subsidiaries of each
other’s Debt (other than Debt of Borrower permitted under

 

46

 

subsections 5.1(j)),
lease obligations and construction obligations otherwise permitted under this
Agreement;

 

(h)           Debt of a Domestic
Subsidiary acquired pursuant to a Permitted Acquisition (or Debt assumed at the
time of a Permitted Acquisition of an asset securing such Debt), provided:
(w) such Debt was not incurred in
connection with, or in anticipation or contemplation of, such Permitted
Acquisition, (x) such Debt does not constitute
debt for borrowed money, it being understood and agreed that Capital Lease and
purchase money Debt shall not constitute debt for borrowed money for purposes
of this clause (x), (y) at the time
of such Permitted Acquisition, such Debt does not exceed twenty percent (20%)
of the total value of the assets of the Domestic Subsidiary so acquired, or of
the asset so acquired, as the case may be, and (z)
the aggregate principal amount of all Debt permitted by this clause (h)
shall not exceed $5,000,000 at any one time outstanding;

 

(i)            Seller
Subordinated Debt issued by Borrower to a seller as consideration for a
Permitted Acquisition effected in accordance with Section 5.7 in an
aggregate principal amount not to exceed $2,500,000 (as such $2,500,000
principal amount may be increased through the issuance of additional Seller
Subordinated Debt or through the capitalization of regularly accrued unpaid
interest in respect of regularly scheduled interest payments in accordance with
the terms thereof) at any time outstanding;

 

(j)            Investor
Subordinated Debt issued by Borrower to an Investor;

 

(k)           Debt borrowed from,
held by or issued to landlords of real property leased by Subsidiaries which: (i) is incurred by such Subsidiary in connection with the
terms of its lease with such landlord, (ii) is either
unsecured or secured only by the assets of such Subsidiary which are located at
the property subject to such lease and (iii) does not
exceed $5,000,000 in the aggregate; and

 

(l)            to the extent they
comply with the terms of clause (12) of Annex C hereto,
“earnouts” issued by Borrower or any other Credit Party in connection with a
Permitted Acquisition;

 

(m)          contingent
obligations which would be Debt hereunder if they were non-contingent and
which:

 

(1)
          result from endorsements
for collection or deposit in the ordinary course of business;

 

(2)           are incurred in the
ordinary course of business with respect to surety and appeal bonds,
performance bonds and other similar obligations which do not exceed $500,000 in
the aggregate at any time outstanding;

 

(3)           arise with respect
to customary indemnification obligations in favor of purchasers, and customary
purchase price adjustment obligations in favor of purchasers, in each case in
connection with dispositions otherwise permitted under Section 5.6; or

 

47

 

(4)           arise with respect
to customary indemnification obligations in favor of sellers, and customary
purchase price adjustment obligations in favor of sellers, in each case in
connection with Permitted Acquisitions; and

 

(n)           unsecured Debt not
described in clauses (a) through (m) above, not to exceed
$2,000,000 in the aggregate at any time outstanding.

 

Section 5.2            Liens.  Borrower will not, and will not permit any
Subsidiary to, directly or indirectly, create, assume or suffer to exist any
Lien on any asset now owned or hereafter acquired by it, except:

 

(a)           Liens created by
the Security Documents;

 

(b)           Liens existing on
the date of this Agreement as set forth in the Information Certificate together
with any applicable UCC continuation statements;

 

(c)           any Lien on any
asset securing purchase money Debt (including through Capital Leases) permitted
under subsection 5.1(d) incurred or assumed for the purpose of financing
all or any part of the cost of acquiring such asset, provided, such Lien
attaches to such asset concurrently with or within ninety (90) days after the
acquisition thereof;

 

(d)           Liens for taxes or
other governmental charges not at the time delinquent or thereafter payable
without penalty or the subject of a Permitted Contest;

 

(e)           Liens arising in
the ordinary course of business: (i) in favor
of carriers, warehousemen, mechanics and materialmen, and other similar Liens
imposed by law and (ii) in
connection with worker’s compensation, unemployment compensation and other
types of social security (excluding Liens arising under ERISA) or in connection
with surety bonds, bids, performance bonds and similar obligations for sums not
overdue or the subject of a Permitted Contest and not involving any deposits or
advances or borrowed money or the deferred purchase price of property or
services and, in each case, for which it maintains adequate reserves;

 

(f)            attachments,
appeal bonds, judgments and other similar Liens, for sums not exceeding
$1,000,000 in the aggregate arising in connection with court proceedings; provided,
the execution or other enforcement of such Liens and the claims secured thereby
are the subject of a Permitted Contest;

 

(g)           easements, rights
of way, restrictions, minor defects or irregularities in title and other
similar Liens not interfering in any material respect with the ordinary conduct
of the business of Borrower or any Subsidiary;

 

(h)           licenses,
sublicenses, leases or subleases granted to other Persons not materially
interfering with the conduct of the business of Borrower or any Subsidiary;

 

(i)            statutory and
common law and landlords’ liens under leases to which Borrower or any of its
Subsidiaries is a party;

 

48

 

(j)            Liens on property
or assets acquired pursuant to a Permitted Acquisition, or on property or
assets of a Subsidiary of Borrower in existence at the time such Subsidiary is
acquired pursuant to a Permitted Acquisition, provided: (y) any Debt that is secured by such Liens is permitted to
exist under Section 5.1, and (z) such Liens
are not incurred in connection with, or in contemplation or anticipation of,
such Permitted Acquisition and do not attach to any other asset of Borrower or
any Subsidiary;

 

(k)           Liens on Intellectual
Property to the extent such Liens arise from the granting of licenses to use
such Intellectual Property to any Person in the ordinary course of business of
the Credit Parties in accordance with their past practices;

 

(l)            Liens on cash
collateral which support letters of credit issued by Persons other than Agent
or any Lender which are fully cash collateralized in a manner reasonably
satisfactory to Agent and are not otherwise specifically prohibited hereunder;
and

 

(m)          to the extent the
same constitutes a Lien hereunder, any interest or title of a lessor under any
lease of property to, or of any consignor of goods consigned to (including any
such interest or title of any creditor of any such consignee in goods consigned
to), Borrower or any Subsidiary, in each case so long as such Lien extends
solely to the property the subject of such lease or consignment, as the case
may be.

 

In connection with the granting of Liens of the type described in clauses
(c), (g), (j) and (k) of this Section 5.1 by
Borrower of any Subsidiary, Agent shall be authorized to take any actions
deemed appropriate by it in connection therewith (including, without
limitation, by executing appropriate lien releases or lien subordination
agreements in favor of the holder or holders of such Liens, in either case
solely with respect to the item or items of equipment or other assets subject
to such Liens).

 

Section 5.3            Restricted Distributions.  Borrower will not, and will not permit any Subsidiary
to, directly or indirectly, declare, order, pay, make or set apart any sum for
any Restricted Distribution; provided, the foregoing shall not restrict
or prohibit wholly-owned Subsidiaries from making dividends or distributions
and shall not restrict or prohibit:

 

(a)           repurchases of
shares of (or options to purchase shares of) equity interests in Borrower or
options therefor from former employees of Borrower or its Subsidiaries upon
their death, disability, termination or retirement, so long as: (i) before and after giving effect to any such dividend or
distribution for such purpose  no Event of
Default shall have occurred and be continuing and (ii) such
repurchases or payments after the date hereof do not exceed $750,000 in any
Fiscal Year and do not exceed $3,750,000 in the aggregate (plus the amount of
cash proceeds received by Borrower under any “key-man” life insurance policy
covering any such officer, director or employee the proceeds of which are used
to make such Restricted Distributions);

 

(b)           dividends or
distributions to the Holders at such times and in such amounts as are necessary
to permit payment of taxes and administrative expenses (including without
limitation the payment of reasonable director fees) payable by the

 

49

 

Holders, so long as before and after giving
effect to any such dividend or distribution for such purpose, no Event of
Default shall have occurred and be continuing; and

 

(c)           any
non-wholly-owned Subsidiary of Borrower may pay cash Dividends to its
shareholders generally so long as Borrower or its respective Subsidiary which
owns the equity interest in the Subsidiary paying such Dividends receives at
least its proportionate share thereof (based upon its relative holding of the
equity interest in the Subsidiary paying such Dividends and taking into account
the relative preferences, if any, of the various classes of equity interests of
such Subsidiary).

 

Section 5.4            Restrictive Agreements.  Borrower will not, and will not permit any
Subsidiary to, directly or indirectly: (i) enter into
or assume any agreement (other than the Operative Documents) prohibiting the
creation or assumption of any Lien upon its properties or assets, whether now
owned or hereafter acquired; provided, the foregoing shall not apply to: (w) prohibitions imposed by law, (x)
prohibitions created under the Equity Documents, (y)
restrictions or conditions imposed by any agreement relating to secured Debt or
Capital Leases otherwise permitted under this Agreement, if such restrictions
or conditions apply solely to the property or assets securing such Debt or
subject to such Capital Lease or (z) customary
provisions in leases restricting assignment thereof, or (ii)
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind (except as provided by the Unsecured
Notes Debt Documents) on the ability of any Subsidiary to: (1)
pay or make Restricted Distributions to Borrower or any other Subsidiary; (2) pay any Debt owed to Borrower or any other Subsidiary; (3) make loans or advances to Borrower or any other
Subsidiary; or (4) transfer any of its property
or assets to Borrower or any other Subsidiary, except for such encumbrances or
restrictions existing under or by reason of: (u)
applicable law, (v) this Agreement, the Equity
Documents and the Operative Documents, (w) customary
provisions establishing change of control triggers under or restricting
subletting or assignment of any lease governing a leasehold interest of
Borrower or any Subsidiary; provided, nothing in this clause (w)
shall be deemed to limit or diminish the obligations of Borrower arising
pursuant to subsection 4.14(b) hereof, (x) customary
provisions restricting assignment of any licensing agreement (in which Borrower
or any Subsidiary is the licensee) or other contract entered into by Borrower
or any Subsidiary in the ordinary course of business, (y) restrictions
on the transfer of any asset pending the close of the sale of such asset and (z) restrictions on the transfer of any asset subject
to a Lien permitted by subsections 5.2(b), (c) or (j).

 

Section 5.5            Payments and Modifications
of Unsecured Notes Debt; Warrant Documents.

 

(a)           Borrower will not,
and will not permit any Subsidiary to, directly or indirectly: (i) amend or otherwise modify the terms of any Unsecured
Notes Debt or any Unsecured Notes Debt Document if the effect of such amendment
or modification is to: (v) increase
the interest rate or fees on such the Unsecured Notes Debt; (w) change the dates upon which payments of principal or
interest are due on, or the principal amount of, the Unsecured Notes Debt; (x) change any event of default or add or make more
restrictive any covenant with respect to the Unsecured Notes Debt; (y) change the prepayment provisions of the Unsecured Notes
Debt; or (z) change or amend any other term if
such change or amendment would materially increase the obligations of the

 

50

 

obligor or confer additional material rights
on the holder of the Unsecured Notes Debt in a manner adverse to Borrower, any
Subsidiary, Agent or Lenders or (ii) if
the amount of the Loans outstanding is greater than $0, declare, pay, make or
set aside any amount for payment in respect of Unsecured Notes Debt, except for
payments of principal and interest (excluding voluntary prepayments) in respect
of such Unsecured Notes Debt which are required to be made pursuant to the
terms of the Unsecured Notes Debt Documents.

 

(b)           Borrower will not,
and will not permit any Subsidiary to, directly or indirectly, modify in a
manner adverse to Agent or the Lenders any of the terms of that certain Senior
Subordinated Note and Warrant Purchase Agreement dated as of December 15, 2000
by and among Borrower and each of the “Noteholders” party thereto, as amended
by that certain Amendment No. 1 to Common Stock Purchase Warrant, Amendment No.
2 to Senior Subordinated Note and Warrant Purchase Agreement and Consent dated
as of November 8, 2003.

 

Section 5.6            Consolidations, Mergers
and Sales of Assets. 
Borrower will not, and will not permit any Subsidiary to, directly or
indirectly: (i) consolidate or merge with or
into any other Person, or (ii) sell,
lease, license or otherwise transfer, directly or indirectly, any of its or
their assets, other than:

 

(a)           sales of Inventory
in the ordinary course of their respective businesses;

 

(b)           dispositions of
cash and Cash Equivalents;

 

(c)           dispositions of
obsolete, uneconomic or worn-out equipment and materials in the ordinary course
of business;

 

(d)           disposition of
equipment and other assets, if all of the following conditions are met: (i)  each such sale is in an arm’s-length transaction
and Borrower or the respective Subsidiary receives at least fair market value
(as determined in good faith by Borrower or such Subsidiary, as the case may
be), (ii) the total consideration
received by Borrower or such Subsidiary is at least seventy five percent (75%)
cash and is paid at the time of the closing of such sale, (iii)
the aggregate market value of assets sold or otherwise disposed of does not
exceed $1,000,000 per year, (iv) the Net
Cash Proceeds of such Asset Disposition are applied and/or reinvested as
required by subsection 2.1(c), and (v) no
Default or Event of Default then exists or would result from such Asset
Disposition;

 

(e)           the abandonment,
sale or other disposition of Intellectual Property that is, in the reasonable
judgment of Borrower, no longer of material economic value to the business of
the Credit Parties taken as a whole;

 

(f)            each of Borrower
and its Subsidiaries may sell or discount, in each case without recourse and in
the ordinary course of business, Accounts arising in the ordinary course of
business, but only in connection with the compromise or collection thereof and
not as part of any financing transaction;

 

51

 

(g)           each of Borrower
and its Subsidiaries may grant leases, licenses, sublicenses or subleases to
other Persons, none of which shall otherwise materially interfere with the
conduct of the business of Borrower or any of its other fitness clubs or
Subsidiaries, so long as no such grant otherwise limits or prohibits Agent’s
security interest in the assets or property subject thereto;

 

(h)           any Subsidiary of
Borrower may transfer assets to Borrower or to any wholly-owned Domestic
Subsidiary of Borrower which is a Guarantor and all of whose capital stock and
other equity interests have been pledged to Agent for the benefit of the
Lenders pursuant to the Security Documents, so long as the security interests
granted to Agent for the benefit of the Lenders pursuant to the Security
Documents in the assets so transferred shall remain in full force and effect
and perfected (to at least the same extent as in effect immediately prior to
such transfer);

 

(i)            any Subsidiary of
Borrower may merge with and into, or be dissolved or liquidated into, any
wholly-owned Domestic Subsidiary of Borrower which is a Guarantor and all of
whose capital stock and other equity interests have been pledged to Agent for
the benefit of the Lenders pursuant to the Security Documents, so long as: (i) the wholly-owned Domestic Subsidiary which is a
Guarantor and whose capital stock or other equity interests have been pledged
is the surviving corporation of any such merger, dissolution or liquidation and
(ii) both the security interests
granted to the Agent for the benefit of the Lenders pursuant to the Security
Documents in the assets of such Subsidiary and the pledge interests granted to
the Agent for the benefit of the Lenders pursuant to the Security Documents in
the capital stock of or other equity interests in such Subsidiary shall remain
in full force and effect and perfected (to at least the same extent as in
effect immediately prior to such merger, dissolution or liquidation); and

 

(j)            Permitted
Acquisitions may be made to the extent otherwise permitted by Section 5.7

 

To the extent the Required Lenders or all of the Lenders, as the case
may be, waive the provisions of this Section 5.6 with respect to the
sale of any Collateral, or any Collateral is sold as permitted by this Section
5.6 (other than to Borrower or a Subsidiary thereof), such Collateral shall
be sold free and clear of the Liens created by the Security Documents, and the
Agent shall be authorized to take any actions deemed appropriate in order to
effect the foregoing.

