Document:

AGREEMENT FOR LEGAL SERVICES

THIS  AGREEMENT  for legal  services  made this 22nd day of April,  1999, by and
between:

                           ANDORA, PALMISANO & GEANEY
                           A Professional Corporation
                         303 Molnar Drive, P.O. Box 431
                       Elmwood Park, New Jersey 07407-0431
                     hereinafter referred to as "Attorneys",

                                       and

                   INTERCHANGE FINANCIAL SERVICES CORPORATION
                             Park 80 West, Plaza Two
                         Saddle Brook, New Jersey 07663

                                       and

                                INTERCHANGE BANK
                              A Banking Corporation
                             Park 80 West, Plaza Two
                         Saddle Brook, New Jersey 07663
                      hereinafter referred to as "Clients".

     IN  CONSIDERATION  of  the  mutual  promises,  covenants  and  undertakings
contained herein the Attorneys and the Clients agree as follows:

1.   RETAINER

     Clients  hereby  retain the services of  Attorneys to act as its  corporate
counsel for the term and compensation as outlined herein.

2.   TERM

     The  Attorneys   shall  be  retained  by  Clients  until  the  next  annual
reorganization meeting of Clients.

3.   COMPENSATION

     The Clients  shall pay the  Attorneys  for  services  rendered as corporate
counsel an annual retainer of NINETY-FIVE  THOUSAND DOLLARS ($95,000.00) payable
in  equal  monthly  installments  on the  first  day of  each  and  every  month
commencing the first day of the month following the execution of this Agreement.
Clients  shall,  in addition to the annual  retainer,  pay to the  Attorneys all
out-of-pocket  expenses,  filing fees, or disbursements made by the Attorneys on
Clients'  behalf.  Clients  shall,  in  addition  to the  payment  of the annual
retainer and all costs,  pay to the  Attorneys a legal fee based on the rate per
hour as shown on  Schedule A for all legal  services  provided to Clients by the
Attorney  which are "legal  services  rendered in addition to those  rendered as
corporate  counsel." Such fees and costs shall be billed by Attorneys to clients
on a thirty-day basis and Clients shall pay all bills within five (5) days after
each monthly Board of Director's meeting of the Clients.

4.   DEFINITIONS

     The following words and phrases shall have the following meanings:
<PAGE>

  A.  "Legal services rendered as corporate counsel" shall mean and include all
       of the following types of legal work:

     1.  Except as hereinafter set forth in subparagraph B, document review and
         drafting of documents on behalf of the Clients including, but not
         limited to:  leases, notes, contracts, mortgages, commitment letters,
         disclosure statements, modifications, extensions and legal agreements
         not related to third-party borrowers, except residential mortgage
         reviews.

     2.  Providing legal advice required in the usual course of Clients'
         business including compliance analysis.

     3.  Attendance at Board of Director's and Shareholders' Meetings other than
         as a Director.

     4.  Advice regarding levies and executions

     5.  Preparation of annual SEC 10K, 10Q and "ordinary" proxy filings.

  B. "Legal services rendered in addition to those rendered as general corporate
      counsel" shall mean and include, but not be limited to, all of the
      following types of legal work which shall be billed on an hourly basis:

     1.  Litigation in which Clients are named as defendants.

     2.  Litigation or other proceedings in which Clients and another person or
         agency (i.e., Small Business Administration) specially retain Attorney.
         The hourly rate for such legal services shall be specifically agreed
         upon by Clients, the agency, and Attorneys.

     3.  Foreclosure litigation, including lien protection litigation in any
         Court including the Bankruptcy Court.

     4.  Regulatory or administrative law proceedings including but not limited
         to Department of Banking, zoning agencies, N.L.R.B., F.D.I.C., OAL,
         and Tax Court.

     5.  Loan reviews and closings, including modifications and extensions
         thereof, except that the fee shall be based upon $200.00 per hour plus
         costs and such fee shall not exceed 1/2% of the principal amount of the
         loan plus costs but in no event shall such fee be less than $250.00.

     6.  Closings in which the bank is a buyer or seller.

     7.  SEC Filings other than annual 10K, 10Q or "ordinary" proxy filings.

     8.  Mergers and Acquisitions.

     9.  All other legal services not specifically set forth in Paragraph 4A.

5.   BINDING EFFECT

     This agreement  shall be binding upon and shall inure to the benefit of the
parties' successors or assigns.

6.   NO ASSIGNMENT

     This agreement  shall not be assigned or sublet without the express written
consent of the parties.

7.   LAW APPLICABLE

     This agreement shall be governed by the laws of the State of New Jersey.

8.   SEVERABILITY
<PAGE>

     In the event any clause,  section or paragraph of this  agreement  shall be
declared  invalid or unenforceable  by a court of competent  jurisdiction,  such
invalidity or unenforceability shall not affect the remainder of this Agreement.

     IN WITNESS WHEREOF the parties have hereunto signed this agreement the date
first above written.
                                               INTERCHANGE BANK

ATTEST:

/s/Benjamin Rosenzweig                    By: /s/ Anthony S. Abbate
______________________________               __________________________________
Benjamin Rosenzweig, Secretary               Anthony S. Abbate, President

                                    INTERCHANGE FINANCIAL SERVICES CORPORATION

ATTEST:

/s/Benjamin Rosenzweig                    By: /s/ Anthony S. Abbate
______________________________               __________________________________
Benjamin Rosenzweig, Secretary               Anthony S. Abbate, President

ATTEST:                                     ANDORA, PALMISANO & GEANEY

/s/John P. Palmisano,                     By: /s/ Anthony D. Andora
______________________________                _________________________________
John P. Palmisano, Secretary                 Anthony D. Andora, President

<PAGE>

                                   SCHEDULE A

     The hourly rates contained  herein are subject to change on the anniversary
dates of the Agreement of Legal Services.

     Schedule A, reviewed and approved at Annual Reorganization Meeting on April
22, 1999.

                  Anthony D. Andora         $200.00 per hour

                  John P. Palmisano         $200.00 per hour

                  John F. Geaney            $200.00 per hour

                  Other Partners and
                  Senior Associates         $175.00 per hour

                  Other Associates          $150.00 per hourEXHIBIT 10.1
                                 EXECUTION COPY

                                CREDIT AGREEMENT

                                      AMONG

                    BALLY TOTAL FITNESS HOLDING CORPORATION,
                                   as Borrower

               The Several Banks and other Financial Institutions
                                 Parties Hereto

                            THE CHASE MANHATTAN BANK,
                                    as Agent

                           DEUTSCHE BANK ALEX. BROWN,
                             as Documentation Agent

                                       and

                       LASALLE BANK NATIONAL ASSOCIATION,
                                   as Co-Agent

                          Dated as of November 18, 1997

                             As Amended and Restated
                             as of November 10, 1999

                                                          CHASE SECURITIES INC.,
                                          as Lead Arranger and Sole Book Manager

<PAGE>
                                TABLE OF CONTENTS

                                                                            Page

ARTICLE I.DEFINITIONS AND ACCOUNTING TERMINOLOGY...............................1
     1.01  Certain Definitions.................................................1
     1.02  Financial Standards................................................29
     1.03  Interpretation.....................................................30

ARTICLE II.THE CREDIT.........................................................30
     2.01  The Revolving Credit...............................................30
     2.02  Requests for Revolving Advances....................................31
     2.03  The Term Loan Facility.............................................31
     2.04  Requests for Term Advances.........................................32
     2.05  Repayment of Term Advances.........................................32
     2.06  Lending Branch and Evidence of Credit..............................32
     2.07  Conversion and Continuation Options................................33
     2.08  Computation of and Payment of Interest.............................34
     2.09  Payment of Advances................................................35
     2.10  Payments...........................................................35
     2.11  Optional Termination or Reduction of Revolving
             Credit Commitment Amount.........................................37
     2.12  Optional Prepayments...............................................37
     2.13  Mandatory Prepayments and Commitment Reductions....................38
     2.14  Fees...............................................................38
     2.15  Arrangement Compensation; Agency Fees..............................39
     2.16  Taxes..............................................................40
     2.17  Increased Costs; Illegality; Indemnity.............................41
     2.18  Capital Adequacy...................................................43
     2.19  Letters of Credit..................................................43

ARTICLE III.SECURITY..........................................................51
     3.01  Security...........................................................51
     3.02  Collateral Documents...............................................52
     3.03  Priority of Security Interest......................................52
     3.04  New Guarantors.....................................................52
     3.05  Real Property Matters..............................................52
     3.06  Exceptions.........................................................53
     3.07  Pledge of Capital Stock............................................53

ARTICLE IV.CONDITIONS PRECEDENT...............................................53
     4.01  Conditions Precedent to Closing Date...............................53
     4.02  Conditions Precedent to Each Advance and
             Letter of Credit.................................................60

<PAGE>
                                                                            Page

ARTICLE V.REPRESENTATIONS AND WARRANTIES......................................60
     5.01  Borrower's Existence...............................................60
     5.02  Subsidiaries' Existence............................................61
     5.03  Borrower's Powers..................................................61
     5.04  Power of Officers..................................................61
     5.05  Government Approvals...............................................61
     5.06  Compliance With Laws...............................................61
     5.07  Enforceability of Agreement........................................61
     5.08  Title to Property..................................................62
     5.09  Litigation.........................................................62
     5.10  Events of Default..................................................62
     5.11  Compliance with Margin Requirements................................62
     5.12  Subsidiaries.......................................................62
     5.13  Financial Information..............................................62
     5.14  ERISA..............................................................63
     5.15  Investment Company Act of 1940.....................................63
     5.16  No Restrictions on Subsidiaries....................................63
     5.17  Senior Indebtedness................................................64
     5.18  Environmental Matters..............................................64
     5.19  Collateral Documents...............................................64
     5.20  Copyrights, Patents, Trademarks and Licenses, etc. ................65
     5.21  Year 2000..........................................................66
     5.22  Accuracy of Information, etc.......................................66
     5.23  1997 Subordinated Notes............................................66

ARTICLE VI.AFFIRMATIVE COVENANTS..............................................67
     6.01  Use of Proceeds and Letters of Credit..............................67
     6.02  Notices............................................................67
     6.03  Financial Statements, Reports, Etc. ...............................69
     6.04  Further Assurances.................................................71
     6.05  Existence, Etc. ...................................................71
     6.06  Ownership of Stock of Subsidiaries.................................72
     6.07  Payment of Obligations.............................................72
     6.08  Compliance with Laws...............................................72
     6.09  Insurance and Condemnation.........................................72
     6.10  Adequate Books.....................................................75
     6.11  ERISA..............................................................75
     6.12  Interest Coverage..................................................75
     6.13  Hazardous Materials................................................76
     6.14  Total Leverage Ratio...............................................77
     6.15  Senior Leverage Ratio..............................................77
     6.16  Real Estate Taxes..................................................78
     6.17  Additional Real Estate Collateral..................................78

<PAGE>
                                                                            Page

ARTICLE VII.NEGATIVE COVENANTS................................................79
     7.01  Investments and Restricted Payments................................79
     7.02  Other Obligations..................................................81
     7.03  Other Security.....................................................82
     7.04  Subordinated Debt..................................................82
     7.05  Liquidation; Merger................................................83
     7.06  [Reserved].........................................................84
     7.07  Change in Business.................................................84
     7.08  Disposal of Assets.................................................84
     7.09  Limitation on Optional Payments and Modifications
             of Debt Instruments and Receivables Program
             Documents........................................................85
     7.10  Limitation on Transactions with Affiliates.........................87
     7.11  Limitation on Sales and Leasebacks.................................87
     7.12  Limitation on Changes in Fiscal Year...............................88
     7.13  Funding Corp.......................................................88
     7.14  Unrestricted Subsidiaries..........................................88
     7.15  Tax Allocation and Indemnity Agreement.............................89
     7.16  Health & Tennis (UK) Limited.......................................89

ARTICLE VIII.EVENTS OF DEFAULT................................................89
     8.01  Nonpayment.........................................................89
     8.02  Representation or Warranty.........................................90
     8.03  Judgments..........................................................90
     8.04  Voluntary Bankruptcy...............................................90
     8.05  Involuntary Bankruptcy.............................................90
     8.06  Change of Control Event............................................90
     8.07  Cross Default......................................................90
     8.08  ERISA..............................................................90
     8.09  Specific Defaults..................................................91
     8.10  Guarantee and Collateral Agreement;
             Impairment of Collateral Documents...............................91
     8.11  Condemnation.......................................................92
     8.12  Payout Event.......................................................92
     8.13  Actual or Asserted Invalidity......................................92
     8.14  Other Defaults.....................................................92

ARTICLE IX.MISCELLANEOUS......................................................93
     9.01  Notices............................................................93
     9.02  Successors and Assigns.............................................94
     9.03  Lenders' Obligations Several.......................................94
     9.04  Assignments; Participations........................................94
     9.05  Delays and Waivers.................................................97
     9.06  Costs and Expenses.................................................97

<PAGE>
                                                                            Page

     9.07  Telephone Indemnity................................................98
     9.08  Other Indemnity....................................................98
     9.09  Choice of Law......................................................99
     9.10  Personal Jurisdiction.............................................100
     9.11  Service of Process................................................100
     9.12  Waiver of Jury Trial..............................................100
     9.13  Section Headings..................................................100
     9.14  Severability......................................................100
     9.15  Counterparts......................................................100
     9.16  No Reliance by Lenders............................................101
     9.17  Entire Agreement..................................................101
     9.18  Confidentiality...................................................101
     9.19  Receivables Program Savings Clause................................101
     9.20  Existing Credit Agreement to Remain in Full Force
             and Effect......................................................102

ARTICLE X.RELATION OF LENDERS................................................102
     10.01  Agent and Collateral Agent; Enforcement of Guaranties............102
     10.02  Pro Rata Sharing.................................................103
     10.03  Set-off..........................................................103
     10.04  Liability of Agent...............................................104
     10.05  Reliance by Agent................................................105
     10.06  Approvals; Amendments............................................105
     10.07  Notice of Default................................................106
     10.08  Credit Decision..................................................106
     10.09  Lenders' Indemnity...............................................107
     10.10  Agent as Lender..................................................107
     10.11  Notice of Transfer...............................................107
     10.12  Resignation of Agent.............................................108
     10.13  Collateral Matters...............................................108
     10.14  Collateral Agent.................................................111
     10.15  Documentation Agent and Co-Agent.................................111

<PAGE>
SCHEDULES

     Schedule 1.01           Existing Liens
     Schedule 1.01(b)        List of Scandinavian Partnerships
     Schedule 1.01(c)        Unrestricted Subsidiaries
     Schedule 2.19(b)        Letters of Credit
     Schedule 4.01(l)        Initial Mortgaged Properties
     Schedule 5.09           Litigation
     Schedule 5.14           ERISA Matters
     Schedule 5.16           Restrictions on Subsidiaries
     Schedule 5.18           Environmental Matters
     Schedule 5.20           Trademark Disputes
     Schedule 6.02(a)        Additional Disclosed Litigation
     Schedule 6.17           Additional Mortgaged Properties
     Schedule 7.02(b)        Existing Debt
     Schedule 7.09(a)        Prepayable Debt
     Schedule 9.01           Addresses for Notices

EXHIBITS

     Exhibit A.              Form of Guarantee and Collateral Agreement
     Exhibit B.              Form of Collateral Agency Agreement
     Exhibit C.              List of Commitment Percentages
     Exhibit D.              List of Subsidiaries
     Exhibit E.              Form of Operating Bank Guaranty
     Exhibit F.              List of Real Estate Documents
     Exhibit G.              [Reserved].
     Exhibit H.              Form of Revolving Note
     Exhibit I.              Form of Term Note
     Exhibit J.              Form of Opinions of Borrower's Counsel
     Exhibit K.              Form of Opinion of General Counsel
     Exhibit L.              [Reserved]
     Exhibit M.              Form of Assignment and Acceptance

<PAGE>
                                CREDIT AGREEMENT

          This Credit  Agreement,  dated as of November 18, 1997, as amended and
restated as of November  10, 1999 (the  "Credit  Agreement"),  among BALLY TOTAL
FITNESS HOLDING CORPORATION, a Delaware corporation ("Borrower"),  the banks and
other  financial  institutions  named on the signature  pages of this  Agreement
(collectively,  "Lenders" and  individually,  a "Lender"),  THE CHASE  MANHATTAN
BANK,  as agent for Lenders (in such  capacity,  "Agent"),  DEUTSCHE  BANK ALEX.
BROWN, as documentation agent (in such capacity, the "Documentation Agent"), and
LASALLE  BANK  NATIONAL  ASSOCIATION,   as  co-agent  (in  such  capacity,   the
"Co-Agent"), is entered into with respect to the following:

          1. The  Borrower,  certain of the Lenders and the Agent are parties to
the Credit  Agreement  dated as of  November  18,  1997,  as  amended  (the
"Existing Credit Agreement").

          2. The Borrower has requested  that the Existing  Credit  Agreement be
amended and  restated  (a) to increase  the  aggregate  principal  amount of the
Revolving Credit to  $100,000,000,  (b) to add a $75,000,000 term loan facility,
(c) to amend certain  covenants  and (d) otherwise to amend the Existing  Credit
Agreement and restate it in its entirety as more fully set forth herein.

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

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

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

                                   ARTICLE I.

                     DEFINITIONS AND ACCOUNTING TERMINOLOGY

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

          "Advance" means a Revolving Advance or a Term Advance.

          "Affiliate"  of  any  Person  means  any  other  Person   directly  or

<PAGE>
                                                                               2

     indirectly  indirectly  Controlling  or  Controlled  by or under  direct or
     indirect common Control with such Person.

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

          "Applicable Margin" means, at any time

          (a) with  respect to Revolving  Advances,  the rate per annum based on
     the Total Leverage Ratio of the Borrower, set forth in the following matrix
     which shall apply to each Type of Revolving  Advance,  the Letter of Credit
     fee payable  pursuant to Section  2.14(a)(i) and the commitment fee payable
     pursuant to Section 2.14(b), as applicable:

<TABLE>
<CAPTION>

          Total                      Reference   Letter of
         Leverage       Eurodollar      Rate       Credit    Commitment
          Ratio           Margin       Margin       Rate         Fee
     ----------------   ----------   ---------   ---------   ----------
     <S>                 <C>         <C>         <C>         <C>

     x > 3.00              3.00%        2.00%       2.00%       .50%
       -

     2.00 < x < 3.00       2.75%        1.75%       1.75%       .50%
          -

     x < 2.00              2.50%        1.50%       1.50%       .375%
</TABLE>

     Changes  in the  Applicable  Margin  resulting  from  changes  in the Total
     Leverage Ratio shall become effective on the date (the  "Adjustment  Date")
     on which  financial  statements  are  delivered to the Lenders  pursuant to
     Section 6.03 (but in any event not later than the 50th day after the end of
     each of the first three quarterly  periods of each fiscal year or the 105th
     day after the end of each fiscal year, as the case may be) and shall remain
     in effect until the next change to be effected  pursuant to this paragraph.
     Each  determination of the Total Leverage Ratio pursuant to this definition
     shall  be made  with  respect  to the  period  of four  consecutive  fiscal
     quarters  of the  Borrower  ending at the end of the period  covered by the
     relevant financial statements.  For the period from the Closing Date to the
     date financial  statements are delivered  pursuant to Section  6.03(b) with
     respect to the fiscal year ending  December  31, 1999,  the Total  Leverage
     Ratio shall be presumed to be greater  than 3:00 to 1 for  purposes of this
     definition; and

          (b) (i) with respect to Term Advances which are Eurodollar Advances, a
     rate per annum equal to 3.50% and (ii) with respect to Term Advances  which
     are Reference Rate Advances, a rate per annum equal to 2.50%.

<PAGE>
                                                                               3

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

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

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

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

          "Capital  Stock" of any Person  means any and all  shares,  interests,
     participations or other equivalents  (however  designated) of such Person's
     capital stock or other equity  interests  whether now outstanding or issued
     after the Closing Date.

          "Cash  Equivalents"  means (i) securities issued or directly and fully
     guaranteed  or  insured  by the  United  States of America or any agency or
     instrumentality  thereof  (provided  that the full  faith and credit of the
     United States of America is pledged in support  thereof) having  maturities
     of not  more  than 12  months  from the date of  acquisition,  (ii)  Dollar
     denominated time deposits,  certificates of deposit and bankers acceptances
     of any Lender or any bank whose  short-term  commercial  paper  rating from
     Standard & Poor's Ratings Group, a division of McGraw-Hill  ("S&P"),  is at
     least A-1 or the equivalent thereof or from Moody's Investors Service, Inc.
     ("Moody's") is at least P-1 or the equivalent  thereof (any such Lender, an
     "Approved  Lender"),  with  maturities  of not more than 12 months from the
     date of acquisition,  (iii) repurchase  obligations with a term of not more
     than seven days for  underlying  securities of the type described in clause
     (i) entered into with an Approved Lender,  (iv) commercial paper issued by,
     or  guaranteed  by, any  Approved  Lender or by the  parent  company of any
     Approved  Lender or  commercial  paper  issued  by, or  guaranteed  by, any
     industrial or financial  company with a short-term  commercial paper rating
     of at least  A-1 or the  equivalent  thereof  by S&P or at least P-1 or the
     equivalent  thereof  by  Moody's,  or issued  by,  or  guaranteed  by,  any
     industrial  company with a long term unsecured debt rating of at least A or
     A2, or the equivalent of each thereof,  from S&P or Moody's,  respectively,
     and in each case  maturing  within 12 months after the date of  acquisition
     and (v) any fund or funds making  substantially all of their investments in
     investments of the type described in clauses (i) through (iv) above.