 

Notwithstanding anything contained in this Agreement or in any of the
other Financing Documents to the contrary, Borrower and its Subsidiaries may
sell or close fitness clubs in their reasonable business judgment, so long as: (i) no Event of Default of the type
described in subsections 8.1(a), 8.1(b) (arising with respect to
the failure of Borrower to satisfy certain of its covenants and agreements made
under Article VI or the occurrence of any “Mandatory Redemption Event”
described in the “Certificate of Designation” creating the Preferred Stock
while any such Preferred Stock has been issued or is otherwise outstanding), 8.1(f)
or 8.1(g) is then continuing or would result therefrom, and (ii) Borrower has not failed to satisfy any
of its covenants or other agreements made in subsections 4.1(a), (b),
(c), (g)(i), (g)(iii), (l) or (m) (and such
failure has continued for a period of forty five (45) days).

 

52

 

Section 5.7            Permitted Acquisitions,
Investments.  Except as
otherwise specifically permitted herein, Borrower will not, and will not permit
any Subsidiary to, directly or indirectly acquire any assets other than in the
ordinary course of business.  Borrower
will not, and will not permit any Subsidiary to, directly or indirectly, lend
money or credit or make advances or Guarantees to or time deposits with any
Person, or purchase, hold or acquire any stock, obligations or securities of,
or any other interest in, or make any capital contribution to, any other
Person, or purchase or own a futures contract or otherwise become liable for
the purchase or sale of currency or other commodities at a future date in the
nature of a futures contract, or hold any cash or Cash Equivalents (each of the
foregoing an “Investment” and, collectively, “Investments”), except that the following shall be
permitted:

 

(a)           Investments set
forth on the Information Certificate;

 

(b)           Investments in cash
or Cash Equivalents;

 

(c)           Investments in
Subsidiaries, so long as: (i) Borrower
has pledged to Agent such amount of the outstanding capital stock or other
equity interests of any such Subsidiary as may be required to be pledged
pursuant to the terms of Section 4.12, and (ii)
to the extent (and only to the extent) required by the terms of Section 4.12,
such Subsidiary has Guaranteed the Obligations and secured such Guarantee by
granting in favor of Agent, for its benefit and the benefit of the Lenders, a
Lien on all or substantially all of the assets of such Subsidiary which
constitute personal property (other than Excluded Collateral);

 

(d)           bank deposits
established in accordance with Section 5.13;

 

(e)           Investments in
securities of account debtors received pursuant to any plan of reorganization
or similar arrangement upon the bankruptcy or insolvency of such account
debtors; and

 

(f)            loans to officers
and employees of Domestic Subsidiaries and Foreign Subsidiaries in an aggregate
principal amount not to exceed $750,000 at any time outstanding;

 

(g)           Borrower may
acquire and hold obligations of one (1) or more officers, directors or other
employees of Borrower or any Subsidiary in connection with such officers’,
directors’ or employees’ acquisition of shares of capital stock of Borrower so
long as no cash is paid by Borrower or any Subsidiary to such officers,
directors or employees in connection with the acquisition of any such
obligations;

 

(h)           Borrower may enter
into Interest Rate Protection Agreements to the extent otherwise permitted by Section
5.1;

 

(i)            Borrower and its
Subsidiaries may acquire and hold promissory notes and other non-cash
consideration issued by the purchaser of assets in connection with a sale of
such assets to the extent permitted by Section 5.6 so long as such notes
and other non-cash consideration are pledged to Agent for the benefit of the
Lenders;

 

53

 

(j)            Borrower and its
Subsidiaries may make intercompany loans and advances between or among one
another to the extent expressly permitted in Section 5.1;

 

(k)           to the extent
otherwise permitted by Section 5.1, guaranties, keep-well arrangements
and reimbursement obligations; and

 

(l)            so long as no
Default or Event of Default then exists or would result therefrom, Borrower and
its Subsidiaries may make Investments not otherwise permitted by clauses (a)
through (k) of this Section 5.7 in an aggregate amount not to
exceed $500,000 in any Fiscal Year of Borrower.

 

Without
limiting the generality of the foregoing, Borrower will not, and will not
permit any Subsidiary to:

 

(i)            acquire or create
any Subsidiary; or

 

(ii)           engage in any joint
venture or partnership with any other Person, provided, Borrower and its
wholly-owned Subsidiaries shall be permitted to:

 

(A)          enter into Permitted
Acquisitions,

 

(B)
         establish, create and, to
the extent permitted by this Agreement, acquire wholly-owned Subsidiaries so
long as (1) all of the equity interests of each
such new wholly-owned Subsidiary are pledged pursuant to a pledge agreement
which is substantially in the form of the “Pledge Agreement” entered into by
Borrower and Agent on the date hereof or otherwise in form and substance
reasonably satisfactory to Agent (provided that Borrower and its wholly-owned
Subsidiaries shall only pledge equity interests of any “foreign controlled
corporation” within the meaning of Section 957 of the Code to the extent
provided in Section 4.12), (2) each such
new wholly-owned Domestic Subsidiary executes a counterpart of the Security
Documents, granting and perfecting a Lien on all or substantially all of the
assets of such Subsidiary which constitute personal property (other than
Excluded Collateral), and (3) each such
new wholly-owned Domestic Subsidiary (and, to the extent required by Section
4.12, each such new wholly-owned Foreign Subsidiary), to the extent
requested by the Agent or the Required Lenders, takes all other actions
required pursuant to the Security Documents or Section 4.12, including,
without limitation, a Guarantee of the Obligations; and

 

(C)          establish, create and
acquire equity interests in non-wholly-owned Subsidiaries, in each case to the
extent otherwise permitted by Section 5.7 and the definition of
“Permitted Acquisition,” so long as: (1) all of the
equity interests of each such Subsidiary owned by Borrower and each other
Credit Party are pledged pursuant to a pledge agreement which is form and
substance reasonably satisfactory to Agent (provided that Borrower and its
wholly-owned Subsidiaries shall only pledge equity interests of any “foreign
controlled corporation” within the meaning of

 

54

 

Section 957 of the Code to the extent
provided in Section 4.12), (2)
each such new wholly-owned Domestic Subsidiary executes a counterpart of the
Security Documents, granting and perfecting a Lien on all or substantially all
of the assets of such Subsidiary pursuant to Section 4.12, (3)
each such Subsidiary (and, to the extent required by the Security Documents or Section
4.12, each such Foreign Subsidiary), to the extent requested by the Agent
or the Required Lenders, takes all other actions required pursuant to the
Security Documents or Section 4.12, including, without limitation, a
Guarantee of the Obligations, (4) Borrower or
such Subsidiary owns the majority of equity interests of such non-wholly-owned
Subsidiary and retains “control” thereof (as such term is defined in the
definition of “Affiliate”) and (5) the
aggregate amount invested by Borrower and its Subsidiaries in connection with
all such non-wholly-owned Subsidiaries does not exceed $10,000,000.

 

All new Subsidiaries shall execute and
deliver, or cause to be executed and delivered, agreements, officer’s
certificates, instruments and other relevant documentation of the type
described in and contemplated by Section 4.12.  Foreign Subsidiaries shall be deemed to be “wholly-owned”
Subsidiaries of another Person if all of their shares or other equity interests
are owned or otherwise held by such other Person, other than directors’
qualifying shares or other, nominal shares or equity interests issued to other
Persons, in each case for the purpose of local requirements of law.

 

Section 5.8            Transactions with
Affiliates.  Borrower
will not, and will not permit any Subsidiary to, directly or indirectly, enter
into or permit to exist any transaction (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate of
Borrower except:

 

(a)           as otherwise
specifically permitted by Section 5.12;

 

(b)           as otherwise
disclosed in the Information Certificate;

 

(c)           for transactions
that are disclosed to Agent in writing in advance of being entered into and
which contain terms that are no less favorable to Borrower or any Subsidiary,
as the case may be, than those which might be obtained from a third party not
an Affiliate of any Credit Party;

 

(d)           Borrower or any
Subsidiary of Borrower may enter into customary indemnification and
contribution agreements in favor of the Sponsors, their Affiliates and each
person who becomes a director, officer, agent or employee of Borrower or any of
its Subsidiaries, in respect of liabilities: (A)
arising under the Securities Act, the Exchange Act and any other applicable
securities laws in connection with any offering of securities by Borrower or
any of its Subsidiaries, (B) incurred to
third parties for any action or failure to act of Borrower or any of its
Subsidiaries, predecessors or successors, (C) arising
out of the performance by the Sponsors of management consulting or financial
advisory services provided to Borrower or any of its Subsidiaries, (D) arising

 

55

 

out of the fact that any indemnitee was or is
a director, officer, agent or employee of Borrower or any of its Subsidiaries,
or is or was serving at the request of any such corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or enterprise or (E) to the
fullest extent permitted by Delaware or other applicable state law, out of any
breach or alleged breach by such indemnitee of his or her fiduciary duty as a
director or officer of Borrower or any of its Subsidiaries, provided that any
such indemnity or contribution arrangements in favor of the Investors and their
Affiliates (other than those arising under Delaware or other applicable state
law) shall be pursuant to one or more Management Agreements;

 

(e)           dividends may be
paid to the extent otherwise specifically permitted by Section 5.3;

 

(f)            loans may be made
and other transactions may be entered into by Borrower and its Subsidiaries to
the extent not otherwise prohibited by the terms of this Agreement;

 

(g)           customary director
fees in an aggregate amount not to exceed $100,000 per annum, together with customary expenses,   may be paid to non-officer directors of Borrower and its
Subsidiaries; provided, however, reasonable and customary fees
equivalent to those paid to outside, independent, non-Affiliate directors of
similarly situated companies may be paid to outside, independent, non-Affilate
directors of Borrower; and

 

(h)           Borrower and its
Subsidiaries may enter into, and may make payments under, employment
agreements, employee benefits plans, stock option plans, indemnification
provisions and other similar compensatory arrangements with officers, employees
and directors of Borrower and its Subsidiaries in the ordinary course of
business and in substantial accordance with past practices;

 

(i)            Borrower or any
Subsidiary of Borrower may enter into any transaction that is between Borrower
or any such Subsidiary and any Affiliate of Borrower that is primarily engaged
in a business related to any business of Borrower or any of its Subsidiaries so
long as each such transaction is approved in good faith by a majority of the
independent directors of Borrower as being on terms that are at least as
favorable to Borrower or such Subsidiary, as the case may be, as those that
might be obtained at the time from Persons who are not Affiliates and is
otherwise permitted pursuant to the terms of this Agreement;

 

(j)            Borrower or any
Subsidiary of Borrower may enter into any transaction with any Affiliate of
Borrower that is also a customer, client, supplier or purchaser or seller of
goods or services of or to Borrower or any of its Subsidiaries, in each case so
long as each such transaction is in the ordinary course of business, is
approved in good faith by the senior management of Borrower as being on terms
that are at least as favorable to Borrower or such Subsidiary as those that
might be obtained at the time from Persons who are not Affiliates and is
otherwise permitted pursuant to the terms of this Agreement; and

 

56

 

(k)           to the extent
otherwise allowed pursuant to this Agreement and in any event other than equity
that would not otherwise be permitted under Section 5.1, Borrower may
issue equity in any form whatsoever.

 

For purposes of this Section 5.8: (A) any transaction with any Affiliate shall be deemed to
have satisfied the standards set forth in clauses (i) and (j)
above if: (i) such transaction is
approved by a majority of the Disinterested Directors of the board of directors
of Borrower or such Subsidiary, or (ii)
in the event that at the time of any such transaction, there are no
Disinterested Directors serving on the board of directors of Borrower or such
Subsidiary, such transaction shall be approved by a nationally recognized
expert with expertise in appraising the terms and conditions of the type of
transaction for which approval is required, and (B)  “Disinterested
Director” shall mean, with respect to any Person and transaction, a
member of the board of directors of such Person who does not have any material
direct or indirect financial interest in or with respect to such transaction or
any other transaction which is part of a series of transactions that includes
such transaction in question.

 

Section 5.9            Modification of
Organizational Documents. 
Borrower will not, and will not permit any Subsidiary to, directly or
indirectly amend or otherwise modify any Organizational Documents of such
Person, except for: (i) such
amendments or other modifications required by law which are fully disclosed to
Agent in writing no later than concurrently upon their effectiveness and (ii) such amendments or other modifications that would not
reasonably be expected to be adverse to the interests of Agent or the Lenders
in any material respect or adversely effect the Collateral or the Liens of
Agent and the Lenders therein.

 

Section 5.10         Fiscal Year.  Borrower will not, and will not permit any
Subsidiary to, change its Fiscal Year.

 

Section 5.11         Conduct of Business.  Borrower will not, and will not permit any
Subsidiary to, directly or indirectly, engage in any line of business other
than those businesses engaged in on the Closing Date and businesses reasonably
related thereto.

 

Section 5.12         Investor Fees.  Borrower will not, and will not permit any
Subsidiary to, directly or indirectly, pay or become obligated to pay any
management, consulting or similar advisory fees or other amounts to or for the
account of any Investor or any Affiliate of such Investor except an aggregate
amount which does not exceed $1,200,000 in any Fiscal Year, so long as: (i) no Event of Default of the type described in subsections
8.1(a), 8.1(b)(ii) (arising with respect to the failure of Borrower
to satisfy certain of its covenants and agreements made under Article VI
or the occurrence of any “Mandatory Redemption Event” described in the
“Certificate of Designation” creating the Preferred Stock while any such
Preferred Stock is outstanding), 8.1(f) or 8.1(g) is then
continuing or would result therefrom, and (ii) Borrower
has not failed to satisfy any of its covenants or other agreements made in subsections
4.1(a), (b), (c), (g)(i), (g)(iii), (l)
or (m) (and such failure has continued for a period of forty five (45)
days).

 

Section 5.13         Bank Accounts.  Borrower will not, and will not permit any
Subsidiary to, directly or indirectly, establish any new bank account without
prior written notice to Agent and unless Agent, Borrower or such Subsidiary and
the bank at which the account is to be opened enter into a Control Agreement
regarding such bank account; provided, however, with

 

57

 

respect to new
bank accounts of Foreign Subsidiaries (in the event the provisions of Section 4.12
do not require the grant of a security interest therein), Borrower shall only
be required to promptly provide Agent with descriptions of such new bank
accounts in a manner consistent with that included in the Information
Certificate.

 

ARTICLE VI

FINANCIAL COVENANTS

 

Borrower
agrees that, so long as: (i) any
Credit Exposure exists and (ii) the
amount of Loans Outstanding (exclusive of amounts available for drawing under
outstanding Letters of Credit) is greater than zero ($0):

 

Section 6.1            Capital Expenditures.  Borrower will not permit the aggregate
amount of Capital Expenditures for any Fiscal Year to exceed the sum of: (i) for the Fiscal Year ending December 31, 2003,
$40,000,000 or (ii) for any Fiscal Year ending
thereafter, $60,000,000.  If Borrower
does not utilize the entire amount of Capital Expenditures permitted in any
period set forth above, Borrower may carry forward to the immediately
succeeding period only: (i) one hundred
percent (100%) of such unutilized amount up to an aggregate amount of
$15,000,000 and (ii) fifty percent (50%) of the
unutilized amount in excess of $15,000,000 (in each case with Capital Expenditures
made by Borrower in such succeeding period applied last to such carried forward
amount).

 

Section 6.2            Interest Coverage Ratio.  Borrower will not permit the Interest
Coverage Ratio as of the last day of each fiscal quarter ending during the
periods set forth below to be less than the ratio set forth below for such
period:

 

	
  Period

  	
   

  	
  Ratio

  	
   

  
	
  Closing Date through December 31, 2004

  	
   

  	
  1.55

  	
   

  
	
  January 1, 2005 through December 31, 2005

  	
   

  	
  2.05

  	
   

  
	
  January 1, 2006 through December 31, 2006

  	
   

  	
  2.55

  	
   

  
	
  January 1, 2007 and thereafter

  	
   

  	
  3.10

  	
   

  

 

Section 6.3            Total Debt to EBITDA Ratio.  Borrower will not permit the ratio of: (i) Total Debt on any date set forth below to (ii) EBITDA for the twelve (12) month period ending on such
date (or, if any portion of such period precedes the Closing Date, for the
period commencing on the Closing Date and ending on such date, expressed on an
annualized basis) to exceed the ratio set forth below opposite such date:

 

	
  Date

  	
   

  	
  Ratio

  	
   

  
	
  December 31, 2003

  	
   

  	
  5.50

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 31, 2004

  	
   

  	
  5.50

  	
   

  
	
  June 30, 2004

  	
   

  	
  5.25

  	
   

  
	
  September 30, 2004

  	
   

  	
  5.25

  	
   

  
	
  December 31, 2004

  	
   

  	
  5.00

  	
   

  

 

58

 

	
  Date

  	
   

  	
  Ratio

  	
   

  
	
  March 31, 2005

  	
   

  	
  4.50

  	
   

  
	
  June 30, 2005

  	
   

  	
  4.50

  	
   

  
	
  September 30, 2005

  	
   

  	
  4.50

  	
   

  
	
  December 31, 2005

  	
   

  	
  4.50

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 31, 2006

  	
   

  	
  3.75

  	
   

  
	
  June 30, 2006

  	
   

  	
  3.75

  	
   

  
	
  September 30, 2006

  	
   

  	
  3.75

  	
   

  
	
  December 31, 2006

  	
   

  	
  3.75

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 31, 2007

  	
   

  	
  3.25

  	
   

  
	
  June 30, 2007

  	
   

  	
  3.25

  	
   

  
	
  September 30, 2007

  	
   

  	
  3.25

  	
   

  
	
  December 31, 2007

  	
   

  	
  3.25

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 31, 2008

  	
   

  	
  3.00

  	
   

  
	
  June 30, 2008

  	
   

  	
  3.00

  	
   

  
	
  September 30, 2008

  	
   

  	
  3.00

  	
   

  
	
  December 31, 2008 and the last day of each
  fiscal quarter ending thereafter

  	
   

  	
  3.00

  	
   

  

 

Section 6.4            Senior Debt to EBITDA
Ratio.  Borrower will not
permit the ratio of: (i) Senior
Debt as of the last day of any fiscal quarter to (ii)
EBITDA for the twelve (12) month period ending on such date (or, if any portion
of such period precedes the Closing Date, for the period commencing on the
Closing Date and ending on such date, expressed on an annualized basis) to
exceed 1.00.

 

ARTICLE VII

CONDITIONS

 

Section 7.1            Conditions to Closing;
Conditions to Initial Loans.

 

(a)           Conditions to Closing.  The effectiveness of this Agreement
shall be subject to the receipt by Agent of each agreement, document and
instrument set forth on the Closing Checklist, each in form and substance
satisfactory to Agent, and to the consummation of the following conditions
precedent, each to the satisfaction of Agent and Lenders in their sole
discretion:

 

(i)            evidence of the
consummation of the transactions (other than the funding of any Loans)
contemplated by the Operative Documents, including without limitation the
issuance of debt contemplated by the Unsecured Notes Debt Documents;

 

59

 

(ii)           the payment by
Borrower to each Lender its Pro Rata Share
of a commitment fee in the aggregate amount of $562,500, which commitment fee
shall be deemed to be fully-earned and non-refundable upon payment thereof;

 

(iii)         the satisfaction of
Agent as to the absence, since December 31, 2002, of any material adverse
change in any aspect of the business, operations, properties or condition
(financial or otherwise) of Borrower, any Credit Party, or any event or
condition which would reasonably be expected to result in such a material
adverse change;

 

(iv)          the payment of all
other fees, expenses and other amounts due and payable under each Financing
Document; and

 

(v)            receipt by Agent
of such other documents, instruments and/or agreements as Agent may reasonably
request.

 

Promptly upon the effectiveness of the Agreement, the Agent shall
notify Borrower and the Lenders thereof, and such notice shall be conclusive
and binding on all parties hereto.

 

(b)           Conditions to Initial Loans.  The obligation of each Lender to make
any initial Loans (other than the issuance of Letters of Credit which are fully
cash collateralized by Borrower with Agent in a restricted account; Letters of
Credit which are fully cash collateralized in such a manner may be issued in
accordance with the terms of this Agreement and the other Financing Documents
upon satisfaction of the conditions precedent set forth in subsection 7.1(a))
and of Agent to issue any Support Agreements hereunder shall be subject to the
effectiveness of this Agreement, and to the satisfaction of the following
additional conditions precedent, each to the satisfaction of Agent and Lenders
in their sole discretion:

 

(i)            receipt by Agent
of a duly executed Compliance Certificate which evidences that: (i) Borrower is in compliance on a pro forma basis with the covenants set
forth in Article VI recomputed for the most recently ended month for
which information is available, (ii) no Default
or Event of Default has occurred and is continuing and (iii) Borrower
has not defaulted in its agreements or covenants made in subsections 4.1(a),
(b), (c), (g)(iii), (l) or (m); and

 

(ii)           receipt by Agent of
a duly executed Borrowing Base Certificate;

 

(iii)         the existence of
Control Agreements with respect to all bank accounts of Borrower and its
Domestic Subsidiaries for a period of not less than ninety one (91) consecutive
days preceding the proposed date of such requested initial Loan; and

 

(iv)          receipt by Agent of
a certificate issued by a Responsible Officer of Borrower to Agent and the
Lenders which certifies that Borrower has (or will have, after giving pro forma effect to the transactions
contemplated with respect to and occurring concurrently with the making of such
Loan) less than $5,000,000 of available (unrestricted) cash on its balance
sheet; and

 

60

 

(v)            receipt by Agent
of all items described under and in the matter set forth in that certain
post-closing letter agreement dated as of the Closing Date by and among
Borrower, Agent and each Lender;

 

provided, however,
Letters of Credit (whether Cash-Collateralized Letters of Credit or otherwise)
may be issued under this Agreement and the other, applicable Financing
Documents if all conditions thereto other than clause (iv) above have
been satisfied.

 

Section 7.2            Conditions to Each Loan
and Support Agreement. 
The obligation of the Lenders to make a Loan or of Agent to issue any
Support Agreement (including on the Closing Date) is subject to the
satisfaction of the following additional conditions:

 

(a)           in the case of a
Borrowing, receipt by Agent of a Notice of Borrowing in accordance with subsection
2.1(b) and in the case of any Support Agreement, receipt by Agent of a
Notice of LC Credit Event in accordance with subsection 2.4(a);

 

(b)           the fact that,
immediately after such Borrowing and after application of the proceeds thereof
or after such issuance, the Loan Outstandings will not exceed the Loan Limit;

 

(c)           the fact that,
immediately before and after such Borrowing or issuance, no Default or Event of
Default shall have occurred and be continuing and Borrower shall not have
defaulted in any of its agreements or covenants made in subsections 4.1(a),
(b), (c), (g)(iii), (l) or (m);

 

(d)           the fact that the
representations and warranties of each Credit Party contained in the Financing
Documents shall be true and correct in all material respects on and as of the
date of such Borrowing or issuance, except to the extent that any such
representation or warranty relates to a specific date in which case such
representation or warranty shall be true and correct in all material respects
as of such earlier date; and

 

(e)           to the extent no
Borrowing Base Certificate was received for the last day of the immediately
preceding fiscal quarter due to the fact the amount of Loan Outstandings was
equal to zero ($0) at such time, receipt by Agent of a duly executed Borrowing
Base Certificate as of that date.

 

Each
Borrowing, each giving of a Notice of LC Credit Event hereunder and each giving
of a Notice of Borrowing hereunder shall be deemed to be a representation and
warranty by Borrower on the date of such borrowing or notice as to the facts
specified in subsections 7.2(b), 7.2(c) and 7.2(d).

 

ARTICLE VIII

EVENTS OF DEFAULT

 

Section 8.1            Events of Default.  For purposes of the Financing Documents, the
occurrence of any of the following conditions and/or events, whether voluntary
or involuntary, by operation of law or otherwise, shall constitute an “Event of Default”:

 

61

 

(a)           Borrower shall: (i) fail to pay when due any principal or (ii) fail to pay any interest, premium or fee under any
Financing Document or any other amount payable under any Financing Document
and, solely with respect to this clause (ii), such failure to pay shall
remain unremedied for three (3) or more Business Days;

 

(b)           Borrower shall fail
to observe or perform any covenant contained in: (i)   subsections 4.1(a), (b), (c),
(g)(iii), (l) or (m) and such default is not remedied or
waived within thirty (30) days or (ii) subsection
4.1(g)(i), Sections 4.7, 4.11, 4.13 or 4.14, Articles
V or VI or the occurrence of any “Mandatory Redemption Event”
described in the “Certificate of Designation” creating the Preferred Stock;

 

(c)           any Credit Party
defaults in the performance of or compliance with any term contained in this
Agreement, in any other Financing Document or in any document, agreement or
instrument entered into in connection with Ancillary Services (other than
occurrences described in other provisions of this Section 8.1 for which
a different grace or cure period is specified or which constitute immediate
Events of Default) and such default is not remedied or waived within thirty
(30) days after the earlier of: (1) receipt by
Borrower of notice from Agent or Required Lenders of such default or (2) actual knowledge of Borrower or any other Credit Party
of such default;

 

(d)           any representation,
warranty, certification or statement made by any Credit Party or any other
Person in any Financing Document or in any certificate, financial statement or
other document delivered pursuant to any Financing Document is incorrect in any
respect (or in any material respect if such representation, warranty,
certification or statement is not by its terms already qualified as to
materiality) when made (or deemed made);

 

(e)           (1) failure of any Credit Party to pay when due or within
any applicable grace period any principal, interest or other amount on Debt
(other than the Loans), or the occurrence of any breach, default, condition or
event with respect to any Debt (other than the Loans), if the effect of such
failure or occurrence is to cause or to permit the holder or holders thereof to
cause, Debt having an aggregate principal amount in excess of $1,000,000 to
become or be declared due prior to its stated maturity, or (2) the
occurrence of an “Event of Default” under the Unsecured Notes Indenture;

 

(f)            any Credit Party
shall commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing;

 

(g)           an involuntary case
or other proceeding shall be commenced against any Credit Party seeking
liquidation, reorganization or other relief with respect to it or its

 

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debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) days; or an
order for relief shall be entered against any Credit Party under the federal
bankruptcy laws as now or hereafter in effect;

 

(h)           (1) institution of any steps by any Person to terminate a
Pension Plan if as a result of such termination any Credit Party or any member
of the Controlled Group could be required to make a contribution to such
Pension Plan, or would reasonably be expected to incur a liability or
obligation to such Pension Plan, in excess of $1,000,000 (2)
a contribution failure occurs with respect to any Pension Plan sufficient to
give rise to a Lien under Section 302(f) of ERISA, or (3) there
shall occur any withdrawal or partial withdrawal from a Multiemployer Pension
Plan and the aggregate withdrawal liability (without unaccrued interest) to all
Multiemployer Pension Plans as a result of such withdrawal (including any
outstanding withdrawal liability that any Credit Party or any member of the
Controlled Group have incurred on the date of such withdrawal) exceeds
$1,000,000;

 

(i)            one (1) or more
judgments or orders for the payment of money aggregating in excess of
$1,000,000 shall be rendered against any or all Credit Parties and such
judgments or orders shall continue unsatisfied and unstayed for a period of
thirty (30) days;

 

(j)            (1) the Investors shall collectively cease to, directly or
indirectly, own and control at least: (A) that
percentage of the outstanding voting equity interests of Borrower necessary at
all times to elect a majority of the board of directors (or similar governing
body) of Borrower and to direct the management policies and decisions of
Borrower, or (B) a majority of the economic and
voting interest in Borrower, (2) Borrower
shall cease to, directly or indirectly, own and control: (A)
one hundred percent (100%) of each class of the outstanding equity interests of
each Subsidiary owned by it or its Subsidiaries on the Closing Date, or (B) with respect to Subsidiaries of Borrower whose equity
securities were acquired by Borrower or any Subsidiary after the Closing Date,
Borrower or such applicable, acquiring Subsidiary shall cease to, directly or
indirectly, own and control at least a majority of the outstanding voting
equity interests of acquired Subsidiary necessary at all times to elect a
majority of the board of directors (or similar governing body) of such acquired
Subsidiary and to direct the management policies and decisions of such acquired
Subsidiary,  or (3)
any “Change of Control” occurs under any Unsecured Notes Debt Document (as
defined thereunder);

 

(k)           any Lien created by
any of the Security Documents shall at any time fail to constitute a valid and
perfected Lien on any of the Collateral purported to be secured thereby (other
than an immaterial portion of the Collateral), subject to no prior or equal
Lien except Permitted Liens, or any Credit Party shall so assert in writing; or

 

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(l)            any of the
Financing Documents shall for any reason fail to constitute the valid and
binding agreement of any Credit Party thereto, or any such Credit Party shall
so assert in writing.

 

Section 8.2            Acceleration and
Suspension or Termination of Loan Commitment.  Upon the occurrence and during the
continuance of an Event of Default, Agent may, and shall if requested by
Required Lenders: (i) by notice to Borrower suspend
or terminate the Loan Commitment, in whole or in part (and, if in part, such
reduction shall be pro rata among
the Lenders having a Commitment to make Loans) and/or (ii)
by notice to the Borrower declare the Obligations (other than any Ancillary
Services) to be, and the Obligations (other than any Ancillary Services) shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by Borrower
and Borrower will pay the same; provided, in the case of any of the
Events of Default specified in subsection 8.1(f) or 8.1(g) above,
without any notice to Borrower or any other act by Agent or the Lenders, the
Loan Commitment shall thereupon terminate and all of the Obligations (other
than any Ancillary Services) shall become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by Borrower and Borrower will pay the same.

 

Section 8.3            Cash Collateral.  If: (i) any Event
of Default specified in subsection 8.1(f) or 8.1(g) shall occur, (ii) the Obligations shall have otherwise been accelerated
pursuant to Section 8.2 or (iii) the Loan
Commitment shall have been terminated pursuant to Section 8.2, then
without any request or the taking of any other action by Agent or the Lenders,
Borrower shall immediately comply with the provisions of subsection 2.4(e)
with respect to the deposit of cash and future payment of related fees.