          "Change  of  Control  Event"  means,   without  limitation,   (a)  the
     acquisition  of  ownership,  directly  or  indirectly,  beneficially  or of
     record,  by any Person  (other  than Arthur  Goldberg or Lee S.  Hillman or
     their  respective  estates or  descendants) or group (within the meaning of

<PAGE>
                                                                               4

     the  Securities  Exchange Act of 1934 and the rules of the  Securities  and
     Exchange Commission  thereunder as in effect on the date hereof), of shares
     representing  more  than  30%  of  the  aggregate   ordinary  voting  power
     represented  by the issued and  outstanding  Capital Stock of the Borrower;
     (b)  occupation of a majority of the seats (other than vacant seats) on the
     board  of  directors  of the  Borrower  by  Persons  who were  neither  (i)
     nominated by the board of  directors of the Borrower nor (ii)  appointed by
     directors  so  nominated;  or (c) the  acquisition  of direct  or  indirect
     Control of the Borrower by any Person (other than Arthur Goldberg or Lee S.
     Hillman or their respective estates or descendants) or group.

          "Chase"   means  The  Chase   Manhattan   Bank,  a  New  York  banking
     corporation.

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

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

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

          "Collateral  Agency  Agreement" means the Collateral  Agency Agreement
     among the Collateral Agent and the Secured Creditors in the form of Exhibit
     B hereto, as amended, supplemented or otherwise modified.

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

          "Collateral  Documents"  means,  collectively,  (i) the  Guarantee and
     Collateral Agreement,  the Collateral Agency Agreement,  the Mortgages, the
     Mortgage  Amendments,  the Operating  Bank Guaranty and all other  security
     agreements,  mortgages,  deeds of trust, patent and trademark  assignments,
     certificates of title, lease  assignments,  guarantees and other agreements
     between Borrower or any Guarantor and their respective Subsidiaries and any

<PAGE>
                                                                               5

     of the  Lenders or the  Collateral  Agent for the benefit of the Lenders or
     the Secured Creditors,  now or hereafter delivered to any of the Lenders or
     the  Collateral  Agent pursuant to or in connection  with the  transactions
     contemplated hereby, and all financing statements (or comparable documents)
     now or hereafter filed in accordance  with the Uniform  Commercial Code (or
     comparable  law) against  Borrower or any Guarantor or any  Subsidiaries in
     favor of any of the Lenders or the Collateral  Agent for the benefit of the
     Lenders or the  Secured  Creditors  and (ii) any  amendments,  supplements,
     modifications,  renewals, replacements,  consolidations,  substitutions and
     extensions of any of the foregoing.

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

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

          "Commitment  Reductions"  shall  mean  the  amount  of  the  permanent
     reductions of the Revolving  Credit  Commitment  Amount  resulting from the
     application of Sections 2.11, 2.13 or 7.08 or any other provision contained
     herein.

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

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

          "Consolidated  Interest Expense" means, for any period,  the aggregate

<PAGE>
                                                                               6

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

          "Consolidated  Net Income" of the Borrower means, for any period,  the
     consolidated  net income (or loss) of the Borrower and its Subsidiaries for
     such period as determined in accordance with GAAP, adjusted,  to the extent
     included in  calculating  such net income (or loss),  by excluding  (i) all
     extraordinary  gains  or  losses  (less  all  fees  and  expenses  relating
     thereto),  (ii) the portion of net income (or loss) of the Borrower and its
     Subsidiaries  allocable to minority interests in unconsolidated  Persons to
     the extent that cash  dividends or  distributions  have not  actually  been
     received by the Borrower or one of its  Subsidiaries,  (iii) net income (or
     loss) of any Person  combined with the Borrower or any of its  subsidiaries
     on a "pooling of interests"  basis  attributable to any period prior to the
     date of combination, (iv) any gain or loss, net of taxes, realized upon the
     termination  of any  Plan,  (v) any  gains  or  losses  (less  all fees and
     expenses  relating thereto) in respect of dispositions of assets other than
     in the  ordinary  course  of  business,  and  (vi)  the net  income  of any
     Subsidiary to the extent that the  declaration  of the dividends or similar
     distributions  by  that  Subsidiary  of  that  income  is not  at the  time
     permitted, directly or indirectly, by operation of the terms of its charter
     or any agreement,  instrument,  judgment,  decree,  order, statute, rule or
     governmental regulations applicable to that Subsidiary or its stockholders.

          "Consolidated  Total Debt" means for the Borrower for any period,  the
     sum (without  duplication) of (i) all  indebtedness of the Borrower and its
     Subsidiaries  for  borrowed  money  (excluding  up to  $160,000,000  in the
     aggregate of  indebtedness  under the  Receivables  Program  Documents  and
     Receivables  Financing  Transactions,  whether or not constituting  Debt or
     indebtedness  under GAAP),  including,  without  limitation,  reimbursement
     obligations  with  respect to letters of credit,  whether or not matured or
     whether  or  not  such  letters  of  credit  have  been  drawn   (excluding
     reimbursement  obligations to the extent that any letter of credit has been
     cash  collateralized on terms  satisfactory to the issuer of such letter of
     credit),  (ii) all  obligations of the Borrower and its  Subsidiaries  with
     respect to Capitalized Leases determined in accordance with GAAP, (iii) all
     Guarantees  (without  duplication of any amount of Debt included in another

<PAGE>
                                                                               7

     clause of this definition) made by the Borrower and its Subsidiaries,  (iv)
     all  obligations  of the Borrower  and its  Subsidiaries  representing  the
     deferred  purchase price of real or personal property or of services (other
     than current trade liabilities  incurred in the ordinary course of business
     and  payable  in  accordance  with  customary   practices),   and  (v)  all
     indebtedness  arising under any Interest Expense Hedging Arrangement of the
     Borrower and its Subsidiaries  (excluding to the extent otherwise  included
     in (i), (a) any Interest  Expense Hedging  Arrangement  with respect to the
     Receivables Program,  except for Interest Expense Hedging Arrangements with
     respect to  indebtedness  in excess of  $160,000,000 in the aggregate under
     the Receivables Program and Receivables  Financing  Transactions and (b) up
     to  $25,000,000  of recourse  indebtedness  under the Credit  Card  Program
     Agreement), in each case calculated on a consolidated basis.

          "Contract  Receivables"  means,  during any  period of  determination,
     gross accounts receivable of Borrower and its Subsidiaries created from the
     sale to customers, on an installment payment basis, of membership contracts
     for the use of fitness or exercise centers,  other than Receivables Program
     Receivables.

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

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

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

          "Credit Agreement" has the meaning assigned in the recitals hereto.

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

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

          "Debt"  means for any Person (i) all  indebtedness  of such Person for
     borrowed money (including, without limitation,  reimbursement and all other
     obligations  with  respect to letters of credit,  whether or not  matured),
     (ii) all  obligations  of such Person  representing  the deferred  purchase

<PAGE>
                                                                               8

     price of real or personal property or of services (other than current trade
     liabilities  incurred in the  ordinary  course of  business  and payable in
     accordance with customary  practices),  (iii) the amount of all obligations
     of such Person under Capitalized Leases determined in accordance with GAAP,
     (iv)  all   indebtedness   arising  under  any  Interest   Expense  Hedging
     Arrangement,  and (v) without duplication of any amount of Debt included in
     clause (i), (ii), (iii) or (iv) of this definition,  all Guaranties made by
     such Person.  Notwithstanding the foregoing, "Debt" shall not include up to
     $25,000,000  of  recourse   indebtedness  under  the  Credit  Card  Program
     Agreement.

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

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

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

          "Dollars" and "$" mean United States dollars.

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

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

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

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

<PAGE>
                                                                               9

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

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

                                Eurodollar Base Rate
                           ---------------------------------
                    1.00 - Eurocurrency Reserve Requirements

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

          "Event of Default" means any event listed in Article VIII.

          "Exchangeable   Transferor   Certificate"   shall  have  the   meaning
     attributed to such term in the Pooling & Servicing Agreement.

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

          "Fair Market Value" means, with respect to any asset or property,  the
     sale value that would be obtained in an arm's-length transaction between an
     informed and willing seller under no compulsion to sell and an informed and
     willing buyer under no compulsion to buy.

          "Federal  Funds Rate" means,  for any period,  a fluctuating  interest
     rate per  annum  equal for each day  during  such  period  to the  weighted
     average of the rates on overnight  Federal funds  transactions with members
     of the  Federal  Reserve  System  arranged  by Federal  funds  brokers,  as
     published  for such day (or, if such day is not a Banking Day, for the next

<PAGE>
                                                                              10

     preceding Banking Day) by the Federal Reserve Bank of New York, or, if such
     rate is not so published for any day which is a Banking Day, the average of
     the quotations for such day on such transactions received by the Agent from
     three (3) Federal funds brokers of recognized standing selected by it.

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

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

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

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

          "GAAP" means generally  accepted  accounting  principles in the United
     States of America in effect from time to time.

          "GAAP EBITDA" means with respect to the Borrower and its  Subsidiaries
     on  a  consolidated  basis,   without   duplication,   for  any  period  of
     determination,  (i)  Consolidated  Net Income  (loss),  plus, to the extent
     deducted in determining  Consolidated Net Income (loss), (ii) provision for
     taxes,  (iii)  Consolidated  Interest  Expense,  and (iv)  depreciation and
     amortization, all calculated in accordance with GAAP.

<PAGE>
                                                                              11

          "Guarantee   and  Collateral   Agreement"   means  the  Guarantee  and
     Collateral  Agreement  in  the  form  of  Exhibit  A  hereto,  as  amended,
     supplemented or otherwise modified.

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

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

          "H&T Master  Trust" means the trust created by the Pooling & Servicing
     Agreement.

          "Hazardous  Materials"  means any (i) "hazardous  substance" or "toxic
     substances," as those terms are defined by the Comprehensive  Environmental
     Response,  Compensation,  and Liability Act ("CERCLA"),  42 U.S.C.  Section
     9601 et seq.  and the  Hazardous  Materials  Transportation  Act, 49 U.S.C.
     Section 1802, all as amended or hereafter amended;  (ii) "hazardous waste",
     as defined by the  Resource  Conservation  and Recovery  Act  ("RCRA"),  42
     U.S.C.  Section  6901 et seq.,  as  amended  or  hereafter  amended;  (iii)
     pollutant  or  contaminant  or  hazardous,  dangerous  or  toxic  chemical,
     material,  or substance within the meaning of any other applicable federal,
     state  or local  law,  regulation,  ordinance,  or  requirement  (including
     consent  decrees  and  administrative  orders)  relating to  protection  of
     health,  safety or the environment,  as amended or hereafter amended;  (iv)
     crude oil or any fraction thereof which is liquid at standard conditions of
     temperature and pressure (60 degrees  Fahrenheit and 14.7 pounds per square
     inch absolute); (v) any radioactive material, including any source, special
     nuclear or  by-product  material  as defined at 42 U.S.C.  Section  2011 et
     seq., as amended or hereafter amended; (vi) asbestos or asbestos containing
     material  ("ACM")  in any  form  or  condition  and  (vii)  polychlorinated
     biphenyls ("PCBs") or substances or compounds containing PCBs.

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

          "Hazardous Materials Laws" means any federal,  state or local statute,
     regulation, ordinance or other legal requirement (including consent decrees

<PAGE>
                                                                              12

     and  administrative  orders)  relating to protection  of health,  safety or
     environment,  including but not limited to the Comprehensive  Environmental
     Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601
     et seq.;  the Resource  Conservation  and Recovery Act ("RCRA"),  42 U.S.C.
     Section  6901 et seq.;  the Clean Air Act, 42 U.S.C.  Section 7401 et seq.;
     the Clean  Water Act,  33 U.S C.  Section  1251 et seq.;  the  Occupational
     Safety and Health Act ("OSHA"),  29 U.S.C.  Section 651 et seq.;  the Toxic
     Substances  Control  Act  ("TSCA"),  15 U.S.C.  Section  2601 et seq.;  any
     similar state or local laws; any regulations promulgated pursuant to any of
     the foregoing; and all of the foregoing as amended or hereafter amended.

          "Intangible  Asset" means any asset which is treated as an  intangible
     asset in conformity with GAAP,  including,  without  limitation,  leasehold
     rights,  franchise rights,  non-compete agreements,  goodwill,  unamortized
     debt discounts,  patents,  patent  applications,  trademarks,  trade names,
     copyrights and licenses.

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

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

          "Interest Period" means with respect to any Eurodollar Rate Advance:

               (a)  initially,   the  period  commencing  on  the  borrowing  or
          conversion  date, as the case may be, with respect to such  Eurodollar
          Rate Advance and ending one, two, three or six months  thereafter,  as
          selected  by the  Borrower  in its  notice of  borrowing  or notice of
          conversion, as the case may be, given with respect thereto; and

               (b)  thereafter,  each period  commencing  on the last day of the
          next preceding  Interest  Period  applicable to such  Eurodollar  Rate

<PAGE>
                                                                              13

          Advance  and  ending  one,  two,  three or six months  thereafter,  as
          selected by the Borrower by  irrevocable  notice to the Agent not less
          than  three  Banking  Days  prior to the last day of the then  current
          Interest Period with respect thereto;

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

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

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

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

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

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

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

          "Issuing Lender" means Chase and other Lenders having Revolving Credit
     Commitments acceptable to the Agent and the Borrower.

          "Lending  Branch"  means with  respect to each Lender the  branches or
     offices  specified  on the  signature  pages  hereto  or such  other of its

<PAGE>
                                                                              14

     branches  or offices  as such  Lender  may from time to time  designate  in
     writing to Agent and Borrower.

          "Lenders" shall have the meaning set forth in the recitals hereto.

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

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

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

          "L/C  Commitment   Reductions"  means  the  amount  of  the  permanent
     reductions of the L/C Commitment  Amount  resulting from the application of
     Section 2.11, 2.13 or 7.08 or any other provision contained herein.

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

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

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

          "Material  Adverse Effect" means a material  adverse effect on (a) the
     business,  operations,  property,  condition  (financial  or  otherwise) or
     prospects  of the  Borrower and its  Subsidiaries  taken as whole,  (b) the
     validity or enforceability  of (i) this Agreement,  any of the Notes or any
     of the other  Credit  Documents or (ii) the rights or remedies of the Agent
     and the Lenders  hereunder or thereunder or (c) the ability of the Borrower
     and  its  Subsidiaries  taken  as  a  whole  to  perform  their  respective

<PAGE>
                                                                              15

     obligations under the Credit Documents.

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

          "Mortgages" means all fee mortgages, leasehold mortgages,  assignments
     of leases,  mortgage deeds, deeds of trust, deeds to secure debt,  security
     agreements,  and other similar instruments  described on Exhibit F attached
     hereto,   executed  or  to  be  executed  by  Borrower,   the  Scandinavian
     Partnerships or the various  Guarantors  which shall provide the Collateral
     Agent,  for the  benefit  of the  Secured  Creditors,  a Lien  on or  other
     interest  in any  portion of any real  property  in which  Borrower  or any
     Guarantor owns an interest.

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

          "Net Cash  Proceeds"  means (a) in connection  with any  incurrence of
     Debt (except any incurrence of Debt permitted under Section 7.02 (excluding
     Section 7.02(e), Section 7.09(c), Section 7.09(d) and Section 7.09(e)), the
     cash proceeds received from such issuance or incurrence,  net of attorneys'
     fees, investment banking fees,  accountants' fees,  underwriting  discounts
     and commissions and other customary fees and expenses  actually incurred in
     connection therewith and (b) in connection with the sale, lease, assignment
     or other  disposition  of any other asset (other than sales by the Borrower
     or  a  Subsidiary  of  the  Borrower  of  common  stock  (or  common  stock
     equivalents) of the Borrower),  cash proceeds  (including any cash received
     by way of deferred payments,  purchase price adjustments or otherwise,  but
     only  as  and  when  so  received)  received  by  Borrower  or  any  of its
     Subsidiaries  from the sale,  lease,  assignment or other  disposition (but
     excluding any such disposition permitted by Sections 7.08(a), (b), (c), (e)
     or (f) or the proviso to Section  7.08(d),  and excluding any such proceeds
     to the  extent  they  constitute  Reinvestment  Proceeds)  of any  asset or
     property of such Person or any insurance or condemnation  awards net of (i)
     the reasonable and customary  costs  directly  incurred in connection  with
     such transaction, (ii) taxes actually paid or in good faith estimated to be
     payable as a result  thereof and (iii) amounts  applied to the repayment of
     other Debt  secured by a  Permitted  Lien on the asset  disposed  of. If in
     determining  "Net Cash Proceeds",  amounts are deducted for estimated taxes
     payable,  and such  amounts are not  actually  paid when due by Borrower in
     cash in accordance  with all applicable  laws,  then such deducted  amounts
     shall constitute "Net Cash Proceeds".

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

<PAGE>
                                                                              16

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

          "1998 Indenture" means that certain Indenture dated as of December 16,
     1998 ("Original 1998  Indenture")  between  Borrower and U.S. Bank National
     Association,  as trustee (and any successor trustee thereto) (and any other
     indenture,  if any,  entered into in connection with a registered  exchange
     offer as long as such other indenture is substantially identical to, and no
     less favorable to the Lenders than, the Original 1998  Indenture)  relating
     to the 1998  Subordinated  Notes  and/or  entered  into by the  Borrower in
     connection with a registered exchange offer of the 1998 Subordinated Notes.

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

          "1996-1 Certificates" means the certificates executed by Funding Corp.
     and  authenticated  by the trustee under the Pooling & Servicing  Agreement
     representing interests in Series 1996-1 of the H&T Master Trust.

          "1996-1  Supplement" means the Series 1996-1  Supplement,  dated as of
     December  16,  1996,  by and among  Funding  Corp.,  BTFC and Chase Bank of
     Texas,   National   Association   (f/k/a  Texas   Commerce   Bank  National
     Association), as trustee,  supplementing the Pooling & Servicing Agreement,
     as  the  same  may  be  amended,  supplemented  or  otherwise  modified  in
     accordance with the terms of this Agreement.

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

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

          "Notes" means the collective  reference to the Revolving  Credit Notes
     and the Term Notes.

          "Obligations"   means  all  loans,   advances,   debts,   liabilities,
     obligations, covenants and duties owing to Agent, the Collateral Agent, any
     Lender,  any  Issuing  Lender  or any of  them or any of  their  respective
     successors and assigns, of any kind or nature,  present or future,  arising
     under this Agreement or under the Notes or under any Collateral Document or
     under any Interest  Expense Hedging  Agreement with any Lender,  whether or
     not for the payment of money,  whether arising by reason of an extension of
     credit, opening or amendment of a letter of credit (or payment of any draft
     drawn thereunder), loan, guaranty, indemnification, or in any other manner,

<PAGE>
                                                                              17

     whether  direct or  indirect  (including  those  acquired  by  assignment),
     absolute or  contingent,  due or to become due,  now  existing or hereafter
     arising and however acquired.  The term includes,  without limitation,  all
     interest  (whether  or not such  interest  would be an  allowed  claim in a
     bankruptcy or similar  proceeding  against the Borrower or any  Guarantor),
     charges,  expenses,  fees, reasonable attorneys' fees and disbursements and
     paralegals'  fees,  and  any  other  sums  chargeable  to  Borrower  or any
     Guarantor under this Agreement or any other Collateral Document.

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

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

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

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

          "Permitted Liens" means any one or more of the following:

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

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

<PAGE>
                                                                              18

          of bids, trade  contracts,  leases,  public or statutory  obligations,
          surety or appeal bonds and other obligations of a like nature incurred
          in the ordinary course of business;

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

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

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

               (vi)  Other  non-monetary  Liens  which  do not  have a  material
          adverse  effect on the value or use of the  property  subject  to such
          Liens;

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

               (viii) Liens under the Collateral Documents;

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

<PAGE>
                                                                              19

               (x) Other existing Liens listed on Schedule 1.01;

               (xi) A Liens  created after the Closing Date securing Debt of the
          Borrower or any  Subsidiary  of the type  described in clause (iii) of
          the  definition  of  "Debt",  the  incurrence  of which Debt is in the
          ordinary  course of business of the Borrower or such  Subsidiary,  and
          any  renewals,  extensions  or  refinancings  of such  Debt  permitted
          hereunder that do not consist of any capitalization of interest on the
          original  Debt,  provided  that  such  Liens  shall  not  extend to or
          encumber any property other than the property financed by such Debt;

               (xii)  Liens  on  the  Collateral   securing   revolving   credit
          commitments,  term loan  commitments  or letter of credit  commitments
          from  other  banks or  financial  institutions  until  the  Term  Loan
          Termination Date permitted under Section 7.02(e);  provided that Liens
          are pari passu or  subordinated  to the Liens of the Collateral  Agent
          and the Lenders hereunder and under the Collateral Documents;

               (xiii) (a) Liens on the Receivables  Program  Receivables created
          pursuant to the Receivables  Program  Documents,  and (b) Liens on the
          Receivables  Assets  created  pursuant  to  a  Receivables   Financing
          Transaction;

               (xiv) in addition  to Liens  permitted  under  clause (iv) above,
          Liens on the capital stock and assets of a Subsidiary  acquired  after
          the  Closing  Date so long as (a) such Liens do not cover or extend to
          any other stock or assets of the Borrower and its Subsidiaries and (b)
          the only  obligations  secured  by such Liens are (1)  purchase  money
          seller  Debt  incurred  to finance  the  acquisition  of such stock or
          assets and  existing  Debt which was not created in  contemplation  of
          such acquisition and is secured by a pledge of such stock and may also
          be secured by a pledge of such assets (such  existing  Debt,  "Assumed
          Debt"),   incurred  or  assumed  in  connection  with  an  acquisition
          permitted by Section 7.01(e) in an aggregate  amount not to exceed (A)
          $10,000,000 at any time outstanding  prior to the first anniversary of
          the Closing Date, (B) $15,000,000 at any time  outstanding  thereafter
          prior  to  the  second   anniversary  of  the  Closing  Date  and  (C)
          $20,000,000 at any time outstanding thereafter,  and (2) existing Debt
          assumed in connection with an acquisition permitted by Section 7.01(e)
          which was not  created in  contemplation  of such  acquisition  and is
          secured by a pledge of such assets (but not a pledge of such stock).

          "Person" means an individual,  a corporation,  a partnership,  limited

<PAGE>
                                                                              20

     liability  company, a joint venture,  an association,  a trust or any other
     entity or organization,  including a governmental or political  subdivision
     or an agent or instrumentality thereof.

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

          "Pooling  &  Servicing   Agreement"  means  the  Pooling  &  Servicing
     Agreement,  dated as of June 26,  1995,  as  amended  and  restated  by the
     Amended and Restated  Pooling and Servicing  Agreement dated as of December
     16, 1996,  among Funding  Corp.,  BTFC,  and Chase Bank of Texas,  National
     Association (f/k/a Texas Commerce Bank National  Association),  as trustee,
     as  the  same  may  be  amended,  supplemented  or  otherwise  modified  in
     accordance with the terms of this Agreement.

          "Properties" means all real properties owned in fee by Borrower or its
     Subsidiaries or the  Scandinavian  Partnerships  and all real properties in
     which Borrower or its Subsidiaries hold a leasehold interest.

          "Purchase  Agreement" means the Purchase  Agreement,  dated as of June
     26,  1995,  as amended and  restated by the Amended and  Restated  Purchase
     Agreement dated as of December 16, 1996, between Funding Corp. and BTFC, as
     the same may be amended,  supplemented or otherwise  modified in accordance
     with the terms of this Agreement.

          "Receivables   Assets"  means   property  of  BTFC  and  its  Domestic
     Subsidiaries  of the type  described  in  clauses  (a),  (b) and (c) of the
     definition  of  "Receivables  Program  Receivables"  sold in a  Receivables
     Financing Transaction;  provided that any such property shall automatically
     cease to constitute  "Receivables  Assets" if any such property is returned
     to BTFC or a  Subsidiary  in  accordance  with such  Receivables  Financing
     Transaction or is not subject to a Lien in connection with such Receivables
     Financing Transaction.

          "Receivables  Financing  Transaction"  means  any  sale  by  BTFC or a
     Domestic  Subsidiary of Receivables Assets to a Finance Subsidiary intended
     to be a true sale transaction and the corresponding  sale or pledge of such
     Receivables  Assets (or an  interest  therein)  by the  Finance  Subsidiary
     (including  increases in the Receivables Program  Certificates);  provided,
     however that (i) the terms,  conditions and structure  (including the legal
     and organizational structure of the Finance Subsidiary and the restrictions
     imposed on its activities) of and the documentation  incidental to any such
     transactions must be reasonably  acceptable to the Agent, (ii) the Borrower

<PAGE>
                                                                              21

     and its  Subsidiaries  provide  no credit  support  (other  than  customary
     limited recourse based upon the  collectibility of the Receivables  Assets)
     or collateral (other than the Receivables  Assets), and (iii) the documents
     governing  any such  transactions  do not  contain  any  cross-defaults  or
     cross-acceleration to Debt of the Borrower and its Subsidiaries (other than
     any such provisions that are not more  restrictive  than those set forth in
     the  Receivables   Program   Documents).   The  Borrower  shall  deliver  a
     certificate  to  the  Agent  concurrently  with  the  effectiveness  of any
     Receivables   Financing   Transaction   certifying  that  such  Receivables
     Financing Transaction complies with the requirements of this Agreement.

          "Receivables  Program"  means  the  program  of sales  of  Receivables
     Program  Receivables from time to time by the Borrower and its Subsidiaries
     to the H&T Master Trust  pursuant to, and in accordance  with the terms and
     conditions of, the Receivables Program Documents.

          "Receivables  Program  Certificates" means,  collectively,  the 1996-1
     Certificates  and all other  certificates  issued pursuant to the Pooling &
     Servicing Agreement or any supplement thereto representing interests in any
     series of the H&T Master  Trust  (other than any such  certificate  held by
     Funding Corp. or any other Subsidiary of the Borrower),  as the same may be
     amended, supplemented or otherwise modified in accordance with the terms of
     this Agreement.

          "Receivables  Program  Documents" means,  collectively,  the Pooling &
     Servicing Agreement,  the 1996-1 Supplement,  the 1996-1 Certificates,  all
     other supplements to the Pooling & Servicing Agreement (including,  without
     limitation,   any   supplement   relating  to  any  series  of  Refinancing
     Certificates),  all other Receivables  Program  Certificates,  the Purchase
     Agreement,  all other  purchase  agreements  with  respect  to  Receivables
     Program Receivables entered into in connection with the Pooling & Servicing
     Agreement,  and all other  agreements  entered into in connection  with the
     Receivables   Program,   including,   without  limitation,   any  servicing
     agreements  entered  into  with any  servicer  of the  Receivables  Program
     Receivables,  as any of the same may be amended,  supplemented or otherwise
     modified in accordance with the terms of this Agreement.

          "Receivables  Program  Receivable" means all right, title and interest
     transferred  to the H&T Master  Trust for the benefit of the holders of the
     Receivable  Program  Certificates,  pursuant  to  the  Receivables  Program
     Documents,  in (a) the  right to  payment  of  amounts  in  respect  of the
     membership  fee  (including  any sales tax  thereon)  and  finance  charges
     relating  thereto under an agreement made by BTFC or another  Subsidiary of
     BTFC,  in the form of a  written  retail  installment  sale  contract,  for

<PAGE>
                                                                              22

     membership in and the right to use facilities at, and obtain services from,
     one or more health clubs owned by BTFC or another  Subsidiary of BTFC,  (b)
     prior to the release  thereof  pursuant to Section  2.2(b) of the Pooling &
     Servicing  Agreement  from the Trust  Property (as defined in the Pooling &
     Servicing  Agreement),  all amounts paid from time to time pursuant to such
     written  retail  installment  sale contract in respect of monthly dues, nsf
     fees, late payment fees,  cancellation  fees for relocation  cancellations,
     transfer fees to transfer a membership,  lost membership  card  replacement
     fees,  or  other  payments  not  constituting   Collections  or  Transferor
     Collections (as defined in the Pooling & Servicing Agreement), and proceeds
     thereof  (including  without  limitation  amounts  held in accounts for the
     benefit of the H&T Master Trust and  investments of such amounts),  and (c)
     such written  retail  installment  sale contract and any rights against the
     originator  or seller  thereof  under the  Purchase  Agreement or the other
     purchase agreements included in the Receivables Program Documents, provided
     that any such right, title or interest in any of the property identified in
     the  foregoing   clauses  (a),  (b)  or  (c)  of  this   definition   shall
     automatically cease to constitute "Receivables Program Receivables" at such
     time  as (I)  each  of the  following  conditions  is  satisfied:  (i)  all
     Receivables  Program  Certificates  are paid in full,  (ii) the H&T  Master
     Trust is  terminated  pursuant  to Section  12.1 of the Pooling & Servicing
     Agreement  and,  pursuant  to  Section  12.4  of the  Pooling  &  Servicing
     Agreement,  the Exchangeable  Transferor  Certificate is surrendered to the
     trustee in connection with the reconveyance by the trustee to Funding Corp.
     of all right, title and interest of the H&T Master Trust in the Receivables
     Program  Receivables and other property of the H&T Master Trust (except for
     amounts  held by the trustee  pursuant to Section  12.3(b) of the Pooling &
     Servicing  Agreement),  and (iii) in  accordance  with GAAP,  the  accounts
     receivable  constituting  Receivables  Program  Receivables  prior  to such
     reconveyance are upon such  reconveyance  properly included within Contract
     Receivables  on the  consolidated  balance  sheet of the  Borrower  and its
     consolidated Subsidiaries or (II) such right, title or interest is returned
     to  BTFC  or a  Subsidiary  in  accordance  with  the  Receivables  Program
     Documents or is no longer subject to the Receivables Program Documents.

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

<PAGE>
                                                                              23

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

          "Reference  Rate  Advance"  means  an  Advance  the  rate of  interest

<PAGE>
                                                                              24

     applicable to which is based upon the Reference Rate.

          "Refinancing  Certificates"  has the meaning ascribed to it in Section
     7.09(d).

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

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

          "Related  Fund" means,  with respect to any Lender that is a fund that
     invests in bank  loans,  any other  fund that  invests in bank loans and is
     advised or managed by the same  investment  advisor as such Lender or by an
     affiliate of such investment advisor.

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

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

<PAGE>
                                                                              25

     (x) any shares of any class of capital  stock or other equity  interests or
     (y) any  warrants,  options or other  rights to  acquire  any shares of any
     class of capital stock or other equity interests of such Person.

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

          "Revolving Credit" means the credit described in Section 2.01 hereof.

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

          "Revolving  Credit  Commitment  Amount"  means  $100,000,000  less any
     Revolving Credit Commitment Reductions.

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

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

          "Revolving  Credit  Commitment  Reductions"  means  the  amount of the
     permanent  reductions of the Revolving Credit  Commitment  Amount resulting
     from the  application of Sections 2.11, 2.13 or 7.08 or any other provision
     contained herein.

          "Revolving Credit Termination Date" means the earliest to occur of

               (a) the date the Revolving Credit Commitment Amount is terminated

<PAGE>
                                                                              26

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

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

               (c) November 8, 2002.

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

          "Scandinavian Partnerships" means those certain partnerships listed on
     Schedule 1.01(b) hereto.

          "Secured Creditors" means, collectively, Chase and the Operating Banks
     in their separate financial  arrangements with Borrower, and the Agent, the
     Collateral  Agent, the Lenders and the Issuing Lenders,  each in connection
     with the Secured Obligations.

          "Secured  Obligations"  means,  collectively,  the Obligations and the
     Operating Bank Obligations.

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

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

          "Subordinated  Debt" means (a) Borrower's  9-7/8% Senior  Subordinated
     Notes due 2007,  issued  under and  pursuant to the 1997  Indenture  ("1997
     Subordinated  Notes"),  (b) Borrower's 9-7/8% Senior Subordinated Notes due
     2007, issued under and pursuant to the 1998 Indenture (together with any of
     Borrower's 9-7/8% Senior  Subordinated Notes due 2007 issued under the 1998
     Indenture in exchange therefor,  the "1998 Subordinated Notes" and together
     with the 1997 Subordinated  Notes, the "Subordinated  Notes"),  and (c) any
     other Debt of Borrower which is subordinated to the Debt created under this
     Agreement  and the Notes in a manner and  containing  terms and  provisions
     satisfactory to Majority Lenders.

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

<PAGE>
                                                                              27

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

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

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

          "Term Advance" means a borrowing under the Term Loan Facility pursuant
     to Section 2.03 hereof; collectively, the "Term Loans".

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

          "Term Loan Commitment Amount" means $75,000,000, as such amount may be
     reduced from time to time pursuant to this Agreement.

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

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

          "Term Loan  Termination  Date" means the  earliest to occur of (a) the
     date the Term Advances are  terminated or  accelerated  pursuant to Article

<PAGE>
                                                                              28

     VII, and (b) November 10, 2004.

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

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

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

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

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

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

          "Unrestricted  Subsidiary"  means (i) any  Subsidiary  of the Borrower
     that exists on the Closing  Date and is so  designated  as an  Unrestricted
     Subsidiary on Schedule 1.01(c), (ii) any subsidiary of the Borrower that at
     the  time  of  determination  shall  be  an  Unrestricted   Subsidiary  (as
     designated by the Board of Directors of the Borrower,  as provided  below),
     and  (iii)  any  subsidiary  of an  Unrestricted  Subsidiary.  The Board of
     Directors may designate any subsidiary of the Borrower (including any newly
     acquired or newly formed  subsidiary) to be an  Unrestricted  Subsidiary if
     all of the following  conditions apply: (a) neither the Borrower nor any of
     its Subsidiaries  provides credit support for Debt or other  obligations of
     such  Unrestricted  Subsidiary  (including  any  undertaking,  agreement or
     instrument  evidencing  such Debt or  obligations),  (b) such  Unrestricted
     Subsidiary is not liable, directly or indirectly,  with respect to any Debt
     other than Unrestricted Subsidiary Indebtedness,  (c) any Investment by the
     Borrower in such  Unrestricted  Subsidiary  made as a result of designating
     such subsidiary an Unrestricted Subsidiary shall not violate the provisions
     described under Section 7.01 and such Unrestricted  Subsidiary is not party
     to any agreement,  contract, arrangement or understanding at such time with

<PAGE>
                                                                              29

     the Borrower or any other  Subsidiary  of the Borrower  unless the terms of
     any such  agreement,  contract,  arrangement or  understanding  are no less
     favorable to the Borrower or such other Subsidiary than those that might be
     obtained at the time from  Persons who are not  Affiliates  of the Borrower
     or,  in the  event  such  condition  is not  satisfied,  the  value of such
     agreement,  contract,  arrangement or  understanding  to such  Unrestricted
     Subsidiary  shall  be  deemed  an  Investment,  and (d)  such  Unrestricted
     Subsidiary does not own any Capital Stock in any Subsidiary of the Borrower
     which is not  simultaneously  being designated an Unrestricted  Subsidiary.
     Any such  designation  by the Board of Directors  shall be evidenced to the
     Agent by filing with the Agent a  resolution  of the Board of  Directors of
     the Borrower giving effect to such designation and an officer's certificate
     certifying that such designation complies with the foregoing conditions and
     any  Investment by the Borrower in such  Unrestricted  Subsidiary  shall be
     deemed the making of an Investment on the date of  designation in an amount
     equal to the  greater of (1) the net book value of such  Investment  or (2)
     the Fair Market Value of such Investment as determined in good faith by the
     Board  of  Directors  (and  evidenced  by a  resolution  of  the  Board  of
     Directors).   The  Board  of  Directors  may  designate  any   Unrestricted
     Subsidiary  as a  Subsidiary;  provided  (i)  that,  if  such  Unrestricted
     Subsidiary  has  any  Debt,   immediately   after  giving  effect  to  such
     designation, no Default or Event of Default would result, and (ii) that all
     Debt of such  Subsidiary  shall be deemed to be  incurred  on the date such
     Unrestricted Subsidiary becomes a Subsidiary.

          "Unrestricted  Subsidiary Indebtedness" of any Unrestricted Subsidiary
     means Debt of such  Unrestricted  Subsidiary  (a) as to which  neither  the
     Borrower nor any Subsidiary is directly or indirectly  liable (by virtue of
     the Borrower or any such Subsidiary being the primary obligor on, guarantor
     of, or otherwise liable in any respect to, such Debt), and (b) which,  upon
     the  occurrence of a default with respect  thereto,  does not result in, or
     permit any holder of any Debt of the Borrower or any Subsidiary to declare,
     a  default  on such Debt of the  Borrower  or any  Subsidiary  or cause the
     payment thereof to be accelerated or payable prior to its stated maturity.

          1.02 Financial  Standards.  All accounting terms not expressly defined
herein shall be construed,  except where the context otherwise requires or if it
has otherwise been indicated  herein, in accordance with GAAP. If any changes in
accounting  principles  are  hereafter  occasioned  by  promulgation  of  rules,
regulations,  pronouncements  or  opinions by or are  otherwise  required by the
Securities and Exchange Commission,  the Financial Accounting Standards Board or
the American Institute of Certified Public Accountants (or successors thereto or
agencies with similar functions),  and any of such changes result in a change in
the method of calculation,  or affect the results of such calculation, of any of
the  financial  covenants  and  the  definitions   relating  to  such  financial
covenants,  then the parties  hereto agree to enter into and  diligently  pursue

<PAGE>
                                                                              30

negotiations  in order to amend such financial  covenants or terms in accordance
with  Section  10.06 hereof so as to equitably  reflect such  changes,  with the
desired result that the criteria for evaluating  Borrower's  financial condition
and  results  of  operations  shall be the same  after  such  changes as if such
changes had not been made.

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

                                   ARTICLE II.

                                   THE CREDIT

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

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

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

<PAGE>
                                                                              31

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

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

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

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

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

          2.03 The Term Loan  Facility.  (a) Subject to the terms and conditions
of this  Agreement,  each Lender  severally  agrees to make a term loan (a "Term
Advance") to the  Borrower on the Closing Date in amount equal to such  Lender's
Term Loan Commitment  Percentage of the Term Loan Commitment  Amount (as to each
Lender, its "Term Loan Commitment").

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

<PAGE>
                                                                              32

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

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

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

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

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

          2.05  Repayment  of Term  Advances.  The Term  Advances of each Lender
shall mature in 20 consecutive quarterly installments on each March 31, June 30,
September 30 and December 31,  commencing on March 31, 2000, each of which shall
equal such  Lender's  Term Loan  Commitment  Percentage  multiplied by $250,000,
except for the  twentieth  installment  which  shall be payable on the Term Loan
Termination  Date and shall equal such Lender's Term Loan Commitment  Percentage
multiplied by $70,250,000.

          2.06  Lending  Branch and Evidence of Credit.  (a) The Borrower  shall
issue a Revolving Note and/or a Term Note, as the case may be, to each Lender on
the Closing  Date  representing  such  Lender's  proportionate  interests in the
Revolving Credit and the Term Loan Facility.

<PAGE>
                                                                              33

          (b) Each Revolving Note and each Term Note (collectively, the "Notes")
shall be  executed  by  Borrower,  dated the  Closing  Date and  provide for the
payment  of  interest  and  principal  in  accordance  with  the  terms  of this
Agreement.  Each Lender  shall  record in its  records,  or at its option on the
schedule  attached to its respective  Notes,  the date,  amount and Type of each
Advance  made by such  Lender  and each  repayment  thereof,  each  continuation
thereof, each conversion of all or a portion thereof to another Type and, in the
case of  Eurodollar  Rate  Advances,  the length of each  Interest  Period  with
respect  thereto.  The  aggregate  unpaid  principal  amount so  recorded  shall
constitute prima facie evidence of the principal amount owing and unpaid on such
Notes  absent  manifest  error.  The failure so to record any such amount or any
error in so  recording  any such amount shall not,  however,  limit or otherwise
affect the  obligations  of  Borrower  hereunder  or under any Note to repay the
principal amount of the Advances together with all interest accruing thereon and
fees accruing with respect thereto.

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

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

          (b) Any  Eurodollar  Rate  Advances  may be continued as such upon the
expiration  of the then  current  Interest  Period with  respect  thereto by the
Borrower's  giving  notice  to the  Agent,  in  accordance  with the  applicable
provisions  of the term  "Interest  Period"  set forth in Section  1.01,  of the
length of the next Interest  Period to be  applicable to such Advance,  provided
that no Eurodollar Rate Advance may be continued as such (i) when any Default or
Event of Default has  occurred and is  continuing  and the Agent or the Majority
Lenders have determined that such a continuation of a Eurodollar Rate Advance is
not  appropriate,  or (ii)  after  the  date  that  is one  month  prior  to the

<PAGE>
                                                                              34

Termination Date and provided,  further, that if the Borrower shall fail to give
any required notice as described above in this paragraph or if such continuation
is not  permitted  pursuant to the  preceding  proviso  such  Advances  shall be
automatically  converted to Reference Rate Advances on the last day of such then
expiring Interest Period.

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

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

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

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

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

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

<PAGE>
                                                                              35

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

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

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

          (ii) the Agent shall have  received  notice from the Majority  Lenders
     that the Eurodollar  Rate  determined or to be determined for such Interest
     Period will not  adequately and fairly reflect the cost to such Lenders (as
     conclusively  certified  by such  Lenders) of making or  maintaining  their
     affected Advances during such Interest Period,

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

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

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

<PAGE>
                                                                              36

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

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

          (d) Unless Agent shall have been  notified by telephone  (confirmed in
writing),  by any Lender  prior to a Borrowing  Date,  that such Lender will not
make  available  to Agent the  amount  which  would  constitute  its  applicable
Commitment  Percentage of the Advances to be made on such date, Agent may assume
that such  Lender  has made such  amount  available  to Agent and,  in  reliance
thereon,  may (but  shall not be  required  to) make  available  to  Borrower  a
corresponding  amount. If such Lender makes its applicable Commitment Percentage
of an Advance  available to Agent after a borrowing  date, such Lender shall pay
to Agent on demand  an  amount  equal to the  product  of (i) the daily  average
Federal Funds Rate from and  including  the borrowing  date to but excluding the
date the applicable  Commitment Percentage of such Advance was made available to
Agent  (the "Out of Funds  Period")  multiplied  by (ii) an amount  equal to its
applicable  Commitment  Percentage  of such  Advance  multiplied  by  (iii)  the
quotient of the number of days in the Out of Funds Period divided by 365 or 366,
as the case may be. A  certificate  from  Agent  submitted  to any  Lender  with
respect to any amounts owing under this paragraph (d) shall be conclusive in the
absence of manifest error. If any Lender's applicable  Commitment  Percentage of
an Advance is not in fact made  available to Agent by such Lender within one (1)
Banking Day after a  Borrowing  Date,  Agent  shall be entitled to recover  such
amount,  with  interest  thereon  at the rate per annum then  applicable  to the
Advances  hereunder,  on demand from Borrower,  without prejudice to Agent's and
Borrower's rights against such defaulting Lender.