 

Section 8.4            Default Rate of Interest
and Suspension of LIBOR Rate Options.  At the election of the Required Lenders (or the Agent, if the
Agent in its capacity as a Lender hereunder (by itself or together or with its
Affiliates) holds: (i) more than
fifty percent (50%) of the Loan Commitment or (ii)
if the Loan Commitment has been terminated, more than fifty percent (50%) of
the sum of: (x) the aggregate outstanding
principal balance of the Loans plus  (y) the aggregate amount of Reimbursement Obligations),
after the occurrence of an Event of Default of the type described in subsection
8.1(a) and for so long as it continues, principal and interest on the Loans
which is due and owing but has not been paid by Borrower in accordance with the
terms of this Agreement shall bear interest at per annum rates
equal to the rate of interest which may be charged with respect to such Loans
and other Obligations plus two
percent (2.0%).  Furthermore, at the
election of the Required Lenders during any period in which any Event of
Default is continuing: (x) as the
Interest Periods for LIBOR Loans then in effect expire, such Loans shall be converted
into Prime Rate Loans following the end of each such Interest Period and (y) the LIBOR election will not be available to Borrower.

 

Section 8.5            Setoff Rights.  During the continuance of any Event of
Default, each Lender is hereby authorized by Borrower at any time or from time
to time, with reasonably prompt subsequent notice to Borrower (any prior or
contemporaneous notice being hereby expressly waived) to set off and to
appropriate and to apply any and all: (A) balances
held by such Lender at any of its offices for the account of Borrower or any of
its Subsidiaries (regardless of whether such balances are then due to Borrower
or its Subsidiaries), and (B) other

 

64

 

property at
any time held or owing by such Lender to or for the credit or for the account
of Borrower or any of its Subsidiaries, against and on account of any of the
Obligations; except that no Lender shall exercise any such right without the
prior written consent of Agent.  Any
Lender exercising a right to set off shall purchase for cash (and the other
Lenders shall sell) interests in each of such other Lender’s Pro Rata Share of the Obligations as would
be necessary to cause all Lenders to share the amount so set off with each
other Lender in accordance with their respective Pro Rata Share of the Obligations.  Borrower agrees, to the fullest extent permitted by law, that any
Lender may exercise its right to set off with respect to the Obligations as
provided in this Section 8.5.

 

Section 8.6            Application of Proceeds.  Notwithstanding anything to the contrary
contained in this Agreement, upon the occurrence and during the continuance of
an Event of Default: (a) Borrower
irrevocably waives the right to direct the application of any and all payments
at any time or times thereafter received by Agent from or on behalf of Borrower
or any guarantor of all or any part of the Obligations, and Agent shall have
the continuing and exclusive right to apply and to reapply any and all payments
received at any time or times after the occurrence and during the continuance
of an Event of Default and the proceeds of any sale of, or other restriction
upon, all or any part of the Collateral, against the Obligations in such manner
as Agent may deem advisable notwithstanding any previous application by Agent
and (b) in the absence of a specific
determination by Agent with respect thereto, the proceeds of any sale of, or
other realization upon, all or any part of the Collateral shall be applied: first,
to all fees, costs, indemnities and expenses incurred by or owing to Agent and
any Designated Lender Affiliate that is an Affiliate of Agent, with respect to
this Agreement, the other Financing Documents, any Ancillary Services or the
Collateral; second, to all fees, costs, indemnities and expenses
incurred by or owing to any Lender and any Designated Lender Affiliate that is
an Affiliate of any Lender, with respect to this Agreement, the other Financing
Documents, any Ancillary Services or the Collateral; third, to accrued
and unpaid interest on the Obligations (including any interest which but for
the provisions of the U.S. Bankruptcy Code, would have accrued on such
amounts); fourth, to the principal amount of the Obligations
outstanding; and fifth to any other indebtedness or obligations of
Borrower owing to Agent, any Lender or any Designated Lender Affiliate under
the Financing Documents or with respect to Ancillary Services.  Any balance remaining shall be delivered to
Borrower or to whomever may be lawfully entitled to receive such balance or as
a court of competent jurisdiction may direct.

 

ARTICLE IX

EXPENSES, INDEMNITY, TAXES AND RIGHT TO PERFORM

 

Section 9.1            Expenses.  Borrower hereby agrees to promptly pay: (i) all reasonable costs and expenses of Agent (including
without limitation the reasonable fees, costs and expenses of one (1) firm of
counsel to, and independent appraisers and consultants retained by Agent, the
services of which were reasonably determined by Agent to be necessary) in
connection with the examination, review, due diligence investigation,
documentation, negotiation, closing and syndication of the transactions
contemplated by the Financing Documents, in connection with the performance by
Agent of its rights and remedies under the Financing Documents and in
connection with the continued administration of the Financing Documents
including any amendments, modifications, consents and waivers to and/or under
any and all Financing Documents, (ii) without
limitation of the preceding clause (i), all reasonable

 

65

 

out-of-pocket
costs and expenses of Agent in connection with the creation, perfection and
maintenance of Liens pursuant to the Financing Documents, including title
investigations, (iii) without
limitation of the preceding clause (i), expenses of Agent in connection
with protecting, storing, insuring, handling, maintaining or selling any
Collateral and in connection with any workout, collection, bankruptcy,
insolvency and other enforcement proceedings under any and all of the Financing
Documents, and (iv) all costs and expenses
incurred by Lenders in connection with any workout, collection, bankruptcy,
insolvency and other enforcement proceedings under any and all Financing
Documents; provided, to the extent that the costs and expenses referred
to in this clause (iv) consist of fees, costs and expenses of counsel,
Borrower shall be obligated to pay such fees, costs and expenses for only one
counsel acting for all Lenders (other than Agent).

 

Section 9.2            Indemnity.  Borrower hereby agrees to indemnify, pay and
hold harmless Agent and Lenders and the officers, directors, employees,
affiliates, agents, advisors and counsel of Agent and Lenders (each, an “Indemnitee,” and each of Agent and each Lender together with
its respective officers, directors, employees and counsel, an “Indemnified Group”) from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (other than in respect of taxes, which shall be governed by Section
2.7, but including the reasonable fees and disbursements of counsel for
such Indemnitee) in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitee shall be designated a party
thereto and including any such proceeding initiated by or on behalf of a Credit
Party, and the reasonable expenses of investigation by engineers, environmental
consultants and similar technical personnel and any commission, fee or
compensation claimed by any broker (other than any broker retained by Agent or
Lenders) asserting any right to payment for the transactions contemplated
hereby, which may be imposed on, incurred by or asserted against such
Indemnitee as a result of or in connection with the transactions contemplated
hereby or by the other Financing Documents (including: (i)(A)
as a direct or indirect result of the presence on or under, or escape, seepage,
leakage, spillage, discharge, emission or release from, any property now or
previously owned, leased or operated by Borrower, any Subsidiary or any other
Person of any Hazardous Materials or any Hazardous Materials Contamination, (B) arising out of or relating to the offsite disposal of any
materials generated or present on any such property or (C) arising
out of or resulting from the environmental condition of any such property or
the applicability of any governmental requirements relating to Hazardous
Materials, whether or not occasioned wholly or in part by any condition,
accident or event caused by any act or omission of Borrower or any Subsidiary,
and (ii) proposed and actual extensions of
credit under this Agreement) and the use or intended use of the proceeds of the
Notes and Letters of Credit, except that Borrower shall have no obligation
hereunder to an Indemnitee with respect to any liability resulting from the
gross negligence or willful misconduct of such Indemnitee or a member of its
Indemnified Group, as determined by a court of competent jurisdiction.  To the extent that the undertaking set forth
in the immediately preceding sentence may be unenforceable, Borrower shall
contribute the maximum portion which it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all such indemnified
liabilities incurred by the Indemnitees or any of them.

 

Section 9.3            Taxes.  Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, assessments
or charges, including any interest or penalties thereon, at any time payable or
ruled to be payable in respect of the

 

66

 

existence,
execution or delivery of this Agreement or the other Financing Documents or the
issuance of the Notes or Letters of Credit and to indemnify and hold Agent and
Lenders harmless against liability in connection with any such assessments,
charges or taxes; provided, Borrower shall not be responsible under this
Section 9.3 for: (i)
any such fees or taxes arising from the gross negligence or willful misconduct
of Agent or a Lender or (ii) property
taxes imposed on Agent or any Lender in connection with the existence of the
Notes or Letters of Credit.

 

Section 9.4            Right to Perform.  If any Credit Party fails to perform any
obligation hereunder or under any other Financing Document, Agent itself may,
but shall not be obligated to, cause such obligation to be performed at
Borrower’s expense and Borrower agrees to reimburse Agent therefor on demand.  All amounts owing hereunder or under any
other Financing Document may be satisfied in full, subject to the provisions of
subsection 2.1(a)(ii), through the making of Agent Advances.

 

ARTICLE X

AGENT

 

Section 10.1         Appointment and
Authorization.  Each
Lender hereby irrevocably appoints and authorizes Agent to enter into each of
the Security Documents on its behalf and to take such actions as Agent on its
behalf and to exercise such powers under the Financing Documents as are
delegated to Agent by the terms thereof, together with all such powers as are
reasonably incidental thereto.  Except
as otherwise expressly provided in Section 11.5 or by the terms of the
Financing Documents, Agent is authorized and empowered to amend, modify, or
waive any provisions of this Agreement or the other Financing Documents on
behalf of Lenders.  The provisions of
this Article X (except as expressly provided in Section 10.12 and
subsection 10.13(d)) are solely for the benefit of Agent and Lenders and
neither Borrower nor any other Credit Party shall have any rights as a third
party beneficiary of any of the provisions hereof.  In performing its functions and duties under this Agreement,
Agent shall act solely as agent of Lenders and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for Borrower or any other Credit Party.  Agent may perform any of its duties hereunder, or under the
Financing Documents, by or through its agents or employees.

 

Section 10.2         Agent and Affiliates.  Agent shall have the same rights and powers
under the Financing Documents as any other Lender and may exercise or refrain
from exercising the same as though it were not Agent, and Agent and its
Affiliates may lend money to, invest in and generally engage in any kind of
business with each Credit Party or Affiliate of any Credit Party as if it were
not Agent hereunder.

 

Section 10.3         Action by Agent.  The duties of Agent shall be mechanical and
administrative in nature.  Agent shall
not have by reason of this Agreement a fiduciary relationship in respect of any
Lender.  Nothing in this Agreement or
any of the Financing Documents, express or implied, is intended to or shall be
construed to impose upon Agent any obligations in respect of this Agreement or
any of the Financing Documents except as expressly set forth herein or therein.

 

67

 

Section 10.4         Consultation with Experts.  Agent may consult with legal counsel,
independent public accountants and other experts selected by it and shall not
be liable for any action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or experts.

 

Section 10.5         Liability of Agent.  Neither Agent nor any of its directors,
officers, agents or employees shall be liable to any Lender for any action
taken or not taken by it in connection with the Financing Documents, except
that Agent shall be liable to the extent of its own gross negligence or willful
misconduct as determined by a court of competent jurisdiction.  Neither Agent nor any of its directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify: (i) any
statement, warranty or representation made in connection with any Financing
Document or any borrowing hereunder; (ii) the
performance or observance of any of the covenants or agreements specified in
any Financing Document; (iii) the
satisfaction of any condition specified in any Financing Document, except
receipt of items required to be delivered to Agent; (iv) the
validity, effectiveness, sufficiency or genuineness of any Financing Document,
any Lien purported to be created or perfected thereby or any other instrument
or writing furnished in connection therewith; (v)
the existence or non-existence of any Default or Event of Default; or (vi) the financial condition of any Credit Party.  Agent shall not incur any liability by
acting in reliance upon any notice, consent, certificate, statement, or other
writing (which may be a bank wire, telex, facsimile or electronic transmission
or similar writing) believed by it to be genuine or to be signed by the proper
party or parties.  Agent shall not be
liable for any apportionment or distribution of payments made by it in good
faith and if any such apportionment or distribution is subsequently determined
to have been made in error the sole recourse of any Lender to whom payment was
due but not made, shall be to recover from other Lenders any payment in excess
of the amount to which they are determined to be entitled (and such other
Lenders hereby agree to return to such Lender any such erroneous payments
received by them).

 

Section 10.6         Indemnification.  Each Lender shall, in accordance with its Pro Rata Share, indemnify Agent (to the
extent not reimbursed by Borrower) against any cost, expense (including counsel
fees and disbursements), claim, demand, action, loss or liability (except such
as result from Agent’s gross negligence or willful misconduct as determined by
a court of competent jurisdiction) that Agent may suffer or incur in connection
with the Financing Documents or any action taken or omitted by Agent hereunder
or thereunder.  If any indemnity
furnished to Agent for any purpose shall, in the opinion of Agent, be insufficient
or become impaired, Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against even if so directed by Required
Lenders until such additional indemnity is furnished.  The obligations of Lenders under this Section 10.6 shall
survive the payment in full of the Obligations and the termination of this
Agreement.

 

Section 10.7         Right to Request and Act on Instructions.  Agent may at any time request instructions
from Lenders with respect to any actions or approvals which by the terms of
this Agreement or of any of the Financing Documents Agent is permitted or
desires to take or to grant, and if such instructions are promptly requested,
Agent shall be absolutely entitled to refrain from taking any action or to withhold
any approval and shall not be under any liability whatsoever to any Person for
refraining from any action or withholding any approval under any of the
Financing Documents until it shall have received such instructions from
Required Lenders

 

68

 

or all or such other portion of the Lenders as shall be prescribed by
this Agreement.  Without limiting the
foregoing, no Lender shall have any right of action whatsoever against Agent as
a result of Agent acting or refraining from acting under this Agreement or any
of the other Financing Documents in accordance with the instructions of
Required Lenders and, notwithstanding the instructions of Required Lenders,
Agent shall have no obligation to take any action if it believes, in good
faith, that such action exposes Agent to any liability for which it has not
received satisfactory indemnification in accordance with the provisions of Section
10.6.

 

Section 10.8         Credit Decision.  Each Lender acknowledges 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
credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges 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 decisions in taking or not taking any action
under the Financing Documents.

 

Section 10.9         Collateral Matters.  Lenders irrevocably authorize Agent, at its
option and in its discretion, to release any Lien granted to or held by Agent
under any Security Document: (i) upon
termination of the Loan Commitment and payment in full of all Obligations and
the expiration, termination or cash collateralization (to the satisfaction of
Agent) of all Letters of Credit; or (ii)
constituting property sold or to be sold or disposed of as part of or in
connection with any disposition permitted under any Financing Document (it
being understood and agreed that Agent may conclusively rely without further
inquiry on a certificate of a Responsible Officer as to the sale or other
disposition of property being made in full compliance with the provisions of
the Financing Documents).  Upon request
by Agent at any time, Lenders will confirm in writing Agent’s authority to
release particular types or items of Collateral pursuant to this Section
10.9.

 

Section 10.10       Agency for Perfection.  Agent and each Lender hereby appoint each
other Lender as agent for the purpose of perfecting Agent’s security interest
in assets which, in accordance with the Uniform Commercial Code in any
applicable jurisdiction, can be perfected by possession or control.  Should any Lender (other than Agent) obtain
possession or control of any such assets, such Lender shall notify Agent
thereof, and, promptly upon Agent’s request therefore, shall deliver such
assets to Agent in accordance with Agent’s instructions or transfer control to
Agent in accordance with Agent’s instructions. 
Each Lender agrees that it will not have any right individually to
enforce or seek to enforce any Security Document or to realize upon any
Collateral for the Loans unless instructed to do so by Agent, it being
understood and agreed that such rights and remedies may be exercised only by
Agent.

 

Section 10.11       Notice of Default.  Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default except with
respect to defaults in the payment of principal, interest and fees required to
be paid to Agent for the account of Lenders, unless Agent shall have received
written notice from a Lender or Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
“notice of default.”  Agent will notify
each Lender of its receipt of any such notice. 
Agent shall take such action with respect to such Default or Event of
Default as may be requested by Required Lenders in accordance with the terms
hereof.  Unless and until Agent has
received any such

 

69

 

request, Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable or in
the best interests of Lenders.

 

Section 10.12       Successor Agent.  Agent may resign at any time by giving
written notice thereof to the Lenders and Borrower.  Upon any such resignation, Required Lenders shall have the right
to appoint a successor Agent, reasonably acceptable to Borrower, which shall be
an entity which is organized or licensed under the laws of the United States of
America or any state thereof.  If no
successor Agent shall have been so appointed by Required Lenders, and shall
have accepted such appointment, within thirty (30) days after the retiring
Agent gives notice of resignation, then the retiring Agent may, on behalf of
Lenders, appoint a successor Agent reasonably acceptable to Borrower, which
shall be an entity which is organized or licensed under the laws of the United
States of America or any state thereof. 
Upon the acceptance of its appointment as Agent hereunder by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights and duties of the retiring Agent, and the retiring Agent shall
be discharged from its duties and obligations hereunder.  After any retiring Agent’s resignation
hereunder as Agent, the provisions of this Article shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent.

 

Section 10.13       Disbursements of Loans; Payment.

 

(a)           Loan Advances, Payments and
Settlements; Interest and Fee Payments.

 

(i)            Agent shall
have the right, on behalf of Lenders, to disburse funds to Borrower for all
Loans requested by Borrower pursuant to the terms of this Agreement.  Absent the prior receipt by Agent of a
written notice from any Lender pursuant to which such Lender notifies Agent
that such Lender shall cease making Loans (whether due to the existence of a
Default or Event of Default or otherwise), Agent shall be conclusively entitled
to assume, for purposes of the preceding sentence, that each Lender will fund
its Pro
Rata Share of all Loans requested by Borrower.  Each Lender shall reimburse Agent on demand,
in accordance with the provisions of the immediately following paragraph, for
all funds disbursed on its behalf by Agent pursuant to the first sentence of
this clause (i), or if Agent so requests, each Lender will remit to
Agent its Pro
Rata Share of any Loan before Agent disburses the same to
Borrower.  If Agent elects to require
that each Lender make funds available to Agent, prior to a disbursement by
Agent to Borrower, Agent shall advise each Lender by telephone, facsimile or
electronic mail of the amount of such Lender’s Pro Rata Share of the Loan
requested by Borrower or made pursuant to an Agent Advance no later than noon
(Chicago time) on the date of funding of such Loan, and each such Lender shall
pay Agent on such date such Lender’s Pro Rata Share of such requested Loan, in
same day funds, by wire transfer to the Payment Account, or such other account
as may be identified in writing by Agent to Lenders from time to time.  If any Lender fails to pay the amount of its
Pro Rata
Share within one (1) Business Day after Agent’s demand, Agent shall promptly
notify Borrower, and Borrower shall immediately repay such amount to
Agent.  Any repayment required pursuant
to

 

70

 

this Section 10.13 shall be without
premium or penalty.  Nothing in this Section
10.13 or elsewhere in this Agreement or the other Financing Documents shall
be deemed to require Agent to advance funds on behalf of any Lender or to
relieve any Lender from its obligation to fulfill its commitments hereunder or
to prejudice any rights that Agent or Borrower may have against any Lender as a
result of any default by such Lender hereunder.

 

(ii)           On a
Business Day of each week as selected from time to time by Agent, or more
frequently (including daily), if Agent so elects (each such day being a “Settlement Date”), Agent will advise each Lender by
telephone, facsimile or electronic mail of the amount of each such Lender’s Pro Rata
Share of the Loan balance (including any Agent Advances) as of the close of
business of the Business Day immediately preceding the Settlement Date.  In the event that payments are necessary to
adjust the amount of such Lender’s actual Pro Rata Share of the Loan balance to such
Lender’s required Pro Rata Share of the Loan balance as of any Settlement
Date, the party from which such payment is due: (i) shall
be deemed, irrevocably and unconditionally, to have purchased, without recourse
or warranty, an undivided interest and participation in the Loans sufficient to
equate such Lender’s actual Pro Rata Share of the Loan balance as of
such Settlement Date with such Lender’s required Pro Rata Share of the Loans
as of such date and (ii) shall pay
Agent, without setoff or discount, in same day funds, by wire transfer to the
Payment Account not later than noon (Chicago time) on the Business Day
following the Settlement Date the full purchase price for such interest and
participation, equal to one hundred percent (100%) of the principal amount of
the Loans being purchased and sold.  In
the event settlement shall not have occurred by the date and time specified in
the immediately preceding sentence, interest shall accrue on the unsettled
amount at the Federal Funds Rate, for the first three (3) days following the
scheduled date of settlement, and thereafter at the Prime Rate plus the Prime
Rate Margin.

 

(iii)         On each
Settlement Date, Agent shall advise each Lender by telephone, facsimile or
electronic mail of the amount of such Lender’s Pro Rata Share of principal,
interest and fees paid for the benefit of Lenders with respect to each
applicable Loan, to the extent of such Lender’s credit exposure with respect
thereto, and shall make payment to such Lender not later than noon (Chicago
time) on the Business Day following the Settlement Date of such amounts in
accordance with wire instructions delivered by such Lender to Agent, as the
same may be modified from time to time by written notice to Agent; provided,
that, in the case such Lender is a Defaulted Lender, Agent shall be entitled to
set off the funding short-fall against that Defaulted Lender’s respective share
of all payments received from Borrower.

 

(iv)          The
provisions of this subsection 10.13(a) shall be deemed to be binding
upon Agent and Lenders notwithstanding the occurrence of any Default or Event
of Default, or any insolvency or bankruptcy proceeding pertaining to Borrower
or any other Credit Party.

 

71

 

(b)           Reserved.

 

(c)           Return of Payments.

 

(i)            If Agent
pays an amount to a Lender under this Agreement in the belief or expectation
that a related payment has been or will be received by Agent from Borrower and
such related payment is not received by Agent, then Agent will be entitled to
recover such amount from such Lender on demand without setoff, counterclaim or
deduction of any kind, together with interest accruing on a daily basis at the
Federal Funds Rate.

 

(ii)           If Agent
determines at any time that any amount received by Agent under this Agreement
must be returned to Borrower or paid to any other Person pursuant to any
insolvency law or otherwise, then, notwithstanding any other term or condition
of this Agreement or any other Financing Document, Agent will not be required
to distribute any portion thereof to any Lender.  In addition, each Lender will repay to Agent on demand any
portion of such amount that Agent has distributed to such Lender, together with
interest at such rate, if any, as Agent is required to pay to Borrower or such
other Person, without setoff, counterclaim or deduction of any kind.

 

(d)           Defaulted Lenders.  The failure of any Defaulted Lender to make
any Loan or any payment required by it hereunder shall not relieve any other
Lender of its obligations to make such Loan or payment, but neither any Lender
nor Agent shall be responsible for the failure of any Defaulted Lender to make
a Loan or make any other payment required hereunder.  Notwithstanding anything set forth herein to the contrary, a
Defaulted Lender shall not have any voting or consent rights under or with
respect to any Financing Document or constitute a “Lender” (or be included in
the calculation of “Required Lenders” hereunder) for any voting or consent
rights under or with respect to any Financing Document.  At Borrower’s request, Agent or a Person
reasonably acceptable to Agent and Borrower (whose acceptance shall not be
unreasonably withheld) shall have the right with Agent’s consent and in Agent’s
sole discretion (but shall have no obligation) to purchase from any Defaulted
Lender, and each Defaulted Lender agrees that it shall, at Agent’s request,
sell and assign to Agent or such Person, all of the lending commitments and
commitment interests of that Defaulted Lender for an amount equal to the
principal balance of all Loans held by such Defaulted Lender and all accrued
interest and fees with respect thereto through the date of sale, such purchase
and sale to be consummated pursuant to an executed Assignment Agreement.

 

Section
10.14  Documentation
Agent, Syndication Agent, Administrative Agent and Lead Arranger.  Notwithstanding any provision to the
contrary contained elsewhere in this Agreement or in any other Financing
Document, none of Documentation Agent, Syndication Agent, Administrative Agent
nor Lead Arranger shall have any duties or responsibilities, nor shall any of
Documentation Agent, Syndication Agent, Administrative Agent or Lead Arranger
have or be deemed to have any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this

 

72

 

Agreement or any other
Financing Document or otherwise exist against Documentation Agent, Syndication
Agent, Administrative Agent or Lead Arranger.

 

ARTICLE XI

MISCELLANEOUS

 

Section 11.1         Survival.  All agreements, representations and warranties made herein and in
every other Financing Document shall survive the execution and delivery of this
Agreement and the other Financing Documents. 
The indemnities and agreements set forth in Article IX shall survive the
payment of the Obligations and any termination of this Agreement.

 

Section 11.2         No Waivers.  No failure or delay by Agent or any Lender
in exercising any right, power or privilege under any Financing Document shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.  The rights
and remedies herein and therein provided shall be cumulative and not exclusive
of any rights or remedies provided by law.

 

Section 11.3         Notices.  All notices, requests and other communications to any party
hereunder shall be in writing (including prepaid overnight courier, facsimile
transmission or similar writing) and shall be given to such party at its
address, facsimile number or electronic mail address set forth on the signature
pages hereof (or, in the case of any such Lender who becomes a Lender after the
date hereof, in an Assignment Agreement or in a notice delivered to Borrower
and Agent by the assignee Lender forthwith upon such assignment) or at such
other address, facsimile number or electronic mail address as such party may
hereafter specify for the purpose by notice to Agent and Borrower; provided,
that notices, requests or other communications shall be permitted by electronic
mail only where expressly provided in the Financing Documents.  Each such notice, request or other
communication shall be effective: (i) if given
by facsimile or electronic mail, when such notice is transmitted to the
facsimile number or electronic mail address specified by this Section 11.3
or (ii) if given by mail, prepaid
overnight courier or any other means, when received at the applicable address
specified by this Section.

 

Section 11.4         Severability.  In case any provision of or obligation under
this Agreement or the Notes or any other Financing Document shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.

 

Section 11.5         Amendments and Waivers.  Any provision of this Agreement or the Notes
may be amended or waived if, but only if, such amendment or waiver is in
writing and is signed by Borrower and the Required Lenders (and, if: (x) any amendment would increase either such Lender’s Loan
Commitment Amount, by such Lender and (y) the rights
or duties of Agent or LC Issuer are affected thereby, by Agent or the LC
Issuer, as the case may be); provided, no such amendment or waiver
shall, unless signed by each Lender affected thereby: (i)
reduce the principal of, rate of interest on or any fees with respect to any
Loan or Reimbursement Obligation; (ii) postpone
the date fixed for any payment (other than a payment pursuant to subsection
2.1(c)) of principal of any Loan, or of any Reimbursement Obligation or of
interest on any Loan or any Reimbursement Obligation or any fees payable to
such Lenders hereunder or for

 

73

 

any termination of any
commitment; (iii) change the
definition of the term Required Lenders or the percentage of Lenders which
shall be required for Lenders to take any action hereunder; (iv)  amend or waive this Section
11.5 or the definitions of the terms used in this Section 11.5
insofar as the definitions affect the substance of this Section 11.5; (v) consent to the assignment,
delegation or other transfer by any Credit Party of any of its rights and
obligations under any Financing Document; (vi)
increase the Borrowing Base solely through an amendment or modification of the
forms of calculations set forth in the Borrowing Base Certificate; or (vii) amend, waive compliance with, consent
to violations of or otherwise modify Section 5.13, subsections
4.13(a), 7.1(b)(iii) or 7.1(b)(iv), the “waterfall”
provisions contained in Section 8.6 or the pro rata treatment of payments contained in Section 10.13.

 

Section 11.6         Assignments; Participations.

 

(a)           Assignments.

 

(i)            Subject to
the terms of this Section 11.6, any Lender may at any time assign to one
(1) or more Eligible Assignees (each an “Assignee”) all
or any portion of such Lender’s Loans and interest in the Loan Commitment, with
the prior written consent of Agent and, solely to the extent no Event of
Default has occurred and is continuing, Borrower (from which consent shall not
be unreasonably withheld); provided, no such consents shall be required
for an assignment by a Lender to a Lender or to an Affiliate of a Lender; provided,
further, so long as no Event of Default pursuant to subsections 8.1(a), 8.1(f)
or 8.1(g) has occurred and is then continuing, any assignment to Black
Diamond Capital Management or any of its Affiliates shall require the consent
of Borrower.  Except as Agent may
otherwise agree, any such assignment shall be in a minimum aggregate amount
equal to $3,000,000 or, if less, the assignor’s entire interests in the Loan
Commitment and outstanding Loans. 
Borrower and Agent shall be entitled to continue to deal solely and
directly with such assigning Lender in connection with the interests so
assigned to an Assignee until Agent shall have received and accepted an
effective Assignment Agreement executed, delivered and fully completed by the
applicable parties thereto and a processing fee of $3,500.  Any attempted assignment not made in
accordance with this subsection 11.6(a) shall be treated as the sale of
a participation under subsection 11.6(b).  Borrower shall be deemed to have
granted its consent to any assignment requiring its consent hereunder unless
Borrower has expressly objected to such assignment within ten (10) days after
notice thereof.

 

(ii)           From and
after the date on which the conditions described above have been met: (i) such Assignee shall be deemed automatically to have
become a party hereto and, to the extent that rights and obligations hereunder
have been assigned to such Assignee pursuant to such Assignment Agreement,
shall have the rights and obligations of a Lender hereunder and (ii) the assigning Lender, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment
Agreement, shall be released from its rights (other than its indemnification
rights) and obligations hereunder.  Upon
the request of the Assignee (and, as applicable, the assigning Lender) pursuant
to an effective

 

74

 

Assignment Agreement, Borrower shall execute
and deliver to Agent for delivery to the Assignee (and, as applicable, the
assigning Lender) Notes in the aggregate principal amount of the Assignee’s
percentage interest in the Loan Commitment (and, as applicable, Notes in the principal
amount of that portion of the Loan Commitment retained by the assigning Lender
retained by the assigning Lender).  Upon
receipt by the assigning Lender of such Note, the assigning Lender shall return
to Borrower any prior Note held by it or issue a lost note affidavit therefor.

 

(iii)         Agent, acting
solely for this purpose as an agent of the Borrower, shall maintain at one of
its offices a copy of each Assignment Agreement delivered to it and a register
for the recordation of the names and addresses of each Lender, and the
commitments of, and principal amount of the Loans owing to, such Lender
pursuant to the terms hereof.  The
entries in such register shall be conclusive absent manifest error, and
Borrower, Agent and Lenders may treat each Person whose name is recorded
therein pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement, notwithstanding notice to the contrary.  Such register shall be available for
inspection by Borrower and any Lender, at any reasonable time upon reasonable
prior notice to Agent.