          (e) Unless Agent shall have been  notified by telephone  (confirmed in
writing),  by Borrower,  prior to any date on which a payment is due  hereunder,
that Borrower will not make the required  payment on such date, Agent may assume
that  Borrower  will make such  payment  to Agent  and,  in  reliance  upon such
assumption, may (but shall not be required to) make available to each Lender the
amount  due to it on such date.  If such  amount is not in fact paid to Agent by
Borrower  within one (1) Banking Day after such  payment is due,  Agent shall be
entitled to recover  from each  Lender the amount paid to it by Agent,  together
with  interest  thereon  in the  amount  equal to the  product  of (i) the daily

<PAGE>
                                                                              37

average  Federal Funds Rate from and including the payment date to but excluding
the date the payment was made  available to Agent (the "Out of Funds  Interval")
multiplied  by (ii) an  amount  equal  to the  amount  received  by such  Lender
multiplied  by (iii)  the  quotient  of the  number  of days in the Out of Funds
Interval  divided by 365 or 366,  as the case may be. A  certificate  from Agent
submitted to any Lender with respect to any amounts  owing under this  paragraph
(e) shall be conclusive in the absence of manifest error.

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

          2.12 Optional  Prepayments.  Upon written notice (or telephone  notice
confirmed  promptly in writing) received by Agent not later than 12:00 noon, New
York  City  time,  on the date  thereof,  Borrower  may at any time  prepay  any
Reference Rate Advance in full or in part,  without  premium or penalty,  in the
amount of One  Million  Dollars  ($1,000,000)  or an  integral  multiple of Five
Hundred  Thousand  Dollars  ($500,000) in excess thereof (or, if the outstanding
principal  amount of all Reference Rate Advances is less that  $1,000,000,  such
lesser amount).  Upon written notice (or telephone notice confirmed  promptly in
writing) received by Agent not later than 12:00 noon, New York time, received at
least three (3) Banking Days prior to the date of prepayment, which notice shall
specify  the date and amount of  prepayment  and the amount of  Eurodollar  Rate
Advances being prepaid, Borrower may on the last day of any Interest Period with
respect thereto prepay any Eurodollar  Rate Advance in full or in part,  without
premium or penalty  (other than costs  required  to be paid  pursuant to Section
2.17(d)),  in the amount of Five  Million  Dollars  ($5,000,000)  or an integral
multiple  of One  Million  Dollars  ($1,000,000)  in excess  thereof.  Each such
prepayment  of  Revolving  Advances  made  pursuant to this  Section 2.12 may be
reborrowed subject to the terms and conditions of this Agreement.  Prepayment of
Term Advances may not be reborrowed.  Any  prepayments of Revolving  Advances or
Term  Advances,  as the case may be, made pursuant to this Section 2.12 shall be
applied first to Reference Rate Advances then outstanding and then to Eurodollar
Rate Advances then outstanding,  subject to Section 2.17(d).  Any prepayments of
Term  Advances  made  pursuant  to this  Section  2.12  shall be  applied to the
remaining installments in reverse chronological order.

<PAGE>
                                                                              38

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

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

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

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

          (a) (i) in  respect  of each  Letter of Credit,  a  commission  on the
     maximum  amount   available  for  drawing  under  such  Letter  of  Credit,
     calculated at the rate per annum equal to the Letter of Credit Rate (as set
     forth under the definition of Applicable  Margin in Section 1.01;  provided
     that for the period from the Closing Date to the date financial  statements
     are delivered  pursuant to Section  6.03(b) with respect to the fiscal year
     ending  December 31, 1999, the Total Leverage Ratio shall be presumed to be
     greater than 3:00 to 1 for purposes of calculating  such commission) on the

<PAGE>
                                                                              39

     face amount of such Letter of Credit, computed for the period from the date
     such Letter of Credit is issued to the date upon which the next  payment is
     due under this subsection (and, thereafter,  from the date of payment under
     this  subsection  to the date upon which the next payment is due under this
     subsection), and payable quarterly in arrears (calculated on the basis of a
     three hundred sixty (360) day year for the actual days elapsed) on the last
     Banking Day of each March, June,  September and December after the issuance
     of such Letter of Credit and on the Revolving Credit Termination Date;

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

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

          (b) a commitment fee at the rate per annum equal to the commitment fee
     (as set forth in the  definition  of  Applicable  Margin in  Section  1.01;
     provided  that for the period from the Closing  Date to the date  financial
     statements  are delivered  pursuant to Section  6.03(b) with respect to the
     fiscal year ending  December 31, 1999,  the Total  Leverage  Ratio shall be
     presumed  to be greater  than 3:00 to 1 for  purposes  of  calculating  the
     commitment  fee) on the difference  between (i) the average daily Revolving
     Credit  Commitment  Amount,  and (ii) the average daily principal amount of
     the outstanding Revolving Advances,  participating  interests in Letters of
     Credit and  unreimbursed  drawings  in  respect  of Letters of Credit.  The
     commitment  fees under this Section  2.14(b) shall be payable  quarterly in
     arrears  (calculated  on the basis of a three  hundred sixty (360) day year
     for the actual days elapsed) payable on the last Banking Day of each March,
     June, September and December and on the Revolving Credit Termination Date.

          2.15  Arrangement  Compensation;   Agency  Fees.  Borrower  agrees  to
compensate Chase, for Chase's sole use and benefit,  for Chase's arrangement and
agency  services  in the  amounts  and at the  times as may be from time to time
agreed in writing between Borrower and Chase.

<PAGE>
                                                                              40

          2.16  Taxes.

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

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

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

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

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

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

          (ii) Borrower or Agent shall make such deductions and

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

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

<PAGE>
                                                                              41

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

          (d) Each  Non-U.S.  Lender shall deliver to the Borrower and the Agent
two copies of either U.S.  Internal Revenue Service Form W-8 BEN or Form W-8ECI,
or any subsequent  versions thereof or successors thereto properly completed and
duly executed by such Non-U.S.  Lender  claiming  complete  exemption from, or a
reduced rate of, U.S.  federal  withholding  tax on all payments by the Borrower
under this Agreement.  Such forms shall be delivered by each Non-U.S.  Lender on
or before  the date it  becomes a party to this  Agreement.  In  addition,  each
Non-U.S.  Lender shall  deliver such forms  promptly  upon the  obsolescence  or
invalidity  of any form  previously  delivered  by such  Non-U.S.  Lender.  Each
Non-U.S.  Lender shall  promptly  notify the Borrower at any time it  determines
that  it  is no  longer  in a  position  to  provide  any  previously  delivered
certificate to the Borrower (or any other form of  certification  adopted by the
U.S. taxing authorities for such purpose).  Notwithstanding  any other provision
of this Section 2.16(d), a Non-U.S.  Lender shall not be required to deliver any
form pursuant to this Section  2.16(d) that such Non-U.S.  Lender is not legally
able to deliver.

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

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

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

          (i) any Lender's being subject to any tax of any kind  whatsoever with

<PAGE>
                                                                              42

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

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

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

          (b) Any Lender seeking (i)  reimbursement  from Borrower for the costs
incurred,  losses  suffered or payments made as described in  subsection  (a) of
this Section 2.17, or (ii) payment from Borrower under Section 2.18 hereof,  may
recover such sums from Borrower by  delivering  to Borrower a statement  setting
forth the amount owed to such Lender and showing how such  calculation was made,
signed by a duly  authorized  officer of such Lender,  which  statement shall be
conclusive evidence of the amount owed absent manifest error; provided, however,
that (A)  reimbursement  or  payment  under  this  subsection  (b)  shall not be
demanded  by any Lender for the period  prior to the  Closing  Date  (other than
Lenders party to the Existing Credit Agreement;  provided that no claim shall be
made by any Lender pursuant to the Existing  Credit  Agreement that arose during
the period prior to the closing date for the Existing Credit Agreement), and (B)
each Lender  shall  notify  Borrower as  promptly  as  practicable  of any event
occurring  after the date of this  Agreement  that would  entitle such Lender to
reimbursement or payment under this subsection (b).

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

<PAGE>
                                                                              43

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

          2.18 Capital Adequacy. If any Lender shall have determined that, after
the date  hereof,  the  adoption of any  applicable  law,  rule,  regulation  or
guideline  regarding capital adequacy,  or any change therein,  or any change in
the  interpretation  or  administration  thereof by any governmental  authority,
central  Lender  or  comparable  agency  charged  with  the   interpretation  or
administration  thereof,  or compliance by any Lender (or its Lending  Branch or
any  corporation  controlling  such Lender) with any  direction,  requirement or
request  regarding  capital adequacy (whether or not having the force of law) of
any such authority, central Lender or comparable agency, affects or would affect
the amount of capital  required or expected to be  maintained  by such Lender or
any   corporation   controlling   such  Lender  and  such  Lender  (taking  into
consideration  such Lender's  policies with respect to capital adequacy and such
Lender's targeted return on capital)  determines that the amount of such capital
is  increased  or required to be increased  as a  consequence  of such  Lender's
obligations  under this Agreement,  then,  upon demand by such Lender,  Borrower
shall  immediately  pay to such  Lender,  from time to time as specified by such
Lender,  additional  amounts  sufficient  to  compensate  such  Lender  for such
increase.

          2.19  Letters of Credit.  (a) The Letters of Credit.  (i) From time to
time during the Revolving Credit Commitment  Period,  each Issuing Lender agrees
on the terms and  conditions set forth herein to issue Letters of Credit for the
account of the Borrower; provided, that no Issuing Lender shall issue any Letter
of Credit if after giving effect to such issuance,  the aggregate undrawn amount
of all  Letters of Credit  then  outstanding  plus the  aggregate  amount of all
unreimbursed  drawings  under Letters of Credit would exceed the L/C  Commitment
Amount; provided,  further, that no Lender shall issue any Letters of Credit if,
after giving effect to such issuance, the sum of the aggregate undrawn amount of
all Letters of Credit then outstanding plus the aggregate  outstanding principal
amount of all  Revolving  Advances  plus the  aggregate  amount of  unreimbursed

<PAGE>
                                                                              44

drawings  under Letters of Credit would exceed the Revolving  Credit  Commitment
Amount;  provided,  further,  that no Issuing  Lender shall issue any Letters of
Credit  subsequent  to the date which is 30 days prior to the  Revolving  Credit
Termination Date.

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

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

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

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

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

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                                                                              45

          (b)  Issuance of Letters of Credit.

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

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

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

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

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

<PAGE>
                                                                              46

business days after receipt of any requisite documents demanding such payment.

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

          (c)  Participations, Drawings and Reimbursements.

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

          (ii) The Borrower shall reimburse the Agent for the full amount of any
drawing  under the Letter of Credit on the same date such  drawing is honored by
the Issuing Lender.  In the event Borrower shall fail to reimburse Agent for the
full  amount of any  drawing  on the same date such  drawing  is  honored by the
Issuing  Lender under any Letter of Credit,  the Issuing  Lender shall  promptly
notify Agent and Agent shall as promptly as possible  notify each Lender thereof
and Borrower  shall be deemed to have requested that a Reference Rate Advance be
made by the Lenders to be disbursed on the date of payment by the Issuing Lender
under such Letter of Credit,  subject to the amount of the unutilized portion of
the  Revolving  Credit  Commitment  Amount  on  such  date  and  subject  to the
conditions  set forth in Section 4.02. Any notice given by the Issuing Lender or
Agent pursuant hereto may be oral if immediately confirmed in writing (including
telecopy or telex);  provided  that the lack of such an  immediate  confirmation
shall not affect the  conclusiveness  and  binding  effect of such  notice.  The
proceeds of such  Revolving  Advances  shall be paid to the Agent which will, in
turn,  disburse such proceeds to the Issuing  Lender as  reimbursement  for such
drawings.  Notwithstanding  the  foregoing,  if at any time an Event of  Default
described in Section 8.05 or 8.06 has occurred and is continuing,  such drawings
shall be reimbursed by the Lenders' purchasing pro rata participation  interests
in such  Letter of Credit in amounts  equal to each  Lender's  Revolving  Credit
Commitment Percentage of the relevant amounts drawn.

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

          (iv)  Each  Lender  will,  promptly  upon  receipt  of  notice  of  an
unreimbursed drawing under a Letter of Credit pursuant to Section  2.19(c)(iii),
make  available  to Agent for the  account  of the  Issuing  Lender an amount in

<PAGE>
                                                                              47

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

          (v) The  obligation of each Lender to provide Agent with such Lender's
Revolving  Credit  Commitment  Percentage  of  the  amount  of  any  payment  or
disbursement  made by any Issuing Lender under any outstanding  Letter of Credit
shall  be  absolute  and  unconditional  under  any  and all  circumstances  and
irrespective of any setoff, counterclaim or defense to payment which such Lender
may  have or have  had  against  such  Issuing  Lender  (or any  other  Lender),
including,  without  limitation,  any defense based on the failure of the demand
for  payment  under such Letter of Credit to conform to the terms of such Letter
of Credit or the legality, validity, regularity or enforceability of such Letter
of Credit or any defense based on the identity of the  transferee of such Letter
of  Credit  or the  sufficiency  of the  transfer  if such  Letter  of Credit is
transferable;  provided,  however,  that  Lenders  shall  not  be  obligated  to
reimburse  such Issuing  Lender for any wrongful  payment or  disbursement  made
under any Letter of Credit as a result of acts or omissions  constituting  gross
negligence or willful  misconduct  on the part of such Issuing  Lender or any of
its officers,  employees or agents.  Further,  each Lender agrees to perform its
obligations under Section  2.19(c)(iv) despite the occurrence of a Default or an
Event of Default or any  inability of Borrower to require such Lender to fulfill
its other obligations  hereunder  including,  without limitation,  any inability
resulting  from the  operation of Bankruptcy  Code Section  365(c)(2) (11 U.S.C.
Section 365(c)(2)) or otherwise.

          (d)  Repayment of Participations.

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

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

<PAGE>
                                                                              48

          (B)  in payment of interest thereon;

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

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

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

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

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

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

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

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

<PAGE>
                                                                              49

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

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

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

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

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

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

          (G) any other  circumstance  or happening  whatsoever,  whether or not
     similar to any of the foregoing,  including,  without limitation, any other
     circumstance  that might otherwise  constitute a defense available to, or a
     discharge   of,   Borrower  or  any  Guarantor  but  excluding  any  action
     constituting the Issuing  Lender's gross negligence or willful  misconduct;
     or

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

          (g) Requests Regarding Renewals and Extensions of Renewable Letters of
Credit.  The  Borrower  shall  deliver to the Agent and the  applicable  Issuing
Lender,  not earlier  than thirty (30) days,  and not later than  fourteen  (14)
days,  before  notice of  non-renewal  or  non-extension  is required  under the
Renewable Letters of Credit issued by such Issuing Lender, a written request for
renewal or  extension  of each  Renewable  Letter of Credit  which the  Borrower
desires to renew or extend.  Such request  shall  specify the required  date for
notice by the Issuing Lender of non-renewal or non-extension under the Renewable
Letters of Credit and include a  certification  by the  Borrower  that as of the

<PAGE>
                                                                              50

date of such request,  no Default or Event of Default shall have occurred and be
continuing  and all of the  representations  and  warranties  contained  in this
Agreement  and the  Collateral  Documents  are true and correct in all  material
respects,  except as to representations and warranties contained in Section 5.09
and  which  expressly  relate  to an  earlier  date and for  changes  which  are
contemplated  or permitted by this  Agreement.  No such request shall be made by
the  Borrower  which  would cause the expiry  date of such  Renewable  Letter of
Credit  to  extend  beyond  five  Banking  Days  prior to the  Revolving  Credit
Termination  Date. For purposes of this Section  2.19(g),  valid delivery by the
Borrower of the  required  request  shall be deemed to have  occurred  only upon
actual  receipt  of such  notice  by the Agent and the  Issuing  Lender.  If the
Borrower  fails to deliver such a notice within such period with respect to such
Renewable  Letter of Credit,  the  Issuing  Lender of such  Renewable  Letter of
Credit shall deliver  appropriate  notices of  non-extension or non-renewal with
respect to such Renewable Letter of Credit.

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

<PAGE>
                                                                              51
                                  ARTICLE III.

                                    SECURITY

          3.01  Security.

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

          (b) Upon the  application  by the  Borrower or any  Subsidiary  of any
Reinvestment  Proceeds to the  acquisition  of any new  property or assets,  the
Borrower or such Subsidiary at its expense shall immediately cause such acquired
property or assets to become subject to Liens and security interests in favor of
the Collateral Agent to secure the Secured  Obligations to the same extent,  and
with the same  priority,  as the Liens and security  interests  which covered or
extended to the  property or assets the  disposition  of which gave rise to such
Reinvestment  Proceeds,  provided,  however,  that if any  portion  of the gross
proceeds  realized upon the  disposition of such asset were applied to discharge
any Debt or other  obligations  secured by a Lien on such assets which was prior
to the Liens granted  under the  Collateral  Documents,  then there shall not be
permitted to be any Lien on the replacement property, other than Liens under the
Collateral Documents,  except for Liens permitted pursuant to clause (iv) of the
definition  of  "Permitted  Liens" in connection  with the  acquisition  of such
replacement  assets,  provided  that  such  Liens  do not  secure  Debt or other
obligations in an amount in excess of the Debt or other  obligations  discharged
with respect to the asset  disposed of (except for  acquisitions  of  individual
items of replacement  exercise  equipment which may be subject to purchase money
financing on customary  terms in  accordance  with the practices of the Borrower
and its Subsidiaries,  and except that, with respect to dispositions of not more
than three  health clubs after the Closing  Date on which the  Collateral  Agent
held Liens of second priority,  the Debt and other obligations  secured by Liens
on the replacement  property having priority over the Liens under the Collateral
Documents may exceed the amount of the Debt or other obligations with respect to
the assets  disposed of by not more than (i) $3,000,000 with respect to any such
replacement  property or (ii) $7,000,000 for all such  replacement  properties).
Upon any such  acquisition,  such acquired property or assets shall be deemed to
constitute  Collateral  for all purposes of this  Agreement  and the  Collateral
Documents,  any collateral  documents  executed and delivered by the Borrower or
any of its  Subsidiaries to grant the liens and security  interests  required by
this Section shall be deemed to be Collateral Documents for all purposes of this
Agreement  and  the  other  Credit  Documents,   and  any  such  application  of
Reinvestment Proceeds and acquisition of such property or assets shall be deemed
a  representation  and warranty  that, as of the date of such  acquisition,  all

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                                                                              52

representations  and  warranties  contained in this Agreement and the Collateral
Documents  applicable  to such  Collateral  are true and correct in all material
respects.

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

          3.03 Priority of Security Interest.  The lien and security interest of
the  Collateral  Agent in the  Collateral  shall,  to the extent  permissible by
applicable  law,  at all  times,  be and  continue  to be a  first  lien  in all
jurisdictions,  whether state,  federal or foreign,  subject to no other Lien of
any kind (except Permitted Liens).

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

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

<PAGE>
                                                                              53

          As additional  security for the Secured  Obligations,  Borrower agrees
that in the event Borrower or any Guarantor acquires any real property or enters
into any lease for real property upon which Borrower or any Guarantor  shall own
the improvements,  then, from time to time, upon request of the Agent,  Borrower
shall,  or shall cause such  Guarantor to,  execute,  deliver and record any new
mortgages,  deeds of trust, leasehold mortgages and leasehold deeds of trust and
similar  instruments,  or amendments to any existing mortgages,  deeds of trust,
leasehold  mortgages  and  leasehold  deeds of  trust  and  similar  instruments
(collectively,  such existing and new  instruments are called the "Real Property
Security Documents")  encumbering such owned or ground-leased property (provided
that the lease  permits  the  granting  of such  security  interest  in favor of
Collateral Agent;  provided,  however, that before entering into any said ground
lease,  Borrower or such Guarantor shall request that the ground lessor agree to
permit such security interest in favor of the Collateral Agent in the provisions
of  the  ground  lease),   which  Real  Property  Security  Documents  shall  be
substantially in the same form as the Real Property Security  Documents provided
on and/or in effect as of the date hereof.  In  connection  with such  hereafter
owned,  leased or otherwise acquired real property,  Borrower agrees to provide,
or cause the  applicable  Guarantor  to  provide,  to the  Collateral  Agent (a)
surveys of said real property  reasonably  acceptable to Agent and (b) mortgagee
title  insurance  policies  in form and amount  reasonably  acceptable  to Agent
covering said real property.

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

          3.07 Pledge of Capital Stock. Without limitation of the foregoing, the
Borrower and its  Subsidiaries  will pledge the capital  stock,  or  partnership
interests,  of any entity  acquired  after the Closing Date in  accordance  with
Section 7.01, subject to the provisions of Section 3.06.

                                   ARTICLE IV.