 

(iv)          Notwithstanding
the foregoing provisions of this subsection 11.6(a) or any other
provision of this Agreement, any Lender may at any time assign all or any
portion of its Loans and its Note as collateral security to a Federal Reserve
Bank or, as applicable, to such Lender’s trustee for the benefit of its
investors (provided that no such assignment shall release any Lender from any
of its obligations hereunder).

 

(v)            To the
extent such a restriction is permitted by applicable law, any foreclosure upon
the Loans or Note of any Lender granted as collateral security under subsection
11.6(a)(iv) above shall be subject to all other applicable provisions of
this subsection 11.6(a).

 

(b)           Participations.  Any Lender may at any time sell to one (1)
or more Eligible Assignees participating interests in its Loans, commitments or
other interests hereunder (each. a “Participant”).  In the event of a sale by a Lender of a
participating interest to a Participant: (a) such
Lender’s obligations hereunder shall remain unchanged for all purposes, (b) Borrower and Agent shall continue to deal solely and
directly with such Lender in connection with such Lender’s rights and
obligations hereunder and (c) all amounts
payable by Borrower shall be determined as if such Lender had not sold such
participation and shall be paid directly to such Lender.  No Participant shall have any direct or
indirect voting rights hereunder except with respect to any event described in Section
11.5 expressly requiring the unanimous vote of all Lenders or, as
applicable, all affected Lenders.  Each
Lender agrees to incorporate the requirements of the preceding sentence into
each participation agreement which such Lender enters into with any
Participant.  Borrower agrees that if
amounts outstanding under this Agreement are due and payable (as a result of
acceleration or otherwise), 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 with respect to any Letter of Credit to the same extent as if the
amount of

 

75

 

its participating interest were owing
directly to it as a Lender under this Agreement; provided that such right of set-off
shall be subject to the obligation of each Participant to share with Lenders,
and Lenders agree to share with each Participant, as provided in Section 8.5.

 

Section 11.7         Headings.  Headings and captions used in the Financing Documents (including
the Exhibits, Schedules and Annexes hereto and thereto) are included for
convenience of reference only and shall not be given any substantive effect.

 

Section 11.8         Confidentiality.  In handling any confidential information of
any Credit Party, Agent and each Lender shall exercise the same degree of care
that it exercises with respect to its own proprietary information to maintain
the confidentiality of any non-public information thereby received or received
pursuant to this Agreement, except that disclosure of such information may be
made: (i) to agents, employees,
Subsidiaries, Affiliates, attorneys and advisors of such Person in connection
with its present or prospective business relations with the Credit Parties
arising out of the Financing Documents, provided, solely with respect to
real property leases to which Borrower or its Subsidiaries are a party, such
Lender shall inform each such Person of the agreements under this Section
11.8 and take reasonable actions to cause compliance by any such Person
referred to in this clause (i) with this agreement (including, where
appropriate, to cause any such Person to acknowledge its agreement to be bound
by the agreements under this Section 11.8), (ii)
to prospective transferees or purchasers of any interest in the Loans; provided,
they have agreed to be bound by the provision of this Section 11.8
pursuant to an instrument for the benefit of Borrower (it being understood that
each relevant Lender shall be solely responsible for obtaining such
instrument), (iii) as required by law,
regulation, rule, request or order, subpoena, judicial order or similar order
and in connection with any litigation and (iv) as may be
required in connection with the examination, audit or similar investigation of
such Person.  Confidential information
shall include only such information identified as such at the time provided to
Agent and shall not include information that either: (A)
is in the public domain, or becomes part of the public domain after disclosure
to such Person through no fault of such Person, or (B)
is disclosed to such Person by a third party; provided, Agent does not
have actual knowledge that such third party is prohibited from disclosing such
information.

 

Notwithstanding
the foregoing, any Taxpayer (and each employee, representative or other agent
of such Taxpayer) may disclose to any and all Persons, without limitation of
any kind, the tax treatment and tax structure (in each case, within the meaning
of Treasury Regulation Section 1.6011-4) of the Transaction and all materials
of any kind (including opinions or other tax analyses) that are provided to
such Taxpayer relating to such tax treatment and tax structure; provided that,
with respect to any document or similar item that contains information
concerning the tax treatment or tax structure of the Transaction as well as
other information, this authorization shall only apply to such portions of the
document or similar item that relate to the tax treatment or tax structure of
the Transaction; provided, further, no such Person shall disclose any
information relating to such tax treatment or tax structure to the extent
nondisclosure is reasonably necessary in order to comply with applicable
securities laws.

 

Section 11.9         GOVERNING
LAW; SUBMISSION TO JURISDICTION. 
THIS AGREEMENT, EACH NOTE AND EACH OTHER FINANCING DOCUMENT SHALL

 

76

 

BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.  BORROWER HEREBY
CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO
AGENT’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE OTHER FINANCING DOCUMENTS SHALL BE LITIGATED IN SUCH
COURTS.  BORROWER EXPRESSLY SUBMITS AND
CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS.  BORROWER HEREBY WAIVES PERSONAL SERVICE OF
ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE
UPON BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO
MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.

 

Section 11.10       WAIVER OF JURY TRIAL.  EACH OF BORROWER, AGENT
AND THE LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY AND AGREES THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

Section 11.11       Publication; Advertisement.

 

(a)           Publication.  Except as may be required by applicable law,
rule or regulation of any applicable governmental authority, no Credit Party
will directly or indirectly publish, disclose or otherwise use in any public
disclosure, advertising material, promotional material, press release or
interview, any reference to the name, logo or any trademark of Merrill Lynch or
any of its Affiliates or any reference to this Agreement or the financing
evidenced hereby, in any case without Merrill Lynch’s prior written consent.

 

(b)           Advertisement.  Each Credit Party hereby authorizes Merrill
Lynch to publish the name of such Credit Party and the amount of the financing
evidenced hereby in any “tombstone” or comparable advertisement which Merrill
Lynch elects to publish.  In addition,
each Credit Party agrees that Merrill Lynch may provide lending industry trade
organizations with information necessary and customary for inclusion in league
table measurements after the Closing Date. 
With respect to any of the foregoing, Merrill Lynch shall provide
Borrower with an opportunity to review and confer with Merrill Lynch regarding the
contents of any such tombstone, advertisement or information, as applicable,
prior to its publication.

 

Section 11.12       Counterparts; Integration.  This Agreement and the other Financing
Documents may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument.  This
Agreement and the other Financing Documents constitute the entire agreement and

 

77

 

understanding among the parties
hereto and supersede any and all prior agreements and understandings, oral or
written, relating to the subject matter hereof.

 

- Remainder of Page Intentionally Left Blank
-

[Signature Page Follows]

 

78

 

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

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  	
   

  
	
   

  	
  EQUINOX HOLDINGS, INC.,
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Scott Rosen

  
	
   

  	
   

  	
  Name:

  	
    Scott Rosen

  
	
   

  	
   

  	
  Title:

  	
    Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
  895 Broadway

  
	
   

  	
   

  	
   

  	
  New York, New York 10003

  
	
   

  	
   

  	
   

  
	
   

  	
  Facsimile

  number:

  	
  (212) 780-9769

  
	
   

  	
   

  	
   

  
	
   

  	
  Borrower’s Account Designation:

  
	
   

  	
   

  
	
   

  	
  JPMorgan Chase Bank

  
	
   

  	
  ABA No.:

  	
  0201 000 021

  
	
   

  	
  Account No.:

  	
  777634821

  
	
   

  	
  Account

  Name:

  	
  Equinox Holdings, Inc.

  
	
   

  	
  Reference:

  	
  Operating Account

  
								

 

 

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

 

	
   

  	
  AGENT AND LENDER:

  
	
   

  	
   

  	
   

  
	
   

  	
  MERRILL LYNCH CAPITAL,
  a division of Merrill Lynch Business Financial Services Inc., as Agent and a
  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jennifer Kloud

  
	
   

  	
   

  	
  Name:

  	
    Jennifer Kloud

  
	
   

  	
   

  	
  Title:

  	
    Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
  222 North LaSalle Street, 17th Floor

  Chicago, Illinois  60601

  Attn:  Legal Department

  
	
   

  	
   

  
	
   

  	
  Facsimile

  number:

  	
   

  
	
   

  	
   

  
	
   

  	
  Payment Account Designation:

  
	
   

  	
   

  
	
   

  	
  Lasalle Bank, N.A.

  
	
   

  	
  Chicago, Illinois

  
	
   

  	
   

  	
   

  
	
   

  	
  ABA No.:

  	
  071000505

  
	
   

  	
  Account No.:

  	
  5800393182

  
	
   

  	
  Account Name:

  	
  Equinox Holdings, Inc.

  
						

 

79

 

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

 

	
   

  	
  SYNDICATION AGENT:

  
	
   

  	
   

  	
   

  
	
   

  	
  UBS SECURITIES LLC,
  as Syndication Agent

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas J.W. Archie

  	
  /s/ Olive O. Trumbo II

  
	
   

  	
   

  	
  Name:

  	
  Thomas J.W. Archie

  	
  Olive O. Trumbo II

  
	
   

  	
   

  	
  Title:

  	
  Director

  	
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
  677 Washington Boulevard

  
	
   

  	
   

  	
   

  	
  Stamford, CT 06912

  
	
   

  	
   

  	
   

  
	
   

  	
  Facsimile

  number:

  	
   

  
									

 

	
   

  	
  LENDER:

  
	
   

  	
   

  	
   

  
	
   

  	
  UBS LOAN FINANCE LLC,
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Wilfred V. Sant                 
  /s/ Thomas R. Salzano

  
	
   

  	
   

  	
  Name:

  	
  Wilfred V.
  Sant           Thomas
  R. Salzano

  
	
   

  	
   

  	
  Title:

  	
  Associate Director       Director

  
	
   

  	
   

  	
   

  	
  Banking Products Services, US

  	
  Banking Products Services, US

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
  677 Washington Boulevard

  
	
   

  	
   

  	
   

  	
  Stamford, CT 06901

  
	
   

  	
   

  	
   

  
	
   

  	
  Facsimile

  number:

  	
  (203) 719-4176

  
								

 

	
   

  	
  Payment Account Designation:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  UBS AG, Stamford Branch

  
	
   

  	
  ABA No.:

  	
  026007993

  
	
   

  	
  Account No.:

  	
  101 - WD - 897400-001

  
	
   

  	
  Account Name:

  	
  BPS Loan Finance LLC

  
	
   

  	
  Attn:

  	
  Deborah Porter

  

 

 

 

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

 

	
   

  	
  DOCUMENTATION AGENT AND LENDER:

  
	
   

  	
   

  	
   

  
	
   

  	
  WACHOVIA BANK, NATIONAL ASSOCIATION,  as a Lender and as Documentation Agent

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven Nielson

  
	
   

  	
   

  	
  Name:

  	
  Steven Nielson

  
	
   

  	
   

  	
  Title:

  	
  Associate

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
  1339 Chestnut St. 12th FL Widener Bldg.

  
	
   

  	
   

  	
  Philadelphia, PA 19107

  
	
   

  	
   

  
	
   

  	
  Facsimile

  number:

  	
  267-321-6700

  
	
   

  	
   

  
	
   

  	
  Payment Account Designation:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ABA No.:

  	
  53000219

  
	
   

  	
  Account No.:

  	
  1459168114011

  
	
   

  	
  Account Name:

  	
  Retail; Ref: Equinox Holdings

  
						

 

 

ANNEX A to Credit Agreement

 

COMMITMENT ANNEX

 

	
  Lender

  	
   

  	
  Loan
  Commitment Amount

  	
   

  	
  Loan
  Commitment

  Percentage

  	
   

  
	
  Merrill Lynch Capital

  	
   

  	
  $

  	
  15,000,000

  	
   

  	
  60.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  UBS Loan Finance LLC

  	
   

  	
  $

  	
  6,400,000

  	
   

  	
  25.60

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wachovia Bank, National Association

  	
   

  	
  $

  	
  3,600,000

  	
   

  	
  14.40

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  $

  	
  25,000,000.00

  	
   

  	
  100.00

  	
  %

  

 

 

ANNEX B to Credit Agreement

 

JW CHILDS COINVESTORS

 

JWC - EH, LLC

JWC Equity Funding II, Inc.

Bock Family Trust

Childs, John W.

Childs, Richard S.

Childs, James E.

Anderson, Samual A.

Healy, Timothy J.

Hopkins, Glenn A.

Horn, Jerry D.

Rudy, Raymond B.

Schmaltz, Dana

Chechesse Creek Trust

Segal, Steven G.

SGS 1995 Family Limited Partnership

Steven G. Segal 1995 Irrevocable Trust

SGS-III Family Limited Partnership

Suttin, Adam L.

Suttin Irrevocable Family Trust, Adam L.

Suttin Family Trust II

Suttin IRA, Eugene N.

Yun, Edward D.

Yun Family Trust

Kozlowski, Ed

Rebacliff, Baker & Dobbs, LLC

Schmidt, Benno C.

Soussou, Mario

Watts, Bill

OFS Investment Partners II

 

 

ANNEX C to Credit Agreement

 

CONDITIONS AND FACTORS FOR PERMITTED
ACQUISITIONS

 

Any Permitted
Acquisition, in order to be permitted hereunder must satisfy the following
minimum requirements (unless waived or otherwise permitted by Agent):

 

(1)           the
total consideration paid or payable by Borrower and its Subsidiaries for any
single Permitted Acquisition (or related series of such acquisitions) made by
Borrower and/or its Subsidiaries (including, without limitation all Debt and
other “earnout” or other obligations assumed or incurred in connection
therewith) shall not exceed $6,000,000 and after giving effect to such
Permitted Acquisition, the aggregate consideration paid or payable by Borrower
and its Subsidiaries for all Permitted Acquisitions made (including, without
limitation all Debt assumed or incurred in connection therewith) shall not
exceed $20,000,000; provided, however, no such acquisition may be made
of any foreign Person or assets if the Foreign Subsidiary Advance Amount
exceeds $15,000,000 or would exceed $15,000,000 by the consummation of any such
acquisition.

 

(2)           Agent
shall receive not less than five (5) Business Days prior written notice of such
Permitted Acquisition, which notice shall include a reasonably detailed
description of the proposed terms of such Acquisition and identify the
anticipated closing date;

 

(3)           the acquired Person must be a Person
engaged in substantially the same type of business as the Borrower and its
Subsidiaries immediately prior to such Permitted Acquisition;

 

(4)           such Permitted Acquisition shall be
structured as: (a) an asset
acquisition by a wholly-owned Domestic Subsidiary or Foreign Subsidiary of
Borrower or Intermediate Holdco, (b)
a merger of the acquired Person with and into a Domestic Subsidiary or Foreign
Subsidiary of Borrower, with such Domestic Subsidiary or Foreign Subsidiary as the
surviving corporation in such merger, or (c)
a merger of a Domestic Subsidiary or Foreign Subsidiary of Borrower or
Intermediate Holdco with and into the acquired Person with the acquired Person
as the surviving corporation in such merger and as a wholly owned Domestic
Subsidiary or Foreign Subsidiary of Borrower or Intermediate Holdco, or (d) a purchase of one hundred percent
(100%) of the capital stock of the acquired Person by Borrower, Intermediate
Holdco or a wholly owned Domestic Subsidiary or Foreign Subsidiary of either of
them;

 

(5)           Agent
shall receive, not less than five (5) Business Days prior to the consummation
of such Permitted Acquisition:

 

(a)           financial statements regarding the
acquired Person or assets for the last two (2) fiscal years, with information
for the immediately preceding fiscal year on a monthly basis, together with
projected financial statements for the next twelve (12) month period of the
acquired Person or assets; provided, however, Borrower shall, if such
projections are not so delivered, deliver or cause to be delivered such
projections to Agent within ninety (90) days of the consummation of such
Permitted Acquisition; and

 

 

(b)           a Compliance Certificate calculated
after giving effect to the proposed Permitted Acquisition which states that,
among other things, no Default or Event of Default exist or shall exist after
giving effect to such Permitted Acquisition and the incurrence of any Loans or
other Debt or “earnout” or other liabilities or obligations in connection therewith.

 

(6)           (a)
Agent, for the benefit of Lenders, is granted a first priority perfected
security interest (subject only to Permitted Liens) in substantially all assets
being acquired pursuant to such Permitted Acquisition in accordance with the
terms of and to the extent and only to the extent required by Section 4.12
of the Credit Agreement, (b) in
the case of a Permitted Acquisition involving the purchase of any acquired
Person’s capital stock or other equity interests, the applicable Credit Party
shall pledge all of the shares of capital stock or other equity interests of
such acquired Person owned or otherwise acquired by it to Agent for the benefit
of Lenders, and shall cause such acquired Person to guarantee the Obligations
and to grant to Agent, for the benefit of Lenders, a first priority perfected
security interest (subject only to Permitted Liens) in substantially all of
such Person’s assets in accordance with the terms of the Security Documents,
all to the extent and only to the extent required by Section 4.12 of the
Credit Agreement, and (c) Agent
will be provided such other documents and instruments as Agent shall reasonably
request to perfect or maintain the perfection of its security interest in
assets of the acquired Person, all such documents to be delivered no later than
five (5) Business Days after the later to occur of the closing of such
Permitted Acquisition and such request;

 

(7)           after
giving effect to such Permitted Acquisition and the incurrence of any Loans or
other Debt in connection therewith: (i) Borrower
shall be in compliance on a pro forma
basis with the covenants set forth in Section VI recomputed for the most
recently ended month of Borrower for which information is available regarding
the business being acquired, (ii)
Borrower can demonstrate to Agent projected pro
forma compliance with the covenants set forth in Article VI,
for the twelve (12) month period immediately following the consummation of the
proposed Permitted Acquisition based on the combined operating results of the
acquired Person and of Borrower for the twelve (12) month period ending on the
last day of the month for which financial statements for such acquired Person
and for Borrower are available, and (iii)
the availability under the Loan Limit is not less than $5,000,000;

 

(8)           such
Permitted Acquisition shall be consensual and, if applicable, shall have been
approved by the board of directors or similar governing body of the Person
being acquired;

 

(9)           all
consents necessary for such Permitted Acquisition (including such consents as
the Agent deems reasonably necessary) have been acquired, except for those
consents with respect to which the failure to obtain would not be reasonably
expected to have a Material Adverse Effect;

 

(10)         as soon as practicable after the
closing of such Permitted Acquisition, and in any event within fifteen (15)
Business Days after such closing, Borrower shall deliver copies of all
documents to be executed in connection with such Permitted Acquisition to Agent
and Lenders;

 

 

(11)         the
acquired Person must have had “pro forma
EBITDA” (EBITDA plus any overhead
expenses Borrower reasonably believes will no longer be incurred as a result of
such acquisition) greater than $(1,000,000) for the immediately preceding four
(4) fiscal quarters, taken as a whole;

 

(12)         to
the extent Borrower or any other Credit Party issues any “earnouts” in
connection with such acquisition, each such “earnout” shall:

 

(A)          not
provide for any security;

 

(B)          not
provide any guaranty or other support by Borrower or any Subsidiary of
Borrower;

 

(C)          when
combined with all other “earnout” obligations of Borrower and its Subsidiaries,
not exceed an aggregate amount of $5,000,000 of potential principal, interest
and other fees, costs and expenses outstanding at any time;

 

(D)          not
contain any covenants;

 

(E)           provide
that the obligations of Borrower or the applicable Subsidiary thereunder are
fully subordinated to the Obligations on a basis satisfactory to Agent; and

 

(F)           be
otherwise reasonably satisfactory to Agent; and

 

(13)         promptly
after obtaining knowledge thereof, Borrower shall provide notice of any
material change to any of the documents or information previously provided
above.

 

 

ANNEX D to Credit
Agreement

 

SELECTED UNRESTRICTED LEASE TERMS

 

Notwithstanding the foregoing, if tenant or a
Related Entity is listed and traded on a nationally-recognized stock exchange,
NASDAQ or an over-the-counter market, the transfer, sale or other disposition
(including pursuant to a registration statement filed under the Securities Act
of 1933, as amended) of the stock of such corporation shall not be deemed a
transfer or assignment of this lease. 
In addition, none of the following transactions shall be deemed a
transfer or assignment (each a “No Consent
Transfer”) and landlord’s consent to such transaction shall not be
required:

 

(i)            transfers of
the stock of tenant or a Related Entity to a Related Entity or to an entity
into which tenant or a Related Entity is merged or consolidated or to which all
or substantially all of tenant’s or a Related Entity’s assets are transferred;
or

 

(ii)           a sale of tenant’s or a Related
Entity’s business or a change of Control of tenant or a Related Entity by asset
purchase, stock purchase or otherwise, to an entity which purchases
substantially all of tenant’s or a Related Entity’s similar fitness centers and
continues to operate such business at the [demised premises]; or

 

(iii)         an
assignment to a Related Entity; or

 

(iv)          issuance of stock in tenant or a
Related Entity pursuant to an initial public offering or a private placement;
or

 

(v)            transfers of
a majority of the stock in or assets of tenant or a Related Entity to a third
party provided there is no material change in the then senior management of
tenant;

 

“Control” of a person or entity means the
possession, directly or indirectly, of the power to vote five percent (5%) or
more of any class of voting securities of such person or entity or to direct or
cause the direction of the management or policies of such person or entity,
whether through the ownership of voting securities, by contract or
otherwise.  “Controls” and “Controlled”
shall have similar meanings, as the context requires.

 

“Related
Entity” means an entity that Controls, is Controlled by or is in
common Control with tenant.

 

 

EXHIBIT A to Credit Agreement

 

Form of Assignment
Agreement

 

ASSIGNMENT AGREEMENT

 

This
Assignment Agreement (this “Assignment
Agreement”) is entered into as of
                    
    . 200   by and between the Assignor named on
the signature page hereto (“Assignor”)
and the Assignee named on the signature page hereto (“Assignee”).  Reference is made to the Credit Agreement dated as of December
16, 2003 (as amended or otherwise modified from time to time, the “Credit Agreement”) by and among Equinox
Holdings, Inc., a Delaware corporation (“Borrower”),
the financial institutions party thereto from time to time, as Lenders, and
Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services
Inc., as Agent.  Capitalized terms used
herein and not otherwise defined shall have the meanings assigned to them in
the Credit Agreement.

 

Assignor and
Assignee hereby agree as follows:

 

1.             Assignor hereby sells and assigns
to Assignee, and Assignee hereby purchases and assumes from Assignor the
interests set forth on the schedule attached hereto (the “Schedule”), in and to Assignor’s rights and
obligations under the Credit Agreement as of the effective date set forth on
the Schedule (the “Effective Date”).  Such purchase and sale is made without
recourse, representation or warranty except as expressly set forth herein.  On the Effective Date, Assignee shall pay to
Assignor an amount equal to the aggregate amounts assigned pursuant to the
Schedule (exclusive of unfunded portions of the Revolving Loan Commitment) and
Assignor shall pay to Assignee a closing fee in respect of the transactions
contemplated hereby in the amount specified on the Schedule.

 

2.             Assignor: (i) represents that as of the Effective Date, that it is the
legal and beneficial owner of the interests assigned hereunder free and clear
of any adverse claim, (ii) makes
no other representation or warranty and assumes no responsibility with respect
to any statement, warranties or representations made in or in connection with
the Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, any other Financing
Documents or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of any
other Credit Party or any other Person or the performance or observance by any
Credit Party of its Obligations under the Credit Agreement or any other
Financing Documents or any other instrument or document furnished pursuant
thereto.

 

3.             Assignee: (i) confirms that it has received a copy of the Credit
Agreement and the other Financing Documents, together with copies of the most
recent financial statements delivered pursuant thereto and such other documents
and information as it has deemed appropriate to make its own credit analysis
and decision to enter into this Assignment Agreement; (ii) agrees that it will, independently and
without reliance upon Agent, Assignor or any other Lender and based on such
documents and information as it shall deem appropriate at

 

1

 

the time, continue to make its
own credit decisions in taking or not taking action under the Credit Agreement;
(iii) appoints and authorizes
Agent to take such action as agent on its behalf and to exercise such powers
under the Credit Agreement and the other Financing Documents as are delegated
to Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (iv) agrees
that it will perform in accordance with their terms all obligations which by
the terms of the Credit Agreement are required to be performed by it as a
Lender; (v) represents that on the
date of this Assignment Agreement it is not presently aware of any facts that
would cause it to make a claim under the Credit Agreement; (vi) represents and warrants that Assignee
is not a foreign person (i.e., a person other than a United States person for
United States Federal income tax purposes) or, if it is a foreign person, that
it has delivered to Agent and Borrower the documentation required to be
delivered to Agent and Borrower by Section 13 below; and (vii) represents and warrants that it has
experience and expertise in the making or the purchasing of loans such as the
Loans, and that it has acquired the interests described herein for its own
account and without any present intention of selling all or any portion of such
interests.

 

4.             Each of Assignor and Assignee
represents and warrants to the other party hereto that it has full power and
authority to enter into this Assignment Agreement and to perform its
obligations hereunder in accordance with the provisions hereof, that this
Assignment Agreement has been duly authorized, executed and delivered by such
party and that this Assignment Agreement constitutes a legal, valid and binding
obligation of such party, enforceable against such party in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors’ rights generally and by general principles of equity.

 

5.             Upon the effectiveness of this
Assignment Agreement pursuant to Section 13 below: (i) Agent shall register Assignee as a
Lender, pursuant to the terms of the Credit Agreement, (ii) Assignee shall be a party to the
Credit Agreement and, to the extent provided in this Assignment Agreement, have
the rights and obligations of a Lender thereunder, (iii) Assignor shall, to the extent provided in this
Assignment Agreement, relinquish its rights and be released from its
obligations under the Credit Agreement and (iv)
Agent shall thereafter make all payments in respect of the interest assigned
hereby (including payments of principal, interest, fees and other amounts) to
Assignee.  Assignor and Assignee shall
make all appropriate adjustments in payments for periods prior to the Effective
Date by Agent or with respect to the making of this assignment directly between
themselves.

 

6.             Each of Assignor and Assignee
hereby agrees from time to time, upon request of the other such party hereto,
to take such additional actions and to execute and deliver such additional
documents and instruments as such other party may reasonably request to effect
the transactions contemplated by, and to carry out the intent of, this
Assignment Agreement.

 

7.             Neither this Assignment Agreement
nor any term hereof may be changed, waived, discharged or terminated, except by
an instrument in writing signed by the party (including, if applicable, any
party required to evidence its consent to or acceptance of this Assignment
Agreement) against whom enforcement of such change, waiver, discharge or
termination is sought.

 

2

 

8.             For the purposes hereof and for
purposes of the Credit Agreement, the notice address of Assignee shall be as
set forth on the Schedule.  Any notice
or other communication herein required or permitted to be given shall be in
writing and delivered in accordance with the notice provisions of the Credit
Agreement.

 

9.             In case any provision in or
obligation under this Assignment Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.

 

10.          THIS ASSIGNMENT AGREEMENT SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK

 

11.          This Assignment Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and assigns.

 

12.          This Assignment Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures hereto were upon the same agreement.

 

13.          This Assignment Agreement shall become
effective as of the Effective Date upon the satisfaction of each of the
following conditions: (i) the execution
of a counterpart hereof by each of Assignor and Assignee, (ii) the execution of a counterpart hereof
by each of Agent and Borrower as evidence of its consent hereto to the extent
required pursuant to subsection 11.6(a) of the Credit Agreement, (iii) the receipt by Agent of the
administrative fee referred to in subsection 11.6(a) of the Credit Agreement, (iv) in the event Assignee is a foreign
person (i.e., a person other than a United States person for United States
Federal income tax purposes), the receipt by Agent and Borrower of Internal
Revenue Service Forms W-8ECI, W-8BEN, W-8IMY (as applicable) or successors
thereto or other applicable form, certificate or document prescribed by the
United States Internal Revenue Service certifying as to such Lender’s
entitlement to exemption from withholding or deduction of Taxes, properly
completed and executed by Assignee, and (v) the
receipt by Agent of originals or telecopies of the counterparts described
above.

 

- Remainder of Page Intentionally Left Blank
-

[Signature Page Follows]

 

3

 

The parties
hereto have caused this Assignment Agreement to be executed and delivered as of
the date first written above.

 

	
   

  	
  ASSIGNOR:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ASSIGNEE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Consented to:

  
	
   

  	
   

  
	
   

  	
  MERRILL LYNCH CAPITAL,
  a division of

  Merrill Lynch Business Financial Services Inc.,

  as Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [if no Event of
  Default:

  
	
   

  	
   

  
	
   

  	
  EQUINOX HOLDINGS,
  INC., a Delaware

  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
  ]

  
					

 

4

 

SCHEDULE to
Assignment Agreement

	
  Assignor:

  	
   

  	
   

  
	
  Assignee:

  	
   

  	
   

  
	
  Effective
  Date:

  	
   

  	
   

  

 

Credit
Agreement dated as of December 16, 2003 by and among Equinox Holdings, Inc., a
Delaware corporation, as Borrower, the financial institutions party thereto
from time to time, as Lenders, and Merrill Lynch Capital, a division of Merrill
Lynch Business Financial Services Inc., as Agent

 

Interests
Assigned:

 

	
  Commitment/Loan

  	
   

  	
  Loan
  Commitment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Assignor Amounts

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amounts Assigned

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Assignor Amounts

  	
   

  	
  $

  	
   

  	
   

  
	
  (post-assignment)

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Closing Fee:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Assignee Information:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address for Notices:

  	
   

  	
   

  	
   

  
						

 

 

	
  Attention:

  
	
  Telephone:

  
	
  Facsimile:

  
	
   

  

 

5

 

EXHIBIT B to Credit Agreement

 

Form of Compliance
Certificate

 

COMPLIANCE CERTIFICATE

 

EQUINOX HOLDINGS, INC.

 

Date:
            ,
200  

 

This
certificate is given by
                             ,
a Responsible Officer of Equinox Holdings, Inc., a Delaware corporation (“Borrower”), pursuant to subsection 4.1(c)
of that certain Credit Agreement dated as of December 16, 2003 among Borrower,
the Lenders from time to time party thereto and Merrill Lynch Capital, a
division of Merrill Lynch Business Financial Services Inc., as Agent for
Lenders (as such agreement may have been amended, restated, supplemented or
otherwise modified from time to time, the “Credit
Agreement”).  Capitalized
terms used herein without definition shall have the meanings set forth in the
Credit Agreement.