                              CONDITIONS PRECEDENT

          4.01 Conditions Precedent to Closing Date. This Agreement shall become
effective as of the Closing Date, subject to the conditions precedent that Agent
shall have received,  for its account and the accounts of the respective lenders
party to the Existing Credit Agreement in accordance with their interests, on or
before the  Closing  Date,  payment of all accrued  and unpaid  interest,  fees,
expenses,  breakage  fees and  related  costs  and  expenses  payable  under the
Existing Credit Agreement in respect of the period prior to the Closing Date and
subject to the  further  conditions  precedent  that on or prior to the  Closing
Date:

<PAGE>
                                                                              54

          (a)  Opinions  of  Counsel to  Borrower,  etc.  There  shall have been
     delivered  to  Agent  (with  sufficient  copies  for  distribution  to  all
     Lenders),  in form and substance  satisfactory to Agent and its counsel, an
     opinion,  dated the Closing  Date,  of (i) Benesch,  Friedlander,  Coplan &
     Aronoff LLP, counsel for Borrower and the Guarantors,  substantially in the
     form of Exhibit J-1 hereto and (ii) Winston & Strawn,  special  counsel for
     the Borrower and the Guarantors,  substantially  in the form of Exhibit J-2
     hereto;

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

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

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

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

          (f) Guarantors'  Incorporation Papers. There shall have been delivered
     to Agent (with sufficient copies for distribution to all Lenders),  in form
     and substance  satisfactory to Agent and its counsel,  with respect to each
     Guarantor  which has not  previously  delivered  such documents to Agent, a
     copy of each such  Guarantor's  certificate of incorporation or articles of

<PAGE>
                                                                              55

     association  and  by-laws  or  partnership  agreement,  as the case may be,
     certified by the Secretary or an Assistant Secretary of such Guarantor;

          (g) Guarantors' Resolutions.  There shall have been delivered to Agent
     (with sufficient  copies for distribution to all Lenders),  with respect to
     each Guarantor which has not previously  delivered such documents to Agent,
     in form and substance  satisfactory  to Agent and its counsel,  a copy of a
     resolution  or  resolutions  passed by the Board of  Directors  (or similar
     body)  of each  Guarantor  (or,  with  respect  to a  Guarantor  which is a
     partnership,  of  such  Guarantor's  general  partner),  certified  by  the
     Secretary or an Assistant  Secretary of such Guarantor (or general partner)
     as being in full  force and effect on the  Closing  Date,  authorizing  the
     execution, delivery and performance of the Collateral Documents to which it
     is a party;

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

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

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

          (k) Notes.  There  shall  have been  delivered  to the Agent,  for the
     account  of  each  Lender,   an  applicable  Note,  each  with  appropriate

<PAGE>
                                                                              56

     insertions and  completions and conforming to the  requirements  hereof and
     executed by a duly authorized officer of the Borrower;

          (l)  Collateral  Documents.  There shall have been  delivered to Agent
     (with  sufficient  copies for  distribution  to all  Lenders),  in form and
     substance satisfactory to Agent and its counsel, sufficient counterparts of
     (i) a Confirmation  and Consent,  in form  reasonably  satisfactory  to the
     Agent, with respect to the Guarantee and Collateral Agreement,  executed by
     a duly authorized officer of each of the Borrower and the Guarantors,  (ii)
     Mortgages  covering  each of the  Properties  listed on  Schedule  4.01(l),
     executed by a duly  authorized  officer of each of the Borrower and each of
     the Guarantors which holds an interest in the applicable Property and (iii)
     the other Collateral  Documents,  executed by a duly authorized  officer of
     each of the Borrower and the Guarantors party to such Collateral Documents;

          (m) Pledge of Shares. The Collateral Agent shall have received (x) (i)
     the certificates  representing the certificated shares of Funding Corp. and
     each of the Guarantors listed on Exhibit D hereto and (ii) the certificates
     representing  65% of the  certificated  shares of the Foreign  Subsidiaries
     owned  directly by the Borrower or a Guarantor  (other than Health & Tennis
     U.K.  Limited),  which  certificates  are  to be  pledged  pursuant  to the
     Guarantee  and  Collateral  Agreement,  together  with (y) an undated stock
     power  for each such  certificate  executed  in blank by a duly  authorized
     officer of the pledgor thereof;

          (n) Acknowledgements. If requested by the Agent, there shall have been
     delivered  to  Agent  (with  sufficient  copies  for  distribution  to  all
     Lenders),  in form and  substance  satisfactory  to Agent and its  counsel,
     sufficient  counterparts of an amendment  and/or  acknowledgment  from each
     Person which executed a consent or  acknowledgement  in connection with the
     Existing Credit Agreement and any other document or agreement identified by
     the Agent (including  landlord's consents and consents by other partners in
     partnerships to the liens on certain interests in such partnerships created
     by the Collateral Documents confirming that such consent or acknowledgement
     remains  effective  after giving effect to the  refinancing of the Existing
     Credit  Agreement  by this  Agreement,  but  excluding  those  consents and
     acknowledgements specified in Exhibit L);

          (o) Surveys.  The Agent shall have received,  and the Title  Insurance
     Company (defined below) shall have received,  (A) an as-built survey of the
     sites  of the  property  covered  by  each  Mortgage  (including  leasehold
     mortgages)  certified  to the Agent and the Title  Insurance  Company  in a
     manner satisfactory to them, dated a date satisfactory to the Agent and the
     Title  Insurance  Company  by an  independent  professional  licensed  land
     surveyor satisfactory to the Agent and the Title Insurance Company, and the
     surveys  on which  they are  based  shall  be made in  accordance  with the
     Minimum  Standard  Detail  Requirements  for  Land  Title  Surveys  jointly
     established  and adopted by the  American  Land Title  Association  and the
     American  Congress on Surveying and Mapping in 1992, and,  without limiting

<PAGE>
                                                                              57

     the generality of the foregoing,  there shall be surveyed and shown on such
     maps,  plats or surveys the  following:  (i) the locations on such sites of
     all the buildings,  structures and other  improvements  and the established
     building  setback lines;  (ii) the lines of streets  abutting the sites and
     width  thereof;  (iii) all access and other  easements  appurtenant  to the
     sites or necessary or desirable to use the sites; (iv) all roadways, paths,
     driveways, easements, encroachments and overhanging projections and similar
     encumbrances affecting the site, whether recorded, apparent from a physical
     inspection  of the  sites  or  otherwise  known  to the  surveyor;  (v) any
     encroachments  on any  adjoining  property by the building  structures  and
     improvements on the sites; and (vi) a legend relating to the survey, or (B)
     in lieu of an as-built survey,  the Borrower or its Subsidiaries shall have
     delivered any affidavits or other documents required by the Title Insurance
     Company  to  insure  the  state of facts  set  forth in a survey  which was
     previously  included in a title insurance  policy delivered by the Borrower
     or a Subsidiary to the Agent.  Surveys delivered to the Agent in connection
     with the Existing Credit Agreement with respect to particular items of real
     property  may be  deemed  by the  Agent  sufficient  to  comply  with  this
     paragraph (o) for such items.

          (p) Title Insurance  Policy.  The Agent shall have received in respect
     of each parcel  covered by each  Mortgage  covering  the real  property set
     forth on Schedule  4.01(l) a  mortgagee's  title  policy (or  policies)  or
     marked up  unconditional  binder for such insurance dated the Closing Date.
     Each such policy shall (i) be in an amount  satisfactory to the Agent; (ii)
     be issued at ordinary rates; (iii) insure that the Mortgage insured thereby
     creates a valid first Lien on such parcel free and clear of all defects and
     encumbrances,  except such as may be  approved by the Agent;  (iv) name the
     Agent for the benefit of the Lenders as the insured  thereunder;  (v) be in
     the form of ALTA Loan Policy - 1970 (Amended  10/17/70);  (vi) contain such
     endorsements and affirmative coverage as the Agent may request and (vii) be
     issued by a title company (the "Title Insurance  Company")  satisfactory to
     the Agent. The Agent shall have received  evidence  satisfactory to it that
     all premiums in respect of each such  policy,  and all charges for mortgage
     recording tax, if any, have been paid.

          (q) Flood  Insurance.  If requested by the Agent, the Agent shall have
     received  (i) a policy of flood  insurance  which (A)  covers any parcel of
     improved real property which is encumbered by any Mortgage,  (B) is written
     in an  amount  not  less  than  the  outstanding  principal  amount  of the
     indebtedness secured by such Mortgage which is reasonably allocable to such
     real property or the maximum limit of coverage made  available with respect
     to the particular  type of property under the National Flood  Insurance Act
     of 1968,  whichever is less, and (C) has a term ending not earlier than the
     maturity of the indebtedness secured by such Mortgage and (ii) confirmation
     that the  Borrower has  received  the notice  required  pursuant to Section
     208(e)(3) of Regulation H of the Board of Governors of the Federal  Reserve
     System.

<PAGE>
                                                                              58

          (r) Copies of  Documents.  The Agent shall have received a copy of all
     recorded  documents  referred to, or listed as  exceptions to title in, the
     title  policy  or  policies  referred  to in  Section  4.01(p)  and a copy,
     certified by such parties as the Agent may deem  appropriate,  of all other
     documents affecting the property covered by each Mortgage covering the real
     property listed on Schedule 4.01(l).

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

          (t) No Material  Adverse  Change.  There shall not have occurred since
     December  31, 1998 any change or  development,  which in either case in the
     opinion of the Majority Lenders could have a Material Adverse Effect;

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

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

          (w) Payment of Fees and Expenses.  The Agent shall have received,  for
     the account of the Lenders and for its own account,  payment by Borrower of
     all  fees and  expenses  (including  reasonable  legal  fees and  expenses)
     required to be paid hereunder, including without limitation, under Sections
     2.09, 2.11 and 9.06, to the extent invoices therefor have been presented to
     Borrower prior to the Closing Date;

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

<PAGE>
                                                                              59

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

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

               (iii) there has occurred since December 31, 1998, no development,
          event or circumstance  which has had or is reasonably likely to have a
          Material Adverse Effect;

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

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

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

          (bb)  Reallocation.  The Lenders shall have made such  payments  among
     themselves  and to the lenders  under the  Existing  Credit  Agreement,  as
     directed by the Agent,  so that the  Revolving  Advances and Term  Advances
     outstanding on the Closing Date are held by the Lenders in accordance  with
     their respective applicable Commitment  Percentages,  and each Lender shall
     be deemed to have  transferred  any interest  transferred by it pursuant to
     such reallocation free and clear of any Liens created by it.

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                                                                              60

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

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

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

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

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

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

                                   ARTICLE V.

                         REPRESENTATIONS AND WARRANTIES

          Borrower represents and warrants to each Lender that:

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

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                                                                              61

effect on the consolidated  financial  condition or the business of Borrower and
its Subsidiaries.

          5.02  Subsidiaries'  Existence.  Each  Substantial  Subsidiary is duly
organized  and  validly  existing  under  the  laws of the  jurisdiction  of its
formation,  and is in good standing and properly licensed to conduct business in
the  State  in  which  its  principal   operations  are  located  and  in  every
jurisdiction  in which the  nature of the  business  conducted  by it makes such
compliance  necessary and where failure to comply would have a material  adverse
effect on the business of any such Subsidiary.

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

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

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

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

          5.07  Enforceability of Agreement.  Each of this Agreement,  the Notes
and each of the  other  Credit  Documents  to which the  Borrower  or any of its
Subsidiaries is a party are legal,  valid and binding agreements and obligations
of  Borrower,  or such  Subsidiary,  as the  case  may be,  enforceable  against
Borrower  or such  Subsidiary,  as the case may be,  in  accordance  with  their
respective terms, and any other instrument or agreement required hereunder, when

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                                                                              62

executed and delivered, will be similarly legal, valid, binding and enforceable,
subject,  in each case,  to the effects of  bankruptcy,  insolvency,  fraudulent
conveyance,  reorganization,  moratorium  and other  similar laws relating to or
affecting  creditors' rights generally and general equitable principles (whether
considered in a proceeding in equity or at law).

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

          5.09  Litigation.  Except as disclosed on Schedule 5.09,  there are no
suits, proceedings, claims or disputes pending or, to the knowledge of Borrower,
threatened  against or affecting  Borrower or any Subsidiary or their respective
property, which could reasonably be expected to have a Material Adverse Effect.

          5.10 Events of Default.  No event has  occurred and is  continuing  or
would result from the incurring of  obligations by Borrower under this Agreement
and the other Credit Documents which is a Default or an Event of Default.

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

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

          5.13  Financial   Information.   The  audited  consolidated  financial
statements of Borrower and its  Subsidiaries for the fiscal year ending December
31, 1998 and the unaudited consolidated financial statements of the Borrower and
its subsidiaries for the fiscal quarter ending June 30, 1999 have been furnished
by  Borrower  to  Lenders.  Such  financial  statements  have been  prepared  in
accordance  with GAAP and  practices  consistently  applied and  accurately  and
fairly present in all material respects the consolidated financial condition and
results of  operations  of the  entities  referred  to therein as of such dates.
Since the date of the most  recent  audited  financial  statements  referred  to
above, there has been no change in Borrower's  consolidated  financial condition
or results of operations  sufficient to impair  Borrower's  ability to repay the
Obligations  in  accordance  with the terms  hereof.  Neither  Borrower  nor any
Subsidiary  has any  contingent  obligations,  liabilities  for  taxes  or other
outstanding  financial  obligations which are material in the aggregate,  except
those for which  adequate  reserves  are  established  or as  disclosed  in such
statements or in the statements or reports  delivered or to be delivered for the

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                                                                              63

period in which such obligations were incurred pursuant to Section 6.03.

          5.14 ERISA.  Each Plan is in compliance in all material  respects with
the applicable provisions of ERISA, the Code and any other applicable federal or
state  law,  and  except as listed on  Schedule  5.14 no event or  condition  is
occurring  nor is there any present  intent to cause any such event or condition
to occur with  respect to any Plan or  Multiemployer  Plan with respect to which
Borrower  would be under an  obligation  to  furnish  a  report  to  Lenders  in
accordance  with  Section  6.02(d)  hereof and which,  taking all such events or
conditions  arising within the last twelve-month  period, in the aggregate would
result in liability  to Borrower or an ERISA  Affiliate in excess of One Million
Dollars  ($1,000,000).   For  purposes  of  this  representation  and  warranty,
Borrower, or any ERISA Affiliate if not the Plan administrator,  shall be deemed
to have knowledge of all facts attributable to the Plan administrator designated
pursuant to ERISA;  provided,  however,  that the foregoing  representation with
respect to Multiemployer Plans is made with respect to matters of which Borrower
or any ERISA Affiliate has actual knowledge.  The aggregate withdrawal liability
under  Section  4201 of ERISA which could be incurred by Borrower and each ERISA
Affiliate,  collectively,  upon a complete  withdrawal,  within  the  meaning of
Section 4203 of ERISA,  from each and all  Multiemployer  Plans to which each is
contributing  or has contributed  within the past five calendar years,  plus the
aggregate  of the excess of benefit  liabilities,  within the meaning of Section
4001(a)(16) of ERISA, of each Plan upon termination of such Plan over the assets
of such Plan, does not exceed Five Million Dollars ($5,000,000).

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

          5.16 No Restrictions on  Subsidiaries.  No Subsidiary is prohibited by
the  terms  of any  agreement  to which it is a party or by which it is bound or
affected from paying dividends to or making loans or advances to Borrower or any
Subsidiary  directly  controlling  it, except (a) as disclosed in Schedule 5.16;
(b)  restrictions  imposed by this  Agreement or any Collateral  Agreement;  (c)
customary non-assignment  provisions restricting subletting or assignment of any
lease or  assignment  of any  contract of any  Subsidiary;  customary  net worth
provisions contained in leases and other agreements entered into by a Subsidiary
in the ordinary course of business;  and customary  provisions in instruments or
agreements  relating to a Lien created,  incurred or assumed in accordance  with
this Agreement prohibiting the transfer of the property subject to such Lien, in
each case in existence on the Closing Date; (d)  restrictions on Debt secured by
any  Permitted  Lien  described in clauses (iv),  (xii),  (xiii) or (xiv) of the
definition  of  "Permitted  Lien"  limiting  the right of such  Subsidiaries  to
dispose  of the  assets  securing  such Debt to the  extent  that the  agreement
governing  such Debt  prohibits  the  transfer  of such  assets as a  Restricted
Payment; (e) customary  restrictions with respect to a Subsidiary pursuant to an
agreement  that has been  entered  into  for the sale or  disposition  of all or

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                                                                              64

substantially all of the capital stock or assets of such Subsidiary; and (f) any
restrictions  pursuant to any  agreement  that  extends,  refinances,  renews or
replaces  any  agreement  containing  any of the  restrictions  described in the
foregoing clauses (a) through (e), provided that the terms and conditions of any
such  restrictions  are not less  favorable  to the Lenders  than those under or
pursuant to the agreement extended, refinanced, renewed or replaced.

          5.17 Senior  Indebtedness.  All sums outstanding  under this Agreement
and the Notes and all other  monetary  obligations  of the  Borrower  under this
Agreement  will   constitute   Senior   Indebtedness   and   Designated   Senior
Indebtedness.

          5.18  Environmental Matters.  As of the Closing Date:

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

          (b) to the best knowledge of Borrower,  after reasonable inquiry,  (i)
     none of the real  property  owned in fee,  or the assets or  operations  of
     Borrower and the Subsidiaries  related thereto is the subject of federal or
     state investigation mandating any remedial action,  involving expenditures,
     which is needed to respond to a release of any Hazardous Materials into the
     environment,  (ii) there are no  underground  storage  tanks  present on or
     under the  Properties  owned in fee,  and (iii)  there  are no  pending  or
     threatened:  (A) actions or proceedings from any governmental agency or any
     other person or entity  regarding the disposal of Hazardous  Materials,  or
     regarding  any  Hazardous  Materials  Laws or  evaluation,  or (B) liens or
     governmental  actions,  notices of violations,  notices of noncompliance or
     other  proceedings  of any kind relating to any of the Hazardous  Materials
     Laws with respect to the Properties; and

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

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

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                                                                              65

form for  filing)  in the  offices  in all of the  jurisdictions  listed  in the
schedules to the Guarantee and Collateral Agreement.

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

          (c) The  provisions of the Guarantee and Collateral  Agreement,  after
giving effect to (i) the delivery to the  Collateral  Agent of the  certificates
representing  the  certificated  shares of the  capital  stock and other  equity
interests  of  the  Subsidiaries  described  in  the  Guarantee  and  Collateral
Agreement (the "Pledged Stock")  accompanied by appropriate undated stock powers
executed in blank,  (ii) the registration of the Pledged  Partnership  Interests
(as defined in the Guarantee and  Collateral  Agreement  and,  together with the
Pledged  Stock,  the  "Pledged  Securities")  pursuant to the forms  attached as
exhibits to the Guarantee and Collateral Agreement and (iii) the filing of UCC-1
financing statements in the offices set forth on the schedules to such Guarantee
and  Collateral  Agreement,  shall  be  effective  to  create,  in  favor of the
Collateral  Agent,  for the ratable  benefit of the Secured  Creditors,  a fully
perfected first Lien on, and security interest in, all right, title and interest
of Borrower and the Guarantors in the "Collateral",  as defined in the Guarantee
and Collateral Agreement (except for Permitted Liens), and the Pledged Stock has
been delivered, where applicable, to the Collateral Agent or its nominee.

          5.20  Copyrights,  Patents,  Trademarks and Licenses,  etc.  Except as
disclosed in Schedule 5.20, Borrower and its Subsidiaries own or are licensed or
otherwise have the right to use all of the patents,  trademarks,  service marks,
trade names,  copyrights  and franchises  that are reasonably  necessary for the
operations  of their  respective  businesses  as  currently  conducted,  without
conflict  with the rights of any other  Person with  respect  thereto and except
where  the  failure  to be in  compliance  with this  sentence  would not have a
material adverse effect on Borrower or any Substantial  Subsidiary.  To the best
knowledge of Borrower, no slogan or other advertising device, product,  process,
method,  substance,  part or other material now employed, or now contemplated to

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                                                                              66

be employed by Borrower  or any of its  Subsidiaries  infringes  upon any rights
obtained by any other Person,  except where the failure to be in compliance with
this  sentence  would not have a  material  adverse  effect on  Borrower  or any
Substantial  Subsidiary,  and  no  claim  or  litigation  regarding  any  of the
foregoing is pending or threatened.

          5.21 Year  2000.  Any  reprogramming  required  to permit  the  proper
functioning,  in and following the year 2000, of the Borrower's computer systems
and equipment containing embedded microchips could not reasonably be expected to
result in a Default, Event of Default or a Material Adverse Effect. The costs to
Borrower and its Subsidiaries  that have not been incurred as of the date hereof
for  such   reprogramming  and  testing  and  for  the  reasonably   foreseeable
consequences to them of any improper  functioning of other computer  systems and
equipment  containing embedded microchips due to the occurrence of the year 2000
could not  reasonably  be expected to result in a Default or Event of Default or
to have a Material Adverse Effect. Except for such of the reprogramming referred
to in the preceding  sentences as may be necessary,  the computer and management
information  systems of the Borrower and its Subsidiaries are and, with ordinary
course upgrading and  maintenance,  will continue for the term of this Agreement
to be,  sufficient  to permit the  Borrower  to conduct its  business  without a
Material Adverse Effect.

          5.22  Accuracy  of  Information,  etc.  No  statement  or  information
contained  in this  Agreement,  any  other  Credit  Document,  the  Confidential
Information  Memorandum dated September 1999 or any other document,  certificate
or  statement  furnished by or on behalf of any Credit Party to the Agent or the
Lenders,   or  any  of  them,  for  use  in  connection  with  the  transactions
contemplated  by this Agreement or the other Credit  Documents,  contained as of
the date such statement,  information,  document or certificate was so furnished
(or, in the case of the Confidential  Information Memorandum,  as of the date of
this  Agreement),  any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements  contained  herein or therein not
misleading. The projections and pro forma financial information contained in the
materials  referenced  above are based upon good faith estimates and assumptions
believed by  management  of the Borrower to be  reasonable  at the time made, it
being recognized by the Lenders that such financial information as it relates to
future  events is not to be viewed as fact and that  actual  results  during the
period or periods  covered by such  financial  information  may differ  from the
projected results set forth therein by a material amount.

          5.23 1997  Subordinated  Notes.  On the Closing  Date the  outstanding
principal amount of the 1997 Subordinated Notes does not exceed $250,000.

<PAGE>
                                                                              67
                                   ARTICLE VI.

                              AFFIRMATIVE COVENANTS

          Borrower  covenants and agrees that so long as the Credit shall remain
available, and until the full and final payment of all Obligations, it will, and
with respect to Sections 6.01,  6.04,  6.05, 6.06, 6.07, 6.08, 6.09, 6.10, 6.11,
6.14,  6.16,  6.17 and 6.18, it will cause each  Subsidiary to, unless  Majority
Lenders waive compliance in writing:

          6.01 Use of Proceeds  and Letters of Credit.  Use (a) the  proceeds of
the  Advances  solely  (i) to  refinance  and  continue  indebtedness  under the
Existing Credit Agreement,  (ii) to finance expansions and investments permitted
hereunder  and (iii) for  working  capital  purposes in the  ordinary  course of
business;  and (b) the  Letters of Credit (i) to provide  security  as  required
under applicable state consumer  protection  statutes and for utility  deposits,
(ii) to provide credit support for insurance,  construction bonds, rent deposits
and utility bonds, (iii) to secure the payment of workers' compensation benefits
and  obligations,  (iv)  for  the  purposes  described  in  clause  (ii)  of the
definition  of  "Permitted   Liens"  and  to  provide  credit  support  for  the
obligations described therein, and (v) for the general corporate purposes of the
Borrower and its  Subsidiaries in the ordinary course of business.  For purposes
of this Section 6.01, a "hostile takeover" of another entity or a "tender offer"
in furtherance of same is not a proper purpose.

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

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

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

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

          (d) the  occurrence  of a  Reportable  Event with  respect to any Plan

<PAGE>
                                                                              68

     which could result in the incurrence by Borrower or any ERISA  Affiliate of
     any liability,  fine or penalty;  the institution of any steps to terminate
     any Plan  (together with copies of any  communication  between the PBGC and
     Borrower  or  any  ERISA  Affiliate  related  to  such  termination);   the
     institution  of any steps to withdraw from any Plan,  within the meaning of
     Section 4062(e) or 4063 of ERISA,  or any  Multiemployer  Plan,  within the
     meaning of Section 4203 or 4205 of ERISA;  the  incurrence  of any material
     increase in the  contingent  liability  of Borrower or any ERISA  Affiliate
     with  respect  to any  post-retirement  welfare  benefits;  the  failure of
     Borrower or any other Person to make a required  contribution  to a Plan if
     such failure is sufficient  to give rise to a lien under Section  302(f) of
     ERISA; or the adoption of an amendment to any Plan that pursuant to Section
     401(a)(29) of the Code or Section 307 of ERISA would require Borrower or an
     ERISA  Affiliate  to provide  security to the Plan in  accordance  with the
     provisions of such Sections;

          (e) any  Default or Event of  Default,  specifying  the nature and the
     period of existence  thereof and what action Borrower has taken or proposes
     to take with respect thereto;

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

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

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

<PAGE>
                                                                              69

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

          (a) As soon as  available  but no later than fifty (50) days after the
     close of each of the first  three  fiscal  quarters  of each of  Borrower's
     fiscal years,  Borrower's  unaudited  consolidated  statement of income and
     retained earnings as of the close of such quarter, its consolidated balance
     sheet and statement of income and retained earnings for that portion of the
     fiscal  year  ending  with such  quarter,  and its  unaudited  consolidated
     statement  of cash flows for that  portion of the fiscal  year  ending with
     such quarter.  Each of such  financial  statements  shall be certified by a
     responsible  officer of Borrower as being prepared in accordance with GAAP;
     provided,  that the delivery to each Lender of a Form 10-Q Quarterly Report
     of the  Borrower  within the time period set forth above shall  satisfy the
     Borrower's obligations pursuant to this paragraph (a);

          (b) as soon as available but no later than one hundred five (105) days
     after the close of each of its  fiscal  years,  a copy of the  unqualified,
     audited  financial  statements of Borrower and such other audited financial
     statements  of  Subsidiaries  of Borrower that have been prepared (if any).
     Such  financial  statements  shall  include at least the  balance  sheet of
     Borrower as of the close of such year and statements of income and retained
     earnings and of changes in financial position and cash flows for such year,
     prepared  (in the  case of  Borrower)  on a  consolidated  basis,  and such
     consolidated financial statements shall be certified by Ernst & Young or by
     other independent  public  accountants of national  reputation  selected by
     Borrower  and  reasonably  satisfactory  to Lenders.  The  delivery to each
     Lender of a Form 10-K Annual  Report within the time period set forth above
     shall satisfy the Borrower's  obligations pursuant to the preceding portion
     of  this  Section  6.03(b);   provided  that  the  consolidated   financial
     statements  included in such Form 10-K shall be  certified by Ernst & Young
     or by other independent public accountants of national  reputation selected
     by  Borrower  and  reasonably  satisfactory  to Lenders.  The  accountants'
     certification  (x) shall not be qualified or limited  because of restricted
     or limited  examination by such  accountants of any material portion of the
     records of  Borrower or any such  Subsidiary  for which  audited  financial
     statements  have been prepared and (y) shall not contain a "going  concern"
     or like  qualification  or exception.  Such  accountants for Borrower shall
     state in a letter to Lenders that in the course of their  examination  such
     accountants,  without undertaking any special procedures for the purpose of
     such  certificate,  have  obtained no  knowledge of the  occurrence  of any
     condition,  event or act which  would  constitute  a Default or an Event of
     Default,  or, if such accountants shall have obtained knowledge of any such
     violation,  condition,  event or act, they shall specify in such letter all
     such  violations,  conditions,  events  and acts and the  nature and status
     thereof.  If any of the  materials  required  to be  delivered  pursuant to
     paragraph  (c) of this Section 6.03 are  delivered in  connection  with the
     delivery of the financial  statements pursuant to this Section 6.03(b), the
     Borrower  shall not be  required  to  deliver  separately  such  statements

<PAGE>
                                                                              70

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

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

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

          (e) not later  than  fifty  (50)  days  after the close of each of the
     first three (3)  quarters of the fiscal year of Borrower nor later than one
     hundred  five (105) days after the close of each of the  Borrower's  fiscal
     years,  a  quarterly  certificate  executed  by any of the chief  financial
     officer, vice president,  treasurer or controller of Borrower, stating that
     such  officer  is  familiar  with  this  Agreement  and  the  business  and
     operations of Borrower and (i) showing Borrower's  compliance with Sections
     6.12,  6.14,  6.15,  7.01,  7.02,  7.08 and 7.11  (ii) if  Borrower  or any
     Subsidiary is not in compliance therewith,  showing such failure to comply,
     the amount  thereof and explaining the reason  therefor,  (iii)  specifying
     changes  during  such  quarter  in  the  list  of  Subsidiaries  previously
     delivered  by the Borrower to the  Lenders,  other than changes  previously
     reported to the Agent during such  quarter,  (iv) stating that Borrower has
     performed all its obligations  hereunder and under any judgment,  decree or
     order of any court or governmental  authority binding on Borrower except as
     may be  contested in good faith upon advice of counsel and for the possible
     payment of which adequate reserves are being  maintained,  (v) stating that
     no event has occurred  which  constitutes a Default or an Event of Default,
     or, if such event has occurred, the nature and status thereof and the steps
     that  Borrower is taking or has taken to cure the same and (vi) stating the
     name and  jurisdiction  of  organization  of each  Unrestricted  Subsidiary
     created during such quarter;

          (f)  commencing  March 1,  2000,  on such date and on the first day of
     each March thereafter,  projections which are similar in form and substance
     to the projections delivered pursuant to Section 4.01(z);

          (g) such other  statements,  lists of property and accounts,  budgets,

<PAGE>
                                                                              71

     forecasts or reports as Agent or any Lender may reasonably request;

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

          (i) concurrently with the delivery thereof pursuant to the Receivables
     Program  Documents or a Receivables  Financing  Transaction,  a copy of (A)
     each Settlement Statement (as defined in the Pooling & Servicing Agreement)
     delivered pursuant to Section 3.4 of the Pooling & Servicing  Agreement (or
     any comparable settlement statement delivered under a Receivables Financing
     Transaction)  and (B) upon the request of any Lender,  through Agent,  each
     officer's  certificate  delivered  pursuant to Section 3.5 of the Pooling &
     Servicing  Agreement  (or any  comparable  certificates  delivered  under a
     Receivables Financing  Transaction),  each independent  accountant's report
     and management  letter  delivered  pursuant to Section 3.6 of the Pooling &
     Servicing  Agreement (or any comparable  report or letter delivered under a
     Receivables  Financing  Transaction) and such other information relating to
     the Receivables Program or any Receivables  Financing  Transaction as shall
     be requested by any Lender; and

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

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

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

<PAGE>
                                                                              72

          6.06 Ownership of Stock of Subsidiaries. Subject to Sections
7.05 and 7.08,  maintain at least the same  ownership  of the  capital  stock or
other equity  interests of each of its  Subsidiaries as in effect on the Closing
Date.

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

          6.08 Compliance  with Laws. At all times comply with all laws,  rules,
regulations,  orders and directions of any governmental  authority applicable to
or having  jurisdiction  over it or its  business,  the violation of which could
have  a  material  adverse  effect  on  its  financial  condition  or  continued
operation,  or on the validity or enforceability  of this Agreement,  any of the
Notes or any of the other  Credit  Documents,  or the rights or  remedies of the
Agent and the Lenders hereunder or thereunder.

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

          (a) in amounts  not less than the amount of the  coverage  immediately
     prior to the execution of this Agreement for all insurance  other than that
     described  in clause  (b) below  including,  without  limitation,  fire and
     extended coverage insurance for the full and insurable replacement value of
     all buildings and other improvements located on its properties and business
     interruption  and  workmen's  compensation  insurance.  All such  insurance
     (other  than  workmen's  compensation  insurance)  relating  to  assets  of
     Borrower or its Subsidiaries  shall name the Collateral Agent as loss payee
     (and in the case of each  item of real  property  on which  the  Collateral
     Agent has a security  interest,  mortgage  loss  payee)  and an  additional
     insured  for the  interests  relating  to the  assets of  Borrower  and its
     Subsidiaries,  for the benefit of the Collateral Agent and each Lender,  as
     their interests may appear, and shall not be modified, reduced or cancelled
     in the absence of thirty (30) days prior written  notice to the  Collateral
     Agent.  Borrower  shall  promptly  notify  Agent of any  loss,  damage,  or
     destruction  to the  Collateral  in  excess  of  $2,000,000  for each  such
     casualty,  whether or not covered by  insurance.  The  Collateral  Agent is
     hereby authorized to collect all insurance proceeds directly.  With respect
     to insurance proceeds arising from loss, damage or other casualty to any of
     the  Collateral  or any part  thereof,  such  proceeds  shall be applied as
     hereinafter  provided.  Destruction  or  damage  to any  real  or  personal
     property  of  Borrower  or any  Subsidiary  which  gives rise to  insurance
     proceeds  shall be deemed to be a disposition of such property for purposes
     of Section  7.08(d);  provided,  however,  that if the total  amount of the
     proceeds  from  such  casualty  is  reasonably  expected  to be  less  than
     $5,000,000  and  neither  an Event of  Default  nor a  Default  shall  have

<PAGE>
                                                                              73

     occurred and be  continuing,  Borrower  shall have the  exclusive  right to
     negotiate  a  settlement   regarding  such  proceeds  with  the  applicable
     insurance  company and the  Collateral  Agent shall  promptly  forward such
     proceeds to Borrower  and the Borrower  shall use such  proceeds to pay for
     the repair or  replacement  (it being  agreed that a  destroyed  or damaged
     fitness center may be replaced at any site within five miles of the site of
     such fitness center) of the Collateral subject to such casualty;  provided,
     further,  however,  that if an Event of  Default  or a Default  shall  have
     occurred and be continuing, or the proceeds of insurance from such casualty
     are reasonably expected to be equal to or greater than $5,000,000, Borrower
     shall not enter into any settlement agreement with the applicable insurance
     company without the prior written consent of Agent, which consent shall not
     be unreasonably withheld, and if a determination has been made by Borrower,
     with the prior  written  consent of Agent,  to  utilize  such  proceeds  to
     replace or rebuild the Collateral affected by such casualty, the Collateral
     Agent shall  release such proceeds to Borrower from time to time during the
     course of said  reconstruction,  repair or restoration,  but not more often
     than once each thirty (30) day interval,  in accordance with the Collateral
     Agent's  customary  practices  for  disbursements  of  construction  loans,
     including,   without   limitation,   customary   conditions   precedent  to
     disbursement, provided that:

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

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

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

               (iv)  when  repair,   replacement  or  reconstruction   has  been
          completed and paid for, all insurance  proceeds then  remaining in the

<PAGE>
                                                                              74

          Collateral  Agent's  hands  shall be  applied  to the  payment  of the
          Obligations in accordance with Section 7.08(d) and Section 2.13(a);

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

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

          The Collateral  Agent shall,  pending  disbursement  or application of
     funds in accordance with the terms of this Section 6.09, hold any insurance
     proceeds (and other funds  deposited with it pursuant to clause (ii) above)
     deposited with it in an interest bearing account as to which the Collateral
     Agent  shall not be liable in any respect to  Borrower  for any  investment
     results.  Interest thereon shall be held and disposed of in the same manner
     as other monies held by the  Collateral  Agent under this Section  6.09. On
     each anniversary date of this Agreement,  Borrower shall provide Agent with
     a summary of each insurance  policy  satisfactory  to Agent  reflecting the
     insurance coverage required under this Section 6.09 (together with complete
     copies of any insurance  policies  which Agent may request  promptly  after
     such  request  but not later than six months  after such  request).  In the
     event  of  foreclosure  of any  mortgage  or  deed of  trust  in  favor  of
     Collateral  Agent  encumbering  the  Properties or transfer of title to the
     Properties  in lieu of  foreclosure,  all  right,  title  and  interest  of
     Borrower in and to any insurance policies then in force with respect to the
     Properties  (other than liability  policies of Borrower)  shall pass to the
     purchaser,  grantee or assignee.  In the event of any taking of any portion
     of any of the Properties by  condemnation,  seizure or appropriation by any
     governmental  authority  which  does not  constitute  an  Event of  Default
     hereunder,  all  awards or  proceeds  on account  of said  taking  shall be
     collected  and  applied in the same manner and shall be subject to the same
     conditions precedent to the disbursement thereof as applicable to insurance
     proceeds under this Section 6.09. Notwithstanding the foregoing, the rights
     of the Agent and the  Lenders  under  this  paragraph  (a) with  respect to
     property and casualty insurance  proceeds relating to loss,  destruction or
     damage,  or a taking of, real property (x) leased by the Borrower or any of
     its  Subsidiaries or (y) which is subject to a mortgage lien which is prior
     to the lien of any Mortgage in favor of the Collateral  Agent thereon,  and
     for which in either case the Collateral Agent is named as loss payee, shall
     be subordinate to the rights, if any, of the owner of such real property or
     the holder of such prior  mortgage  lien to the extent such owner or holder
     is also named as loss payee; and

<PAGE>
                                                                              75

          (b)  in  an  amount  not  less  than  One  Hundred   Million   Dollars
     ($100,000,000) for general liability coverage, including both bodily injury
     and property  damage,  on a per  occurrence  basis (the "Minimum  Liability
     Coverage"),  provided,  however, that the Minimum Liability Coverage may be
     reduced from time to time to a coverage limit of not less than  Twenty-Five
     Million  Dollars  ($25,000,000)  on a per  occurrence  basis (the  "Lowered
     Coverage")  if,  within  thirty  (30) days prior to the  expiration  of any
     Minimum Liability  Coverage policy,  and thereafter within thirty (30) days
     after the end of each fiscal year of Borrower  until the Minimum  Liability
     Coverage is reinstated,  Borrower delivers to Agent a certificate signed by
     the chief operating  officer of Borrower stating that Borrower has obtained
     a lesser  amount of coverage,  setting forth the amount  thereof,  and that
     Borrower was unable to obtain  Minimum  Liability  Coverage and was able to
     obtain  general  liability  coverage  only in the  amount  set forth in the
     Borrower's  certificate;  provided,  further,  however,  that  the  Lowered
     Coverage may be reduced  from time to time to a coverage  limit of not less
     than Twenty-Five Million Dollars ($25,000,000) on a "claims made" basis if,
     within  thirty (30) days prior to the  expiration  of any Lowered  Coverage
     policy and thereafter  within thirty (30) days after the end of each fiscal
     year of  Borrower  until the  Minimum  Liability  Coverage  is  reinstated,
     Borrower  delivers  to Agent a  certificate  signed by the chief  operating
     officer of Borrower  stating that  Borrower has obtained a lesser amount of
     coverage, setting forth the amount thereof, and that Borrower was unable to
     obtain  Minimum  Liability  Coverage  or Lowered  Coverage  and was able to
     obtain  general  liability  coverage  only in the  amount  set forth in the
     Borrower's certificate.

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

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

          6.12  Interest  Coverage.  At the  end of any  fiscal  quarter  of the
Borrower set forth below,  maintain a ratio of (i) Consolidated  Adjusted EBITDA
to (ii) Consolidated Interest Expense, for any period of four consecutive fiscal
quarters of the Borrower then ended, commencing with such period ending December
31, 1999, equal to or greater than the following:

<PAGE>
                                                                              76
<TABLE>
<CAPTION>
          Quarter Ending                                   Minimum Required
          --------------------------------------------     ----------------
          <S>                                              <C>
          December 31, 1999 through September 30, 2000          2.00x
          December 31, 2000 through September 30, 2001          2.20x
          December 31, 2001 and thereafter                      2.50x
</TABLE>

          6.13 Hazardous  Materials.  (a) Conduct,  and cause each Subsidiary to
conduct,  its operations  and keep and maintain its property in compliance  with
all Hazardous  Materials  Laws (except to the extent that failure to comply with
such Hazardous  Materials  Laws would not have a material  adverse effect on the
business, operations,  properties, assets or financial condition of Borrower and
its Subsidiaries taken as a whole).

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

          (c) Agent and its agents and  representatives  shall have the right at
any reasonable time to enter and visit the property (whether owned or leased) of
Borrower or any of its  Subsidiaries for the purpose of observing such property.
Agent is under no duty, however, to visit or observe any such property,  and any
such acts by Agent  shall be solely  for the  purposes  of  protecting  Lenders'
security and preserving Lenders' rights under the Collateral Documents.  No site
visit or  observation  by Agent  shall  result  in a waiver  of any  default  of
Borrower or any  Subsidiary or impose any  liability on Agent or Lenders.  In no
event  shall any site visit or  observation  by Agent be a  representation  that
Hazardous  Materials are or are not present in, on, or under such  property,  or
that there has been or shall be compliance  with any Hazardous  Materials  Laws.
Neither the  Borrower  nor any other party is entitled to rely on any site visit
or  observation  by Agent.  Agent owes no duty to inform  Borrower  or any other
party of any Hazardous  Materials or any other adverse  condition  affecting any
such property. Agent shall not be obligated to disclose to Borrower or any other
party any report or findings  made as a result of, or in  connection  with,  any
site visit or observation by Agent. In each instance,  Agent shall give Borrower
reasonable notice before entering any such property. Agent shall make reasonable
efforts to avoid interfering with the use of any such property in exercising any
rights provided in this Section 6.13.

          (d) At the Collateral Agent's reasonable request, which the Collateral

<PAGE>
                                                                              77

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

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

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

<TABLE>
<CAPTION>
          Quarter Ending                                   Maximum Allowed
          --------------------------------------------     ---------------
          <S>                                              <C>
          December 31, 1999 through September 30, 2000          3.75x
          December 31, 2000 through September 30, 2001          3.50x
          December 31, 2001 through September 30, 2002          3.25x
          December 31, 2002 and thereafter                      3.00x
</TABLE>

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

<PAGE>
                                                                              78
<TABLE>
<CAPTION>
          Quarter Ending                                   Maximum Allowed
          --------------------------------------------     ---------------
          <S>                                              <C>
          December 31, 1999 through September 30, 2000          2.00x
          December 31, 2000 through September 30, 2001          1.75x
          December 31, 2001 and thereafter                      1.50x
</TABLE>

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

          6.17  Additional  Real Estate  Collateral.  Within 60 days of the date

<PAGE>
                                                                              79

hereof,  Borrower and the  Subsidiaries  shall have met each of the requirements
set forth in Sections 4.01(o)-(r) in connection with the real property set forth
on Schedule 6.17.

                                  ARTICLE VII.