 

The
undersigned Responsible Officer hereby certifies to Agent and Lenders that:

 

(a)           the
financial statements delivered with this certificate in accordance with
subsection 4.1(a) and/or 4.1(b) of the Credit Agreement fairly present in
all material respects the results of operations and financial condition of Borrower  and its
Subsidiaries as of the dates of such financial statements;

 

(b)           I have
reviewed the terms of the Credit Agreement and have made, or caused to be made
under my supervision, a review in reasonable detail of the transactions and
conditions of Borrower and the Subsidiaries during the accounting period
covered by such financial statements;

 

(c)           such review
has not disclosed the existence during or at the end of such accounting period,
and I have no knowledge of the existence as of the date hereof, of any
condition or event that constitutes a Default or an Event of Default, except as
set forth in Schedule 1 hereto, which includes a description of the
nature and period of existence of such Default or an Event of Default and what
action Borrower has taken, is undertaking and proposes to take with respect
thereto; and

 

(d)           Borrower is in compliance with the
covenants contained in Article VI of the Credit Agreement, as demonstrated by
the calculation of such covenants below, and Borrower has not defaulted in its
agreements or covenants made in subsections 4.1(a), (b), (c), (g)(iii),
(g)(iii), (l) or (m) thereof, except as set forth in Schedule 1 hereto.

 

1

 

IN WITNESS
WHEREOF, the undersigned officer has executed and delivered this certificate
this        day of
                 ,
200  .

 

	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Name

  	
   

  	
   

  
	
   

  	
  Title

  	
   

  	
     of Borrower

  
					

 

2

 

 

SCHEDULE 1 to
Compliance Certificate

 

CAPITAL
EXPENDITURES

(Section 6.1)

 

	
  Capital Expenditures for the applicable
  measurement period (the “Defined Period”)
  are defined as follows:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Amount capitalized during the Defined
  Period by Borrower and its Consolidated Subsidiaries as capital expenditures
  for property, plant, and equipment or similar fixed asset accounts, including
  any such expenditures by way of acquisition of a Person or by way of
  assumption of Debt or other obligations, to the extent reflected as plant,
  property and equipment

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Plus:

  	
  deposits
  made in the Defined Period in connection with property, plant, and equipment;
  less deposits of a prior period included above

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Less:

  	
  Net Cash Proceeds
  of Asset Dispositions received during the Defined Period which: (i) Borrower or a Subsidiary is
  permitted to reinvest pursuant to the terms of the Credit Agreement and (ii) are included in capital expenditures
  above

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Proceeds of
  Property Insurance Policies received during the Defined Period which: (i) Borrower or a Subsidiary is
  permitted to reinvest pursuant to the terms of the Credit Agreement and (ii) are included in capital
  expenditures above

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Capital Expenditures

  	
   

  	
  $

  	
   

  	
   

  

 

3

 

	
  Permitted Capital Expenditures (including
  carry forward of
  $              
  from prior Fiscal Year)

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  In Compliance

  	
   

  	
  Yes/No

  	
   

  

 

4

 

INTEREST
COVERAGE RATIO

 

(Section
6.2)

 

	
  Interest expense
  ($         ) (net of: (i) interest income
  ($        ), (ii) interest paid in kind
  ($        ) and (iii) amortization of capitalized fees
  and expenses incurred to consummate the transactions contemplated by the
  Operative Documents and included in interest expense
  ($        )) included in the
  determination of net income of Borrower and its Consolidated Subsidiaries for
  the Defined Period (“Total Interest Expense”)
  for the applicable measurement period (the “Defined
  Period”)

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Operating Cash Flow for the Defined Period:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EBITDA for the Defined Period (calculated in the manner required by
  Annex A of the Compliance Certificate)

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Less:

  	
  Capital Expenditures which are not Capital Expenditures for new
  fitness clubs (including any overhead Capital Expenditures which are
  appropriately allocated between new and existing fitness clubs)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  To the extent not already reflected in the calculation of EBITDA,
  other capitalized costs, defined as the gross amount capitalized during the
  Defined Period, as long term assets, other than Capital Expenditures

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Operating Cash Flow

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Interest Coverage Ratio (Ratio of Operating Cash Flow to Interest
  Expenses) for the Defined Period

  	
   

  	
        to 1.0

  
	
   

  	
   

  	
   

  
	
  Minimum Required Interest Coverage Ratio for the Defined Period

  	
   

  	
        to 1.0

  
	
   

  	
   

  	
   

  
	
  In Compliance

  	
   

  	
  Yes/No

  

 

5

 

TOTAL
DEBT TO EBITDA RATIO

 

(Section
6.3)

 

	
  Total Debt:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Average daily principal balance of the Loans for the one (1) month
  period ending on the last day of the applicable measurement period (the “Defined Period”)

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Plus:

  	
  Outstanding principal balance of Unsecured Notes Debt

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Outstanding principal balance of Debt incurred or assumed for the
  purpose of financing all or any part of the cost of acquiring any fixed asset
  (including through Capital Leases)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Outstanding principal balance of unsecured Debt issued by landlords
  of real property leased by Subsidiaries

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Outstanding principal balance of all other Debt of Borrower and its
  Consolidated Subsidiaries as of the last day of the Defined Period

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Total Debt

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  EBITDA for the Defined Period (calculated in the manner required by Annex A
  of the Compliance Certificate)

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Ratio of Total Debt to EBITDA for the Defined Period

  	
   

  	
         to 1.0

  
	
   

  	
   

  	
   

  
	
  Maximum Permitted Ratio of Total Debt to EBITDA for the Defined
  Period

  	
   

  	
         to 1.0

  
	
   

  	
   

  	
   

  
	
  In Compliance

  	
   

  	
  Yes/No

  

 

6

 

SENIOR
DEBT TO EBITDA RATIO

 

(Section
6.4)

 

	
  Senior Debt:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Total Debt as of the last day of the applicable measurement period
  (the “Defined Period”)
  (calculated in the manner required by Section 6.3 of the Compliance
  Certificate)

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Less:

  	
  Outstanding principal balance of Unsecured Notes Debt

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Outstanding principal balance of Debt of Borrower and its
  Subsidiaries which is subordinated in right of payment to the Obligations,
  including Seller Subordinated Debt

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Senior Debt

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  EBITDA for the Defined Period (calculated in the manner required by Annex A
  of the Compliance Certificate)

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Ratio of Senior Debt to EBITDA for the Defined Period

  	
   

  	
        to 1.0

  
	
   

  	
   

  	
   

  
	
  Maximum Permitted Ratio of Senior Debt to EBITDA for the Defined
  Period

  	
   

  	
        to 1.0

  
	
   

  	
   

  	
   

  
	
  In Compliance

  	
   

  	
  Yes/No

  

 

7

 

ANNEX A to Schedule
I of Compliance Certificate

 

EBITDA

 

	
  EBITDA for the applicable measurement period (the “Defined Period”) is defined as follows:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Net income (or loss) for the Defined Period of Borrower and its
  Consolidated Subsidiaries, but excluding: (a)
  the income (or loss) of any Person (other than Domestic Subsidiaries of
  Borrower) in which Borrower or any of its Domestic Subsidiaries has an
  ownership interest unless received by Borrower or its Domestic Subsidiary in
  a cash distribution; and (b) the
  income (or loss) of any Person accrued prior to the date it became a Domestic
  Subsidiary of Borrower or is merged into or consolidated with Borrower

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Plus:

  	
  Any provision for (or less any benefit from) income and franchise
  taxes included in the determination of net income for the Defined Period

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Management fees paid to the Investors which are paid in accordance
  with Section 5.12 of the Credit Agreement

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Interest expense, net of interest income, deducted in the
  determination of net income for the Defined Period

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Amortization and depreciation deducted in the determination of net
  income for the Defined Period

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Losses (or less gains) from Asset Dispositions included in the
  determination of net income for the Defined Period (excluding sales,expenses
  or losses related to current assets)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Other non-cash losses (or less gains) included in the determination
  of net income for the Defined Period and for which no cash outlay (or cash
  receipt) is foreseeable

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Expenses and fees included in the determination of net income and
  incurred during the Defined Period to consummate the transactions
  contemplated by the Operative Documents, but solely to the extent reported to
  Agent in writing within forty five (45) days of the Closing Date (including,
  without limitation, write-offs of previously unamortized financing costs)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Extraordinary losses (or less gains) included in the determination of
  net income during the Defined Period, net of related tax effects

  	
   

  	
   

  

 

8

 

	
   

  	
  Adjustments to reflect actual rent paid in cash (whether positive or
  negative)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Less:

  	
  Expenditures made after the Closing Date, but during the Defined
  Period, in connection with the consummation of the transactions contemplated
  by the Operative Documents, but not reflected in the pro forma balance sheet
  referenced in subsection 3.5(c) of the Credit Agreement and not deducted in
  the determination of net income

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EBITDA for the Defined Period

  	
   

  	
  $

  

 

	
  For the purposes of calculating EBITDA for any Defined Period
  pursuant to any determination of the Total Debt to EBITDA Ratio or the Senior
  Debt to EBITDA Ratio:

  
	
   

  
	
  (i) if at any time
  during such Defined Period Borrower or any of its Subsidiaries shall have
  made any disposition permitted under the Credit Agreement (other than any
  disposition which constitutes or is conducted in connection with the closure
  of fitness clubs), the EBITDA for such Reference Period shall be reduced by
  an amount equal to the EBITDA (if positive) attributable to the property that
  is the subject of such disposition for such Defined Period or increased by an
  amount equal to the EBITDA (if negative) attributable thereto for such
  Defined Period and (ii) if
  during the Defined Period Borrower or any of its Subsidiaries shall have made
  a Permitted Acquisition, EBITDA for the Defined Period shall be calculated
  after giving pro forma effect
  thereto in a manner reasonably agreed upon by and between Borrower and Agent.

  

 

9

 

EXHIBIT C to Credit Agreement

 

Form of Borrowing
Base Certificate

 

EQUINOX HOLDINGS, INC.

 

Date: 
               
   , 20   

 

This
certificate is given by                               ,
a Responsible Officer of Equinox Holdings, Inc., a Delaware corporation (“Borrower”), pursuant to subsection 4.1(m)
of that certain Credit Agreement dated as of December 16, 2003 by and among
Borrower, the Lenders from time to time party thereto and Merrill Lynch
Capital, a division of Merrill Lynch Business Financial Services Inc., as Agent
for Lenders (as such agreement may have been amended, restated, supplemented or
otherwise modified from time to time the “Credit
Agreement”).  Capitalized
terms used herein or in Schedule 1 hereto without definition shall have the
meanings set forth in the Credit Agreement.

 

The
undersigned Responsible Officer hereby certifies to Agent and Lenders that:

 

(a)           Attached hereto as Schedule
1 is a calculation of the Borrowing Base for Borrower as of the above date;

 

(b)           based on such
schedule, the Borrowing Base as of the above date (the “Calculation Date”) is:

 

$                                 

 

IN WITNESS
WHEREOF, the undersigned officer has executed and delivered this certificate
this        day of
                ,
20   .

 

	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

1

 

SCHEDULE 1 to
Borrowing Base Certificate

 

BORROWING BASE CALCULATION

 

EQUINOX
HOLDINGS, INC.

 

	
  EBITDA-Based Availability Amount

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EBITDA (as
  calculated on the Compliance Certificate) for the twelve (12) month period
  ending on the last day of the most recent month ending on or preceding the
  Calculation Date for which Agent has received all of the financial statements
  for such month required to be delivered pursuant to subsection 4.1(a) of the
  Credit Agreement

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Less

  	
  Principal amount of Senior Debt (calculated in the manner
  required by Section 6.4 of the Compliance Certificate) outstanding on the
  Calculation Date

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  EBITDA-Based Availability Amount

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Intermediate Holdco Entities-Based Availability
  Amount

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Aggregate
  amount of Club Contribution from the Intermediate Holdco Entities for the
  twelve (12) month period ending on the last day of the most recent month
  ending on or preceding the Calculation Date for which Agent has received all
  of the financial statements for such month required to be delivered pursuant
  to subsection 4.1(a) of the Credit Agreement

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Less

  	
  Club
  Contributions which are less than zero ($0) and are attributable to
  Intermediate Holdco Entities which were formed on or after the date which is
  one year before the Calculation
  Date

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
  Plus:

  	
  Adjustments to reflect actual rent paid in cash (whether
  positive or negative)

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Multiplied by 1.50

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Less

  	
  Principal amount of Senior Debt (calculated in the manner
  required by Section 6.3 of the Compliance Certificate) outstanding on the
  Calculation Date

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Intermediate Holdco Entities-Based Availability
  Amount

  	
   

  	
  $

  

 

2

 

	
  Borrowing Base (lesser
  of EBITDA-Based Availability Amount and Intermediate Holdco Entities-Based Availability
  Amount)

  	
   

  	
  $

  

 

3

 

EXHIBIT D to Credit Agreement

 

Form of Notice of
Borrowing

NOTICE OF BORROWING

 

EQUINOX HOLDINGS, INC.

Date: 
           ,
200  

 

This
certificate is given by
                                     ,
a Responsible Officer of Equinox Holdings, Inc., a Delaware corporation (“Borrower”), pursuant to Section [2.1(b)/2.2(d)] of
that certain Credit Agreement dated as of December 16, 2003 by and among
Borrower, the Lenders from time to time party thereto and Merrill Lynch
Capital, a division of Merrill Lynch Business Financial Services Inc., as Agent
for Lenders (as such agreement may have been amended, restated, supplemented or
otherwise modified from time to time the “Credit
Agreement”).  Capitalized
terms used herein without definition shall have the meanings set forth in the
Credit Agreement.

 

The
undersigned Responsible Officer hereby gives notice to Agent of Borrower’s
request to:  [complete as appropriate]

 

(a)           on [date] borrow $[               ] of Loans, which Loans shall be
[Prime Rate Loans/LIBOR
Loans having an Interest Period of           month(s)];

 

(b)           on [date] convert $[               ] of the aggregate outstanding
principal amount of the  [               ]  Loan, bearing interest at the [               ] Rate, into a(n) [               ] Loan [and, in the case of a LIBOR Loan,
having an Interest Period of [               ] month(s)];

 

(c)           on [date] continue $[               ] of the aggregate outstanding
principal amount of the [               ] Loan, bearing interest at the
LIBOR, as a LIBOR Loan having an Interest Period of [               ] month(s).

 

The
undersigned officer hereby certifies that, both before and after giving effect
to the request above: (i) each of
the conditions precedent set forth in subsections 7.2(b), 7.2(c) and 7.2(d) of
the Credit Agreement have been satisfied,
(ii) all of the representations and warranties contained in the
Credit Agreement and the other Financing Documents are true, correct and
complete in all material respects as of the date hereof (except to the extent
any such representation and/or warranty specifically relates to a specific date
or dates, in which case such representation and/or warranty was true, correct
and complete as of such earlier date(s), and (iii) no
Default or Event of Default has occurred and is continuing on the date hereof.

 

IN WITNESS
WHEREOF, the undersigned officer has executed and delivered this certificate
this       day of
               ,
200  .

 

	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Name

  	
   

  	
   

  
	
   

  	
  Title

  	
   

  	
      of Borrower

  
					

 

1

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