                               NEGATIVE COVENANTS

          Borrower  covenants and agrees that so long as the Credit shall remain
available, and until full and final payment of all Obligations, it will not, and
with respect to Sections 7.01,  7.02,  7.03, 7.04, 7.05, 7.07, 7.08, 7.09, 7.10,
7.11, 7.13, 7.14 and 7.16, it will not permit any Subsidiary to, unless Majority
Lenders waive compliance in writing:

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

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

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

          (c) Borrower may make Investments in Cash Equivalents;

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

          (e)  Borrower or any  Subsidiary  may  acquire on a friendly  basis at
     least 51% of each class of capital stock, or partnership interests,  of any
     fitness  center  located in the United  States,  provided that such fitness
     center shall  immediately  become a Guarantor and shall comply with Section
     3.04 hereof.  As used in this Section  7.01(e),  "fitness center" means any
     corporation  or  partnership  whose  business is  comparable  to any of the
     businesses currently operated by Borrower or any of its Subsidiaries (other
     than a finance company).  Notwithstanding  the foregoing,  the Borrower and
     its  Subsidiaries may finance all or part of the purchase price of any such
     fitness  center  by the  issuance  of  purchase  money  seller  Debt or the
     assumption of Assumed Debt subject to the  following:  (i) up to 30% of the
     purchase price  (including the assumption of any existing Debt) of any such
     acquisition may consist of purchase money seller Debt and Assumed Debt, and
     such  seller Debt and Assumed  Debt may be secured as  permitted  by clause
     (xiv) of the  definition of "Permitted  Liens",  (ii) any other seller Debt
     and assumed Debt issued to finance such acquisition  shall be unsecured and

<PAGE>
                                                                              80

     shall  be  subordinated  to  prior  payment  of the  Obligations  on  terms
     satisfactory to the Agent and (iii) the Borrower and its Subsidiaries shall
     not be required to provide a security  interest in the assets or pledge the
     capital  stock of such  fitness  center (but such  fitness  center shall be
     required  to become a  Guarantor)  pursuant  to  Article  III or the Credit
     Documents  if such  provision  of a  security  interest  or such  pledge is
     prohibited  by the seller  Debt or Assumed  Debt  referred to in clause (i)
     (the Borrower  agreeing that it shall use reasonable  efforts to cause such
     seller  Debt and  Assumed  Debt to be  unsecured  and to permit the capital
     stock  and  assets  of  such   Subsidiary  to  be  pledged  to  secure  the
     Obligations);

          (f) Borrower and its  Subsidiaries  may make mandatory  Investments in
     Funding Corp.,  and Funding Corp. may make required  Investments in the H&T
     Master Trust and BTFC, in each case pursuant to and in accordance  with the
     Receivables Program Documents;

          (g) Borrower and its  Subsidiaries  may make mandatory  Investments in
     Finance  Subsidiaries,  and Finance  Subsidiaries may make related required
     Investments,  in each case pursuant to a Receivables Financing Transactions
     and as long as such  Investments  are  substantially  comparable  to  those
     required by the Receivables Program Documents;

          (h) Investments by the Borrower and its  Subsidiaries in New Ventures,
     Foreign   Subsidiaries,   Lincoln   Indemnity   Company,   non-Consolidated
     Subsidiaries,   Unrestricted  Subsidiaries  and  Finance  Subsidiaries  (i)
     existing on the Closing Date and (ii) made after the date hereof;  provided
     that the aggregate  amount of such  Investments made after the Closing Date
     (valued at the time of the making  thereof,  and after  taking into account
     any  return  after the  Closing  Date  from  dividends,  distributions  and
     repayments in respect of such Investments) does not exceed, at any one time
     outstanding,  $25,000,000 (plus any dividends, distributions and repayments
     in respect of Investments  existing on the Closing Date);  provided further
     that with respect to Investments in Finance  Subsidiaries,  the only amount
     of such Investment to be considered in determining  the  $25,000,000  limit
     set forth  above are those  amounts  in excess of the  amounts  allowed  by
     paragraph (f) and paragraph (g) of this Section 7.01; provided further that
     the  cumulative  outstanding  Investment in any Subsidiary on the date that
     such  Subsidiary is converted to an  Unrestricted  Subsidiary in accordance
     with the terms hereof shall be deemed an Investment made on such conversion
     date in an Unrestricted  Subsidiary for purposes of determining  compliance
     with this Section 7.01(h);

          (i)  Investments  to the extent funded by common stock of the Borrower
     or the proceeds thereof; and

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

<PAGE>
                                                                              81

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

          (a) the Secured Obligations;

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

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

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

          (e) Debt under revolving credit commitments,  term loan commitments or
     letter of credit  commitments  made  available by banks or other  financial
     institutions  otherwise  than under this  Agreement  to the extent that the
     Revolving Credit  Commitments  shall have been permanently  reduced and the
     Term  Loan  Commitments  shall  have  been  prepaid  by the  amount of such
     revolving  credit  commitments,  term loan  commitments or letter of credit
     commitments  on the date  such  revolving  credit  commitments,  term  loan
     commitments or letter of credit  commitments  are incurred and the terms of
     such  revolving  credit  commitments,  term loan  commitments  or letter of
     credit  commitments are reasonably  satisfactory to the Majority Lenders in
     all material respects;

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

<PAGE>
                                                                              82

     that  Guarantees of such Debt shall not be considered Debt for the purposes
     of this paragraph (f) of this Section 7.02;

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

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

          (i) without  duplication of Debt  permitted by Section  7.02(b) above,
     Debt of the Borrower consisting of the 1997 Subordinated Notes and the 1998
     Subordinated Notes; and

          (j) other Debt of the Borrower  and its  Subsidiaries  (including  any
     increases in the Receivables  Program  Documents and Receivables  Financing
     Transactions  above  $160,000,000 in the aggregate) as long as, immediately
     after  giving  effect  to the  incurrence  of such  Debt and the use of the
     proceeds thereof,  the Borrower would be in compliance on a pro forma basis
     with  Sections  6.12,  6.14 and 6.15 as of the most  recently  ended fiscal
     quarter,   each  subsequent  fiscal  quarter  and  through  the  Term  Loan
     Termination  Date as if such  Debt was  incurred  on the  first  day of the
     relevant measurement period;  provided that (i) such Debt is not secured by
     any property constituting Collateral under the Collateral Documents (except
     to the extent that such Debt may be secured by Liens described under clause
     (iv),  clause  (xiii)(b) or clause (xiv) of the  definition  of  "Permitted
     Liens"),  (ii) any unsecured  purchase  money seller Debt and any unsecured
     assumed  Debt  is  subordinated  to the  Obligations  on  terms  reasonably
     satisfactory  to the Agent  unless such seller Debt or assumed  Debt is not
     required to be  subordinated  pursuant to Section  7.01(e) and (iii) before
     and after giving effect to the incurrence of such Debt, no Default or Event
     of Default  shall have occurred and be  continuing  and provided,  further,
     that  Guarantees of such Debt shall not be considered Debt for the purposes
     of this paragraph (j) of this Section 7.02.

Notwithstanding  the  foregoing,  the Borrower will not permit any Subsidiary or
Unrestricted   Subsidiary  to  Guaranty  or  provide   credit  support  for  any
Subordinated Debt.

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

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

<PAGE>
                                                                              83

          (b) Pay interest,  principal or premium on the 1997 Subordinated Notes
in  violation  of Article  Thirteen of the 1997  Indenture,  or make any payment
thereunder or with respect to any other  Subordinated  Debt to any holder or the
trustee named therein prior to one (1) Banking Day preceding the times set forth
therein for the payment of same, or make any payment,  purchase or redemption of
the 1997 Subordinated Notes pursuant to Article Four, Five, Ten, Eleven,  Twelve
or Thirteen of the 1997 Indenture or deliver any notice to the trustee under the
Indenture or the holders of the 1997 Subordinated Notes of its intention to make
any such payment,  purchase or redemption,  or make any "Company  Request" under
Section 12.1 of the 1997 Indenture;

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

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

          (e) Pay interest,  principal or premium on the 1998 Subordinated Notes
in violation of Article  Thirteen (or the  comparable  provisions of a successor
indenture) of the 1998 Indenture,  or make any payment  thereunder to any holder
or the trustee  named  therein  prior to one (1) Banking Day preceding the times
set forth  therein for the  payment of same,  or make any  payment,  purchase or
redemption of the 1998  Subordinated  Notes pursuant to Article Four, Five, Ten,
Eleven,  Twelve  or  Thirteen  (or  the  comparable  provisions  of a  successor
indenture) of the 1998  Indenture or deliver any notice to the trustee under the
1998 Indenture or the holders of the 1998 Subordinated Notes of its intention to
make any such payment,  purchase or  redemption,  or make any "Company  Request"
under Section 12.1 (or the  comparable  provisions of a successor  indenture) of
the 1998 Indenture.

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

          7.05  Liquidation;  Merger.  Liquidate or dissolve,  or enter into any
consolidation, merger, partnership, joint venture or other combination, or sell,
lease or  dispose  of its  business  or assets as a whole or in an amount  which
constitutes a  substantial  portion  thereof;  provided,  however,  that (a) any
Subsidiary may merge into,  consolidate  with or transfer its business or assets
to Borrower or any other  Subsidiary (so long as such acquiring  Subsidiary is a
Guarantor)  pro rata,  to the extent owned by Borrower or such  Subsidiary,  (b)
Borrower  may  merge  with any  other  corporation  so long as  Borrower  is the
surviving  corporation and no Default or Event of Default would exist under this
Agreement  after giving effect to such merger,  (c) any Subsidiary may liquidate

<PAGE>
                                                                              84

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

          7.06 [Reserved]

          7.07  Change  in  Business.  Engage  in  any  business  activities  or
operations  substantially and materially different from or unrelated to business
activities existing on the Closing Date;  provided,  however,  that this Section
7.07 shall not prohibit the Borrower or its Subsidiaries from managing non-owned
fitness  centers or providing  payment,  processing and collection  services for
non-owned fitness centers, or from commencing and operating a Franchise Program,
or from operating a captive insurance company.

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

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

          (b)  (i)  the  Borrower  and  its  Subsidiaries  may  dispose  of  the
     Receivables  Program Receivables on the terms and subject to the conditions
     set forth in the Receivables Program Documents,  provided that none of such
     Receivables  Program  Receivables  may be so disposed of for the purpose of
     supporting any series of Receivables  Program  Certificates  other than the
     1996-1  Certificates or other Receivables  Program  Certificates  permitted
     under this Agreement without the prior consent of the Majority Lenders; and
     (ii) the Borrower and its  Subsidiaries  may dispose of Receivables  Assets
     pursuant to a Receivables Financing Transaction;

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

<PAGE>
                                                                              85

          (d)  Borrower or any  Subsidiary  may dispose of accounts  receivable,
     fixed or capital assets  (including,  but not limited to (i) disposition of
     any interest in the Exchangeable Transferor Certificate (including, but not
     limited to, any such  disposition  in  connection  with any issuance of any
     additional series of Receivables Program Certificates  permitted under this
     Agreement) and (ii) dispositions by sale and leaseback  agreements covering
     fixed or capital assets), capital stock or Intangible Assets, or enter into
     any license,  franchise or sublease  arrangement  (other than pursuant to a
     Franchise  Program),  so long as the proceeds of such  disposition,  to the
     extent the same constitutes  Reinvestment Proceeds, shall be applied to the
     acquisition of properties and other assets that (as determined by the board
     of directors of the Borrower)  replace the  properties and assets that were
     the subject of such  disposition or properties and assets that will be used
     in the  businesses  of the  Borrower  or its  Subsidiaries  existing on the
     Closing  Date  (or  in  businesses   reasonably  related  or  complementary
     thereto),  and otherwise the proceeds of such disposition  shall be applied
     to the  prepayment of the Term  Advances,  the  permanent  reduction of the
     Revolving  Credit  Commitment  Amount and L/C  Commitment  Amount,  and the
     prepayment of the Revolving Advances and the cash  collateralization of the
     Letters of Credit, as set forth in Section 2.13;  provided,  however,  that
     (i) Borrower or any Subsidiary may dispose of surplus or obsolete equipment
     or fixtures in the ordinary course of business,  and up to Two Million Five
     Hundred  Thousand  Dollars  ($2,500,000)  per year of the  proceeds of such
     dispositions  shall not be  subject  to the  requirements  of this  Section
     7.08(d) and (ii) Borrower and its  Subsidiaries  may license certain rights
     with respect to its trade name or other  intellectual  property pursuant to
     franchising  arrangements  permitted by Section 7.08(e) and the proceeds of
     such  license  and  franchise  activities  shall  not  be  subject  to  the
     requirements of this Section 7.08(d);

          (e)  Borrower and its  Subsidiaries  may license  certain  rights with
     respect  to  its  trade  name  and  other  intellectual   property  (i)  to
     franchisees  for the  operation  of health  clubs  pursuant  to a Franchise
     Program and (ii) for other  purposes  intended to generate  proceeds to the
     Borrower; and

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

For  purposes of this  Section  7.08,  dispositions  of assets shall not include
sales by the  Borrower or any  Subsidiary  of the  Borrower of common  stock (or
common stock equivalents) of the Borrower.

          7.09  Limitation  on  Optional  Payments  and  Modifications  of  Debt

<PAGE>
                                                                              86

Instruments  and  Receivables  Program  Documents.  Without  limitation  of  any
obligation under any other Section of this Article VII:

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

          (b) amend,  modify or change in any  material  respect,  or consent or
     agree to any such amendment, modification or change to, any of the terms of
     any such Debt (other than any such amendment, modification or change to the
     terms of any Debt which would  extend the  maturity or reduce the amount of
     any payment of  principal  thereof or which would reduce the rate or extend
     the date for payment of interest thereon); or

          (c)  amend,  modify or change,  or consent or agree to any  amendment,
     modification  or change to the  Receivables  Program  Documents which would
     affect the amortization of the Receivables Program Certificates thereunder,
     the collateral thereunder, the sale of Receivables Program Receivables at a
     discount, or the interest rate (it being agreed that the effective interest
     rate on the Receivable Program  Certificates may be increased in connection
     with any  increase in the  aggregate  principal  amount of the  Receivables
     Program  Certificates  as set  forth  in the  proviso  below as long as the
     Borrower  certifies  in  writing  to the Agent  prior to the effect of such
     increase  that,  after  giving  effect  thereto,  the  Borrower  will be in
     compliance on a pro forma basis with Sections  6.12,  6.14 and 6.15 through
     the Term Loan  Termination  Date)  applicable  to the  Receivables  Program
     Certificates or the  Exchangeable  Transferor  Certificate  (other than any
     such  amendment,  modification or change which would extend the maturity or
     reduce  the  amount of payment of  principal  on the  affected  Receivables
     Program  Certificates  or which would reduce the rate or extend the time of
     payment  of any  interest  thereon,  or would not  increase  any  amount of
     scheduled  amortization  for  any  period  prior  to the  Revolving  Credit
     Termination  Date);  provided  that the aggregate  principal  amount of the
     Receivable Program Certificates can be increased if (i) such increase is in
     connection  with a  corresponding  increase  in the  amount  of  Receivable
     Program  Receivables  sold in the  Receivables  Program  and (ii) the terms
     governing such additional Receivable Program Certificates are substantially

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                                                                              87

     similar to, or no less favorable to the Borrower and its Subsidiaries than,
     the  existing  Receivable  Program  Certificates  (it being agreed that the
     effective  interest  rate on the  Receivable  Program  Certificates  may be
     increased  in  connection  with any such  increase as long as the  Borrower
     certifies  in  writing to the Agent  prior to the  effect of such  increase
     that, after giving effect thereto,  the Borrower will be in compliance on a
     pro forma basis with  Sections  6.12,  6.14 and 6.15  through the Term Loan
     Termination Date); or

          (d) permit any series of Receivables Program Certificates to be issued
     other than the 1996-1 Certificates or as contemplated by the proviso to the
     preceding  paragraph  (c),  except  that a series  of  Receivables  Program
     Certificates may be issued to replace or refinance the 1996-1  Certificates
     in whole or in part (such new series of Receivables Program Certificates, a
     "Refinancing  Series"  and  such  new  Receivables  Program   Certificates,
     "Refinancing Certificates") if such Refinancing Series contains no material
     covenants  and no Payout Events not  applicable to the 1996-1  Certificates
     and each of the covenants and defaults contained in the supplement creating
     such  replacement  series are not materially more burdensome or restrictive
     than those  covenants  contained in the 1996-1  Supplement (it being agreed
     that the effective  interest rate on the  Refinancing  Certificates  may be
     increased in connection with any such replacement or refinancing as long as
     the Borrower  certifies in writing to the Agent prior to the effect of such
     replacement or refinancing that, after giving effect thereto,  the Borrower
     will be in  compliance on a pro forma basis with  Sections  6.12,  6.14 and
     6.15 through the Term Loan Termination Date); or

          (e) notwithstanding the foregoing paragraphs (c) and (d), the Borrower
     and its Subsidiaries may enter into Receivables Financing  Transactions and
     may effect a Receivables Financing  Transaction by (i) amending,  modifying
     or changing the Receivables Program Documents and (ii) issuing other series
     of Receivables Financing Certificates.

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

          7.11  Limitation  on Sales and  Leasebacks.  Enter  into  arrangements
providing for the leasing by the Borrower or any  Subsidiary of real or personal
property  which has been or is to be sold or transferred by the Borrower or such
Subsidiary  to a third  person  on the  security  of  such  property  or  rental
obligations of the Borrower or such  Subsidiary if the net proceeds from sale or

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                                                                              88

transfer  with  respect  to  such   arrangements   exceed,   in  the  aggregate,
$10,000,000.

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

          7.13 Funding Corp.; Finance Subsidiaries.  (a) Permit Funding Corp. to
(i) assume,  guarantee or otherwise  become liable in any manner with respect to
any Debt other than Debt arising under the Purchase Agreement,  (ii) consolidate
or merge with any Person,  (iii)  purchase  or acquire any  business or property
other than  receipt or purchase of  Receivables  Program  Receivables  under the
Purchase  Agreement  for  transfer  to the H&T Master  Trust under the Pooling &
Servicing  Agreement,  (iv)  make  any  Investment  in  any  Person  other  than
Investments in the H&T Master Trust and BTFC pursuant to the Receivables Program
Documents,  (v) conduct any business other than the transactions  required to be
performed by it under the Receivables Program Documents,  or (vi) create, assume
or  suffer  to  exist  any  Lien  on  any of its  property  (including,  without
limitation,  any  Released  Amounts  (as  defined  in the  Pooling  &  Servicing
Agreement)),  whether now owned or hereafter acquired, except Liens pursuant to,
and in accordance with the terms of, the Receivables Program Documents.

          (b) Fail to cause the  management,  business  and  affairs  of Funding
Corp.  to be  conducted  in a manner  as  required  by the  Receivables  Program
Documents  and  consistent  with the  assumptions  set forth in the  opinion  of
Winston & Strawn delivered in connection with the Pooling & Servicing  Agreement
relating  to  the  issue  of  whether  Funding  Corp.   would  be  substantively
consolidated with BTFC in a bankruptcy of BTFC.

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

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

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

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                                                                              89

Unrestricted Subsidiary.

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

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

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

          7.16 Health & Tennis (UK) Limited. For so long as Health & Tennis (UK)
Limited is a Subsidiary,  permit Health & Tennis (UK) Limited to own assets with
a value in excess of $100,000  unless,  prior to owning such assets,  65% of the
Capital Stock of Health & Tennis (UK) Limited is pledged to the Collateral Agent
for the benefit of the Lenders and the Operating Banks pursuant to documentation
reasonably acceptable to the Collateral Agent.

                                  ARTICLE VIII.

                                EVENTS OF DEFAULT

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

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

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

          8.02  Representation or Warranty.  Any representation or warranty made
by Borrower or any Subsidiary  herein or in any other Credit  Document or in any
agreement,  instrument or certificate executed or delivered to Lenders, Agent or

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                                                                              90

the  Collateral  Agent  pursuant  hereto or in connection  with any  transaction
contemplated  here shall prove to have been false or  misleading in any material
respect when made or when deemed to have been made;

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

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

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

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

          8.07 Cross Default.  Any breach or default shall occur with respect to
any Debt or any  operating  lease  agreement in excess of Five  Million  Dollars
($5,000,000) (except with respect to Debt under this Agreement)  individually or
in the  aggregate,  under  which  Borrower  or any  of its  Subsidiaries  may be
obligated as borrower or  guarantor,  if such breach or default  consists of the
failure  to pay any  such  indebtedness  when due  whether  by  acceleration  or
otherwise (and remains uncured or continues  beyond any applicable grace period)
or if such  breach or default  results in or permits  (or,  with the  passage of
time,  the giving of notice or both,  may permit) the  acceleration  of any such
indebtedness  of or the termination of any commitment to lend to Borrower or any
such Subsidiary.

          8.08 ERISA. (a) The occurrence of a Termination  Event with respect to

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                                                                              91

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

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

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

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

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

<PAGE>
                                                                              92

          (ii) any of the Collateral  Documents shall for any reason (other than
pursuant to the terms thereof) cease to create a valid security  interest in the
Collateral  purported to be covered thereby or such security  interest shall for
any  reason  cease to be a  perfected  security  interest  having  the  priority
purported  to be  created by such  Collateral  Document  (other  than by or as a
result of any action by the Collateral Agent).

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

          8.12  Payout  Event.  A "Payout  Event" (as  defined in the  Pooling &
Servicing  Agreement  or in the 1996-1  Supplement  to the  Pooling &  Servicing
Agreement  including  the  occurrence  of a Series  1996-1  Pay-Out-Event  under
Section 7  thereof,  or any  future  supplement  to the  Pooling  and  Servicing
Agreement)  shall have occurred with respect to the 1996-1  Certificates  or any
other  Receivables  Program  Certificates,  whether  or not  the  occurrence  or
continuance  of such Payout Event has been waived;  or a payout event or similar
event  (however   characterized)   shall  have  occurred  with  respect  to  any
Receivables Financing Transaction entitling the lenders or purchasers thereunder
to stop lending against or purchasing Receivables Assets.

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

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

THEN:

          (a) In the case of an Event of Default  other than one  referred to in
     Section 8.04 or 8.05 of this Article VIII, upon request of Majority Lenders
     to Agent,  any  obligation  on the part of Lenders to make or continue  the
     Credit  or any  obligation  on the part of any  Issuing  Lender to issue or
     amend any Letter of Credit shall  terminate  and, at the further  option of

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                                                                              93

     Majority  Lenders,  Agent shall  declare all sums of principal and interest
     outstanding  on the  Credit  and all  other  sums  outstanding  under or in
     respect  of this  Agreement  and the  Notes  immediately  due and  payable,
     without notice of default,  presentment  or demand for payment,  protest or
     notice of nonpayment  or dishonor,  or other notices or demands of any kind
     or character (other than as stated in any of the foregoing sections of this
     Article VIII), all of which are hereby expressly waived by Borrower; and

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

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

                                   ARTICLE IX.

                                  MISCELLANEOUS

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

<PAGE>
                                                                              94

                             Bally Total Fitness Holding Corporation
                             8700 West Bryn Mawr, 2nd Floor
                             Chicago, Illinois 60631
                             Attention:  General Counsel
                             Telecopy: 773-399-0126
                             Phone: 773-380-3000

and shall be addressed to Agent at:

                             The Chase Manhattan Bank
                             10 S. LaSalle Street - 23rd Floor
                             Chicago, Illinois  60603
                             Attention:  Steve Faliski
                             Telecopy:  312-807-4077
                             Phone:  312-807-4073

                With a copy to:

                             Chase Manhattan Bank Agency Services
                             One Chase Manhattan Plaza, 8th Floor
                             New York, New York 10081
                             Attention: Daniel Krauss
                             Telecopy:  212-552-5662
                             Phone:  212-552-7909

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

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

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

          9.04 Assignments;  Participations. (a) Any Lender (each an "Assignor")
may, with the consent of Agent, each Issuing Lender to whom obligations are owed
in respect of Letters of Credit  issued by it and  (unless a Default or Event of
Default has occurred and is continuing)  Borrower,  which consent of Agent, such

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                                                                              95

Issuing Lenders and the Borrower shall not be unreasonably  withheld or delayed,
at any time assign and delegate to one or more banks or other  entities and may,
with notice to Borrower,  Agent and each Issuing  Lender but without the consent
of Borrower,  Agent or such Issuing Lenders, assign to any of its Affiliates,  a
Related Fund or any other Lender  (each an  "Assignee"),  all or any part of the
Advances,  the Term Loan Commitment,  Revolving Credit Commitment (including the
L/C Commitment), any Letter of Credit participations,  reimbursement obligations
in respect of any Letter of Credit or any other  rights or  obligations  of such
Lender hereunder;  provided,  however, that such assignment must be in a minimum
amount  (unless  otherwise  agreed in  writing by the  Borrower,  Agent and each
Issuing  Lender) of One Million  Dollars  ($1,000,000)  (or,  if less,  the full
amount  of  such   Assignor's   Advances,   Letter  of  Credit   Participations,
reimbursement obligations in respect of any Letter of Credit or any other rights
and  obligations  of  such  Lender  hereunder);   provided,  further,  that  any
assignment  of Term Advances or the Term Loan  Commitment  shall not require the
notification of, or consent of, such Issuing Lenders;  provided,  further,  that
(i) Borrower shall not be required to pay any increased  costs or taxes pursuant
to Section  2.16 or 2.17 by reason of any such  assignment;  (ii)  Borrower  and
Agent  shall be entitled  to  continue  to deal  solely and  directly  with such
Assignor in  connection  with the  interests so assigned to the  Assignee  until
written notice of such assignment, together with payment instructions, addresses
and related  information  with respect to the Assignee  shall have been given to
Borrower,  Agent and each Issuing Lender by such Assignor and the Assignee;  and
(iii) such Assignor  shall not be released from its  obligations  hereunder with
respect to the  assigned  portion of any such  rights or  obligations  until the
Assignee  shall have delivered to Borrower and Agent an agreement to be bound by
the  terms  and  conditions  of  this   Agreement,   which  agreement  shall  be
substantially in the form of Exhibit M (an "Assignment and Acceptance"), and the
Assignor shall have paid a processing fee to Agent in the amount of Two Thousand
Dollars  $2,000,  and  thereupon  shall be released  from its  obligations  with
respect to the assigned portion.

          (b) Any Lender may,  without the consent of Agent, any other Lender to
whom  obligations  are owed in  respect  of  Letters  of Credit  issued by it or
Borrower,  at any  time  sell  to one or  more  Lenders  or  other  entities  (a
"Participant")   participating   interests  in  any  Advances,   any  Term  Loan
Commitment, any Revolving Credit Commitment, any Letter of Credit participations
or any  reimbursement  obligations  of such  Lender in  respect of any Letter of
Credit hereunder;  provided, however, that such participation shall not increase
the amount payable by Borrower in respect of taxes pursuant to Section 2.16 and,
provided further that (i) such Lender's  obligations  under this Agreement shall
remain  unchanged;  (ii) such Lender shall  remain  solely  responsible  for the
performance  of its  obligations  hereunder;  (iii)  Borrower  and  Agent  shall
continue to deal solely and directly  with such Lender in  connection  with such
Lender's  rights and  obligations  under this  Agreement;  (iv) no Lender  shall
transfer,  grant or assign any  participation  under which the Participant shall
have rights to approve any amendment or waiver of this  Agreement  except to the
extent  such  amendment  or  waiver  would  (A)  extend  the  Revolving   Credit
Termination  Date  beyond  November  8, 2002 or the Term Loan  Termination  Date
beyond  November  10,  2004,  or the  scheduled  date  for  the  payment  of any
installment  of principal or interest of the Advances in which such  Participant

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

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

          (d)  Nothing  herein  shall  prohibit  any  Lender  from  pledging  or
assigning any Note in accordance with  applicable law,  including to any Federal
Reserve Bank.

          (e) The  Agent  shall,  on  behalf of the  Borrower,  maintain  at its
address  referred to in Section 9.01 a copy of each  Assignment  and  Acceptance
delivered to it and a register (the "Register") for the recordation of the names
and addresses of the Lenders and the Commitments of, and the principal amount of
the  Advances  owing to,  each  Lender  from time to time.  The  entries  in the
Register shall constitute prima facie evidence of the foregoing information,  in
the absence of manifest error,  and the Borrower,  each other Credit Party,  the
Agent and the  Lenders  shall  treat each  Person  whose name is recorded in the
Register as the owner of the  Advances  and any Notes  evidencing  the  Advances
recorded  therein for all  purposes of this  Agreement.  Any  assignment  of any

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Advance,  whether  or not  evidenced  by a Note,  shall be  effective  only upon
appropriate  entries with respect  thereto  being made in the Register (and each
Note shall  expressly so provide).  Any assignment or transfer of all or part of
an Advance  evidenced by a Note shall be  registered  on the Register  only upon
surrender for registration of assignment or transfer of the Note evidencing such
Advance, accompanied by a duly executed Assignment and Acceptance, and thereupon
one or more new Notes shall be issued to the designated Assignee.

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

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

          9.06 Costs and Expenses. Borrower agrees:

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

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

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                                                                              98

     Collateral Agent and to each of the several Lenders; and

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

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

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

          (b) Borrower  hereby  agrees to  indemnify,  defend and hold  harmless
Agent, the Collateral  Agent,  the Issuing Lenders and each Lender,  and each of
their respective officers, directors, employees and agents, from and against any
and all claims, losses,  liabilities,  damages and expenses (including,  without
limitation,  reasonable  attorneys' fees),  which may be incurred by or asserted
against Agent,  the Collateral  Agent,  the Issuing Lenders or any Lender or any
such indemnified  Person in connection with or arising out of any investigation,
litigation or proceeding, or any action taken by any Person, with respect to any
Hazardous  Materials  Claim  arising out of or related to any of the  Properties
which are  subject to a Lien in favor of the  Collateral  Agent as  contemplated

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

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

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

          9.09 Choice of Law.  EXCEPT FOR COLLATERAL  DOCUMENTS  GOVERNED BY THE
LAWS OF ANOTHER  STATE OR  COUNTRY,  AGENT,  COLLATERAL  AGENT AND  LENDERS  AND
BORROWER AGREE THAT ANY DISPUTE ARISING OUT OF,  CONNECTED WITH,  RELATED TO, OR

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INCIDENTAL TO THE RELATIONSHIP  ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT,  THE NOTES AND ALL OTHER DOCUMENTS  EXECUTED IN CONNECTION  HEREWITH,
AND WHETHER ARISING IN CONTRACT,  TORT, EQUITY, OR OTHERWISE,  SHALL BE GOVERNED
BY, AND CONSTRUED AND  INTERPRETED  IN ACCORDANCE  WITH, THE LAW OF THE STATE OF
NEW YORK.

          9.10 Personal  Jurisdiction.  AGENT,  COLLATERAL AGENT AND LENDERS MAY
ENFORCE ANY CLAIM ARISING UNDER THIS  AGREEMENT,  THE NOTES,  OR ANY  COLLATERAL
DOCUMENT IN ANY STATE OR FEDERAL COURT HAVING  SUBJECT MATTER  JURISDICTION  AND
LOCATED IN  CHICAGO,  ILLINOIS  OR NEW YORK,  NEW YORK.  FOR THE  PURPOSE OF ANY
ACTION OR PROCEEDING  INSTITUTED WITH RESPECT TO ANY SUCH CLAIM, BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS.

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

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

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

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

          9.15  Counterparts.   This  Agreement  may  be  executed  in  as  many
counterparts  as may be deemed  necessary or  convenient,  and by the  different

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parties  hereto on separate  counterparts  (provided that Borrower shall execute
each counterpart), each of which, when so executed, shall be deemed an original,
but all such counterparts shall constitute but one and the same agreement.

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

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

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

          9.19 Receivables Program Savings Clause.  Notwithstanding  anything to
the  contrary  contained  herein,  in the  event  that any  action  taken by the
Borrower,  any Guarantor or any Subsidiary  (including Funding Corp.),  which is
contemplated  and  permitted  under the  Receivables  Program  Documents,  would
violate one or more  provisions of this  Agreement or any  Collateral  Document,

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then such  violation  shall not constitute or give rise to a Default or Event of
Default  hereunder  or  thereunder,  provided  that such action is  permitted or
contemplated by one or more other provisions of this Agreement or the Collateral
Documents.

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

                                   ARTICLE X.

                               RELATION OF LENDERS

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

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any agent or attorney-in-fact that it selects with reasonable care.

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

          10.02 Pro Rata Sharing.  All  principal,  interest and fee payments on
the Revolving Credit (other than sums under Sections  2.14(a)(ii),  2.14(a)(iii)
and 2.15) shall be divided pro rata among Lenders  according to their respective
Revolving  Credit  Commitment  Percentages,  and all principal  interest and fee
payments on the Term Loan Facility (other than sums under Sections  2.14(a)(ii),
2.14(a)(iii)  and 2.15) shall be divided  pro rata among  Lenders  according  to
their  respective  outstanding  Term  Advances.  All  sums  realized  under  the
Guarantee  and  Collateral  Agreement  (or any guaranty  executed and  delivered
pursuant to Section 3.04) and all proceeds of Collateral  distributed to Lenders
under the Collateral  Agency  Agreement  (subject to Section  10.13(f)) shall be
divided pro rata among Lenders.

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

<PAGE>
                                                                             104

foreclose any Lien on, or otherwise enforce any security interest in, any of the
Collateral  for the  purpose  of which is, or could be, to give such  Lender any
preference or priority  against any other  Secured  Creditor with respect to the
Collateral.

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

          (c) Each Secured Creditor other than in its capacity as a Lender shall
be entitled to any rights  conferred  upon it under this Agreement or any of the
Collateral  Documents only on the condition and  understanding  that it shall be
bound by the terms of this Section 10.03 to the same extent as Lenders.

          10.04  Liability  of Agent.  Neither  Agent  nor any of its  officers,
directors,  employees,  agents,  attorneys-in-fact  or  Affiliates  shall be (i)
liable  for any  action  taken or omitted to be taken by any of them under or in
connection  with  this  Agreement  (except  for its or such  Person's  own gross
negligence or willful  misconduct)  or (ii)  responsible in any manner to any of
the Lenders  for any  recital,  statement,  representation  or warranty  made by
Borrower or any Subsidiary or any officer thereof contained in this Agreement or
in  any  other  instrument  or  agreement   contemplated  hereunder  or  in  any
certificate, report, statement or other document referred to or provided for in,
or received by Agent under or in connection  with,  this  Agreement or any other
instrument  or  agreement  contemplated  hereunder  or  for  the  value  of  any
Collateral  or  the  validity,  effectiveness,  genuineness,  enforceability  or
sufficiency of this Agreement or any other instrument or agreement  contemplated

<PAGE>
                                                                             105

hereunder  or for any  failure of  Borrower  or any  Subsidiary  to perform  its
obligations hereunder or thereunder.  Agent shall not be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of any
of  agreements  contained  in, or  conditions  of, this  Agreement  or any other
instrument or agreement  contemplated  hereunder,  or to inspect the properties,
books or records of Borrower or any Subsidiary.

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

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

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

          (b) reduces interest, principal, commissions or fees owing hereunder,

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

          (d) releases any Guarantor  from its  obligations  under the Guarantee
     and  Collateral  Agreement or,  subject to the proviso in Section  8.13(a),
     releases any material  portion of the Collateral  (except (i) in connection
     with dispositions thereof permitted under this Agreement, (ii) as permitted
     by  subsection  10.13(b),  (iii) any  Guarantor  may be  released  from its
     obligations  under the Credit  Documents if all of the Capital Stock of, or
     substantially  all of the assets of, such  Guarantor  are  disposed of in a

<PAGE>
                                                                             106

     transaction  permitted by this  Agreement  or (iv) as  otherwise  expressly
     permitted by this Agreement),

          (e) changes the definition of "Majority Lenders",

          (f) amends or waives the provisions of Sections 2.19(a)(ii)(C) or this
     Section 10.6, or

          (g) changes the definition of "Interest Period".

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

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

<PAGE>
                                                                             107

agents, attorneys-in-fact or Affiliates.

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

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

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

<PAGE>
                                                                             108

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

          10.13 Collateral  Matters.  (a) Agent may from time to time, before or
after  the  occurrence  of an Event of  Default,  make  such  disbursements  and
advances to the Collateral  Agent ("Agent  Advances")  which Agent,  in its sole
discretion,  deems  necessary or desirable to preserve or protect the Collateral
or any portion  thereof,  to enhance the  likelihood  or maximize  the amount of
repayment of the  Obligations or to pay any other amount  chargeable to Borrower
or any  Guarantor  pursuant  to the terms of this  Agreement  or any  Collateral
Document,  including, without limitation,  costs, fees and expenses as described
in Section 9.06; provided, however, that the Agent Advances shall not exceed One
Hundred  Thousand  Dollars  ($100,000)  without  the prior  written  consent  of
Majority Lenders. The Agent Advances shall be repayable on demand and be secured
by the  Collateral.  The Agent Advances shall not constitute  Advances but shall
otherwise constitute  Obligations  hereunder.  Agent shall notify each Lender in
writing of each such Agent Advance,  which notice shall include a description of
the  purpose  of such  Agent  Advance.  Without  limitation  to its  obligations
pursuant to Section  10.09,  each Lender agrees that it shall make  available to
Agent, upon Agent's demand, in immediately  available funds, the amount equal to
such Lender's  Commitment  Percentage of each such Agent Advance.  If such funds
are not made  available to Agent by such Lender within one (1) Banking Day after
Agent's demand therefor,  Agent will be entitled to recover any such amount from
such Lender  together with  interest  thereon at the Federal Funds Rate for each
day during the period  commencing the date of such demand and ending on the date
such amount is received.

          (b) Lenders hereby  irrevocably  authorize Agent, at its option and in
its  discretion,  to direct the  Collateral  Agent to release or  subordinate on
terms  satisfactory  to the Collateral  Agent any Lien granted to or held by the
Collateral  Agent upon any  Collateral  (i) upon  termination  of the  Revolving
Credit  Commitments and Term Loan Commitments and  indefeasible  payment in full
and satisfaction of all of the Obligations;  or (ii) constituting property being
sold or disposed of if the sale or disposition is permitted hereunder (including
with respect to Receivables  Assets);  or (iii)  constituting  property in which
neither  Borrower nor any  Guarantor  owned an interest at the time the Lien was
granted  or at any time  thereafter;  or (iv)  constituting  property  leased to
Borrower or any Guarantor; or (v) if approved, authorized or ratified in writing

<PAGE>
                                                                             109

by the Majority Lenders; or (vi) subject to a Permitted Lien; or (vii) not owned
by the Borrower or any  Guarantor.  Upon  request by Agent at any time,  Lenders
will confirm in writing Agent's authority to so direct the release of particular
types or items of  Collateral  pursuant to this  Section  10.13(b).  The Lenders
hereby  irrevocably  authorize Agent, at its option and discretion (1) to direct
the Collateral  Agent to release and subordinate,  on terms  satisfactory to the
Collateral Agent,  Liens on Collateral which is also subject to Permitted Liens,
(2) to execute any release, subordination or acknowledgement documents requested
by the  Borrower in order to effect any release or  subordination  described  in
this paragraph (b) and (3) to execute acknowledgements with respect to leases to
the effect that the Property  subject to such leases is not subject to the Liens
created by the Credit Documents or Collateral. This paragraph (b) is intended as
an  authorization by the Lenders to permit the Agent and the Collateral Agent to
take the  actions  described  herein and  neither  the  Borrower  nor any of its
Subsidiaries or any other Person shall be entitled to the benefits hereof.

          (c) Without in any manner  limiting  Agent's  authority to act without
any specific or further authorization or consent by the Majority Lenders (as set
forth in Section 10.13(b) above), each Lender agrees to confirm in writing, upon
request by Borrower, the authority to direct the release of Collateral conferred
upon the Agent under clauses (i) through (v) of Section  10.13(b) above. So long
as no Event of Default is then continuing, upon receipt by Agent of confirmation
from the  Majority  Lenders  of its  authority  to  direct  the  release  of any
particular item or types of Collateral, and upon at least five (5) Banking Days'
prior  written  request by  Borrower,  Agent  shall  (and is hereby  irrevocably
authorized by Lenders to) direct the Collateral  Agent to execute such documents
as may be  necessary  to  evidence  the  release  of the  Liens  granted  to the
Collateral  Agent for the  benefit of the Secured  Creditors  herein or pursuant
hereto  upon such  Collateral;  provided,  however,  that (i) Agent shall not be
required to direct the  Collateral  Agent to execute any such  document on terms
which,  in  Agent's  opinion,  would  expose  Agent or the  Collateral  Agent to
liability  or create any  obligation  or entail any  consequence  other than the
release of such Liens without recourse or warranty,  and (ii) such release shall
not in any manner discharge,  affect or impair the Obligations or any Liens upon
(or  obligations of Borrower in respect of) all interests  retained by Borrower,
including  (without  limitation)  the  proceeds of any sale,  all of which shall
continue to constitute part of the Collateral.

          (d)  Neither  Agent nor  Collateral  Agent  shall have any  obligation
whatsoever  to any Lender to assure  that the  Collateral  exists or is owned by
Borrower or is cared for,  protected or insured or has been  encumbered  or that
the Liens granted to the Collateral  Agent  pursuant to any Collateral  Document
have been properly or sufficiently or lawfully created, perfected,  protected or
enforced or are entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care,  disclosure or fidelity,  or to
continue  exercising,  any of the  rights,  authorities  and  powers  granted or
available to Agent or  Collateral  Agent in this Section  10.13 or in any of the
Collateral  Documents,  it being  understood  and agreed  that in respect of the
Collateral,  or any act, omission or event related thereto, Agent may act in any

<PAGE>
                                                                             110

manner  it may deem  appropriate,  in its sole  discretion,  given  Agent's  own
interest  in the  Collateral  as one of the Lenders and that Agent shall have no
duty or liability  whatsoever to any Lender (except as specifically  provided in
this Agreement and the Collateral Documents).

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

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

          (f) Any  Collateral  proceeds  received  by Agent from the  Collateral
Agent  pursuant to Section  3(b) of the  Collateral  Agency  Agreement  shall be
applied  and paid to the  Obligations  as  follows  (unless  Agent and  Majority

<PAGE>
                                                                             111

Lenders otherwise agree):

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

          Second:  To any accrued and unpaid interest  outstanding  hereunder or
     under the Notes;

          Third:  To the unpaid  principal  of the  outstanding  Advances and to
     Agent for deposit as cash  collateral,  for  application  against  drawings
     under any Letters of Credit, up to an amount equal to the undrawn amount of
     such Letters of Credit;

          Fourth:  To any accrued  and unpaid  fees,  commissions  or other sums
     payable pursuant to this Agreement; and

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

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

          10.15  Documentation  Agent and  Co-Agent.  Neither the  Documentation
Agent  nor the  Co-Agent  shall  have any  rights,  duties  or  responsibilities
hereunder in its capacity as such.

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

                                       BALLY TOTAL FITNESS HOLDING CORPORATION

                                       By:_________________________________
                                          Name:
                                          Title:

<PAGE>
                                                                             112

<PAGE>
                                                                             113

                                        THE CHASE  MANHATTAN  BANK,
                                        as Agent and as a Lender

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             114

                                        VAN KAMPEN PRIME RATE INCOME  TRUST,
                                        as Lender

                                        By: VAN KAMPEN INVESTMENT ADVISORY
                                        CORP.

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             115

                                        VAN KAMPEN SENIOR FLOATING RATE
                                        FUND,
                                        as Lender

                                        By: VAN KAMPEN INVESTMENT ADVISORY
                                        CORP.

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             116

                                        VAN KAMPEN SENIOR INCOME TRUST, as
                                        Lender

                                        By: VAN KAMPEN INVESTMENT ADVISORY
                                        CORP.

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             117

                                        BANK  AUSTRIA  CREDITANSTALT
                                        CORPORATE FINANCE INC., as Lender

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             118

                                        HELLER FINANCIAL, INC., as Lender

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             119

                                        ARES III CLO LTD., as Lender

                                        By: ARES CLO MANAGEMENT, LLC

                                        By:________________________________
                                           Name: David A. Sachs
                                           Title: Vice President

<PAGE>
                                                                             120

                                        WELLS FARGO BANK N.A., as Lender

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             121

                                        LASALLE BANK NATIONAL ASSOCIATION,
                                        as Lender

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             122

                                        BANKERS TRUST COMPANY, as Lender

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             123

                                        BANK ONE, NA (CHICAGO MAIN  OFFICE),  as
                                        Lender

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             124

                                        THE BANK OF NOVA SCOTIA, as Lender

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             125

                                        PNC BANK, N.A., as Lender

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             126

                                        SOCIETE GENERALE, as Lender

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             127

                                        FLOATING RATE PORTFOLIO, as Lender

                                        By: INVESCO SENIOR SECURED
                                        MANAGEMENT INC. as Attorney in Fact

                                        By:________________________________
                                           Name:
                                           Title:

<PAGE>
                                                                             128

                                        NUVEEN SENIOR INCOME FUND, as Lender

                                        By:________________________________
                                           Name:
                                           Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00006-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00006-of-00352.parquet"}]]